oversight

The Tennessee Department of Education's Administration of a Race to the Top Grant

Published by the Department of Education, Office of Inspector General on 2016-03-30.

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

                         UNITED STATES DEPARTMENT OF EDUCATION
                                      OFFICE OF INSPECTOR GENERAL

                                                                                              AUDIT SERVICES
                                                                                 Chicago/Kansas City Audit Region


                                                     March 30, 2016

                                                                                         Control Number
                                                                                         ED-OIG/A05O0004

Dr. Candice McQueen
Commissioner
Tennessee Department of Education
710 James Robertson Parkway
Nashville, TN 37243

Dear Dr. McQueen:

This final audit report, “The Tennessee Department of Education’s Administration of a Race to
the Top Grant,” presents the results of our audit of selected aspects of how the Tennessee
Department of Education (Tennessee) administered a $500.7 million Race to the Top grant.
We audited three of the six educational topic areas on which Tennessee spent Race to the Top
funds: Area C, “Data Systems to Support Instruction” (Area C); Area D, “Great Teachers and
Leaders” (Area D); and Area E, “Turning Around the Lowest-Achieving Schools” (Area E). 1

The objectives of our audit were to determine whether Tennessee

        1. accurately and completely reported Area D grant performance data to the
           U.S. Department of Education (Department), 2

        2. spent Race to the Top funds only on allowable items and activities and in accordance
           with program requirements and the State of Tennessee Office of the Governor’s
           approved grant application, 3 and

        3. ensured that each local educational agency (LEA) receiving a Race to the Top
           subgrant from Tennessee spent the funds only on allowable items and activities and in
           accordance with program requirements and the approved grant application.

We audited Tennessee. To achieve our objectives, we judgmentally selected two LEAs:
Hamilton County Department of Education (Hamilton) and the Achievement School District. 4
1
  See a list of all six areas in the Background section of this report.
2
  The Department did not require Tennessee to report any Area C performance measures. The Department required
Tennessee to report only two Area E performance measures but we chose not to audit these performance measures.
3
  The State of Tennessee Office of the Governor applied for the Race to the Top grant on behalf of the
Tennessee Department of Education.
4
  We selected Hamilton based on the amount of funds it received and selected risk factors, such as prior audit
findings. We selected the Achievement School District because it was a new school district and previous audit
reports of it disclosed findings relevant to the administration of Federal funds. (See “Sampling Methodology” in the
Objectives, Scope, and Methodology section of this report).
Final Report
ED-OIG/A05O0004                                                                                    Page 2 of 35

For the first objective, our audit covered Tennessee’s 2012–2013 annual performance report only
for Area D. For the second and third objectives, our audit covered July 1, 2010, through
September 30, 2013, for Areas C and D at Tennessee and Hamilton. Also, for our second and
third objectives, our audit covered July 1, 2010, through September 30, 2014, for Area E at
Tennessee (Achievement School District related only) and the Achievement School District.

We found that Tennessee (1) accurately and completely reported Area D grant performance data
to the Department in its 2012–2013 annual performance report, (2) spent Race to the Top funds
for Areas C and D that we examined only on allowable items and activities and in accordance
with program requirements and the approved grant application, and (3) ensured that Hamilton
spent Race to the Top funds for Areas C and D that we examined only on allowable items and
activities and in accordance with program requirements and the approved grant application. 5

However, we found that Tennessee did not ensure that the Achievement School District
developed and implemented adequate internal control activities over retaining documentation,
contracting, approving purchases, using credit cards, recording adjusting journal entries, and
classifying expenditures. In addition, we found that Tennessee and the Achievement School
District did not spend Race to the Top funds for Area E only on allowable items and activities
and in accordance with program requirements and the approved grant application. We examined
supporting documentation for 203 judgmentally selected transactions recording $6,455,592 of
the 57,957 transactions recording $27,755,759 in personnel and nonpersonnel expenditures that
Tennessee and the Achievement School District charged to the Race to the Top grant for Area E
from July 1, 2010, through September 30, 2014. (We limited our sample of transactions to those
recording nonpersonnel expenditures.) We found that Tennessee and the Achievement School
District spent $101,903 (about 0.4 percent of the $27,755,759 in personnel and nonpersonnel
expenditures) on unallowable items and activities and did not adequately document another
$141,968 (about 0.5 percent of the $27,755,759 in personnel and nonpersonnel expenditures).

In the draft of this report, we recommended that the Department require Tennessee to increase its
oversight of the Achievement School District and ensure that the Achievement School District
develops and implements internal control activities that provide reasonable assurance that
Federal funds are accurately accounted for and spent only for allowable purposes. We also
recommended that the Department require Tennessee to return to the Department the $100,992 in
Race to the Top funds that it and the Achievement School District spent on unallowable items
and activities. 6 In addition, we recommended that the Department require Tennessee and the
Achievement School District to provide to the Department adequate documentation to show that
the $141,968 was used for allowable items and activities or return those funds to the Department.

In its comments on the draft of this report, Tennessee agreed with all three of our findings and
the recommendations for Finding No. 2. Tennessee also stated that it worked with the
Department to address the issues of unallowable and inadequately documented expenditures that
we identified in Finding No. 3, reclassifying the unallowable and inadequately documented
expenditures to local sources of funds. After receiving approval from the Department,
Tennessee applied expenditures for allowable Race to the Top items and activities before the
5
  Because we did not select the LEAs or expenditures as part of a statistical sample, our results might not be
representative of the entire universes and, therefore, cannot be projected to the universes (See “Sampling
Methodology” in the Objectives, Scope, and Methodology section of this report).
6
  We confirmed that the Achievement School District returned $1,055 to the Race to the Top grant after we brought
$102,047 in unallowable expenditures to its attention.
Final Report
ED-OIG/A05O0004                                                                      Page 3 of 35

expiration of the period of availability of funds. Therefore, Tennessee suggested that we revise
the recommendations for Finding No. 3. We included the full text of Tennessee’s comments on
the draft of this report as Attachment 2.

Based on Tennessee’s comments and our discussion with the Executive Director of Operational
Strategy for Tennessee, we reduced the total amount of unallowable costs identified in the draft
of this report by $143. We also removed one recommendation because Tennessee provided a
finalized and approved version of the Achievement School District’s financial policies and
procedures. Finally, we modified Recommendations 3.1 and 3.2 to reflect the corrective actions
that Tennessee stated that it took after we notified it of the unallowable and inadequately
documented transactions. We now recommend that the Department require Tennessee to
provide accounting records showing it reclassified the $242,816 that it and the Achievement
School District used for unallowable items and activities or for which they did not provide
adequate documentation. We also recommend that the Department require Tennessee to provide
it with accounting records showing that Tennessee reclassified the $242,816 from the Race to the
Top Grant to local sources of funds and supporting documentation proving that the transactions
charged to the Race to the Top grant in place of the $242,816 comply with Federal fiscal
requirements and the approved grant application.




                                      BACKGROUND


The American Recovery and Reinvestment Act of 2009 (Recovery Act) provided $4.35 billion
for the Race to the Top fund, a competitive grant program designed to encourage and reward
States that were

       1. creating the conditions for education innovation and reform;

       2. achieving significant improvement in student outcomes, including making substantial
          gains in student achievement, closing the achievement gaps, improving high school
          graduation rates, and ensuring student preparation for success in college and careers;
          and

       3. implementing ambitious plans in four core education reform areas: (a) adopting
          standards and assessments that prepare students to succeed in college and the
          workplace and to compete in the global economy; (b) building data systems that
          measure student growth and success and inform teachers and principals about how
          they can improve instruction; (c) recruiting, developing, rewarding, and retaining
          effective teachers and principals, especially where they are needed most; and
          (d) turning around the lowest achieving schools.

The Department awarded grants to 11 States and the District of Columbia (Phase 1 and
Phase 2 awards) from the $4.35 billion in Race to the Top funds appropriated under the
Recovery Act. The Department also used funds appropriated under the Recovery Act to make
two awards totaling about $330 million under the Race to the Top Assessment program to the
Partnership for the Assessment of Readiness for College and Careers and the Smarter Balanced
Final Report
ED-OIG/A05O0004                                                                      Page 4 of 35

Assessment Consortium. The Department made about $200 million in awards to seven States
(Phase 3 awards) from funds appropriated for fiscal year 2011.

Section 14006(c) of the Recovery Act requires each State that is awarded a Race to the Top grant
to allocate at least 50 percent of the funds to participating LEAs and charter schools. The State
must allocate these funds according to the percentage of funding that each participating LEA and
charter school received under Part A of Title I of the Elementary and Secondary Education Act
of 1965, as amended, for the most recent year. States have considerable flexibility in allocating
the remaining 50 percent of their Race to the Top funds. The funds may be used for State-level
activities, supplemental disbursements to participating LEAs, and other purposes as proposed in
the approved grant application. The conditions of its grant award required Tennessee to use
grant funds in a manner consistent with the implementation of its Race to the Top plan and in
support of accomplishing its proposed milestones. Tennessee was also required to follow 2 Code
of Federal Regulations (C.F.R.) Part 225, “Cost Principles for State, Local, and Indian Tribal
Governments,” when determining allowable uses of funds.

Each State receiving a Race to the Top grant must validate and certify the accuracy of the data in
annual performance reports submitted by the State to the Department. According to the
Department, before the end of the annual reporting period (July 1 through June 30), each State
submits information about outcomes to date, the State’s performance against the measures
established in the State’s application, and other relevant data. The Department reviews
each State’s preliminary data for completeness and reasonableness. A State must address the
Department’s comments, if any, and then resubmit and validate sections of the annual
performance report in the Department’s annual performance report collection system. The State
then must certify the accuracy of the entire annual performance report and submit the final
version through the annual performance report collection system.

The Department awarded the State of Tennessee Office of the Governor a $500,741,220 Race to
the Top grant. The State of Tennessee Office of the Governor’s application included the
following six educational topic areas on which the State of Tennessee planned to spend Race to
the Top funds:

       •   Area A, “State Success Factors;”

       •   Area B, “Standards and Assessments;”

       •   Area C, “Data Systems to Support Instruction;”

       •   Area D, “Great Teachers and Leaders;”

       •   Area E, “Turning Around the Lowest-Achieving Schools;” and

       •   Priority area, “STEM.”

