Ms. Janice Meyer Page 2 of 11 $288,738 grant entitled Seeking Unlimited Recreational Experiences (SURE) for the three- year period from October 1, 1998, through September 30, 2001. The SURE grant was extended through September 30, 2002, with no additional funding. PRN uses SURE grant funds to work with community agencies to provide and promote recreational opportunities for children and adults with disabilities in East and Southeast Texas. AUDIT RESULTS We found that PRN could not adequately support $17,220 of consultant charges to the SURE grant and $45,500 of salary charges to the PATH grant. We concluded that the consultant charges are unallowable. Based on our analysis of the consultant’s year-end reports and discussions with PRN and other officials, we determined that not all of the consultant’s services were provided. We also determined that a conflict of interest existed between PRN’s Executive Director and the consultant. We do not express an opinion on the allowability of the $45,500 of salary charges for the Co-Project Director of the PATH. Based on our discussions with PRN staff, we concluded that the Co-Project Director did work on the PATH, but because PRN had not maintained the required monthly time distribution records for this one employee, we could not determine if the $45,500 of salary charges were reasonable. We also noted that PRN failed to have required Single Audits performed for two years and had not submitted any Single Audit reports to the Federal Audit Clearinghouse (Clearinghouse) at the time our fieldwork began. PRN also did not have written financial management policies and procedures, and maintained excess cash. All citations to Title 34, Code of Federal Regulations (C.F.R.), in this report are to the July 1998 edition. Standards for Financial Management Systems Pursuant to 34 C.F.R. § 74.21(b), recipients’ financial management systems must meet certain standards that include, in part, the following: (1) Accurate, current, and complete disclosure of the financial results of each federally-sponsored project . . . . (3) Effective control over and accountability for all funds, property, and other assets. (5) Written procedures to minimize the time elapsing between the transfer of funds to the recipient from the U.S. Treasury and the issuance or redemption of checks, warrants or payments by other means . . . . (6) Written procedures for determining the reasonableness, allocability, and allowability of costs in accordance with the provisions of the applicable Federal cost principles and the terms and conditions of the award. (7) Accounting records including cost accounting records that are supported by source documentation. Ms. Janice Meyer Page 3 of 11 According to 34 C.F.R. § 74.27, the cost principles for determining allowable costs for a private non-profit organization are contained in Office of Management and Budget (OMB) Circular Number A-122 (1998). Consultant Services Not Provided We determined that $17,220 for consultant services that PRN charged to the SURE grant was not adequately documented. We also determined that not all of the consultant’s services were provided. Further, we determined that a conflict of interest existed between PRN’s Executive Director and the consultant, and that PRN did not have written standards of conduct addressing conflicts of interest relating to the award and administration of contracts. The principles in Attachment A, paragraph A.2.g of OMB Circular A-122 state that for a cost to be allowable that it be adequately documented. Attachment A, paragraph A.4.a of the circular further states: A cost is allocable to a particular cost objective, such as a grant, contract, project, service, or other activity, in accordance with the relative benefits received. In addition, pursuant to the procurement standards contained in 34 C.F.R. § 74.42: The recipient shall maintain written standards of conduct governing the performance of its employees engaged in the award and administration of contracts. No employee, officer, or agent shall participate in the selection, award, or administration of a contract supported by Federal funds if a real or apparent conflict of interest would be involved. A conflict would arise when the employee, officer, or agent, any member of his or her immediate family, his or her partner, or an organization which employs or is about to employ any of the parties indicated herein, has a financial or other interest in the firm selected for an award. PRN entered into a consultant contract for each year of the SURE grant. The annual fee for each contract was $5,760 ($5,700 in the final grant year) and was paid in advance at the beginning of each year. A conflict of interest existed between PRN’s Executive Director and the consultant because they are husband and wife. PRN’s Executive Director selected her husband to be the consultant, signed the annual consultant contracts, and approved the advance payments to the consultant. According to the contracts, the consultant was to be paid $30 an hour for providing approximately three to four hours of work each week. The contracts required the consultant to provide a written report on his activities at the end of each 12-month period. PRN could not