oversight

St. Louis Public School District's Use of Selected U.S. Department of Education Grant Funds

Published by the Department of Education, Office of Inspector General on 2008-09-30.

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

                                   UNITED STATES DEPARTMENT OF EDUCATION
                                                        OFFICE OF INSPECTOR GENERAL

                                                                                                              AUDIT SERVICES
                                                                                          Chicago/Kansas City/Dallas Audit Region


                                                                     September 29, 2008

                                                                                                    Control Number
                                                                                                    ED-OIG/A07H0017
Dr. D. Kent King
Commissioner of Education
State of Missouri
P.O. Box 480
Jefferson City, MO 65102

Dear Dr. King:

This Final Audit Report, entitled St. Louis Public School District’s Use of Selected U.S.
Department of Education Grant Funds, presents the results of our audit. The objective of the
audit was to determine whether St. Louis Public School District (District) used Title I, Part A -
Improving Basic Programs Operated by Local Educational Agencies (Title I, Part A); Title I,
Part B - Student Reading Skills Improvement Grants - Reading First (Reading First); Title II,
Part A - Improving Teacher Quality (Title II, Part A); and Individuals with Disabilities
Education Act, Part B (IDEA, Part B), program funds only for costs that were allowable and in
accordance with applicable laws, regulations, and grant provisions. Our audit covered the period
July 1, 2005, through June 30, 2006.




                                                      BACKGROUND 



The District includes the entire corporate city limits of St. Louis, Missouri, and operates as the
largest public school system in Missouri. The District has a total of 5,122 full-time and part-time
employees and operates 91 schools with an average daily attendance of 34,600 students.
According to the Missouri State Department of Elementary and Secondary Education, the
District was governed by a 7 member Board of Education prior to June 15, 2007. Effective June
15, 2007, the Missouri State Board of Education (MSBE) voted to revoke the District’s
accreditation and removed the 7 member Board of Education. The Board of Education filed a
petition in Cole County Circuit Court (Court) to stop the MSBE intervention. The Court denied
the Board of Education’s petition, allowing MSBE to replace the 7 member Board of Education
with an appointed committee.

According to the A-133 compliance audit report, Comprehensive Annual Financial Report
(CAFR), the District expended $47,745,265 of U.S. Department of Education funds for the four

 The Department of Education's mission is to promote student achievement and preparation for global competitiveness by fostering educational
                                                   excellence and ensuring equal access.
Final Report
ED-OIG/A07H0017                                                                       Page 2 of 12

programs reviewed during the year ended June 30, 2006. The District’s expenditures for the
programs were

Program                                                     Funds
Title I, Part A                                             $26,507,282
Reading First                                               $ 3,880,386
Title II, Part A                                            $ 4,393,834
IDEA, Part B                                                $12,963,763
                                             Total          $47,745,265

The Title I, Part A, program provides financial assistance to local educational agencies (LEA)
and schools with high numbers or high percentages of poor children to help ensure that all
children meet challenging state academic standards. The Reading First program provides
assistance to establish reading programs for children in kindergarten through grade three that
ensures that every child can read at grade level or above no later than the end of grade three. The
Title II, Part A, program provides assistance to improve the quality and quantity of teachers and
principals in schools. The IDEA, Part B, program provides assistance for special education and
related services to children with disabilities.




                                     AUDIT RESULTS 



During the period July 1, 2005, through June 30, 2006, the District generally used the Reading
First funds we tested as part of our audit only for costs that were allowable and in compliance
with the law, regulations, and grant provisions. However, the District did not always use Title I,
Part A; Title II, Part A; and IDEA, Part B, funds only for costs that were allowable and in
compliance with the laws, regulations, and grant provisions. Contrary to the No Child Left
Behind Act of 2001, OMB Circular A-87, and selected regulations governing the allowability of
costs, the District (1) did not maintain effective control and accountability for all personal
property purchased with grant funds, resulting in a loss of over $178,000; (2) charged
unallowable costs of $37,035 to the Title I, Part A, and IDEA, Part B, programs; and (3) charged
inadequately documented costs of $549,342 to the Title I, Part A; Title II, Part A; and IDEA,
Part B, programs.

