oversight

California State University, Fresno Foundation's Administration of GEAR UP Partnership Grant No. P334A992067.

Published by the Department of Education, Office of Inspector General on 2004-06-17.

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

                                     U.S. Department of Education 

                                             Office of Inspector General 


                                         501 I Street, Suite 9-200 

                                      Sacramento, California 95814 

                                Phone (916) 930-2388 • Fax (916) 930-2390



                                                       June 17, 2004



                                                                                                         ED-OIG/A09-D0032

Dr. Peter N. Smits
Executive Director
California State University, Fresno Foundation
4910 N. Chestnut Avenue, M/S OF123
Fresno, CA 93726-1852

Dear Dr. Smits:

This Final Audit Report, entitled California State University, Fresno Foundation’s Administration
of GEAR UP Partnership Grant No. P334A990267, presents the results of our audit. The purpose
of the audit was to determine whether the California State University, Fresno Foundation
(Foundation) (1) complied with the grant’s matching contributions requirement and (2) properly
expended funds provided by the grant. Our review covered the first four years of the five-year
grant. For the four-year period from September 1, 1999 to August 31, 2003, the Foundation’s
Gaining Early Awareness and Readiness for Undergraduate Programs (GEAR UP) grant
expenditures totaled $1,401,142 and the required matching contribution was $600,489 (30 percent
of total program costs).

In its response to the draft report, the Foundation generally concurred with our findings. The
Foundation agreed to return the costs improperly charged to the grant, described the corrective
actions to be taken to address our procedural recommendations, and submitted additional
documentation for claimed matching contributions. Based on additional supporting documentation
of matching contributions submitted by the Foundation, we revised our conclusions and one
recommendation in Finding No. 1. The Foundation disagreed with our recommendation to provide
additional documentation or return the amount charged for the original Project Director’s salary and
related costs. The Foundation’s comments are summarized in the AUDIT RESULTS section of the
report at the end of each finding and the full text of the comments is included as an attachment.


                                                   BACKGROUND
GEAR UP is a discretionary grant program designed to increase the number of low-income
participants who are prepared to enter and succeed in postsecondary education. Under the
GEAR UP program, the U.S. Department of Education (Department) provides five-year grants to
states and partnerships to provide services at high poverty middle and high schools. Grantees

          Our mission is to ensure equal access to education and to promote educational excellence throughout the Nation.
ED-OIG/A09-D0032                                                                            Page 2 of 15


serve an entire cohort of participants beginning no later than the 7th grade and follow the cohort
through high school. The Policy, Planning, and Innovation Office within the Department’s Office
of Postsecondary Education (OPE) administers the GEAR UP program.

Partnerships are required to provide matching contributions each year of the GEAR UP project. The
regulations at 34 C.F.R. § 694.7 specify the percentage of the grant award that must be matched
from non-Federal sources. OPE guidance on the GEAR UP program reiterates that the matching
amount for an individual year must be met in that year and the grantee cannot “catch up” in later
years of the grant. The non-Federal share may be provided in cash or in-kind.

The purpose of the Foundation’s GEAR UP project was to prepare and motivate students for
postsecondary education opportunities by providing early developmental outreach services, along
with career planning and parent workshops on related topics. GEAR UP Partnership Grant
No. P334A990267 provided funding for the project for the five-year period from
September 1, 1999 through August 31, 2004, totaling $1,858,546. The grant funds expended and
the related expected matching contributions from non-Federal sources1, for the first four years of
the grant, are shown in the following table.

                 Award Year         Grant Award          Expected             Total
                                     Expended            Matching
                                                        Contribution
                     1999             $240,000           $102,857          $342,857
                     2000             $332,758           $142,610          $475,368
                     2001             $414,981           $177,849          $592,830
                     2002             $413,403           $177,173          $590,576
                     Total          $1,401,142           $600,489         $2,001,631


                                        AUDIT RESULTS
We concluded that the Foundation did not meet the required matching contributions for any of
the four years covered by our review because the Foundation did not have the required
documentation for the claimed contributions. Additionally, we found that the Foundation did not
use and properly account for the GEAR UP grant funds in accordance with Federal regulations.
During the period September 1, 1999 through August 31, 2003, the Foundation charged 2,580
transactions, totaling $1,401,142, to the GEAR UP grant. Our review of 327 transactions,
totaling $340,670, found that the Foundation lacked required documentation for personnel costs
charged to the grant and improperly charged other costs. As a result, we were unable to
determine whether $101,536 of personnel costs were properly allocated to the GEAR UP grant
and questioned $8,940 of other costs.2

1
 In July 2003, the Department approved a reduction of the Foundation’s required annual matching
percentage from 50 percent to 30 percent of total project costs.
2
 The sample of 327 transactions included 182 transactions related to non-personnel costs. Of the
182 transactions, we concluded that 17 sampled transactions were improperly charged to the GEAR UP
grant. The questioned cost of $8,940 includes the amount improperly charged for the 17 transactions and
other related transactions.
ED-OIG/A09-D0032                                                                             Page 3 of 15


FINDING NO. 1 - Foundation Did Not Meet the Required Matching Contributions for the
                GEAR UP Grant

At the time of our review, the Foundation claimed to have received $1,253,799 in matching
contributions for the GEAR UP grant. While this amount exceeded the needed total contributions
from non-Federal sources of $600,489,3 the Foundation did not have sufficient documentation for
the required contributions.