Tennessee’s scope of work required the reporting of performance measures on three of its
Race to the Top initiatives for Area D: (1) improving teacher and principal effectiveness based
on performance, (2) ensuring equitable distribution of effective teachers and principals, and
Final Report
ED-OIG/A05O0004                                                                       Page 5 of 35

(3) improving the effectiveness of teacher and principal preparation programs. Under these
initiatives, Tennessee reported progress data on 39 performance measures.

On January 16, 2010, the State of Tennessee legislature authorized the creation of the
Achievement School District. This authorization permitted Tennessee to remove persistently
low-achieving schools from their home LEAs and place them under the control of the
Achievement School District. The Achievement School District would be led by a
superintendent reporting directly to Tennessee’s Commissioner of Education. Tennessee used
part of the 50–percent portion of the Race to the Top grant that was not required to be distributed
to participating LEAs and charter schools to create the Achievement School District and fund its
operations. From July 1, 2010, through September 30, 2013, Tennessee spent $21,145,861 of
Race to the Top funds designated for Area E on the Achievement School District. Tennessee
also spent $26,511,957 of Race to the Top funds for Area E funds on other activities. Before
October 1, 2013, Tennessee maintained all fiscal records relevant to the Achievement School
District’s activities. On October 1, 2013, when its payroll and accounting system became
operational, the Achievement School District began maintaining its own fiscal records.
According to its records, from October 1, 2013, through September 30, 2014, the Achievement
School District spent another $6,609,898 of the Race to the Top funds designated for Area E on
organizing and operating costs.

As of September 30, 2013, Tennessee and the participating LEAs and charter schools had spent
about $309 million of the approximately $501 million awarded to the State of Tennessee
Office of the Governor. Table 1 shows the allocations and expenditures for Tennessee
(including the Achievement School District) and Hamilton.

Table 1. Race to the Top Allocations and Expenditures as of September 30, 2013

                                          Total Expenditures for        Total Expenditures
                                             Educational Topic          for All Educational
      Entity         Total Allocation          Areas C and D                Topic Areas
Tennessee                $250,370,610*                 $57,326,626               $128,733,609
Hamilton                   $10,927,153                  $5,949,913                 $8,913,814
Total                     $261,297,763                 $63,276,539               $137,647,423
*This amount represents about 50 percent of the total Race to the Top grant award.




                                     AUDIT RESULTS


The objectives of our audit were to determine whether Tennessee (1) accurately and completely
reported Area D grant performance data to the Department, (2) spent Race to the Top funds only
on allowable items and activities and in accordance with program requirements and the approved
grant application, and (3) ensured that each LEA receiving a Race to the Top subgrant from
Tennessee spent the funds only on allowable items and activities and in accordance with program
requirements and the approved grant application.
Final Report
ED-OIG/A05O0004                                                                     Page 6 of 35

We found that Tennessee (1) accurately and completely reported selected Area D grant
performance data to the Department in its 2012–2013 annual performance report, (2) spent
Race to the Top funds for Areas C and D that we examined only on allowable items and
activities and in accordance with program requirements and the approved grant application, and
(3) ensured that Hamilton spent Race to the Top funds for Areas C and D that we examined only
on allowable items and activities and in accordance with program requirements and the approved
grant application. However, we found that Tennessee did not ensure that the Achievement
School District developed and implemented adequate internal control activities. Also, we found
that Tennessee and the Achievement School District spent $101,903 of Race to the Top funds for
Area E on unallowable items and activities and did not retain adequate documentation to show
that Race to the Top transactions recording expenditures for Area E totaling $141,968 were
allowable.

In its comments on the draft of this report, Tennessee agreed with all three of our findings and
the recommendations for Finding No. 2. Tennessee also stated that it worked with the
Department to address the issues of unallowable and inadequately documented expenditures that
we identified in Finding No. 3, reclassifying the unallowable and inadequately documented
expenditures to local sources of funds. After receiving approval from the Department,
Tennessee applied expenditures for allowable Race to the Top items and activities before the
expiration of the period of availability of funds. Therefore, Tennessee suggested that we revise
the recommendations for Finding No. 3. With its comments, Tennessee provided a finalized and
approved version of the Achievement School District’s financial policies and procedures
(January 2015) and attached a spreadsheet showing the unallowable and inadequately
documented expenditures and adjusting journal entries that removed funds from the Race to the
Top grant. We summarized Tennessee’s comments at the end of each finding. The full text of
Tennessee’s comments on the draft of this report is included as Attachment 2. We did not
include the attachments that Tennessee provided with its comments. However, we will make the
two attachments available on request.

Based on Tennessee’s comments and our discussion with the Executive Director of Operational
Strategy for Tennessee, we reduced the total amount of unallowable costs identified in the draft
of this report by $143. We also removed one recommendation because Tennessee provided a
finalized and approved version of the Achievement School District’s financial policies and
procedures. Finally, we modified Recommendations 3.1 and 3.2 to reflect the corrective actions
that Tennessee took after we notified it of the unallowable and inadequately documented
transactions.

FINDING NO. 1 – Tennessee Accurately Reported Area D Grant Performance Data and
                Ensured Area C and D Expenditures Were Allowable

We found that Tennessee accurately and completely reported Area D grant performance data to
the Department in its 2012–2013 annual performance report. We judgmentally selected 10 of the
39 (26 percent) reported Area D grant performance measures that covered improving teacher and
principal effectiveness based on performance, ensuring equitable distribution of effective
teachers and principals, and improving the effectiveness of teacher and principal preparation
programs (see Selection of Area D Performance Measures). The 10 performance measures that
we selected, and for which we reviewed supporting documentation, included LEAs’ evaluation
systems, teacher and principal effectiveness ratings in schools with varying minority and
poverty rates, and publicly available growth data on graduates of teacher and principal
Final Report
ED-OIG/A05O0004                                                                                      Page 7 of 35

preparation programs in the State. Tennessee provided supporting documentation that was
sufficient to verify the accuracy and completeness of all 10 of the reported Area D grant
performance measures that we examined.

We also found that Tennessee spent Race to the Top funds for Areas C and D that we examined
only on allowable items and activities and in accordance with program requirements and the
approved grant application. We judgmentally selected 40 transactions recording $7,170,170
(13 percent) of the 14,771 transactions recording $57,326,626 in expenditures that Tennessee
charged to its Race to the Top grant for Areas C and D from July 1, 2010, through
September 30, 2013 (see Selection of Expenditures for Areas C and D). Tennessee provided
supporting documentation that was sufficient to confirm that it spent all $7,170,170 on allowable
items and activities and in accordance with program requirements and the approved grant
application.

Additionally, we found that Tennessee ensured that Hamilton spent Race to the Top funds for
Areas C and D that we examined only on allowable items and activities and in accordance with
program requirements, the approved grant application, and Hamilton’s detailed scope of work.
We judgmentally selected 23 transactions recording $1,064,770 (18 percent) of the
1,442 transactions recording $5,949,913 in expenditures that Hamilton charged to the Race to the
Top grant for Areas C and D from July 1, 2010, through September 30, 2013. We also
judgmentally selected 8 transactions recording $299,326 (23 percent) of the 485 transactions
recording $1,290,115 in expenditures that Hamilton charged from July 1, 2010, through
September 30, 2013, to a teacher and principal residency grant it received from Tennessee’s
portion of the Race to the Top funds (see Selection of Expenditures for Areas C and D).
Hamilton provided supporting documentation sufficient to confirm that it spent the $1,364,096
($1,064,770 plus $299,326) only on allowable items and activities and in accordance with
program requirements and the approved grant application.

Because we did not identify any ways in which Tennessee and Hamilton could improve their
administration and use of Race to the Top funds for Areas C and D, we do not make any
recommendations directed towards Tennessee’s oversight of Areas C or D or Tennessee’s and
Hamilton’s use of Race to the Top funds for Areas C and D.

Auditee Comments

Tennessee agreed with this finding.

FINDING NO. 2 – Tennessee Did Not Ensure that the Achievement School District
                Developed and Implemented Adequate Internal Control Activities 7

According to 34 C.F.R. Section (§) 80.20(a), fiscal control and fund accounting procedures of
the State and its subgrantees must be sufficient to permit the tracing of funds to a level of
expenditures adequate to establish that such funds have not been used in violation of the
restrictions and prohibitions of applicable statutes. Nothing came to our attention that would
lead us to believe that the Achievement School District could not adequately account for


7
  Control activities are the policies, procedures, techniques, and mechanisms that enforce management’s directives
to achieve the entity’s objectives and address related risks.
Final Report
ED-OIG/A05O0004                                                                                    Page 8 of 35

electronic devices in accordance with applicable requirements. 8 However, we found that
Tennessee did not ensure that the Achievement School District developed and implemented
fiscal control and fund accounting procedures that provided reasonable assurance that the
Achievement School District accounted for and spent Federal funds in accordance with Federal
requirements and the approved grant application.

By not designing and implementing effective fiscal control and fund accounting procedures, the
Achievement School District increased the risk that it would misuse Federal funds or not
accomplish the goals set forth in the approved grant application. At least in part because of its
lack of properly designed and effectively implemented fiscal control and fund accounting
procedures, the Achievement School District spent Race to the Top funds for Area E on
unallowable items and activities and did not always retain documentation that was adequate to
show that Race to the Top transactions recording expenditures for Area E were allowable
(see Finding No. 3).

Records Not Maintained
The Achievement School District had to obtain supporting documentation from third parties
because the district did not always retain the documentation itself. Of the 203 judgmentally
selected transactions that we examined, third parties had to provide documentation for 14. The
14 transactions recorded $32,967 in expenditures incurred by the Achievement School District.

According to 34 C.F.R. § 80.42, grantees must maintain records for 3 years from the day the
grantee submits its final expenditure report or until the completion of any audit started before the
expiration of the 3-year period. Tennessee submitted its final expenditure report on
December 29, 2015.

