oversight

Systems of Internal Control Over Selected American Recovery and Reinvestment Act of 2009 Funds in the State of Louisiana.

Published by the Department of Education, Office of Inspector General on 2010-09-29.

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

        U.S. Department of Education
         Office of Inspector General


   American Recovery and
   Reinvestment Act of 2009
       Systems of Internal Control Over Selected
     American Recovery and Reinvestment Act of 2009
             Funds in the State of Louisiana

                         Audit Report




                Louisiana State Capitol Building

ED-OIG/A06K0001                                    September 2010
             Acronyms and Abbreviations Used in This Report
Algiers             Algiers Charter School Association

ARRA                American Recovery and Reinvestment Act of 2009

Department          U.S. Department of Education

DOA                 Office of Governor’s Division of Administration

DUNS                Data Universal Numbering System

EDGAR               Education Department General Administrative Regulations

FTE                 Full-time Equivalent

GAO                 United States Government Accountability Office

Governor’s Office   Office of the Governor State of Louisiana

GSF                 Government Services Funds

IDEA                Part B of the Individuals with Disabilities Education Improvement Act of
                    2004

Lafayette           Lafayette Parish School System

LDE                 Louisiana Department of Education

LEA                 Local Educational Agency

LRS                 Office of Louisiana Rehabilitation Services

OMB                 Office of Management and Budget

OMB M-09-21         Implementing Guidance for the Reports on the Use of Funds Pursuant to
                    the American Recovery and Reinvestment Act of 2009

OMB M-10-08         Updated Guidance on the American Recovery and Reinvestment Act –
                    Data Quality, Non-Reporting Recipients, and Reporting of Job Estimates

RSD                 Recovery School District

SFSF                State Fiscal Stabilization Fund

Title I             Title I, Part A of the Elementary and Secondary Education Act of 1965, as
                    amended

VR                  Vocational Rehabilitation
                                     UNITED STATES DEPARTMENT OF EDUCATION
                                                           OFFICE OF INSPECTOR GENERAL

                                                                                                                    AUDIT SERVICES
                                                                                                                    Dallas Audit Region

                                                       September 29, 2010


Paul G. Pastorek
Superintendent
Louisiana Department of Education
1201 North Third Street
Baton Rouge, Louisiana 70804-9064

Paul W. Rainwater
Commissioner of Administration
State of Louisiana
1201 North Third Street
Baton Rouge, Louisiana 70804-9095

Roseland Starks, Director
Louisiana Rehabilitation Services
627 North Fourth Street
Baton Rouge, Louisiana 70821-9297

Dear Mr. Pastorek, Mr. Rainwater, and Ms. Starks:

This final audit report presents the results of our review of the Systems of Internal Control Over
Selected American Recovery and Reinvestment Act of 2009 Funds in the State of Louisiana.

Statements that managerial practices need improvements, as well as other conclusions and
recommendations in this report, represent the opinions of the Office of Inspector General.
Determinations of corrective action to be taken will be made by the appropriate U.S. Department
of Education officials.

This report incorporates the comments you provided in response to our preliminary final audit
report. If you have any additional comments or information that you believe may have a bearing
on the resolution of this audit, you should send them directly to the following Education
Department officials, who will consider them before taking final Departmental action on this
audit.

                                       Thelma Meléndez de Santa Ana, Ph.D.
                                                 Assistant Secretary
                                   Office of Elementary and Secondary Education
                                           U.S. Department of Education
                                              400 Maryland Ave., S.W.
                                               Washington, DC 20202

 The Department of Education's mission is to promote student achievement and preparation for global competitiveness by fostering educational
                                                   excellence and ensuring equal access.
                                     Alexa E. Posny, Ph.D.
                                      Assistant Secretary
                    Office of Special Education and Rehabilitative Services
                                U.S. Department of Education
                                   400 Maryland Ave., S.W.
                                    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 days would be appreciated.

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


                                             Sincerely,


                                             /s/

                                             Keith M. Maddox
                                             Regional Inspector General for Audit


Enclosure
Final Audit Report
ED-OIG/A06K0001                                                                      Page 1 of 29

                     Systems of Internal Control Over Selected
                   American Recovery and Reinvestment Act of 2009
                           Funds in the State of Louisiana
                              Control Number ED-OIG/A06K0001

                                          PURPOSE
The American Recovery and Reinvestment Act of 2009 (ARRA) places a heavy emphasis on
accountability and transparency, and in doing so, increases the responsibilities of the agencies
that are impacted by ARRA. Overall, the U.S. Department of Education (Department) is
responsible for ensuring that education-related ARRA funds reach intended recipients and
achieve intended results. This includes efficiently controlling funds at the Federal level,
effectively ensuring that recipients understand requirements and have proper controls in place
over the administration and reporting of ARRA funds, and promptly identifying and mitigating
instances of fraud, waste, and abuse of the funds.

The purpose of our audit was to determine whether the Louisiana Department of Education
(LDE), other State of Louisiana agencies, selected local educational agencies (LEA), and a
charter school association charged with responsibility for overseeing ARRA funds had designed
systems of internal control that are sufficient to provide reasonable assurance of compliance with
applicable laws, regulations, and guidance. Our audit covered the designs for systems of internal
control over the administration and use of ARRA funds as of March 31, 2010, for the
organizations identified below.

We assessed the design of State-level internal control that the LDE, the Department of Social
Services’ Office of Louisiana Rehabilitation Services (LRS), and the Office of the Governor’s
Division of Administration (DOA) planned to use in administering funds received under ARRA.
We assessed the design of internal control over the administration of ARRA funds for Title I,
Part A of the Elementary and Secondary Education Act of 1965, as amended (Title I); Part B of
the Individuals with Disabilities Education Improvement Act of 2004 (IDEA); the Vocational
Rehabilitation Act (VR); and the State Fiscal Stabilization Fund (SFSF) programs. We assessed
the design of State-level internal control over data quality, cash management, subrecipient
monitoring, and use of funds. In addition, we assessed the design of control for the four areas
listed above at the local school level for the East Baton Rouge School System, Lafayette Parish
School System (Lafayette), Recovery School District, and the Algiers Charter School
Association (Algiers).
Final Audit Report
ED-OIG/A06K0001                                                                     Page 2 of 29


                                          RESULTS

The State and local agencies we reviewed in Louisiana had systems of internal control in place or
were designing control systems to provide for the administration and use of education-related
ARRA funds. These systems consisted of controls established prior to the passage of ARRA,
modifications to existing controls in response to the Act, and/or planned controls not yet
implemented at the time of our review. Based on our assessment of the designed systems of
control planned for ARRA funds, we identified several areas in which controls need to be
strengthened or established to provide reasonable assurance of compliance with applicable laws,
regulations, and guidance. We concluded that, as of March 31, 2010—

   •   LDE could improve oversight of LEAs to ensure compliance with ARRA requirements;
   •   LDE needs to improve controls over data quality to ensure compliance with ARRA
       requirements;
   •   DOA needs to perform reviews of its subrecipients to ensure compliance with ARRA
       regulations; and
   •   LRS lacks sufficient controls over tracking ARRA funds.

LDE, LRS, and DOA provided comments to a preliminary version of this final audit report.
Based on the information and comments received, we moved Finding 3 to the Other Matters
section and renumbered Findings No. 4 and 5 to be Findings No. 3 and 4, respectively. We also
modified the new Finding No. 4 to include language to clarify LRS’s plan to use Vocational
Rehabilitation funds, and we deleted comments concerning LRS’s progress toward expending all
available ARRA funds. Comments from each agency are summarized at the end of each finding.
The entire narrative of each agency’s comments is included as an attachment to this report.
Because of the size of the documents, the attachments to the comments from LDE are not
attached but can be provided upon request.
Final Audit Report
ED-OIG/A06K0001                                                                                                Page 3 of 29


                                                   BACKGROUND

ARRA was signed into law on February 17, 2009, in an unprecedented effort to jumpstart the
American economy. ARRA has three immediate goals: (1) create new jobs and save existing
ones, (2) spur economic activity and invest in long-term growth, and (3) foster unprecedented
levels of accountability and transparency in government spending. To ensure transparency and
accountability of ARRA spending, recipients are required under § 1512 of ARRA to submit
quarterly reports on ARRA awards, spending, and job impact. According to the Office of
Management and Budget (OMB), the reports, which contain specific detailed information on the
projects and activities funded by ARRA, will provide the public with an unprecedented level of
transparency into how Federal dollars are being spent. They will also help drive accountability
for the timely, prudent, and effective spending of the ARRA funds.