provide support for the hours the consultant spent on the contracts or that all of the steps under the contracts were provided. For the first 12-month period, the consultant’s contract listed seven deliverables in addition to the written report. In the report, which was slightly over one page, the consultant stated that he did not complete four of the seven deliverables. The remaining three deliverables involved holding meetings to advise PRN’s Executive Director and the SURE Project Director and Ms. Janice Meyer Page 4 of 11 developing a plan for the use of student interns. PRN provided no documentation of the frequency or extent of the meetings. The consultant did provide a two-page document that he had prepared at the beginning of the contract period that was a plan for the use of student interns and intern job descriptions. The SURE project never implemented the plan. For the second 12-month period, the consultant’s contract listed six deliverables in addition to the written report. The report consisted of a one-page document. Two deliverables involved meeting periodically to advise PRN’s Executive Director and the SURE Project Director on various activities. PRN provided no documentation that these meetings had occurred. PRN also could not provide documentation of the consultant’s involvement in the remaining four contract deliverables, which involved developing Partners Ranch1 and raising funds for its operation. For example, two of the deliverables involved securing a consultant to perform a feasibility study of Partners Ranch and working with that consultant to develop a fund raising plan. The consultant who performed the feasibility study stated that the PRN Executive Director and the SURE consultant initially contacted him regarding performing the study, but that he had no contact with the SURE consultant thereafter. For the third 12-month period, the consultant’s contract listed six deliverables in addition to the written report. The report for the third year was not due at the time of our fieldwork (about one month remained in the contract period). Two deliverables involved meeting periodically with PRN’s Executive Director and the SURE Project Director on various activities. Again, PRN could provide no documentation that these meetings occurred. The remaining four deliverables involved various Partners Ranch activities. For example, one deliverable was to maintain the membership of Partners Ranch Steering Committee and arrange for periodic meetings. Six of 11 Steering Committee members stated that there had been no contact with the consultant and no meetings for approximately one year. Another deliverable was to establish communication with development officers for agencies providing similar programs. PRN’s Executive Director provided a list of five such agencies. The consultant told us that he and his wife visited the agencies usually during vacations and obtained pamphlets from them. Salary Charges Not Documented The Co-Project Director for the PATH grant, who is the husband of PRN’s Executive Director, had not submitted monthly time distribution records since March 2000. PRN maintained such records for the salary charges of the Co-Project Director prior to March 2000, and for all other employees who worked on the PATH and SURE grants during the period of our audit. Requirements for compensation for personal services are listed in OMB Circular Number A-122, Attachment B, paragraph 7m(2): 1 Partners Ranch is owned by PRN and consists of 26 undeveloped acres adjacent to the PRN Executive Director’s residence. PRN planned to develop and use Partners Ranch for recreational activities for children and adults with disabilities. At the time of our fieldwork, Partners Ranch was not operational. Ms. Janice Meyer Page 5 of 11 Reports maintained by non-profit organizations to satisfy these requirements must meet the following standards: (a) The reports must reflect an after-the-fact determination of the actual activity of each employee. Budget estimates (i.e., estimates determined before the services are performed) do not qualify as support for charges to awards. (b) Each report must account for the total activity for which employees are compensated and which is required in fulfillment of their obligations to the organization. (c) The reports must be signed by the individual employee, or by a responsible supervisory official having first hand knowledge of the activities performed by the employee, that the distribution of activity represents a reasonable estimate of the actual work performed by the employee during the periods covered by the reports. (d) The reports must be prepared at least monthly and must coincide with one or more pay periods. The Co-Project Director was budgeted to work on the PATH project at a 60 percent full-time equivalency rate. PRN charged the PATH grant approximately $45,500 of salary and fringe benefits for the Co-Project Director from April 2000 through June 2001, without after-the-fact time distribution records. Based on interviews with PRN officials, we determined that the Co- Project Director did work on the PATH project during this time period, but due to the lack of records we could not determine the extent of work that was