oversight

University of Illinois at Chicago's (UIC) Upward Bound (UB) project

Published by the Department of Education, Office of Inspector General on 2004-12-20.

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

                                         UNITED STATES DEPARTMENT OF EDUCATION
                                               OFFICI OF I NS PECTOR GENERAL
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                                                        CHlCAOO. IUJNOIS 60606


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       U (1) 886-6S03                                                                                             (3 11) 3$3-1191


                                                                          Control Number ED-OIG/AOS-D004 1


                   Dr. Sylvia Manning, Chancellor
                   University of l11inois at Chicago
                   601 South Morgan, MC 102
                   Chicago, IL 60607-7 128

                   Dear Dr. Mann ing:

                   This A na l Audit Report presents the resul.ts of our audit of the Universi ty of m inoi! at
                   Chicago's (U IC) Upward Bound ( UB) project. UIC was awarded $SIS,308 in UB funds
                   for the period J une 1,2001, through May 3 1, 2002 (2001 -2002 grant year), the third year
                   of lhe grant (P047A99(758). TIle objectives of our audil were to dctcnnine if, for the
                   200 1-2002 gnnt year, UIC (I) maintained support demonstrating th at it achieved the
                   proj(j;t's objectives as reported to the U.S. Department of Education (Department); (2)
                   provided only eligible services to the number of el igible students required under its
                   agreements with the Department; (3) properly accounted for its usc of UB program funds:
                   and (4) only claimed expenses that were allowable.

                   Our audit disclosed that UIC mi srepresented the achievement of the UB project's
                   objectives because it did not have documenlation supporting the achievements as
                   reported to the Depanment. In addition, UIC ( I) did not scrve only ineligible
                   participants, (2) did nO( appropriately account for gran t funds, (3) could not support all o f
                   its expendi tures, and (4) charged unallowable costs to the grant. Based on the
                   s ignificance of the findings, we recommend that thc Chief Financial Officer (CFO),
                   Office of the Chief Financial Officer, in conjunction with the Assistant Secretary, Office
                   o f Postsecondary Education (OPE), require UIC 10 return to the Department $223,OS7 of
                   the total $5 15,308 in UB funds it received for the 2001-2002 granl year and take
                   appropriate action pursuanllO 34 C .F.R. § 74.62 \0 protecl future UB grant funds.

                   We provided V IC with the draft of thi s report on August 20. 2004. In its response dated
                   September 17, 2004, VIC agreed with Finding No.3 and the corresponding
                   recommendation. UIC also partially agreed with Finding Nos. 2 and S, stating that two
                   students were not eligibl e to be served and some unallowable upcnses were charged to
                   the VB project. However. UIC disagreed with Finding Nos. I and 4 and the overall
                   recommendation to relUrn the full amount of the funds it received for the UB project.
                   UIC agreed to refund only $ 13,236 for Finding Nos. 2 and 5.




                   FtJuot Audit Report                                                         I!J).()IGlAOS.D004 I
                             o.o-_ftlO_oquoI_ .. _ _ .. _ _ _ _ _ ... _




Final Audit Report                                                1                                       ED-OIG/A05-D0041
UIC asserted that:

• 	 Its performance report narrative was incorrect. However, it still met and could
    support achievement of four of six measurable performance objectives (See Finding
    No. 1);
• 	 2 of the 20 participants in our sample did not meet all of the requirements to be
    considered eligible to participate in the UB program (see Finding No. 2);
• 	 It provided adequate documentation to support all of its unsupported expenses (See
    Finding No. 4).

Based on UIC’s response to the draft report and the additional documentation provided
with its response, we did not delete any findings. However, we revised Finding Nos. 2, 4,
and 5 to reflect the additional documentation UIC provided and changed our overall
recommendation. Rather than recommending that UIC be required to return the total
amount of funds ($515,308) it received for the 2001-2002 grant year, we are
recommending that UIC be required to return $223,057 of UB funds.

                                           AUDIT RESULTS

Finding No. 1 	 UIC Misrepresented UB’s Achievement of Objectives to the
                Department

UIC submitted incorrect data via its performance report covering the 2001-2002 grant
year, stating all of its measurable objectives were complete. Of the seven objectives in
the annual performance report, two (Objectives 2a and 2b) had conflicting data in the
performance report versus the data submitted to the Department and maintained in
participants’ files. One objective was not measurable.1

By signing the performance report, UIC certified that the information submitted to the
Department was accurate, complete, and readily verifiable to the best of its knowledge.
Pursuant to 34 C.F.R. § 74.51,2 recipients are responsible for managing and monitoring
each project, program, subaward, function, or activity supported by the award.
Performance reports must generally contain a comparison of actual accomplishments
with the goals and objectives established for the period and, if appropriate, the reasons
why established goals were not met. According to 34 C.F.R. § 74.53(b), all records
pertinent to an award shall be retained for a period of three years.

Our audit disclosed that UIC did not retain documentation showing that the information
in its annual UB performance report was accurate, complete, and readily verifiable.

Objective #2a
In its performance report, UIC stated that 80 percent of the UB participants would
demonstrate a 0.5 increase in grade point average (GPA) as demonstrated by their
beginning GPA and ending GPA for the program year. According to its performance

1
    See report Appendix summarizing all seven objectives.
2
    All regulatory citations are as of July 1, 2001, unless otherwise noted.


Final Audit Report	                                      2                     ED-OIG/A05-D0041
report narrative, 85 percent of the participants demonstrated a minimum of a 0.5 increase
in their GPAs. However, according to the data UIC sent to the Department to support the
narrative, only 20 percent of the 100 UB participants had enough data to determine
whether the participant showed a 0.5 increase in GPA. Only 5 percent (1 of 20) of the
participants with complete data demonstrated a 0.5 increase in GPA for the 2001-2002
grant year. UIC failed to collect the documentation needed to make a determination for
the remaining 80 participants.

Of the 18 students whose files we reviewed (excluding two students whom we
determined were not 2001-2002 participants),3 none demonstrated a 0.5 increase in their
GPA as demonstrated by the beginning and ending GPAs documented in the files. (See
Appendix.)

Objective #2b
In its performance report, UIC stated that 80 percent of the UB participants would
demonstrate a 1 grade level improvement in math as measured by the California
Achievement Test (CAT). According to UIC’s performance report narrative, 80 percent
of the UB participants showed a minimum of one grade level growth in math. However,
a roster provided to us by UIC that listed the CAT results for all 100 participants only had
enough data to determine whether 32 participants showed a one grade level improvement.
Of the 32 participants with sufficient data, only 16 percent (5 of 32) demonstrated a one
grade level improvement in math. UIC failed to collect the documentation needed to
make a determination for the remaining 68 participants.

Of the 18 students whose files we reviewed (excluding two students whom we
determined were not 2001-2002 participants), only 11 percent (2) demonstrated a one
grade level improvement in math.4 (See Appendix.)

Because UIC misrepresented the achievements of its UB program, the Department did
not have the information it needed to make funding decisions. Had the Department
known that UIC could be hindering the success of its participants’ pre-college
performance and, ultimately, their higher education pursuits, it might not have continued
funding UIC’s UB program.