Contracting Procedures for Obtaining the Best Service Provider Not Created
The Achievement School District did not establish a process for determining whether it awarded
professional services contracts based on the vendors’ recognized competence and integrity.
According to Tennessee Code Annotated §§ 12–4–106 (effective before July 1, 2013) and
12–3–1209 (effective July 1, 2013), “[c]ontracts for legal services, fiscal agent, financial advisor
or advisory services, educational consultant services, and similar services by professional
persons or groups with high ethical standards, shall not be based upon competitive procurement
methods, but shall be awarded on the basis of recognized competence and integrity.”

We reviewed 15 of the 17 professional services contracts, worth $1,343,198, that the
Achievement School District entered into from June 2012 through September 2014. Of these
15 professional services contracts, the Achievement School District entered into 10, worth
$498,745, without providing evidence that it awarded the contracts based on the vendors’
recognized competence and integrity.

By not designing and implementing internal control activities over its professional services
contracts, the Achievement School District increased the risk that Federal funds will be misused
or not used to accomplish the goals set forth in the State of Tennessee Governor’s Office’s
approved grant application.


8
  We found that the Achievement School District adequately accounted for 45 of the 495 electronic devices that we
included in our sample (see “Sampling Methodology”).
Final Report
ED-OIG/A05O0004                                                                                     Page 9 of 35

Purchases Made Before Required Approvals Obtained
Achievement School District employees did not always obtain approvals for purchases before
making the purchases. Of the 203 judgmentally selected transactions that we examined,
68, worth $5,090,235, required purchase orders. 9 An Achievement School District official
approved 46 of the purchase orders after the purchases were made. For 1 of the 46 purchases,
the person who approved the invoice was the same person who requested the purchase,
indicating inadequate segregation of duties. Inadequate segregation of duties can increase the
risk of fraud, waste, and abuse.

The Achievement School District’s 2012–2013 “Tennessee Achievement School District
Financial Policies and Procedures,” requires an approved purchase order before employees can
make purchases. According to the State of Tennessee’s “Central Procurement Office Agency
Procurement Manual,” January 4, 2012, the procurement process begins with a requisition and
purchase order.

Inadequate Design and Implementation of Control Activities Over Credit Cards
According to 34 C.F.R. § 80.20(a), fiscal control and fund accounting procedures of the State
and its subgrantees must be sufficient to establish that such funds have not been used in violation
of the restrictions and prohibitions of applicable statutes. According to Tennessee Code
Annotated 49–1–614(h), effective May 10, 2012, the Achievement School District was provided
the same authority and autonomy afforded to LEAs under State law regarding the procurement of
property, goods, and services, including professional services. Although the Achievement
School District began its own credit card program, separate from the State’s program, in
October 2013, it did not issue the “Achievement School District P Card Usage Policy” until
April 8, 2014. The district’s policy listed only planned, not required, control activities for
approving and reviewing credit card transactions. Additionally, we found that the Achievement
School District did not implement the control activities described in the credit card policy.

The credit card policy stated that “Each transaction should be logged and should be reconciled
with transaction receipts and forward [sic] to your approver for review and signature.” Of the
203 judgmentally selected transactions that we reviewed, 12 recorded $14,126 in expenditures
that were made by employees using their district-authorized credit cards after the effective date
of the Achievement School District’s credit card usage policy. The Achievement School District
did not record any of the 12 in a transaction log and did not have a reviewer reconcile and
approve any of the 12.

Additionally, the Achievement School District authorized 12 employees to have credit cards.
Each of the 12 credit card holders was authorized a $50,000 monthly credit limit. Therefore,
each of the 12 card holders had annual access to a $600,000 revolving line of credit. The chief
financial officer of the Achievement School District told us that the monthly credit limit was a
mistake and that the monthly credit limits were reduced to $2,500 or $5,000, depending on the
size of the applicable school or department. As evidence of the change, the Achievement School
District provided us with a screen shot from its bank’s Web site showing the reduced monthly
credit limit for five of the credit card holders.



9
 Certain types of transactions did not require purchase orders. For example, purchases made with credit cards,
employee reimbursements, and adjusting journal entries were not required to go through the purchase order process.
Final Report
ED-OIG/A05O0004                                                                                 Page 10 of 35

Inadequate design and implementation of control activities over credit cards could result in fraud
or abuse of Federal funds. For example, the Achievement School District informed us that at
least one employee used a district-authorized credit card to purchase items for personal use.
According to an email from Tennessee’s Director of Internal Audit, the Achievement School
District became aware of the abuse only after the employee notified management that she had
accidentally used the district-authorized credit card to make a personal purchase. The
Achievement School District then looked into other purchases that the employee made, found
additional charges for personal items, and terminated the employee.

Inadequate Procedures for Accurately Recording Adjusting Journal Entries
According to 34 C.F.R. § 80.20(a), fiscal control and accounting procedures of the State and
its subgrantees must be sufficient to permit the tracing of funds to a level of expenditures
adequate to establish that such funds have not been used in violation of the restrictions and
prohibitions of applicable statutes. However, we found that the Achievement School District’s
fiscal control and fund accounting procedures did not provide reasonable assurance that adjusting
journal entries were accurately recorded.

Of the 203 judgmentally selected transactions that we reviewed, 71 were adjusting journal entries
recording Achievement School District expenditures worth $336,018. Four of the 71 adjusting
journal entries resulted in $10,087 in duplicate charges to the Race to the Top grant. 10
One adjusting journal entry resulted in an unallowable cost of $1,055. Before our audit, the
Achievement School District identified one transaction that mistakenly charged $1,055 to the
Race to the Top grant. The Achievement School District attempted to reverse the expenditure
through an adjusting journal entry. However, instead of reversing the expenditure, the adjusting
journal entry duplicated it. The Achievement School District eventually reversed one of the
two charges, but $1,055 was still incorrectly charged to the Race to the Top grant. After we
brought this issue to their attention, Achievement School District employees created
two adjusting journal entries that removed $2,110 from the Race to the Top grant, although only
$1,055 should have been removed.

Because we identified problems with the accuracy of adjusting journal entries for the
transactions in our sample, we chose to review all 707 adjusting journal entries that the
Achievement School District recorded from July 1, 2014, through September 30, 2014. We
found that the Achievement School District dated 412 of the 707 (58 percent) adjusting journal
entries so that they appeared to have been recorded in September 2014. However, the
Achievement School District had not recorded any of the 412 adjusting journal entries until after
October 6, 2014, the date that we notified it we would be examining expenditures that occurred
from July 1, 2014, through September 30, 2014. In September 2013, the Achievement School
District recorded only 35 adjusting journal entries that added $13,007 in expenditures to the
Race to the Top grant.

We learned that the Achievement School District recorded the adjusting journal entries to correct
accounting code errors and to remove unallowable expenditures that it identified when fulfilling
our request. The unallowable expenditures that the Achievement School District removed from
the Race to the Top grant were charges primarily for contracted services, data processing


10
 The $10,087 is included in the $14,035 of unallowable costs for duplicated charges under “Funds Used for
Unallowable Activities.”
Final Report
ED-OIG/A05O0004                                                                       Page 11 of 35

services, and accounting services. The net effect of the 412 adjusting journal entries was to
remove $85,385 in expenditures from the Race to the Top grant.

Had the Achievement School District not removed these charges from the Race to the Top grant
before our review, we most likely would have identified more unallowable expenditures during
our review (see Finding No. 3).

Improper Classification of Expenditures
The Achievement School District incorrectly classified 34 (about 17 percent) of the
203 transactions that we judgmentally selected for review. We found that the Achievement
School District classified travel and professional development expenditures as “office supplies
and furniture;” classified expenditures for flowers, food and beverages, and security cameras as
“travel;” and classified finance charges as “other supplies and materials.” For another 4 of the
203 transactions, the Achievement School District did not provide adequate documentation that
would allow us to determine whether the Achievement School District correctly classified them.

According to 34 C.F.R. § 80.20(a), fiscal control and fund accounting procedures of the State
and its subgrantees must be sufficient to permit the tracing of funds to a level of expenditures
adequate to establish that such funds have not been used in violation of the restrictions and
prohibitions of applicable statutes.

Each employee who requested a purchase assigned the account code for that purchase.
According to the controller for the Achievement School District, changing an incorrect account
code in the accounting system once it was entered was difficult.

Unapproved Financial Policies and Procedures
The Achievement School District provided us with “Tennessee Achievement School District
Financial Policies & Procedures,” May 10, 2012, which showed that the document was “revised
with Commissioner’s approval.” However, the document was stamped “DRAFT” throughout.
Before we completed our audit work, we asked for a finalized version with evidence of the
Tennessee Commissioner of Education’s approval, but the Achievement School District did not
provide us with a finalized version applicable to our audit period. With its response on the draft
of this report, Tennessee provided a finalized and approved version of the financial policies and
procedures, effective January 2015.

According to Tennessee Code Annotated 49–1–614(h), the Achievement School District was
required to develop written procedures for the procurement of all goods and services in
compliance with the expenditure thresholds for competitive bidding outlined or permitted in
§ 49–2–203. The Achievement School District also was required to obtain the approval of such
procedures from the Tennessee Commissioner of Education.

Recommendations

We recommend that the Chief Financial Officer of the Department, in conjunction with the
Assistant Secretary for Elementary and Secondary Education, require Tennessee to instruct the
Achievement School District to—

2.1    Develop and implement policies and procedures that provide reasonable assurance that it
       will retain adequate supporting documentation for all transactions.
Final Report
ED-OIG/A05O0004                                                                      Page 12 of 35

2.2    Develop and implement policies and procedures for contracting that provide reasonable
       assurance that it is awarding professional service contracts on the basis of recognized
       competence and integrity.

2.3    Strengthen its purchasing processes so that the processes provide reasonable assurance
       that purchase orders are approved before employees order goods or services.

2.4    Strengthen its fiscal control and fund accounting procedures so that they provide
       reasonable assurance that adjusting journal entries are reviewed and approved,
       accounting codes are properly assigned to expenditures, and expenditures are
       appropriately and accurately allocated between Federal grants before being entered.

2.5    Review all adjusting journal entries for the Race to the Top grant and correct all errors
       that we did not identify during our review.

2.6    Develop and implement procedures that provide reasonable assurance that employees
       correctly classify transactions in the accounting system.