performed and do not express an opinion on the allowability of the $45,500 of charges. Failure to Complete and Submit Single Audits PRN had not completed the required Single Audits for the fiscal years ended on June 30, 1999 and 2000, which were due at the Clearinghouse by March 31, 2000 and 2001, respectively. Although the Single Audits for 1997 and 1998 were completed, PRN had not submitted them to the Clearinghouse at the time we began our audit (PRN had provided a copy of its 1998 Single Audit report to the OSERS’ PATH grant official). After we advised PRN of the requirement, PRN submitted the 1997 and 1998 Single Audit reports to the Clearinghouse. OMB Circular Number A-133, Subpart B § 200(a) states: Non-Federal entities that expend $300,000 or more in a year in Federal awards shall have a single or program-specific audit conducted for that year in accordance with the provisions of this part. Subpart C § 320(d) further states: All auditees shall submit to the Federal clearinghouse designated by OMB the data collection form described in paragraph (b) of this section and one copy of the reporting package described in paragraph (c) of this section . . . . Ms. Janice Meyer Page 6 of 11 In addition, Attachment C to the Grant Award Notification directed PRN to submit its Single Audit reports to the Clearinghouse. Single Audit reports are required by OMB Circular Number A-133 § 320(a) to be submitted within the earlier of 30 days of the receipt of the auditor’s report or nine months after the end of the audit period. No Written Financial Management Policies and Procedures PRN did not have formal written policies and procedures governing its financial management system. PRN provided a seven-page document that it had given to its Single Auditor that identified some of the system’s checks and balances. This document did not include the written procedures required by 34 C.F.R. Part 74. Pursuant to 34 C.F.R. § 74.22(b)(1): Recipients are paid in advance, provided they maintain or demonstrate the willingness to maintain – (i) Written procedures that minimize the time elapsing between the transfer of funds and disbursement by the recipient; and (ii) Financial management systems that meet the standards for fund control and accountability as established in § 74.21. Written procedures are also required covering procurement standards that include: (1) standards of conduct in 34 C.F.R. § 74.42, and (2) procurement standards in 34 C.F.R. § 74.44. Excess Cash PRN maintained excess cash during a portion of our audit period. PRN’s practice was to make draw downs generally once a month. This practice resulted in excess cash for short periods of time. For example, during a three-month period from February through April 2001, PRN made monthly draw downs of $35,000, $33,000, and $30,000. PRN took from five to nine days to expend the funds. The regulations at 34 C.F.R. § 74.22(b) state: (2) Cash advances to a recipient organization are limited to the minimum amounts needed and be timed to be in accordance with the actual, immediate cash requirements of the recipient organization in carrying out the purpose of the approved program or project. (3) The timing and amount of cash advances are as close as is administratively feasible to the actual disbursements by the recipient organization for direct program or project costs and the proportionate share of any allowable indirect costs. Ms. Janice Meyer Page 7 of 11 RECOMMENDATIONS We recommend that the Assistant Secretary of OSERS require PRN to: 1. Strengthen its management controls to ensure that all costs are adequately documented and allowable, required audits are completed and submitted timely, written policies and procedures are developed and followed, and draw downs are timed as close as possible to actual disbursements. 2. Establish written standards of conduct governing the performance of employees engaged in the award and administration of contracts, including specific standards to prevent conflicts of interest. 3. Follow the standards of conduct and terminate the existing consultant’s contract, and discontinue contracting in the future with individuals and entities in which a real or apparent conflict of interest exists. 4. Return to the Department of Education $17,220 of unallowable consultant costs identified during our audit and any additional payments made to the consultant since our audit that were charged to the SURE grant. 5. Provide documentation to support the accuracy of the $45,500 of unsupported salary costs charged to the PATH grant or return the charges to the Department. PRN’S COMMENTS TO THE DRAFT REPORT AND OIG’S RESPONSE PRN described the actions it had taken to address recommendation numbers one through three. Regarding recommendation number four, PRN did not agree that the $17,220 of consultant payments should be returned, although PRN did agree to discontinue the consultant’s contract. Regarding recommendation number five, PRN provided monthly time sheets that were prepared after our fieldwork as support for the $45,500 of salary costs. PRN disagreed it had maintained excess cash during the first year of the PATH grant and provided copies of bank statements that showed it generally had made monthly draw