oversight

KIPP Foundation's Administration of the Fund for the Improvement of Education Grants.

Published by the Department of Education, Office of Inspector General on 2006-12-06.

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




                                                     December 6, 2006
                                                                                                  Control Number
                                                                                                  ED-OIG/A09G0010

Mr. Richard Barth
KIPP Foundation
Chief Executive Officer
345 Spear Street, Suite 510
San Francisco, California 94105

Dear Mr. Barth:

This Final Audit Report, entitled KIPP Foundation’s Administration of the Fund for the
Improvement of Education Grants, presents the results of our audit. The purpose of the audit
was to determine whether the KIPP Foundation conducted six Congressionally-directed grants
provided under the Fund for the Improvement of Education (FIE) in accordance with the
authorizing legislation, approved grant applications, and applicable Federal regulations. Our
review covered the period July 1, 2004 through August 24, 2006.



                                                   BACKGROUND 



The Knowledge Is Power Program (KIPP) is an educational program used to operate a
nationwide network of free open-enrollment college-preparatory public schools in under-served
communities (KIPP schools). The KIPP Foundation (Foundation) is the national non-profit
organization established in 2000 and located in San Francisco, California that supports the
network. The Foundation recruits, trains, and supports educators through its KIPP School
Leadership Program, which provides a training program for future KIPP school leaders and other
training events (i.e., retreats, conferences, summits, etc.). The Foundation reported that
8,835 students were enrolled at the 45 KIPP schools in school year 2005-2006.

The U.S. Department of Education’s Office of Innovation and Improvement (OII) awarded the
six FIE Congressionally-directed grants to the Foundation. In addition to the FIE grants included
in our review, the Foundation received an unsolicited FIE grant for $1,462,422 (grant period
from September 17, 2001 through September 16, 2004) and a Credit Enhancement for Charter
School Facilities Program grant for $6,805,891 (grant period from June 14, 2006 through
June 14, 2021). The Foundation’s Office of Management and Budget (OMB) Circular A-133
single audit reports show that the Foundation did not receive funds from other Federal agencies
during the period covered by our audit.


          Our mission is to promote the efficiency, effectiveness, and integrity of the Department’s programs and operations.
Final Report
ED-OIG/A09G0010                                                                                       Page 2 of 14

     • 	 Grant Number U215K040068, which provided $3,976,400, was the first
         Congressionally-directed grant awarded to the Foundation. Of the total award,
         approximately half was used by the Foundation for the KIPP School Leadership Program.
         The remaining amount (approximately $2,000,000) was disbursed among 35 KIPP
         schools to support school leader and teacher training, professional development, and
         sharing of best practices activities for school year 2004-2005. Because the Congressional
         language for the grant did not provide for subgrants, the Foundation used vendor
         agreements to provide grant funds to the schools. Under the terms of the vendor
         agreements, KIPP schools submitted invoices to the Foundation for activities performed
         each quarter. The Foundation paid the invoiced amounts with grant funds on a
         reimbursement basis.

     • 	 Grant Number U215K050531 was a Congressionally-directed grant for $2,976,000. The
         Foundation used $873,800 to support the KIPP School Leadership Program activities and
         events. The remaining $2,102,200 was subgranted to 47 KIPP schools for extended
         learning programs conducted at the schools.1 The Foundation continued to require
         schools to submit detailed invoices, but added the requirement for schools to include
         supporting documentation for their grant-related expenses. The Foundation paid the
         invoiced amounts to KIPP schools on a reimbursement basis, just as they had done in the
         previous year for U215K040068 grant funds.

     • 	 The Foundation was awarded four additional Congressionally-directed grants for
         subgrants to KIPP schools specified in the award documents. The funds for these
         school-specific grants were primarily budgeted for personnel costs for extended learning
         time, teacher training, and curriculum development. The Foundation provided the grant
         funds to these schools in the same manner as described above for the U215K050531
         grant.

