oversight

Colorado Department of Education's Use of Federal Funds for State Employee Personnel Costs.

Published by the Department of Education, Office of Inspector General on 2010-02-26.

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

                                      UNITED STATES DEPARTMENT OF EDUCATION
                                                           OFFICE OF INSPECTOR GENERAL

                                                                                                                            Audit Services
                                                                                                                        Sacramento Region

                                                            February 26, 2010

                                                                                                                  ED-OIG/A09J0004

Honorable Dwight D. Jones
Commissioner of Education
Colorado Department of Education
201 East Colfax Avenue, Room 500
Denver, Colorado 80203

Dear Commissioner Jones:

This final audit report, entitled Colorado Department of Education’s Use of Federal Funds for
State Employee Personnel Costs, presents the results of our audit. The purpose of the audit was
to determine whether Federal funds reserved for use at the Colorado Department of Education
(CDE) were expended in accordance with applicable laws, regulations, and U.S. Department of
Education (Department) guidance. This report is limited to CDE’s methodology for allocating
personnel costs to Federal education grants. Our review covered CDE’s policies and procedures
for the period July 1, 2007, through June 30, 2009.




                                                         BACKGROUND


CDE is the administrative arm of the Colorado State Board of Education and oversees
Colorado’s 178 local school districts. The head of CDE, the State Commissioner of Education,
is appointed by the Board of Education. By State law, Colorado is a “local control” State. This
means that many elementary and secondary public education decisions are made by the local
school boards. However, because some facets of education required leadership at the State level,
the State’s Constitution was amended in 1948 to provide for an elected State board of education,
responsible for the general supervision of public school districts.

CDE receives funding from multiple Federal agencies, much of which is passed through to
subrecipients, such as school districts. Table 1 shows the amount of expended Federal funds,
by agency, that CDE reported in the Colorado Statewide Single Audit for fiscal year July 1,
2007, through June 30, 2008. Department programs provided more than 88 percent of the
Federal funding expended by CDE during the period.1


1
 CDE does not consolidate funds available for State administration of Federal education programs as allowed by
section 9201(a) of the Elementary and Secondary Education Act.

    The Department of Education's mission is to promote student achievement and preparation for global competitiveness by fostering educational
                                                      excellence and ensuring equal access.
Final Report
ED-OIG/A09J0004                                                                                                Page 2 of 15


                 Table 1. CDE’s Expenditures of Federal Funds for Fiscal Year 2008 (a)
                                                             Amount              Amount Passed                Fiscal Year
                                                           Expended at            from CDE to                    2008
             Federal Agency Name                              CDE                 Subrecipients                  Total
    U.S. Department of Education                            $ 29,145,227          $ 366,276,959           $ 395,422,186
    National Endowment for the Humanities                  $ 2,500,474            $       233,883         $     2,734,357
    U.S. Department of Agriculture                          $     685,316         $ 108,240,216           $ 108,925,532
    U.S. Department of Health and Human
                                                           $      562,903         $        92,449         $       655,352
       Services
    Corporation for National and Community
                                                           $      88, 974         $       130,000         $       218,974
       Service
    U.S. Department of Defense                              $             0       $       771,058         $       771,058
                                          Total             $ 32,982,894          $ 475,744,565           $ 508,727,459
       (a) We did not assess the reliability of the data reported in the Colorado Statewide Single Audit.  


CDE uses the Colorado Personnel Payroll System (CPPS) to process its monthly payroll. When
establishing a new employee in CPPS, the Human Resources Office enters one or more CERT
codes. The CPPS Glossary defines a CERT code as a “cost center for which time is charged for
expense.” If an employee works on more than one program, multiple CERT codes are used to
allocate the employee’s salary among the different funding sources. The CERT codes should be
adjusted when funding sources or funding allocations change. Initial CERT codes and changes
to CERT codes are approved and documented using a Request for Personnel and/or Position
Action (CDE-43) form, which is maintained in the employee’s personnel file.2

By State law, CDE must pay its employees by the last working day of the month and is required
by State fiscal rules to use the CPPS for payroll processing. About one week before the official
pay date, the CPPS processes the payroll using the CERT codes to allocate the personnel costs to
the funding sources. CPPS interfaces with the Colorado Financial Reporting System (COFRS),
which applies the charges to the applicable Federal grants. To distribute payroll costs to
different funding sources or by different allocation percentages than those established in CPPS,
CDE’s Office of Accounting and Purchasing must process a journal entry in COFRS. Because
the employee timesheets are not received in the Office of Accounting and Purchasing until after
the monthly payroll cycle has ended, the journal vouchers in COFRS are processed in the month
following the pay period.