On April 1, 2009, the Department awarded Louisiana 50 percent of its Title I, IDEA, and VR
ARRA funds allocation. According to the Grant Award Notifications, Louisiana received Title I,
IDEA, and VR funds for the grant award period February 17, 2009, through September 30, 2010,
and SFSF funds for the grant award period July 2, 2009, through September 30, 2010.

LDE currently has 650,000 students enrolled in its 153 LEAs with 135 of those LEAs allocated
ARRA funds in fiscal year 2009-2010. Of the 153 LEAs,
  • 69 LEAs are composed of public schools located in a parish,
  • 77 are individual charter schools, 1
  • 6 are specialized schools, and
  • 1 is designated a Recovery School District (RSD). The RSD is a special LEA created by
      the Louisiana legislature in 2003 to take academically unacceptable schools and
      transform the schools to academically acceptable. The RSD is a combination of
      34 public schools administered as one LEA that is run by the LDE and follows State
      policies and procedures. RSD also oversees the academic activities of 48 of the 77
      charter schools. Most of the RSD schools are located in New Orleans, but a few are
      located in other parishes.

LDE was allocated more than $177 million in Title I ARRA funds and more than $188 million in
IDEA ARRA funds. As of March 31, 2010, LDE had distributed more than $49 million in
Title I and approximately $40 million in IDEA ARRA funds to LEAs; whereas, LRS was the
recipient of approximately $9.9 million in VR funds and distributed $640,458 in VR ARRA
funds.

The Office of the Governor, State of Louisiana, (Governor’s Office) was allocated more than
$708 million in SFSF funds, which included approximately $579 million 2 (81.8 percent of SFSF
funds allocated) in Education Stabilization Funds and approximately $129 million (18.2 percent
of SFSF funds allocated) in Government Services Funds (GSF). On July 2, 2009, the
Department approved the Governor’s Office Application for Initial Funding under the SFSF
program. The Governor’s Office was awarded $517 million in SFSF funds for the period ending

1
 Charter schools are public schools that are independently operated and publicly funded.
2
 The $388 million in Education Stabilization SFSF funds was the initial installment. After our fieldwork, DOA allotted the
FY2011 allocation of $191 million to the Louisiana Board of Regents
Final Audit Report
ED-OIG/A06K0001                                                                                               Page 4 of 29

in September 2010. The $517 million includes $388 3 million in SFSF Education Stabilization
funds and approximately $129 million in GSF. The Governor’s Office planned to use $100
million of its $388 million in the Education Stabilization Fund allocation to restore the level of
State support for elementary and secondary education in FY 2010. The application also
indicated that the Governor’s Office planned to allocate its GSF allocation to six State agencies
to support law enforcement, to stabilize and improve the economy, and to provide other
government services for fiscal years 2010 and 2011. As of March 31, 2010, the Governor’s
Office had disbursed $264 million in SFSF funds. The following table summarizes the Title I,
IDEA, VR and SFSF ARRA amounts allocated to Louisiana and as of March 31, 2010, the total
amounts that were drawn down and released by Louisiana.


                     Table: ARRA Allocations to LA State Agencies (in millions)

           Catalog of
            Federal                                                                  Total              Total
     Grant                                            Total Allocated 4              Drawn           Released to
           Domestic                 Agency
     Title                                                                           Down           Subrecipients 5
           Assistance
              No.

      Title I       84.389            LDE                                $177                $49                    $49
      IDEA          84.391            LDE                                $188                $40                    $40
       VR           84.390             LRS                                $9.9            $.640                  $.640
                                                    Education
                    84.394                                               $388              $224                   $224
      SFSF                                         Stabilization
                                      DOA
                                                   Government
                   84.397                                                $129                $40                    $40
                                                     Services
                Total                                                 $891.9           $353.64                $353.64




3
  The Department of Education awarded over $388 million in Education SFSF to the Office of the Governor. DOA awarded more
than $100 million to LDE to disburse to LEAs for fiscal year 2009-2010. DOA awarded approximately $190 million to the
Louisiana Board of Regents to disburse to its Institutions of Higher Education for the same timeframe. After our fieldwork, DOA
allotted the remaining balance of $98 million to the Louisiana Board of Regents. We did not perform audit work at the Louisiana
Board of Regents.
4
  Total Allocated includes Title I, IDEA, VR and SFSF ARRA funds for the grant award periods ending September 30, 2010.
5
  The total released to subrecipients does not reflect the dollar value of Recovery Act funds spent by the subrecipients for
goods/services or otherwise investment in the economy but reflects the amount of ARRA funds disbursed by the State to
applicable subrecipients.
Final Audit Report
ED-OIG/A06K0001                                                                                          Page 5 of 29


                                                     FINDINGS

FINDING NO. 1 LDE Could Improve Oversight of LEAs to Ensure Compliance with
              ARRA Requirements

LDE has procedures in place to monitor subrecipients but issues were identified at three of four
sites reviewed. Specifically, the issues identified at Lafayette included inaccurately reported jobs
data for the first two quarters and the lack of written ARRA reporting procedures. Lafayette also
needs to strengthen its security controls for its computer system. In addition, we found that
Algiers’ purchasing procedures were inadequate. Further, RSD had no accounting policies or
procedures in place to report ARRA funds usage.

Data Quality Issues at Lafayette

Lafayette inaccurately reported ARRA Title I jobs created and retained in the first and second
ARRA reporting quarters. For Title I ARRA funds, Lafayette reported part-time jobs as full-
time jobs instead of calculating the “full-time equivalents” (FTE) for the part-time jobs.
Specifically, Lafayette reported creating and retaining 159 full-time jobs in the first ARRA
quarter, which ended September 30, 2009, but we found that 72 of the 159 identified jobs were
part-time jobs. In the second quarter, which ended December 31, 2009, Lafayette reported
creating and retaining 96 full-time jobs, but our analysis identified 78 of the 96 jobs as part-time
jobs.

In the first ARRA quarter, Lafayette officials initially reported to LDE zero jobs created and
retained with $2.6 million in SFSF funds. The number of jobs created and retained was
subsequently changed to 60 jobs after Lafayette officials learned from LDE that reporting
procedures required a jobs created number.

