oversight

Oklahoma: Use of Funds and Data Quality for Selected American Recovery and Reinvestment Act Programs.

Published by the Department of Education, Office of Inspector General on 2011-02-18.

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
          Oklahoma: Use of Funds and Data Quality for
  Selected American Recovery and Reinvestment Act Programs




                      Oklahoma State Capitol




ED-OIG/A06K0002                                February 2011
         Abbreviations/Acronyms/Short Forms Used in This Report
ARRA                   American Recovery and Reinvestment Act of 2009

Broken Arrow           Broken Arrow Public Schools

C.F.R.                 Code of Federal Regulations

CFDA                   Catalog of Federal Domestic Assistance

CMA                    Cash Management Agreement

Department             U.S. Department of Education

DUNS                   Data Universal Numbering System

Edmond                 Edmond Public Schools

ESF                    Education Stabilization Fund

FFATA                  Federal Funding Accountability and Transparency Act

GSF                    Government Services Fund

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

IHE                    Institution of Higher Education

LEA                    Local Educational Agencies

OCCC                   Oklahoma City Community College

OESE                   Office of Elementary and Secondary Education

OIG                    Office of Inspector General

Oklahoma City          Oklahoma City Public Schools

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

OMB M-10-17   Guidance for Holding Recipients Accountable for Reporting
              Compliance under the American Recovery and Reinvestment Act

OSDE          Oklahoma State Department of Education

OSERS         Office of Special Education and Rehabilitative Services

OSF           Oklahoma Office of State Finance

OSL           Oklahoma State Legislature

OSU           Oklahoma State University

OTC           Oklahoma Tax Commission

OWRB          Oklahoma Water Resource Board

SFSF          State Fiscal Stabilization Fund

SFSF ESF      State Fiscal Stabilization Fund Education Stabilization Fund

SFSF GSF      State Fiscal Stabilization Fund Government Services Fund

Title I       Title I, Part A of the Elementary and Secondary Education Act of
              1965, as amended
                                       UNITED STATES DEPARTMENT OF EDUCATION
                                            OFFICE OF INSPECTOR GENERAL

                                                                                                                AUDIT SERVICES
                                                                                                                Dallas Audit Region


                                                         February 18, 2011


Honorable Janet Barresi, DDS
State Superintendent of Public Instruction
Oklahoma State Department of Education
2500 North Lincoln Boulevard
Oklahoma City, OK 73105

Mr. Preston Doerflinger
Director, Office of State Finance
2300 North Lincoln Boulevard, # 122
Oklahoma City, OK 73105

Dear Superintendent Barresi and Director Doerflinger:

This final audit report presents the results of our review of “Oklahoma’s Use of Funds and Data
Quality for Selected ARRA Programs.”

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 for 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 Posny, Ph.D.
                      Assistant Secretary for Special Education and
                      Rehabilitative Services
                      U.S. Department of Education
                      400 Maryland Ave., S.W.
                      Washington, DC 20202-7100

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 Maddox
                                             Regional Inspector General for Audit


Enclosures (2)
Final Audit Report
ED-OIG/A06K0002                                                                       Page 1 of 37
                        Oklahoma: Use of Funds and Data Quality for
                  Selected American Recovery and Reinvestment Act Funds
                             Control Number ED-OIG/A06K0002

                                           PURPOSE
The American Recovery and Reinvestment Act of 2009 (ARRA) places a heavy emphasis on
accountability and transparency. Federal agencies and others who are affected by ARRA have
the responsibility to ensure that ARRA funds reach intended recipients and achieve intended
results. This includes effectively implementing and controlling funds at the Federal, State, and
local levels; 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. Proper systems of internal control are essential for ensuring
ARRA funds are administered properly and used in ways that comply with the requirements of
ARRA.

The purpose of our audit was to determine whether the Oklahoma Governor’s Office, the
Oklahoma Office of State Finance (OSF), the Oklahoma State Department of Education (OSDE),
selected local educational agencies (LEA), and a selected Institution of Higher Education (IHE)
ensured that (1) ARRA funds were used in accordance with applicable laws, regulations, and
guidance; and (2) ARRA data reported by recipients and subrecipients were accurate, reliable,
and complete. Our audit covered the period February 17, 2009, through December 31, 2009.
The LEAs selected for review were the Broken Arrow Public Schools (Broken Arrow), Edmond
Public Schools (Edmond), and Oklahoma City Public Schools (Oklahoma City). The IHE
reviewed was Oklahoma State University (OSU).

                                           RESULTS

The Governor’s Office, OSF, and OSDE have not demonstrated that all ARRA funds were
expended in accordance with applicable laws, regulations, and guidance. We identified
$16 million in State Fiscal Stabilization Fund (SFSF) Government Services Funds (GSF), for
which OSF is unable to account for how the funds were expended. We also identified more than
$68,000 in unallowable expenses at two subrecipients and more than $81,000 in unsupported
costs at two other audited subrecipients. Also in our review, we determined that OSDE and OSF
did not follow applicable cash management regulations to ensure that subrecipients did not
receive funds in advance of need. OSDE had advanced the full amount ($124 million) available
under ARRA for Title I, Part A of the Elementary and Secondary Education Act of 1965, as
amended (Title I) and Part B of the Individuals with Disabilities Education Act (IDEA) to LEAs
without regard to their immediate funding needs. Furthermore, OSF drew down approximately
$19.2 million in SFSF Education Stabilization Funds (ESF) in excess of the LEAs’ needs.
OSDE and OSF also did not ensure that data reported were accurate, reliable, and complete.

OSF did not agree that it is the prime recipient of the funds, that it was unable to account for
$16 million in SFSF GSF funds, or that it drew down $19.2 million in excess of need. OSF did
concur with our finding that Oklahoma City Community College (OCCC) used SFSF funds for
unallowable expenditures.
Final Audit Report
ED-OIG/A06K0002                                                                      Page 2 of 37

OSDE did not agree that it was unable to account for $16 million in GSF funds, did not follow
applicable cash management regulations, or sustain a system to report accurate, reliable, and
complete information for the ARRA programs. OSDE did provide additional documentation for
unsupported costs from the subrecipient for the self-certifications of time for IDEA Part B funds
and agreed SFSF ESF funds were expended for an unallowable expenditure.

OSF’s comments and additional documentation provided by OSDE did not cause us to change
our overall findings and recommendations. We did adjust the unsupported costs related to self-
certifications based on documentation provided. We address the specific response from OSF and
OSDE and the disagreements with our findings and recommendations in the specific findings.

After the issuance of the draft report and the receipt of comments from OSF and OSDE, a newly
elected State Superintendent and appointed Director of State Finance were sworn into office.
Also subsequent to the receipt of the Auditee comments, we were advised by OSF that the
$16 million of GSF funds was redirected by the Governor to be used for FY 2011 expenditures.
Because this occurred after our audit period, we did not review or confirm how those
expenditures will be expended.

                                      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 Section 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 ARRA funds.

On April 1, 2009, the U.S. Department of Education (Department) awarded 50 percent of
Oklahoma’s ARRA Title I and IDEA funds. According to the Grant Award Notifications,
Oklahoma was to receive ARRA Title I and IDEA funds for the grant award period
February 17, 2009, through September 30, 2010, and SFSF for the grant award period
July 2, 2009, through September 30, 2010. OSDE was allocated $109 million in ARRA Title I
funds and $147 million in IDEA funds. As of December 31, 2009, OSDE had drawn down
$55 million and $75 million in ARRA Title I and IDEA funds, respectively, to 536 LEAs. The
Office of the Governor was also awarded approximately $317 million in SFSF ESF and
approximately $105 million in SFSF GSF funds. OSF was designated as the prime recipient for
SFSF grant funds by the Governor and was tasked with awarding and monitoring the funds to
ensure they were expended appropriately by State agencies.
Final Audit Report
ED-OIG/A06K0002                                                                       Page 3 of 37
Table 1 identifies the ARRA funding allocated to Oklahoma, the amount received from the
Department, and the amount spent by subrecipients as of December 31, 2009.


               Table 1: ARRA Allocations to Oklahoma State Agencies (in millions)

                  Catalog of                                   Total Drawn
                                                Total                               Total
    Grant           Federal                                    Down from
                                  Agency       ARRA                              Expended by
    Title          Domestic                                   Department of
                                              Allocation                         Subrecipients
                 Assistance No.                                 Education
     Title I            84.389     OSDE          $109               $55                $15
     IDEA               84.391     OSDE          $147               $75                $20
     SFSF
                        84.394      OSF          $317              $137                $49
     ESF
     SFSF
                     84.397         OSF          $105              $18.7              $2.7
     GSF
                Total                            $678             $285.7              $86.7

In its approved SFSF application, the Office of the Governor stated that it planned to use
$173 million of its SFSF ESF allocation to restore the level of State support for elementary and
secondary education in FY 2010 to the level of FY 2009. The application also indicated that its
SFSF GSF allocation of approximately $105 million would be distributed to other State agencies
to support public assistance, infrastructure repair, and other government services for fiscal years
2010 and 2011.
Final Audit Report
ED-OIG/A06K0002                                                                                      Page 4 of 37


                                                  FINDINGS

FINDING NO. 1 – Oklahoma Is Unable to Account for $16 Million in ARRA
                Funds
Oklahoma is unable to account for $16 million in ARRA GSF funds. OSF drew down
$18.7 million in SFSF GSF funds on July 30, 2009, and sent $2.7 million of the $18.7 million to
the Oklahoma Water Resource Board (OWRB) to cover payroll shortages. The OWRB provided
adequate documentation for the payroll costs of $2.7 million. OSF did not provide adequate
documentation for the remaining $16 million.

