oversight

Louisiana: 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 2011-04-11.

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

           U.S. Department of Education
           Office of the Inspector General


     American Recovery and
     Reinvestment Act of 2009
             Louisiana: Use of Funds and Data Quality
for Selected American Recovery and Reinvestment Act Programs


                       Final Audit Report




                    Louisiana State Capitol Building


  ED-OIG/A06K0003                                      April 2011
            Abbreviations, Acronyms, and Short Forms Used in the Report

ARRA                       American Recovery and Reinvestment Act of 2009

Calcasieu                  Calcasieu Parish School Board

C.F.R.                     Code of Federal Regulations

Department                 U.S. Department of Education

East Baton Rouge           East Baton Rouge Parish School District

ESF                        Education Stabilization Fund

FTE                        Full-time equivalents

Jefferson                  Jefferson Parish Public School System

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

ISU                        Implementation and Support Unit

LDE                        Louisiana Department of Education

LEA                        Local Educational Agencies

MFP                        Minimum Foundation Program

OESE                       Office of Elementary and Secondary Education

OMB                        Office of Management and Budget

OMB A-87                   Office of Management and Budget Circular A-87 Cost Principles
                           for State, Local, and Indian Tribal Governments

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

OSERS                      Office of Special Education and Rehabilitative Services

RSD                        Recovery School District

SFSF                       State Fiscal Stabilization Fund

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

                                                                                                                    AUDIT SERVICES
                                                                                                                    Dallas Audit Region

                                                           April 11, 2011


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

Dear Superintendent Pastorek:

This final audit report presents the results of our review titled ―Louisiana: Use of Funds and
Data Quality for Selected American Recovery and Reinvestment Act 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

                                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

                                Ann Whalen
                                Deputy Director for Programs
                                Implementation and Support Unit
                                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.
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


Enclosure
Final Audit Report
ED-OIG/A06K0003                                                                   Page 1 of 20
                      Louisiana: Use of Funds and Data Quality for
              Selected American Recovery and Reinvestment Act Programs
                               Control Number ED-OIG/A06K0003

                                            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 Louisiana Department of Education (LDE)
and selected local educational agencies (LEA) ensured (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 July 1, 2009,
through June 30, 2010. The LEAs selected for review were the Jefferson Parish Public School
System (Jefferson), East Baton Rouge Parish School District (East Baton Rouge), Calcasieu Parish
School Board (Calcasieu), and the Recovery School District (RSD).

                                     RESULTS IN BRIEF

The four LEAs we reviewed generally used ARRA funds in accordance with applicable laws,
regulations, and guidance. However, we did identify instances of noncompliance with applicable
Federal requirements resulting in more than $179,757 in unsupported payroll expenses paid with
ARRA Title I, Part A of the Elementary and Secondary Education Act of 1965, as amended
(Title I); Individuals with Disabilities Education Act, Part B (IDEA); and State Fiscal Stabilization
Fund (SFSF) funds. In addition, at RSD, we identified more than $29,000 in unallowable expenses
paid with ARRA IDEA funds.

LDE and the selected LEAs did not ensure that data reported were accurate, reliable, and complete.
Jefferson, East Baton Rouge, Calcasieu, as well as LDE, all had data quality errors in the
expenditure information that were reported by LDE to FederalReporting.gov for the first four
ARRA reporting periods. The LEAs understated expenses for the first four reporting quarters. In
addition, all four LEAs visited incorrectly reported jobs saved or created to LDE. LDE did not
have internal controls to ensure that policies or procedures were followed to verify and report
required ARRA data elements to include expenditures, jobs created/retained, and for reporting
errors identified after submission of reports.

We provided a copy of our draft report to LDE for review and comment on February 18, 2011.
LDE concurred with Finding No. 1 and its recommendations; it partially concurred with Finding
No. 2 and its recommendations. LDE described corrective actions it has implemented or will
implement regarding both findings. Based on information and comments received, we modified
Finding No. 2 to include LDE’s instructions to the LEAs regarding the timeline for submission of
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ED-OIG/A06K0003                                                                 Page 2 of 20
quarterly data. In addition, we modified Recommendation 2.1 to require LDE to establish and
implement controls to ensure policies and procedures are followed and reworded
Recommendation 2.2 to address the date at which data accumulation is discontinued for reporting
data. LDE also provided comments to issues identified in the Other Matters section of the report.
As a result, we removed the subsection discussing Louisiana’s Treasury-State Cash Management
Agreement. LDE’s comments are summarized at the end of each finding, and the entire narrative
is included as an Enclosure to this report. Because of the voluminous nature of the Attachments to
Louisiana’s comments, we have not included them in the Enclosure; however, copies are available
on request.

                                       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 accountability and
transparency in government spending. To ensure transparency and accountability of ARRA
spending, recipients are required to submit quarterly reports on ARRA awards, spending, and jobs
impact (§ 1512 of ARRA). According to the Office of Management and Budget (OMB), the
reports should contain detailed information on the projects and activities funded by ARRA and
will provide the public with transparency into how Federal dollars are being spent. The reports are
also intended to 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 LDE 50 percent of its
ARRA Title I and IDEA funds allocation. According to the Grant Award Notifications, Louisiana
received ARRA Title I and IDEA funds for the grant award period February 17, 2009, through
September 30, 2010, and SFSF funds for the grant award period July 2, 2009, through
September 30, 2010. LDE was allocated more than $177 million in ARRA Title I funds and more
than $188 million in ARRA IDEA funds. As of June 30, 2010, LDE had drawn down from the
Department and distributed more than $73 million in ARRA Title I and approximately $62 million
in ARRA IDEA funds to LEAs. The Governor’s Office was awarded $388 million in SFSF
Education Stabilization Fund (ESF) funds for the period ending in September 2010. The
Governor’s Office planned to use $100 million of its $388 million in the SFSF ESF allocation to
restore the level of State support for elementary and secondary education in FY 2010 to FY 2008
levels.
Final Audit Report
ED-OIG/A06K0003                                                                             Page 3 of 20
Table 1 identifies the ARRA funding allocated to LDE, the amount drawn down from the
Department, and the amount disbursed to subrecipients as of June 30, 2010.