3
  A random sample of 20 student files was chosen from a total of 100 UB participants for the 2001-2002

grant year. However, only 18 files were included in the results because we determined 2 students were not 

2001-2002 participants. 

4
  Three of the 18 participants scored the highest possible score on the CAT pre-test and post-test in math. 

Therefore, they were not included as students that demonstrated a one grade level improvement in math. 



Final Audit Report                                    3                               ED-OIG/A05-D0041
Recommendations

We recommend that the CFO, in conjunction with the Assistant Secretary, OPE,

1.1 	 Require UIC to return to the Department $146,1255 of the total $515,308 in UB
      funds it received for the period June 1, 2001, through May 31, 2002; and
1.2 	 Take appropriate action pursuant to 34 C.F.R. § 74.62 to protect future UB grant
      funds.

Auditee Comments
UIC acknowledged that it did not meet 2 of the 6 measurable performance objectives and
that its performance report narrative was incorrect. However, UIC disagreed with the
recommendation to return the entire amount of the funds awarded for the 2001-2002
award year, claiming that it provided services to the 100 students who participated in the
program, met 4 of the 6 measurable performance objectives it proposed, and made a good
faith effort to achieve all the project’s objectives.

OIG Response
We did not revise the finding but did revise our recommendation. Instead of
recommending that UIC be required to return all UB funds it received for the period June
1, 2001, through May 31, 2002, we are recommending that UIC be required to return
$146,125 ($515,308 less the amounts from Finding Nos. 2, 4, and 5, divided by 6 and
then multiplied by 2, the number of objectives UIC could not support achieving).

We agree that UIC maintained documentation to show it achieved 4 of the 6 measurable
objectives. However, we do not agree with UIC’s assertion that it made a good faith
effort to achieve the other 2 objectives. UIC failed to collect the documentation needed
to determine whether 80 of the 100 UB participants showed a 0.5 increase in GPA. For
the 20 UB participants who had enough data to make a determination, only 1 (5 percent)
demonstrated a 0.5 increase in GPA for the 2001-2002 grant year (Objective #2a). In
addition, UIC failed to collect the documentation needed to make a determination
whether 68 of the 100 UB participants showed a one grade level improvement in math as
measured by the CAT. Of the 32 UB participants who had enough data to make a
determination, only 5 (16 percent) demonstrated a one grade level improvement in math
(Objective #2b).

Finding No. 2 UIC Served Ineligible Participants

UIC provided eligible services to its UB participants. However, 4 of the 20 participants
in our sample did not meet all of the requirements to be considered eligible to participate
in the UB program. Two students should not have been reported as 2001-2002
participants because documentation in their files showed that their exit dates were prior to
or on the first day of the 2001-2002 grant year. In addition, of the remaining 18

5
 Total received of $515,308 less $76,932 in recommended recoveries from Finding Nos. 2, 4, and 5,
divided by 6 and then multiplied by 2, the number of objectives UIC erroneously reported as achieved.


Final Audit Report	                                 4                               ED-OIG/A05-D0041
participants whose files we reviewed, 1 was not a low-income individual or first
generation college student and 1 did not have documentation in the file to support the
student was a United States (U.S.) citizen or in the U.S. for other than a temporary
purpose.

According to 34 C.F.R. § 645.3, an individual is eligible to participate in a UB project if,
among other requirements, the individual (a)(1) is a citizen or national of the U.S., (2) is a
permanent resident of the U.S., (3) is in the U.S. for other than a temporary purpose and
provides evidence from the Immigration and Naturalization Service of his or her intent to
become a permanent resident; and is (b)(1) a potential first-generation college student, or
(2) a low-income individual.

By enrolling ineligible students, UIC could prevent eligible students from receiving the
services needed to succeed in pre-college performance and, ultimately, higher education
pursuits may be hindered.

Recommendation

We recommend that the CFO, in conjunction with the Assistant Secretary, OPE, require
UIC to

2.1 	 Return $20,612 to the Department for the four students who were not eligible to
      participate in the UB project.6

Auditee Comments
UIC disagreed with the recommendation to return $25,765. UIC stated only two of the
five students we identified as ineligible to participate in the draft audit report were not
eligible participants during the 2001-2002 grant year. One student was not eligible based
on the low-income individual or first-generation college student requirement, and one
student did not have evidence of services during the 2001-2002 grant year. UIC agreed
to return $10,306 for these two students.

However, UIC asserted that the other three students identified as ineligible in our draft
report were eligible participants during the 2001-2002 grant. UIC said it provided
academic services to one student as late as September 2001 and submitted an encounter
form as support. UIC also said it provided documentation to show that two of the
students we identified as ineligible in the draft report were U.S. citizens at the time of
admission into the UB program.

OIG Response
We revised our finding and recommendation based on the additional information UIC
provided us in response to our draft report. We still conclude that 4 of the 20 students
whose files we reviewed were not eligible participants. Therefore, we are recommending
that UIC be required to return $20,612 ($515,308 divided by 100 and multiplied by 4).

6
 Total UB funds received of $515,308 divided by 100 and multiplied by 4. The funds to be returned to the
Department are an estimate and are not derived from a statistically valid projection.


Final Audit Report	                                 5                              ED-OIG/A05-D0041
The student UIC asserted was a 2001-2002 UB participant had a program exit form dated
June 1, 2001. In addition, the roster UIC sent to the Department to support the
performance report narrative covering the period June 1, 2001, to May 31, 2002, showed
that the student’s last day of service was June 1, 2001. This contradicts the encounter
form, dated September 2001, UIC provided in response to the draft of this report.

UIC supplied us a signed Federal Application for Financial Student Assistance (FAFSA)
that indicated one of the students was a U.S. citizen. We accept the FAFSA as support
for citizenship and revised the finding and recommendation to reflect this. However, the
additional supporting documentation UIC supplied us for the other student whose
citizenship we questioned was not acceptable. The student would have been eligible to
participate in the UB project if the student were in the U.S. for other than a temporary
purpose and provided evidence from the Immigration and Naturalization Service of his or
her intent to become a permanent resident. UIC did not provide such documentation.

Finding No. 3 UIC Did Not Appropriately Account for Grant Funds

UIC did not completely and accurately account for its UB funds by award year. UIC's
UB accounting records did not identify the budget period from which funds were
expended, and UB staff did not perform regular reconciliations to ensure that
expenditures were tied to specific awards. UIC’s University Financial and
Administrative Systems (UFAS) tracked all awards on a cumulative basis (for the entire
life of the grant) but did not segregate expenses by individual award years.

According to 34 C.F.R. § 74.21, recipients’ financial management systems shall provide
for accurate, current, and complete disclosure of the financial results of the project.
Records must adequately identify the source and application of funds. These records
shall contain information pertaining to awards, authorizations, obligations, unobligated
balances, assets, outlays, income, and interest. Recipients should compare outlays with
budget amounts for each award. According to 34 C.F.R. § 75.730, a grantee shall keep
records that fully show (a) the amount of funds under the grant, (b) how the grantee used
the funds, (c) the total cost of the project, (d) the share of the cost provided by other
sources, and (e) other records to facilitate an effective audit.