2.7    Follows its policies and procedures for using credit cards.

2.8    Have the credit card issuer provide directly to Tennessee verifications that the credit
       limits for all district-authorized credit cards have been reduced.

Auditee Comments

Tennessee agreed with the finding and recommendations, stating that it initiated a plan to move
the Achievement School District’s fiscal and accounting operations from the Achievement
School District’s current system to the State’s primary fiscal system. Tennessee also stated that
it assigned two people from its Office of the Chief Operating Officer to work with the
Achievement School District to establish revised policies and procedures and oversight measures
to ensure implementation of improved internal control activities. These two people and the
Achievement School District will work with Tennessee’s Office of the Chief Financial Officer
and Office of Consolidated Planning and Monitoring to leverage additional expertise and
successful practices in fiscal functions, State procedures, State systems, and Federal regulations.
They will address each of the issues noted in the draft report. Tennessee provided its plan of
action for each recommendation.

OIG Response

Tennessee’s planned corrective actions, if implemented, should be sufficient to correct the
control activity deficiencies that we identified. With its comments on the draft of this report,
Tennessee provided a finalized and approved version of the Achievement School District’s
financial policies and procedures. Therefore, we removed our recommendation that the
Achievement School District obtain approval for a finalized version of its financial policies and
procedures from the Tennessee Commissioner of Education.
Final Report
ED-OIG/A05O0004                                                                               Page 13 of 35

FINDING NO. 3 – Tennessee and the Achievement School District Did Not Comply With
                Federal Fiscal Requirements

Tennessee and the Achievement School District spent $101,903 of Race to the Top funds for
Area E on unallowable items and activities. In addition, Tennessee and the Achievement School
District did not retain adequate documentation to show that transactions recording another
$141,968 in Race to the Top expenditures for Area E were allowable. The transactions recorded
expenditures that were incurred while the Achievement School District was operating as part of
Tennessee and while the Achievement School District was operating as an independent LEA.
Tennessee and the Achievement School District did not always comply with Federal fiscal
requirements and the approved grant application, in part, because Tennessee did not ensure that
the Achievement School District developed and implemented adequate internal control activities
over spending Race to the Top Area E funds.

Funds Spent on Unallowable Items and Activities
We judgmentally selected 203 transactions recording $6,455,592 (23 percent) of the 57,957
transactions recording $27,755,759 in expenditures that Tennessee and the Achievement School
District charged to the Race to the Top grant for Area E and reviewed available supporting
documentation. Of the 203 transactions, 55 recorded $51,101 in expenditures that were
unallowable. In addition to these 55 transactions, we identified 210 similar transactions
recording $50,802 in unallowable expenditures that we had not included in our sample of
203 transactions (see “Selection of Expenditures for Area E” in Objectives, Scope, and
Methodology). In total, we identified 265 Race to the Top transactions recording $101,903 in
expenditures for Area E that were unallowable, as follows. 11

        •   Tennessee and the Achievement School District spent $43,686 on promotional items,
            such as tee shirts, water bottles, cups, bumper stickers, wrist bands, laptop bags, and
            other items imprinted with the Achievement School District’s logo. According to
            2 C.F.R. Part 225, Appendix B, Selected Items of Cost, unallowable advertising and
            public relations costs include costs of promotional items and memorabilia, including
            models, gifts, and souvenirs.

        •   Tennessee and the Achievement School District spent $14,198 on items for personal
            use and personal convenience, such as food and beverages, gifts for employees, and
            flowers for a supporter of the district and employees of the district. According to
            2 C.F.R. Part 225, Appendix B, Selected Items of Cost, costs of goods or services for
            personal use are unallowable.

        •   Tennessee and the Achievement School District spent $14,975 on travel costs in
            excess of the maximum allowance rates, travel costs charged to the wrong account,
            and travel costs that did not benefit the Race to the Top grant. The costs included
            $8,152 for employee travel costs in excess of the maximum allowance rates. For
            example, the Achievement School District spent $344 on meals for the superintendent
            when the1–day reimbursement rate for that location was $46 (difference of $298). 12
            Additionally the Achievement School District spent $130 on main-cabin extras and

11
  The amounts listed in the following bullet points do not add to $101,903 because of rounding.
12
  Maximum lodging and meal allowance rates refer to the maximum allowance rates established by the
U.S. General Services Administration.
Final Report
ED-OIG/A05O0004                                                                                    Page 14 of 35

             preferred seats on one flight and $120 on a seat upgrade for another flight for the
             superintendent and employees. The Achievement School District also spent $20 for
             a flight upgrade for the superintendent’s wife, who was not an employee of the
             Achievement School District.

             From July 1, 2010, through June 30, 2012, the Achievement School District was
             required to follow the State of Tennessee’s travel regulations. The State of
             Tennessee’s “Department of Finance and Administration Policy 8 - Comprehensive
             Travel Regulations,” August 2012, included maximum lodging and meals allowance
             rates for out-of-State and in-State travel. The out-of-State allowance rates established
             by the State of Tennessee adhered to those rates established by the U.S. General
             Services Administration. From October 1, 2011, through June 30, 2013, the
             maximum lodging and meals allowance rates established by the State of Tennessee
             for in-State travel matched U.S. General Services Administration allowance rates for
             the State.

             From July 1, 2012, through September 30, 2014, when it was operating as an
             independent LEA, the Achievement School District did not have its own written
             policy that established maximum lodging and meals allowance rates. According to
             Appendix B to 2 C.F.R. Part 225:

                          In the absence of an acceptable, written governmental unit policy
                          regarding travel costs, the rates and amounts established under
                          subchapter I of Chapter 57, Title 5, United States Code (“Travel
                          and Subsistence Expenses; Mileage Allowances”), or by the
                          Administrator of General Services, or by the President (or his or
                          her designee) pursuant to any provisions of such subchapter shall
                          apply to travel under Federal awards (48 CFR 31.205–46(a)). The
                          U.S. General Services Administration provides maximum lodging
                          and meals allowance rates for temporary duty locations within the
                          continental United States.

             According to 2 C.F.R. Part 225, Appendix B, Selected Items of Cost, airfare costs in
             excess of the customary standard commercial airfare (coach or equivalent) are
             unallowable.

             The unallowable travel costs also included $5,376 for contractor travel and consulting
             services when the contract with the vendor stated that it should be paid with State
             funds and $1,448 for employee travel expenses that did not benefit the Race to the
             Top grant. 13 For example, the Achievement School District paid $1,752 for airfare
             for the superintendent to speak at conferences. These conferences might have been
             beneficial for the attendees, but they did not benefit the Race to the Top grant.

        •    The Achievement School District spent $14,035 on travel, finance, and credit card
             charges that the Achievement School District recorded in its accounting records
             twice. According to 2 C.F.R. Part 225, Appendix A, to be allowable under Federal

13
  The $1,448 included $575 for a training registration fee refund that we included to ensure that the Achievement
School District received credit for this refund.
Final Report
ED-OIG/A05O0004                                                                     Page 15 of 35

           awards, costs must be necessary and reasonable for proper and efficient performance
           and administration of Federal awards. Duplicate charges to a grant are not necessary
           or reasonable.

       •   The Achievement School District spent $9,447 on entertainment, such as employee
           parties, movie tickets, baseball tickets, and community picnics with a disc jockey and
           a bounce house. According to 2 C.F.R. Part 225, Appendix B, Selected Items of
           Cost, costs of entertainment, including amusement, diversion, and social activities
           and any costs directly associated with such costs (such as tickets to shows or sporting
           events, meals, lodging, and transportation) are unallowable.

       •   The Achievement School District spent $4,762 on public relations costs to promote
           the district. These costs were not necessary or reasonable for the administration of
           the Race to the Top grant and did not involve communication with the public and
           news media about the activities, accomplishments, or other matters of concern related
           to the Race to the Top grant. Instead, the Achievement School District was
           promoting itself and recruiting students. According to 2 C.F.R. Part 225,
           Appendix B, Selected Items of Cost, the only allowable public relations costs are
           those specifically required by the Federal award, costs of communicating with the
           public and press pertaining to specific activities or accomplishments which result
           from the performance of the Federal award, or costs of conducting general liaison
           with news media and government public relations officers, to the extent that such
           activities are limited to communication and liaison necessary to keep the public
           informed on matters of public concern. Unallowable public relations costs include
           those designed solely to promote the non-Federal entity.

       •   The Achievement School District spent $529 on late payment fees and finance
           charges for credit cards. The Achievement School District paid a total of $360 more
           than the monthly amount required by its lease agreement because of late payment
           fees. The Achievement School District also paid $70 in late payment fees for a utility
           bill and $99 in finance charges for its credit cards. According to 2 C.F.R. Part 225,
           Appendix A, to be allowable under Federal awards, costs must be necessary and
           reasonable for proper and efficient performance and administration of Federal
           awards. Late payment fees and finance charges are not necessary and reasonable for
           the administration of the Race to the Top grant.

       •   The Achievement School District spent $269 on travel costs for an employee to work
           on a different Federal grant. The employee was reviewing applications and
           conducting interviews for the Federal Investing in Innovation Fund grant, but the
           Achievement School District charged the travel costs to the Race to the Top grant.
           According to 2 C.F.R. Part 225, Appendix A, a cost is allocable to a particular cost
           objective if the goods or services involved are chargeable or assignable to such cost
           objective in accordance with relative benefits received. These travel costs were not
           chargeable or assignable to a cost objective associated with the Race to the Top grant.

Costs Not Adequately Documented
According to 2 C.F.R. Part 225, Appendix A, to be allowable under Federal awards, costs must
be adequately documented. However, we found that Tennessee and the Achievement School
Final Report
ED-OIG/A05O0004                                                                    Page 16 of 35

District did not always retain documentation that was adequate to show that Race to the Top
Area E funds were spent only on allowable items and activities. We judgmentally selected
203 (less than 1 percent) of the 57,957 transactions recording expenditures that Tennessee and
the Achievement School District charged to the Race to the Top grant for Area E from
July 1, 2010, through September 30, 2014. The 203 transactions recorded $6,455,592, or
23 percent, of the $27,755,759 in Area E expenditures that Tennessee and the Achievement
School District incurred during the period. We reviewed available supporting documentation
and identified 45 transactions, recording $141,968 in expenditures that Tennessee and the
Achievement School District charged to the Race to the Top grant for Area E, that lacked
adequate documentation to support that the costs were allowable, as follows.