OMB guidance dated June 22, 2009, 6 states that prime recipients are required to report an
estimate of jobs directly created or retained and express the estimate as FTE. Calculation of an
FTE is obtained by dividing total hours worked in a job by the number of hours in a full-time
schedule for that job, as defined by the recipient. OMB updated the guidance in December 2009
to provide a simplified FTE formula limiting the hours worked to the reporting quarter. The FTE
calculation did not otherwise change with the updated guidance. 7

The Title I jobs created and retained were reported incorrectly because Lafayette did not
understand the formula reporting requirements. In addition, according to Lafayette’s Chief
Financial Officer, miscalculation of jobs created and retained resulted from confusing and
conflicting verbal instructions from LDE. For example, because software used by the State to
track ARRA expenditures required jobs created number to be entered for SFSF funding,
Lafayette officials said they were instructed to convert the $2.6 million in SFSF funds to an
estimate of jobs created. Following those instructions, Lafayette reported the $2.6 million as 60
jobs created; however, in February 2010, the estimated 60 jobs created were changed to zero in

6
  Implementing Guidance for Reports on the Use of Funds Pursuant to the American Recovery and Reinvestment Act of 2009
(OMB.M-09-21), Section 5.2, published on June 22, 2009.
7
  Updated Guidance on the American Recovery and Reinvestment Act – Data Quality, Non-Reporting Recipients, and Reporting
of Job Estimates (OMB M-10-08), was published on December 18, 2009.
Final Audit Report
ED-OIG/A06K0001                                                                                                 Page 6 of 29

the reporting system to be in compliance with updated guidance issued by LDE in January 2010.
The guidance stated that recipients will no longer be required to make a subjective judgment on
whether jobs were created or retained as a result of ARRA. Instead, recipients will report on
jobs funded with ARRA dollars. The verbal instructions, lack of understanding for reporting of
Title I ARRA funds, and Lafayette not incorporating guidance provided by LDE or published by
the Department into its ARRA reporting procedures resulted in data quality issues.

ARRA Procurement Needs Strengthening at Algiers

Algiers needs to strengthen its procurement procedures for the nine charter schools it manages to
ensure that the approximately $1.5 million in ARRA funds it has received are used in accordance
with applicable laws, regulations, and guidance. The issues with Algiers’ procurement
procedures are that it uses sole-source contracting without sufficient justification and does not
require verification that vendors have not been debarred or suspended from receiving Federal
funds.

34 Code of Federal Regulations (C.F.R.) § 80.36(b) provides that “Grantees and subgrantees
will use their own procurement procedures . . . provided that the procurements conform to
applicable Federal law and the standards identified in this section.” 8 34 C.F.R. § 80.36(c)(1)
requires that “all procurement transactions will be conducted in a manner providing full and open
competition,” and § 80.36(d)(4) provides:

     Procurement by noncompetitive proposals may be used only when the award of a contract is
     infeasible under small purchase procedures, sealed bids or competitive proposals and one of the
     following circumstances applies:

         (A) The item is available only from a single source;
         (B) The public exigency or emergency for the requirement will not permit a delay resulting from
             competitive solicitation;
         (C) The awarding agency authorizes noncompetitive proposals; or
         (D) After solicitation of a number of sources, competition is determined inadequate.

Algiers did not comply with these requirements. Additionally, Algiers did not comply with its
own procurement policy, which requires that at least three written quotes be obtained for
procurements between $500 and $100,000. Algiers does not maintain adequate justification
when using a sole-source contract to purchase items or services through noncompetitive means.
The use of sole-source contracts without adequate analysis and documentation places Algiers at
risk of not using ARRA funds in accordance with applicable regulations and increases the risk of
not obtaining the best price for goods or services.

Further, 34 C.F.R. § 80.35 prohibits debarred or suspended vendors from receiving Federal
funds. Although Algiers uses vendors on LDE’s approved vendors list, it places a priority on
using local vendors without verifying whether they have been debarred or suspended. Awarding
contracts funded by Federal funds to vendors that have been identified as debarred or suspended
from receiving Federal funds would put Algiers in violation of Federal regulations. Algiers
could utilize the U.S. General Services Administration’s Excluded Party Listing System Web site

8
 34 C.F.R. § 80.36(b) also requires that procurement procedures reflect applicable State and local laws and regulations; however,
Louisiana law, 17 Louisiana Revised Statutes § 3996.B, exempts charter schools from State procurement competition procedures.
Final Audit Report
ED-OIG/A06K0001                                                                                         Page 7 of 29

(www.epls.gov) to determine if firms are excluded from receiving Federal contracts or federally
approved subcontracts.

Recovery School District Lacked Written Policies and Procedures

RSD has not documented its policies or procedures for the accounting and reporting of payroll
funded with Federal funds. The RSD follows State policies and procedures for day-to-day
financial operations for the 34 schools under its jurisdiction. 9 Existing State policies and
procedures were modified from a State-level educational agency to fit RSD; however, the
modifications made to the State’s policies and procedures were not documented.

The Louisiana Legislative Auditor issued two Management Letters to RSD that identified payroll
documentation issues for the periods ending June 2008 and 2009. The letters cited RSD for
failing to ensure that (1) OMB Circular A-87 payroll certifications were signed and appropriately
reflected the hours worked on Federal projects; (2) employees’ pay and separation dates were
accurate; and (3) payroll charges were adequately documented. As a result of the payroll issues
identified, overpayments were made to former employees and never recouped. 10

According to 34 C.F.R. § 80.20(a), fiscal control and accounting procedures of sub-grantees
must be sufficient to permit (1) preparation of reports required by this part and the statutes
authorizing the grant, and (2) 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.

During our visit to RSD in March 2010, RSD management officials indicated that modifications
were made to its payroll procedures; however, the modifications were not documented. We also
noted that RSD has had a high turnover of staff including two Chief Financial Officers since
May 2008. Further, RSD officials stated that they are planning to spend approximately 90
percent of their ARRA funds on payroll. Because undocumented policies and procedures can
change and considering past payroll audit findings, staff turnover, and the more than $4.5 million
in ARRA funds awarded, RSD needs to strengthen its internal control system relating to payroll.
In addition, RSD needs to implement written procedures that are clearly communicated to its
staff to ensure that ARRA funds are being used in accordance with applicable laws, regulations,
and guidance.

                                    Needs Strengthening at Lafayette to Protect Data Quality




According to 34 C.F.R. § 80.20(b)(3), effective control and accountability must be maintained
for all grant and subgrant cash, real and personal property, and other assets. Grantees and


9
 RSD’s 48 charter schools are not required to follow State policies and procedures.
10
  On November 23, 2009, RSD identified the overpayments for fiscal years 2007 through November 2009 as $575,342. The
overpayments did not include any ARRA funds.
Final Audit Report
ED-OIG/A06K0001                                                                      Page 8 of 29

subgrantees must adequately safeguard all such property and must ensure that it is used solely for
authorized purposes

Lafayette’s                                              stated that


Lafayette has been allocated more than $19 million in ARRA funds.




LDE Could Improve Oversight of LEAs to Ensure Compliance with ARRA Requirements

LDE could improve its on-site monitoring reviews at LEAs based on internal control weaknesses
noted at Lafayette, RSD and Algiers. LDE has modified its Title I and IDEA school monitoring
procedures to include ARRA funds, but these supplemental procedures do not address data
quality of ARRA jobs created and retained reporting. Also, LDE officials are considering a
different monitoring scheme that would look at more current data. LDE’s Director of Finance
stated that the new monitoring process includes equal parts of field audits, desk reviews, and a
self assessment that gives LDE the ability to look at every school district every year. With more
than $466 million in ARRA funds awarded to LEAs, improvements are needed in LEA
monitoring to ensure that ARRA funds are used in accordance with Federal requirements.

Recommendations

We recommend that the Assistant Secretary for Elementary and Secondary Education and the
Assistant Secretary of Special Education and Rehabilitative Services require LDE to—

1.1   Strengthen its LEA monitoring process regarding (1) procedures to ensure compliance with
      Federal requirements and (2) accuracy and timeliness of ARRA data; and

instruct—

1.2   Lafayette and Algiers to implement written procedures specifically designed to address
      ARRA reporting requirements to ensure consistency and accuracy in future ARRA
      reporting;
1.3   Algiers to implement purchasing procedures that comply with Federal regulations
      including documenting justification for using sole-source contracts and documentation of
      cost analysis; alternative items and services considered; and why the alternatives did not
      meet the needs of the school;
1.4   RSD to implement and document policies and procedures specifically designed to address
      Federal accounting and ARRA reporting requirements; and
1.5   Lafayette to implement written procedures to require that
Final Audit Report
ED-OIG/A06K0001                                                                           Page 9 of 29

Auditee Comments

LDE stated it currently has processes in place to monitor LEAs for compliance with ARRA
regulations through field audits, desk audits, and technical assistance. LDE has implemented
additional monitoring of ARRA funds where every LEA that received ARRA program funding
will be monitored.