By not accounting for funds by award year, UIC loses its ability to accurately forecast its
needs for subsequent budget periods. In addition, UIC may request and use federal funds
in excess of its award for any given year. Therefore, subsequent award years might not
have enough funding to provide adequate (as defined in the grant application) services to
participants.




Final Audit Report                           6                           ED-OIG/A05-D0041
Recommendation

We recommend that the CFO, in conjunction with the Assistant Secretary, OPE, require
UIC to

3.1 	 Ensure its accounting system tracks grant funds by award year or develop and
      implement policies and procedures to perform regular reconciliations, tying its
      expenditures to specific award years.

Auditee Comments
UIC acknowledged that the UFAS does not track expenses by grant year, and said it
implemented a new financial and administrative system, BANNER. According to UIC,
BANNER will allow for the segregation of expenses by grant year. Additionally, UIC
will perform bi-monthly reconciliations, tying expenditures to specific grant years.

Finding No. 4 UIC Could Not Support All of Its Expenditures

UIC did not provide adequate documentation to support

• 	 $35,702 in salary expenses tested. We reviewed a judgmental sample of salary
    expenses, selecting all salary expenses for the three months with the highest salary
    amounts recorded for the 2001-2002 grant year. The salary expenses for these three
    months totaled $91,869 of the 2001-2002 grant year personnel expenses of $242,971.
    Our review disclosed that salaried employees did not always sign after-the-fact
    certifications to verify work was performed on the UB project.
• 	 $4,489 in non-personnel expenses tested. We reviewed a judgmental sample of non-
    personnel expense categories. We selected 29 UB expense categories (57 actual
    expenses) totaling $111,196 from the $218,209 in non-personnel expenses recorded
    during the 2001-2002 grant year. We selected categories that were large or appeared
    unusual in relation to similar expenses for other months. We reviewed supporting
    documentation such as purchase orders, vouchers, invoices, and canceled checks.
    UIC did not provide us with vouchers, receipts, or other backup documentation that
    fully supported 4 of the expenses.

According to the Office of Management and Budget (OMB) Circular A-21, Attachment,
(J)(8)(c)(2), activity reports should reflect the distribution of activity expended by
employees covered by the system. For professorial and professional staff, the reports will
be prepared each academic term, but no less frequently than every six months. For other
employees, unless alternate arrangements are agreed to, the reports will be prepared no
less frequently than monthly and will coincide with one or more pay periods.

According to 34 C.F.R. § 75.730, a grantee shall keep records that fully show how the
grantee uses the funds. Pursuant to 34 C.F.R. § 74.53(b), financial records, supporting
documentation, statistical records, and all other records pertinent to an award shall be
retained for a period of three years.



Final Audit Report	                          7                          ED-OIG/A05-D0041
By not retaining adequate documentation, UIC cannot prove that it used $40,191
($35,702 + $4,489) on allowable expenses.

Recommendation

We recommend that the CFO, in conjunction with the Assistant Secretary, OPE, require
UIC to

4.1   Return $40,191 to the Department.

Auditee Comments
UIC asserted that, while it is the policy of the university to require that academic
professional staff complete faculty activity analyses and hourly workers or civil service
employees complete time sheets showing their distribution of work on behalf of the
program, UIC did not always require staff to complete time and effort certifications.
Because most of the staff referred to in the finding still work for the UB program, UIC
submitted faculty activity reports and time sheets as support for the amount of time each
staff member spent on UB activities. Staff completed the time and effort forms, and they
and their supervisors signed the forms, indicating the time spent, by each staff member,
on the UB project. One full-time UB counselor is no longer with the UB project;
therefore, UIC did not have an after-the-fact certification for that employee. Instead of a
certification, UIC provided the employee’s resignation letter to support the time spent on
the UB project. UIC asserted that the remaining staff referred to in the finding of the
draft of this report were teachers of classes offered solely by the UB project.

UIC also said it provided documentation supporting that $36,058 identified in the draft
report as unsupported were allowable expenses. The documentation provided included
receipts, signed vouchers, and purchase orders that have been reconciled with supporting
invoices.

OIG Response
We revised the finding and recommendation. We accepted UIC’s documentation for
$18,820 in personnel expenses. UIC provided student class schedules to support that
instructors taught classes solely for UB project purposes. The schedules show that the
instructors were teaching classes throughout the day for the UB project. Therefore, the
questioned amount for salary expenses will be reduced from $53,982 to $35,702.

We did not accept all the time and effort documentation UIC provided. The
documentation was to cover the 2001-2002 grant year. However, the documentation UIC
provided was signed and dated during 2004, after the completion of our audit. In
addition, UIC provided us a resignation letter from one employee to support the
employee worked solely on the UB project. Although the letter stated that the employee
resigned from the UB project, it does not state the employee worked solely on UB
activities.

We also accepted UIC’s documentation for $37,349 of the $41,838 in non-personnel
expenses we identified as unsupported in the draft audit report. However, UIC was not


Final Audit Report                           8                           ED-OIG/A05-D0041
able to support the remaining $4,489 in non-personnel expenses. A voucher for $2,967
did not have receipts or other supporting documentation attached. A petty cash voucher
for $70.28 was paid to the Student Support Services, Associate Director, without
evidence the expense was for UB purposes. UIC also did not provide us with any
documentation supporting a $300 expense.

Finding No. 5 UIC Charged Unallowable Costs to the Grant

UIC charged unallowable costs to the UB program totaling $16,129. The unallowable
costs included

• 	 $9,841 in telecom expenses. UIC charged telecom expenses as a direct cost to the
    UB program, failing to treat the expenses consistently throughout the University. For
    other programs and departments within UIC, telecom expenses are included in the
    indirect cost pool. Per OMB Circular A-21, Attachment, (D)(1), costs incurred for
    the same purpose in like circumstances must be treated consistently as either direct or
    facilities and administrative costs.
• 	 $2,850 in Talent Search expenses. Documentation for a $5,700 trip charged to the
    UB project showed that $2,850 was allocable to UIC’s Talent Search project. Per
    OMB Circular A-21, Attachment, (C)(2) and (4), for costs to be allowable, they must
    be allocable to sponsored agreements. A cost is allocable to a sponsored agreement if
    (1) it is incurred solely to advance the work under the sponsored agreement; (2) it
    benefits both the sponsored agreement and other work of the institution, in
    proportions that can be approximated through use of reasonable methods; or (3) it is
    necessary to the overall operation of the institution and, in light of the principles
    provided in this Circular, be assignable in part to sponsored projects.
• 	 $80 for an expense it paid twice. The charge was included as a food and a hotel
    charge on the voucher. OMB Circular A-21, Attachment, (C).
• 	 $3,358 in excessive indirect costs. OMB Circular A-21, Attachment, (G)(2) states, in
    part, that the institution may apply the indirect cost rate to the modified total direct
    costs for individual agreements to determine the amount of indirect costs.
    Equipment, capital expenditures, charges for patient care and tuition remission, rental
    costs, scholarships, and fellowships as well as the portion of each subgrant and
    subcontract in excess of $25,000 shall be excluded from the modified total direct
    costs. UIC did not categorize expenses in the appropriate line item to allow UFAS to
    exclude the expenses as items exempt from the indirect cost calculation. Under the
    terms of its agreement with the Department, UIC is allowed to charge a maximum of
    8 percent in indirect costs to its UB program. UIC charged indirect costs to the UB
    program of $34,282. Based on our calculation, UIC should have charged only
    $30,924. Using UIC’s accounting records for the 2001-2002 grant year, we
    determined that UIC recorded direct UB costs of $462,796. We subtracted $76,240
    ($11,909 in equipment, $12,852 in stipends, and $51,479 in room and board) to arrive
    at modified total direct costs of $386,555.

