oversight

Sheldon Jackson College's Administration of Fund for the Improvement of Postsecondary Education Grants.

Published by the Department of Education, Office of Inspector General on 2006-02-24.

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

                         UNITED STATES DEPARTMENT OF EDUCATION
                              OFFICE OF INSPECTOR GENERAL
                                       501 I STREET, SUITE 9-200
                                   SACRAMENTO, CALIFORNIA 95814
                                 PHONE (916) 930-2388 · FAX (916) 930-2390



                                               February 24, 2006

                                                                                  Control Number
                                                                                  ED-OIG/A09F0020

Dr. David Dobler
President
Sheldon Jackson College
801 Lincoln Street
Sitka, AK 99835

Dear Dr. Dobler:

This Final Audit Report, entitled Sheldon Jackson College’s Administration of Fund for the
Improvement of Postsecondary Education Grants, presents the results of our audit. The purpose
of the audit was to determine whether Sheldon Jackson College (SJC) properly accounted for and
used funds provided under the Fund for the Improvement of Postsecondary Education (FIPSE).
Our review covered the period from June 1, 2002 through August 25, 2005 for FIPSE Grant
No. P116Z020135 and the period May 15, 2004 through August 25, 2005 for FIPSE Grant
No. P116Z040007.




                                             BACKGROUND


SJC is a private, four-year liberal arts college located on Baranof Island in Sitka, Alaska. An
independent board of trustees operates the College under a historical arrangement with the
Presbyterian Church. SJC offers bachelor degrees, associate degrees, and a certificate program
in the following areas: Teacher Education, Environmental Science, Individualized Studies,
Liberal Arts, Outdoor Leadership, Business Administration, and Human Services. Total
enrollment for the Fall 2005 semester was 391 students (247 high school students taking college
classes, 118 full-time college students, and 26 part-time college students). SJC is accredited by
the Northwest Commission on Colleges and Universities. 1 In addition to administering a full

1
  The accreditation is under a “show cause” order issued January 2005. The Commission issues a “show cause”
order when its finds that an institution has not taken satisfactory steps to address identified concerns or when an
institution is found to be in serious non-compliance with the Commission’s accreditation criteria. The Commission
notified SJC, in a letter dated February 10, 2006, that it expected SJC to send one or more representatives to the
Commission’s July 2006 meeting to address the continuing “show cause” order. In the letter, the Commission
reminded SJC that, when issued a “show cause” order, the burden rests with the institution to demonstrate why its
accreditation should be continued beyond the stated period.
Final Report
ED-OIG/A09F0020                                                                       Page 2 of 14


range of Title IV-Student Financial Assistance Programs, SJC administers various grants
awarded by the U.S. Department of Education (Department) and other Federal agencies.

The Office of Postsecondary Education (OPE) is the Department component that awarded the
two FIPSE grants to SJC. Grant No. P116Z020135 is a congressionally directed grant that
provided $2 million for teacher training to address the shortage of teachers in rural Alaska. The
grant application states that the funds will be used to establish the Sheldon Jackson College
Center for Alaskan Rural Education to (1) increase recruitment of students for teacher training;
(2) improve assessment, placement, remediation, and retention activities; (3) strengthen
teaching/learning in science education; (4) implement an expeditionary learning model
appropriate to Alaska; (5) develop and implement workshops and seminars and summer
programs to address the shortage of rural teachers; and (6) improve library and learning
resources. The grant performance period was from June 1, 2002 through September 30, 2005.

Grant No. P116Z040007 is a congressionally directed grant that provided $497,050 for teacher
training and training of human services professionals to enhance SJC’s degree programs in
Teacher Education and Human Services by providing support for (1) salaries of Human Services
personnel; (2) retention/developmental services for Human Services and Teacher Education
students; (3) recruitment travel and materials for Human Services and Teacher Education
students; (4) professional development for faculty who teach and/or administer Human Services
and Teacher Education students; and (5) financial assistance to students in Human Services and
Teacher Education. The grant performance period was from May 15, 2004 through
May 14, 2005. On August 12, 2005, the Department granted SJC a no-cost extension of the
performance period through December 31, 2005.