For Recommendation 1.1, LDE plans to strengthen its LEA monitoring. LDE will provide
guidance to LEAs relating to written procurement and ARRA reporting procedures and the
requirement to maintain all supporting documentation. LDE assigned a staff member from each
respective program as the primary data reviewer and coordinator for the Periodic Expense
Reports.

For Recommendation 1.2, LDE will communicate to each LEA the requirement to have written
ARRA reporting procedures and provide technical assistance, as needed. Lafayette and Algiers
will be required to submit written procedures to LDE.

For Recommendation 1.3, LDE will work with Algiers to strengthen its operating procedures
manuals to supplement the policies and procedures currently developed and adopted for
procurement.

For Recommendation 1.4, LDE stated that RSD has developed written procedures to address A-
87 requirements and such procedures are being added to their Employee Manual.

For Recommendation 1.5, LDE stated LDE and LEAs are required to follow LDE password
policy standards. LDE will contact Lafayette and share standards for password security and
recommend they implement these within their district.

OIG Response

We acknowledge LDE’s response that it is making improvements to its oversight of
subrecipients by strengthening its audit program, reissuing guidance, adding staff to review
reported data, and reviewing subrecipient procedures. Future communication with the LEAs
should include reference to updated guidance from the Department and OMB.


FINDING NO. 2 LDE Needs to Improve Controls Over Data Quality to Ensure
              Compliance with ARRA Requirements

LDE did not have an established plan or method to ensure accurate, complete, and timely
reporting of required data by its 135 LEAs 11 that received ARRA funds in fiscal year 2009-2010.
LDE had 6 LEAs that did not report the required ARRA data for the first quarter ending
September 30, 2009. For the third quarter ending March 31, 2010, 30 charter school LEAs (22
percent of the LEAs receiving ARRA) failed to report required ARRA reporting data.
Specifically, 18 LEAs did not submit data, and 12 LEAs were prevented from submitting ARRA


11
     The 135 LEAs consists of three types of schools: parish, charter, and specialized.
Final Audit Report
ED-OIG/A06K0001                                                                                        Page 10 of 29

data because a previous quarter submission had been rejected and not yet corrected in LDE’s
ARRA reporting system.

Section 1512(c) of ARRA requires data to be reported not later than 10 days after the end of each
calendar quarter. Each recipient shall submit a report that includes the amount of recovery funds
received that were expended or obligated to projects or activities. The quarterly reports must
also have an estimate of the number of jobs created and retained by the project or activity. OMB
M-09-21, § 2.10 states that non-compliance with § 1512’s reporting requirement is considered a
violation of the award agreement because awards made with ARRA funds have a specific term
requiring such compliance. OMB M-10-8, Part 1 states that recipients who have failed to submit
a § 1512 report as required by the terms of their award are considered to be non-compliant. Non-
compliant recipients, including those who are persistently late or negligent in their reporting
obligations, are subject to Federal action, up to and including the termination of Federal funding
or the ability to receive Federal funds in the future. 12

LDE has no provisions for enforcement of the submission policies even though it awarded more
than $466 million in ARRA Title I, IDEA, and SFSF Education Stabilization Funds to its 135
LEAs. LDE officials stated that as the filing deadline approaches, Title I and IDEA program
staff email each LEA that has not submitted its data; however, LDE program officials were
unsure of the reason but stated that some charter schools simply did not submit required ARRA
data. LDE program officials were not concerned about incomplete submission because the data
reporting was cumulative. LDE considered it sufficient if reported in the following quarter. The
officials also stated that they were not aware of how to enforce the reporting requirements.

OMB guidance (M-10-8) states that recipients should not report jobs created or saved on a
cumulative basis and provides enforcement remedies for non-compliant recipients. Without
implementing procedures for accurate and timely submission of ARRA reporting data, LDE will
not be able to provide reasonable assurance that information reported in its quarterly report
submissions is complete or accurate.

Recommendation

We recommend that the Assistant Secretary for Elementary and Secondary Education require
LDE to implement written procedures specifically designed to address the ARRA reporting
requirements to ensure consistency and accuracy in future ARRA reporting. These procedures
should include enforcing policies requiring LEAs to timely submit accurate reports and promptly
notifying Department officials when material omissions or significant reporting errors are
discovered in the reports.




12
  OMB published additional guidance on May 4, 2010 to Federal agencies– Holding Recipients Accountable for Reporting
Compliance under the American Recovery and Reinvestment Act (OMB M-10-17). This guidance provides additional actions
and strategies for implementation to improve ARRA reporting compliance and the potential recapture of ARRA funds from
noncompliant prime recipients.
Final Audit Report
ED-OIG/A06K0001                                                                         Page 11 of 29

Auditee Comments

LDE stated that it has established and implemented written policies and procedures to ensure
consistent and accurate ARRA reporting. The ARRA Reporting Requirements policy was
updated to specifically state that LDE will pursue corrective action, as outlined in OMB
Memorandum M-09-21 §2.10 for LEA non-compliance. To ensure LEAs are aware of these
requirements, the entire memorandum is an attachment to the policies and procedures. Specific
notice to Department officials when a material omission or significant reporting error is
discovered is also addressed. The policy includes implementation guidance addressing the
requirements of recipient reporting, the recipient reporting process, and data quality. The recent
implementation of this policy resulted in achieving 100 percent compliance for the latest
reporting quarter.

OIG Response

The LDE policy update does not address the issue of promptly notifying Department officials
when material omissions or significant reporting errors are discovered in the reports. The
prompt notification requirement is contained in the OMB Memorandum M-9-21 but is not
discussed in the LDE ARRA Reporting Requirements policy. Further, certain aspects of M-9-21
have been updated and revised by OMB Memoranda M-10-08 and 10-17. We suggest that LDE
also make LEAs aware of the updated and revised guidance.


FINDING NO. 3 Division of Administration Needs to Perform Reviews of its
              Subrecipients to Ensure Compliance with ARRA Regulations

At the time of our review, the Division of Administration (DOA) had not developed subrecipient
monitoring procedures or performed monitoring reviews at the six State agencies that received
SFSF Government Services Funds (GSF). The Department awarded approximately $129 million
in GSF funds to the Office of the Governor of Louisiana who designated the administration of
the funds to its DOA, the administrative office for Louisiana State agencies.

According to 34 C.F.R. § 80.40(a),

       Grantees are responsible for managing the day-to-day operations of grant and subgrant supported
       activities. Grantees must monitor grant and subgrant supported activities to assure compliance
       with applicable Federal requirements and that performance goals are being achieved. Grantee
       monitoring must cover each program, function or activity.

DOA did not verify the accuracy of ARRA expenditures and job data submitted by six State
agencies for the first ARRA quarter. The DOA official responsible for ARRA reporting stated
that data submitted by the six State agencies were assumed to be correct. DOA obtains
certifications from each agency that quarterly reported data are presented in accordance with
Federal requirements.

As of March 1, 2010, DOA had developed a monitoring plan and protocols for GSF
subrecipients. The GSF monitoring protocol includes questions relating to fiscal oversight and
reporting. DOA performed its first review in June 2010. In addition, DOA hired a staff member
Final Audit Report
ED-OIG/A06K0001                                                                    Page 12 of 29

in the second ARRA quarter to review data submitted by the agencies. DOA’s preliminary
recipient monitoring schedule show plans to review all six agencies reviewed by June 2011.

Recommendation

We recommend that the Assistant Secretary for Elementary and Secondary Education require the
Office of the Governor to instruct DOA to complete monitoring reviews at the six State agencies
that received GSF funds.