In its comments to the draft report, the Missouri Department of Elementary and Secondary
Education (DESE) concurred with the findings and generally concurred with the
recommendations. DESE’s comments are summarized at the end of each finding and the full
text of the comments are included as an Attachment to this report.

FINDING NO. 1 – Ineffective System of Control and Accountability Resulted in the
                 Loss of Laptop Computers Purchased with Federal Funds

The District did not maintain effective control and accountability for personal property
purchased with federal grant funds. In July 2005, the District purchased 700 laptop computers
with IDEA, Part B, program funds. Upon delivery, the District stored the laptop computers in an
Final Report
ED-OIG/A07H0017                                                                               Page 3 of 12

unlocked room on the third floor of the District’s administration building. In addition, the
District used about 300 laptop computers for a training session without ensuring adequate
safeguards were in place. Further, teachers left the District and not all of them returned their
laptop computers. The District conducted an audit and concluded that some laptop computers
were either stolen or no record was maintained to document the location. As of the end of our
field work, the District still could not account for 125 of the 700 laptop computers.

Pursuant to 34 C.F.R. § 80.20(a),1 “A State must expend and account for grant funds in
accordance with State laws and procedures for expending and accounting for its own funds.” In
addition, pursuant to 34 C.F.R. § 80.32(b), “A State will use, manage, and dispose of equipment
acquired under a grant by the State in accordance with State laws and procedures.”

According to the Missouri Financial Accounting Manual, issued by DESE, under Accounting
Principles and Policies for Equipment Capital Outlay,

           M. 	     Equipment costing $1,000 or more per unit and having a useful life
                    expectancy of more than one year is considered to be capital outlay and
                    costs will be entered and controlled in the General Fixed Assets Account
                    Group. The district may establish a local policy to use a unit cost of less
                    than $1,000 to determine capital outlay expenditures.

In addition, under Capital Outlay and Accounting for Property,

           I. 	     The LEA Board of Education and administration should develop policies
                    and procedures outlining the various responsibilities for the care and
                    custody of the fixed assets and for the taking of the physical inventory.

           J. 	     In the final analysis, the financial records should be capable of producing
                    two separate listings:

                              (1)	     A detailed list of property owned by the district.
                              (2)	     School district personnel should perform an annual
                                       physical inventory by making a list of property verified by
                                       visual inspection.

           These two lists should then be compared and reconciled by the LEA staff. If
           losses are discovered, administrative action may be taken and the accounting
           records posted to reduce the Accession Ledger and the General Ledger.

Without effective policies and procedures over the care and custody of fixed assets, equipment
purchased with federal funds is not safeguarded against loss, damage, or theft. The District
could not account for laptop computers purchased with IDEA, Part B, program funds. As of
January 10, 2008, the District indicated the current status of the 700 laptop computers was 556
located, 19 stolen, and 125 missing. The total purchase price for the 125 laptop computers was
$178,625.2 When such losses occur, there is harm to the federal interest: (1) the property is not
available for essential program activities, (2) the District and the Department do not have
1
    Unless otherwise noted, references are to the July 1, 2005, edition of the C.F.R.
2
    Purchase price for each laptop computer was $1,429.
Final Report
ED-OIG/A07H0017                                                                         Page 4 of 12

assurances that the property was necessary to operate the program, and (3) information on the
laptop computers could be sensitive and contain personally identifiable information.

Recommendations

We recommend that the Assistant Secretary for Special Education and Rehabilitative Services
require the Missouri State Board of Education to direct the District to—

1.1	 Provide evidence that it has located or recovered the 125 laptop computers or return
     $178,625 to the Department; and

1.2	 Develop and implement an inventory control system that provides reasonable assurance
     that loss, damage, or theft of the equipment will be prevented. The system should cover (a)
     maintenance of complete and accurate inventory records, (b) the conduct of an annual
     physical inventory, (c) adequate safeguards to prevent the disclosure of sensitive and
     personally identifiable information, and (d) the investigation of any equipment that is lost,
     stolen, or damaged.

