oversight

The Public Broadcasting Service's administration of the TeacherLine Grant No. R286A000003-01 (Grant) awarded under the Telecommunications Demonstration Project for Mathematics for the period June 1, 2000, through May 31, 2001.

Published by the Department of Education, Office of Inspector General on 2002-09-10.

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

Final Audit Report                                                    ED-OIG/A05-C0011


adequately support ($147,456), and did not have adequate written policies and
procedures for administering the Grant.

Finding No. 1         PBS Charged Costs to the Grant that are Unallowable or
                      Unsupported

PBS charged costs to the Grant that are unallowable ($1,974) or unsupported ($147,456).
The unallowable amount consists of charges for alcoholic beverages ($48), gifts ($676),
related indirect costs ($58), and missing equipment ($1,192). The unsupported amount
consists of charges for personnel ($31,933), fringe benefits ($8,868), meals ($7,448),
indirect costs ($57,472), and rent and utilities ($41,735) for which it did not provide
adequate documentation to support that the costs were reasonable, allowable, or
allocable.

OMB Circular A-122, Cost Principles for Non-Profit Organizations, Attachment A,
General Principles, Paragraph A, Subparagraphs A.2.a and A.2.g. (1998) provide that−

       To be allowable under an award, costs must…Be reasonable for the
       performance of the award and be allocable thereto…Be adequately
       documented.

Details are discussed in Attachment 1.

Recommendations

We recommend that the Assistant Secretary for the Office of Educational Research and
Improvement instruct PBS to—

1.1    Refund to the Department of Education unallowable costs of $1,974; and

1.2    Provide sufficient documentation to support $147,456 or refund that amount to
       the Department of Education.

Auditee Comments

PBS concurred with the questioned costs discussed in the draft report. It did not concur
with unsupported legal fees ($3,255), salaries ($10,914), fringe benefits ($3,031),
business meals ($2,268), and related indirect costs ($1,557). PBS believed the legal fees
were allowable based on documents it provided that showed it attempted to recruit in this
country and was unsuccessful. In addition, PBS provided documents it believed
supported the salaries and business meals discussed above. Therefore, PBS supported the
related fringe benefits and indirect costs. Also, PBS stated that because it had submitted
an indirect cost proposal to the Department of Education that proposed an indirect cost
rate of 12.35 percent, it disagreed that indirect costs claimed at 8 percent should be
classified as unsupported. Finally, PBS stated that it disagreed that rent and utility costs
of $41,735 may not necessarily be representative of the space and utilities by an


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employee. Its methodology of allocating those costs based on salaries was consistent
with the corporate methodology used at the time. Since then, PBS has changed its
methodology to be based on headcount versus salaries charged. It provided an analysis
for the fiscal year 2003 budget period that showed allocating rent and utilities based on
headcount is materially consistent with allocating them based on square footage.

Auditor Response

We reviewed the documentation PBS provided related to the legal fees. Based on those
documents, we reclassified the legal fees as recommended for acceptance. In addition,
after reviewing the documents PBS provided in the amendments to its response, we
reclassified salaries ($5,250) and fringe benefits ($1,458) as recommended for
acceptance. We have not changed our conclusion regarding business meals because the
additional documents PBS provided still did not adequately support the charges. We
have not changed our conclusion regarding indirect costs. Until the Department of
Education negotiates a final rate with PBS, we have no basis for agreeing with PBS's
assertion that its proposed 12.35 percent rate will result in a negotiated rate greater than
the 8 percent rate it used. We also have not changed our conclusion regarding rent and
utilities costs. Although we agree that a headcount allocation is materially consistent
with a square footage allocation, PBS did not use either of these methods to allocate rent
and utilities costs. Instead PBS allocated them based on salaries. In its response, PBS
did not provide any documentation to support that a salary allocation is materially
consistent with a headcount or square footage allocation.

Finding No. 2        PBS Needs to Establish and Implement Written Policies and
                     Procedures that Comply with the Standards for Financial
                     Management Systems

PBS does not have written policies and procedures for financial management.