2
  The purpose of the form CDE-43, as stated on the form, is to “request and document the approval of
personnel/position actions that affect an employee’s pay, status, and tenure. This shall include the creation and
reallocations of positions, filling positions, all promotions and salary adjustments, Work at Home authorization,
account changes and temporary/IT services.”
Final Report
ED-OIG/A09J0004                                                                    Page 3 of 15



                                       AUDIT RESULTS


CDE inappropriately charged employee personnel costs to Federal education programs based on
predetermined time and effort allocations instead of charging the programs based on the actual
activity of each employee. Because CDE could not provide documentation for employees’
actual activities on Federal programs, we were unable to determine the allowability of about
$23,962,000 in personnel costs charged to Department grants for State fiscal years 2008 and
2009.

We recommend that the Department require CDE to submit additional support for the personnel
costs for fiscal years 2008 and 2009, make adjustments for the current year or return the funds to
the Department. We also included procedural recommendations to improve CDE’s
documentation for future personnel costs charged to Federal grants.

We provided a draft report to CDE for comment on November 9, 2009. CDE generally
concurred with our finding. CDE also concurred with our recommendations and described the
corrective actions taken or planned to address each recommendation. CDE’s comments are
summarized at the end of the finding. The full text of CDE’s comments to the draft report is
included as Attachment 2 to this report.

FINDING -           CDE Inappropriately Used Predetermined Allocations for Personnel Costs
                    Charged to Federal Grants

The methodology used by CDE to allocate personnel costs paid with Federal funds did not fully
comply with Office of Management and Budget (OMB) Circular A-87, Cost Principles for State,
Local, and Indian Tribal Governments.3 Specifically, CDE based employees’ time charges to
Federal grants on predetermined allocations of time rather than on actual time spent on Federal
programs. As a result, we were unable to determine whether about $23,962,000 in personnel
costs charged to Department grants for fiscal years 2008 and 2009 were reasonable and allocable
to the grants.

Attachment B to OMB Circular A-87, Selected Items of Cost, provides principles to be applied in
establishing the allowability of specific costs. Paragraph 8 covers Compensation for Personal
Services, and Paragraph 8.h discusses the additional standards regarding time distribution.




3
    2 C.F.R. Part 225.
Final Report
ED-OIG/A09J0004                                                                     Page 4 of 15

For employees that work on a single Federal grant or activity, Paragraph 8.h.(3) requires periodic
certifications:

       Where employees are expected to work solely on a single Federal award or cost
       objective, charges for their salaries and wages will be supported by periodic
       certifications that the employees worked solely on that program for the period
       covered by the certification. These certifications will be prepared at least
       semi-annually and will be signed by the employee or supervisory official having
       first hand knowledge of the work performed by the employee.

For employees that work on multiple activities, Paragraph 8.h.(4) requires personnel activity
reports or equivalent documentation:

       Where employees work on multiple activities or cost objectives, a distribution of
       their salaries or wages will be supported by personnel activity reports or
       equivalent documentation which meets the standards in subsection (5) of this
       appendix unless a statistical sampling system . . . or other substitute system has
       been approved by the cognizant Federal agency.

Additionally, Paragraph 8.h.(5) lists the required elements for personnel activity reports—

       Personnel activity reports or equivalent documentation must meet the following
       standards:
       (a) They must reflect an after-the-fact distribution of the actual activity of each
            employee,
       (b) They must account for the total activity for which each employee is
            compensated,
       (c) They must be prepared at least monthly and must coincide with one or more
            pay periods, and
       (d) They must be signed by the employee.

Furthermore, Paragraph 8.h.(5)(e) states that “[b]udget estimates or other distribution
percentages determined before the services are performed do not qualify as support for charges
to Federal awards… .”

CDE managers were aware of the Federal requirements described above. During a site visit,
CDE provided a copy of an instruction sheet, Employee Time and Effort, which quoted the
criteria in OMB Circular A-87. This instruction sheet was posted on CDE’s Web site to provide
guidance to local educational agencies, but CDE managers explained that it also represented the
process used at CDE. The managers also explained that CDE employees who worked on a
single Federal award or cost objective did not prepare periodic certifications. Instead, CDE
required that all employees submit monthly timesheets, regardless of how their personnel costs
were funded. However, we concluded that CDE did not fully implement the timekeeping
requirements described above.
Final Report
ED-OIG/A09J0004                                                                    Page 5 of 15

Our review of monthly timesheets for eight sampled employees indicated that CDE’s
documentation for reporting employee activity met only three of the four standards for personnel
activity reports. The timesheets accounted for the total activity for which each employee was
compensated; were prepared at least monthly and coincided with the monthly pay period; and
were signed by the employee. However, CDE’s documentation did not “reflect an after-the-fact
distribution of the actual activity of each employee,” as Paragraph 8.h.(5)(a) requires. Although
CDE’s standardized monthly timesheets were designed to allow for daily recording of actual
time and effort for each funding source, employees reported their time based on predetermined
allocation percentages. After comparing the monthly timesheets with each employee’s related
form CDE-43, we concluded that the allocation percentages used on the timesheets matched the
allocations shown on the form CDE-43. OMB Circular A-87 specifically states that percentages
determined before the services are performed do not qualify as support for charges to Federal
grants.