OMB Circulars Specify the Documentation Required to
Accept Donations As Part of the Matching Contributions

The Foundation and other non-profit organizations receiving Federal grants must comply with the
requirements set forth in Office of Management and Budget Circular A-110 Uniform
Administrative Requirements for Grants and Agreements With Institutions of Higher Education,
Hospitals, and Other Non-Profit Organizations (OMB Circular A-110). OMB Circular A-110,
Appendix A, Subpart C, paragraph 23(a) specifies the requirements for accepting matching
contributions.

          All contributions, including cash and third party in-kind, shall be accepted as part
          of the recipient’s cost sharing or matching when such contributions meet all of the
          following criteria.

              (1) Are verifiable from the recipient’s records.
              (2) Are not included as contributions for any other federally-assisted project or
              program.
              (3) Are necessary and reasonable for proper and efficient accomplishment of
              project or program objectives.
              (4) Are allowable under the applicable costs principles.
              (5) Are not paid by the Federal Government under another award . . . .
              (6) Are provided for in the approved budget when required by the Federal
              awarding agency.
              (7) Conform to other provisions of this Circular, as applicable.

Paragraph 23(c) states that values for recipient contributions of services and property shall be
established in accordance with applicable cost principles. The cost principles applicable to the
Foundation are contained in Office of Management and Budget Circular A-122 Cost Principles for
Non-Profit Organizations (OMB Circular A-122). Both OMB Circular A-110 and OMB Circular
A-122 provide specific guidance on the required documents and methods for determining the value
of different types of contributions.

In addition, OPE’s issued guidance on the GEAR UP program states that documentation of the
match should contain adequate source documentation for claimed cost sharing, provide clear
valuation of in-kind documentation, and provide support of cost sharing by grant partners.




3
    This amount includes the expected matching contributions for award years 1999 through 2002.
ED-OIG/A09-D0032	                                                                           Page 4 of 15


The Foundation Did Not Have Required
Documentation for Matching Contributions

The Foundation provided an In-Kind Contribution Report for each claimed contribution, which
identified the contributor, the nature of the contribution (i.e., volunteer services and travel, office
space, equipment, etc.), and the value for each contribution. The Foundation either did not have
supporting documents for the claimed contributions or the supporting documents did not meet
Federal criteria for accepting contributions for the required match from non-Federal sources.

With regard to in-kind contributions from third parties, OMB Circular A-110, Appendix A,
Subpart C, paragraph 23(h)(5) states—

       (i) Volunteer services shall be documented and, to the extent feasible, supported
       by the same methods used by the recipient for its own employees.

       (ii) The basis for determining the valuation for personal services, material, 

       equipment, buildings and land shall be documented. 


OMB Circular A-122, Attachment B, paragraph 7.m (4) states—

       Salary and wages of employees used in meeting cost sharing or matching
       requirements on awards must be supported in the same manner as salaries and
       wages claimed for reimbursement from awarding agencies.

The following examples show the limited documentation that was available for the contributions
that comprised the $1,253,799 claimed by the Foundation.

   ƒ   The Foundation claimed $849,428 of in-kind contributions from the Fresno County
       Probation Department. The In-Kind Contribution Reports for these contributions (one for
       each grant year) referred to a Fresno County Probation Department letter, dated
       October 3, 2003, stating that, during the past four years, its Youth Challenge Community
       Program (YCCP) served 39 “targeted Gear-Up students” who attended the junior high
       school included in the Foundation’s GEAR UP application. The letter stated that the
       allotted yearly per student budget for the YCCP was about $21,780, which included
       personnel costs. The Foundation applied about one-quarter of the total contribution to
       each year of the grant. The letter lists after-school tutoring, recreational activities, and
       individual therapy as services provided to students. The letter did not identify the students
       who participated each year, the costs included in the yearly per student budget, or the
       services provided to each student.