According to OSF officials, the remaining $16 million in SFSF GSF funds was initially allocated
to the Oklahoma Tax Commission (OTC) to cover shortfalls in ad valorem 1 tax revenue
normally paid to counties. Specifically, on July 31, 2009, OSF provided $16 million in ARRA
funding to the OTC. The OTC then disbursed the $16 million in funding to counties to cover
their shortfall in ad valorem tax revenues. However, prior to OSF providing $16 million in
ARRA funding to OTC, the Oklahoma Legislature appropriated and OSF transferred $33 million
in State funds to OSDE for the purchase of textbooks on July 1, 2009. Based on the Oklahoma
Legislature’s appropriation, in August 2009, OSDE allocated and distributed $33 million in State
funds to more than 530 LEAs to purchase textbooks.

The State Auditor later deemed that ARRA funds could not be used to cover ad valorem tax
revenue shortages because of the possibility that ad valorem tax revenue could be used to pay
debt services, which are unallowable expenses for SFSF funds. As a result, in September 2009,
the Governor directed OSF to transfer the $16 million of ARRA funds from OTC to OSDE for
the purchase of textbooks.

On September 2, 2009, OSF transferred $16 million in SFSF GSF funds from OTC into OSDE’s
account and withdrew $16 million from the account on the same day. On September 3, 2009,
OTC notified the counties that the prior funds they had received to cover their shortfall in ad
valorem tax revenues was no longer considered stimulus funds. According to OSF, the
$16 million in ARRA funds transferred to OSDE was intended to take the place of $16 million of
the original $33 million textbook appropriation. It was OSF’s position that ARRA funds were
transferred to OSDE and that OSDE’s accounting records should have reflected that $16 million
in ARRA funding was used to purchase books. In OSDE’s opinion, because State funds for the
textbooks were distributed to LEAs in August 2009, State funds, not ARRA funds, were used to
purchase the textbooks. OSDE also stated it did not have award documents showing that ARRA
funds were disbursed to LEAs, nor did OSDE obtain the required ARRA assurances. The
assurances are agreements between the State Educational Agency and the LEAs, which state that
ARRA funds will be used in accordance with required terms. In addition, OSDE stated that



1
 A tax based on the assessed value of real estate or personal property. Ad valorem taxes can be property tax or duty
on imported items. Property ad valorem taxes are the major source of revenue for State and municipal governments.
Final Audit Report
ED-OIG/A06K0002                                                                                       Page 5 of 37
LEAs’ accounting records show that State funds, not Federal ARRA funds, were used to
purchase the textbooks. 2

In response to the draft report, OSDE subsequently provided the OIG with Excel spreadsheets as
documentation to support the allocation of the $16 million in GSF funds to LEAs and the
resulting changes to the LEAs’ original State funded textbook allocations; however, the
documentation provided was not sufficient to support that the $16 million was used to purchase
textbooks. In addition, OSDE provided the OIG with various screen shots from the accounting
system for a small sample of LEAs that show allocations of GSF funds to the LEAs for
textbooks. However, the screen shots provided did not show that the original State allocations
were reversed in the accounting system, nor were we provided with evidence of the reversal of
the State funding for, and application of GSF funds to, the original textbook purchases. We also
have no assurance that the changes shown in the screen shots were made for all LEAs to which
funds were allocated. In the response to the draft report, OSDE stated that notification to
subrecipients would follow. Because the notifications had not yet been made, we could not
verify whether the LEAs were aware of the changes and subsequently made the appropriate
changes to their accounting records. Based on the information provided by OSDE, we were still
unable to track the GSF funds to specific LEAs and determine whether the changes were made,
that the LEAs actually received GSF funds, and how those funds were expended.

Section VII-1 of “Guidance on the State Fiscal Stabilization Fund Program,” issued by the
Department in April 2009, states that recipients must maintain accurate, complete, and reliable
documentation of all ARRA expenditures. In addition, the recordkeeping provisions of
“Guidance for Grantees and Auditors – State Fiscal Stabilization Fund,” issued by the
Department on December 24, 2009, states that recipients must maintain records that separately
track and account for those funds and fully disclose how those funds were used, the total cost of
the activity for which the funds were used, the share of the costs by other sources, and such other
records as will facilitate an effective audit.

As a result of the events described above and the positions taken by OSF and OSDE on those
events, we concluded that the State of Oklahoma cannot demonstrate with certainty the
disposition of $16 million in SFSF GSF funds. We based our conclusion on reviews of
accounting records and interviews with State officials who were unable to provide traceable
records of how the $16 million in SFSF GSF was allocated to and expended by the final
subrecipients. Subrecipients we reviewed stated that the funds they received to purchase
textbooks were State funds and not ARRA funds. Because the subrecipients never received
guidance from OSF or OSDE, the $16 million was treated as State funding, and documentation
requirements for entities that received ARRA funds were not followed. As a result, we consider
the $16 million to be unaccounted for and (1) there is an increased risk that funds have been or
will be used for unallowable purposes or after the period of availability, (2) the funds will not be
audited as part of the subrecipients’ annual single audits, and (3) Oklahoma’s reporting on its
SFSF GSF award to FederalReporting.gov is incomplete and inaccurate. (See Finding No. 3 for
further information on how Oklahoma reported on its use of SFSF GSF funds to
FederalReporting.gov.)

2
  See Attachment 1 for a complete timeline of the events and transactions relating to the allocations and accounting
for the $16 million in SFSF GSF funds.
Final Audit Report
ED-OIG/A06K0002                                                                                       Page 6 of 37


Recommendations
We recommend that the Assistant Secretary for the Office of Elementary and Secondary
Education (OESE) require —

1.1      OSF to provide sufficient documentation and/or accounting transactions to support that
         SFSF GSF funds were expended appropriately or return $16 million in SFSF GSF funds.
         If documentation is provided to show that the funds went to LEAs for the purchase of
         textbooks or to other subrecipients, Oklahoma should notify each subrecipient of how
         much it received to ensure the appropriate accounting changes are made. Oklahoma
         should also ensure that (1) the subrecipients appropriately account for and use the funds
         in accordance with the requirements and within the period of availability, (2) that the
         funds are appropriately included in their single audits, and (3) that the subrecipients
         provide the information Oklahoma needs to report on the SFSF GSF program completely
         and accurately.

Auditee Comments:

OSF did not agree that it was unable to account for $16 million. OSF stated that it is neither the
grantee nor grantor and does not have contact with the subrecipients, and it had provided
sufficient documentation to show that the GSF funds were sent to OSDE. Lastly, OSF stated that
it is OSDE’s responsibility for communications with and monitoring of subrecipients.

OSDE also did not concur that Oklahoma was unable to account for $16 million in GSF funds.
OSDE stated that it had described an “equitable offset” 3 at the exit conference with the OIG and
provided documentation to show that “equitable offset” modifications were made and accounting
records were adjusted to reflect textbook purchases.

OIG Response:

OSF did not provide any information or documentation in its response to support its position.
During the audit, OSF provided journal entries that documented the transfer of $16 million in
GSF funds to other accounts. However, based on the review of that information and discussions
with both OSF and OSDE, neither agency was able to provide sufficient information to
document the final disposition of the funds. The lack of supporting documentation for final
disposition of the $16 million in GSF funds was corroborated by the LEAs we contacted. Those
LEAs indicated they did not receive any GSF funds for the purchase of textbooks.

We recognize that OSF, in conjunction with OSDE, is administering the SFSF funds on behalf of
the Governor’s Office. However, we disagree that OSF is not responsible for the awarding,
monitoring, and tracking of the SFSF funds. The Governor of Oklahoma designated OSF as the
State Agency with the authority to award, monitor, and track SFSF funds for the State of
Oklahoma. The grant award letters for both GSF and ESF list the Director of OSF as the
Recipient State Director for the grants. During the audit, OSF stated that it planned to monitor

3
 Equitable offset is a process in which expenditures on qualified activities that have not previously been claimed
can be used as a substitute for improperly expended funds.
Final Audit Report
ED-OIG/A06K0002                                                                     Page 7 of 37
the SFSF funds but did not have a policy currently in place to review the funds since it was new
to the Federal grant process. Furthermore, OSF is the only State agency for SFSF funds with the
authority to report the required information to Federalreporting.gov.

The additional information provided by OSDE in response to the draft report did not cause us to
change our overall conclusion and recommendation. Based on the review of the documentation
provided, we have adjusted the finding to show that changes were made to how GSF funds at the
State level were allocated to districts. OSDE provided documentation to show that through the
Oklahoma Cost Accounting System there were adjustments prepared to account for the LEAs’
textbook expenditures with SFSF GSF. However, OSDE did not provide any additional
documentation to show that the adjustments were actually made and that the LEAs were aware
of the changes to their allocations. In addition, OSDE did not provide documentation of the
assurances between the State and the LEAs or award documentation for the awarding of GSF
funds to the LEAs. Until sufficient documentation is provided and reviewed, there is no
assurance that the entire $16 million is accounted for and can be audited by the LEAs’
independent auditors.

After the issuance of the draft report and the receipt of comments from OSF and OSDE, a newly
elected State Superintendent and appointed Director of State Finance were sworn into office.
Also subsequent to the receipt of the Auditee comments, we were advised by OSF that the
$16 million of GSF funds was redirected by the Governor to be used for FY 2011 expenditures.
Because this occurred after our audit period, we did not review or confirm how those
expenditures will be expended.

FINDING NO. 2 – Oklahoma Disbursed ARRA Funds in Advance of Local
                School District Need
OSDE and OSF disbursed ARRA Title I, IDEA, and SFSF ESF funds in a manner that does not
minimize the time elapsed between transfer of funds and disbursement by the grantee or sub-
grantee. OSDE advanced the first 50 percent of ARRA Title I and IDEA funds to LEAs in
May 2009; however, as of December 31, 2009, the LEAs had not expended all of the advanced
funds. OSF also disbursed SFSF ESF funds in advance of need to the LEAs that received the
funds. During September 2009, OSF disbursed a double payment, August and September 2009
payments, of ESF funds to the LEAs, which caused the districts to carry over a monthly balance
of ESF funds.