The table below summarizes the characteristics of each grant.
                     Table 1: FIE Grants Awarded to the Foundation
     Grant          Performance             Grant
                                                                                  Use of Funds
    Number              Period             Award (a)
                  10/1/2004 through                        KIPP leadership training program and KIPP school
U215K040068                                $3,976,400
                  9/30/2005                                leader and teacher development activities.
                  10/1/2005 through                        KIPP leadership training program and extended
U215K050531                                $2,976,000
                  9/30/2006                                learning time at all KIPP schools.
                  8/23/2005 through                        Sub-grant to one KIPP school in Philadelphia for
U215K050511                                   $24,800
                  11/23/2006                               extended learning time personnel and supplies.
                  8/23/2005 through                        Sub-grant to nine KIPP schools in California for
U215K050516                                  $198,400
                  11/23/2006                               curriculum development and teacher training.
                  8/23/2005 through                        Sub-grant to two KIPP schools in Tennessee for
U215K050519                                  $148,800
                  11/23/2006                               extended learning time personnel and supplies.
                  8/23/2005 through                        Sub-grant to one KIPP school in Oklahoma City for
U215K050524                                   $49,600
                  11/23/2006                               curriculum development and teacher training.
(a) The U215K040068 and U215K050531 grant awards provided for indirect costs at 6.26 percent and 6.63 percent of
direct costs, respectively. The other grant awards did not provide for indirect costs.



1
 Congress included language in the authorizing legislation for the Federal fiscal year 2005 grants that allowed the
Foundation to subgrant funds to KIPP schools.
Final Report
ED-OIG/A09G0010                                                                    Page 3 of 14



                                    AUDIT RESULTS 



The Foundation generally conducted the FIE grants in accordance with the authorizing
legislation, approved grant applications, and applicable Federal regulations. We concluded that
the Foundation and KIPP schools were conducting activities in accordance with the goals and
objectives of the project. We also determined that the Foundation’s financial management
system generally met the standards for proper administration of FIE funds. However, the
Foundation did not fully comply with the applicable regulations when it included unallowable
costs and costs lacking required supporting documents or budget approval in its charges to the
FIE grant accounts. The Department intended the FIE funds awarded to the Foundation to be
used to support the KIPP School Leadership Program, curriculum development, teacher training,
and extended learning time at KIPP schools. While we did not identify any serious deficiencies
that prevented the Foundation from achieving the grant goals, improvements to the financial
management system are needed to ensure that FIE grant funds are used only for allowable and
allocable costs.

In its comments to the draft report, KIPP concurred with our finding and agreed to implement
our recommendations. The full text of KIPP’s comments is included as an attachment to the
report.

FINDING - KIPP’s Financial Management System Needs Improvement

The Foundation’s financial management system generally met the requirements specified in the
Education Department General Administrative Regulations (EDGAR) 74.20 through 74.28. The
Foundation used accounting software to process and record financial transactions and maintained
separate records of accountability for each FIE grant. The Foundation also had policies and
procedures in place for handling Federal grant funds at the Foundation and the individual KIPP
schools (subgrantees). However, our review of selected expenditures found that the Foundation
included unallowable costs in its charges to two grant accounts and did not have required
supporting documentation for other costs charged to the accounts. We also found that the
Foundation reimbursed a school for staff costs not included in the school’s approved budget.
     Final Report
     ED-OIG/A09G0010                                                                                     Page 4 of 14