Unallowable costs charged to the grant constitute a debt to the Federal Government and
harms the federal interest. When a grantee uses federal funds for unallowable costs,
those funds are not available to pay for items and services that will advance the project.


Final Audit Report	                          9                           ED-OIG/A05-D0041
Recommendations

We recommend that the CFO, in conjunction with the Assistant Secretary, OPE, require
UIC to

5.1 	 Return $16,129 to the Department.

5.2 	 Ensure telecom expenses are treated consistently throughout the institution.

5.3 	 Ensure expense items are categorized in the appropriate account category within
      UFAS.

Auditee Comments
UIC asserted that because telecom expenses were a line item in the Department-approved
budget, and because UIC was able to attribute the telecom charges directly to the UB
project, the expenses were allowable. UIC disagreed with the recommendation to return
$9,841 in telecom charges to the Department because it acted in good faith based on its
understanding of the line item in the Department-approved budget.

UIC asserted that half of the $5,700 Talent Search expense ($2,850) was for UB
purposes. The expense covered buses to transport both UB and Talent Search students on
a college tour. Fifty UB students and staff participated in the college tour. The UB
project shared the costs of two buses with the Talent Search project. UIC included
documentation for the college tour and agreed to return $2,850 to the Department. In
addition, UIC agreed to return $80 to the Department for an expense that it charged twice
to the UB project.

UIC disagreed that it charged excessive indirect costs of $3,358 to the UB project. UIC
stated that, of the total amount of UB funds received ($515,308), $76,240 was subtracted
for equipment, stipends, and room and board to arrive at modified total direct costs of
$439,068. UIC then charged $29,439 as indirect costs. This amount was not in excess of
8 percent of its 2001-2002 grant year modified total direct costs.

OIG Response
We revised our finding and recommendations to reflect that UIC was able to support
$2,850 in expenditures that we originally identified as unsupportable. However, UIC still
did not provide documentation that showed telecom charges were excluded from UIC’s
indirect cost pool and only included as UB direct costs. Therefore, we have no
assurances that UIC did not claim the expenses more than once.

Although UIC provided an invoice and contract that were not addressed to or signed by
UB officials as documentation to support a $5,700 expense that appeared to be a Talent
Search expense, we concluded that additional documentation UIC provided in response to
the draft of this report substantiated that $2,850 of the $5,700 expense was allocable to
the UB program.



Final Audit Report	                         10                          ED-OIG/A05-D0041
Finally, the explanation and documentation UIC provided to support its position on
indirect cost charges demonstrated that UIC bases its indirect cost charges on the amount
it is awarded each grant year, not on actual direct costs for the grant year. OMB Circular
A-21, Attachment, (G)(2) states, in part, that the institution may apply the indirect cost
rate to the modified total direct costs for individual agreements to determine the amount
of indirect costs. Equipment, capital expenditures, charges for patient care and tuition
remission, rental costs, scholarships, and fellowships as well as the portion of each
subgrant and subcontract in excess of $25,000 shall be excluded from the modified total
direct costs. Section (D) defines direct costs as those costs that are incurred and can be
identified specifically with a particular sponsored project, an instructional activity, or any
other institutional activity, or that can be directly assigned to such activities relatively
easily with a high degree of accuracy.

UIC's UFAS did not identify the budget period from which funds were expended;
therefore, it was not possible without oral explanations or a thorough review of all
supporting documentation to verify the appropriateness of all direct costs incurred during
any given grant year with complete certainty. However, to assess the reasonableness of
UIC's indirect cost charges for the 2001-2002 grant year, we started with the direct costs
UIC personnel identified as 2001-2002 grant expenses. For the period June 1, 2001,
through May 31, 2002, these expenditures (that is, total direct costs) totaled $462,796,
with UFAS showing indirect costs of $34,282. We subtracted certain costs from the total
direct cost amount to arrive at modified total direct costs. We calculated the modified
total direct costs for 2001-2002 to be $386,556, or $462,796 in direct costs less $76,240
($11,909 in equipment, $12,852 in stipends, and $51,479 in room and board). Therefore,
we concluded that indirect costs charged to the UB project for the 2001-2002 grant year
should have been $30,924 ($386,556 multiplied by 8 percent).

According to UFAS, UIC charged indirect costs to the 2001-2002 UB grant of $34,282.
Therefore, UIC overcharged indirect costs to UB by $3,358 ($34,282 less $30,924).

                                    BACKGROUND
The UB program provides support to participants by preparing them for college entrance.
The program provides opportunities for participants to succeed in pre-college
performance and ultimately in higher education pursuits. UB serves high school students
from low-income families; high school students from families in which neither parent
holds a bachelors degree; and low-income, first-generation military veterans who are
preparing to enter postsecondary education. The goal of UB is to increase the rates at
which participants enroll in and graduate from institutions of postsecondary education.

UB is authorized by Part A, Subpart 2 of Title IV of the Higher Education Act of 1965, as
amended. UB grantees are subject to the provisions in 34 C.F.R. Parts 74, 75, 77, and
645. Institutions of higher education that operate UB projects also are required to adhere
to the requirements in OMB Circulars A-21, Cost Principles for Educational Institutions,
and A-110, Uniform Administrative Requirements for Grants and Agreements With
Institutions of Higher Education, Hospitals, and Other Non-Profit Organizations.



Final Audit Report                            11                           ED-OIG/A05-D0041
UIC was awarded and received $515,308 in UB funds for the period June 1, 2001,
through May 31, 2002, the third year of the grant (P047A990758).

                OBJECTIVES, SCOPE, AND METHODOLOGY
The objectives of our audit were to determine whether UIC (1) maintained support
demonstrating that it achieved each UB objective as reported to the Department; (2)
provided only eligible services to the number of eligible students required under its
agreement with the Department; (3) properly accounted for its use of UB program funds;
and (4) only claimed expenses that were allowable for the period June 1, 2001, through
May 31, 2002.

To achieve our objectives, we

1. 	 Reviewed the annual performance report for the audit period.
2. 	 Gained an understanding of UIC’s system of internal controls over its UB program
     and accounting for UB funds. We did not assess the adequacy of these internal
     controls because doing so was not necessary to achieve our audit’s objectives.
3. Reviewed accounting records.
4. 	 Reviewed a random sample of 20 student files from a total of 100 UB participants for
     the 2001-2002 grant year.
5. 	 Reviewed a judgmental sample of non-personnel expense categories. We selected 29
     UB expense categories (57 expenses) totaling $111,196.7 We selected expense
     categories that were large or appeared unusual in relation to similar expenses for
     other months. For each expense tested, we reviewed supporting documentation such
     as purchase orders, vouchers, invoices, and canceled checks.
6. 	 Reviewed a judgmental sample of salary and fringe benefit expenses for three
     months. We selected the three months from the 2001-2002 grant year with the
     highest recorded salary expenses. The sample of salary expenses for the three months
     totaled $91,870 of the 2001-2002 grant year total personnel expenses of $242,971.
7. 	 Reviewed documentation UIC provided in response to the draft of this report.