Early Disbursement of ARRA Title I and IDEA
On May 7, 2009, OSDE distributed $54,033,951 in ARRA Title I funds and $73,957,015 in
ARRA IDEA funds to LEAs. However, as of December 31, 2009, only $14,895,196 in ARRA
Title I funds (28 percent) and $19,637,510 in ARRA IDEA funds (27 percent) had been spent by
the LEAs. Most of the funds distributed to the LEAs were still in their bank accounts more than
6 months after the initial distribution.
Final Audit Report
ED-OIG/A06K0002                                                                             Page 8 of 37

Table 2 illustrates the amount of ARRA Title I and IDEA funds received and expended as of
December 31, 2009, by the three LEAs reviewed.


            Table 2: ARRA Funds Expended by Select Local Educational Agencies
             ARRA Title I     ARRA Title I      Percent      ARRA IDEA        ARRA IDEA         Percent
Districts     Part A - 1st      Part A         Expended       Part B - 1st      Part B         Expended
               Received        Expended           %            Received        Expended           %
Oklahoma
               $10,056,680         $617,892       6.14          $5,220,040       $1,349,834       25.86
  City
  Tulsa         $8,359,529         $568,783       6.80          $5,396,931                $0      0.00
 Broken
                  $634,514         $108,744       17.14         $1,783,519         $455,459       25.54
 Arrow

According to 34 C.F.R. § 80.21(b), “methods and procedures for payment shall minimize the
time elapsing between the transfer of funds and disbursement by the grantee or sub-grantee, in
accordance with Treasury regulations at 31 C.F.R Part 205.” Section 80.21(c) further states that,
“grantees and sub-grantees shall be paid in advance provided they maintain or demonstrate the
willingness and ability to maintain procedures to minimize the time elapsing between the transfer
of the funds and their disbursement by the grantee or sub-grantee.” According to
31 C.F.R. § 205.11(a), grantees must minimize the amount of time between receiving the funds
and expending the funds.

Pursuant to 34 C.F.R. § 80.21(i), grantees and sub-grantees shall promptly, but at least quarterly,
remit interest earned on advances to the Federal agency, with the grantee or sub-grantee allowed
to keep interest amounts up to $100 per year for administrative services.

According to the State Superintendent, funds were advanced and disbursed quickly to LEAs to
save and create jobs as required by ARRA. After our visit, OSDE, on April 6, 2010, requested
all unexpended ARRA Title I and IDEA funds be returned to the State. Per the State
Superintendent, all but one LEA returned ARRA Title I and IDEA funds to the State.
Subsequent to our review, in July 2010 the State returned approximately $14.8 million in Title I
and $10.6 million in IDEA funds to the Department. The State is moving from the cash advance
method of payment to the reimbursement method. 4 The reimbursement method should ensure
that LEAs meet time requirements of expending funds when needed without causing additional
interest expense for the U.S. Treasury.

LEAs across the State had not expended $39,138,755 in ARRA Title I and $54,319,505 in
ARRA IDEA funds advanced, for the period of May 7, 2009, through December 31, 2009.
Oklahoma drew ARRA funds for disbursement to LEAs too far in advance of their immediate
cash need; therefore, there was an additional cost to the U.S. Treasury. Because of the Federal
deficit, the U.S. Treasury must borrow the cash needed to fund Federal programs and, as a result,
incurs interest costs. We estimate that a timely drawdown by the State for disbursements to

4
  The advance payment method provides Federal Funds to LEAs in advance. The reimbursement payment method
reimburses the LEAs for expenditures made during the prior month.
Final Audit Report
ED-OIG/A06K0002                                                                                      Page 9 of 37
LEAs would have resulted in the avoidance of about $327,104 in borrowing costs to the U.S.
Treasury. 5 On December 30, 2009, some LEAs returned a total of $73,187 in interest earned on
advanced funds to OSDE. 6

Early Drawdown and Disbursement of SFSF Educational Stabilization Funds
As of December 24, 2009, OSF drew down $137,221,845 in SFSF ESF funds and disbursed
$117,987,374 (86 percent) to LEAs. We estimated that OSF drew down a total of $19.2 million
of SFSF ESF funds in excess of what was needed for disbursement to subrecipients. We
determined this by comparing the total drawdowns by OSF to the total disbursed to subrecipients
as of December 31, 2009.

We also noted that the SFSF ESF funds were disbursed to the LEAs prior to need. According to
the Executive Director, State Aid Section, funds are disbursed automatically on a monthly basis
through the State Aid allocation. The percentage of allocation is based on a State Aid payment
formula and is paid to LEAs at a rate of 9 percent per month until exhausted. For the three LEAs
reviewed, this resulted in the LEAs only expending approximately 75 percent of the amounts
received as of December 31, 2009.

Table 3 illustrates the amount of ARRA SFSF ESF funds received and expended by the three
LEAs reviewed, as of December 31, 2009.

           Table 3: ARRA SFSF ESF Funds Expended by Select Local Educational
                                       Agencies
                          SFSF ESF          SFSF ESF        Percent Expended
            Districts
                           Received         Expended                %
         Broken Arrow       $1,755,837          $1,325,009          75
         Edmond             $2,190,254          $1,658,792          76
         Oklahoma City      $4,471,366          $3,319,710          74

As previously stated, 34 C.F.R. § 80.21(b) requires that methods and procedures for payment
minimize the time elapsing between the transfer of funds and disbursement by the grantee or
sub-grantee, in accordance with Treasury regulations at 31 C.F.R. Part 205.

OSF has not made adjustments to its drawdown and disbursement procedures to accommodate
the Federal cash management requirements but instead administers SFSF funds the same as State
Aid. By not determining each LEA’s cash position prior to disbursing SFSF cash advances, OSF
did not ensure that LEAs were expending the funds timely and not maintaining excess cash. In
addition, by drawing down Federal funds and disbursing them in advance of LEAs’ immediate


5
  We estimated the interest accrued using the annualized T-Bill rate of .6 percent for States whose fiscal year began
July 1, 2008. We calculated interest for a 7-month period at the above rate. (Title I Part A: Unexpended funds as of
12/31/09 was $39,138,755*.006/12*7 = $136,986 and IDEA: Unexpended as of 12/31/09 was
$54,319,505*.006/12*7 = $190,118). This calculation assumes the amount on hand as of December 31, 2009, was
available the full 7 months.
6
  The interest was earned during the period of June through December 2009. In addition, not all LEAs deposited
their Federal funds in interest bearing accounts.
Final Audit Report
ED-OIG/A06K0002                                                                                  Page 10 of 37
cash needs, there is an additional cost to the U.S. Treasury and an increased risk that SFSF funds
might be misused.

Recommendations
We recommend that the Assistant Secretary for OESE in conjunction with the Assistant
Secretary for the Office of Special Education and Rehabilitative Services (OSERS) require
OSDE and OSF to —

2.1     Determine subrecipients’ actual cash needs before disbursing Federal program funds to
        them.

2.2     Provide training to State and LEA staff on appropriate cash management policies and
        procedures.

Auditee Comments:

OSF did not agree that it advanced funds to LEAs, nor does it agree that SFSF funds were drawn
down or disbursed prior to need. OSF stated that it is neither a grantee nor a grantor of SFSF
funds and, therefore, not responsible for the disbursement, awarding, monitoring, or
communication to subrecipients for the funds.

OSDE did not concur with our finding that Oklahoma disbursed ARRA funds in advance of
LEAs’ need. OSDE stated that no ESF funds were distributed to LEAs until OSDE received and
approved the Assurance Statements and Data Forms. During FY 2010, ESF and GSF funds were
not part of OSDEs online system 7 and subrecipients had to fax or mail supporting documentation
to OSDE. For FY 2011, SFSF ESF and GSF will be incorporated into the online system, and the
LEAs will budget and submit claims for reimbursement online if SFSF ESF funds are not used
for salaries. OSDE stated that LEAs will submit quarterly reports for expenditures to confirm
the need for funds received, and if discrepancies are noted, the payments will be decreased from
future payments to that recipient.

OIG Response:

OSF did not provide any additional information that caused us to change our conclusions or
recommendations. As stated in the OIG Response for Finding No. 1, based on grant
documentation, OSF is the designated recipient of SFSF funds and has the authority for
awarding, disbursing, and monitoring SFSF funds.

Based on our review of the information provided by OSDE, we did not change the finding and
conclusion related to the disbursing of ARRA funds in advance of need. We acknowledge that
the Assurance Statements and Data Forms were obtained, but they only show the intent of the
funds. In any case, the LEAs cannot draw funds and then not expend the funds in a timely
manner. As explained by OSDE, the online system to be used for FY 2011 covers only non-

7
  The online system is MTW Solutions, which is used to enter budget information for grants, and submit
reimbursement claims for funds.
Final Audit Report
ED-OIG/A06K0002                                                                    Page 11 of 37
payroll expenditures. A majority of ESF funds were used for payroll, and the corrective action
does not address the need to ensure that LEAs do not receive funds for payroll expenditures in
advance of need.

OSDE did not address the finding or recommendation related to the cash management issues
identified for ARRA Title I and IDEA funds.

FINDING NO. 3 – Oklahoma Did Not Ensure Data Reported Were Accurate,
                Reliable, and Complete
OSDE and OSF did not ensure that all required elements for the first two quarterly reports were
accurate, reliable, and complete. OSDE and OSF also did not ensure that the data met the
Federal transparency requirements because they did not develop a full disclosure policy or
maintain supporting documentation for the information reported.