                Table 2: Drawn Funds, Recorded Expenditures, and Results of OIG Review
                                                                      050511           050516          050519         050524
                                      040068          050531
        Grant #U215K                                                Philadelphia      California      Tennessee      Oklahoma
                                      General         General
                                                                     School (a)        Schools         Schools        School
Grant Funds Drawn as of
                                      $3,976,400     $1,379,650           $24,800         $73,596       $58,218        $49,600
August 24, 2006
Expenditures Recorded in
Grant Accounts as of                 $4,600,523      $1,401,382           $24,800         $78,155       $58,218        $49,600
August 24, 2006                          (b)             (c)
Expenditures Reviewed By
                                        $601,206       $344,425           $24,800
OIG
Unallowable Costs Included in
                                          $7,762         $7,778           ---
Recorded Expenditures
Expenditures Lacking
                                         $18,059        $15,316           ---
Required Documentation (d)
Reimbursement for Staff Costs
                                          ---            (e)              ---
Not Included in School Budget
(a) Expenditures for the Philadelphia school were selected for review because the school could receive reimbursement from three
grants during our audit period (U215K040068, U215K050531, and U215K050511).
(b) For U215K040068, recorded grant expenditures exceeded amounts drawn by $624,123.
(c) For U215K0505031, the Foundation reduced travel costs for the School Leaders Retreat by $21,732 in order to remain within
its travel budget. Thus, recorded expenses exceeded the total amount drawn on the grant.
(d) Using alternative documentation, we were able to determine that the unsupported employee benefit costs ($18,059 for
U215K040068 and $2,816 for U215K050531) were reasonable.
(e) The reimbursement did not result in an unallowable use of FIE grant funds.


     The Foundation Included Unallowable Costs in
     Its Charges to FIE Grant Accounts

     The Foundation charged the U215K040068 grant account for $7,762 of unallowable alcoholic
     beverage and entertainment costs and the U215K050531 grant account for $7,778 of unallowable
     costs that comprised $3,387 in unallowable alcoholic beverage costs, $3,718 in overcharged
     employee benefit costs, and a $673 duplicate charge for travel costs.

     Unallowable Alcoholic Beverage and
     Entertainment Costs Charged to Grant Accounts

     The Foundation included unallowable alcoholic beverage and entertainment costs in the amounts
     charged to FIE grant accounts.

         • 	 The Foundation held a Math Retreat in New York City, New York in January 2005 for
             math teachers to discuss successful teaching strategies used at two high-achieving KIPP
             schools. The Foundation charged the U215K040068 grant account for $61,608 in
             travel-related costs for approximately 70 persons who attended the three-day event. The
             amount included $1,919 for alcoholic beverages purchased during a restaurant dinner.
Final Report
ED-OIG/A09G0010                                                                                     Page 5 of 14

    • 	 The Foundation held a School Leaders Retreat in Cancun, Mexico in February 2005 for
        KIPP school leaders to meet and discuss issues relevant to their professional growth and
        KIPP schools. The Foundation charged the U215K040068 grant account for $90,749 in
        travel-related costs for the approximately 70 persons who attended the four-day event.
        The amount included $2,988 for alcoholic beverage purchases, $2,318 for three hours of
        DJ and Karaoke services, and $537 for basketball equipment setup.

    • 	 The Foundation held another School Leaders Retreat in Cancun, Mexico in
        February 2006. The Foundation charged the U215K050531 grant account for $68,147 in
        travel-related costs for the approximately 70 persons who attended the four-day event.
        The amount included $3,387 for alcoholic beverage purchases.2

EDGAR 74.27 requires that private non-profit organizations determine the allowability of costs
charged to grants in accordance with the cost principles contained in OMB Circular A-122.
OMB Circular A-122 Attachment B, paragraph 3 (Alcoholic beverages) and paragraph 14
(Entertainment costs) prohibit the use of Federal grant funds for alcoholic beverage and
entertainment costs. Foundation staff did not thoroughly review expenditure documentation to
ensure that only allowable costs were charged to the FIE grant accounts.