                                     AUDIT RESULTS


SJC did not properly account for funds provided under the FIPSE grants. SJC improperly drew
down FIPSE funds in excess of the immediate needs of the grant programs to provide cash for its
entire payroll and other non-grant related expenses. In addition, SJC used a financial
management system that did not properly account for the receipt and use of the FIPSE funds or
meet other standards for such systems. Due to the deficiencies in SJC’s financial management
system, we were unable to determine whether SJC used FIPSE funds for reasonable, allocable,
and allowable costs of the grants.

On September 19, 2005, we briefed OPE on our initial findings and followed up the conversation
with an interim audit memorandum on September 27, 2005. On September 28, 2005, OPE
placed special award conditions on current and future grants awarded by the Department to SJC
because SJC had not properly administered grants provided by OPE.

SJC did not dispute our findings in its comments to the draft report, but it did state concurrence
with our recommendations. SJC’s comments are summarized at the end of each finding and the
full text of the comments is included as an attachment to the report.
Final Report
ED-OIG/A09F0020                                                                                   Page 3 of 14


FINDING NO. 1 – SJC Inappropriately Drew Down FIPSE Grant Funds to
                Provide Cash for the College’s Payroll and Other
                Non-Grant Expenses
SJC requested Federal funds for the FIPSE grants through the Department’s Grant
Administration and Payment System (GAPS). We found that SJC made draws of grant funds
through GAPS for the purpose of obtaining cash to cover the College’s entire payroll and other
non-grant related expenses.

Section 74.22(b) of the Education Department General Administrative Regulations (EDGAR)
provides—

        . . . (2) Cash advances to a recipient organization are limited to the minimum
        amounts needed and be timed to be in accordance with the actual, immediate cash
        requirements of the recipient organization in carrying out the purpose of the
        approved program or project.
            (3) The timing and amount of cash advances are as close as is administratively
        feasible to the actual disbursements by the recipient organization for direct
        program or project costs and the proportionate share of any allowable indirect
        costs.

To remind grantees of the above requirement, GAPS asks grantees to respond to the following
statement when initiating a request for Federal funds:

        I certify, by processing this payment request and/or reallocation, that the funds are
        being expended within three business days of receipt for the purpose and condition
        of the grant or agreement. Are you sure you want to submit the request?

The following table shows the number of GAPS draws for each grant at the time of our review
and the number of draws for which we found that SJC’s documentation showed the draws were
made to provide cash for other than grant purposes. Our review provides no assurance that other
draws were made solely for grant purposes.

                                 SJC Draws of FIPSE Grant Funds
                                       As of August 25, 2005
                                                             Draws Made to Provide Cash for
                            Draws of Grant Funds
                                                                 SJC’s Entire Payroll or
       Grant                       Per GAPS
                                                               Other Non-Grant Purposes
      Number
                         Number of                           Number of
                                           Amount                                Amount
                          Draws                               Draws
 P116Z020135               124           $1,977,283(a)           6                  $758,800
 P116Z040007                10               484,586(b)          5                   462,000
 Total                     134             $2,461,869           11                $1,220,800
 (a) SJC drew the remaining balance of $22,717 on September 26, 2005.
 (b) SJC drew the remaining balance of $12,464 on September 26, 2005. In October 2005, refunds, totaling
     $69,530, were credited to the GAPS account for funds returned on August 17, 2005, but posted to the
     wrong GAPS account. As of November 12, 2005, the $69,530 remained available for future draws.
Final Report
ED-OIG/A09F0020                                                                                       Page 4 of 14


Despite being aware of the EDGAR § 74.22(b)(2) requirement, SJC did not limit its draws to the
immediate cash required to carry out the purposes of the FIPSE grants. Memoranda in SJC files
document that the former Chief Financial Officer (CFO) instructed the former Accounting
Manager to make GAPS draws to “borrow” funds from the FIPSE grants. SJC used the term
“borrow” in the related documentation. Also, emails dated September 1, 2004 document the
former Accounting Manager’s request for approval and the College President’s subsequent
approval to “borrow” funds from the FIPSE grants to “cover net payroll and federal taxes due
early next week.” A SJC board member may also have been aware of the “borrowing” since the
board member was included as a cc: on the email sent from the President to the Accounting
Manager. GAPS shows that SJC drew $200,000 from the FIPSE grants on September 1, 2004.