                            Table 1: ARRA Allocations to LDE (in millions)
                          Catalog of                               Total Drawn             Total
           Grant                                Total ARRA
                       Federal Domestic                           Down from the         Disbursed to
           Title                                 Allocation
                        Assistance No.                             Department           Subrecipients
           Title I              84.389               $177                $73                  $73
          IDEA                  84.391              $188                  $62                 $62
        SFSF ESF                84.394              $1001                $100                $100
                        Total                        $465                $235                $235

                            FINDINGS AND RECOMMENDATIONS

FINDING NO. 1  Louisiana LEAs Could Not Support Some ARRA Expenditures

The four LEAs we visited used ARRA IDEA, Title I, and SFSF funds to pay teacher salaries but
did not maintain documentation to support $179,757 in payroll costs. Jefferson, East Baton
Rouge, and Calcasieu did not maintain documentation to support some of their ARRA IDEA and
Title I payroll expenditures, while RSD could not support some payroll expenditures paid with
ARRA IDEA and SFSF. RSD also used ARRA IDEA funds to pay $29,301 in unallowable
payroll expenditures to non-IDEA employees.

We selected and reviewed a total of 261 payroll expenditures, at the 4 LEAs, and found inadequate
documentation for 61 (23 percent) of the payroll expenditures tested. Specifically, the LEAs did
not have time and effort documentation, the applicable semi-annual certifications, personnel
activity reports, or attendance documentation for the employees paid with ARRA IDEA, Title I,
and SFSF. Details regarding the inadequate documentation at the four LEAs can be found in the
Appendix.

Table 2 identifies the amount of unsupported ARRA payroll expenditures for each LEA by
program:

                     Table 2: Unsupported ARRA Payroll Expenditures
                                  East Baton
             Program Jefferson               Calcasieu    RSD                            Totals
                                    Rouge
             IDEA       $20,765         $834   $13,092   $86,300                         $120,991
             Title I    $31,376       $7,979   $14,046                                    $53,401
             SFSF                                         $5,365                           $5,365
             Total      $52,141       $8,813   $27,138   $91,665                         $179,757



1
 The $100 million represents the amount of SFSF ESF funds LDE was allocated for the LEAs out of the entire
$388 million in SFSF ESF funds awarded to the Governor’s Office.
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ED-OIG/A06K0003                                                                                   Page 4 of 20
In addition, RSD used $29,301 in ARRA IDEA funds to pay unallowable payroll expenditures for
three non-IDEA employees. The three employees paid with ARRA IDEA funds either allocated
their time to Restart, Minimum Foundation Program (MFP),2 or the timekeeping form did not list a
program charged for the employees’ time. RSD was unable to provide documentation to support
that these employees could be paid with ARRA IDEA funds.

OMB Circular A-87, ―Cost Principles for State, Local, and Indian Tribal Government‖
 (OMB A-87), identifies the principles for determining allowable costs for the grants to a State.3
Attachment B (8)(h)(3) of OMB A-87 requires periodic, at least semi-annual, self-certifications of
time and effort by employees who work solely on a single Federal grant. Attachment B (8)(h)(4)
of OMB A-87 requires employees that work on multiple activities or cost objectives to support the
distribution of their salaries or wages by personnel activity reports or equivalent documentation.
Attachment A(C)(1)(j) of OMB A-87 requires that all expenditures of the Federal grant be
adequately documented. Although OMB A-87 does not specifically apply to SFSF funds, the
Department’s guidance dated December 24, 2009, entitled ―Guidance for Grantees and Auditors
State Fiscal Stabilization Fund Program,‖ states that records must be kept to support salaries in the
same manner as records that are kept for personnel performing similar duties that are paid with
State and local funds. In Louisiana, LEA staff paid with only State and local funds are required to
maintain attendance documentation.

Although Jefferson did not have a semi-annual certification process, East Baton Rouge, Calcasieu,
and RSD did have semi-annual certification processes in place, but the LEAs did not always
follow their own policies and procedures. Calcasieu and East Baton Rouge did not always follow
other aspects of their time and effort policy as well. As a result, Jefferson, East Baton Rouge,
Calcasieu, and RSD used ARRA IDEA, Title I, and SFSF funds to pay teacher salaries but did not
maintain documentation to sufficiently support $179,757 in payroll costs. In addition, RSD used
IDEA ARRA funds to pay the salary of non-IDEA employees resulting in $29,301 in unallowable
payroll expenditures.