The unallowable alcoholic beverage and entertainment costs charged to the FIE grant accounts
did not result in the improper use of FIE funds because the Foundation did not use FIE funds to
cover $624,123 of U215K040068 grant expenditures and reduced its draw of FIE funds for
U215K050531 by $21,732 to stay within the travel budget in the approved grant. However, the
Foundation holds several training events each year. Because we did not review all event-related
expenditures, there is a risk that other alcoholic beverage and entertainment costs may have been
charged to the FIE grant accounts that were not detected by our review. Additionally, there is a
risk that FIE funds may be used inappropriately in the future if the Foundation continues to
charge alcoholic beverage and entertainment costs to the FIE accounts and does not adjust
expenditure totals for the unallowable costs when determining amounts to be drawn from the
grant awards.

Employee Benefit Costs
Overcharged to the Grant Account

The Foundation charged an amount to the U215K050531 grant account for Foundation employee
benefit costs (for the first two quarters of the grant year) that was $3,718 in excess of the amount
allocable to the FIE grant. OMB Circular A-122 Attachment A, paragraph A defines allowable
costs as reasonable for the performance of the award and allocable to the grant and requires that
the costs charged to grants be consistent with policies and procedures that apply uniformly to
both federally-financed and other activities of the organization. The Foundation improperly
charged $3,368 because business office staff used 19 percent for the calculation instead of
following the Foundation’s methodology, which used a percentage representing the ratio of
employee benefits to salaries for all Foundation employees. The Foundation’s Controller stated
that the different methodology was used due to a misunderstanding of the direction provided to

2
  The trips to Cancun, Mexico did not require prior Department approval because travel to Mexico is not considered
foreign travel under OMB Circular A-122, Attachment B, paragraph 51e. In addition, the travel expenses charged to
the grant were less than the per diem allowance established by the U.S. General Services Administration for Cancun,
Mexico and were comparable to the allowances established for San Francisco and cities in the Los Angeles area.
Final Report
ED-OIG/A09G0010                                                                                 Page 6 of 14

the staff by the Controller. We determined that the error was a one-time occurrence. The
remaining improper charge of $350 was due to a math error. Based on our recalculation, we
concluded that the Foundation overcharged the U215K050531 grant account by $3,718 for
employee benefit costs and had drawn FIE funds for this amount. The Foundation needs to
correct the improper charges in the FIE grant account and adjust future draws from the grant
award for the $3,718.

Travel Costs Charged Twice
to the Grant Account

The Foundation charged the U215K050531 grant account twice for $673 of travel-related costs
for the School Leaders Retreat. The business office staff said that the duplicate entry was
previously identified and reversed, but then erroneously reentered. The $673 duplicate charge to
the U215K050531 grant account did not result in the improper use of FIE funds because the
Foundation reduced its draw for funds from the U215K050531 grant by $21,732 to stay within
the approved travel budget. However, the Foundation needs to correct the duplicate charge in
the FIE grant account to ensure that the amount is not included in expenditure totals used to
determine future draws from the grant award.

The Foundation Did Not Have Required
Supporting Documentation for Costs
Charged to FIE Grant Accounts

The Foundation did not have required supporting documentation for $18,059 charged to the
U215K040068 grant account for Foundation employee staff benefit costs and $15,316 charged to
the U215K050531 grant account for Foundation employee staff benefit costs ($2,816) and
personnel costs incurred at the KIPP Tulsa College Prep School ($12,500). In addition,
Foundation employees did not sign labor allocation worksheets used to support personnel costs
charged to the grant accounts for the earlier part of our audit period.

Employee Benefits Not Documented

The Foundation did not provide any documentation to support $18,059 of Foundation employee
benefit costs charged to the U215K040068 grant account and did not provide adequate
documentation to support $2,816 of Foundation employee benefit costs charged to the
U215K050531 grant account.3 The employee benefit costs had been calculated by former
Foundation staff. Thus, current staff were unable to explain how the employee benefits were
calculated or locate supporting documentation.

Since the documentation was not readily available to assess the allowability of employee benefit
costs charged to the FIE grants, we used the following alternate methods. For the $18,059 of
employee benefit costs, we compared the 3-month average rate (5.9 percent) used to calculate the
$18,059 to the 6-month average rate (10.1 percent) used to calculate the employee benefit costs
for a more recent period. Since the current rate was supported by payroll documentation and was
significantly higher than the 5.9 percent, we concluded that the 5.9 percent rate was reasonable.