Auditee Comments

DOA agreed that it must perform reviews of subrecipients to ensure compliance with ARRA. As
noted, to meet the requirements for reporting and monitoring compliance by subrecipients of the
ARRA program, the DOA hired an ARRA Coordinator. The ARRA Coordinator has developed
and implemented internal control and procedures for the reporting and subrecipient monitoring
requirements of the program.

A monitoring plan was developed to monitor the six subrecipient agencies that received
reimbursement from the SFSF-GSF program. The first monitoring visit is complete, and the
report has been issued. The second visit is in progress, and DOA is effectively pursuing the
completion of one monitoring visit for each of the six subrecipients of the SFSF-GSF Program
by June 30, 2011.

OIG Response

The DOA comments were responsive to the recommendations.


FINDING NO. 4 Louisiana Rehabilitation Services Lacks Sufficient Controls Over
              Tracking ARRA Funds

LRS does not have sufficient controls to provide reasonable assurance that VR ARRA funds can
be tracked. The LRS accounting process does not track ARRA expenditures separately from
non-ARRA expenditures. LRS uses both computer-generated and manual journal entries to
account for VR ARRA funds. LRS uses a computer system (referred to as AWARE) to manage
clients’ cases and to support delivery of vocational rehabilitation services. Data on its clients
that receive services and vendors that provide the services are maintained in this computer
system. Services to be provided to clients are entered into the system with a unique code
identifying the service. Once services are provided, LRS electronically transfers payment data to
the State computer system to issue vendors payments.

ARRA funding codes are not assigned in the LRS system. Instead, ARRA funded services are
identified when payment data is transferred to the State computer system. Once the data are
electronically transferred, LRS makes manual entries to the State computer system to identify
specific service codes designated by LRS as funded by ARRA. LRS then requests
reimbursement from the Department for the VR ARRA services. Once the Federal draw down is
received, LRS makes another manual entry to classify the deposit as VR ARRA funds received.
Final Audit Report
ED-OIG/A06K0001                                                                                                      Page 13 of 29

LRS’ plan was to use the VR ARRA funds on or after July 1, 2009, to pay for on-the-job training
and vocational rehabilitation services for eligible clients placed in Order of Selection 13 Groups I
& II. LRS believes that, because all of the on-the-job training services are funded with ARRA,
they can use the code assigned to these services as a way to track clients that received ARRA
funded services in its computer system. However, unless all services provided to clients in an
Order of Selection Group are funded by ARRA then the code assigned to the Order of Selection
Group cannot be used as a way to track services funded with ARRA funds.

According to 34 C.F.R. § 80.20(a), a State must expand and account for grant funds in
accordance with State laws and procedures for expending and accounting for its own funds.
Fiscal control and accounting procedures of the State, as well as its sub-grantees and cost-type
contractors, must be sufficient to permit 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. Departmental guidance on VR ARRA states that all ARRA funds must be
spent with an unprecedented level of transparency and accountability. Accordingly, recipients of
ARRA funds must maintain accurate, complete, and reliable documentation of all ARRA
expenditures. Recipients are also required to separately account for, and report on, how ARRA
funds are spent.

The LRS current accounting process does not separately account for ARRA funds and can only
track ARRA clients and expenditures if the service provided is completely ARRA funded.
Services partially funded by ARRA and ARRA vendor data cannot be tracked. LRS does
maintain in its computer system records of services provided to clients and the related
expenditures for the services. In addition, LRS does not assign or track ARRA funds
electronically. LRS assigned ARRA only in the State’s computer system by manual journal
entries after the services have been paid. By not identifying client services paid with VR ARRA
funds upfront, LRS’ accounting for VR ARRA funds is cumbersome and susceptible to errors
and puts VR ARRA funds at risk of not being used as intended or reported correctly.

We believe that identifying clients served by ARRA will be difficult if not impossible when LRS
starts using ARRA funds to pay for services that are partially funded by ARRA. LRS will no
longer be able to use its current coding system to identify services funded by ARRA. Individual
client data will need to be reviewed to separate services funded by ARRA from services not
funded by ARRA. Also, because ARRA fund codes are not assigned in LRS’s computer system,
LRS will not be able to track ARRA vendors, which may result in inaccurate vendor data being
reported to FederalReporting.gov.

Recommendation

We recommend that the Assistant Secretary for Special Education and Rehabilitative Services
require Louisiana’s Department of Social Services to implement policies and procedures for LRS
to modify the current accounting system to ensure fund-specific VR ARRA accounting codes are
utilized upfront for each transaction involving VR ARRA funds.


13
   LRS follows an “Order of Selection” for providing vocational rehabilitation services. This means that individuals with the
most significant disabilities are given a priority over those with less significant disabilities, as required by the Rehabilitation Act
of 1973.
Final Audit Report
ED-OIG/A06K0001                                                                    Page 14 of 29

Auditee Comments

LRS did not concur with the finding. According to LRS, (1) the draft report did not fully
document its plan to use the ARRA funds, and (2) the AWARE Case Management System
provided the means to identify who would receive services provided by ARRA funds. LRS
stated that more than half of its ARRA funds have been spent by September 30, 2010. LRS also
stated that it is on target to spend the remaining ARRA funds by September 30, 2011.

OIG Response

We have modified our description of LRS’ planned use of funds. However, during our fieldwork
we were shown a flowchart and the process was explained to us concerning the AWARE Case
Management System. The flowchart and process indicated that clients who would receive
services provided by ARRA funds can be identified only in the following cases: (1) all clients
who receive the same type service are provided that service with ARRA funds or (2) all clients in
an Order of Selection Group only receive services provided by ARRA funds. Because the
additional information has not demonstrated how the AWARE Case Management System
provides the means to identify in all cases who receive services funded by ARRA, we have not
changed our recommendation.
Final Audit Report
ED-OIG/A06K0001                                                                                            Page 15 of 29

                                               OTHER MATTERS

Controls Over Cash Management Need to Take into Account the LEAs’ Cash Needs

LDE was responsible for disbursing more than $100 million in SFSF Education Stabilization
Funds in fiscal years 2009-2010. LDE disbursed more than $75 million, as of March 31, 2010,
in SFSF to its LEAs without considering their cash needs. LDE divided the SFSF funds awarded
to each LEA into 12 equal allocations and increased its Minimum Foundation Program 14
payments to LEAs by the SFSF monthly allocations in October 2009. LDE does not have
procedures in place to assess LEAs’ cash needs before disbursing SFSF funds.

The cash management requirement prescribed by 34 C.F.R. § 80.21 states the basic standard and
the methods under which grantees will make payments to sub-grantees. The basic standard is
that the “[m]ethods and procedures for payments shall minimize the time elapsing between the
transfer of funds and disbursement by the grantee or sub-grantee….” Grantees and sub-grantees
shall be paid in advance if they maintain or demonstrate the willingness and ability to maintain
procedures to minimize the time between receipt and disbursement of the funds to pay program
costs. The Department reinforced these cash management requirements in its Guidance on the
State Fiscal Stabilization Fund Program issued in April 2009. The guidance encourages States
to make “prompt allocations to local educational agencies” to ensure that the expenditures and
activities under the Education Stabilization program occur as quickly as possible consistent with
prudent management, under ARRA § 807(a)(2). The guidance also states “A State must have an
effective system for managing the flow of funds that ensures that entities are able to draw down
funds as needed to pay program costs but that also minimizes the time that elapses between the
transfer of the funds and their disbursement by the grantee or subgrantee….”

Although the Department has encouraged prompt allocation, it is important that grantees do not
draw and disburse ARRA funds before they are needed. By not determining each LEA’s cash
needs prior to disbursing SFSF cash advances, LDE did not ensure that LEAs are not
maintaining excess cash. Further, when Federal funds are drawn down and disbursed to LEAs in
advance of the LEAs’ immediate cash needs, there is an additional cost to the U.S. Treasury and
an increased risk that SFSF could be misused.