downs of grant funds. Based on our review of the bank statements, we dropped a recommendation that PRN pay the Department of Education $7,569 of imputed interest on excess cash. We calculated the imputed interest based on Department records that showed PRN had drawn down $365,000 of the $400,000 award for the first year of the PATH project at the beginning of that year. The $365,000 actually included a number of smaller drawdowns during the year. Our analysis of the school’s comments and documentation provided did not convince us to make any other changes to the recommendations. PRN’s comments to our final recommendations are summarized below followed by OIG’s response. Ms. Janice Meyer Page 8 of 11 PRN’s Comments to Recommendation Numbers 1-3. PRN said that: 1) an experienced individual had been hired to review bank statements, invoices, and payroll activities to ensure all costs are adequately documented and allowable; 2) all work for the 1998-99 and 1999-00 required audits had been done and the written reports would be completed in April 2002 and submitted to the Department and the Audit Clearinghouse; 3) formal written policies and procedures were being developed and would be completed by June 1, 2002; and 4) more frequent draw downs of grant funds were being made to avoid excess cash. PRN also said that it would include in the written policies and procedures standards of conduct governing the performance of employees engaged in the award and administration of contracts, including standards related to conflicts of interest. PRN stated that the consultant’s contract was discontinued and no additional payments would be made to the consultant. OIG’s Response. We agree that these actions should improve management controls when completed. PRN’s Comments to Recommendation Number 4. PRN disagreed that the consultant’s services were not provided and that the $17,220 should be returned. PRN said “After this matter was brought to PRN’s attention by the OIG auditors, adequate documentation was requested from, and provided by, the consultant regarding his time spent on the SURE grant.” PRN provided copies of the consultant’s monthly time sheets for the period October 1998 through September 2001. PRN said the time sheets were prepared from the consultant’s personal calendar and “reconciled against the calendars and time sheets [of] other staff.” PRN also provided copies of two reports submitted to PRN by the consultant and various grant documents it submitted to the Department that addressed the consultant’s duties. PRN stated that while the consultant did not provide all of the contracted services in the first year, the consultant did provide “alternative services at the direction of the Executive Director.” For the second year, PRN contends that all deliverables were provided. For the third year, PRN stated “Final status cannot be determined until September 30, 2002 because PRN has been given a no-cost extension to complete objectives for 00-01.” OIG’s Response. PRN’s comments and the documents provided did not convince us to change our recommendation. During our audit fieldwork, we reviewed the monthly time sheets that were available for the period October 1998 through March 2000 (no time sheets were available after March 2000). The time sheets included only the total hours the consultant worked each month as a PRN employee on the PATH grant. The time sheets did not contain any hours that this individual worked as a consultant on the SURE grant. The consultant’s hours shown on the time sheets could not have been recorded by the consultant or reviewed by PRN’s Executive Director on a contemporary basis. The hours were recorded and reviewed over two years after the fact for some of the months. PRN also did not provide copies of the consultant’s personal calendars or the results of its reconciliation against the calendars and time sheets of other staff to support the hours. Ms. Janice Meyer Page 9 of 11 We had reviewed the consultant’s reports and grant documents during our audit fieldwork and concluded that they do not support the services were provided. The consultant was paid at the beginning of the third year for services to be provided during that year. At the time of our fieldwork, only about one month remained in that year and PRN could not support that the contracted consultant services for the year were provided. PRN’s Comments to Recommendation Number 5. Regarding the $45,500 of unsupported salary costs charged to the PATH grant, PRN said “Since the time of the field work of the OIG auditors, the Co-Project Director has submitted time sheets for April 2000 to present.” PRN provided copies of these monthly time sheets that covered the period April 2000 through June 2001. PRN stated that the records met the documentation requirements of OMB Circular Number A-122. OIG Response. We did not change our recommendation. We agree that the time sheets would meet the OMB Circular Number A-122 requirements if the time sheets had been completed within a reasonable period of time after each month ended. At the time of our fieldwork in August 2001, PRN had not required the Co-Project Director of the PATH project to submit monthly time sheets since March 2000. The time sheets