3
 For the $2,816, the Foundation provided some handwritten notes, but no source documentation.

OMB Circular A-122, Attachment A, paragraph A.2.g states that allowable costs must be adequately documented. 

Final Report
ED-OIG/A09G0010                                                                                         Page 7 of 14

To assess the reasonableness of the $2,816, we calculated the monthly rates using currently
available payroll documentation for the same historical period, and then used the rates to
recalculate the employee benefit costs. We determined that the amount charged to the grant was
less than the amount derived from our calculation. Based on these two analyses, we concluded
that the $18,059 and $2,816 were reasonable charges to the FIE grant accounts.

This finding applied to calculations and recordkeeping practices performed by the Foundation’s
previous business office staff. Based on our review of subsequent staff benefit costs charged to
the grant accounts, we determined that the current business office staff maintained adequate
supporting documentation for employee benefit charges. Thus, no additional corrective action is
needed.

School Personnel Costs Based on
Budgeted Rather Than Actual Expenditures

The Foundation charged the U215K050531 grant account for $12,500 paid to KIPP Tulsa
College Prep School for personnel costs that were based on budgeted rather than actual school
expenditures. The school’s invoice package for the first quarter of school year 2005-2006
showed that the school divided the annual budgeted personnel costs of $50,000 by four and
submitted an invoice to the Foundation for the resulting amount of $12,500.
OMB Circular A-122 does not allow the use of budget estimates as support for charges to
Federal grants.4 Additionally, the Foundation’s internal guidance requires schools to provide
copies of the school payroll reports, including annotations of amounts for grant related activities,
with the invoices submitted for reimbursement. Tulsa College Prep School staff did not adhere
to the internal guidance even though actual expenditures were available from the school’s payroll
system. Business office staff, who performed the review of Tulsa College Prep School’s invoice
package, did not identify the school’s non-adherence to the Foundation’s guidance. Because the
$12,500 was based on budgeted rather than actual costs, there is no assurance that the amount
was, in fact, used for allowable personnel costs. Our review of selected school invoice packages
found that other schools’ packages contained payroll reports to support personnel costs included
in the school’s invoice.

Unsigned Labor Allocation Worksheets

Neither Foundation employees nor their supervisors signed the Labor Allocation Worksheets
(employee monthly timesheets) that were used to support personnel costs charged to the
U215K040068 grant account. Specifically, for one three-month sample (January through
March 2005), we found that 8 of 18 employee monthly timesheets did not have signatures and
for another three-month sample (July through September 2005), we found that 7 of 8 employee
monthly timesheets were not signed. While the monthly timesheets provided space for employee
signatures, the Foundation’s policy allowed the acceptance of unsigned employee timesheets.




4
  OMB Circular A-122, Attachment B, paragraph 8m(2)(a) requires that support for salaries and wages in payroll
records "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.”
Final Report
ED-OIG/A09G0010                                                                                    Page 8 of 14

The Foundation’s policy was not in compliance with the wages and salaries documentation
requirements of OMB Circular A-122, Attachment B, paragraph 8m(2)(c).5
However, except for the lack of employee signatures noted above, we concluded that the
employee monthly timesheets appeared to be accurately prepared and we had no reason to doubt
that they represented a reasonable accountability of personnel costs charged to the grant account.

A similar finding was reported in the Foundation’s OMB Circular A-133 single audit report for
the fiscal year ended June 30, 2005. As a result of the audit finding, the Foundation revised its
policy to require employee signatures. To assess the effectiveness of the Foundation’s corrective
action, we reviewed an additional 16 employee monthly timesheets for the period October 2005
through March 2006. We found that all 16 timesheets contained employee signatures. These
additional test results indicated that the condition was corrected by October 2005.