Based on interviews with the eight employees in our sample, we concluded that the timesheets
we reviewed reflected the normal payroll reporting practices that are used throughout CDE.
Specifically, CDE employees, whether funded from a single source or multiple sources, reported
their monthly hours worked according to a predetermined funding allocation. We confirmed
from our interviews with CDE managers and supervisors that these time reporting practices were
used across all programs, including those funded entirely or in part with Federal funds.
Therefore, we concluded that CDE has a systemic issue related to the allocation of personnel
costs, and we decided not to interview additional employees or conduct further testing of
personnel costs charged to Federal grants.

CDE must pay employees by the last working day of the month and needs about one week to
process payroll. Even if employees reported their actual activity, the completed timesheets are
not submitted by employees until after the pay date. As a result, the timesheets are not submitted
in time to impact the payroll processing. If the actual activity, as shown on the timesheets,
differed from the allocation percentages established by the CERT codes that were used for
payroll processing, CDE would need to re-allocate the personnel costs to the appropriate funding
sources by processing a payroll adjustment in COFRS in the month following the pay date.

Based on our review of funding sources, we concluded that a significant percentage of CDE’s
employees have their personnel costs funded by Federal grants. We used a tracking sheet
prepared by CDE’s Human Resources Office, dated March 31, 2009, to categorize employees by
funding source(s), as shown in Figure 1. We determined that about 47 percent of CDE’s 363
employees charged all of their time and effort to one or more Federal grants (Single Funding
Source – Federal plus Multiple Funding Sources – All Federal). When the employees whose
personnel costs were partly funded by Federal grants are added (Multiple Funding Sources –
Federal and State), the percentage increases to 62.5 percent of CDE’s employees.

The number of multi-funded employees and the number of funding sources used for each
employee significantly impacts the number of adjustments that would be required to re-allocate
personnel costs each month to ensure actual time charges are reported. As also shown in
Final Report
ED-OIG/A09J0004                                                                                  Page 6 of 15

Figure 1, we determined that the personnel costs for about 31 percent of CDE’s employees were
funded with multiple grants, where at least one grant was a Federal grant (Multiple Funding
Sources – All Federal plus Multiple Funding Sources – Federal and State). From this subgroup
of 114 employees that were funded with multiple grants where at least one grant was a Federal
grant, we determined that 42 employees were funded by 3 or more grants. CDE’s Controller told
us that one employee performs all payroll functions and thus it is not possible to process the
number of monthly adjustments that would be required if CDE employees had reported the
actual activities performed under the various grants.




CDE’s Office of Accounting and Purchasing provided data on CDE’s personnel costs for fiscal
years 2008 and 2009 as shown in Table 2 below. Department grants provided about 48 percent
of the funds CDE used to meet its personnel costs over this 2-year period.4




4
 In total, Federal grants (Department and other Federal grants) provided 59.7 percent of the total amount expended
by CDE for personnel costs over the 2-year period.
Final Report
ED-OIG/A09J0004                                                                                           Page 7 of 15

                     Table 2. CDE’s Personnel Costs for Fiscal Years 2008 and 2009 (a)
     Funding                Fiscal Year 2008                  Fiscal Year 2009                    2-Year Amounts
   Organization          Costs (000)   Percent             Costs (000)   Percent               Costs (000)  Percent
 U.S. Department
                           $ 11,185           48.9%          $ 12,777           47.7%           $ 23,962             48.2%
 of Education (b)
 Other Federal
                           $ 2,820            12.3%          $ 2,877            10.7%           $ 5,697              11.5%
 agencies
 Subtotal - Federal        $ 14,005           61.2%          $ 15,654           58.4%           $ 29,659            59.7%
 State of Colorado         $ 8,889            38.8%          $ 11,155           41.6%           $ 20,044             40.3%
      Totals               $ 22,894         100.0%           $ 26,809         100.0 %           $ 49,703           100.0%
      (a) The percentages and totals shown in this table were calculated by ED-OIG.
      (b) According to CDE’s Office of Accounting and Purchasing, CDE expended about $18 million and $15 million of non-
          personnel costs for fiscal years 2008 and 2009, respectively. We did not review the total non-personnel costs for the
          two fiscal years.


Because CDE improperly used predetermined percentages to allocate personnel costs to Federal
education grants, we were unable to determine the allowability of about $23,962,000 of
personnel costs charged to Department grants for fiscal years 2008 and 2009.