       •   Tennessee and the Achievement School District spent $52,837 on travel and
           purchases without retaining any invoices or receipts.

       •   Tennessee and the Achievement School District spent $39,749 on contracted services
           ($20,000 for connecting students with community support services, $8,334 for
           community outreach and communication, $9,689 for janitorial and lawn services and
           request for proposal processing, and $1,726 for office space rental) without written
           contracts.

       •   Tennessee spent $20,460 on contracted services for creating and branding the
           Achievement School District logo without an approved, signed contract. The
           Achievement School District had a copy of a contract, but it was not signed by an
           Achievement School District official.

       •   The Achievement School District spent $8,400 on contracted accounting services for
           a detailed review of transactions and improvements to the Achievement School
           District’s accounting system. The vendor was tasked with, among other things,
           ensuring that transactions were assigned the correct account codes, identifying
           potentially unallowable expenditures, and establishing a system or process for
           ensuring that future expenditures would be assigned to the proper account codes.
           The Achievement School District did not provide enough documentation for us to
           determine whether the vendor completed any of these tasks.

       •   The Achievement School District spent $8,017 on travel expenses for employees to
           attend training events without providing evidence, such as certificates of completion
           or sign-in sheets, that the employees attended the training events.

       •   The Achievement School District spent $7,529 on student mentoring and janitorial
           services without providing contracts that the Achievement School District signed at
           the time that the services were procured. Achievement School District officials did
           not sign the contracts until after they were charged for the services.

       •   The Achievement School District spent $2,542 on various items ($1,386 for
           employee travel expenses, $433 on a camera, luggage, gift cards, and smart phone,
           and $723 for unspecified cable and telecommunications services) without
           documentation showing how the costs were necessary and reasonable for the
           administration of the Race to the Top grant.
Final Report
ED-OIG/A05O0004                                                                                        Page 17 of 35


         •   The Achievement School District spent $2,287 for a vendor to provide training to
             Achievement School District employees without providing evidence, such as
             certificates of completion or training agendas, that the vendor actually provided the
             services.

         •   The Achievement School District spent $102 on travel expenses without providing
             sufficient detail on personally owned vehicle mileage reports. The mileage reports
             did not provide start and end addresses, odometer readings, dates of travel, or the
             reason for the travel.

         •   The Achievement School District spent $45 more than the $1,500 amount shown on
             the invoice for a booth dedicated to improving district awareness and recruiting
             teachers at a local festival.

Tennessee and the Achievement School District spent Race to the Top funds on unallowable and
inadequately documented items and activities, in part, because Tennessee did not ensure that the
Achievement School District had developed and implemented fiscal control and fund accounting
procedures that provided reasonable assurance that Federal funds were accounted for and spent
in accordance with Federal program requirements and the approved grant application
(see Finding No. 2). Because of the significance of the internal control deficiencies, the risk that
Tennessee and the Achievement School District charged additional unallowable and
inadequately documented expenditures to the Race to the Top grant is increased.

Recommendations

We recommend that the Chief Financial Officer of the Department, in conjunction with the
Assistant Secretary for Elementary and Secondary Education, require Tennessee to—

3.1      Provide accounting records showing Tennessee removed the $100,848 that it, the
         Achievement School District, or both, used for unallowable items and activities and
         supporting documentation proving that the expenditures charged to the Race to the Top
         grant in place of the $100,848 comply with Federal fiscal requirements and the approved
         grant application. 14

3.2      Provide accounting records showing that Tennessee removed the $141,968 that it, the
         Achievement School District, or both, used for items and activities that were not
         adequately documented and proving that any expenditures charged to the Race to the Top
         grant in place of the $141,968 are adequately documented and comply with Federal fiscal
         requirements and the approved grant application.

3.3      Review a statistical sample of Achievement School District related Race to the Top grant
         transactions for Area E that we did not review and identify other expenditures that were
         for unallowable items or activities or were inadequately documented. If Tennessee
         identifies such expenditures, then it should return to the Department the amount of

14
   We confirmed that the Achievement School District returned $1,055 to the Race to the Top grant after we brought
the adjusting journal entry error to its attention. The $100,848 represents the total unallowable costs described in the
finding less $1,055.
Final Report
ED-OIG/A05O0004                                                                     Page 18 of 35

       expenditures spent for unallowable items and activities, provide sufficient support for any
       inadequately documented transactions or return the amounts to the Department.

Auditee Comments

Tennessee agreed with the finding, stating that it moved all preliminary questioned costs, both
unallowable and inadequately documented, off the grant to other funding sources. With approval
from the Department, Tennessee reallocated the released funds to other approved activities
across the Race to the Top grant through the formal activity and budget amendment process.
Through this process, Tennessee reallocated $259,490 to other approved activities across the
Race to the Top grant before the expiration of the period of availability of the grant funds.

Tennessee also stated that it formed a support team to assist the Achievement School District in
developing stronger internal control activities across fiscal operations and Federal programs.
Tennessee stated that the support team is working with the Achievement School District’s fiscal
and Federal programs teams to ensure those team members understand Federal regulations for
allowable costs and to develop effective planning, reimbursement, and monitoring policies and
procedures. The support team will review all Federal reimbursement requests for the current
fiscal year. By July 1, 2016, Tennessee’s goal is for the Achievement School District Federal
programs team to have deeper content knowledge of Federal regulations and a clearer
understanding of documentation requirements. Because of these efforts, Tennessee asked that
the OIG modify the recommendations to include the existing efforts that cleared the questioned
costs.

Tennessee included a comparison between the questioned costs in the draft report and the journal
entries in the Achievement School District’s fiscal system that shifted expenses from the Race to
the Top grant to local funds. In many cases, the expenses in the journal entry exceed those listed
in the draft report because Tennessee moved all flagged expenses noted at the time of the exit
conference. Tennessee removed a total of $259,490 in Achievement School District expenses
from the grant at the time of the exit conference. In a few instances, the questioned costs were
not fully removed from the grant. These omissions were due to final decisions in the audit
process or an error in leaving an expense out of the journal entries. As with the prior efforts
made to ensure students received the full benefit of the grant, Tennessee requested the
opportunity to shift these additional expenses off of the Race to the Top grant and replace them
with other allowable expenses from the period of availability.

Tennessee also proposed to add to the recommendations the support team efforts to bolster
practices and controls in the Achievement School District’s Federal programs.

OIG Response

We discussed with the Executive Director of Operational Strategy for Tennessee one travel cost
transaction that we identified as unallowable. Given the explanation provided, we agreed to
lower the amount of unallowable expenditures identified in the draft of this report by $143.

In the draft of this report, we recommended that Tennessee return the unallowable expenditures
and provide documentation to support all expenditures that were not adequately documented or
return those funds. We have not reviewed accounting records and supporting documentation for
the corrective actions Tennessee stated that it has already completed. However, because
Final Report
ED-OIG/A05O0004                                                                    Page 19 of 35

Tennessee stated that it has removed the unallowable and inadequately documented expenditures
that we identified in the draft of this report, we changed recommendations 3.1 and 3.2 to
recommend that Tennessee provide the Assistant Secretary with accounting records showing that
the expenditures were removed from the Race to the Top grant and supporting documentation
proving that any expenditures subsequently charged to the Race to the Top grant are allowable
and adequately documented. We did not change recommendation 3.3.




                 OBJECTIVES, SCOPE, AND METHODOLOGY


The objectives of our audit were to determine whether Tennessee

       1. accurately and completely reported Area D grant performance data to the Department,

       2. spent Race to the Top funds only on allowable items and activities and in accordance
          with program requirements and the approved grant application, and

       3. ensured that each LEA receiving a Race to the Top subgrant from Tennessee spent
          the funds only on items and allowable activities and in accordance with program
          requirements and the approved grant application.

For the first objective, our audit covered Tennessee’s 2012–2013 annual performance report
only for Area D. For the second and third objectives, our audit covered July 1, 2010, through
September 30, 2013, only for Areas C and D at Tennessee and Hamilton. Also, for our second
and third objectives, our audit covered July 1, 2010, through September 30, 2014, for Area E at
Tennessee (Achievement School District related only) and the Achievement School District.

To gain an understanding of the Race to the Top program requirements, we reviewed
information posted on the Department’s Web site; the Recovery Act, Sections 14005–14006,
Title XIV (Public Law 111–5); Federal regulations at 2 C.F.R. Part 225, and 34 C.F.R. Parts 76
and 80; and 74 Federal Register 59688 (November 18, 2009).

To gain an understanding of how Tennessee administered its Race to the Top grant and the
environment in which Tennessee operated, we reviewed the approved grant application,
2012–2013 annual performance report, Web site, and organizational charts. To identify areas of
potential internal control weaknesses related to our audit objectives, we reviewed reports on
Office of Management and Budget Circular A-133 compliance audits of Tennessee.

To achieve our objectives, we judgmentally selected Hamilton from the 140 LEAs that were
participating in Tennessee’s Race to the Top program as of August 9, 2010 (see “Sampling
Methodology”). To gain an understanding of how Hamilton administered its portion of the
Race to the Top grant and the environment in which Hamilton operated, we reviewed Hamilton’s
Race to the Top scope of work, Web site, and organizational chart. To identify areas of potential
internal control weaknesses related to our audit objectives, we reviewed reports on Office of
Management and Budget Circular A-133 compliance audits of Hamilton.
Final Report
ED-OIG/A05O0004                                                                    Page 20 of 35

We also judgmentally selected the Achievement School District because it was a new school
district and had prior audit findings. To gain an understanding of how the Achievement School
District administered Race to the Top funds designated for Area E, we reviewed the
Achievement School District’s fiscal policies and procedures, Web site, and organizational chart.
To identify areas of potential internal control weaknesses related to our audit objectives, we
reviewed reports on Office of Management and Budget Circular A-133 compliance audits of the
Tennessee Department of Education, which included the Achievement School District.