   ƒ   The Foundation also claimed $14,337 in contributions of volunteers’ time and travel for
       participation in career and health fairs. The In-Kind Contribution Reports showed the
       volunteer’s name, the total hours donated, the rate used to determine the value of the
       donated hours, and the miles that the volunteer traveled to participate in the fair. To meet
       the requirements in OMB Circulars A-110 and A-122, the Foundation should have
       maintained documentation similar to that used for the Foundation’s hourly employees. The
       Foundation required hourly employees to submit timesheets twice per month showing their
ED-OIG/A09-D0032                                                                         Page 5 of 15


       daily arrival and departure times, total hours worked, type of work, rate of pay, and the
       project to be charged.

Of the remaining $390,034 of claimed matching contributions, most were only supported by an
In-Kind Contribution Report. Some claimed contributions had other documentation, such as
invoices or activity listings, but none of the documentation was sufficient to meet the
requirements.

In its response to the draft report, the Foundation submitted additional supporting documentation.
We concluded that the additional documentation was sufficient to support $214,884 of the claimed
matching contributions. This amount consisted of $190,584 in salary and benefits paid to the
probation officer in charge of the YCCP and $24,300 in salary and benefits paid to the principal of
one of the schools participating in the GEAR UP project.

Since the Foundation did not have the necessary evidence to document the remaining $385,605
($600,489 less $214,884) of the required contributions, the Foundation has not met the required
30 percent match from non-Federal sources. The Federal regulations at 34 C.F.R. § 694.7(a) state
that “[a] Partnership must (1) State in its application the percentage of the cost of the GEAR UP
project the Partnership will provide for each year from non-Federal funds, . . . and (2) Comply with
the matching percentage stated in its application for each year of the project period.” In order to
meet the above regulation, a portion of project costs paid by Federal funds must be converted to
match. The table below shows the amount for each grant year that should be converted by
subtracting the amount from the project costs paid from Federal funds and returning the total
amount to the GEAR UP grant account.

                       Calculation of Required Match and Refund Amount
                                                                            Refund to
                        Actual        Required                               GEAR
            Award       Project        Match        Required     Documented UP grant
             Year        Costs       Percentage      Matcha        Match    accountb
             1999      $280,262         30%          $84,079       $40,263   $43,816
             2000      $392,714         30%         $117,814       $59,956   $57,858
             2001      $480,190         30%         $144,057       $65,209   $78,848
             2002      $462,859         30%         $138,858       $49,456   $89,402
            Total                                                           $269,924
            a
              Actual project costs multiplied by the required match percentage
            b
              Required match less the documented match (this amount is converted from Federal
            to non-Federal funds to comply with required match percentage)

The Foundation Needs to Ensure Its Staff Adhere to the
Foundation’s Process for Documenting Matching Contributions
and Are Knowledgeable of Documentation Requirements

The Project Director was responsible for maintaining documentation of contributions used to meet
the grant’s matching requirement and providing the information necessary for Foundation staff to
record the contribution amounts in the Foundation’s accounting system. The Interim Project
Director informed us that the Foundation did not have documentation for the GEAR UP grant
because the original Project Director left the Foundation without providing other GEAR UP staff
ED-OIG/A09-D0032	                                                                      Page 6 of 15


with the documentation. Also, the Project Director did not provide Foundation staff with the
information for entry into the accounting system.

At the time of our review, the Interim Project Director for the GEAR UP grant and the other grant
staff were attempting to recreate documentation for the contributions by reviewing calendars and
schedules. Based on our discussions with the Interim Project Director and staff, we concluded that
they were not familiar with the documentation required by the OMB Circulars.

Recommendations

We recommend that the Chief Financial Officer, in collaboration with the Assistant Secretary for
Postsecondary Education, require the Foundation to—

1.1 	   Provide documentation supporting at least $385,605 of the remaining claimed matching
        contributions or return $269,924 to the GEAR UP account, the amount of Federal
        expenditures required to be converted to match in order to conform to the regulation
        requiring the Foundation to comply with the required match percentage for the grant.

1.2 	   Establish procedures to ensure that contributions used to meet the matching requirements
        are properly documented in accordance with OMB Circular requirements and OPE
        guidance.

Foundation’s Comments

The Foundation submitted additional documentation for $843,055 of the claimed matching
contributions. The Foundation stated it is drafting procedures for review and approval of
documentation for matching contributions.

OIG’s Response

We revised our finding and Recommendation 1.1 to reflect the additional documentation submitted
by the Foundation. We concluded that the documentation was sufficient to confirm $214,884 of
the claimed matching contributions. The documentation provided for the remaining $628,171 did
provide detailed lists of amounts used to derive the claimed matching contributions (i.e., salaries,
number of classrooms, unit costs, etc.), but the Foundation did not provide documentation to
support the listed amounts. Also, some of the listed amounts were based on budgeted rather than
actual costs. We encourage the Foundation to work with the Department on acceptable methods
for adequately supporting the claimed matching contributions.
ED-OIG/A09-D0032                                                                         Page 7 of 15


FINDING NO. 2 - Foundation Lacked Required Documentation for Personnel Costs
                Charged to the Grant

The Foundation did not require employees, who were paid on a salary rather than an hourly basis,
to prepare personnel activity reports.4 All salaried employees who worked on grant activities were
required to submit monthly attendance reports. However, these reports did not show an accounting
of the actual time spent on grant activities. Instead, the Foundation allocated salaries to the grant
based on predetermined distribution percentages shown on the employees' personnel action forms.