The standards for financial management systems are contained in 34 C.F.R. § 74.21.
The standards specify various requirements of a financial management system that
recipients must provide that include—

●      Effective control over and accountability for all funds, property, and other
       assets. Recipients shall adequately safeguard all assets and assure they are
       used solely for authorized purposes. 34 C.F.R. § 74.21(b)(3) (2000).

●      Written procedures for determining the reasonableness, allocability, and
       allowability of costs in accordance with the provisions of the applicable
       Federal cost principles and the terms and conditions of the award. 34
       C.F.R. § 74.21(b)(6) (2000).

●      Accounting records including cost accounting records that are supported
       by source documentation. 34 C.F.R. § 74.21(b)(7) (2000).



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Because PBS did not have written policies and procedures that complied with the
standards for financial management, PBS incurred costs that were unallowable. Also,
PBS did not always have source documents to support that costs incurred were
reasonable, allocable, and allowable (see Attachment 1).


Recommendation

We recommend that the Assistant Secretary for the Office of Educational Research and
Improvement instruct PBS to—

2.1    Develop and implement written policies and procedures that comply with the
       standards for financial management.

Auditee Comments/Auditor Response

PBS stated that, effective April 1, 2002, it developed written policies and
procedures for financial management. PBS provided training to the staff on those
policies and procedures on April 5, 2002. It appears that the policies and
procedures comply with the standards for financial management.

Finding No. 3        PBS Needs to Establish and Implement Written Policies and
                     Procedures that Comply with Federal Property Management
                     Standards

PBS did not have written policies and procedures to record, identify, or inventory
equipment purchased with federal funds. As a result, PBS did not maintain an inventory
that identified equipment purchased with federal funds, physically mark the equipment to
identify it as government property, or perform physical inventories of equipment.

Property management standards for equipment acquired with federal funds are set forth
in 34 C.F.R. § 74.34 (f) (2000). Requirements in the property management standards
include—

●      Equipment records shall be maintained accurately…. 34 C.F.R. §
       74.34(f)(1) (2000).

●      Equipment owned by the Federal Government must be identified to
       indicate Federal ownership. 34 C.F.R. § 74.34 (f)(2) (2000).

●      A physical inventory of equipment must be taken and the results
       reconciled with the equipment records at least once every two years. Any
       differences between quantities determined by the physical inspection and
       those shown in the accounting records must be investigated to determine
       the causes of the difference. The recipient shall, in connection with the



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       inventory, verify the existence, current utilization, and continued need for
       the equipment. 34 C.F.R. § 74.34 (f)(3) (2000).

As indicated in the Attachment, PBS could not locate a digital camera and accessories
purchased with federal funds. During our on-site field work, PBS’s Controller told us
PBS was in the process of developing and implementing new equipment inventory
procedures.

Recommendation

We recommend that the Assistant Secretary for the Office of Educational Research and
Improvement instruct PBS to—

3.1    Develop and implement written policies and procedures that comply with the
       federal property management standards.

Auditee Comments/Auditor Response

PBS stated that, effective April 1, 2002, it developed written policies and procedures for
property management. It provided training to the staff on those policies and procedures
on April 5, 2002. It appears that the policies and procedures comply with the standards
for property management.

Finding No. 4        PBS Needs to Revise Its Travel Policy

PBS's travel policy does not address at least one requirement contained in the cost
principles.

OMB Circular A-122, Cost Principles for Non-Profit Organizations, Attachment B,
Selected Items of Cost, Paragraph 2 (1998) provides that—

         Costs of alcoholic beverages are unallowable.

PBS employees purchased alcoholic beverages, and PBS charged the costs to the Grant
as travel expenses. We recognize that the unallowable costs we specifically identified
were not significant. However, without a written policy statement notifying employees
that costs of alcoholic beverages are not allowable, it is likely that they will continue to
claim and be reimbursed for such costs. As a result, federal funds intended for activities
that benefit the Grant will, instead, be used for unallowable activities.