RECOMMENDATIONS

We recommend that the Assistant Secretary for the Office of Special Education and Rehabilitative
Services (OSERS) in conjunction with the Assistant Secretary for the Office of Elementary and
Secondary Education (OESE) and the Director of the Implementation and Support Unit (ISU)
require LDE to —

1.1        Provide documentation to adequately support $179,757 in ARRA Title I, IDEA, and SFSF
           payroll expenditures or return the funds to the Department,

1.2        Return $29,301 of unallowable ARRA IDEA payroll expenditures to the Department, and

1.3        Ensure that all LEAs provide training to appropriate staff regarding Federal payroll
           requirements.


2
    MFP is the State general education aid.
3
    The cost principles in OMB A-87 are codified in Title 2 of the Code of Federal Regulations (C.F.R.), Part 225.
Final Audit Report
ED-OIG/A06K0003                                                                                 Page 5 of 20
Auditee Comments:

LDE concurred with this finding and all three recommendations. For Recommendation 1.1, LDE
plans to initiate audit resolution procedures regarding the unsupported $179,757 in ARRA Title I,
IDEA, and SFSF payroll. In addition, LDE plans to provide technical assistance and training to
the LEAs regarding procedures to properly maintain payroll certifications.

For Recommendation 1.2, LDE plans to initiate audit resolution procedures regarding the $29,301
in unallowable ARRA IDEA payroll expenditures by RSD.

For Recommendation 1.3, LDE plans to work to strengthen its technical assistance and training for
the identified LEAs. LDE plans to work with the identified LEAs to strengthen their awareness of
the Federal payroll requirements.

OIG Response:

We consider LDE’s comments to be responsive; however, because we found payroll problems at
all four of the LEAs visited, we encourage LDE to provide additional information and technical
assistance concerning Federal payroll documentation requirements to all of its LEAs.


FINDING NO. 2  LDE and Selected LEAs Did Not Ensure § 1512 Data Are Accurate,
                Reliable, and Complete

LDE and the selected LEAs had data quality errors in information reported to
FederalReporting.gov for the first four reporting periods. Specifically, Jefferson, East Baton
Rouge, and Calcasieu submitted incomplete expenditure data for their quarterly reports to LDE. In
addition, all four LEAs we visited incorrectly reported jobs saved or created to LDE.

LEAs Submitted Incomplete Data for Their Quarterly Reports

Jefferson, East Baton Rouge, and Calcasieu submitted incomplete expenditure data in their
quarterly reports. LDE reports LEAs’ actual expenditures instead of funds disbursed to LEAs.4 In
order to collect the information in a timely manner, LDE requires LEAs to submit all report data
by the last day of the reporting quarter. However, quarterly instructions include a deadline for
submission that is midway between the close of the quarter and the Federal reporting due date. To
meet this reporting requirement, the LEAs cut off their expenditure accounting data by as much as
2 weeks before the end of the reporting period. The use of cutoff5 dates resulted in expenditures
not being included in the correct reporting quarter. Expenses that occur between the cutoff date
and the end of the quarter are not included on the quarter’s report, which in effect underreports
expenditures. Because expenditures are reported on a cumulative basis, the underreported
expenditures would be reported in the subsequent quarter. However, the cumulative total is always

4
  OMB M-10-34, ―Updated Guidance on the American Recovery and Reinvestment Act‖ (September 24, 2010),
defines expenditures as the sum of cash disbursements for direct charges for property and services; the amount of
indirect expense charged; and the amount of cash advance payments and payments made to subcontractors and
subawardees.
5
  Cutoff is a term used to identify the date at which data accumulation is discontinued for reporting purposes.
Final Audit Report
ED-OIG/A06K0003                                                                              Page 6 of 20
underreported for the reporting quarter because of the early cutoff dates. The underreported
amounts occasionally included large payroll amounts, as much as $1.275 million. While these
results are only from the three LEAs that we visited, the understatement of expenditures within the
reporting quarter could be much larger because there are 135 LEAs (Parishes, Charters, and other
schools that are administered as LEAs) in Louisiana all of which are required to submit their data
on the last day of the reporting quarter.

A continuous corrections period takes place after the data are submitted to FederalReporting.gov
and before the next reporting cycle begins. During the continuous corrections period, Federal
agencies and recipients should review data and correct errors. LDE did not correct the incomplete
information during the continuous corrections period. In addition, LDE did not notify the
Department or the Federal reporting Web site officials about the incomplete reports.

Table 3 indicates the cutoff dates used at the LEAs visited, as well as the underreported
expenditure amounts for each quarter.

                              Table 3: Early Cutoff and Underreported Amounts
              9/30/2009 Qtr. Rpt.      12/31/2009 Qtr. Rpt.    3/31/2010 Qtr. Rpt.             6/30/2010 Qtr. Rpt.
              Cutoff      Under-        Cutoff      Under-     Cutoff      Under-             Cutoff       Under-
               Date      reported        Date      reported     Date      reported             Date       reported
 LEA**6                  Amount                    Amount                 Amount                          Amount
Jefferson    9/25/2009    $116,065 12/15/2009       $360,978 3/19/2010     $364,217          6/29/2010 $1,275,094
East
Baton        9/28/2009      $32,818    12/22/2009     $112,738     3/31/2010      $17,900    6/30/2010      $158,096
Rouge
Calcasieu                                                                                    6/24/2010     $403,598
  Totals                   $148,883                   $473,716                  $382,117                  $1,836,788

According to OMB M-09-21, ―Implementing Guidance for the Reports on Use of Funds Pursuant
to the ARRA‖ (June 22, 2009), prime recipients are to —

        (1) initiate appropriate data collection and reporting procedures to ensure that Section 1512
        reporting requirements are met in a timely and effective manner, (2) implement internal
        control measures as appropriate to ensure accurate and complete information, and
        (3) perform data quality reviews for material omissions and/or significant reporting errors,
        making appropriate and timely corrections to prime recipient data and work with the
        designated subrecipient to address any data quality issues.