Problems With Required Data Universal Numbering System Numbers

Problems with required Data Universal Numbering System (DUNS) numbers resulted in both
LDE and LRS reporting incomplete data for the quarter ending September 30, 2009. LDE had
two charter schools that experienced DUNS number errors when attempting to submit first
quarter reports. The two schools were unable to report their first quarter information. LDE
corrected the DUNS errors for the second quarter ending December 31, 2009. The LRS DUNS
number was also rejected by FederalReporting.gov when attempting to submit first quarter
reports in October 2009. Consequently, LRS did not report any first quarter information. LRS
resolved its DUNS number issue and was able to submit their second quarter data in January
2010.
14
   The Minimum Foundation Program is a formula adopted by the State Board of Elementary and Secondary Education and
approved by the Legislature which determines the cost of a minimum foundation program of education in all public elementary
and secondary schools and helps to allocate the funds in monthly payments to the LEAs. LEAs are afforded the flexibility to
spend these funds as they determine to be in their best interest while satisfying all mandated program requirements.
Final Audit Report
ED-OIG/A06K0001                                                                                                 Page 16 of 29


                                         SCOPE AND METHODOLOGY

Our audit covered LDE’s and other State of Louisiana agencies’ designs for systems of internal
control over the administration and use of ARRA funds as of March 31, 2010. We assessed the
design of State-level internal control that LDE, the Department of Social Services’ LRS, and the
Office of Governors’ DOA planned to use in administering funds received under ARRA. We
assessed the design of internal control over the administration of ARRA funds only for the
Title I, IDEA, Vocational Rehabilitation Act, and SFSF programs. We assessed the design of
State-level internal control over data quality, cash management, subrecipient monitoring, and use
of funds. In addition, we assessed the design of internal control at Algiers 15 and three LEAs:
East Baton Rouge School System, Lafayette and RSD.

Because our audit objective was to assess the design of internal control, we performed limited
tests to determine whether internal control was put into place but did not perform sufficient tests
to determine whether internal controls were implemented effectively. Also, during and
subsequent to our fieldwork, LDE, LRS, and the DOA were continuing the process of designing
and implementing internal control over their administration of ARRA funds. Thus, the plans and
processes that we reviewed during our audit could be substantially modified or not implemented
as designed. Because of the limited nature of our review and the other factors mentioned, it is
possible that other opportunities for improvement in the State and local-level systems of internal
control could exist but not be identified by our audit.

To assess the design of the control, we:

      •     Reviewed prior single audits and applicable reports issued by ED-OIG, LDE Bureau of
            Internal Audit, Louisiana Legislative Auditor, Independent CPA firms, LDE monitoring
            reports, and the Department’s Student Achievement and School Accountability
            monitoring report for Louisiana;
      •     Identified funds allocated and awarded under ARRA to LDE, LRS, and DOA for the
            Title I, IDEA, Vocational Rehabilitation, and SFSF programs;
      •     Gained an understanding of the law, regulations, Department guidance, and OMB
            Circulars relevant to the audit’s objectives;
      •     Interviewed LDE’s program and fiscal officials for Title I, IDEA, and SFSF programs;
            DOA’s officials for SFSF; and LRS’ officials for VR;
      •     We also interviewed officials from the Louisiana’s Office of Finance & Support Services,
            Louisiana’s Legislative Auditors, and the Department’s Office of Special Education and
            Rehabilitative Services;
      •     Interviewed program and fiscal personnel at Algiers and three LEAs;
      •     Reviewed organizational charts for LDE, LRS, Algiers, and three LEAs;
      •     Obtained and reviewed written policies and procedures related to data quality, cash
            management, subrecipient monitoring, and use of funds for Title I, IDEA, Vocational
            Rehabilitation, and SFSF from LDE, LRS, Algiers, and three LEAs, as applicable;
      •     Reviewed answers to questions provided to LDE, LRS, DOA, Algiers, and three LEAs
            related to data quality, cash management, subrecipient monitoring, and use of funds; and

15
     Algiers is a charter school association that manages nine schools. LDE considers each of these schools as separate LEAs.
Final Audit Report
ED-OIG/A06K0001                                                                                             Page 17 of 29

   • Obtained and reviewed Louisiana’s approved SFSF application.
We conducted our work at LDE, LRS, DOA, Algiers and the three selected LEAs from
November 2009 through March 2010. 16 We discussed the results of our review and
recommendations with LDE, LRS, and the Office of the Governor of Louisiana on June 14,
2010.

We assessed the reliability of computer-processed data by (1) observing the entry of data into the
State’s electronic Grant Management System, (2) reviewing the process used by LEA’s to
calculate jobs created, and (3) reviewing the process used by LEAs to extract expenditure data
from their accounting systems. We determined that the data was sufficiently reliable for the
purposes of this report.

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 that the evidence obtained provides a reasonable basis
for our findings and conclusions based on our audit objectives.




16
  We conducted our work at LDE, LRS, and DOA; East Baton Rouge Parish School System in Baton Rouge, Louisiana;
Lafayette Parish School System in Lafayette, Louisiana; and at the Recovery School District and Algiers Charter School
Association in New Orleans, Louisiana.
Final Audit Report
ED-OIG/A06K0001                                        Page 18 of 29




                           Enclosure:
          DOA’s Comments on Preliminary Version of Report
    Final Audit Report
    ED-OIG/A06K0001                                                                          Page 19 of 29
BOBBY JINDAL                                                                            PAUL W. RAINWATER
   GOVERNOR                                                                        COMMISSIONER OF ADMINISTRATION



                                  State of Louisiana
                                           Division of Administration
                                       Office of the Commissioner

                                                 August 25, 2010

    Mr. Keith Maddox
    Regional Inspector General for Audit
    U.S. Department of Education
    1999 Bryan Street, Suite 1440
    Dallas, Texas 75201

    Subject: Response to the United States Department of Education, Office of Inspector General
    Audit Report entitled Systems of Internal Control Over Selected ARRA Funds in the State of
    Louisiana (Control Number ED-OIG/A06K0001)


    Dear Mr. Maddox:

    The State of Louisiana Division of Administration (DOA) would like to thank you and your staff
    for c onducting a n audit of t he s tate’s systems of i nternal cont rol ov er s elected American
    Recovery and Reinvestment Act of 2009 (ARRA) funds.

    We have reviewed the preliminary audit report that presents the results of your audit. This letter
    includes w ritten c omments w e w ould l ike t o of fer f or c onsideration i n t he f inal r eport. O ne
    finding a nd recommendation w as i ncluded i n t he r eport t hat r elates t o D OA’s s ubrecipients of
    the State Fiscal Stabilization Fund (SFSF) - Government Services Funds (GSF) Program under
    the A RRA ( Finding N o. 4, pa ge 11 of 15) . T he f inding i s t itled, “ Division of Administration
    Needs to Perform Reviews of its Subrecipients to Ensure Compliance with ARRA Regulations.”

    We conc ur t hat t he D OA must perform r eviews of s ubrecipients t o e nsure c ompliance w ith
    ARRA r egulations, a nd w e pr ovided evidence that t hese r eviews a re b eing p erformed. T he
    finding i ndicates t hat t he a udit be gan i n N ovember 2009. T he D OA be gan r eimbursing
    subrecipients with SFSF-GSF funds late in September 2009. As noted, to meet the requirements
    for reporting and monitoring compliance by subrecipients of the ARRA program, the DOA hired
    an A RRA C oordinator. T he A RRA C oordinator has developed and implemented internal
    controls a nd pr ocedures f or t he r eporting a nd subrecipient m onitoring r equirements o f the
    program.