We also relied, in part, on computer-processed data recorded in UIC’s UFAS. To assess
the reliability of the data, we reviewed accounting records for the 2001-2002 grant year
for expenses applicable to the grant year as identified by UB staff. The data did not
appear to be entirely complete or accurate. The accounting records for the 2001-2002
grant year included charges from the prior grant year and omitted charges applicable to
the 2001-2002 grant year. However, the accounting records, as a whole, reflect every
transaction related to the UB program. Because we had corroborating evidence8 on
which we could rely, and because we only intended to use the accounting records to
select transactions for determining the allowability of costs charged to the UB grant, the
computer-processed accounting data was sufficiently reliable for the purposes of our
audit.
7
  Total non-personnel expenses recorded during the period June 1, 2001, through May 31, 2002, were

$218,209. 

8
  Corroborating evidence is evidence such as purchase orders, invoices, and canceled checks that supports 

information in UFAS. 



Final Audit Report	                                 12                                ED-OIG/A05-D0041
We performed our audit work at UIC’s administrative offices and our Chicago office
from August 2003 through June 2004. We discussed the results of our audit with UIC
officials on July 9, 2004. Our audit was performed in accordance with generally accepted
government auditing standards appropriate to the scope of the review described above.

                        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 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 Department
officials who will consider them before taking final Departmental action on the audit.

                              Jack Martin, Chief Financial Officer
                              Office of the Chief Financial Officer
                              U.S. Department of Education
                              FOB-6, Room 4E313
                              400 Maryland Avenue, SW
                              Washington, DC 20202

                              Sally Stroup, Assistant Secretary
                              Office of Postsecondary Education
                              U.S. Department of Education
                              Room 7115
                              1990 K Street, NW
                              Washington, DC 20006

It is the policy of the Department 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.

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.




Final Audit Report                           13                          ED-OIG/A05-D0041
              If you have any questions, please call Gary Whitman, Assistant Regional Inspector
              General for Audi t, or me at 3 12-886-6503.




                                                         Regional Inspector General for Audit


              Appendix
              Attachment




              Final Audit Report                         14




Final Audit Report                                     14                                       ED-OIG/A05-D0041
                                                                                                                      APPENDIX 


                   Annual Performance Report (APR) Objective                          Achievement         Achievement               Achievement
                                                                                      According to      According to UIC's        According to Files
                                                                                         APR                  Data
1    100 participants will be served each project year.
                                                                                           100                  100               17/20 = 85 percent1
2a   80 percent of the participants will demonstrate a 0.5 increase in GPA, as
     demonstrated by the beginning GPA and ending GPA, for the 2001-2002               85 percent         1/20 = 5 percent2        0/18 = 0 percent
     program year.

2b   80 percent of the participants will demonstrate a 1 grade level improvement
     in math as measured by CAT.                                                       80 percent        5/32 = 16 percent3        2/18 = 11 percent

3    80 percent of the participants served will be retained in the project through
     the beginning of the next program year or will graduate from high school.         80 percent            83 percent           16/18 = 89 percent


4a   80 percent of the high school seniors will enroll in a program of
     postsecondary education this year. 4                                              100 percent          100 percent           31/32 = 97 percent5

4b   80 percent of the participants (students who participated in the program for
     at least 10 days in the summer component or 60 days in the academic year
     component) who were scheduled to graduate in the Spring of 2001 will              93 percent        13/14 = 93 percent       19/22 = 86 percent6
     enroll in a program of postsecondary education for the next fall term.

5    40 percent of the participants, who have completed the project, will
     graduate from a program of postsecondary education within 6 years.                    N/A                  N/A                       N/A




        1
          Of the 20 participants’ files we reviewed, 2 should not have been reported as participants because their exit dates were
        prior to or on the first day of the 2001-2002 grant year. In addition, one participant was not a low-income individual or first
        generation college student.
        2
          According to data UIC sent the Department, of the 100 UB participants, only 20 had enough data to determine whether
        he/she showed a 0.5 increase in GPA.
        3
          A roster provided to us by UIC that listed the CAT results for all the participants only included enough data to determine
        whether 32 participants showed a one grade level improvement in math.
        4
          The achievements in the performance report did not measure participants who enrolled in college but whether seniors were
        served by the UB program.
        5
          According to a roster provided by UIC, the UB program had 26 participants who were seniors as of September 2002.
        According to the data submitted with the performance report, 28 participants were seniors. Only 22 participants appeared
        both on the roster and in the data, 4 appeared only on the roster, and 6 appeared only in the data submitted with the
        performance report. As a result, we reviewed a total of 32 (22+4+6) participant files to verify achievement of this objective
        as reported to the Department.
        6
          According to a roster provided by UIC, the UB program had 14 participants who were seniors graduating during the 2001-
        2002 grant year. According to the data submitted with the performance report, 21 participants graduated by the end of the
        reporting period. Only 13 participants appeared both on the roster and in the data, 1 appeared only on the roster, and 8
        appeared only in the data submitted with the performance report. As a result, we reviewed a total of 22 (13+1+8) participant
        files to determine if UIC accurately reported achievement of this objective to the Department.

             Final Audit Report                                          15                                   ED-OIG/A05-D0041
                                                                                                            ATTACHMENT




                                               UNIVERS I TY O F I LL I NO I S
                                                    AT CHICAGO


          Office of til<- ChanalLor (MC 102)
          2833 Univtr!;ity   H~1l
          601 South Morgan SUHt
          Chicago, lllinol$" 601\07-7128



                                                                    September 17, 2004



                Mr. RichardJ . Dowd
                Regional Inspector Ckneral for Audit
                U.s. Department of Education
                Office of Inspector Genernl
                III N. Canal S~t, Suite 940
                Chicago, Illinois 606()6..7204

                Re: Conuol NumbcrEO.QIGJAOS-EOO IS

                Dear Mr. Oowd:

                       I am in receipt of the Draft Audit Report for the University of ll!ino is at Chicago's (UIC)
                Upward Bound (UB) project for the period June 1,200 1 through May 31, 2002 (2001-2002 grant
                year) and am providing the attaehed responses to the findings in aeeordance with the ins\ructions
                Iiiled under "Administrative Maners" in the Draft Audit RepoI1.

                       We a«: providing additional information and documentation about (I) achievement of the
                project's objectives as reported to the U.S. Ikpanment ofEdocation (Dcparunent); (2) eligible
                servK:CS provided to eligible students; (3) aeoounting properly for the use ofUB prognun funds;
                and (4) claiming only expenses that were allowable and adequately supported for the 2001.2002
                grant year.


                                                                    Sincerely,




                                                                    Sylvia Manning
                                                                    Chancellor


                Attachments




                                                               ule
                                                 ~   (312) 4t 3-3JSO ·   Fa~   (312) U 3-3.193




Final Audit Report                                                16                                        ED-OIG/A05-D0041
                                                                                                  ATTACHMENT

 ,.