Recommendation

We recommend that the Assistant Secretary for the Office of Educational Research and
Improvement instruct PBS to—

4.1    Revise its travel policy to ensure that it includes all applicable cost principles.


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Final Audit Report                                                   ED-OIG/A05-C0011




Auditee Comments/Auditor Response

PBS stated that it revised its travel policy to ensure that it includes all applicable cost
principles, including the prohibition of alcoholic beverages. It appears the revised policy
is adequate.

                                OTHER MATTERS

Our review of 20 procurements valued over $25,000 each disclosed that PBS did not
obtain competitive bids for 14 procurements. In addition, PBS named four other vendors
in its Grant proposal for which it did not obtain competitive bids. According to 34 C.F.R.
§ 74.43, "All procurement transactions shall be conducted in a manner to provide, to the
maximum extent practical, open and free competition." While we did not determine if
PBS paid more for the procurements because it did not competitively bid them, a lack of
competitive bidding can result in less than optimum price, quality, or other factors.
Subsequent to our on-site field work, PBS developed a policy for its federal programs
that requires competitive bids on all procurements over $25,000.

                                  BACKGROUND

PBS, headquartered in Alexandria, Virginia, is a private, non-profit media enterprise
incorporated in 1969 that is owned and operated by the nation's 348 public television
stations. PBS uses noncommercial television, the Internet, and other media to provide
programs and education services to nearly 100 million people each week.

The Telecommunications Demonstration Project for Mathematics is designed to help
elementary and secondary school teachers, on a nationwide basis, prepare all students to
achieve state content standards. The Department of Education awarded PBS a five-year
$39 million grant under this program. The PBS Grant, called TeacherLine, was for the
period June 1, 2000, through May 31, 2005. The purpose of TeacherLine was to link
PBS, the National Council of Teachers of Mathematics, individual school districts in 16
states, local public television stations, state departments of education, 5 colleges of
education, the International Society for Technology in Education, and the Corporation for
Public Broadcasting to create and deliver a comprehensive suite of digital professional
development opportunities that could lead all teachers in meeting professional and state
standards for mathematics education. For the June 1, 2000, through May 31, 2001,
budget period, the Department of Education authorized funding of $7,462,331. PBS used
about one-half the funding, charging $3,133,324 to the Grant.

The Grant is authorized by the ESEA, as amended by the Improving America’s Schools
Act of 1994. It is subject to the provisions contained in 34 C.F.R. Part 74,
Administration of Grants and Agreements with Institutions of Higher Education,
Hospitals, and Other Non-Profit Organizations and OMB Circular A-122, Cost
Principles for Non-Profit Organizations.



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                 OBJECTIVE, SCOPE, AND METHODOLOGY

The objective of our audit was to determine if costs charged to the Grant during the
period June 1, 2000, through May 31, 2001, were allowable, reasonable, and allocable in
accordance with the ESEA, Grant terms, EDGAR, and the cost principles in OMB
Circular A-122, effective June 1, 1998. Although we tested all cost categories, our
testing emphasized (1) procurements, (2) travel, (3) advertising and promotional
materials, (4) training seminars, and (5) equipment.

To accomplish our objective, we—

1.        Reviewed the OMB Circular A-133 audit reports for the years ended June 30,
          1999-2001, prepared by an independent public accountant, and the related
          working papers for the audit of the year ended June 30, 2001, and reviewed
          working papers prepared by PBS's internal auditor related to various issues,
          including procurements, cash disbursements, and payroll.
2.        Reviewed PBS's March 10, 2000, application and annual Grant report for the year
          ended May 31, 2001.
3.        Reviewed written policies, procedures, and organization charts.
4.        Reviewed procurements over $25,000 and the related bid files.
5.        Reviewed various records and documents, including accounting and payroll
          records, purchase orders, invoices, and other supporting documents for 142
          financial transactions consisting of an initial sample of 38 randomly1 and 15
          judgmentally selected transactions from a universe of 747 transactions, and 89
          transactions subsequently selected on a judgmental basis. The transactions
          subsequently selected consisted of all revenue (9), procurements (20), advertising
          (14), employee bonus (3), and employee relocation (1); and selected airline
          tickets (valued in excess of $1,000 each) (9), business meals (26), and legal fees
          (7).
6.        Performed a physical inventory of all equipment purchased with Grant funds.
7.        Interviewed various PBS employees, Department of Education personnel, and
          independent public accountant personnel.