The Independent Public Accountant (IPA) previously reported that SJC made improper GAPS
draws in the OMB A-133 audit report for fiscal year ended June 30, 2004, dated
August 19, 2004. The IPA reported that SJC made draws on the FIPSE grants that were used to
pay for expenses other than those related to the purpose of the approved program. 2 After
issuance of the IPA’s report, SJC continued to make GAPS draws to “borrow” funds. In addition
to the improper draw on September 1, 2004, SJC made four more improper draws from the
FIPSE grants.

As a result of the inappropriate draws, the Federal Government incurred unnecessary interest
costs. Also, the “borrowing” of funds placed Federal funds at risk of misuse. SJC did, in some
cases, recognize a liability in its financial management system for the “borrowed” funds, and
reduced the liability as SJC incurred grant expenses. For example, the liability for “borrowing”
for Grant No. P116Z040007 reached a total of $287,946 by December 31, 2004 before SJC
began to reduce the liability by charging expenses to the account. As of August 25, 2005, SJC’s
accounting system showed an outstanding liability for borrowed funds of $9,030 for Grant No.
P116Z020135 and $47,548 for Grant No. P116Z040007. 3

SJC’s “borrowing” is a serious violation of the EDGAR § 74.22(b)(2) requirement that
drawdowns of Federal funds be made solely for the actual, immediate cash requirements to carry
out the purpose of the approved project. SJC’s unauthorized use of the FIPSE grant funds
obtained through the excessive drawdowns was a serious violation of Office of Management and
Budget (OMB) Circular A-21 Cost Principles for Educational Institutions, which defines the
allowable uses of Federal funds. Without legal authority and with no consultation with
Department, SJC took the FIPSE funds to use for its own purposes. SJC’s plan to repay the
“borrowed” funds when it incurred actual FIPSE grant expenditures does not mitigate the
seriousness of its improper actions.



2
  The IPA’s audit report stated that the funds improperly drawn were later repaid to the Department. During a phone
interview held September 21, 2005, a staff auditor for the IPA advised us that the audit documentation notes that the
former CFO stated in an interview with the auditor that the draws in question were “borrowings” that were later
repaid. The IPA’s audit documentation stated the auditor “[r]eviewed support, noting the support was consistent
with client assertion.” The audit documentation did not identify the support used by the auditor in making this
determination.
3
 As we discuss in Finding No. 2, we were unable to confirm that all drawn funds were recorded in SJC’s accounting
systems for Grant No. P116Z020135 and that the expenses applied to the liabilities were for allowable costs of the
grants.
Final Report
ED-OIG/A09F0020                                                                        Page 5 of 14


We are not making recommendations to improve SJC procedure for drawing funds because the
special conditions implemented by OPE’s letter of September 28, 2005 will allow the release of
current and future grant funds to SJC (except for costs of project director salaries) only after SJC
obtains Department approval of its business and financial plan, SJC provides documentation of
proposed costs, and OPE determines that the proposed costs are reasonable, allocable, and
allowed based on the scope of the grant. These procedures, if properly implemented by the
Department, will ensure that SJC draws are limited to the immediate needs of the respective
grant.

Recommendation

1.1    We recommend that the Chief Financial Officer, in collaboration with the Assistant
       Secretary for Postsecondary Education, require SJC to determine the average daily
       balance of “borrowed” funds for the grants and reimburse the Federal Government for the
       interest costs incurred.

SJC Comments

SJC concurred with the recommendation. SJC stated its opinion that eligible expenses were
incurred in due course that correlated with the borrowed funds. SJC stated it would complete the
task of determining the timing between drawdowns and eligible expenditures by June 30, 2006.


FINDING NO. 2 – SJC’s Financial Management System Did Not Properly Account
                for FIPSE Funds

SJC used accounting software to maintain its financial records with a separate fund (set of
accounts) established for each FIPSE grant. However, SJC used the accounting software in a
manner that did not provide for the proper accounting of the FIPSE funds. We found that SJC
did not use a consistent method for recording receipts in the FIPSE accounts and SJC’s recording
of uses of FIPSE funds in its account did not facilitate identification of the grant expenditures.
We also found that SJC did not provide sufficient documentation for accounting entries, did not
adhere to approved budgets, and did not have required written procedures.