The Department’s April 2, 2010, Clarifying Guidance on ARRA Section 1512 Quarterly Report
states —

        Recipients may make changes to their reports until the 21st day after the end of the quarter,
        so they may update their reports to reflect new data available during that period. Between
        days 22 and 29 after the end of the quarter, the recipient should contact the program officer
        at the Department if reconciliation results in a material difference from the data that were

6
 Information from RSD was incomplete because the current employee responsible for submitting the quarterly reports
is unable to access the former employee’s files to determine how the quarterly reports were compiled. According to
RSD’s Information Technology personnel, the computer files have been lost.
Final Audit Report
ED-OIG/A06K0003                                                                           Page 7 of 20
       reported for the quarter. The Department can reopen a recipient's report to allow the
       recipient to make corrections. After day 21, if the difference is not material, it is acceptable
       to wait till [sic] the next report to update the data. Because the reports are cumulative, the
       reconciliation will be reflected in the report the following quarter.

LDE officials stated that they implemented the submission dates to give LDE enough time to
review and submit the reports to the Federal Web site. By cutting off accounting data early, the
LEAs we reviewed understated expenses for the quarter ended June 30, 2010, by $1.8 million,
which in turn caused LDE to report inaccurate and incomplete data to FederalReporting.gov.

Incorrectly Reporting Jobs Saved or Created

Jefferson, East Baton Rouge, Calcasieu, and RSD incorrectly reported jobs saved and created.
LDE developed and disseminated a spreadsheet to assist the LEAs with the jobs created and/or
saved calculations. However, the spreadsheet was not protected from modification or deletion so
Jefferson, East Baton Rouge, and Calcasieu were able to overwrite the formulas with estimated
full-time equivalents (FTE) on the State provided spreadsheet. LDE’s review process did not
identify the errors we noted at the three LEAs we visited or the two LEAs we reviewed while at
LDE.

East Baton Rouge, Jefferson, and Calcasieu revised the final FTE calculation in some cases
because they were unsure how the formulas worked, and they did not want to overestimate the jobs
created or saved. For example, East Baton Rouge revised the FTE amount to .25 for the number of
ARRA Title I third quarter substitute jobs saved when the actual number should have been 14.09.
Jefferson’s third quarter ARRA IDEA jobs calculation identified 10 full-time employees; however,
Jefferson only reported 3 jobs. Although the magnitude of these errors is relatively small, we
reviewed only 4 LEAs out of the 135 total LEAs in Louisiana, so the total misstatement of jobs
created and/or saved could be much larger across the State.

We identified other errors in the jobs calculation at the LEAs. Specifically:

      East Baton Rouge computed the total hours worked for each type of position, then backed
       into the numbers on the spreadsheet so that the hours worked and funding matched.
      East Baton Rouge and Jefferson used the incorrect number of weeks in a quarter to
       determine the quarterly hours in a full-time schedule.
      RSD only funded full-time positions with ARRA funds; therefore, their jobs calculation
       was straightforward. However, RSD did not make adjustments when employees no longer
       worked for the district. Specifically, two employees that were paid with SFSF funds left
       the district before the end of the third quarter, but those employees were counted as
       full-time for the entire third quarter.

OMB M-09-21 requires prime recipients to report an estimate of jobs directly created or retained.
Additional guidance issued on December 18, 2009, affected how the figure is calculated beginning
in the second reporting quarter. This guidance, OMB’s ―Updated Guidance on the American
Recovery and Reinvestment Act – Data Quality, Non-Reporting Recipients, and Reporting of Job
Estimates‖ § 5.2.2, states, in calculating an FTE, the number of actual hours worked in funded jobs
are divided by the number of quarterly hours representing a full work schedule for the kind of job
Final Audit Report
ED-OIG/A06K0003                                                                    Page 8 of 20
being estimated. These FTEs are then adjusted to count only the portion corresponding to the
share of the job funded by ARRA funds. In order to perform the calculation, a recipient will need
the total number of hours worked by employees in the most recent quarter (the quarter being
reported) in jobs that meet the definition of a job created or a job retained. The recipient will also
need the number of hours in a full-time schedule for the quarter. In addition, OMB M-09-21 states
that the subrecipients are to implement internal control measures as appropriate to ensure accurate
and complete information.

LEA staff assigned to calculate and report jobs created and/or saved information did not
understand their responsibilities or the program guidance. LEA officials stated that they were
provided conflicting guidance and received limited training on the correct methodology for
calculating jobs created and/or saved. LDE officials thought the jobs spreadsheet and
accompanying instructions were detailed and self explanatory but provided additional guidance or
follow-up with the LEAs on an as-needed basis. LDE officials also stated that the spreadsheet was
designed based on the guidance provided by the Department; however, that guidance was changed
by the Department in the middle of the year which confused and complicated the reporting
process.

By failing to establish internal controls and to review data for accuracy and completeness, the LDE
and the selected LEAs did not ensure that data reported met the transparency requirements of
ARRA or was reported correctly to FederalReporting.gov.

RECOMMENDATIONS

We recommend that the Director of ISU in conjunction with the Assistant Secretaries for OESE
and OSERS require LDE to —

2.1    Establish and implement controls to ensure policies and procedures are followed to verify
       and report required ARRA data elements to include expenditures and jobs created/retained
       information, and

2.2    Work with LEAs to establish a consistent cut-off date for reporting data and to utilize the
       continuous corrections period to update information when necessary.

Auditee Comments:

LDE ―partially concurred‖ with this finding and will refine existing policies and procedures to
verify and report required ARRA data elements. LDE staff currently review reports using
established policies and procedures to ensure that accurate and complete information has been
reported. LDE has implemented corrective actions for issues identified in the finding.
Specifically, LDE has password protected the formulas in the jobs created and/or saved
spreadsheet; LDE will review vendor payments to ensure that vendor payment information has
been accurately completed; and LDE sent a memo requiring each LEA to establish written policies
and procedures for ARRA reporting.