The Foundation Reimbursed a School
For Staff Costs Not Included
in the School’s Approved Budget

The Tulsa College Prep School included personnel costs in its invoice for grant account
U215K050531 that were not in the school budget approved by the Foundation. The school’s
approved budget of $50,000 included allocated amounts for teacher compensation for extended
hours ($40,000), Summer school ($6,000), and Saturday school ($4,000). The documentation
submitted with the invoice for the first quarter of school year 2005-2006 showed that the school
had reallocated budgeted amounts as follows: teachers ($36,203), secretary ($12,225), and
library personnel ($1,572). The Foundation paid the school’s invoice.

The Foundation’s Controller stated that school budget changes are not allowed after the budget
has been finalized and approved and that she was not aware that Tulsa had submitted an invoice
to the Foundation based on a budget change. OMB Circular A-110, Subpart C, paragraph 51(a)
holds award recipients responsible for managing and monitoring each project, program,
subaward, function or activity supported by the award.

Recommendations

We recommend that the Chief Financial Officer, in collaboration with the Assistant Deputy
Secretary for the Office of Innovation and Improvement, require the KIPP Foundation to—

1.1 	   Ensure that all staff is aware that Federal funds cannot be used for alcoholic beverage and
        entertainment costs and revise its procedures, as needed, to ensure that FIE funds are not
        used for such costs.

1.2 	   Review FIE grant accounts to identify any other alcoholic beverage and entertainment
        costs charged to the accounts, determine whether FIE funds were used for the costs, and,
        if so, return the funds to the Department or adjust future draws of FIE funds, whichever is
        appropriate.


5
  With regard to time and activity reporting in support of employee salaries and wages, OMB Circular A-122,
Attachment B, paragraph 8m(2)(c) states, "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…."
Final Report
ED-OIG/A09G0010                                                                      Page 9 of 14

1.3 	   Correct the charges to the U215K050531 grant account for the $3,718 of overcharged
        employee benefit costs and $673 of duplicate travel expense and ensure that future draws
        from the grant award are adjusted for the amounts.

1.4 	   Instruct Tulsa College Prep School to submit annotated school payroll reports to support
        grant-related personnel costs incurred for the first quarter of school year 2005-2006 and
        confirm that the school claimed actual personnel costs and submitted the required payroll
        reports in subsequent invoice packages. If charges to the U215K050531 grant account do
        not reflect actual personnel costs, the Foundation should adjust future draws from the
        grant award to reflect the actual costs.

1.5 	   Confirm that budget variances for Tulsa College Prep School have been resolved and that
        any changes to the school’s budget are aligned with program objectives.

1.6 	   Review its policies and procedures and implement changes, if needed, to ensure that
        sufficient safeguards are in place to prevent accounting errors or unapproved school
        budget changes, and promptly correct such errors/unapproved changes, if they occur.

KIPP Comments

In its comments to the draft report, KIPP generally concurred with each condition listed in the
finding and described the corrective actions taken and planned to address each condition. The
actions taken and planned were responsive to our recommendations.



                  OBJECTIVE, SCOPE, AND METHODOLOGY 



The objective of our audit was to determine whether the Foundation conducted the six FIE grants
in accordance with the authorizing legislation, approved grant applications, and applicable
Federal regulations. Our review was limited to assessing whether the Foundation’s financial
management system complied with the standards defined in EDGAR 74.20 through 74.28,
activities had been conducted in accordance with the goals and objectives of the grant projects
and grant funds were used for grant purposes in compliance with OMB Circular A-122. Our
review covered the period from July 1, 2004 through August 24, 2006.

To assess the Foundation’s financial management system, we evaluated its written policies and
procedures for grant administration. We interviewed Foundation management and staff in the
business office (including the current and prior Chief Financial Officers), the School Leadership
Program, the Office of General Counsel, Human Resources and Information Technology, as well
as officials responsible for monitoring academic and business operations at the KIPP schools.