Section 74.21(b) of EDGAR lists the standards for financial management systems of recipients
of Federal grants.

       (b) Recipients' financial management systems shall provide for the following:
           (1) Accurate, current, and complete disclosure of the financial results of each
           federally-sponsored project in accordance with the reporting requirements
           established in Sec. 74.52. . . .
           (2) Records that identify adequately the source and application of funds for
           federally-sponsored activities. These records shall contain information
           pertaining to awards, authorizations, obligations, unobligated balances, assets,
           outlays, income and interest.
Final Report
ED-OIG/A09F0020                                                                       Page 6 of 14


          (3) Effective control over and accountability for all funds, property and other
          assets. Recipients shall adequately safeguard all such assets and assure they
          are used solely for authorized purposes.
          (4) Comparison of outlays with budget amounts for each award. Whenever
          appropriate, financial information should be related to performance and unit
          cost data.
          (5) Written procedures to minimize the time elapsing between the transfer of
          funds to the recipient from the U.S. Treasury and the issuance or redemption
          of checks, warrants or payments by other means for program purposes by the
          recipient . . . .
          (6) Written procedures for determining the reasonableness, allocability and
          allowability of costs in accordance with the provisions of the applicable
          Federal cost principles and the terms and conditions of the award.
          (7) Accounting records including cost accounting records that are supported
          by source documentation.

Section 74.44 of EDGAR specifies requirements for procurement procedures.

          (a) All recipients shall establish written procurement procedures. These
          procedures shall provide for, at a minimum, that --
              (1) Recipients avoid purchasing unnecessary items;
              (2) Where appropriate, an analysis is made of lease and purchase
              alternatives to determine which would be the most economical and
              practical procurement for the Federal Government; or
              (3) Solicitations for goods and services provide for all of the following:
                  (i) A clear and accurate description of the technical requirements for
                  the material, product or service to be procured. In competitive
                  procurements, a description shall not contain features which unduly
                  restrict competition.
                  (ii) Requirements which the bidder/offeror must fulfill and all other
                  factors to be used in evaluating bids or proposals.
                  (iii) A description, whenever practicable, of technical requirements in
                  terms of functions to be performed or performance required, including
                  the range of acceptable characteristics or minimum acceptable
                  standards. . . .

SJC’s financial management systems did not meet any of these standards.
Final Report
ED-OIG/A09F0020                                                                                                Page 7 of 14


Inconsistent Recording of FIPSE Receipts

SJC did not use a consistent method to record funds received from GAPS draws in its financial
records for Grant No. P116Z040007. As a result, we could not readily confirm that GAPS
receipts were properly recorded in SJC’s accounting system. SJC received 10 GAPS draws
totaling $484,586 and recorded the draws in two different accounts. Four draws, totaling
$362,000, were recorded in a liability account called Grant Advance Payable and the other six
totaling $122,586 were posted to Release of Restricted Funds, a revenue account. After
extensive analysis of the accounting entries, we were able to confirm that all funds drawn from
GAPS for Grant No. P116Z040007 were recorded in the financial management system.

We were unable to confirm that $879,955 of the $1,911,122 4 of FIPSE funds for Grant No.
P116Z020135 were recorded in the financial records. From the records made available, we
could not identify accounting entries recording the receipt of all 69 draws of FIPSE funds that
occurred prior to July 7, 2003 and 5 of the 55 draws of FIPSE funds that occurred between
July 7, 2003 and December 2, 2004.

Irregular Recording of Uses of FIPSE Funds

Due to the manner in which SJC recorded uses of FIPSE funds in its financial management
system, we were unable to obtain or develop complete expenditure lists for the two grants. Our
review of individual accounting entries found that expenditures were recorded in other than
expense accounts (Accounts Receivable, Construction In-Progress, Equipment, and Grant
Advance Payable). In addition, SJC used journal entries to transfer amounts to the FIPSE grant
accounts from other SJC accounts. SJC almost exclusively used journal entries to record
amounts for Grant No. P116Z040007.