Internal Control
To gain an understanding and assess the adequacy of Tennessee’s internal control activities over
reporting Race to the Top grant performance data to the Department, we interviewed Tennessee
and Hamilton officials. We also reviewed supporting documentation for the data that Tennessee
reported.

To gain an understanding and assess the adequacy of Tennessee’s internal control activities over
spending Race to the Top funds for Areas C and D and subrecipient monitoring, we interviewed
Tennessee officials and reviewed Tennessee’s written policies and procedures. We also
judgmentally selected a sample of Tennessee’s Race to the Top transactions recording
expenditures for Areas C and D and reviewed supporting documentation, such as invoices,
receipts, and purchase orders.

To gain an understanding and assess the adequacy of Hamilton’s internal control activities over
spending Race to the Top funds for Areas C and D, we interviewed Hamilton officials and
reviewed Hamilton’s written policies and procedures. We also judgmentally selected a sample
of Hamilton’s Race to the Top transactions recording expenditures for Areas C and D and
reviewed supporting documentation such as invoices and purchase orders.
To gain an understanding and assess the adequacy of the Achievement School District’s internal
control activities over spending Race to the Top funds for Area E, we interviewed Tennessee and
Achievement School District officials and reviewed Tennessee’s and the Achievement School
District’s written policies and procedures. We also judgmentally selected a sample of
Tennessee’s and the Achievement School District’s Race to the Top transactions recording
expenditures for Area E and reviewed supporting documentation such as contracts, invoices,
purchase orders, and receipts.

Our review disclosed significant weaknesses in Tennessee’s oversight of the Achievement
School District and the Achievement School District’s fiscal control and fund accounting
procedures (see Finding No. 2).

Data Reliability
To achieve our first objective, we relied on LEA-provided data that showed student growth and
teacher evaluation results. We also relied on data from the Tennessee Higher Education
Commission that showed the results of teacher preparation programs. We assessed the reliability
of these data by looking for duplicate entries, missing data, and inappropriate relationships to
other data. We determined that these data were sufficiently reliable for our intended use.
Final Report
ED-OIG/A05O0004                                                                                  Page 21 of 35

To achieve our second and third objectives, we relied, in part, on data from Tennessee’s,
Hamilton’s, and the Achievement School District’s accounting systems. 15 We reviewed the data
for completeness by comparing Tennessee’s expenditure totals to the total drawdowns shown in
the Department’s G5 system and comparing Hamilton’s expenditure totals to the total revenue
Tennessee provided based on reimbursement requests. We also analyzed the data from
Tennessee’s, Hamilton’s, and the Achievement School District’s accounting systems, looking for
duplicate entries, missing data, inappropriate relationships to other data, values outside a
designated range, or values outside valid periods. Based on the results of our comparison and
analyses, we concluded that the data provided by Tennessee, Hamilton, and the Achievement
School District were sufficiently reliable for our intended use.

Sampling Methodology
We used sampling to achieve our audit objectives. We judgmentally selected (1) two LEAs,
(2) 10 performance measures for Area D, (3) transactions recording expenditures for Areas C
and D incurred by Tennessee and Hamilton, (4) transactions recording expenditures for Area E
by Tennessee (Achievement School District related only) and the Achievement School District,
and (5) a nonstatistical random sample of electronic devices that were included in purchases
from our sample of the Achievement School District’s transactions. Because we judgmentally
selected the LEAs, performance measures, transactions, and electronic devices, our sampling
results might not be representative of the entire universes and, therefore, cannot be projected to
the universes.

Selection of LEAs
We judgmentally selected 1 of the 140 LEAs that were participating in Tennessee’s Race to the
Top program as of August 9, 2010. We selected Hamilton because it received the most Race to
the Top funds of the 3 LEAs that the Department reviewed in March 2014. We also considered
various risk factors, such as whether prior audit reports identified findings that we considered
significant within the context of our audit objectives. We judgmentally selected the
Achievement School District because it was a newer LEA, recent audits of it disclosed
significant findings, including inadequate review of invoices, inadequately documented costs,
and charging Federal grants before the beginning of the grant term.

Selection of Performance Measures for Area D
We judgmentally selected 10 of 39 (26 percent) Race to the Top grant performance measures for
Area D that Tennessee reported in its 2012–2013 annual performance report to the Department.
We selected these 10 grant performance measures based on how much Tennessee was above,
below, or exactly on target for meeting the performance measures. We considered grant
performance measures that were significantly above or below the target, or exactly on target,
to be more likely to be incorrect.

Selection of Expenditures for Areas C and D
For Tennessee, we selected 40 transactions recording $7,170,170 (13 percent) of the
14,771 transactions recording $57,326,626 in personnel and nonpersonnel expenditures that
Tennessee charged to the Race to the Top grant for Areas C and D from July 1, 2010, through
September 30, 2013. We judgmentally selected the seven highest transactions recording

15
  The Achievement School District began using its own accounting system on October 1, 2013. Before
October 1, 2013, expenditure data for the Achievement School District was recorded in Tennessee’s accounting
system.
Final Report
ED-OIG/A05O0004                                                                                    Page 22 of 35

personnel expenditures for Area C and the seven highest transactions recording personnel
expenditures for Area D. We limited our judgmental selection of Tennessee’s transactions
recording nonpersonnel expenditures to those for data processing services, food and beverage,
general business consulting services, indirect cost charges, nonmedical payments, office supplies
and furniture, other, publication subscriptions, rent or lease building property, subsidies to other
state agencies and school districts, telephone billings, and travel expenses. We judgmentally
selected 26 transactions recording nonpersonnel expenditures for Areas C and D, focusing on the
highest transactions in each category.

For Hamilton, we selected 23 transactions recording $1,064,770 (18 percent) of the
1,442 transactions recording $5,949,913 in expenditures that Hamilton charged to the Race to
the Top grant for Areas C and D from July 1, 2010, through September 30, 2013. 16 We
judgmentally selected six transactions recording personnel expenditures for salaries and benefits
of employees working part time on the Race to the Top grant and a stipend for training sessions.
We limited our judgmental selection of transactions recording Hamilton’s nonpersonnel
expenditures to equipment, consultants, in-service and staff development, instructional supplies,
and software licenses and support. We judgmentally selected 5 transactions recording
nonpersonnel expenditures for Area C and 12 transactions recording nonpersonnel expenditures
for Area D, focusing on the highest transactions in each category.

Additionally, Hamilton received a teacher and principal residency grant from the non-LEA
portion of Race to the Top funds. We judgmentally selected 8 transactions recording $299,326
(23 percent) of the 485 transactions recording $1,290,115 in expenditures that Hamilton charged
to the teacher and principal residency grant from July 1, 2010, through September 30, 2013.
We judgmentally selected four transactions recording personnel expenditures for the one
employee fully funded by the grant. We limited our judgmental selection of four transactions
recording nonpersonnel expenditures to equipment, contracted services, and travel, focusing on
the highest transactions in each category.

Selection of Expenditures for Area E
We selected 203 transactions recording $6,455,592 (23 percent) in nonpersonnel expenditures of
the 57,957 transactions recording $27,755,759 ($9,862,740 in personnel and $17,893,019 in
nonpersonnel) expenditures that Tennessee and the Achievement School District charged to the
Race to the Top grant for Area E from July 1, 2010, through September 30, 2014. We selected
only nonpersonnel transactions for Area E because our initial review of personnel transactions
did not identify any that appeared anomalous. We judgmentally selected transactions recording
expenditures incurred for consultants, food and beverage, grants and subsidies, instructional
materials, moving charges, office supplies, operational supplies, other contracted services,
rentals, and travel, focusing on the highest transactions in each category.

After reviewing supporting documentation for these 203 transactions and identifying
unallowable and inadequately documented nonpersonnel expenditures, we reviewed the
descriptions of the remaining 57,754 transactions recorded in the Achievement School District’s
general ledger. We identified 210 additional transactions, recording $50,946 in nonpersonnel

16
  The universe included transactions that Hamilton officials designated specifically as Area D and those designated
as a combination of Area D and other areas, such as B and E. Because Hamilton officials did not always designate
the transactions as one specific area, we included in the overall universe any transactions for which Area D was
identified as one of the account categories.
Final Report
ED-OIG/A05O0004                                                                      Page 23 of 35

expenditures for Area E, that had similar descriptions as the unallowable expenditures that we
identified through our sample of 203 transactions. For example, the general ledger included
49 transactions for other promotional expenditures.

Selection of Electronic Devices
We judgmentally selected a nonstatistical sample of electronic devices that the Achievement
School District purchased with Area E funds to verify the existence of the devices. We first
selected all 5 transactions recording purchases of electronic devices that were included in our
sample of 203 transactions and made from June 12, 2012, through May 3, 2014. We then
randomly selected 45 (9 percent), worth $32,121, of the 495 electronic devices, worth $291,424,
from the 5 transactions.

Comparative and Verification Procedures
To achieve our first objective, we verified the accuracy of the results that Tennessee reported in
its 2012–2013 annual performance report for 10 grant performance measures for Area D by
reviewing documents from third parties (see Data Reliability). To achieve our second and
third objectives, we reviewed Tennessee’s, Hamilton’s, and the Achievement School District’s
contracts, invoices, receipts, expense reports, purchase orders, and payroll records to verify the
amount and appropriateness of the selected expenditures. We also verified the existence of
electronic devices that the Achievement School District purchased by conducting a
physical inventory of the selected devices.

We conducted this audit from April 2014 through July 2015 in Chattanooga, Memphis, and
Nashville, Tennessee; and at our offices in Chicago, Illinois; Dallas, Texas; and
Kansas City, Missouri. During our audit, we provided Tennessee with an itemized list of all the
unallowable and inadequately documented expenditures that we identified.

We discussed the results of our audit with Tennessee officials on October 19, 2015. We
provided Tennessee with a draft of this report on January 29, 2016.

We reviewed Tennessee’s comments on the draft of this report (see Attachment 2) and
supporting documentation listing the adjusting journal entries that Tennessee made to reclassify
the unallowable and inadequately documented expenditures from the Race to the Top grant to
local sources of funds. We did not review any accounting records confirming that Tennessee
properly charged the federally unallowable and inadequately documented expenditures to local
sources of funds and then charged other, allowable expenditures to the Race to the Top grant.