DESE’s Comments

DESE concurred with the finding but noted the number of missing/unaccounted for laptop
computers changed. DESE explained the draft report indicated 125 laptop computers, but an
exception report given to the District during the audit indicated 102 laptop computers, for a
discrepancy of 23 laptop computers or $32,867.

Regarding recommendation 1.1, DESE asked that the District be allowed to replace/purchase 102
laptop computers of equal quality and functionality from local/state funds by January 1, 2009,
instead of returning the funds to the Department. According to DESE, this would allow the
planned online IEP [individualized education program] and Medicaid Recovery Management
System to come online as planned. To require the District to return funds from local/state
sources and purchase more laptop computers, either from state or federal sources, would result in
a double penalty which would be detrimental to the educational programs for children with
disabilities.

OIG Response

Based on the most recent status report provided by the District, 125 laptop computers still were
missing. DESE is correct in stating that the initial exception report given to the District indicated
102 laptop computers were missing. However, District personnel provided the OIG with an
updated status report on the laptop computers at the end of our fieldwork, dated January 10,
2008. We used the updated status report data in the draft audit report. We made no changes to
the report regarding the number of missing laptop computers.

In regards to replacing/purchasing laptop computers instead of returning the funds, the
Department can take that into consideration during audit resolution. We did not change our
recommendation.
Final Report
ED-OIG/A07H0017                                                                                Page 5 of 12

FINDING NO. 2 – Unallowable and Inadequately Documented Costs Charged to
                the Title I, Part A; Title II, Part A; and IDEA, Part B, Programs

During the period July 1, 2005, through June 30, 2006, the District charged unallowable and
inadequately documented costs to federal education programs.

Unallowable Costs
The District used Title I, Part A, program funds at ineligible schools and used IDEA, Part B,
program funds for an unnecessary laptop computer purchase.

Title I, Part A, Program Funds Used at Ineligible Schools
The District used Title I, Part A, program funds for costs incurred by two schools that were not
eligible Title I, Part A, schools. The District did not designate these two schools as Title I
eligible, because they did not meet the poverty threshold requirement. These two schools used
approximately $34,6273 in Title I, Part A, funds to cover personnel costs during the 2005-2006
school year.

According to the No Child Left Behind Act of 2001, section 1113(a), “A local educational agency
shall use funds received under this part only in eligible school attendance areas.”

IDEA, Part B, Program Funds Used for Unnecessary Laptop Computer Purchase
The District used federal funds to purchase a laptop computer that was not necessary for the
operation of its IDEA, Part B, program. In January 2006, a Special Education Senior Business
Analyst purchased a laptop computer for approximately $2,408 with personal funds. The
District later reimbursed the Senior Business Analyst for the purchase of the laptop computer.
The District could not provide an adequate explanation for the purchase of this laptop computer
when six months prior it had purchased 700 laptop computers for use in the IDEA, Part B,
program.

Pursuant to OMB Circular A-874, Attachment A (C)(1), “To be allowable under Federal awards,
costs must (a) Be necessary and reasonable for proper and efficient performance and
administration of Federal awards . . . and (j) Be adequately documented.”

Inadequately Documented Costs
The District did not provide adequate documentation to support two months of transportation
costs. The District charged the Title I, Part A, program $57,627 for the transportation of students
participating in supplemental education services during the months of March and April of 2006.5
Of the multitude of transportation billings for each month, the District could not provide us with
documentation that identified the billings that made up the costs charged to the Title I, Part A,
program.

In addition, the District did not maintain time and effort certifications for employees whose
salaries and benefits were charged to the Title I, Part A; Title II, Part A; and IDEA, Part B,
programs. (The District provided time and effort certifications for employees whose salaries and
3
  The two ineligible schools, Kennard CJA #503 and McKinley CJA #313, received $17,528 and $17,099 

respectively.