Inadequate Supporting Documentation for Individual Accounting Entries

SJC did not provide sufficient documentation for the journal entries and other individual
accounting entries to assess whether costs charged to the FIPSE grant accounts were allowable
uses of grant funds. EDGAR § 74.27 and OMB Circular A-21 establish the cost principles for
educational institutions. Paragraph C.2 of Circular A-21 lists the factors to consider when
evaluating the allowability of costs—

            Factors affecting allowability of costs. The tests of allowability of costs under
            these principles are: (a) they must be reasonable; (b) they must be allocable to
            sponsored agreements under the principles and methods provided herein; (c) they
            must be given consistent treatment through application of those generally
            accepted accounting principles appropriate to the circumstances; and (d) they
            must conform to any limitations or exclusions set forth in these principles or in
            the sponsored agreement as to types or amounts of cost items.

We reviewed supporting documentation for 77 non-personnel transactions (accounting entries) of
$2,000 or greater. 5 For 21 transactions, SJC provided only a printout of the transaction or no

4
    $1,977,283 less $66,161 refund adjustment made after August 25, 2005.
5
     Our review of selected transactions did not include transactions related to payroll (i.e., salaries, staff benefits, etc.).
Final Report
ED-OIG/A09F0020                                                                                     Page 8 of 14


documentation. For 47 entries, SJC had purchase orders, invoices, or other documentation, but
the documentation was not sufficient to make a determination as to the allowability of the costs.
For example, SJC charged $298,214 to Grant No. P116Z040007 for “SJC Forgivable Education
Loans,” “SJC Educational Opportunity Grants,” and reclassified student discounts. The FIPSE
grant funds may be used to “provide financial assistance to students in human services and
teacher education.” For $261,164 of the charges, SJC only provided printouts of the journal
entries. For the remaining $37,050 of the charges, SJC provided printouts of individual student
ledgers showing previously awarded credits to the student account (i.e., Dean’s List, Faculty
Honors, Legacy, Alaska Leaders, Diversity Award). Additional documentation would be
required to evaluate the eligibility of the individual students for discounts. From our review of
the 77 accounting entries, we were only able to confirm that eight accounting entries, totaling
$35,075, for Grant No. P116Z020135 and one entry, totaling $18,167, for Grant No.
P116Z040007 were allowable costs of the grants. 6

Lack of Adherence to Approved Budgets

SJC did not adhere to the approved budget for Grant No. P116Z020135. SJC’s financial
management system shows asset balances of $917,117 for equipment and $188,054 for
construction in-progress. According to the grant application, the Center for Alaskan Rural
Education was to be housed in the newly refurbished Yaw classroom building. During the grant
period, major renovations were underway on the Yaw building. The approved budget included
$75,000 for costs incurred to comply with the Americans With Disabilities Act and $350,000 for
equipment purchases to upgrade campus technology. The equipment asset balance substantially
exceeded the amounts in the approved budget. We also were unable to identify the type of
equipment purchased or services provided from the supporting documentation for 15 of the 18
transactions posted to the equipment and construction in progress accounts.

Inadequate Written Procedures

SJC did not have written procedures for determining the reasonableness, allocability, and
allowability of costs charged to grants or written procedures to minimize the elapsed time
between the receipt of Federal funds and issuance of payments for program purposes required by
EDGAR § 74.21(b)(5) and (6). Also, SJC did not have the written procurement procedures
required by EDGAR § 74.44(a). SJC staff provided us with their instructions for recording
transactions in the accounting system and preparing checks and the forms used to document
certain transactions, but the instructions and forms contained only a few internal control
procedures (i.e., check invoices for accuracy, obtain approving signatures on forms). Also, our
review of the instructions disclosed that the instructions may not provide for appropriate
segregation of duties (i.e., Accounting Technician entered new employees into the payroll
system and entered payroll transactions into accounting system) and safeguard access to user
passwords (i.e., user identification and password used to request draws of Federal grant funds


6
  For Grant No P116Z020135, the eight transactions covered expenses for 1) membership in the Sitka Educational
Consortium (Check # 51743), 2) printer paper and toner for recruitment printing (two transactions for Check #
52525), 3) computer virus protection (Check # 51546), 4) travel of high school students’ visits to SJC for student
recruitment purposes (Check # 51499, # 51553, and # 52650), and 5) office furniture for the YAW building (Check
# 51413). For Grant No. P116Z040007, the one transaction covered travel of high school students’ visits to SJC for
student recruitment purposes (Journal Voucher # 050531DNJV).
Final Report
ED-OIG/A09F0020                                                                      Page 9 of 14


was printed in the instructions). Also, the approving signatures called for in the instructions
were those of the CFO and Accounting Manager. These individuals knowingly authorized the
“borrowing” of the FISPE grant funds.