Incomplete and Inaccurate Information
OSF disbursed $68 million in SFSF ESF funds to Institutions of Higher Education (IHE[s]) but
did not report the IHEs as subrecipients on the quarterly reports. It also did not report the
required data element “award period for subrecipients” for the subrecipients of ARRA Title I and
IDEA funds. In addition, as noted in Finding No. 1, OSF reported inaccurate information related
to SFSF GSF funds. In December 31, 2009, quarterly report, OSF reported that the Executive
Office of the Governor distributed $18.7 million in SFSF GSF funds, and the prime recipient
information shows that the funds were spent “on payroll shortages for OWRB.” As discussed in
Finding No. 1, we noted that there is adequate documentation to support only $2.7 million in
SFSF GSF funds for OWRB payroll costs. OSF cannot account for $16 million in SFSF GSF
funds drawn down by OSF. We are unable to determine who received the remaining $16 million
in SFSF GSF funds.

OSF inaccurately reported prime vendors in its second quarterly report. OSF distributed all
SFSF ESF funds to IHEs and LEAs and did not expend any funds at the State level; as such, no
prime vendors should be reported via the quarterly reports. However, Oklahoma City
Community College (OCCC) inaccurately reported two vendors as prime vendors that should
have been reported as subrecipient vendors of the SFSF ESF funds.

OMB M-09-21, “Implementing Guidance for the Reports on Use of Funds Pursuant to the
American Recovery and Reinvestment Act of 2009,” June 22, 2009 (OMB M-09-21), describes
the basic reporting requirements for recipients of ARRA funds, including the required data
elements for prime recipients, prime recipient vendors, subrecipients, and subrecipient vendors.
Section 2.3 states “The prime recipient is ultimately responsible for the reporting of all data
required by Section 1512 of the Recovery Act and this Guidance, including the Federal Funding
Accountability and Transparency Act (FFATA) data elements for the subrecipients of the prime
recipient required under 1512(c)(4).”
Final Audit Report
ED-OIG/A06K0002                                                                    Page 12 of 37
Inaccurately Reported Jobs Information
Oklahoma State University’s (OSU) calculation of jobs created/retained did not meet the
requirements set forth by OMB. OSU calculated jobs created/retained based on salary amounts,
not by hours worked. OSU underestimated the number of jobs created/retained for the first two
quarterly reports. For the first quarter, we calculated 375.30 FTEs, while OSF reported
256 FTEs. For the second quarter, we calculated 421.95 FTEs, while OSF reported 256 FTEs.
Based on OMB guidance, OSU should have calculated jobs created/retained by computing the
number of hours worked and paid for by ARRA funds divided by the number of full-time hours.

OSU estimated the number of jobs retained by dividing the total amount of stimulus funds
received per campus by the average salaries for each campus, for five of the eight campuses. For
the other three OSU campuses, OSU calculated the number of jobs retained by using the total
amount of stimulus funds received for that campus minus the total dollar amount of jobs created
and then divided by the average salary for that campus. For the jobs created calculation, OSU
took the total number of new full-time equivalent faculty positions for FY 2010 and subtracted
the total number of reduction in full-time equivalent faculty positions. For example, if OSU
created 14 new full-time faculty positions and also had a reduction of 2 faculty positions, OSU
would count the jobs created as 12. This was calculated for each campus.

According to OMB M-09-21, “Prime recipients are required to report an estimate of jobs directly
created or retained by project, and activity or contract.” Additional guidance, OMB M-10-08,
“Updated Guidance on the American Recovery and Reinvestment Act Data Quality, Non-
Reporting Recipients, and Reporting of Job Estimates,” issued on December 18, 2009, changed
how the figure for jobs retained/created was to be calculated starting in the second reporting
quarter. OMB M-10-08 specifies a formula that recipients and subrecipients are to use in
calculating the number of jobs. This formula is based on the number of actual hours worked in
jobs paid with ARRA funds in relation to the number of hours representing a full work schedule
for the kind of job being estimated.

ARRA Title I Expenditure Reports
ARRA requires States to submit a school-by-school per pupil expenditure report to the
Department by March 31, 2010, for LEAs that received ARRA Title I funding. The data are
used by the Department to examine the extent to which school-level resources are distributed
equitably within and across school districts. OSDE reported the information as required by
ARRA but was unable to provide sufficient documentation to the OIG to support the expenditure
report. There is no assurance that the data are complete, accurate, reliable, or met reporting
requirements.

Full Disclosure of ARRA Funds
OSF and OSDE did not have adequate internal controls in place to ensure transparency and
security of data related to ARRA. OMB M-09-21, page 28, states that the subrecipients are to
implement internal control measures as appropriate to ensure accurate and complete information.

ARRA guidance recommends that fund recipients fully disclose any material omissions or
significant reporting errors. OSDE, the LEAs, and IHE did not have a full disclosure policy that
would notify all officials of program requirements and help to ensure the completeness and
Final Audit Report
ED-OIG/A06K0002                                                                               Page 13 of 37
accuracy of information. The Department’s “Clarifying Guidance on American Recovery and
Reinvestment Act of 2009 Section 1512 Quarterly Reporting,” issued April 2, 2010,
Section IX.1 suggests the following:

       If the prime recipient identifies material omissions or significant reporting errors in its
       reports (or that of its sub-recipients), take action to correct the deficiencies. If the
       report cannot be corrected or if a known deficiency cannot be remedied, contact the
       Department to advise it of the deficiencies and the actions being taken to correct the
       deficiency, and for technical assistance.

ARRA Section 1512 requires recipients to submit quarterly reports on ARRA awards, spending,
and job impact. According to the 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. The reports will also help drive
accountability for the timely, prudent, and effective spending of the ARRA funds.

OMB has instructed Federal agencies to hold ARRA recipients accountable for their reporting
obligations.

OSF and OSDE did not have written policies and procedures to verify data prior to reporting to
FederalReporting.gov. By not establishing policies and procedures to review the data for
accuracy and completeness, OSF and OSDE cannot ensure that data reported meet the
transparency requirements of ARRA. OSF and OSDE should establish a system to ensure that
all required data for the ARRA grants are reported appropriately.

Additional guidance from OMB M-09-21 Section 4.2 states that the prime recipients and
subrecipients should have procedures in place to ensure that data are reported timely and in an
effective manner. States should also implement internal controls to ensure the data being
reported are accurate and complete. Lastly, the guidance states that a data quality review of the
information should be completed to ensure that there are no material omissions and/or significant
reporting errors.

Recommendations
We recommend that the Assistant Secretary for OESE in conjunction with the Assistant
Secretary for OSERS require —

3.1    OSF and OSDE to establish policies and procedures to verify and report required ARRA
       data elements to include expenditures, jobs created/retained, and vendor information.

3.2    OSDE to require LEAs to establish policies and procedures to verify and report required
       ARRA data elements.

3.3    OSDE to provide supporting documentation for the ARRA Title I expenditure reports.
Final Audit Report
ED-OIG/A06K0002                                                                     Page 14 of 37
Auditee Comments:

OSF concurred that OCCC should be reported as a subrecipient based on “revised” guidance,
and OSF will make the appropriate changes in the next reporting period. OSF also agreed that
OSU incorrectly calculated the number of jobs retained/created. OSF agreed to instruct all IHEs
to report all future job calculations in accordance with applicable OMB guidance.

OSF did not agree that it reported $16 million in GSF inaccurately and stated that it provided
OIG with sufficient support for the funds. OSF also did not concur that it does not have written
policies and procedures to verify the data reported to FederalReporting.gov. OSF stated that it is
neither a grantee nor a grantor of SFSF funds and has no contact with subrecipients. OSF stated
that it will remind agencies to verify data prior to reporting the information.

OSDE did not concur with our conclusion that the data did not meet reporting requirements for
the ARRA Title I expenditure reports. OSDE stated that the report did not require additional
supporting documentation and, therefore, it is unsubstantiated that the data were somehow
inaccurate.

OIG Response:

OSF did not provide any additional information that caused us to change our conclusion or
recommendations. As stated in the OIG Response for Finding No. 1, based on grant
documentation, OSF is the designated recipient of SFSF funds and has the authority for
awarding, disbursing, and monitoring SFSF funds.

OSDE did not provide any additional documentation to change the finding or recommendation
for the ARRA Title I expenditure report. OSDE is correct that it did submit the report as
required; however, when the OIG requested support to verify the information in the report,
OSDE was unable to provide documentation to support the information in the report. The OIG is
not stating that the data are inaccurate, but we were unable to verify the accuracy of the
information due to the lack of supporting documentation.

FINDING NO. 4 – Unallowable and Inadequately Documented Costs Found
               at Some Subrecipients
Subrecipients did not expend some ARRA funds in accordance with applicable laws, regulations,
and guidance. We found that one subrecipient used SFSF funds to make an unallowable
purchase of a bus, and another subrecipient used SFSF funds to pay for prohibited maintenance
of a computer system. In addition, two LEAs could not support a portion of their payroll costs.

Unallowable Costs
A review of OSF SFSF expenditure reports and other documentation revealed that Haywood
Public Schools used $37,613 of its $39,306 allocation in SFSF ESF funds to purchase a bus. We
also found that OCCC used $30,720 out of its allocation of $1,995,832 in SFSF ESF funds to
purchase a maintenance and support system for its computer mainframe system.
Final Audit Report
ED-OIG/A06K0002                                                                                       Page 15 of 37
Under Section 14003(b)(3) of ARRA, LEAs may not use SFSF funds to purchase or upgrade
vehicles. Further, Section 14004 (c)(1) prohibits the use of ESF funds for the maintenance of
systems, equipment, or facilities.