PRN provided with its response were prepared and reviewed several months and, in a few cases, over a year, after the work was performed. PRN did not provide the Co-Project Director’s calendar or any other documentation that would show how the Co-Project Director was able to determine the work hours that were recorded on the time sheets. OBJECTIVE, SCOPE AND METHODOLOGY The objective of our audit was to determine if PRN grant charges were allowable. Our audit covered the period from July 1, 1997, through July 31, 2001. To accomplish our objective, we obtained background information about PRN. We interviewed OSERS and PRN officials and individuals identified in the consultant’s reports. We reviewed PRN’s accounting records, bank statements, documentation for expenditures, and records of services provided to recipients. We tested the allowability of non-salary charges by selecting a judgmental sample of 33 expenditure transactions, which totaled $32,383, that were charged to the two OSERS grants during our audit period. We tested the allowability of salary charges by selecting a judgmental sample of 11 PRN employees from a universe of 70 employees whose salary costs were charged to the two grants during our audit period. All transactions selected in the samples were reviewed. There is no assurance that these judgmental samples were representative of the universe of transactions and should not be projected over the unsampled transactions. Ms. Janice Meyer Page 10 of 11 We relied on computer-processed data obtained from the Department’s Grants Administration and Payment System and from PRN to accomplish our audit objective. We performed limited tests of the data to verify reliability by comparing the data to information in PRN’s accounting records. Based on the results of these tests, we concluded that the computerized data was sufficiently reliable to formulate conclusions associated with the objective of our audit. We performed fieldwork during August 2001, at PRN in Beaumont, Texas. We conducted an exit meeting on September 13, 2001. Our audit was performed in accordance with generally accepted government auditing standards appropriate to the scope of the review described above. STATEMENT ON MANAGEMENT CONTROLS As part of our review, we assessed PRN’s management controls, policies, procedures, and practices applicable to the scope of the audit. We assessed the level of control risk for determining the nature, extent, and timing of our substantive tests. For the purposes of this report, we assessed and classified the significant management controls into the following categories: (1) use of grant funds, (2) documentation of grant charges, and (3) cash management. Because of inherent limitations, a study and evaluation made for the limited purposes described above would not necessarily disclose all material weaknesses in management controls. However, our assessment disclosed weaknesses related to the use of grant funds, documentation of grant charges, and cash management. These weaknesses are discussed in the AUDIT RESULTS section of this report. ADMINISTRATIVE MATTERS 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 U.S. Department of Education official, who will consider them before taking final Departmental action on the audit: Dr. Robert H. Pasternack, Assistant Secretary Office of Special Education and Rehabilitative Services U.S. Department of Education Mary E. Switzer Building, Room 3006 330 C Street, SW Washington, DC 20202 Office of Management and Budget Circular A-50 directs Federal agencies to expedite the resolution of audits by initiating timely action on the findings and recommendations contained therein. Therefore, we request receipt of your comments within 30 days. REPORT DISTRIBUTION LIST CONTROL NO. ED-OIG/A06-B0028 Auditee ED Action Official Ms. Janice Meyer Dr. Robert H. Pasternack Executive Director Assistant Secretary Partners Resource Network, Inc. Office of Special Education and 1090 Longfellow Drive, Suite B Rehabilitative Services Beaumont, TX 77706-4819 Other ED Officials/Staff (electronic copy) Audit Liaison Officer Press Secretary Office of Special Education and Office of Public Affairs Rehabilitative Services Correspondence Control Assistant General Counsel Office of General Counsel Office of the General Counsel Assistant Secretary Deputy Secretary Office of Legislation and Office of the Deputy Secretary Congressional Affairs Assistant Secretary Chief of Staff Office of Intergovernmental Office of the Secretary and Interagency Affairs Director Under Secretary Financial Improvement and Office of the Under Secretary Post Audit Operations Office of the Chief Financial Officer Post Audit Group Supervisor Director Financial Improvement and Office of Public Affairs Post Audit Operations Office of the Chief Financial Officer Indirect Cost Group Supervisor Regional Commissioner Rehabilitation Services Financial Improvement and Administration, Region VI Post Audit Operations Office of the Chief Financial Officer
Audit of Grant Costs Incurred by Partners Resource Network, Inc. .
Published by the Department of Education, Office of Inspector General on 2002-05-23.
Below is a raw (and likely hideous) rendition of the original report. (PDF)