To assess whether activities had been conducted in accordance with the goals and objectives of
the grant projects, we reviewed documentation of the activities, including invoices, event
schedules, and performance reports issued by KIPP review teams.
Final Report
ED-OIG/A09G0010                                                                                   Page 10 of 14

To determine whether grant funds were used for grant purposes and whether the grant
expenditures complied with OMB Circular A-122, we reviewed ten judgmentally selected
expenditure packages.6 The ten expenditure packages were for three of the six grants, and
included expenditures for the Foundation (four packages) and four KIPP schools (six packages).
We selected eight of the expenditure packages based on assessed risk, such as the possible use of
estimated amounts, overlapping grant periods, a high proportion of grant funds expended in the
pre-award period, and funding from multiple grants for one school. We selected the remaining
two expenditure packages because the packages were the only Foundation packages prepared by
the current business office staff. Each selected expenditure package included many individual
transactions for activities occurring over a three to six-month period. The Foundation
expenditure packages included payroll, employee benefits, travel, and indirect cost expenditures
for the KIPP School Leadership Program. The school expenditure packages consisted primarily
of salary expenses for extended learning instruction, as well as expenses for training and
curriculum development. For the selected expenditure packages, we reviewed documentation
that was maintained at the Foundation’s business office. We did not review records maintained
at the KIPP schools unless such records had been submitted to the Foundation as part of an
expenditure package.

To select our sample, we relied on expenditure reports that the Foundation created from
information contained in its accounting system. We tested the completeness of the reports by
comparing the grant income reported in the Foundation’s accounting system to the drawn funds
recorded in the Department’s Grant and Procurement System (GAPS). For the ten sampled
expenditure packages, we confirmed the expenditure amounts to amounts contained in the
supporting documentation. Based on these tests, we concluded that the expenditure reports
provided by the Foundation were sufficiently reliable to use for our sample selection.

We performed on-site fieldwork at the Foundation’s offices in San Francisco, California. We
held an exit briefing with Foundation officials on September 21, 2006. 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:



6
 Because we judgmentally selected expenditure packages for our review, testing results may not be representative
of all expenditure packages.
Final Report
ED-OIG/A09G0010                                                                      Page 11 of 14


                              Morgan Brown
                              Assistant Deputy Secretary
                              Office of Innovation and Improvement
                              U.S. Department of Education
                              400 Maryland Avenue, SW
                              Washington, D.C. 20202

                              Lawrence A. Warder
                              Chief Financial Officer
                              Office of the Chief Financial Officer
                              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/ Beverly Dalman for

                                             Gloria Pilotti
                                             Regional Inspector General for Audit




Attachment
Final Report
ED-OIG/A09G0010                                            Page 12 of 14




             Attachment: KIPP’s Comments to Draft Report
Final Report
ED-OIG/A09G0010                                                                                               Page 13 of 14




             KIPP:

        November 8. 2006


        Ms. Gloria Pilotti
        U.S. Department of Education
        Office of Inspector General
        50 1 1 Street, Suite 9·200
        Sacramento, CA 9581 4

        Uear Ms. ]I j\oni

        The KIP P Foundation h3S received your Draft Audit Repon , entitled KIN' FOImda tioll',r
        At/minis/ralion ojlhe Flmd for Ihe imprQ\'<!II1t'm of Edu('mi()11 Gram.l", dated OClober 12, 2006,
        Enclosed is the Kl PP Foundation's response 10 these fi nd ings:

        FINDI;./G - K[PP'5 FiDancial Management System Needs I Ulflrovemenl
           I. T ht Fountlation I,ncluded Un a llowable Cosu in hi Charg n 10 FIE Cranl Accounts
                  A. Una llowable' Alcoh olic Bevcrogt and E nlertlinmenl Costs C harged ' 0 the
                       Granl Accounts