Post Office Box 94095   •   Baton Rouge, Louisiana 70804-9095 • (225) 342-7000 • 1-800-354-9548 • Fax (225) 342-1057
                                             An Equal Opportunity Employer
Final Audit Report
ED-OIG/A06K0001                                                                       Page 20 of 29

A m onitoring pl an was de veloped t o m onitor t he s ix s ubrecipient a gencies t hat r eceived
reimbursement f rom the SFSF-GSF p rogram. In addition, a s chedule o f monitoring vi sits was
established to perform a monitoring visit to each of the six subrecipients by June 30, 2011. T he
first monitoring visit is complete, and the report has been issued. The second visit is currently in
progress. We are effectively pursuing the completion of one monitoring visit for each of the six
subrecipients of the SFSF-GSF Program by June 30, 2011.

The audi t report i ncludes a recommendation that “t he Assistant S ecretary for E lementary and
Secondary Education require the Office of the Governor to instruct DOA to complete monitoring
reviews at the six state agencies that received GSF funds.” A s previously stated, we anticipate
completing the monitoring visits for each subrecipient by J une 30, 2011 ; thus, DOA is already
performing reviews of subrecipients to ensure compliance with the ARRA regulations.

We appr eciate your t horough review o f t he s tate’s s ystems of i nternal c ontrol ove r s elected
American R ecovery a nd R einvestment A ct of 2 009 ( ARRA) f unds. W e i ntend t o c ontinue the
successful actions we have already taken to improve our management of ARRA programs.


                                                      Sincerely,

                                                      /s/

                                                      Paul Rainwater
                                                      Commissioner of Administration

PR/mvg



Cc:      Mark Brady, Deputy Commissioner
         Steven Procopio, Interim Deputy Undersecretary of Finance
         Barry Dusse, Director, OPB
         Afranie Adomako, Director, OSRAP
         Marianne Patin, Director, OFSS
         Devery Pierce, Asst. Director, OSRAP
         Belinda Olivier, Asst. Director, OFSS
         Dianne Shelmire, ARRA Coordinator
         Marsha Guedry, Internal Audit Administrator




Response to ED-OIG Report on ARRA - 8-24-10.docx
Final Audit Report
ED-OIG/A06K0001                                        Page 21 of 29




                           Enclosure:
          LRS’s Comments on Preliminary Version of Report
Final Audit Report
ED-OIG/A06K0001                                                                       Page 22 of 29




September 2, 2010


Keith M. Maddox
Regional Inspector General for Audit
1999 Bryan Street, Suite 1440
Dallas, TX 75201

Re:  Systems of Internal Control Over Selected ARRA Funds in the State of Louisiana, ED-
OIG/A06K0001

Dear Mr. Maddox:

This is in response to the preliminary audit report titled “Systems of Internal Control Over
Selected ARRA Funds in the State of Louisiana” dated August 13, 2010. The response
specifically addresses the finding related to the Vocational Rehabilitation Program under the
auspices of Louisiana Rehabilitation Services (LRS).

Finding No. 5 – Louisiana Rehabilitation Services Lacks Sufficient Controls Over Tracking
ARRA Funds

LRS does not concur with this finding for the following reasons:

The Preliminary Audit Report does not fully document LRS’ plan to use the ARRA funds. In a
memo dated May 4, 2009, LRS documented that ARRA funds would be designated; (1) for the
provision of services for those consumers in Order of Selection Groups I & II, and (2) for the
provision and enhancement of On-the-Job Training opportunities for eligible LRS consumers.
The audit report only indicates that funds would be expended for on-the-job training and does
not mention the other expenditure category (services for consumers in Order of Selection Groups
I and II).

The AWARE Case Management System provides the means to identify on the front end those
consumers who would receive services provided by ARRA funds. Consumers determined
eligible for vocational rehabilitation services and placed in Order of Selection Groups I & II on
or after July 1, 2009 were identified on the front end to receive ARRA funded services.
Consumers who received on-the-job training services on or after July 1, 2009 were identified on
the front end to receive ARRA funded services.

The Preliminary Report also indicates that “LRS will need to designate other services to be
funded with ARRA to avoid having an excessive amount of funds on hand at the end of the
award period.” The Governor of the State of Louisiana required state agencies receiving ARRA
funds to use half of the total award for State Fiscal Year 2010 and the other half for State Fiscal
Final Audit Report
ED-OIG/A06K0001                                                                   Page 23 of 29

Year 2011. The preliminary report accurately documents that at the time of the audit, LRS had
expended approximately $640,000; however, it should be noted that this amount was only for on-
the-job training services and did not reflect ARRA expenditures for consumers in Order of
Selection Groups I & II. At the end of SFY 2010 approximately $3.1 million was spent on
services provided to consumers in Order of Selection Group II and approximately $1 million was
spent on services provided to consumers in Order of Selection Group I. Approximately
$900,000 was spent on on-the-job training services. Approximately $5 million was spent in the
first year to serve over 5000 individuals with disabilities. LRS is on target to spend the
remaining $4.9 million in ARRA funds by September 30, 2010.

LRS sincerely appreciates the opportunity to review and comment on the preliminary audit
report. We are committed to strengthening the systems of internal control to provide reasonable
assurance of compliance with applicable laws, regulations, and guidance and assure
accountability and transparency in the use of ARRA funds. If you have any questions, or need
additional information, please contact Ken York at (225) 219-2231 or kyork@lwc.la.gov


Sincerely,



Roseland Starks
LRS Director

RS:KY
Final Audit Report
ED-OIG/A06K0001                                                   Page 24 of 29




                           Enclosure:
          LDE’s Comments on Preliminary Version of Report
            Attachments Not Included But Available Upon Request
Final Audit Report
ED-OIG/A06K0001                                                                                Page 25 of 29


                                         STATE OF LOUISIANA
                         DEPARTMENT OF EDUCATION
                POST OFFICE BOX 94064, BATON ROUGE, LOUISIANA 70804-9064
                          Toll Free #: 1-877-453-2721 bnp://www.louisianaschools.net
August 27, 2010

Mr. Keith Maddox
Regional Inspector General for Audit
US Department of Education
Office of Inspector general
1999 Byran [sic] Street, Suite 1440
Dallas, TX 75201

Dear Mr. Maddox:

This letter is being provided by the Louisiana Department of Education regarding the draft audit entitled
“Systems of Internal Control over Selected ARRA Funds in the State of Louisiana.” We take seriously
the administration and management of these federal funds. We appreciate being provided the opportunity
to comment on these issues and are committed to addressing each one.

                             Response to Audit Report ED-OIG/A06K0001

                                           Finding 1.1(a)
Recommendation 1.1 (a) – LDE s hould s trengthen its L EA m onitoring p rocess r egarding established
procedures to ensure compliance with Federal requirements.

Response:
The Louisiana Department of Education currently has processes in place to monitor LEAs for compliance
with A RRA regulations. As pa rt of t he L EA monitoring p rocess, t he L DE performs f ield audits, desk
audits, and technical as sistance. The p rocess of selecting w hich LEAs w ill b e m onitored each year
requires the consideration of various risk factors and the rotational cycle. The LDE currently requests and
reviews the L EA’s w ritten pr ocurement p olicy, t ests a s ample o f e xpenditures to the supporting
documentation, and determines if the test items are allowable and in compliance with the LEA’s policy.
Contracts f unded unde r A RRA a re r eviewed t o de termine i f t hey a re aw arded as f ixed price con tracts
through the use of competitive procedures. The LDE audit staff also tests salary expenditures specifically
for compliance w ith OMB Circular A -87 r equirements, and altered t he existing f iscal m onitoring a udit
program t o include a r eview of A RRA expe nditures t o be pe rformed at t he sam e t ime as t he f iscal
monitoring.

Because ARRA programs are new and the associated risk is high, the LDE has implemented additional
monitoring of ARRA funds whereby every LEA that received ARRA program funding during the 2009-
2010 fiscal year will be monitored for at least one ARRA program based on a risk analysis relative to the
amount of ARRA funding allocated and requested for reimbursement.