The unallowable purchases went undetected because OSF had not established a review system to
ensure that SFSF funds were being expended appropriately and in accordance with applicable
laws, regulations, and guidance. In accordance with Section 14008 of the Recovery Act, States
receiving SFSF funds must submit an annual report to the Department with certain data as
specified by the Department. According to OSF, expenditures for SFSF ESF money will not be
reviewed by OSF until the official SFSF Annual Report is submitted to the Department. The
SFSF Annual Report is due to the Department on February 18, 2011.

Inadequate Documentation
During our reviews of LEAs, we determined that Edmond and Broken Arrow used IDEA funds
to pay salaries of various teachers but did not have sufficient documentation to support $81,075
in payroll costs. The cost principles of OMB Circular A-87 are used to determine allowable
costs for the grants to a State for ARRA Title I and IDEA. 8 In addition, Appendix B (8)(h)(3) of
OMB A-87 requires semiannual self-certifications of time and effort by employees who worked
on a single cost objective. Further, Attachment A(C)(1)(j) requires that all expenditures of
Federal grant funds be adequately documented. The two LEAs failed to obtain the required
self-certification of time and effort for ARRA IDEA funds.

We also identified $1,395 at Broken Arrow of inadequately supported payroll costs related to
SFSF ESF funds. Specifically, Broken Arrow was unable to provide timesheets or employment
contracts to sufficiently document that $1,395 in payroll costs charged to SFSF was reasonable
and necessary; however, it has a local requirement that all employees have timesheets and
employment contracts. According to the Department’s Guidance for Grantees and Auditors for
the SFSF program issued on December 24, 2009, expenditures must be “reasonable and
necessary and consistent with applicable State and local requirements.” The guidance goes on to
state that States, LEAs, and IHEs must maintain documentation to support the time and effort of
employees paid with SFSF funds in the same manner that it supports the time and effort of
individuals performing similar duties who are paid with State or local funds.

OSDE officials stated that it provided training to LEAs on the requirement of self-certification 9
of time and effort; however, the LEAs failed to obtain the required documentation.




8
  The cost principles in OMB A-87 are codified in 2 C.F.R. Part 225 (as of August 31, 2005).
9
  Where employees are expected to work solely on a single Federal award or cost objective, charges for their
salaries and wages will be supported by periodic certifications that the employees worked solely on that program for
the period covered by the certification. These certifications will be prepared at least semiannually and will be signed
by the employee or supervisory official having firsthand knowledge of the work performed by the employee.
Final Audit Report
ED-OIG/A06K0002                                                                            Page 16 of 37
Table 4 illustrates the total payroll sampled in comparison to the dollar value of payroll expense
that was supported and inadequately supported.

                                 Table 4: ARRA Payroll Expenses
                                          Total Payroll                        Inadequately
               Fund            Site                     Supported
                                            Sampled                             Supported
            IDEA           Edmond               $66,318         $0                  $66,318
            IDEA           Broken Arrow         $19,613     $4,856                  $14,757
            SFSF ESF       Broken Arrow         $89,742    $88,347                   $1,395
            Total                              $175,673    $93,203                  $82,470

Inadequate Policies and Procedures
The LEAs we reviewed had procedures in place to review and approve expenditures for ARRA
Title I and IDEA funds. However, we found weaknesses in the procedures at two LEAs. These
weaknesses are not specific to ARRA grant administration, but they do affect the administration
of Federal grants generally. Examples of these weaknesses include the following:

      •   One LEA did not have written policies and procedures for changing the passwords for an
          existing user of the LEA’s computer system.
      •   One LEA did not have a written policy on awarding sole-source contracts.
      •   Two LEAs did not have written policies to review the past performance of vendors prior
          to new contract award.
      •   One LEA did not have written policies on how to document the bidding process.
      •   Two LEAs did not have written policies on obtaining self-certifications of time and effort
          for employees who work solely on a Federal grant.

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.

Recommendations
We recommend that the Assistant Secretary for OESE in conjunction with the Assistant
Secretary for OSERS require —

4.1       OSF to either demonstrate that $68,333 of unallowable SFSF ESF costs were used for
          other allowable expenditures under the SFSF program or to return the funds to the
          Department. In addition, OSF either provides adequate documentation for $1,395 in
          inadequately supported payroll costs or returns the funds to the Department.

4.2       OSF to establish a review system to ensure that SFSF funds are expended appropriately
          and in accordance with applicable laws, regulations, and guidance.
Final Audit Report
ED-OIG/A06K0002                                                                     Page 17 of 37
4.3    OSDE to provide self-certifications of time and effort to adequately support $81,075 in
       IDEA payroll costs or return the funds to the Department.

4.4    OSDE and OSF to adequately monitor the LEAs that received grant funds in accordance
       with 34 C.F.R. 80.40.

Auditee Comments:

OSF concurred with our finding that OCCC used SFSF funds for unallowable expenditures and
stated that it will deduct the amount from future subreceipent draws until other allowable
expenditures are identified. OSF did not concur with the finding related to the unallowable
expenditures for Haywood Public Schools. Specifically they disagreed with the finding that the
unallowable expenditures occurred because OSF did not have a review system in place to verify
the expenditures of the grant. OSF contends that it is OSDE’s responsibility to monitor the
LEAs and to ensure that all expenditures are allowable. OSF also stated it is not the prime
recipient of SFSF funds and is not responsible for the monitoring of the funds. OSF stated that it
has reminded State agencies of their monitoring and compliance responsibilities.

OSDE agreed that Haywood Public Schools used SFSF ESF funds for unallowable expenditures
and indicated that corrective actions were taken and the funds were subsequently used for
allowable payroll expenditures. OSDE stated that once it has received all LEAs’ financial
records, it will make the data available to OSF. OSDE also stated that it has accurate records to
verify the expenditures of SFSF funds and agreed to continue working to ensure expenditures of
SFSF grants meet applicable regulations and guidance.

OSDE provided the OIG with copies of the self-certification of time for Edmond and Broken
Arrow, for the period January through March 2010, and Broken Arrow for the time period July
through December 2009.

OIG Response:

OSF did not provide any additional information that caused us to change our conclusions or
recommendations. As stated in the OIG Response for Finding No. 1, based on grant
documentation, OSF is the designated recipient of SFSF funds and has the authority for
awarding, disbursing, and monitoring SFSF funds.

OSDE did not provide adequate documentation to change the finding and recommendation
related to the unallowable expenditure for Haywood Public Schools. OSDE provided us with
updated assurance information and computer screen prints to show that $47,629 in payroll and
benefits was charged to SFSF ESF funds in substitution for the unallowable bus purchase.
However, we were not provided with documentation to support the reversal of the bus purchase,
nor did OSDE provide documentation to support funds were subsequently used for allowable
payroll expenditures.

OSDE did provide us with copies of self-certifications of time for Edmond and Broken Arrow.
During the review of the employee pay, the OIG reviewed pay for the period of June through
Final Audit Report
ED-OIG/A06K0002                                                                  Page 18 of 37
December 2009. The self-certification of time that was provided for Edmond as a response to
the draft report was for the period of January through March 2010. The certifications were
signed during April and May 2010. Because the self-certifications were not for the time period
reviewed by the OIG, we did not make changes to the finding concerning inadequately
documented payroll expenses. We were provided with adequate timesheets and self-certification
of time for Broken Arrow for some of the employees sampled. We adjusted the finding to report
that the district had $4,855.16 in supported costs and $14,756.70 in unsupported costs.
Final Audit Report
ED-OIG/A06K0002                                                                     Page 19 of 37


                                     OTHER MATTERS
ARRA Programs Should Be Covered by Oklahoma’s Treasury-State Cash Management
Agreement

Pursuant to the Cash Management Improvement Act of 1990 (CMIA), as amended, Oklahoma
and the U.S. Department of the Treasury (Treasury) have a Treasury-State Cash Management
Agreement (Agreement) that governs transfers of funds between Oklahoma and Federal agencies
for major Federal assistance programs. Major Federal assistance programs are defined as those
programs that receive funding in excess of a specific dollar threshold that is calculated for each
State. Oklahoma’s current Agreement specifies that $34,379,592 is the major programs
threshold. However, Oklahoma’s Agreement does not list SFSF, ARRA Title I, or ARRA IDEA
awards as major programs, even though they each exceed the $34,379,592 major program
threshold. Treasury regulations implementing the CMIA, 31 C.F.R. § 205.7, require a State to
notify Treasury within 30 days of the time the State becomes aware that a change is needed to
the Agreement. Such a change would include the addition or deletion of Federal assistance
programs that meet the threshold.

The CMIA is designed to protect the interests of both the Federal government and the States.
The Agreement specifies funding techniques and interest rates to facilitate efficient transactions
and compensate for the lost value of money associated with the transfer of funds. For example,
interest may be owed by (1) the Federal government to the State when the Federal grant
payments are made after the State uses its own money for program purposes, and (2) the State to
the Federal government when Federal grant payments are received by the State before being paid
out for program purposes. By not including the ARRA programs in the Agreement, the Federal
government and/or Oklahoma may incur unnecessary costs related to the lost value of money
associated with the transfer of ARRA program funds and will not be compensated for such costs.

We suggest that Oklahoma notify Treasury that ARRA programs should be added to the CMIA
agreement in accordance with the applicable criteria.
Final Audit Report
ED-OIG/A06K0002                                                                  Page 20 of 37


                            SCOPE AND METHODOLOGY

The objectives of our audit were to determine whether the Oklahoma Governor’s Office,
Oklahoma Office of State Finance, Oklahoma State Department of Education, selected local
educational agencies, and selected Institutions of Higher Education ensured that (1) ARRA funds
were used in accordance with applicable laws, regulations, and guidance; and (2) ARRA data
reported by recipients and subrecipients were accurate, reliable, and complete. Our audit
covered the period February 17, 2009, through December 31, 2009.

To accomplish our objectives, we performed the following procedures.