The Department intended the FIPSE funds award to SJC to be used for teacher training to
address the shortage of teachers in rural Alaska and for teacher training and training of human
services professionals to enhance SJC’s degree programs in Teacher Education and Human
Services. Because SJC did not maintain a financial management system that properly accounted
for the receipt and use of the FIPSE funds, there is no assurance that the FIPSE funds received
from GAPS draws were used for reasonable, allocable, and allowable costs incurred in the
performance of the grants’ purposes.

We are not making recommendations to improve SJC procedures because the special conditions
implemented by OPE’s letter of September 28, 2005 required SJC to prepare and implement a
business and financial plan that includes a written accounting manual that establishes standards
and procedures for internal controls, budgetary controls, back-up source documentation and
separation of duties, documentation for temporary or established indirect cost rates, and
accounting ledgers. The letter also states that SJC cannot incur any additional obligations under
Department grants other than those associated with the salaries of project directors until the
Department approves SJC’s business and financial plan. The letter also requires that any
revision to approved budgets must be approved by the Department. SJC is also required to
submit detailed quarterly financial reports with expenditure documentation (e.g., invoices).

Recommendation
2.1    We recommend that the Chief Financial Officer, in collaboration with the Assistant
       Secretary for Postsecondary Education, require SJC to provide a list of grant expenditures
       incurred with supporting documentation for Grant No. P116Z020135 and Grant No.
       P116Z040007. SJC should return to the Department the FIPSE funds for which it is
       unable to identify expenditures and provide documentation showing that the uses of the
       funds were reasonable, allocable, and allowable costs of the grants.

SJC Comments

SJC concurred with the recommendation. SJC stated that, due to the changes in Business Office
personnel during 2004-2005, it is unclear whether FIPSE receipts were recorded consistently.
SJC also stated that locating stored documentation had been a problem and that the Academic
Dean had copies of purchase orders and spreadsheets that were not reviewed during the audit.
SJC stated its staff is currently developing processes to obtain complete expenditure lists and
appropriate supporting documentation for the FIPSE grants. The SJC staff is also examining the
financial records related to expenditures for equipment and construction in progress and other
associated costs. SJC plans to accomplish these tasks by June 30, 2006.
Final Report
ED-OIG/A09F0020                                                                      Page 10 of 14


OIG Response

The OIG auditors did not have time to review the Academic Dean’s copies while on site because
the binder containing the documents was not made available to the auditors until shortly before
their departure. In response to the auditors’ subsequent requests for documentation, SJC did not
provide any copies of purchase orders or spreadsheets. We encourage SJC to provide the copies
along with its complete list of expenditures (including expenditures for equipment, construction
in process, and associated costs) and other expenditure documentation to the Department for
review during audit resolution.




                  OBJECTIVE, SCOPE, AND METHODOLOGY


The purpose of the audit was to determine whether Sheldon Jackson College properly accounted
for and used funds provided under the FIPSE Grant Nos. P116Z020135 and P116Z040007. Our
review covered the period June 1, 2002 through August 25, 2005 for Grant No. P116Z020135
and May 15, 2004 through August 25, 2005 for Grant No. P116Z040007.
To accomplish our objective, we reviewed SJC’s FIPSE grant award notifications, budgets, and
OMB Circular A-133 audit reports for the years ended June 30, 2003 and 2004. We also
reviewed SJC’s available written policies and procedures applicable to draw downs and charges
to these grants. We interviewed SJC officials and staff currently responsible for implementing
the financial and program portions of the FIPSE grants. We also communicated with the FIPSE
staff within OPE responsible for administering the FIPSE program.