LDE was unaware that certain LEAs reported incomplete expenditure data. Starting with the
March 2011 reporting cycle, LDE will clarify with all LEAs that complete data must be submitted
Final Audit Report
ED-OIG/A06K0003                                                                   Page 9 of 20
prior to Federal reporting deadlines; and if incomplete data must be submitted, the LEA shall
notify LDE and subsequently submit complete data. LDE stated that this change will likely mean
that it will be unable to complete verification of the LEA data during the initial collection period
but will have to submit updated data when the Federal reporting system re-opens.

OIG Response:

LDE’s statement of ―partially concurred‖ was not explained in the comments. We therefore
contacted a senior LDE official and were told LDE agreed with the finding but took exception to
the recommendations that it establish policies and procedures. The LDE official stated LDE
believe policies and procedures are established and only needed to be refined. Although we agree
that LDE had policies and procedures, the internal controls or lack thereof created a situation in
which those procedures were not sufficiently followed. Consequently, the procedures failed to
identify data that were not accurate and failed to identify errors in FTE calculations or that certain
LEAs reported incomplete expenditure data as acknowledged by LDE. The additional controls
and procedures LDE discusses address the issues in the finding, but because the corrective actions
have not been completed nor reviewed, we have not changed our finding. We modified Finding
No. 2 to include LDE’s instructions to the LEAs regarding timeline for submission of quarterly
data. We also reworded Recommendation 2.1 to acknowledge that policies and procedures were in
place but needed modification of controls and reworded Recommendation 2.2 to address the date
at which data accumulation is discontinued (cutoff date) for reporting data.


                                      OTHER MATTERS

Inadequate Documentation for ARRA Non-Payroll Expenses

Jefferson, East Baton Rouge, and Calcasieu did not maintain the documentation needed to support
purchases and travel expenses totaling $20,106 made with ARRA IDEA and Title I funds.
Specifically, we found instances where the LEAs did not have prior approval for purchases, or in
some cases, did not have documentation to support purchases or travel expenses. In addition, both
Jefferson and East Baton Rouge were not following their own policies and procedures by allowing
purchases to be made without prior approval.

Table 4 identifies the amount of non-payroll expenditures that were not adequately supported:

                         Table 4: ARRA Non-Payroll Expenses Unsupported
                Fund       Jefferson East Baton Rouge Calcasieu       Totals
               IDEA                             $9,610         $274    $9,884
               Title I         $1,378           $7,795       $1,049   $10,222
               Total           $1,378          $17,405       $1,323   $20,106

A basic guideline of OMB A-87 is that costs must be adequately documented to be allowable
under Federal awards.
Final Audit Report
ED-OIG/A06K0003                                                                         Page 10 of 20
Jefferson Did Not Require Schools to Document SFSF Expenditures

Jefferson disbursed $151,920 in SFSF funds directly to 87 schools without requiring the schools to
document how the funds were used. Jefferson treated the SFSF funds as MFP payments, which do
not require LEAs to document fund usage. Therefore, Jefferson was unable to provide supporting
documentation for the use of the funds.

The Department’s April 2009 Guidance on the State Fiscal Stabilization Fund Program states –

       Whether an LEA uses its Education Stabilization funds for activities authorized under the
       Impact Aid program or for activities authorized under any of the other programs in the
       Elementary and Secondary Education Act, the IDEA, the Adult Education and Family
       Literacy Act, or the Perkins Act, the LEA must (a) maintain records that separately track
       and account for its Education Stabilization funds and (b) report on the specific uses of those
       funds.

Because the SFSF funds were combined with the LEA’s State MFP payments, Jefferson was
unaware that the SFSF funds would require tracking.

Although initially unable to document how $151,920 in SFSF funds was spent, Jefferson took
corrective action and reclassified previous items classified as SFSF expenses and replaced them
with allowable transportation and electricity expenses in July 2010.
Final Audit Report
ED-OIG/A06K0003                                                                 Page 11 of 20


                              SCOPE AND METHODOLOGY

The purpose of our audit was to determine whether LDE and selected LEAs ensured (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 July 1, 2009, through June 30, 2010.

To accomplish our objectives, we performed the following procedures.

      Examined prior reviews conducted by the Office of Inspector General and reviewed the
       legislative auditors’ 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 (i.e., expenditures to employees, non-education vendors, contractor payments,
       electronic purchases, and large purchases).
      Reviewed documentation for the four selected LEAs audited to determine the allowability
       of items purchased using SFSF funds.
      Requested and obtained a list of LEAs that received ARRA funding from July 2009
       through June 2010.
      Requested and obtained the award documents for the State.
      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 over the administration of the ARRA funds and the reporting of data
       at the State and two of the LEAs, East Baton Rouge and RSD, in our audit report – ―Systems
       of Internal Control Over Selected American Recovery and Reinvestment Act of 2009 Funds in
       the State of Louisiana,‖ Control Number ED-OIG/A06K0001.
      Assessed internal controls over the administration of the ARRA funds and the reporting of
       data at the other two LEAs, Jefferson and Calcasieu, during this audit by reviewing
       answers to questions provided by the LEAs related to data quality, cash management, and
       use of funds.
      Interviewed Louisiana State officials and LEA officials.

We conducted our work at LDE and the four selected LEAs from June 2010 through
November 2010. We discussed the results of our review and recommendations with LDE on
January 4, 2011.