We conducted this performance audit in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions
based on our audit objectives. We believe the evidence that we obtained provides a reasonable
basis for our findings and conclusions based on our audit objectives.
Final Report
ED-OIG/A05O0004                                                                     Page 24 of 35



                            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, including the recovery of funds, will be made by
the appropriate Department of Education officials in accordance with the General Education
Provisions Act.

If you have any additional comments or information that you believe may have a bearing on the
resolution of this audit, you should send them directly to the following Department officials, who
will consider them before taking final Departmental action on this audit:

                              Ann Whalen
                              Senior Advisor to the Secretary, Delegated the
                              Duties of the Assistant Secretary
                              Office of Elementary and Secondary Education
                              U.S. Department of Education
                              400 Maryland Ave., SW
                              Washington, DC 20202

                              Thomas Skelly
                              Acting Chief Financial Officer
                              Office of the Chief Financial Officer
                              U.S. Department of Education
                              400 Maryland Ave., SW
                              Washington, DC 20202

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

In accordance with the Freedom of Information Act (5 U.S.C. § 552), reports issued by the
Office of Inspector General are available to members of the press and general public to the extent
information contained therein is not subject to exemptions in the Act.
Final Report
ED-OIG/A05O0004                                                                 Page 25 of 35

We appreciate the cooperation and assistance extended by Tennessee, Hamilton, and
Achievement School District employees. If you have any questions, please contact me or
Jonathan Enslen, Assistant Regional Inspector General for Audit, at (312) 730–1620.



Sincerely,

/s/

Gary D. Whitman
Regional Inspector General for Audit



Attachments
Final Report
ED-OIG/A05O0004                                                                 Page 26 of 35

      Attachment 1: Acronyms, Abbreviations, and Short Forms Used in This Report
Area C              Application Area C, “Data Systems to Support Instruction,” of the State of
                    Tennessee Office of the Governor’s Approved Grant Application

Area D              Application Area D, “Great Teachers and Leaders,” of the State of
                    Tennessee Office of the Governor’s Approved Grant Application

Area E              Application Area E, “Turning Around the Lowest-Achieving Schools,” of
                    the State of Tennessee Office of the Governor’s Approved Grant
                    Application

C.F.R.              Code of Federal Regulations

Department          U.S. Department of Education

Hamilton            Hamilton County Department of Education

LEA                 Local Educational Agency

Recovery Act        American Recovery and Reinvestment Act of 2009

§                   Section

Tennessee           Tennessee Department of Education
Final Report
ED-OIG/A05O0004                                                                   Page 27 of 35

            Attachment 2: Tennessee’s Comments on the Draft Report

Tennessee provided the following comments on the draft of this report on February 29, 2016. In
addition, Tennessee attached the Achievement School District’s finalized and approved financial
policies and procedures manual (January 2015) and a spreadsheet showing the (1) unallowable
and inadequately documented charges that we identified in the draft of this audit report and
(2) adjusting journal entries showing that Tennessee reclassified funds from the Race to the Top
grant to local sources of funds. We will provide the two attachments on request.
Final Report
ED-OIG/A05O0004                                                                     Page 28 of 35




     BILL HASLAM                     STATE OF TENNESSEE                CANDICE MCQUEEN
                              DEPARTMENT OF EDUCATION
        GOVERNOR                NINTH FLOOR, ANDREW JOHNSON                 COMMISSIONER
                                           TOWER

                               710 JAMES ROBERTSON PARKWAY

                                   NASHVILLE, TN 37243-0375




February 29, 2016


Gary D. Whitman
Regional Inspector General for Audit
U.S. Department of Education, Office of the Inspector General
Citigroup Center
500 West Madison Street, Suite 1414
Chicago, IL 60661


                                                                           Control Number
                                                                           ED-OIG/A05O0004
Dear Mr. Whitman,

Tennessee appreciates the opportunity to provide responses to the draft audit report, “The
Tennessee Department of Education’s Administration of its Race to the Top Grant,” and we
thank your team for their efforts in supporting this work. The report noted three findings
regarding the Department’s initiatives: (1) ensuring accurate grant performance data in Area D
and allowable expenses in Area C and D, (2) ensuring adequate internal control activities in the
Achievement School District, and (3) complying with federal fiscal requirements in
Achievement School District activities. The section below details our response to each of the
findings and the related recommendations.

Finding 1: Tennessee Accurately reported Area D Grant Performance Data and Ensured
Area C and D Expenditures Were Allowable
The Department agrees with the finding. No recommendations were issued for this finding.


Tennessee Department of Education • Office of the Commissioner • Andrew Johnson Towner, 9th
Floor • 710 James Robertson Parkway • Nashville, TN 37243
Tel: (615) 390-2087 • tn.gov/
Final Report
ED-OIG/A05O0004                                                                       Page 29 of 35

Finding 2: Tennessee Did Not Ensure that the Achievement School District Developed and
Implemented Adequate Internal Control Activities
The Department agrees with the finding. To ensure proper internal controls, the Department
launched a robust plan of support and transition for the Achievement School District (ASD)
beginning in January of 2016. The goals of the support team are a) to clean, update, and ensure
implementation fidelity of all fiscal and federal program policies and procedures and b) to begin
the process of shifting fiscal and accounting operations from the ASD’s current system into the
state’s primary fiscal system by July 1, 2016.

The Department committed two team members from the Office of the Chief Operating Officer to
delve into the internal practices and controls of the ASD and to work collaboratively with the
ASD to establish a revised set of fiscal policies and procedures and methods of oversight to
ensure strong implementation. The team partners with the Department’s Office of the Chief
Financial Officer and the Office of Consolidated Planning and Monitoring to leverage additional
expertise and successful practices in fiscal functions, state procedures, state systems, and federal
regulations. By ultimately shifting the fiscal operations into the state’s system, the Department
will be able both to leverage the existing internal controls used by all state agencies and to
maintain ongoing oversight into the ASD’s fiscal practices and health. In redesigning policies
and procedures for fiscal internal controls, both currently and in the future under the state
system, the support team and ASD will address each of the issues noted in the draft report in the
updated documentation and practices. While the ASD will have a revised set of policies and
procedures developed throughout the spring, the Department will finalize an updated set that
incorporates any necessary procedural changes due to moving onto the state system by July 1,
2016.

The Department agrees with the recommendations provided. In the below table, the Department
provides additional information and completion/target dates for each recommendation:

         Recommendation             Department Corrective Action         Completion/Target Date
2.1: Develop and implement          • Documentation retention            • Completion: July 1,
policies and procedures that          policy and procedures to be          2016 (to incorporate
provide reasonable assurance          added to the updated Fiscal          system transition
that it will retain adequate          Policies and Procedures              requirements)
supporting documentation for all
transactions.
2.2: Develop and implement          •   Updated procurement              •   Completion: July 1,
policies and procedures for             policies, procedures,                2016 (to incorporate
contracting that provide                including selection templates        system transition
reasonable assurance that it is         with competence and                  requirements)
awarding professional service           integrity indicators, to be
contracts on the basis of               added to the updated Fiscal
recognized competence and               Policies and Procedures,
integrity.                              building from state standard
                                        practices


Tennessee Department of Education • Office of the Commissioner • Andrew Johnson Towner, 9th
Floor • 710 James Robertson Parkway • Nashville, TN 37243
Tel: (615) 390-2087 • tn.gov/
Final Report
ED-OIG/A05O0004                                                                   Page 30 of 35

        Recommendation             Department Corrective Action       Completion/Target Date
2.3: Strengthen its purchasing     • Support team focuses             • Support Team in
processes so that processes          support on purchasing              Place: January 1,
provide reasonable assurance         processes, providing               2016
that purchase orders are             monitoring and support to        • Completion: July 1,
approved before employees order      ensure proper approvals are        2016 (to incorporate
goods or services.                   in place                           system transition
                                   • Updated procurement                requirements)
                                     policies, procedures,
                                     including selection templates
                                     with competence and
                                     integrity indicators, to be
                                     added to the updated Fiscal
                                     Policies and Procedures,
                                     building from state standard
                                     practices
                                   • State system requires
                                     approvals of purchase orders
                                     prior to ordering
2.4: Strengthen its fiscal control • Support Team prioritizes         •   Support Team in
and fund accounting procedures       fiscal controls and fund             Place: January 1,
so that they provide reasonable      accounting procedures at             2016
assurance that adjusting journal     point of entry into ASD          •   Completion: July 1,
entries are reviewed and             system through monitoring            2016 (to incorporate
approved, accounting codes are       and direct review of journals,       system transition
properly assigned to                 account codes, and fund              requirements)
expenditures, and expenditures       allocations
are appropriately and accurately • Updated fiscal and
allocated between Federal grants     accounting controls and
before being entered.                procedures, including
                                     reviews, naming
                                     conventions, and required
                                     documentation, to be written
                                     into updated Fiscal Policies
                                     and Procedures
2.5: Review all adjusting journal • Support Team will review          •   Completion: July 1,
entries for the Race to the Top      the remaining adjusting              2016
grant and correct all errors that    journal entries, making any
we did not identify during our       additional corrections
review.