OMB Circular A-122, Attachment B, paragraph 7.m (2) requires monthly personnel activity
reports for all employees who work on grant activities.

       Reports reflecting the distribution of activity of each employee must be
       maintained for all staff members (professionals and nonprofessionals) whose
       compensation is charged, in whole or in part, directly to awards . . . .

The paragraph also lists the required elements for personnel activity reports and specifically states
that percentages determined before the services are performed do not qualify as support for
charges to Federal grants, as follows—

       (a) The reports must reflect an after-the-fact determination of the actual activity of
       each employee. Budget estimates (i.e., estimates determined before the services are
       performed) do not qualify as support for charges to awards.

       (b) Each report must account for the total activity for which employees are 

       compensated and which is required in fulfillment of their obligations to the 

       organization. 


       (c) The reports must be signed by the individual employee, or by a responsible
       supervisory official having first hand knowledge of the activities performed by the
       employee, that the distribution of activity represents a reasonable estimate of the
       actual work performed by the employee during the periods covered by the reports.

       (d) The reports must be prepared at least monthly and must coincide with one or
       more pay periods.

The Foundation’s Director of Financial Services stated that having employees submit an
after-the-fact annual certification of the time worked was sufficient to meet the requirements.
The Director did not provide us with such certifications and, even if the annual certifications
were completed, the documentation would not have met the requirement for reporting at least
monthly.

The original Project Director was the only employee charged to the grant whose salary was funded
by more than one source. Except as noted in the following paragraph, her salary was charged

4
 The Foundation required employees who were paid on an hourly basis to prepare timesheets. We
concluded that the documentation provided for these employees met the requirements listed in
OMB Circular A-122.
ED-OIG/A09-D0032	                                                                             Page 8 of 15


50 percent to the GEAR UP grant and 50 percent to another OPE grant. The other employees'
salaries were charged 100 percent to the GEAR UP grant. While the Foundation did not have the
required documentation, we concluded that salaries charged 100 percent to the grant appeared
reasonable based on our observations and interviews with current employees. The current staff,
whose salaries were charged 100 percent to the GEAR UP grant, are representative of the number
of staff whose salaries were charged to the grant during the four years reviewed in our audit.
During interviews, the current staff stated they provided before school, after school, and lunchtime
tutoring, as well as being available to the students throughout the day. Also, we observed at the
school sites that the staff were located in a room dedicated to GEAR UP activities. However, we
have no assurance that the $101,536 charged to the grant for the original Project Director's salary
represents a proper allocation of costs based on her GEAR UP program activities.

During our testing, we identified an error in recording a journal entry used to transfer a portion of
the original Project Director’s salary and benefits costs for the period September 1, 1999 to
July 31, 2000, to the GEAR UP grant. As recorded, the journal entry resulted in 52 percent of
the salary and 61 percent of the benefits being charged to the GEAR UP grant. If the Foundation
provides sufficient documentation to support the 50 percent distribution of salary costs for the
original Project Director, the overcharges caused by the erroneous journal entry would total
$1,854 ($734 in salary costs and $1,120 in benefits costs).5

Recommendations

We recommend that the Chief Financial Officer, in collaboration with the Assistant Secretary for
Postsecondary Education, require the Foundation to—

2.1     P
        	 rovide documentation supporting the allocation percentage used to charge the GEAR UP
        grant for personnel costs of the original Project Director, or return $101,536, plus related
        benefits and indirect costs. If sufficient documentation is provided to support the allocation
        percentage, the Foundation should return the $1,854 of overcharges for the original Project
        Director’s salary and benefits, plus related indirect costs.

2.2 	   Implement a personnel activity report for employees paid on a salary basis that complies
        with OMB Circular A-122 requirements.

Foundation’s Comments

The Foundation agreed with our finding, but disagreed with Recommendation 2.1. The
Foundation provided a letter stating that, based on its review of the original Project Director’s
calendar, the original Project Director spent 20 percent of her time on scheduled GEAR UP
activities and an additional 30 percent of her time on administrative and other activities related to
the GEAR UP project. The original Project Director’s supervisor signed the letter, certifying that
the original Project Director spent 50 percent of her time on the GEAR UP project. The
Foundation did agree to return the excess salary and benefit amounts charged, plus related indirect


5
 The $101,536 amount mentioned in the previous paragraph represents the entire amount charged to the
grant for the original Project Director’s salary, which does not include benefits or indirect costs. The
$101,536 includes the $734 salary overcharge.
ED-OIG/A09-D0032                                                                           Page 9 of 15


costs, totaling $2,002. To address our procedural recommendation, the Foundation stated that a
personnel activity report for salaried employees would be developed and implemented.