To test whether LDE awarded and reported ARRA funds correctly, we selected four LEAs to
review. The LEAs were judgmentally selected based on a review of past performance, ARRA
funds, and other risk based factors. We reviewed the expenditures of the grant and tested data to
ensure that the data were being reported correctly on quarterly reports.
Final Audit Report
ED-OIG/A06K0003                                                                  Page 12 of 20
To test the expenditures of grants, we selected a judgmental sample of expenditures from ARRA
Title I, IDEA, and SFSF. We selected a separate sample of both payroll and non-payroll
expenditures for ARRA Title I, IDEA and SFSF, if applicable.

Table 5 provides the universe and sample information for each of the samples reviewed during the
audit.

       Table 5: Universe and Sample Information for Use of Funds Testing at LEAs
                                Title I                      IDEA                     SFSF ESF
                 Title I                       IDEA                      SFSF ESF
                                 Non-                        Non-                       Non-
                 Payroll                      Payroll                     Payroll
                                payroll                     payroll                    payroll
Jefferson
Universe
Dollar Size    $2,445,047      $5,425,709      $832,311    $2,930,838                  $4,734,194
Dollar
Sample Size        $40,678     $4,609,388       $31,817      $393,108                  $4,734,194
Sample Size             35             41            35            25                          22
East Baton
Rouge
Universe
Dollar Size    $2,792,172      $2,584,479    $1,805,423    $2,742,602    $4,079,255 $1,070,850
Dollar
Sample Size        $46,093     $1,170,501       $11,976      $489,808       $30,675     $472,604
Sample Size             26             25             5            36            15            6
Calcasieu
Universe
Dollar Size    $1,829,070      $4,589,681      $998,190    $3,063,133    $3,098,304
Dollar
Sample Size        $86,598     $1,864,178       $62,805    $1,062,880      $110,110
Sample Size             25             20            25            30            25
RSD
Universe
Dollar Size      $162,127                    $2,315,682                  $1,333,780
Dollar
Sample Size        $69,991                     $280,715                    $372,425
Sample Size             10                           30                          30

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 LDE.
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. We also obtained listings of expenditures and data on jobs saved or created
from the LEAs. Based on our testing, we concluded that, except for the jobs data not being
available as discussed in Finding No. 2, the computer-processed data were sufficiently reliable for
the purpose of our audit.
Final Audit Report
ED-OIG/A06K0003                                                                Page 13 of 20
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.
Final Audit Report
ED-OIG/A06K0003                                                                   Page 14 of 20

APPENDIX
LEA Details for Unsupported ARRA Payroll Expenditures

Jefferson did not have semi-annual certifications for 15 of the 35 ARRA Title I employees
sampled resulting in $31,376 of the $40,678 ARRA Title I expenditures being unsupported.
Jefferson also did not have semi-annual certifications for 13 of the 35 ARRA IDEA employees
sampled resulting in $20,765 of the $31,817 ARRA IDEA expenditures being unsupported. This
occurred because Jefferson did not have a process to obtain required semi-annual certifications or
personnel activity reports. Instead of semi-annual certifications, Jefferson provided a spreadsheet
that contained the employees’ electronic signature certifying each paycheck. However, the
electronic signature document did not show the time an employee spent working on specific
programs. Jefferson officials thought the electronic payroll certification process they used was
sufficient to address the OMB A-87 time certification requirements. However, we determined that
the documents provided did not comply with the requirements of OMB A-87 for the support of
salaries and wages because the employees were not certifying their time worked on a specific
program.

East Baton Rouge did not have attendance documentation to support the amount paid for 5 of the
26 ARRA Title I employees sampled resulting in $7,979 of the $46,093 ARRA Title I
expenditures being unsupported. In addition, one employee paid with ARRA IDEA funds, out of
the five sampled, did not have the semi-annual certification for the period tested resulting in $834
of the $11,976 in ARRA IDEA payroll expenditures being unsupported. East Baton Rouge
officials stated that the individuals we identified failed to comply with the LEAs policy and the
infraction was not identified through the LEA’s normal payroll review process.

Calcasieu was unable to locate time and effort documents for 4 of the 25 ARRA Title I employees
sampled, resulting in $14,046 in unsupported expenditures out of $86,598 sampled. According to
Calcasieu officials, a high school within the district was experiencing personnel changes in their
administrative office, during our audit period, and could not locate the time and effort information
for some of the employees sampled. Calcasieu also was unable to provide timesheets (evidence
that employees actually worked the pay period selected) for 3 of 25 ARRA IDEA employees
sampled, resulting in $6,747 in unsupported expenditures out of $62,805 sampled. In addition,
Calcasieu could not locate semi-annual certifications for 2 of the 25 ARRA IDEA funded
employees sampled, resulting in $6,345 in unsupported expenditures out of the same $62,805
sampled.

At RSD, 4 of the 30 SFSF employees sampled did not have adequate documentation to support
their full paycheck, resulting in $5,3657 in unsupported expenditures. For example, one employee
only worked 1 day in the pay period but received $3,346 more than what that employee earned.
RSD did not provide adequate documentation to support the additional pay. The remaining three
employees received a total of $2,019 in similar payroll overpayments of SFSF.

In addition, RSD did not have semi-annual certifications for 14 of the 30 ARRA IDEA employees
sampled, resulting in $86,300 of the $280,715 ARRA IDEA expenditures being unsupported.