   •   Reviewed the internal control structure, policies, procedures, and practices OSF and
       OSDE used to award, expend, and report ARRA funds.
   •   Examined prior reviews conducted by OIG and reviewed the Oklahoma State Auditor’s
       Office audit documentation supporting their OMB Circular A-133 Single Audit Report
       for the year ended June 30, 2008.
   •   Reviewed Section 1512 quarterly reports and identified anomalies and other purchases of
       interest.
   •   Reviewed documentation for Haywood Public Schools, Oklahoma City Community
       College, and at the three LEAs audited to determine the allowability of items purchased
       using SFSF funds.
   •   Requested and obtained a list of LEAs and IHEs that received ARRA funding from
       May 2009 through December 2009.
   •   Requested and obtained the award documents for the State and selected LEAs and IHE.
   •   Requested and obtained the monthly expense reports for the selected LEAs from
       May 2009 through December 2009.
   •   Requested and reviewed the supporting documentation for all of the expenditures
       selected for review.
   •   Reviewed quarterly reports and Title I expenditure reports to ensure they met the
       requirements of the ARRA grant.
   •   Assessed internal controls at the State and LEAs over the administration of the ARRA
       funds and the reporting of data.
   •   Interviewed Oklahoma State officials and LEA and IHE officials.

To test whether Oklahoma awarded and reported ARRA funds correctly, we selected three LEAs
and one IHE to review. The LEAs were judgmentally selected based on a review of past
performance, ARRA funds, and other risk based factors. The IHE was judgmentally selected
from a list of all IHEs that received ARRA funding. The IHE selected received a large amount
of ARRA funds, and at the time of our review, had expended a majority of the allocated amount.
We reviewed the expenditures of the grant and tested data to ensure that the data were being
reported correctly on quarterly reports.

To test the expenditures of grants, we selected a judgmental sample of expenditures from ARRA
Title I, ARRA IDEA, and SFSF. For the IHE, we selected a judgmental sample of payroll costs
for SFSF. At the LEAs, we judgmentally selected and reviewed 10 percent of the universe, but
Final Audit Report
ED-OIG/A06K0002                                                                                    Page 21 of 37
no more than 27 sample items. We selected a separate sample of both payroll and non-payroll
for ARRA Title I and IDEA. For SFSF, we selected a sample of payroll expenditures. For the
audit of the IHE, we judgmentally selected a sample of 10 expenditures from eight campuses that
received funding. For the review of the OWRB, we judgmentally selected the first 10 employees
from the list of employees provided. Table 5 provides the universe and sample information for
each of the samples reviewed during the audit.

                  Table 5: Universe and Sample Information for the Audit of the Subrecipients
                              Title I        Title I        IDEA           IDEA           SFSF ESF
                              Payroll      Non payroll      Payroll      Non payroll       Payroll
           Broken Arrow
            Universe Size
                               $831 10      $219,424       $606,840        $206,649       $1,325,010
              (Dollars)
            Sample Size
                               $354          $55,381        $19,613        $122,299        $89,743
              (Dollars)
            Sample Size
                                 5             27              25             12              25
             (number)
             Edmond
            Universe Size
                             $141,461        $18,902       $779,132        $128,062       $1,658,792
              (Dollars)
            Sample Size
                              $12,532        $5,534         $66,318        $49,279         $73,203
              (Dollars)
            Sample Size
                                 8              6              25              7              25
             (number)
             Oklahoma
                City
            Universe Size
                              $81,761       $540,038       $582,421        $767,413       $3,319,710
              (Dollars)
            Sample Size
                               $9,010        $78,139        $21,242        $767,413        $78,157
              (Dollars)
            Sample Size
                                 25             9              25             10              25
             (number)
                OSU
            Universe Size
                                                                                         $18,056,900
              (Dollars)
            Sample Size
                                                                                           $438,274
              (Dollars)
            Sample Size
                                                                                              80
             (number)
               OWRB                                                                       SFSF GSF
            Universe Size
                                                                                          $2,700,000
              (Dollars)
            Sample Size
                                                                                           $560,654
              (Dollars)
            Sample Size
                                                                                              10
             (number)

We also requested information related to the Title I expenditure report from OSDE; however,
OSDE was unable to provide us with the documentation we needed to verify the accuracy of the
Title I expenditure reports.

10
 The total for Universe and Sample size was small because the funds were expended for stipends only; no salaries
were paid.
Final Audit Report
ED-OIG/A06K0002                                                                   Page 22 of 37

We conducted our fieldwork at OSDE and OSF the week of November 30, 2009. We also
completed audit work at Broken Arrow Public Schools, Edmond Public Schools, Oklahoma City
Public Schools, and Oklahoma State University from January 2010 through April 2010. We held
an exit conference with Oklahoma State Department of Education officials on July 14, 2010, and
the Office of State Finance on July 19, 2010, to discuss the results of the audit.

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. To achieve our audit objective
for reviewing ARRA transactions, we relied, in part, on computer-processed ARRA Title I,
IDEA, and SFSF funds request forms submitted to the OSDE and OSF. We verified the
completeness of the data by comparing source records to computer-generated request forms and
verified the authenticity by comparing computer-generated request forms to source documents.
Based on our testing, we concluded that the computer-processed data were sufficiently reliable
for the purpose of our audit.
Final Audit Report
ED-OIG/A06K0002                                                                    Page 23 of 37

ATTACHMENT
                      Timeline of Events for the Transactions of GSF

  Date of Transaction                            Description of transaction

End of Legislative Session   Oklahoma State Legislature (OSL) agrees to award $16 million in
2009                         ARRA Funds to the Oklahoma Tax Commission’s Ad Valorem
                             Reimbursement Fund.
7/1/2009                     OSF transferred $33,000,000 in State funds to OSDE.
7/29/2009                    Email from State of Oklahoma General Counsel authorizing the
                             drawdown of SFSF funds; $16 million to the Tax Commission
                             Ad Valorem Reimbursement Fund, and $2.7 million to OWRB for
                             operations, statutory duties, and water projects.
7/31/2009                    The following tracks the ARRA funds from initial deposit:
                                 • State Account (190) received a deposit of ARRA funds in
                                     the amount of $18.7 million.
                                 • Transfer of the $18.7 million ARRA funds from the General
                                     Account (190) to the ARRA Federal Account (490).
                                 • Transferred $2.7 million from 490 to the OWRB. Journal
                                     entries showed $16 million in 490 funds was sent to the Tax
                                     Commission, and according to interviews, the 490 funds
                                     were to be used to cover Ad Valorem taxes for the counties
                                     and districts.
                             OSF provided us the above information via journal entry
                             transaction documentation.
8/3/2009                     Oklahoma Tax Commission disbursed $16 million in ARRA funds
                             to the counties. (After disbursement of funds, the Oklahoma State
                             Auditor’s Office was concerned that districts might use the funds
                             for debt service payments, which is an unallowable expense for the
                             grant.)
8/13/2009                    OSDE allocates and disburses $32,655,000 of the aforementioned
                             $33 million to more than 530 school districts to purchase textbooks.
                             The remaining funds were used to purchase a system to track the
                             purchase of the books. OSF provided journal entries of the
                             transactions.
9/2/2009                     Letter from the Governor to Director of OSF authorizing that the
                             $16 million be redirected from the Oklahoma Tax Commission to
                             OSDE.
                             The following tracks the movement of funds:
                                  • Transfer of $16 million in ARRA Funds (490) to OSDE
                                     from the General State Account (190).
                                  • Transfer of $16 million of ARRA Funds (490) to the Claim
                                     Account (340) of OSDE.
                                  • Transfer of $16 million from OSDE (340) fund to the
                                     General State Account (190).
Final Audit Report
ED-OIG/A06K0002                                                          Page 24 of 37
                          • Transfer of $16 million from the General State Account
                              (190) to Tax Commission Account (285).
                              Note: OSF did not provide the OIG with journal entries to
                              show the transfer of funds between Oklahoma Tax
                              Commission’s 285 account and the Tax Commission ARRA
                              account (490).
                          • Transfer of $16 million from ARRA Funds (490) from the
                              Tax Commission to the State ARRA Account (490).
                     OSF provided us the above information via journal entry
                     transaction documentation.
9/3/2009             Bulletin from the Oklahoma Tax Commission to the counties that
                     received the 8/3/2009 ARRA disbursements stating the funds sent
                     in August no longer “constitute stimulus money.” None of the
                     original funds need to be returned to the Tax Commission.
                     Auditor’s Note: Nothing in the bulletin stated the need to recode
                     the funds at the county or district level.
9/30/2009            In the first ARRA quarterly report, OSF reported $16 million for
                     textbooks and $2.7 for State water conservation.
12/31/2009           In the second ARRA quarterly report, OSF reported $18.7 million
                     as lump sum for “Funded monthly payrolls of Water Resources
                     Board to offset current year budget reductions.”
1/2010               OWRB was notified by OSF that the ARRA funds cannot be spent
                     on debt. OWRB re-coded funds and used ARRA to pay payroll
                     from July until December 2009. ARRA funds were not recoded
                     until January 2010.
6/2/2010             OIG held discussions with OSDE staff. OSDE staff stated they did
                     not receive any ARRA funds to purchase books. They agree
                     ARRA funds were deposited on 9/2/09, but on the same day OSF
                     withdrew the same amount. OSDE staff stated that the State funds
                     for textbooks were no longer in their account because the funds
                     were distributed to more than 530 districts. Therefore, the funds
                     OSF took out of the account could not be the State funds
                     appropriated for books. OSDE provided a sample of invoices,
                     purchase orders, and checks for the purchase of textbooks.
                     However, neither OSF nor OSDE provided accounting transactions
                     to show that the ARRA funds were deposited into districts accounts
                     and the original funds that are State funds were returned to OSDE.
                     OSDE also was unable to provide grant notification letters or GSF
                     Assurance for the Federal funds.
Final Audit Report
ED-OIG/A06K0002                                           Page 25 of 37




                           Enclosure 1:
             OSF’s Comments on Preliminary Audit Report
Final Audit Report
ED-OIG/A06K0002                                                                  Page 26 of 37




MICHAEL CLINGMAN                                                         BRAD HENRY
DIRECTOR OF STATE FINANCE                                                GOVERNOR

                                 STATE OF OKLAHOMA
                               OFFICE OF STATE FINANCE

The Office of State Finance is providing comments of the Draft Audit Report by section:

RESULTS

Page 3, Paragraph 1 – We do not agree with the statement: “We identified $16 million in State
Fiscal Stabilization Fund (SFSF) Government Services Funds (GSF), for which OSF is unable to
account for how the funds were expended.”