OIG’s Response

We did not change Recommendation 2.1. The Foundation’s response to the draft report and the
supervisor’s certification were not sufficient for us to conclude that the salary costs charged to the
grant for the original Project Director were reasonable. The Foundation did not provide copies of
the calendar used to conclude that approximately 20 percent of her time was spent on scheduled
GEAR UP activities and we have no basis for assessing the Foundation’s conclusion that it is
reasonable to conclude that an additional 30 percent of her time was spent conducting
administrative and other activities related to the GEAR UP project. The supervisor’s certification
was prepared on April 16, 2004, for activities of the original Project Director that were conducted
during the period from September 1999 to June 2003.


FINDING NO. 3 - Foundation Improperly Charged $8,940 to the GEAR UP Grant

The Foundation charged the GEAR UP grant for costs that were unnecessary or not properly
allocated to the grant. OMB Circular A-122, Attachment A, paragraph A.2.a states that to be
allowable under a grant, costs must “be reasonable for the performance of the award and be
allocable thereto under these [cost] principles.”

Foundation Used GEAR UP Funds for Purchases
and Services That Were Not Necessary for
Performance of the Grant Purpose

The Foundation used grant funds for costs of computer equipment, cell phone service, and food
that were not necessary for performance of the GEAR UP program. OMB Circular A-122,
Attachment A, paragraph A.3 defines reasonable costs—

       In determining the reasonableness of a given cost, consideration shall be given to:

       a.Whether the cost is of a type generally recognized as ordinary and necessary for
         the operation of the organization or the performance of the award.

Computer Equipment Costs. We identified purchases, totaling $4,157 for a Macintosh
PowerBook computer, a portable zip drive, and a Pocket PC that the Foundation could not locate
and the GEAR UP staff did not recall receiving for the grant.6 The original Project Director, who
is no longer with the Foundation, purchased these three items and the documentation does not
contain any explanation of the purpose for the purchases. The Macintosh PowerBook ($3,397)
and zip drive ($247) were purchased in October and December 1999, respectively. The

6
 The Foundation maintains a Federal Equipment Listing of property purchased under each grant with a
value of $5,000 or more. Although none of the three purchases met the $5,000 threshold, the Macintosh
PowerBook was on the Federal Equipment Listing for the GEAR UP grant. The GEAR UP staff also
maintained its own inventory for the GEAR UP program, but none of the items were on the list.
ED-OIG/A09-D0032	                                                                        Page 10 of 15


GEAR UP staff advised us that they do not use Macintosh products and they had no need for an
external zip drive since their computers were equipped with zip drives. The Pocket PC ($513)
was purchased in January 2001. The OPE GEAR UP Director and assigned OPE Program Officer
advised us that the Pocket PC was not necessary for performance of the GEAR UP grant.

Cell Phone Costs. We identified service costs totaling $2,630, charged to the GEAR UP grant for
the original Project Director’s cell phone that were not ordinary and necessary costs for
performance of the grant. The budget for the GEAR UP grant did not list cell phone expenses and
the OPE GEAR UP Director and assigned OPE Program Officer advised us that cell phones would
only be approved under GEAR UP grants in rare cases when the grantee has several sites that are
not located near each other and the staff spend significant time traveling between sites. The school
sites under the grant were located just blocks apart, and thus, the cell phone expenses were not
necessary costs for performance of the grant.

Food Costs. We identified food expenses, totaling $382, that were not necessary costs for
performance of the grant purpose.

   ƒ   The Foundation charged the grant for staff to attend a California K-16 Partnerships and
       Student Success Conference in June 2001. The amount charged included additional
       amounts, totaling $90, for attendees’ dinners on the RMS Queen Mary cruise ship. The
       dinner was an option offered to attendees and was not a part of the conference agenda.

   ƒ   The Foundation charged the grant $292 for food for a holiday open house held in
       December 2000. The purpose of the open house was stated as “a Holiday Open House for
       all GEAR UP partners and supporters. It was an [o]pportunity to thank them for their
       support and for them to see our office. The University is seen as reaching out to the
       community and has a positive image in the Community[.] This is good for potential
       enrollments to the [U]niversity.” Neither students participating in the GEAR UP program
       nor their parents attended the event.

The dinner and food were for activities not related to the purpose of the GEAR UP grant, which is
to prepare and motivate students for postsecondary education opportunities by providing early
developmental outreach services, along with career planning and parent workshops on related
topics. Thus, the costs were not necessary for performance of the grant.