                                 UN IVERSITY OF ILLI NOIS AT C HI CAGO
                            RF-SPONSE TO nn: DRAFT AUDIT REPORT OF TH.E
                                       UPWARD BOUND PROJECT


             OIG
             Findlog No. I UIC     Misr~p resfD I«I   VB's Ac hievement   or ObJet lives 10 Ibe
             Otpartmenl

             "UIC submitted incorrect data via its performance report ooveringlhe 2001-2002 grant
             year, slating all of its measurable objectives were complete. Oflhc seven objectives in the
             annual performance report, two (Objectives 23 and 2b) had conflicting data in the
             performance report versus the data submitted to the D~artment and maintained in
             participants' files. One objective was nol measurable. l

             " By signing lhe perfonnanee report, UIC certified that the information submitted to the
             Department was accurate, complete, and readily verifiable to the best orits knowledge."

             "Our audit disclosed that Ule did not retain documentation showing that the information
             in its annual UB performance report was accurate, complete, and readi ly verifiable."

             OIG
             Objective #21

             "in its performance report, UlC stated that gO percent of the US participants would
             demonstrate a O.S increase in grade point average (GPA) as demonstrated by their
             beginningGPA and ending GPA for the program year. According to its perfonnance
             report narrative, 8S percent of the participants demonstrated a minimum of a O.S increase
             in their GPAs. However, aceording to the data UlC sent to the Department to support the
             narrative, only 20 percent of the 100 UB participants had enough data to determine
             whether the participant showed a O.S increase in GPA. Only S percent (I of20) of the
             participants with complete data demonstrated a 0.5 increase in GPA for the 2001-2002-
             grant year. VIC failed to collect the documentation needed to make a determination for
             the remaining 80 participants.··

             ''Ofthe 18 stud ents whose fi les we reviewed (excluding two students whom we
             detennined were not 2001-2002 participants) none demonstrated a O.S increase in their
             GPA as demonstrated by the beginning and ending GPAs documented in the files."

              VIC', Rl'!!l pODse

              UlC acknowledges the objective was not accomplished and thaI our APR narrative was
              incorrect. We have taken steps to assure that reporting errors such as these do not recur.
              We have assigned a compliance staff person who will review and monitor ali program




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             UIC UB Response
             Page 2




             data, files, and programmatic activities. The staff person will also review all supporting
             documentation prior to submission of the Annual Performance Report. In addition, the
             University will ammge to have selected programs periodically audited by an independent
             auditor to assure that the programs are not only meeting the needs of the students they
             serve, but are adhering to all rul es and regu lat ions and guidelines governing the program.

             OIG
             Objective #2 b

             "In its performance report, UIC stated that 80 percent of the UB panicipants would
             demonstrate a I grade level improvement in math as measured by the California
             Achievement Test (CAT). According to UIC's performance report narrative, 80 percent
             of the UB participants showed a minimum of one grade level growth in math. However,
             a roster provided to us by UIC that listed the CAT results for all 100 participants only had
             enough data to determine whether 32 participants showed a one grade level improvement.
             Of the 32 participants with sufficient data, only 16 percent (5 of32) demonstrated a one
             grade level improvement in math. UIC failed to collect the documentation needed to
             make a detcnnination for the remaining 68 participants."

              ''Of the 18 students whose files we reviewed (excluding two students whom we
              determined were not 2001-2002 participants), only II percent (2) demonstrated a one
              grade level improvement in math. 4 (See appendix.)"

              VIC's Res ponse

              UIC agrees with the 01G finding. and corrective actions have been instituted. We have
              assigned a compliance staff person who will review and monitor all program data, files,
              and programmatic activities. The staff person will also review all supporting
              documentation prior to submission of the Annual Perfomlance Report. In addilion, the
              University will arrange to have selected programs periodically audited by an independent
              auditor to assure that the programs are not only meeting the needs of the students they
              serve, but are adhering to all rules and regulations and guidelines governing the program.

              OIG
              Recommendations
              "We recommend that the CFO, in conjunction with the Assistant Secretary, OPE,

              l.l    Require UIC to return to the Department $515,308 in UB funds it received for the
                     period June 1,2001, through May 31, 2002; and
              1.2    Take appropriate aclion pursuanlto 34 C.F.R.§ 74.62 10 prolecl US granl funds."




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              UIC UB Response
              Page 3




              VIC's Response

              We disagree with the recommendation to return the entire amount of the funds to the
              Department. UIC proposed and was awarded funds to provide services to low· income
              and first· generation college studenlS. We have provided services to the 100 students who
              participated in the program, and have met five of the seven performance objectives we
              proposed. The request to return the total gmnt amount appean not to take into
              consideration: the services we have provided to students; the intent of the proposal and
              the accomplishments we have achieved on behalf of the students we served; and OIG's
              acknow ledgment in the Appendix to the DraA Audit Report that we not only served the
              participants, but exceeded the minimal level of accomplishment on three of the seven
              objectives. We acknowledge that we did not meet two of six measurable performance
              objectives (grade point averages and increase in lest scores as measured by the California
              Achievement Test); however, we made a good raith effort to achieve them and have
              provided academic services and cultural experiences to the students, who without Ul C's
              Upward Bound, may not have been retained in or graduated from hi gh school nor entered
              into postsc<:ondary education. A list of some of the specific services we provided and
              documented in the participanlS' files is attached as APPEND IX A, The recommendation
              to return all of the runds is inconsistent with the provision ofservices and efforts made to
              achieve the objectives and OIG's recognition of the objectives that were accomp lished at
              a very high level; therefore, we disagree with the recommendation.

              OIG
              findin g No. 2: VIC Served Ineligible Plrtitipa nu

              "UIC provided el igible services to ilS US participanlS. However, 5 o f the 20 participants
              in our sample did not meet all of the requ irements to be considered e ligible to participate
              in the US program. Two students should not have been reported as 2001·2002
              participants because documentation in their files show that thei r exit dates were prior to
              or on the first day of the 2001 ·2002 grant year. In addition, orthe remaining 18
              participants, I was not a low·income individual or 6nt generation college student and 2
              did not have documentation in their files to support they were United States (U.S.)
              ci tizens or in the U.S. for other than a temporary purpose."

              OIG
              Recommendation

              "We recommend that the CFO, in conjunctio n with the Assistant SecrctaJy, OPE. require
              UICto

              2.1    Provide documentation to support the students' eligibility or rerum $25, 765 to
              the Department.' *




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                                                                                                    ATTACHMENT



              UlC UB Response
              Page 4




              VIC'. Respo nse

              One ofthc: two students who was reponed as a 2001-2002 participant rccc:ived services as
              late as September, 2001. The student had a contact fonn in his folder to that effect and it
              is included as AppendiI B oftbis response. The second student did oot have a contact
              fonn for services provided in September, 2001 but received the same services: school
              contact and counselor input about progress; and school advocacy to assure that the
              students were still enrolled in school at the beginning of the school year. We agree to
              refund to the Department $5,1S) (one-fifth of$25, 765) for the second student.