7
    The $5,365 is out of $372,425 in SFSF sample payroll expenditures.
Final Audit Report
ED-OIG/A06K0003                                                                               Page 15 of 20
RSD’s semi-annual certifications are incorporated into the employees’ biweekly timesheets;
however, we determined that RSD employees were not completing the forms as required and,
therefore, the biweekly timesheets did not meet the OMB A-87 requirements. According to RSD
personnel officials, RSD did not receive training from LDE nor did RSD train its staff on how to
complete their Sign-In Sheet Time Distribution forms. RSD officials stated that they did not
realize that RSD was responsible for providing the Sign-In Sheet training because the Department8
letter, which approved the plan to implement a new time distribution system, was addressed to
LDE. Nevertheless, RSD was able to provide acceptable semi-annual certifications for 16 of the
30 employees sampled. Some schools were obtaining semi-annual certifications that met
OMB A-87 requirements, even though it was not required by RSD’s official policy.




8
 In December 2004, the Department approved LDE’s plan to implement a new time distribution system, which
couples a time and attendance section with a time distribution section. This new timesheet would be the employee’s
payroll certification and would fully address OMB A-87 requirements.
Final Audit Report
ED-OIG/A06K0003                                                   Page 16 of 20




                                    Enclosure:
                     Louisiana’s Comments on Draft Audit Report
Final Audit Report
ED-OIG/A06K0003                                                                             Page 17 of 20

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


March 4, 2011

Keith M. Maddox
U.S. Department of Education
Office of Inspector General
1999 Bryan Street, Suite 1440
Dallas, TX 75201

RE: ED-OIG/A06K0003 – Louisiana: Use of Funds and Data Quality for Selected American Recovery and
Reinvestment Act Programs

Dear Mr. Maddox:

I am in receipt of your correspondence dated February 18, 2011, regarding the above referenced audit report.
Enclosed is a response to each of the findings and recommendations identified within the audit listed above.
Each response includes a concurrence with the finding and recommendation, a description of the corrective
action already taken or planned, and a targeted completion date for the corrective action plan, if applicable.

The Louisiana Department of Education (LDE) remains committed to full compliance with all federal
requirements and works diligently on a daily basis to correct all noted deficiencies.

The contact person for this matter is Charlotte Stevens, Director, Division of Education Finance, at (225) 342-
4989 or via email at charlotte.stevens@la.gov.

Sincerely,

/s/
Paul G. Pastorek
State Superintendent of Education

PP:mh
Enclosure

C:      Ollie S. Tyler, State Deputy Superintendent of Education
        Patrick Weaver, Deputy Undersecretary
        Elizabeth Scioneaux, Deputy Superintendent for Management and Finance
        Charlotte Stevens, Director of Education Finance
        Bernell Cook, Director of NCLB & IDEA Support
Final Audit Report
ED-OIG/A06K0003                                                                        Page 18 of 20
                                                                        Louisiana Department of Education
                                                                            Response to ED-OIG A06K0003
                                                                                           March 4, 2011
                                                                                              Page 1 of 3


              Preliminary Response to Audit Report ED-OIG/A06K0003

         Finding No. 1 – Louisiana LEAs Could Not Support Some ARRA Expenditures

Recommendation 1.1– Provide documentation to adequately support $179,757 in ARRA Title I, IDEA,
and SFSF payroll expenditures or return the funds to the Department.

       Response:
       The Louisiana Department of Education (LDE) concurs with this finding and will initiate audit
       resolution procedures regarding this matter. Additional documentation will be requested from
       each of the identified LEAs to support the $179,757 in ARRA Title I, IDEA, and SFSF payroll
       expenditures. In addition, technical assistance and training will be provided to the identified
       LEAs regarding procedures necessary to properly maintain payroll certifications. It is expected
       that these matters will be resolved in approximately 90 days from the date of this response.
       Any remaining unsupported expenditures will be addressed with the identified LEAs.

Recommendation 1.2– Return $29,301 of unallowable ARRA IDEA payroll expenditures to the
Department.

       Response:
       The Louisiana Department of Education (LDE) concurs with this finding and will initiate audit
       resolution procedures in this matter with the Recovery School District. It is expected that this
       matter will be resolved in approximately 90 days from the date of this response.

Recommendation 1.3– Ensure that all LEAs provide training to appropriate staff regarding Federal
payroll requirements.

       Response:
       The Louisiana Department of Education (LDE) concurs with this finding and will work to
       strengthen its technical assistance and training to the identified LEAs. Existing practices include
       annual issuance of guidance regarding OMB A-87 requirements and evaluations of LEA internal
       control best practices. As part of the LEA evaluation and monitoring process, the LDE reviews
       the Fiscal Monitoring Internal Control Checklist. The Checklist includes, as part of the review of
       internal controls, whether the LEAs have a protocol for disseminating federal requirements to
       the appropriate staff. To enhance this process the LDE will work individually with the identified
       LEAs to strengthen their awareness of these federal payroll requirements. It is expected that
       this matter will be resolved in approximately 90 days from the date of this response. (SEE
       ATTACHMENT 1 & ATTACHMENT 2)

Finding No. 2 – LDE and Selected LEAs Did Not Ensure §1512 Data Are Accurate, Reliable, and
                                         Complete
Final Audit Report
ED-OIG/A06K0003                                                                        Page 19 of 20

Louisiana Department of Education
                                                                             Response to ED-OIG A06K0003
                                                                                            March 4, 2011
                                                                                               Page 2 of 3

Recommendation 2.1 and 2.2– Establish policies and procedures to verify and report required ARRA
data elements to include expenditures, jobs created/retained, and vendor information; Establish policies
and procedures to verify and report required ARRA data elements for LEAs.