4
  OMB Circular A-87, Revised 5/10/04 

5
  The District charged transportation costs of $27,662 for March and $29,965 for April. 

Final Report
ED-OIG/A07H0017                                                                                        Page 6 of 12

benefits were charged to the Reading First program.) We reviewed the records for 28 employees
whose salaries and fringe benefits were charged to the Title I, Part A; Reading First; Title II, Part
A; and IDEA, Part B, programs. For the period July 1, 2005, through June 30, 2006, all 28
employees were required to submit semi-annual certifications. However, the District could not
provide certifications for 9 of the 28 employees. These 9 employees received $491,714 in
salaries and benefits during the period July 1, 2005, through June 30, 2006.6

                                                                                                 Salaries and
                                                                                               Benefits Received
                                                                                                for Employees
                                 No. of Employees                   No. Without                    Without
        Program                      Reviewed                       Certifications              Certifications
Title I, Part A7                          5                                4                            $203,862
Title II, Part A                          6                                4                            $230,843
Reading First                             6                               0                                   $0
IDEA, Part B                             11                                1                             $57,009
Total                                    28                               9                             $491,714

Pursuant to 34 C.F.R § 80.20(a)(2), fiscal control and accounting procedures of the state
and its sub-grantees must be sufficient to “Permit the tracing of funds to a level of
expenditures adequate to establish that such funds have not been used in violation of the
restrictions and prohibitions of applicable statutes.”

In addition, OMB Circular A-87, Attachment B, section (8)(h), Support of salaries and wages,
states:

         (3) 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 semi
         annually and will be signed by the employee or supervisory official having first
         hand knowledge of the work performed by the employee.

When a grantee uses federal funds for unallowable costs, those funds are not available to pay for
items and services that will advance the program. In addition, when a grantee fails to maintain
adequate supporting documentation, we cannot determine if program funds were used only for
allowable purposes.




6
  We did not perform enough work to project our results to the entire population.
7
  In February 2008, the Department issued revised non-regulatory guidance for Title I, Fiscal Issues that includes
Consolidating Funds in Schoolwide Programs. The revised guidance states that “if a school operating a schoolwide
program consolidates Federal, State, and local funds under section 1114(a)(3) in a consolidated schoolwide pool . . .
. an employee who is paid with funds from that pool is not required to file a semi-annual certification. Because
Federal funds are consolidated with State and local funds in a single consolidated schoolwide pool, there is no
distinction between staff paid with Federal funds and staff paid with State or local funds.” The District consolidates
only Title I, Part A funds in its schoolwide program. However, the Department’s guidance became effective after
our audit period.
Final Report
ED-OIG/A07H0017                                                                        Page 7 of 12

Recommendations

We recommend that the Assistant Secretary for Elementary and Secondary Education and the
Assistant Secretary for Special Education and Rehabilitative Services, as appropriate, require the
Missouri State Board of Education to direct the District to—

2.1 	 Provide adequate documentation to support the eligibility of the two ineligible schools that
      received Title I, Part A, program funds or return to the Department that portion of the
      $34,627 in Title I, Part A funds that was provided to the ineligible school or schools;

2.2 	 Provide adequate documentation to support that $57,627 in transportation costs charged to
      the Title I, Part A, program was allowable under OMB Circular A-87 or return the amount
      that was not allowable to the Department;

2.3	 Return to the Department $2,408, the purchase price of the unnecessary laptop computer
     purchased with IDEA, Part B, funds;

2.4	 Provide time and effort certifications or other similar evidence covering the period July 1,
     2005, through June 30, 2006, to support the personnel costs for the 9 employees paid with
     Title I, Part A; Title II, Part A; and IDEA, Part B, funds or return to the Department that
     portion of the $491,714 paid to those employees that cannot be supported with proper
     evidence; and

2.5	 Develop a process to obtain and maintain time and effort certifications to support salaries
     and wages paid from federal awards.

Auditee Comments

DESE concurred with the finding and the recommendations as a whole. However, in response to
recommendation 2.4, DESE stated it would allow the District to retroactively provide time and
effort certifications that cover the period from July 1, 2005, through June 30, 2006, if those staff
members can be contacted. According to the comments, the targeted completion date for this
action is October 20, 2008.