              We are providing documentation as Ap pendix C to show that one of the studcnts referred
              to in OIG's finding, was a U.S. citizen at the time of hcr admission into the Upward
              Bound Program. The other participant and his guardian provided verbal confinnation or
              his application to remain in the U.S. for other than temporary purposes. At the lime of
              entry into the UB program, he had been in the U.S. for two years and continues to remain
              in this country, attending Lewis University. His personal statement and additional
              infonnation to indicate that the student is in the country for other than temporary
              purposes are provided as Appendix D.

              Although we provided needed academic service to one student, he was not eligible based
              on low-income or first-generation college: student status. We agree: to refund to the
              Department S5,I 53 (one-fifth of$25,765).

             We disagree with the: recommendation to return $25,765. We agree: to return SI 0,306
             (S5,15) x 2) for the two students we served, as described above.

              We have taken corrective action to assure: that only students who are first-generation
              college students, and/or low-income students and documented citizens oflbe United
              States participate in UIC'S UB program. We have assigned a compliance staff person
              who will review and monitor all program data, files, and programmatic activi ties. The
              staff person will also review all supporting docwnentation prior to submission of the
              Perfonnance Report. In addition, the University will arrange to have sclected programs
              periodically audited by an independent auditor to assure that the programs are not only
              mccting the needs of the students they serve, but are adhering to all rules and regu lations
              and guidelines governing the program.

              OIG
              Flodlog No.3 VIC d id not Appropriate ly AeeouDI for Grant Fun ds

              "UIC did nOI completely and accllnltely account for its UB funds by award year. UIC' s
              US accounting records did not identify the budget period from which funds were
              expended, and UB staff did not perfO"" regular reconciliations to ensure: that




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              UIC UB Response
              Page 5




              expenditures were tied to specifiC awards. UIC's University Financial and
              Administrative Systems (UFAS) tracked all awards on I cumulati ve basis (for the entire
              life of the gntnt) but did not segregate expenses by individual award years."

              "By not accounting for funds by award year, UlC loses its ability to accurately forecast
              its needs for subsequent budget periods. In addition, UIC may request and use federal
              funds in excess of its award for any given year. Therefore, subsequent award years might
              not have enough funding to provide adeqllllle (as defined in the grant application)
              services to participants."

              OIG
              Recommendation

              "We recommend that the CFO, in conjunction with the Assistant Secretary, OPE, require
              UICto

              3.1    Ensure its accounting system tracks grant funds by Iwud year or develop and
                     implement policies and procedures to perfonn regulu reconciliations, tying its
                     expenditures to specific award ytaJ$."

              Ule's Response

              We acknowledge that the University's Financial and Administrative Systems (UFAS)
              was not set up to track awards by single grant years. However, the university has
              instituted a new financial and administrative system, BANNER, which will allow us to
              enter new codes for each year of the life of the grant and will allow us to segregate
              expenses by irHIividual award years. Additionally, the Office oflbe Vice Chancellor for
              Student Affairs (OVCSA) has directed all programs to maintain a separate shadow
              accounting system by budget line item and issue bi-monlbly accounting reports to the
              OVCSA. The manual reports will be compared and reconciled within the BANNER
              system. Because we will enter a new code for each grant year, segregating accounts by
              individual award years, and will maintain our internal accounts by budget item and
              objective, we will be able to determine if we are meeting our objectives and providing
              excellent services to participants. We will also be able to forecast better future
              programmatic needs.

              O IG
              Finding No. 4 VIC Could Not Support All of Its EJ: pendltuftS

              "UIC did not provide adequate documentation to support

              • $53,982 in salary expenses tested. We reviewed ajudgmental sample ofsalary
                expenses, selecting all salary expenses for the three months with lbe highest salary




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                                                                                                    ATTACHMENT


 ..
              UIC UB Response
              Page 6




                     amounts r«:orded for the 2001·2002 grant year. The salary expenses for these three
                     months totaled S91,869 of the 2001·2002 grant year personnel expenses of
                     $242,97 1. Our review disclosed that salaried employees did nol always sign after·
                     the fact certifications to verify work was perfonned on the US project.
              •      $41,838 in non-personnel expenses tested. We reviewed ajudgmcntal sample of
                     non-personnel expense categories. We selected 29 US expense categories (57 actual
                     expenses) totaling SIl l, 196 from the S218,209 in non-personnel expenses recorded
                     during the 2001·2002 grant year. We selected categories that were large or appeared
                     unusual in relation to similar expenses for other months. We reviewed supporting
                     documentation such as purchase orders, vouchers, invoices, and canceled checks.
                     UIC did not provide us with vouchers, r«:eiplS, or other backup documentation that
                     fully supported II of the expenses."

             "By not retaining adequate documentation, UlC cannot prove that it used S95,820
             (S53,982 pl us $4 1,838) on allowable expenses."



              OIG
              R«ommendatlon

             "We r«:ommend that the CFO, in conjunction with the Assistant Secretary, O PE, require
             UlCto

              4. 1      Provide adequate documentation to support S95,820s or return that amount to the
                        Department."

              UlC ' s Response

              We are providing docwnentation in Appeodix E for the time and effort spent on behalf
              oflbe US program. While il is the policy ofme university to require that academic
              professional staff complete faculty activity analyses and that hourly workm o r civil
              service employees complete time sheets showing their distribution of work on behalf of
              the program, we did not always require the staff to complete after-the-fact Time and
              Effort certification. Since the majori ty o r the administrative staff referred to in the OIG
              Finding continues to work for the UB program, we are submilling thcir Time and Effort
              Documentation, signed by the employees and their supervisor certi fying the Time and
              Effort spent on behalf of the Upward Bound program ($53, 982). One fu ll-lime Upward
              Bound counselor is no longer with the program. Her resignation leller from the Upward
              Bound program is submilled as documentation for the time she spent solely on Upward
              Bound, although we do not have signed after-the-fact certifications (AppendiJ: F). Other
              staff listed in the 010 review were teachers of classes offered solely to Upward Bound
              participants. Their class schedules are submitted as Appendix G.




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                                                                                                    ATTACHMENT




             UIC US Response
             Page 7




             We have also instituted a requirement that al1 staff, including academic professionals,
             complete and sign after-the-fact certification at the conclusion of each pay period for the
             time spent on behalf of the Upward Bound program.

             We are providing documentation, in Appendix H, for the $36,058 in al10wable expenses.
             The documentation contains receipts, signed vouchers, purchase orders and rosters ofUB
             students who participated. Oethe $5700 in expenses that were listed as unallowab le by
             the DIG, we are providing documentation that $2850 of these expenses were allowable as
             transportation for Upward Bound participants. The buses were used to transport US and
             Talent Search participants on a southern col1ege tour. Fifty Upward Bound students and
             staff participated; rosters of their participation and the UB expense voucher are also
             included as Appendix I.