Foundation Did Not Properly Allocate
Costs to the GEAR UP Grant

The Foundation did not properly allocate charter bus and banner costs to the GEAR UP grant.
OMB Circular A-122, Attachment A, paragraph A.4.a defines allocable costs—

       A cost is allocable to a particular cost objective, such as a grant, contract, project,
       service, or other activity, in accordance with the relative benefits received. A cost
       is allocable to a Federal award if it is treated consistently with other costs incurred
       for the same purpose in like circumstances and if it:

               (1) Is incurred specifically for the award.
ED-OIG/A09-D0032	                                                                    Page 11 of 15


              (2) Benefits both the award and other work and can be distributed in
                  reasonable proportion to the benefits received . . . .

Charter Bus Costs. The Foundation improperly charged $1,364 to the grant for charter bus
expenses related to two student field trips.

    ƒ   The first trip, which occurred in February 2001, included students participating in the
        GEAR UP and Talent Search programs. The GEAR UP grant was charged for the entire
        $679 cost for the charter bus ($150 deposit and $529 balance). According to the Interim
        Project Director, the cost of the charter bus should have been split between the two
        programs. The amount improperly allocated to the grant was $339 (50 percent of $679).

    ƒ   The second trip occurred in April 2001. The GEAR UP grant was charged for the charter
        bus expense of $1,025 even though the Foundation’s documentation showed the trip was
        for Talent Search participants only. The $1,025 charge was mistakenly allocated to the
        GEAR UP grant.

Banner Costs. The Foundation improperly charged $407 to the grant for the purchase of two vinyl
banners. The Foundation’s documentation identified the logos shown on each banner and the
vendor’s separate charges for each logo. The full amount of the purchases ($449 and $448) was
charged to the GEAR UP grant even though the banners contained logos for programs and
organizations unrelated to the Foundation’s GEAR UP project. The costs of the unrelated logos
improperly allocated to the GEAR UP grant were $192 and $215, respectively.

Foundation Needs to Improve Procedures For
Ensuring Costs Are Properly Charged to Grants

The Foundation’s policies and procedures required supervisory review of payment authorizations
initiated by the project directors that exceeded $100, but the policies and procedures were not
consistently followed. Also, the Foundation’s policies and procedures did not provide for
supervisory review of purchase orders or invoices approved without a payment authorization.

We found that several documents reviewed for our sampled transactions contained no evidence
that a supervisor had reviewed the purchases or services to ensure that the costs were reasonable
costs of the grant and properly allocated to the grant. For example, the purchase order for the
Macintosh PowerBook was prepared and approved by the original Project Director and was not
reviewed by her supervisor. Then, the same Project Director approved payment of the invoice
with no review from her supervisor. Another example is the cell phone service. The supervisor
stated that he was not involved in the selection of the phone and service plan and did not review
invoices to determine if the phone was being used strictly for GEAR UP activities. The improper
use of GEAR UP funds may not have occurred if the supervisor had reviewed purchase orders,
invoices, and payment authorizations.
ED-OIG/A09-D0032	                                                                      Page 12 of 15


Recommendations

We recommend that the Chief Financial Officer, in collaboration with the Assistant Secretary for
Postsecondary Education, require the Foundation to—

3.1 	   Return the $8,940 ($4,157+$2,630+$382+$1,364+$407), plus related indirect costs, that
        was improperly expended for costs that were not necessary for performance of the
        GEAR UP grant or were not properly allocated to the grant.

3.2 	   Implement procedures requiring supervisory reviews of purchase orders initiated by project
        directors and invoices for equipment or services used solely by project directors.

3.3 	   Ensure that required supervisory reviews are conducted and that reviews confirm purchases
        and services are necessary for performance of the grant purpose and costs are allocated in
        proportion to the benefits received.

Due to the extent of our testing and the small percentage of reviewed transactions identified as
improperly charged to the grant, we have not recommended that the Foundation review the
untested transactions for allowability.

Foundation’s Comments

The Foundation agreed with our finding and concurred with our recommendations. The
Foundation stated it would return $9,655 for the improper charges (amount includes related
indirect costs). The Foundation stated that management controls would be instituted that include
supervisory reviews of purchases of services or equipment used solely by project directors and
ensuring required reviews are performed.


                  OBJECTIVES, SCOPE, AND METHODOLOGY
Our audit objectives were to determine whether the Foundation (1) complied with the grant’s
matching contribution requirement and (2) properly expended funds provided by the GEAR UP
Partnership Grant No. P334A990267. Our review covered the first four years of the five-year
grant period from September 1, 1999 to August 31, 2003.