To achieve our audit objectives, we relied, in part, on computer-processed data related to
the TeacherLine Grant contained in PBS's accounting system. We assessed the reliability
of these data, including the relevant general and application controls, and found them to
be adequate. We verified the completeness of the data by comparing source records to
computer generated data, verified the authenticity by comparing computer generated data
to source records, and verified the accuracy by manually duplicating selected computer
processes. Based on these tests and assessments, we concluded that the data were
sufficiently reliable to be used in meeting the audit’s objective.



1
    Results of the random sampling may not be representative of the entire population.


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Final Audit Report                                                    ED-OIG/A05-C0011


We conducted our fieldwork at PBS’s administrative office in Alexandria, Virginia, from
February 4, 2002, through April 4, 2002. We discussed the results of our audit with PBS
officials on April 4, 2002.

Our audit was performed in accordance with government auditing standards appropriate
to the scope of audit described above.

              STATEMENT ON MANAGEMENT CONTROLS

As part of our review, we did not assess the adequacy of PBS's management control
structure applicable to the Grant. Instead, we (1) gained an understanding of controls,
policies, procedures, and practices related to travel, equipment, legal, procurements,
advertising and promotional materials, training, salaries and fringe benefits expenses,
cost allocations, and equipment, and (2) relied on substantive testing of costs charged to
the Grant. Our testing disclosed instances of non-compliance with federal regulations
and cost principles that led us to believe weaknesses existed in PBS’s controls over the
Grant. These weaknesses and their effects are discussed in the AUDIT RESULTS
section of this report.

                           ADMINISTRATIVE MATTERS

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 will be made by the appropriate
Department of Education officials.

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
the audit.

                     Grover J. Whitehurst, Assistant Secretary
                     Office of Educational Research and Improvement
                     U.S. Department of Education
                     Capitol Place, Room 600D
                     555 New Jersey Avenue, N.W.
                     Washington, D.C. 20208

Office of Management and Budget Circular A-50 directs Federal agencies 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 greatly
appreciated.




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   Final Audit Report                                                                 Attachment 1
   ED-OIG/A05-C0011                                                                    Page 1 of 2

    SCHEDULE OF COSTS RECOMMENDED FOR ACCEPTANCE, COSTS
         QUESTIONED, AND COSTS THAT ARE UNSUPPORTED
                             Costs                                                        Total Costs
                        Recommended          Costs                Costs                   Charged to
   Cost Category        For Acceptance     Questioned          Unsupported                  Grant
Personnel                      $362,547             $0              $31,933     (1)            $394,480
Fringe Benefits                  98,707              0                8,868     (2)             107,575
Travel                           85,134             48   (3)          7,448     (4)              92,630
Supplies/Services                74,507              0                    0                      74,507
Promotions                       23,083            676   (5)              0                      23,759
Equipment Repair                   3,000             0                    0                       3,000
Software Acquisition               3,828             0                    0                       3,828
Training Seminars                19,328              0                    0                      19,328
   Sub-Totals                 $670,627           $724               $48,249                    $719,107
Indirect Costs                         0            58   (6)         57,472     (7)              57,530
   Sub-Totals                 $670,627           $782              $105,721                    $776,637
Contractual                   2,090,647              0                    0                   2,090,647
Equipment                       223,113          1,192   (8)              0                     224,305
Rent & Utilities                       0             0               41,735     (9)              41,735
   Totals                    $2,984,387        $1,974              $147,456                  $3,133,324