              OlG
              Finding No.5 UIC Cba rged Unallowable Costs to tbe G rant

             "UIC charged unallowable costs to the UB program totaling $19,083. The unallowable
             costs included

              •      $ 9,841 in telecom expenses. UIC charged telecom expenses as a direct cost to
                     the US program, failing to treat the expenses consistently throughout the
                     University. For other programs and departments within UIC, telecom expenses
                     are included in the indirect cost pool. Per OMS Circular A-2 1, Attachment,
                     (0)(1 ), costs incurred for the same purpose in like circumstances must be treated
                     consistently as either direct or facil ities and administrative costs."
              •      "$5,700 in Talent Search expenses. A receipt supporting a $5,700 trip identified
                     the applicable project as UIC's Talent Search, not US, perwnnel. Per OMS
                     Circular A-21 , Attachment, (C) (2) and (4), for costs to be allowable, they must
                     be allocable to sponsored agreements. A cost is allocable to a sponsored
                     agreement if (I) it is incurred solely to advance the work under the sponsored
                     agreement; (2) it benefits both the sponsored agreement and other work of the
                     institution, in proportions that can be approximated through use of reasonable
                     methods; or (3) it is necessary to the overall operati on of the institution and, in
                     light of the principles provided in this Circular, be assignabl e in part to sponsored
                     projects."
              •      "S80 for an expense it paid twice. The charge was included as a food and a hotel
                     charge on the voucher. OMS Circular A-21, Attachment, (C )."
              •      "$3,358 in excessive indirect costs. OMS Circular A-21 , Attachment, (G)(2)
                     states, in part, that the institution may app ly the indirect cost rate to the modified
                     total direct costs for individual agreements to detetmine the amount of indirect




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                                                                                                    ATTACHMENT


 "
             UIC UB Response
             Page 8




                      costs. Equipment, capital expenditures, charges for patient care and tuition
                      remission, rental costs, scholarships, and fellowships as well as the portion of
                      each subgrant and subcontract in excess of$2S,OOO shall be excluded from the
                      modified lotal direct costs. UIC did nol categorize expenses in the appropriate
                      line item to allow UFAS to excl ude the expenses as items exempt from the
                      indirect cost calculation. Under the terms of its agreement with the Department.
                      me is allowed to charge I maximum 0(8 pe!t:enl in indirect costs to its UB
                      program. UIC charged indirect costs 10 the VB prognm 0(S)4,282. Based on
                      our calculation, Ule should have charged only S30, 924. Using UIC's accounting
                      records for the 2001-2002 grant year, we determined VIC recorded direct VB
                      costs of 5462,796. We subtracted $76,240 (SII ,909 in equipment, S12,852 in
                      stipends, and $5 1,479 in room and board) to arrive at modified lotal direct costs of
                      $386,555."

             "Unallowable costs charged to the grant constitute a debt to the Federal Government and
             banns the federal interest. When a grantee uses federal funds for Wlallowable costs,
             those funds are not avai lable to pay for items and services that will advance the project."


              OIG
              RH"O mm~Ddati oDS


             "We recommend that the CFO, in conjunction with the Assistant Secretary, OPE, require
             UlCto

              S.l    Return S19,0836 to the Department

              S.2    Ensure telecom expenses are treated consistently throughout the institution.

              S.3    Ensure expense items are categorized in the appropriate account category within
                     UFAS."

              VIC's Response
              Telecom Expenses:
              We disagree with the finding to return S 9,841 to the Department since we believe we
              acted in good faith and within the guidelines based on our understanding of the line item
              in the US budget approved by the Department. We were able to isolate the direct charges
              to the US budget. However, we are working wi th the University Accounting Office to
              treat the US te lccom charges consistent with other accounts throughout the University
              that have fixed indirect costs that eaMO( be adjusted in an indirect cost pool and accounts
              that have similar pwposes in like circumstances. We will work with the Department to
              change the line item in the budget for future US fund ing so that the telecom charges are
              assigned to budget line items that provide additional services.




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             VIC VB Response
             Page 9




             Talent Search Expenses:
             Of the $5700 in expenses for the southern college tOUf, we are providing documentation
             that $2850 (one-half) of these expenses were allowab le as transportation for Upward
             Bound participants. The buses were used to transport UB and Talent Search participants
             on the college tour, in keeping with the benefits that accrue when similar programs that
             serve low·income and first generation college students cooperate. Fifty Upward Bound
             students and staff participated in the college tour and shared the costs of two buses with
             Talent Search students. Rosters of the UB students who participated and the voucher
             indicating the cost 10 the Upward Bound project arc included as Appendix J. We agree to
             return to the Department one-half of the expenses ($2850), and have begun to code
             expenses according to specific program activity in the new BANNER system, which
             replaced UF AS. Additionally, we maintain a shadow accounting system by proposal
             objective and expense line ilems. Both the BANNER system entries and the shadow
             accounting system are checked by the compliance staff.

              Expense Paid Twice:
              We are unable to explain how $80 was charged twice, as il is unusuallhat reimbursement
              would be made wilhout supporting receipts. We agree 10 return to the Department, $80
              that may have been paid twice be<:ause it was included as food and a hotel charge o n the
              voucher. As stated above, we have begun to code expenses according to specific program
              activity in the new BANNER system, which replaced UFAS. Additionally, we maintain
              a shadow accounting system by proposal objective and expense line items. Both the
              BANNER system entries and the shadow accounting system are monitored and
              reconciled on a bi·monthly basil, by the compliance staff.

              Indi rect Costs:
              The Uni ven;ity's Office of Business Affairs, Grants and Contracts (OBAGe) received
              and recorded the initial UB grant of $423,337.00 on Jul y 18. 2001; supplemental grants
              of $88,168.00 received and recorded on July 20, 2001, and $3,803.00 received and
              recorded on October 4, 2001. Of the total amount awarded to UB (SSIS,308), S76,24O
              was subtracted for equipment, stipends, and room and board to amve at modified total
              direct costs of $439,068.00. According to the "Notice of Award and Account Number
              Assignment" (records from OBAGC, Appendb.: J) S29,439 was charged as indirect
              COSlS, not in e)[cess of lhe 8% and the modi fied indirect costs charged to the supplemental
              grant of$88,168.oo.

              We are providing docwnentation with this response to the Draft Audit Report to support
              59S,820 and therefore disagree with the finding and recommendations to return the total
              amount requested in OIG's re<:ommendations 4.1 and S.I . We agree to return $2,930
              (S2,8S0, half of the expense o r the bus engaged ror the College Tour taken by Upward
              Bound and Talent Search students and 580 that may have been paid twice).




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             UIC UB Response
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             We have begun discussions with the University Accounting Office to treat lh¢ UB
             telocom charges consistent with other accounts throughout the Uruvenity that have fixed
             indirect cost that cannot be adjusted in an indirect cost pool and have similar pUIp05eS in
             like cin:um$lanCeS. And wi ll work with the Depanmentto change the line item in the
             budget  rorfuture UB funding so that the telecom charges are assigned to budget line
             items that provide additional services.

             We have taken steps to roconcile and track expense items by category in the appropriate
             account within the new BANNER universi ty accounting system. BANNER will a110w us
             10 enter new codes for each year of the li fe of the grant and will allow us to segregate
             expcnses by individual award years. Add itionally, the Office of the Vice Chancellor for
             Student Affairs (OVCSA) has directed all programs to maintain a separate shadow
             accounting system spreadsheet. by budget line item and issue bi-monthly accoun ting
             reporU to the OVCSA. The manual reports will be compared and reconci led within the
             BANNER system. Because we will enter a new code for each grant year, we wi11 be able
             to segregate accounts by individual award years, and will maintain our internal accounts
             by budget item and objective.




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