To accomplish our objectives, we reviewed the Foundation’s GEAR UP grant application, budgets,
performance reports, and OMB Circular A-133 audit reports for the years ended June 30, 2001 and
June 30, 2002. We also reviewed the Foundation’s written policies and procedures applicable to
charges made to the GEAR UP grant and matching contributions. We interviewed Foundation
officials and staff responsible for implementing the financial and program portions of the
GEAR UP grant. We also communicated with OPE staff responsible for monitoring the grant.

To achieve our audit objectives, we relied on reports of GEAR UP grant expenditures for the
period September 1, 1999 through August 31, 2003, which Foundation staff generated from its
financial accounting system. We verified the completeness of the data by comparing the total
expenditures on the report to the total amount drawn down as shown in the Department’s Grants
Administration and Payment System. We also compared report information to information on
ED-OIG/A09-D0032                                                                     Page 13 of 15


source documents for sampled transactions. Based on the results of these tests, we concluded that
the reports were sufficiently reliable to be used in meeting the audit’s objectives.

For the first grant year of our audit period, we reviewed all 44 payroll transactions over $100
shown on the Foundation-provided report. For the remaining three years, we reviewed all
71 payroll transactions for the original Project Director that were over $100 and reviewed an
additional 30 payroll transactions randomly selected from the remaining 433 payroll transactions.
We scanned all transactions related to the staff benefits costs for unusual amounts. For
non-payroll transactions, we reviewed 182 of the 1,106 transactions listed on the Foundation-
provided report. We judgmentally selected 92 non-payroll transactions with the highest dollar
amounts or identified as high risk. We then randomly selected an additional 90 non-payroll
transactions.

We performed our fieldwork at the Foundation in Fresno, California during the period September
to October 2003. We held an exit briefing with Foundation officials on February 4, 2004. Our
audit was performed in accordance with generally accepted government auditing standards
appropriate to the scope of the review described.


                 STATEMENT ON MANAGEMENT CONTROLS
Our assessment of the Foundation’s management control structure was limited to those areas of
control weaknesses identified while conducting substantive tests of grant expenditures. Our
review found that the Foundation lacked the following management controls: standard procedures
for documenting matching contributions, personnel activity report system for salaried employees,
and sufficient supervisory reviews of purchasing and payment documents. These weaknesses and
their effects are discussed in the AUDIT RESULTS section of this report.


                            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 will be made by the appropriate Department
officials.

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:

                             Jack Martin
                             Chief Financial Officer
                             Office of the Chief Financial Officer
                             U.S. Department of Education
                             Federal Building No. 6, Room 4E313
                             400 Maryland Avenue, S.W.
                             Washington, D.C. 20202
ED-OIG/A09-D0032                                                                     Page 14 of 15


                             Sally L. Stroup
                             Assistant Secretary
                             Office of Postsecondary Education
                             U.S. Department of Education
                             1990 K Street, N.W.
                             Room 7115
                             Washington, D.C. 20006

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 greatly 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 under the Act.


                                            Sincerely,

                                            /s/

                                            Gloria Pilotti
                                            Regional Inspector General for Audit
ED-OIG/A09-D0032                                                                   Page 15 of 15




                                     ATTACHMENT

      CALIFORNIA STATE UNIVERSITY, FRESNO FOUNDATION’S 

              COMMENTS ON THE DRAFT REPORT





Because of the voluminous number of attachments included in the Foundation’s response, we have
   not included them in this Attachment. Copies of the attachments have been provided to the
Department’s Office of the Chief Financial Officer and Office of Postsecondary Education and are
                                  available to others on request.
                  Auxiliary Services
                  California State University, Fresno Foundation


                            ,   :
    April 20, 2004.


     Gloria Pilotti
   . Regional Inspector General for Audit
     U.S. Department of Education 

     Office of Inspector General 

     50 J I Street, Suite 9-200 

     Sacramento, California 95814 


    Dear Ms. Pilotti:

    We have reviewed the draft audit report, entitled California State University, Fresno 

    Foundation's Administration ofGEAR..UP Partnership Grant No. P334A990267, which· 

    covers the period of September 1, 1999 to August 31, 2003. Our responses are listed 

    below. We have included the corrective actions corresponding to your recommendations. 


    Finding No.1 - Foundation Did Not Meet the Required Matching Contribution for 

                   the GEAR UP Grant 


    Recommendation
    1.1 	 Provide documentation supporting at least $607,317 of the claimed matching 

          contributions or return $1,396,383 it received for the first four years of the grant. 


    Response
    1.1 	 Management has enclosed detailed documentation from third parties to support 

          matching contributions in the amount of$843,055. 


    Recommendation
    1.2 	 Establish procedures to ensure that contributions used to meet the matching 

          requirements are properly documented and in accordance with OMB Circular 

          requirements and OPE guidance. 


     Response 	                                                                                     .'
     1.2 	 Management concurs. Management is drafting procedures for review and 

           approval of properly documented matching. The completion date of the draft will 

           be 12/31104. The implementation date will be 06/30/05. 