In an effort to strengthen its LEA monitoring process to ensure compliance with Federal requirements, the
LDE plans to review and revise, as necessary, the subrecipient monitoring audit program used to monitor
ARRA funds. Any revisions made will be for the purpose of ensuring greater alignment with the current
Federal compliance requirements. The LDE audit staff will update its field audit and desk audit
procedures to include: (1) testing that the LEA is complying
                                    "An Equal Opportunity Employer"
Final Audit Report
ED-OIG/A06K0001                                                                           Page 26 of 29

Mr. Keith Maddox
August 27, 2010
Page 2

with its procurement policy and ensuring the policy complies with Federal compliance requirements,
including suspension and debarment, where applicable; (2) reviewing the LEA's written policies and
procedures that establish internal controls over payroll to ensure compliance with Federal compliance
requirements; (3) reviewing a sample of the reported ARRA data to test for reasonableness; and (4)
reviewing the LEA's documented ARRA reporting procedures.

To tailor its technical assistance more toward the ARRA funds, the LDE audit staff will reissue the
guidance on sole source procurement and OMB A-87 time distribution requirements ( see Attachment A)
to the LEAs. Additionally, the LDE will provide guidance to the LEAs notifying them of the requirement
to have written procurement and ARRA reporting procedures that ensure compliance with Federal
requirements. Although prior guidance disseminated did not specifically identify that written ARRA
reporting procedures are required, we recognize they are necessary to ensure adequate internal controls
over the quality and timelines of the data. In addition, the LEAs will be reminded to maintain all
supporting documentation for reporting and procurement procedures, including proof of consideration of
suspension and debarment. As confirmation that these requirements have been clearly communicated, the
LDE will schedule a conference call with LEA staff to reiterate these requirements and extend an
opportunity to the LEAs to inquire and obtain a clear understanding of the requirements.

                                   Finding 1.1(b)
Recommendation 1.1 (b) − The LDE should strengthen its LEA monitoring process regarding adequacy
and timeliness of ARRA data.

Response:
The LDE has strengthened the ARRA data monitoring process to ensure adequate and timely ARRA data
submission. This was accomplished by first assigning a dedicated LDE staff member from each
respective program as the primary data reviewer and coordinator for the Periodic Expense Reports
(PERs). The PERs are used to collect LEA-level data through the Department's Electronic Grants
Management System (eGMS). Additional communication with the LEAs included reference to OMB
Circular M-09-21, §2.10 regarding possible corrective action available to the LDE in the event LEAs
were noncompliant with reporting requirements. This information was utilized by the respective program
staff and further communicated to the LEAs that demonstrated the potential of not meeting the required
reporting deadlines (see Attachment B). This process resulted in achieving 100% compliance for the latest
reporting quarter.

                                        Finding 1.2
Recommendation 1.2 − Lafayette and Algiers to implement written procedures specifically designed to
address ARRA reporting requirements to ensure consistency and accuracy in future ARRA reporting.

Response:
The LDE will communicate to each of these LEAs the requirement to have written ARRA reporting
procedures. Technical assistance will be provided to these LEAs, as needed, in the development of these
procedures. Lafayette and Algiers will be required to submit these written procedures to the LDE as
evidence they have complied with the requirements. The LDE will
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Mr. Keith Maddox
August 27,2010
Page 3
review these procedures for completeness to ensure they comply with ARRA reporting requirements.

                                         Finding 1.3
Recommendation 1.3 -Algiers to implement purchasing procedures that comply with Federal regulations
including justification for using of sole source contracts and documentation of cost analysis; alternative items and
services considered; and why the alternatives did not meet the needs of the school.

Response: LDE will work with Algiers to strengthen its operating procedures manuals to supplement the policies
and procedures currently developed and adopted for procurement. This includes:
    1. Developing detailed written procedures to help ensure procurement activities are performed in accordance
        with statutes, rules, and management's directives including a revision of control procedures to record the
        changing requirements for procurements.
    2.   Incorporating a cost analysis into the process prior to contracting to ensure that prices paid to contractors
         are fair and reasonable including a market survey (P.P.I., c.P.I. or other recognized index). The analyses
         should be documented and maintained in the contract files especially for sole source contracts. Since they
         are not competitively solicited, this process ensures price reasonableness.
    3.   Creating a sole source checklist/form to support justification of only one contractor with multiple levels of
         approvals including but not limited to the Chief Procurement Officer.
    4.   Developing a Debarment and Suspension Policy.
    5.   Developing sound practices for documentation and retention of documents to substantiate compliance with
         internal purchasing procedures.

                                       Finding 1.4
Recommendation 1.4 -RSD to implement and document policies and procedures specifically designed to address
Federal accounting and reporting requirements.

Response:
RSD has now developed written procedures to address the concerns on A-87 requirements (see Attachment C) and
such procedures are being added to their Employee Manual. The written procedures include information on the
critical importance of the time sheets, and also the responsibilities of the employee, the school managers and
division directors in this process.

                                           Finding 1.5
Recommendation 1.5 -Lafayette to establish written procedures to


Response:
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Mr. Keith Maddox August
27,2010 Page 4


                                       The LDE will contact Lafayette and share these standards
        with them also recommending they implement these within their district.

                                       Finding 2
Recommendation 2 -The LDE should implement written procedures specifically designed to address the ARRA
reporting requirements to ensure consistency and accuracy in future ARRA reporting. These procedures should
include enforcing existing policies requiring LEAs to timely submit accurate reports and promptly notifying
Department officials when material omissions or significant reporting errors are discovered in the reports.

Response:
The LDE has established and implemented written policies and procedures to ensure consistent and accurate ARRA
reporting (see Attachment B). Recently, the ARRA Reporting Requirements policy was updated to specifically state
that the LDE will pursue corrective action, as outlined in OMB Circular M-09-2l §2.l0 for LEA non-compliance. To
ensure the LEAs are aware of these regulations, the entire circular is an attachment to the policies and procedures.
Specific notice to Department officials when a material omission or significant reporting error is discovered is also
addressed. Additionally, the policy includes implementation guidance addressing the requirements of recipient
reporting, the recipient reporting process, and data quality requirements. The recent implementation of this policy
resulted in achieving 100% compliance for the latest reporting quarter.

                                       Finding 3
Recommendation 3 -The LDE should implement cash management procedures that consider the cash needs of the
LEAs before disbursing ARRA funds.

Response:
The Louisiana Department of Education (LDE) has implemented adequate cash management procedures that take into
account the cash needs of the LEAs.

     • Prior to the disbursement of SFSF funds, the LDE had several conference calls with LEA business
       managers to discuss individual needs and abilities for spending SFSF funds so that SFSF fund
       disbursements could be aligned with the actual cash needs. LEAs were notified in the conference calls that
       they could request a decrease in the monthly scheduled funding if necessary in order to maintain
       compliance. At least one such request was granted.
     • From these communications with the LEAs, the LDE determined that no SFSF funds should be released
       until October 2009. The first payroll for most districts was September 2009. Releasing SFSF funds at the
       end of October allowed LEAs to have payroll expenditures for September and October before receiving
       SFSF funds.
     • Districts were also notified (see Attachment £) they could claim an amount greater than the estimated
       monthly SFSF funds if they incurred allowable expenditures in a different timeframe than monthly. Several
       districts did request changes from their regularly monthly scheduled
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Mr. Keith Maddox August
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        SFSF payments because they expended funds earlier than the regularly scheduled payments.
     • All SFSF funds for LDE were expended in FY2009-! O. No SFSF funds remain for FY2010-11.

    Thank you for this opportunity to offer our thoughts and comments regarding these matters. Should you have
    any questions, please contact Beth Scioneaux: at 225-342-3617 or via Email
    at beth.scioneaux@la.gov.

    Sincerely,



    Paul G. Pastorek
    State Superintendent of Education

    PGP:BS

C       Ollie Tyler, Deputy Superintendent of Education
        Beth Scioneaux
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