2.6: Develop and implement        •   Support Team prioritizes        •   Support Team in
procedures that provide               fiscal controls and fund            Place: January 1,
reasonable assurance that             accounting procedures at            2016
employees correctly classify          point of entry into ASD         •   Completion: Training

Tennessee Department of Education • Office of the Commissioner • Andrew Johnson Towner, 9th
Floor • 710 James Robertson Parkway • Nashville, TN 37243
Tel: (615) 390-2087 • tn.gov/
Final Report
ED-OIG/A05O0004                                                                     Page 31 of 35

       Recommendation                Department Corrective Action       Completion/Target Date
transactions in the accounting         system through monitoring          Held by April 30,
system.                                and direct review of account       2016
                                       codes                            • Completion: July 1,
                                     • Support Team will provide          2016 (to incorporate
                                       robust training to ASD staff       system transition
                                       on proper account codes and        requirements)
                                       classifications
                                     • Updated fiscal and
                                       accounting controls and
                                       procedures, including proper
                                       classifications, to be written
                                       into updated Fiscal Policies
                                       and Procedures
2.7: Obtain approval for a           • Commissioner approved            •   Completed: January
finalized version of its financial     finalized version of policies        29, 2015 (attached)
policies and procedures form the       and procedures                   •   Completion: July 1,
Tennessee Commissioner of            • Commissioner will approve            2016 (to incorporate
Education.                             updated version of policies          system transition
                                       and procedures in                    requirements)
                                       preparation for shift to state
                                       system
2.8: Follows its policies and        • Updated procedures for           •   Completion: July 1,
procedures for using credit cards.     ensuring credit card policies        2016 (to incorporate
                                       and procedures are being             system transition
                                       implemented accurately to be         requirements)
                                       written into updated Fiscal      •   Completion: July 1,
                                       Policies and Procedures              2016
                                     • ASD will assign team
                                       member responsibility of
                                       oversight for credit card
                                       policy and procedure
                                       implementation fidelity
2.9: Have the credit card issuer     • Support Team will request        •   Finalize: March 31,
provide directly to Tennessee          written verification of credit       2016
verifications that the credit limits   limits from issuer
for all district-authorized credit
cards have been reduced.

The Department is pleased with the progress over the last two months as the support team delved
into the ASD’s fiscal practices, analyzed gaps in implementation and policies, and made changes
to produce stronger internal controls for current operations and to better prepare the ASD for
operation in the state’s fiscal system.



Tennessee Department of Education • Office of the Commissioner • Andrew Johnson Towner, 9th
Floor • 710 James Robertson Parkway • Nashville, TN 37243
Tel: (615) 390-2087 • tn.gov/
Final Report
ED-OIG/A05O0004                                                                       Page 32 of 35

Attachments:
    1. ASD Financial Procedures Manual 2014-15 with Commissioner Approval


Finding 3: Tennessee and the Achievement School District Did Not Comply With Federal
Fiscal Requirements
The Department agrees with the finding. The Department initiated two major corrective action
efforts to address this finding.

First, prior to the close of the period of availability for the Race to the Top grant, the Department
moved all preliminary questioned costs, both unallowable and insufficiently documented, off the
grant to other funding sources. In working with the state’s program officer at the U.S.
Department of Education, the Department’s First to the Top Oversight team developed and
implemented a strategy to remove questioned costs (identified at the time of the release of the
exception reports from the Office of the Inspector General) from the grant. While the expenses
were shifted to other non-federal funding sources, the First to the Top Oversight team sought and
was granted approval from the U.S. Department of Education to reallocate the released funds to
other approved activities across the grant through the formal activity and budget amendment
process. As a result, a vast majority of the expenses listed in the draft report were removed from
the Race to the Top grant prior to the close of the period of availability.

Second, as mentioned above, the Department launched a support team to assist the ASD in
developing stronger internal controls and practices in policies, procedures, and implementation
across both fiscal operations and federal programs. In conjunction with the Department’s Office
of Consolidated Planning and Monitoring, the support team is working with the ASD’s fiscal and
federal programs teams to ensure robust understanding of federal regulations for allowable costs
and to develop effective planning, reimbursement, and monitoring policies and procedures.
These efforts include a review of all federal reimbursement requests for the current fiscal year.
By July 1, 2016, the ASD will have fully launched a revised federal programs team with deeper
content knowledge of federal regulations and clearer understanding of requirements for
documentation.

The Department understands the recommendations provided. However, given the efforts to date,
the Department requests that consideration be given to modifying the recommendations.

As detailed above, the Department shifted a majority of these expenses (both unallowable and
insufficiently documented) off of the Race to the Top grant prior to the close of the grant’s
period of availability. Both the U.S. Department of Education and the Department aimed to
ensure funds could be appropriately used as completely as possible to the benefit of students and
educators. The shift of funds to other allowable grant activities was detailed and approved
through the U.S. Department of Education’s formal process for activity and budget amendments.
Ultimately, these funds were spent during the grant period on allowable activities. In alignment
with the approvals previously issued, the Department requests to modify the recommendations to
include the existing efforts that cleared these expenses.


Tennessee Department of Education • Office of the Commissioner • Andrew Johnson Towner, 9th
Floor • 710 James Robertson Parkway • Nashville, TN 37243
Tel: (615) 390-2087 • tn.gov/
Final Report
ED-OIG/A05O0004                                                                      Page 33 of 35

The Department is including a crosswalk between the questioned costs used in the draft report
(provided by the Office of the Inspector General) and the journal entries in the ASD’s fiscal
system that shifted expenses from Race to the Top to local funds. In many cases, the expenses in
the journal exceed those listed in the draft report. This is the result of the Department moving all
flagged expenses at the time of the exit conference in order to ensure funds could be used
elsewhere in the Race to the Top grant (notes are included in the documentation to highlight
these overages). Overall, the Department removed a total of $259,490 in ASD expenses from the
grant at the time of the exit conference.

In a few instances, the questioned costs were not fully removed from the grant. These omissions
were due to final decisions in the audit process or an error in leaving the expense out of the
journal entries. As with the prior efforts made to ensure students received the full benefit of the
grant, the Department requests the opportunity to shift these additional expenses off the grant
and to replace them with other allowable expenses from the period of availability.

The Department also proposes to add to the recommendations the support team efforts to bolster
practices and controls in the ASD’s federal programs work.

The Department’s proposed set of recommendations, corrective actions, and completion/target
dates as they relate to the unallowable and insufficiently documented expenses is detailed below:

      Recommendation               Department Corrective          Completion/Target Date
                                            Action
3.1: Within the period of        • Department developed and • Completed: June 30, 2015
availability of the grant and      processed a journal entry    • Completed: June 1, 2015
with approval from the             to remove questioned
program officer at the U.S.        costs identified at the time
Department of Education, the       of the exit conference
Department will shift              (Scope: $95,227 in
potentially questioned             unallowable and
expenses off the Race to the       $138,048* in unsupported
Top grant, repurposing them        costs that were identified
for other allowable grant          as preliminary questioned
activities                         costs and included in the
                                   draft report)
                                 • Department sought and
                                   gained approval from U.S.
                                   Department of Education
                                   program officer to
                                   repurpose funds to other
                                   allowable grant activities
3.2: For any questioned costs,   • Department will provide      • Completion: May 1, 2015
both unallowable and               documentation of the
insufficiently documented, not     journal entry shifting
previously removed from the        remaining questioned

Tennessee Department of Education • Office of the Commissioner • Andrew Johnson Towner, 9th
Floor • 710 James Robertson Parkway • Nashville, TN 37243
Tel: (615) 390-2087 • tn.gov/
Final Report
ED-OIG/A05O0004                                                                   Page 34 of 35

grant, the Department will            costs (Scope: $5,765 in
provide evidence of a journal         unallowable and $3,920*
entry shifting these expenses         in unsupported costs
off the Race to the Top grant         remaining to be shifted)
and reassigning the funds to
expenses that were allowable
under the grant and within the
period of availability for the
ASD
3.3: For any unallowable or       •   Department will return      •   Completion: June 1, 2016
insufficiently documented             any funds not covered
expenses unable to be                 under Recommendations
appropriately removed from            3.1 and 3.2 listed above
the grant and replaced with
allowable expenses from
within the grant period, the
Department will return to the
U.S. Department of Education
the total of these funds.
3.4: The Department will          •Department’s support      • Support Team in Place:
provide additional supports to     team includes a lead        January 1, 2016
the ASD to ensure strong           dedicated to working with
federal program practices,         the ASD federal programs
including in the areas of          team to redesign and
allowable expenses and             document policies and
documentation.                     procedures for federal
                                   programs and to ensure
                                   robust implementation
                                   fidelity
*NOTE: These amounts may vary by $143 pending feedback from OIG regarding a questioned
costs for a purchase at Hog & Hominy.

The Department agrees with the original recommendation 3.3, here relabeled 3.5:

      Recommendation                Department Corrective             Completion/Target Date
                                             Action
3.5: Review a statistical         • Department’s support          •   Completion: June 30.2016
sample of Achievement               team will review a
School District related Race to     statistical sample of Race
the Top grant transactions for      to the Top transactions for
Area E that we did not review       Area E and process any
and identify other                  questioned costs by either
expenditures that were for          returning funds, providing
unallowable items or activities     additional documentation,
or were inadequately                or both

Tennessee Department of Education • Office of the Commissioner • Andrew Johnson Towner, 9th
Floor • 710 James Robertson Parkway • Nashville, TN 37243
Tel: (615) 390-2087 • tn.gov/
Final Report
ED-OIG/A05O0004                                                                     Page 35 of 35

documented. If Tennessee
identifies such expenditures,
then it should return to the
Department the amount of
expenditures spent for
unallowable items and
activities, provide sufficient
support for any inadequately
documented transactions or
return the amounts to the
Department, or both.

Attachments:
    1. Questioned Costs Journal Entries
          a. Tab 1: Issue Categories
          b. Tab 2: Unallowable Expenses (built from OIG list)
          c. Tab 3: Unsupported Expenses (built from OIG list)
          d. Tab 4: Journal Entries Shifting Questioned Costs to Local Funding Sources
          e. Tab 5: Remaining Expenses to Shift
          f. Tab 6: Summary: Provides explanation on tie-outs between questioned costs and
              journal entry

The Department appreciates the opportunity to offer these responses, and welcomes any
questions or feedback. The Department is committed to ensuring proper use of federal funds,
and aimed to resolve issues flagged through this audit as quickly as possible through mitigations
during the grant period. The Department will continue to improve oversight and support to the
Achievement School District in its fiscal and federal program operations to ensure efficient and
effective administration of its resources. If you have any questions, please do not hesitate to
reach out to our Executive Director for Operational Strategy, Sam Pearcy at sam.pearcy@tn.gov
or (615) 390-2087.


Sincerely,

/s/

Dr. Candice McQueen
Commissioner, Tennessee Department of Education




Tennessee Department of Education • Office of the Commissioner • Andrew Johnson Towner, 9th
Floor • 710 James Robertson Parkway • Nashville, TN 37243
Tel: (615) 390-2087 • tn.gov/