        Response:
        The Louisiana Department of Education (LDE) partially concurs with this finding and will refine
        existing policies and procedures to verify and report required ARRA data elements. LDE staff
        currently reviews the Periodic Expense Reports (PERs) using established policies and procedures
        to implement internal control measures to ensure accurate and complete information has been
        reported. The FTE Calculation spreadsheet is a mandatory document for local education
        agencies (LEAs) to use, and since the audit, the Department has password-protected the
        spreadsheet. Now the LEAs will be unable to over-write the spreadsheet formulas. The LEAs are
        already required to provide detailed documentation to support the calculations on the FTE
        Calculation spreadsheet. Examples of documentation include payroll ledgers and e-GMS budget
        detail pages. Additional documentation to support the number of jobs created and retained
        under ARRA will be requested in the future, as deemed necessary by the PER reviewer.
        Additionally, an ARRA PER Checklist has been developed to assist the reviewers in this process.
        (SEE ATTACHMENT 3 & ATTACHMENT 4)

        Going forward, LDE staff will review vendor payments. The reviewers will ensure that vendor
        payment information has been accurately completed. The information will be checked for
        consistency with the requests made in the LEAs’ e-Grant consolidated applications. The
        reviewers will verify that product or service descriptions are aligned with the budget description
        in the e-GMS consolidated application. In addition, the LEAs will be required to provide a
        detailed description of the items purchased from various vendors. This will begin with the next
        quarterly submission for the quarter ending March 2011.

        The LDE was unaware that certain LEAs reported incomplete expenditure data. The LDE current
        policy is to request the PER report on the last day of the reporting quarter. However, quarterly
        instructions include a deadline for submission that is midway between the close of the quarter
        and the federal reporting due date. For example, in December 2010, the PER was requested by
        12/31/10. As is evidenced by the December 10, 2010 quarterly transmittal memo, the LDE
        indicated that LEAs were allowed to transmit data until January 6, 2011. In fact, the LDE allows
        for submissions and corrections as long as the federal reporting site is open. The report dates
        were established in an effort to review the data for accuracy, and to allow time to contact LEAs
        that were not timely in their submission; thereby, assuring that all LEAs report by the due dates
        established per the federal reporting requirements. (SEE ATTACHMENT 5)

        In the future, the LDE will continue to make available to the LEAs the LDE reporting system on
        the last day of the quarter to allow LEAs to submit as soon as the quarterly data is complete.
        Additionally, the LDE will clarify with all LEAs that complete data must be submitted prior to the
        federal reporting deadline; and in the event that incomplete data must be submitted, the LEA
        shall notify the LDE and subsequently submit complete data. In turn, the LDE will update the
Final Audit Report
ED-OIG/A06K0003                                                                        Page 20 of 20
        quarterly data on the federal reporting site. This change will likely mean that the LDE will be
        unable to complete the verification of the LEA data during the initial collection period, but will
Louisiana Department of Education
                                                                             Response to ED-OIG A06K0003
                                                                                            March 4, 2011
                                                                                               Page 3 of 3

        have to submit updated data once the federal reporting system re-opens. These changes will
        begin with the March 2011 reporting cycle. Additionally, the LDE transmitted a memo on
        November 3, 2010 requiring that each LEA establish written policies and procedures for ARRA
        reporting. (SEE ATTACHMENT 6)

                                                Other Matters

       Inadequate Documentation for ARRA Non-Payroll Expenses
               The Louisiana Department of Education will work with these identified LEAs to ensure
               there is knowledge and proper implementation regarding supporting documentation for
               non-payroll expenses.

       ARRA Programs Should Be Covered by Louisiana’s Treasury-State Cash Management
        Agreement
              The State of Louisiana has a policy and procedure in place to ensure that the Treasury-
              State Agreement (TSA) includes all applicable Federal programs. Financial Management
              Service (FMS) is notified, through the State’s submission of the TSA, on a yearly basis of
              any additions, deletions or changes to programs to be included for coverage in the TSA,
              which has an effective date of July 1st through June 30th of each year. This process is
              repeated annually by the Louisiana Office of Statewide Reporting and Accounting Policy
              (OSRAP). State agencies are notified by OSRAP when they have new programs to be
              included, when existing CMIA programs are being excluded for not meeting the State’s
              CMIA threshold, and/or if clearance patterns need to be updated. (SEE ATTACHMENT 7)

                According to 31CFR Subtitle B, Chapter II, Part 205, Subpart A §205.5(e), major Federal
                assistance programs to be included in the TSA, must be determined from the most
                recent Single Audit data available. Therefore, the programs to be included in the TSA
                are based on which programs meet the State’s CMIA threshold as identified in the
                State’s most recent Single Audit. The FYE 2008 Single Audit was the most recent Single
                Audit available for the FYE 2010 TSA, which was in effect at the time of this audit. ARRA
                Programs were first awarded to the State within FYE 2009, so this requirement was not
                applicable as of the date of this audit. (SEE ATTACHMENT 8)
                         Anyone knowing of fraud, waste, or abuse involving
                          U.S. Department of Education funds or programs
                      should call, write, or e-mail the Office of Inspector General.

                                                    Call toll-free:
                                             The Inspector General Hotline
                                          1-800-MISUSED (1-800-647-8733)

                                                         Or write:
                                                 Inspector General Hotline
                                               U.S. Department of Education
                                                Office of Inspector General
                                                     550 12th St. S.W.
                                                  Washington, DC 20024

                                                          Or e-mail:
                                                      oig.hotline@ed.gov

                        Your report may be made anonymously or in confidence.

                  For information on identity theft prevention for students and schools,
                    visit the Office of Inspector General Identity Theft Web site at:
                                          www.ed.gov/misused




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 The Department of Education's mission is to promote student achievement and preparation for global competitiveness by fostering educational
                                                   excellence and ensuring equal access.