OIG Response

We agree with the corrective action being undertaken by the District as sufficient to address
recommendation 2.4, as long as time and effort certifications or some other similar evidence are
obtained from those employees. Because the corrective action has not been completed, we did
not modify our recommendation.
Final Report
ED-OIG/A07H0017                                                                        Page 8 of 12


                  OBJECTIVE, SCOPE, AND METHODOLOGY 



The objective of our audit was to determine whether the District used Title I, Part A, Reading
First, Title II, Part A, and IDEA, Part B, program funds only for costs that were allowable and in
accordance with applicable laws, regulations, and grant provisions. Our audit covered the period
July 1, 2005, through June 30, 2006.

To achieve our objective, we performed the following procedures.

1.	 Reviewed the Comprehensive Annual Financial Report, prepared by RubinBrown LLP,
    independent public accountants, for the years ended June 30, 2005, and 2006.
2.	 Reviewed the allocation reports, payment histories, and final expenditure reports for the
    District’s Title I, Part A; Reading First; Title II, Part A; and IDEA, Part B, programs for the
    period July 1, 2005, through June 30, 2006.
3.	 Reviewed the District’s organizational charts, DESE’s Federal Programs Unit report and
    website, and conducted interviews to gain an understanding of the District’s programs and
    organization.
4.	 Gained a limited understanding of the District’s internal control structure, policies,
    procedures, and practices applicable to the administration of the four programs by
    interviewing District officials, observing operations, and reviewing written policies and
    procedures. (We did not assess the adequacy of the control procedures.)
5.	 Reviewed selected provisions of the No Child Left Behind Act, IDEA, Department
    regulations, and OMB Circulars applicable to the audit objective.
6.	 Obtained and reviewed accounting records that identified federal funds expended for the
    Title I, Part A; Reading First; Title II, Part A; and IDEA, Part B, programs during the period
    July 1, 2005, through June 30, 2006.
7.	 Selected a judgmental sample of non-personnel transactions charged to the Title I, Part A;
    Reading First; Title II, Part A; and IDEA, Part B, programs for the period July 1, 2005,
    through June 30, 2006. The transactions were selected based on dollar amount and type of
    transaction, and to provide coverage of all four programs. We selected 252 transactions
    totaling $4,328,621 from a universe of 25,092 transactions totaling $16,916,582 for the Title
    I, Part A; Reading First; Title II, Part A; and IDEA, Part B, programs.
8.	 Traced the selected non-personnel transactions to purchase orders, invoices, and cancelled
    checks to determine whether they were allowable.
9.	 Selected a random sample of personnel transactions charged to the Title I, Part A; Reading
    First; Title II, Part A; and IDEA, Part B, programs for the period July 1, 2005, through June
    30, 2006. We selected 120 transactions totaling $170,669 from a universe of 13,415
    transactions totaling $20,339,173 for the Title I, Part A; Reading First; Title II, Part A; and
    IDEA, Part B, programs.
10. Reviewed 28 employees’ records for time and effort certifications. W   	 e identified these
    employees from the transactions discussed in #9 above. We reviewed time and effort
    certifications for (a) 5 employees in the Title I, Part A, program, (b) 6 employees in the
    Reading First program, (c) 6 employees in the Title II, Part A, program, and (d) 11
    employees in the IDEA, Part B, program.
Final Report
ED-OIG/A07H0017                                                                        Page 9 of 12

11. We traced the selected personnel transactions to payroll records and certifications, when
    available, to determine whether the transactions were allowable, adequately documented, and
    properly allocated to each of the four federal programs. We reviewed fringe benefits for each
    employee selected in our sample.
12. Selected a judgmental sample of 66 of the 556 laptop computers the District could locate (of
    the 700 laptop computers purchased with IDEA, Part B, program funds). We verified the
    District located the 66 laptop computers selected. We judgmentally selected the laptop
    computers based on locations that had the most computers.
13. Selected a judgmental sample of 41 of 138 computers (laptops and desktops) selected as part
    of our judgmental sample of Reading First non-personnel transactions. We verified the
    District could locate all 41 computers selected. We judgmentally selected the computers
    based on the locations that had the most computers.
14. Selected a judgmental sample of five employees from each of the four programs. 	We
    conducted interviews with each employee to verify the employees’ existence, job functions,
    and the program on which they worked.