OSF provided documentation showing where the funds had been transferred to the Oklahoma
State Department of Education. The funds will be deducted from future ARRA SFSF draw
requests.

We do not agree with the statement: “OSF drew down approximately $19.2 million in SFSF
Education Stabilization Funds (ESF) in excess of LEAs needs.”

OSDE is a State agency and is responsible for communications with, monitoring of, and
disbursing funds to LEAs.

Page 4, Paragraph 2 – We do not agree with the statement: “OSF was designated as the prime
recipient for SFSF Funds by the Governor and was tasked with awarding and monitoring the
funds to ensure they were expended appropriately by State agencies.”

OSF was neither designated as a prime recipient nor awarded any SFSF funds. SFSF funds were
awarded by the Governor’s office to other state agencies. Monitoring subrecipients’ use of the
SFSF funds is the responsibility of the State agency that last holds the SFSF funds before the
funds are disbursed from the State system.
Final Audit Report
ED-OIG/A06K0002                                                                       Page 27 of 37


FINDINGS

FINDING NO. 1 – Oklahoma Is Unable to Account for $16 Million in ARRA Funds
Page 6
We do not agree with the statements: “Oklahoma is unable to account for $16 million in ARRA
GSF funds.” “OSF did not provide adequate documentation for the remaining $16 million.”

OSF provided documentation showing where the funds had been transferred to the Oklahoma
State Department of Education. The funds will be deducted from future ARRA SFSF draw
requests.

Page 7
We do not agree with the statement: “As a result of the events described above and the positions
taken by OSF... the State of Oklahoma cannot demonstrate with certainty the disposition of $16
million in SFSF GSF funds.”

OSF provided documentation showing where the funds had been transferred to the Oklahoma
State Department of Education. The funds will be deducted from future ARRA SFSF draw
requests.

We do not agree with the statement: “Because the subrecipients never received guidance from
OSF... “

OSF is neither a grantee nor a grantor, and it has no contact or interaction with subrecipients.
OSDE is responsible for communications and monitoring of subrecipients.

Page 7 - Recommendations

1.1
OSF provided documentation showing where the funds had been transferred to the Oklahoma
State Department of Education. The funds will be deducted from future ARRA SFSF draw
requests.
Final Audit Report
ED-OIG/A06K0002                                                                       Page 28 of 37


FINDINGS

FINDING NO. 2 – Oklahoma Disbursed ARRA Funds in Advance of Local School District
Need
Page 7
We do not agree with the statement: “OSDE and OSF disbursed ARRA Title I, IDEA, and SFSF
ESF funds... “

OSF is neither a grantee nor a grantor, and it has no contact or interaction with subrecipients.
OSDE is responsible for disbursements to, communications with and monitoring of
subrecipients.

Page 8
We do not agree with the following statements: “OSF also disbursed SFSF ESF funds in
advance of need to the LEAs that received the funds. During September 2009, OSF disbursed a
double payment, August and September 2009 payments, of ESF funds to the LEAs, which
caused the districts to carry over a monthly balance of ESF funds.”

OSF is neither a grantee nor a grantor, and it has no contact or interaction with subrecipients.
OSDE is responsible for disbursements to, communications with and monitoring of
subrecipients.

Page 9 - Early Draw Down and Disbursement of SFSF Educational Stabilization Funds
We do not agree with the following statements: “As of December 24, 2009, OSF drew down
$137,221,845 in SFSF ESF funds and disbursed $117,987,374 (86 percent) to LEAs. We
estimated that a total of $19.2 million in SFSF ESF funds was disbursed to the LEAs prior to
need of the funds by the subrecipients. We determined this by comparing the total draw downs
by OSF, to the total disbursed to subrecipients as of December 31, 2009.”

OSF is neither a grantee nor a grantor, and it has no contact or interaction with subrecipients.
OSF makes SFSF draws based on authorized requests from State agencies which are responsible
for communication, monitoring, and disbursing of funds.

We do not agree with the following statement: “However, based on the fact that, as of December
24, 2009, OSF had drawn down $19.2 million in SFSF ESF funds in excess of the amount it had
disbursed to LEAs, we concluded that OSF did not follow the CMA.”

OSF has notified State agencies of the correct funding techniques. State agencies are responsible
for making draw requests in accordance with appropriate funding techniques. OSF makes SFSF
draws based on authorized requests from State agencies which are responsible for monitoring
draw requests, communication, monitoring of use of funds, and disbursing of funds to
subrecipients.

Page 9 - Early Draw Down and Disbursement of SFSF Educational Stabilization Funds
Final Audit Report
ED-OIG/A06K0002                                                                    Page 29 of 37
We do not agree with the following statements: “OSF has not made adjustments to its draw
down and disbursement procedures to accommodate the Federal cash management requirements
but instead administers SFSF funds the same as State Aid. By not determining each LEA’s cash
position prior to disbursing SFSF cash advances, OSF did not ensure that LEAs were expending
the funds timely and not maintaining excess cash. In addition, by drawing down Federal funds
and disbursing them in advance of LEAs’ immediate cash needs, there is an additional cost to the
U.S. Treasury and an increased risk that SFSF funds might be misused.

OSF has notified State agencies of the correct funding techniques. State agencies are responsible
for making draw requests in accordance with appropriate funding techniques. OSF makes SFSF
draws based on authorized requests from State agencies which are responsible for monitoring
draw requests, communication, monitoring of use of funds, and disbursing of funds to
subrecipients.

Page 10 - Recommendations

2.1
As the prime recipient, OSDE has agreed to follow authorized funding techniques of the CMA.

2.2
As the prime recipient, OSDE has agreed to follow authorized funding techniques of the CMA.

2.3
OSF has notified State agencies of the correct funding techniques. State agencies are responsible
for make draw requests in accordance with appropriate funding techniques.

As the prime recipient, OSDE has agreed to follow authorized funding techniques of the CMA.
Final Audit Report
ED-OIG/A06K0002                                                                   Page 30 of 37


FINDINGS

FINDING NO. 3 – Oklahoma Did Not Ensure Data Reported Were Accurate, Reliable, and
Complete

Page 11 - Incomplete and Inaccurate Information
“OSF disbursed $68 million in SFSF ESF funds to Institutions of Higher Education (IHE) but
did not report the IHEs as subrecipients on the quarterly reports. It also did not report the
required data element “award period for subrecipients” for the subrecipients of ARRA Title I and
IDEA funds. In addition, as noted in finding No. 1, OSF reported inaccurate information related
to SFSF GSF funds. In December 31, 2009, quarterly report, OSF reported that the Executive
Office of the Governor distributed $18.7 million in SFSF GSF funds, and the prime recipient
information shows that the funds were spent “on payroll shortages for OWRB.” As discussed in
Finding No. 1, we noted that there is adequate documentation to support only $2.7 million in
SFSF GSF funds for OWRB payroll costs. OSF cannot account for $16 million in SFSF GSF
funds drawn down by OSF. We are unable to determine who received the remaining $16 million
in SFSF GSF funds.”

Initial OMB guidance stated that ARRA funds that are passed from one State agency to a second
(or even a third) State agency before being disbursed from the State accounting system should
treat the second (or third) State agency as the prime recipient of ARRA funds. IHEs are State
agencies in Oklahoma. OMB and the U.S. Department of Education debated this issue until late
in the second reporting period before OMB agreed to allow IHEs to be reported as subrecipients
for SFSF awards only. In the next reporting period, Oklahoma IHEs were reported as
subrecipients based on the “revised” guidance from OMB.

OSF provided documentation showing where the funds had been transferred to the Oklahoma
State Department of Education. The funds will be deducted from future ARRA SFSF draw
requests.

“OSF inaccurately reported prime vendors in its second quarterly report. OSF distributed all
SFSF ESF funds to IHEs and LEAs and did not expend any funds at the State level; as such, no
prime vendors should be reported via the quarterly reports. However, Oklahoma City
Community College (OCCC) inaccurately reported two vendors as prime vendors that should
have been reported as subrecipient vendors of the SFSF ESF funds.”

The OCCC is a State agency and was considered a prime recipient according to the initial OMB
guidance. In subsequent reporting periods, these vendors are reported as subrecipient vendors
per the “revised OMB” guidance.

Page 11 - Inaccurately Reported Jobs Information
“Oklahoma State University’s (OSU) calculation of jobs created/retained did not meet the
requirements set forth by OMB. OSU calculated jobs created/retained based on salary amounts,
not by hours worked. OSU underestimated the number of jobs created/retained for the first two
Final Audit Report
ED-OIG/A06K0002                                                                       Page 31 of 37
quarterly reports. For the first quarter, we calculated 375.30 FTEs, while OSF reported 256
FTEs. For the second quarter, we calculated 421.95 FTEs, while OSF reported 256 FTEs.”

The Oklahoma State Regents for Higher Education provided the job calculations for the total
ARRA dollars that are to be received by each IHE. The amount reported for each quarter was
calculated based on the percentage of total dollars expended by each quarter by each IHE versus
the total amount allocated to each IHE. IHEs will be instructed to report future job calculations
in accordance with OMB guidance.