                       RESPONSE: The KIPP Foundati on drew dO ....1l funds during the 2005-06 gran t
                       period relilled 10 unallowable costs. The Foundation's Finance Depanmenl
                       revised the drnw down 10 exclude all meals from the final draw dO'MI to ensure
                       lhal federal moni~s were not spent on alcohol or other unallowable costs. In
                       addition. when the original fi nding was communicated by EO-OIG 10 Ihe
                       Foundation's Finance Depanmenl, Ihe Controller inunedialt:ly implemenled a
                       new policy and proc~dure whereby Federal mOI\ies can nOI be iliawn dO\\ll for
                       alcohol a.nd entenairunent. The Finance Department is in the process of updating
                       sll internsi control policies and procedures.

                   B. Employee Benefit Costs Ovtreharged 10 the GrAnt Aceounl

                       RESPONSE: The KIPP Foundation drew do\m funds during the 200S.()6 grant
                       pcriod for employee benefils thaI were in excess of the amount allocable to the
                       rJ E grant. However, in its final drnw dO\\ll and summary of grant expenses, the
                       excess charges hll\'e been excluded from the o \~rall costs associalC~d with the
                       grant. These funds were reallocated for other alJoWllble and budgeted
                       expendilUTes.

                   C. Trilvel COSIS Char ged Twice 10 tbe Gran l Arcounl


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Final Report
ED-OIG/A09G0010                                                                                         Page 14 of 14




                      RES PONSE: The KIPP Foundation unin!entionally drew down funds during the
                     2005·06 grant period for the same !ravel cosls twice. However, in its finul draw
                     down and summary of grant expenses, the Controller excluded the duplicate
                     charges from the 0 \ emil costs associated with the grant.

          2.   Th e Foundation Did Not U lIIvt Required SUIlPon ing Docu.mentation for Costs
               C harged 10 PIE Grant Accounts
                  A, Employee Benefi ts Ko t Docu mented

                     RES PONSE: As Slated in the finding, the previous business oOke staff did nOI
                     complete the requirement for supporting documentation. TIle current business
                     oftice staff is full y aware of the importllnc~ of adequate supporting documentation
                     and therefore all suppon;ng documentation for all curren! and future draw downs
                     \\ill be maintained.

                  B. School Pt'rJon nd Costs Based on Budgeted Rath er Than Actual
                     Elpendil uru

                     RESPONSE: As II result of the audit ftnding, the Foundation's Finance
                     Department immediately contacted KIPP Tulsa College Prep and instructed the
                     school to rcsubmit their expenses usinS actual u:.p.:-nditures \\;th appropriate and
                     adequate supporting documentation. The .school is in the process of providing the
                     appropriote supporting documentation. No funher draw dovons will be made for
                     KIPP Tulso College Prep un!i] the required documentation has becn provided.

                  C. Unsigned Labor Allocation Wo rk5 hf!('t ~

                     RESPONSE: As stated in the finding, fo r both grants received, th~ were
                     inSl.!ll1CeS in which Foundation staff (whose positions are funded by federal
                     monies) did not submit signed labor allocation worksheets. In response to the
                     OMS Circ ular A·I)) single audit for the fiscal year ended June )0. 2005, the
                     Foundation revised its policies and procedures requiring the submission of signed
                     labor worksheets as well as an electronic vcrsion. During their audit, EO-OIG
                     stafTreported lhotlhis procedure has been implemented and Foundation SlIIffhave
                     been in compliance since October 2005.

          ] , Tbe Founda tion Reimbursed a School For Staff COiU Notlnd ud cd in the School's
              Approved Budget

                     RESPONSE: As 11 result of the audit finding, the Foundation's Finance
                     Department immediately contacted KIPP Tulsa College Prep and instructed the
                     school to resubmit their e.'\penses in accordance with their originally approved
                     budget. The school is in the process of providing the appropriate supporting
                     documentation. No further draw dO\.l.lls will be madc for KI PP Tulsa College
                     Prep until the required documenl.iltion has been provided.