We also relied, in part, on personnel and non-personnel transaction data provided to us by the
District from its Systems, Applications, and Products (SAP) system. We performed an initial
assessment of the reliability of the personnel and non-personnel data. We reviewed the data for
completeness to determine if the District could account for all funds received. We also reviewed
the records for relevance to ensure they included only transactions from our audit period. We
further reviewed transactions for accuracy by tracing them to supporting records such as invoices
and receipts. We assessed whether the data were reliable by comparing the data with purchase
orders, invoices, cancelled checks, and other information on paper documents maintained by the
District. Based on these comparisons, we concluded that the data the District provided for
personnel and non-personnel transactions were sufficiently reliable for the purposes of our audit.

We conducted our audit from July 2007 through January 2008 at the District’s offices in St.
Louis, Missouri, and at our offices. We discussed the results of our audit with District officials
on March 24, 2008.

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 objectives.




                            ADMINISTRATIVE MATTERS



Statements that managerial practices need improvement, as well as other conclusions and
recommendations in this report, represent the opinions of the Office of Inspector General.
Determinations of corrective actions to be taken, including the recovery of funds, will be made
by the appropriate Department of Education officials in accordance with the General Education
Provisions Act.
Final Report
ED-OIG/A07H0017                                                                      Page 10 of 12


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

                              Kerri L. Briggs
                              Assistant Secretary
                              Office of Elementary and Secondary Education
                              U.S. Department of Education
                              400 Maryland Avenue, SW
                              Washington, D.C. 20202

                              Tracy R. Justesen
                              Assistant Secretary
                              Office of Special Education and Rehabilitative Services
                              U.S. Department of Education
                              400 Maryland Avenue, SW
                              Washington, D.C. 20202

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

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



                                             Sincerely,

                                             /s/

                                             Gary D. Whitman
                                             Regional Inspector General
                                             for Audit

Attachment
Final Report
ED-OIG/A07H0017                                       Page 11 of 12




                        ATTACHMENT

              Missouri Department of Elementary and Secondary
                        Education’s Comments
Final Report
ED-OIG/A07H0017                                                                              Page 12 of 12




                                               July 23, 2008


Mr. Gary D. Whitman
Regional Inspector General for Audit
500 West Madison Street, Suite 1414
Chicago, IL 60661

RE: ED-OIG/A07H0017

Dear Mr. Whitman:

The Missouri Department of Elementary and Secondary Education (DESE) has reviewed the findings and
recommendations in Report ED-OIG/A07H0017 regarding the St. Louis Public School District (District).
The DESE has and will continue to work with the District to develop a corrective action plan.

Ineffective System of Control and Accountability Resulted in the Loss of Computers Purchased
with Federal Funds. Both the DESE and the District concur with finding Number 1 related to
missing/unaccounted for laptop computers. However, the draft audit report received by the DESE
indicates 125 laptop computers are unaccounted for. The exception standard report given to the District
indicates 102 laptop computers are missing (a discrepancy of twenty-three computers or $32,867).

In response to recommendation 1.1, the District proposes, and the DESE accepts as a reasonable, student-
effective response to this finding, that the District replace/purchase 102 laptop computers of equal quality
and functionality from local/state funds by January 1, 2009. This will allow the planned online IEP and
Medicaid Recovery Management System to come online as planned. To require the District to return
funds from local/state sources and purchase more computers, either from state or federal sources, will
result in a double penalty which will be detrimental to the educational programs for children with
disabilities.

Unallowable and Inadequately Documented Costs Charged to the Title I, Part A; Title II, Part A;
and IDEA, Part B, Programs. The DESE concurs with finding Number 2 and with the
recommendations as a whole. However, in response to recommendation 2.4, the DESE would allow the
District to retroactively provide time and effort certifications that cover the period from July 1, 2005
through June 30, 2006 if those staff members can be contacted. A list of the nine uncertified employees is
requested. The targeted completion date for this finding is October 20, 2008.

If you have questions, please contact Bette Morff, DESE Director of Financial Management, at
573-751-8280 or Bette.Morff@dese.mo.gov.

Sincerely,

D. Kent King