Page 12 – Full Disclosure of ARRA Funds
“OSF and OSDE did not have adequate internal controls in place to ensure transparency and
security of data related to ARRA. OMB M-09-21, page 28, states that the subrecipients are to
implement internal control measures as appropriate to ensure accurate and complete
information.”

OSF is neither a grantee nor a grantor, and it has no contact or interaction with subrecipients.
OSDE is responsible for disbursements to, communications with and monitoring of
subrecipients.

Page 13
We do not agree with the following statement: “OSF... did not have written policies and
procedures to verify data prior to reporting to FederalReporting.gov.”

OSF is neither a grantee nor a grantor of SFSF funds. State agencies are considered the prime
recipients of these funds. Agencies will be reminded to verify data prior to reporting the
information.

Page 13 - Recommendations

3.1
OSF is neither a grantee nor a grantor of SFSF funds. State agencies are considered the prime
recipients of these funds. Agencies will be instructed to comply with OMB guidelines going
forward.

3.2
OSDE response needed.

3.3
OSDE response needed.
Final Audit Report
ED-OIG/A06K0002                                                                    Page 32 of 37



FINDINGS

FINDING NO. 4 – Unallowable and Inadequately Documented Costs Found at Some
Subrecipients

Page 14 - Unallowable Costs
“A review of OSF SFSF expenditure reports and other documentation revealed that Haywood
Public Schools used $37,613 of its $39,306 allocation in SFSF ESF funds to purchase a bus. We
also found that OCCC used $30,720 out of its allocation of $1,995,832 in SFSF ESF funds to
purchase a maintenance and support system for its computer mainframe system.”

OSDE as the prime recipient is responsible for monitoring the draw requests, use of funds
including disbursements to subrecipients for the $37,613 used by Haywood Public Schools. The
$30,720 will be deduced from future draw requests by OCCC until other allowable expenditures
are indentified, incurred and reported.

“The unallowable purchases went undetected because OSF had not established a review system
to ensure that SFSF funds were being expended appropriately and in accordance with applicable
laws, regulations, and guidance. In accordance with Section 14008 of the Recovery Act, States
receiving SFSF funds must submit an annual report to the Department with certain data as
specified by the Department. According to OSF, expenditures for SFSF ESF money will not be
reviewed by OSF until the official SFSF Annual Report is due to the Department which
according to a Group Leader of OESE, will not be until January 2011.”

OSF was neither designated as a prime recipient nor awarded any SFSF funds. SFSF funds were
awarded by the Governor’s office to other state agencies. Monitoring subrecipients’ use of the
SFSF funds is the responsibility of the State agency that last holds the SFSF funds before the
funds are disbursed from the State system. Therefore, the OSDE and IHE are State agencies and
are responsible for monitoring the use of SFSF funds.

OSF has reminded State agencies of their monitoring and compliance responsibilities. OSF
makes SFSF draws based on authorized requests from State agencies which are responsible for
monitoring draw requests, communication, monitoring of use of funds, and disbursing of funds
to subrecipients and/or vendors.


Page 15 - Recommendations

4.1
The $30,720 will be deducted from future draw requests by OCCC until other allowable
expenditures are indentified, incurred and reported. OSDE as the prime recipient is responsible
for monitoring the draw requests, use of funds including disbursements to subrecipients for the
$37,613 used by Haywood Public Schools.
Final Audit Report
ED-OIG/A06K0002                                                                  Page 33 of 37
4.2
OSDE response needed.

4.3
OSF has notified State agencies of their monitoring and compliance responsibilities. OSF makes
SFSF draws based on authorized requests from State agencies which are responsible for
monitoring draw requests, communication, monitoring of use of funds, and disbursing of funds
to subrecipients and/or vendors.

OSF will continue to work with State agencies to ensure compliance that SFSF funds are
expended appropriately and in accordance with applicable laws, regulations, and guidance.



Sincerely,
/s/


Michael Clingman
Oklahoma Director of State Finance
Final Audit Report
ED-OIG/A06K0002                                       Page 34 of 37




                          Enclosure 2:
            OSDE’s Comments on Preliminary Audit Report
Final Audit Report
ED-OIG/A06K0002                                                                Page 35 of 37




                               SANDY GARRETT
                 STATE SUPERINTENDENT OF PUBLIC INSTRUCTION
                             STATE OF OKLAHOMA

The Oklahoma State Department of Education is providing comments of the Draft Audit Report.

RESULTS
The State Department of Education (OSDE) does not agree with the results listed in the Draft
Audit Report (ED-OIG/A06K0002) from the Office of Inspector General, U.S. Department of
Education.

The OSDE does not agree with the statement “We identified $16 million in State Fiscal
Stabilization Fund (SFSF) Government Services Funds (GSF), for which... unable to account for
how the funds were expended.”

OSDE has made adjustment to show SFSF GSF was allocated to the LEAs or subrecipients for
textbook expenditures from July 1 through September 30, 2009. Even though OSF provided the
SFSF GSF after the allocation and payment of textbook funding was distributed to the
subrecipients, it was not until June of 2010 that Oklahoma Legislation (Senate Bill 1566)
reduced the state portion of textbook funding. Adjustments have been prepared to account for
the subrecipients’ textbook expenditures with SFSF GSF.

The OSDE does not agree with the statement “OSDE and OSF did not follow applicable cash
management regulation to ensure subrecipients did not receive funds in advance of need.”
OSDE did follow the applicable cash management regulations by working in conjunction with
OSF to request only the amount needed to make each month’s payment. This request was
submitted to OSF three days prior to the effective date of payment. These payments were
calculated as nine percent (9%) of the subrecipients’ allocation to provide funds for monthly
payrolls.

OSDE does not agree with the statement “OSDE and OSF also did not ensure that data reported
were accurate, reliable, and complete.”

OSDE did maintain the system for the SFSF Education Stabilization Fund (ESF) and SFSF GSF
calculated for the subrecipients. OSDE worked with subrecipients to make sure all data
supporting the expenditures was accurate and complete.
Final Audit Report
ED-OIG/A06K0002                                                                     Page 36 of 37
OSDE worked with subrecipients to obtain data to support the certification of Time and Effort
for IDEA-B funds.

FINDINGS

FINDING NO. 1 – Oklahoma Is Unable to Account for $16 Million in ARRA Funds (page 6)
OSDE Response: This is inaccurate. An equitable offset was described during the Office of
Inspector General’s exit conference. Documentation is attached that will substantiate this
modification and show that accounting records reflect expenditures were made for allowable
textbook expenses. Notification to subrecipients will follow these changes. Official accounting
records to include those FY’ 10 expenditures of the LEAs would not be submitted until after
July 1, 2010.

OSDE provided documentation to show the Subrecipients’ revenue and expenditures account for
the SFSF GSF for textbooks. Also attached is the SFSF GSF textbook allocation report as well
as the report detailing the decrease in the state funding textbook allocation for the appropriate
increase in SFSF GSF. The subrecipients’ notification will also specify the changes will also be
at the local level.

OSDE is providing documentation from Broken Arrow Public Schools and Edmond Public
Schools to document Time and Effort certifications for the district employees that were paid with
IDEA-B ARRA funds in the amount of $85,272. The subrecipients also provided this
documentation to OIG.

FINDING NO. 2 – Oklahoma Disbursed ARRA Funds in Advance of Local School District
Need

OSDE distributed to the subrecipients an amount equal to 18 percent (18%) of the allocation to
provide reimbursement for the August and September payroll. OSDE received the required
Assurance Statements and Data Forms during the month of August. No recipient received a
payment until after the required documentation had been received and approved by OSDE. The
SFSF ESF and SFSF GSF were not part of an online system during FY2010, so all
documentation was faxed or mailed to OSDE.

OSDE has now established for FY2011 an online system where the subrecipient will budget and
submit claims for reimbursement if the LEA is not using SFSF ESF for salaries. To monitor the
monthly scheduled payments, the subrecipient will submit quarterly report expenditure reports to
confirm the needs are equivalent to the revenue received. If there is some discrepancy, the future
payments will be decreased to meet the needs of the subrecipient.

FINDING NO. 3 – Oklahoma Did Not Ensure Data Reported Were Accurate, Reliable, and
Complete

Statement (page 12, paragraph 3): “Although the report was submitted, OSDE did not provide us
with supporting documentation for the information reported. There is no assurance that the data
met reporting requirements or that the data is complete, accurate, and reliable.”
Final Audit Report
ED-OIG/A06K0002                                                                  Page 37 of 37
OSDE Response: The report did not require additional supporting documentation. Therefore, it is
arbitrary and unsubstantiated to state that the data was somehow inaccurate.

FINDING NO. 4 – Unallowable and Inadequately Documented Costs Found at Some
Subrecipients
Statement (page 14, paragraph 1): “A review of OSF SFSF expenditure reports and other
documentation revealed that Haywood Public Schools used $37,613 of its $39,306 allocation in
SFSF ESF funds to purchase a bus.”

OSDE Response: Corrective measures were taken upon discovery of expenditure and funds were
then subsequently used for allowable payroll expenditures. After all subrecipients’ financial
records have been received by OSDE, the data will be available for OSF.

OSDE has accurate records to verify the SFSF ESF and SFSF GSF expenditures by the
subrecipients for FY2010. The LEAs were reviewed during the first few months of the SFSF
ESF and SFSF GSF systems. At that time the LEAs were trying to separate the different types of
ARRA funding and the appropriate requirements.

OSDE will continue to study and operate by the applicable laws, regulations, and guidance
associated with SFSF expenditures.

Sincerely,

/s/

Sandy Garrett
Oklahoma State Superintendent of Public Instruction
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