To achieve our audit objective, we obtained reports on grant activity for the period June 1, 2002
through August 25, 2005, which SJC staff generated from its financial accounting system. We
tested the completeness of the data by comparing the total drawdowns on the report to the total
amount drawn down in GAPS. We attempted to identify the grants’ expenditures from the report
and compare information on the report to information on source documents for all drawdown
activity and other accounting entries of $2,000 or greater. As we noted in Finding No. 2, we
were unable to confirm that all receipts of FIPSE grants were included in the reports and were
unable to develop a complete list of grant expenditures from the reports. Also, due to the lack of
adequate supporting documentation, we were unable to assess the accuracy and appropriateness
of individual accounting entries. Based on the significant problems noted with the reports, we
concluded that the reports were not reliable for use in meeting the audit objective.

We gained an understanding of SJC’s internal control system related to personnel and
purchasing. We interviewed SJC staff currently responsible for these areas and performed
detailed testing to confirm our understanding. Due to time constraints, we interviewed SJC staff
responsible for processing payroll, but did not perform any testing or analysis related to payroll.
Also, we limited our testing to non-personnel transactions of $2,000 or greater charged to the
FIPSE grants for the period June 1, 2002 to August 25, 2005.
Final Report
ED-OIG/A09F0020                                                                      Page 11 of 14


We performed our fieldwork at SJC in Sitka, Alaska during the period August 23, 2005 through
September 1, 2005. We held an exit briefing with SJC officials on December 16, 2005. Our
audit was performed in accordance with generally accepted government auditing standards
appropriate to the scope of the review described above.




                            ADMINISTRATIVE MATTERS


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 Department of
Education 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:

                              Sally L. Stroup
                              Assistant Secretary for Postsecondary Education
                              U.S. Department of Education
                              Suite 7115
                              1990 K St.
                              Washington, D.C. 20006

                              Danny Harris
                              Deputy Chief Financial Officer
                              U.S. Department of Education
                              Room 4E314
                              400 Maryland 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/
                                             Gloria Pilotti
                                             Regional Inspector General for Audit
Attachment
Final Report
ED-OIG/A09F0020                                      Page 12 of 14




         Attachment: SJC’s Comments on the Draft Report
24 January 2006

Gloria Piloti
Regional Inspector General for Audit
United States Department of Education
Office of Inspector General
501 I Street, Suite 9-200
Sacramento CA 95814

Dear Ms. Pilotti:

In the temporary absence of the President of Sheldon Jackson College, I - as senior administrator
- am responding to your letter of 29 December 2005 (Control Number ED-OIG/A09F0020),
Draft Audit Report. Thank you and your team for your diligence.

Regarding Recommendation 1.1 (p. 5), we agree that the Chief Financial Officer, in
collaboration with the Assistant Secretary for Postsecondary Education, should determine the
average daily balance of "borrowed" funds for grants P116Z020135 and P116Z040007 in order
to reimburse the Federal Government for interest costs incurred. It is our opinion that eligible
expenses correlating with these borrowed funds were in due course met. Therefore, the task will
involve determining the times between drawdowns and eligible expenditures. We plan to
accomplish this task by the end of this fiscal year (30 June 2006).

Regarding Recommendation 2.1 (p.9), it is important to state that there was a rapid and
complete changeover of personnel in the Sheldon Jackson College Business Office during 2004 -
2005. As a result, it is unclear whether the recordation of FIPSE receipts was consistent. One
problem may be one of locating stored documentation that would support expenditures of funds
that were reasonable, allocable, and allowable. For instance, additional records have been
maintained by the Academic Dean (copies of purchase orders and spreadsheets) that were not
reviewed during this audit. Staff are currently developing processes to obtain and develop
complete expenditure lists and appropriate supporting documentation for these grants. At the
same time, staff are examining the financial records relating to expenditures for equipment and
construction in progress and other associated costs. As a result, we agree that the Chief Financial
Officer, in collaboration with the Assistant Secretary for Postsecondary



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Education should obtain a list of grant expenditures along with supporting documentation for
grants P116Z020135 and P116Z040007. Determination of ineligible expenditures will occur
during this process. We plan to accomplish this task by the end of this fiscal year (30 June
2006).

Sincerely,

/s/
David R. Harrington, Ph.D.
Dean of Academic Affairs