Foundation Financial Services
4910 N. Chestnut Ave. MIS OF123
FreSno; CA 93726-1852
Phone: (559) 278-0850
Fax: (559) 278-0992                          Page 1 of3 	                  ED-alGIA09-D0032              ,   ~\



www.auxiliary.com/Foundationl
                                                                   Finding No.2 - Foundation Lacked Required Documentation for Personnel Costs
                                                                                  Charged to the Grant

                                                                   Recommendation
                                                                   2.1 	 Provide documentation supporting the allocation percentage used to charge the
                                                                         GEAR UP grant for personnel costs of the original Project Director, or return
                                                                         $101,536, plus related staff benefits and indirect costs. Ifsufficient
                                                                         documentation is provided to support the allocation percentage, The Foundation
                                                                         should return the $1,854 of overcharges for the original Project Director's salary
                                                                         and benefits, plus related indirect costs.

                                                                Response
                                                                2.1 	 We have analyzed the project director's calendar and have determined that
                                                                      the project director spent approximately 20% of her time on scheduled GEAR-UP
f'
,          -i.~
                ~,.   '
                          ,,'
                                                                      activities, such as, conferences, meetings and training sessions. It is reasonable to
                           'i-'~     .
                                                                      conclude that an additional 30% of her time was spent conducting administrative
     ~',~   ) ,,::":>'~                                               and other duties relating to the GEAR-UP project. The deliverables of the contract
                                                                      including the programmatic reports and fiscal reports, were submitted as required
                                                                      and the project continues to operate successfully. We conclude that the Project
                                                                      Director spent 50% of her time on the project and the entire costs of salary, .
                                                                      benefits and indirect related to the Project Director should not be disallowed.
                                                                      We have enclosed a letter from the Project Director's supervisor certifying that
                                                          '.:,: 	     50% percent of her time was spent on the GEAR UP project. Management does
                                                                      concur with the overcharge of $1854, plus related indirect costs. Management
 ,
            J
                ."                                                    agrees to reimburse the amount of $2002 for these overcharges.
      ..        ,'/



                                                                   Recommendation
                                                                   2.2 	 Implement a personnel activity report for employees paid on a salary basis that
                                                                         complies with OMB Circular A-122 requirements.

                                                                   Response
                                                                   2.2 	 Management concurs. Management will work with Human Resources to develop
                                                                         an activity report to be completed by employees paid on a salary basis. The
                                                                         implementation date will be 07/01/04.


                                                                   Finding No.3 - Foundation Improperly Charged $8,940 to the GEAR UP Grant

                                                                   Recommendation
       "             I:
                                                                   3.1 	 Return the $8,940 ($4,157+$2,630+$382+$1,364+$407), plus related indirect
                                                                         costs, that was improperly expended for costs that were not necessary for
                                                                         performance of the GEAR U~ grant or were not properly allocated to the grant.
                      -,'_.1""




                                                                                                      "

                                                                           " ~               ':f.(
                                '.       '~!.:"",'"
                                                                                                                                        ED-OIG/A09-D0032
                                                      j



                                                          (,   \
                                                                                 -   .{J /    ~   •
                                                                                                           Page 2 of3' 	
        ','.   '


                   Response
                   3.1 	 Management concurs. Management agrees to reimburse $9,655 for the disallowed
                         costs.

                   Recommendation
                   3.2 	 Implement procedures requiring supervisory reviews of purchase orders initiated
                         by project directors and invoices for equipment or services used solely by project
                         directors.

                   Response
                   3.2 	 Management concurs. The Foundation will have the appropriate supervisor of the
                         GEAR-UP program review purchase orders and invoices for equipment or
                         services used solely by the project directors. The implementation date will be
                         07/01104.

                   Recommendation
                   3.3 	 Ensure that required supervisory reviews are conducted and that reviews confirm
                         purchases and services are necessary for performance of the grant purpose and
",'j,
                         costs are allocated in proportion to the benefits received.

                   Response 	                                                                      ,
                   3.3 	 Management concurs. The Foundation will implement a procedure to ensure
                         GEAR UP supervisory reviews have been performed to determine purchases and
                         services are necessary for the grant purpose and allocated in proportion to the
                         benefits received. The implementation date will be 07/01104.


                   If you have any questions or if you wish to discuss the contents of the report, please call
                   Randy Larson at (559) 278-0838 or Linda Christian at (559) 278-0852.

                   Sinc~elY~



                   Dr. PeterN. Smits 

                   Executive Director 

                   California State University, Fresno Foundation 


                   Enclosures                                                     !'",   ;';_,"1




                                                                                                                 '(, t




                                                            Page 3 of3 	                           ED-OIGIA09-D0032