   (1) Represents the amount of salaries PBS charged to the Grant for which it did not provide after
       the fact determinations to support the charges. OMB Circular A-122, Attachment B,
       Paragraph 7, Subparagraph m. (2) (1998) states, “Reports reflecting the distribution of
       activity of each employee must be maintained for all staff members (professionals and
       nonprofessionals) whose compensation is charged, in whole or in part, directly to awards.
       …Reports maintained by non-profit organizations to satisfy these requirements must...(a)
       …reflect an after-the-fact determination of the actual activity of each employee.” According
       to OMB Circular A-122, Attachment A, Paragraph A, Subparagraph 2.g. (1998), to be
       allowable, costs must be adequately documented.

   (2) Represents the fringe benefits related to the unsupported salaries. OMB Circular A-122,
       Attachment B, Paragraph 7, Subparagraph f.(2) (1998) states, “Fringe benefits...shall be
       distributed to particular awards…in a manner consistent with the pattern of benefits accruing
       to the individuals or group of employees whose salaries and wages are chargeable….”
       Because the salaries are unsupported, the related fringe benefits are unsupported.

   (3) Represents charges for alcoholic beverages. OMB Circular A-122, Attachment B, Paragraph
       2 (1998) states, “Costs of alcoholic beverages are unallowable.”

   (4) Represents costs of meals. PBS claimed the meals were served as part of business meetings.
       Meals as part of meetings and conferences are allowable under OMB Circular A-122,
       Attachment B, Paragraph 29, Subparagraph a (1998). However, PBS did not provide
       support that business meetings were held, and business was conducted, when the meals were
Final Audit Report                                                                  Attachment 1
ED-OIG/A05-C0011                                                                     Page 2 of 2

   provided. According to OMB Circular A-122, Attachment A, Paragraph A, Subparagraph
   2.g. (1998), to be allowable, costs must be adequately documented.

(5) Represents gifts provided to people who participated in Community Center chats and panel
    discussions. OMB Circular A-122, Attachment B, Paragraph 1, Subparagraph f. (3) (1998)
    states, “Unallowable…public relations costs include...Costs of…gifts.”

(6) Represents indirect costs related to questioned travel and other costs. We used the eight
    percent rate PBS used in lieu of an approved rate to calculate the unallowable amount.

(7) Includes $3,860 of indirect costs related to unsupported personnel, fringe benefits, and travel
    costs. The remaining $53,607 is unsupported because PBS did not have an approved indirect
    cost rate. OMB Circular A-122, Attachment A, Paragraph E, Subparagraph 1.f. (1998),
    defines an indirect cost proposal as,"…the documentation prepared by an organization to
    substantiate its claim for the reimbursement of indirect costs…." According to OMB
    Circular A-122, Attachment A, Paragraph E, Subparagraph 2.b. (1998), “A nonprofit
    organization which has not previously established an indirect cost rate with a Federal agency
    shall submit its initial indirect cost proposal immediately after the organization is advised
    that an award will be made and, in no event, later than three months after the effective date of
    the award.” Department of Education officials told us PBS had submitted an initial indirect
    cost proposal, then withdrew it and did not re-submit another proposal.

(8) Represents the cost of a digital camera and accessories PBS could not locate. According to
    OMB Circular A-122, Attachment A, Paragraph A, Subparagraph 4.a. (1998), "A cost is
    allocable to a particular cost objective, such as a grant…in accordance with the relative
    benefits received…." The Grant received no benefits from missing equipment.

(9) Represents rent and utility costs PBS allocated based on salaries. According to OMB
    Circular A-122, Attachment A, Paragraph A, Subparagraph 4.a. (1998), “A cost is allocable
    to a particular cost objective, such as a grant…in accordance with the relative benefits
    received….” Salaries are not necessarily representative of the space and utilities usage by an
    employee.