RECOMMENDATIONS

We recommend that the Assistant Secretary for Elementary and Secondary Education, in
collaboration with the Assistant Secretaries for Special Education and Rehabilitative Services,
Vocational and Adult Education, English Language Acquisition, Innovation and Improvement,
and Safe and Drug Free Schools; and the Commissioner of the National Center for Education
Statistics require CDE to—

1.1      Provide documentation, based on actual work performed, supporting the personnel costs
         for CDE employees that should have been charged to Federal education grants for fiscal
         years 2008 and 2009 or return the $23,962,000 in Department grants, plus related indirect
         costs to the Department.

1.2      Make all necessary adjustments for personnel costs that have been charged to Federal
         education grants in the current fiscal year (beginning July 1, 2009) that do not meet the
         requirements in OMB Circular A-87, along with necessary adjustments to indirect costs.

1.3      Work with the Department to determine the most appropriate approach to account for
         personnel costs, including consideration of alternate methods allowed for under OMB
         Circular A-87.

1.4      Develop and implement enhanced policy and procedures for the system that was
         determined in Recommendation 1.3.
Final Report
ED-OIG/A09J0004                                                                     Page 8 of 15

1.5       Provide training for all CDE employees, supervisors, and managers on how to properly
          record and certify personnel costs to be paid with Federal education funds in accordance
          with the enhanced policy and procedures.

CDE Comments

In its comments to our draft audit report, CDE concurred with the finding to the extent that the
phrase “fully comply” as used in our report means 100 percent compliance with the applicable
OMB Circular A-87 requirements. CDE noted that “virtually” all of the 113 employees funded
by a single Federal program worked on only one cost objective and thus met the OMB Circular
A-87 requirements. CDE also noted that the efforts of most of the 127 employees funded by
multiple cost objectives, or through interagency contracts, were in line with appropriate funding
sources during our audit period. However, CDE does expect to find that some employees’ effort
may not be 100 percent compliant with Federal funding sources. CDE added that its employees,
whether fully or partially funded by Federal programs, may have directed some effort to
“extraneous” activities. CDE believes that as long as this effort represents less than 5 percent of
an employee’s total effort for each 12-month period, CDE is “in compliance with the effort and
funding alignment.”

CDE also stated that it was in the process of identifying and resolving employee funding issues
prior to our audit. CDE contracted with the Southwest Comprehensive Center, a Regional
Education Laboratory, through its subcontractor WestEd (WestEd) to examine State and Federal
resources allocated to CDE. This was followed by a second study finalized in February 2009 of
all CDE positions to determine whether they were appropriately funded according to applicable
State and Federal law.

CDE concurred with all of our recommendations and described the corrective actions already
taken or planned. CDE stated that it began an “intensive review of employee effort”
immediately after receiving our “Preliminary Findings” in September 2009 in order to
reconstruct the compensation methods that were used during our audit period and “measure the
alignment between employee effort and funding source.” CDE indicated that its review covers
all CDE employees paid with Department program funds.

CDE also provided comments detailing specific corrective actions it has initiated in response to
each recommendation. We have not modified our recommendations based on CDE’s comments.

         Recommendation 1.1. In response to our recommendation, CDE stated that it would
          provide a detailed spreadsheet covering its analysis of employee effort for every
          employee paid with Federal funds received from the Department during the period
          covered by the audit. Each employee, or supervisor with firsthand knowledge, will be
          interviewed to assess the alignment between effort and funding source.
Final Report
ED-OIG/A09J0004                                                                     Page 9 of 15

      Recommendation 1.2. In its response to our recommendation, CDE stated that it would
       make all necessary adjustments for personnel costs charged to Federal Education grants
       in the fiscal year beginning July 1, 2009, that do not meet the Federal requirements,
       including necessary adjustments to indirect costs.

      Recommendation 1.3. In its response to our recommendation, CDE stated that it would
       provide the Department with its new methodology for recording employee effort, which
       will not use predetermined allocations to charge personnel costs.

      Recommendation 1.4. In its response to our recommendation, CDE stated that it expects
       its new methodology for recording employee effort to be fully operational on
       July 1, 2010. It will develop separate policy manuals for supervisors and employees
       covering the new methodology.

      Recommendation 1.5. In its response to our recommendation, CDE stated that it would
       train supervisors and employees on its new methodology for recording employee effort to
       ensure conformance before it becomes effective on July 1, 2010.

OIG Response

CDE provided copies of the reports from the studies mentioned in its comments when we
conducted our entrance conference with the agency. In its comments to the draft audit report,
CDE did not provide any information on the results of these studies, nor did it identify any steps
it had taken in response to any findings presented in the associated reports. We reviewed the
reports but did not verify the information in the reports. However, we determined that the
payroll review did not include analysis of the actual activities performed by CDE employees. It
was stated in the WestEd report of payroll findings that its “review was exclusively paper-based
and did not involve interviews with staff or observations to determine whether staff are
performing duties as stated in official job description/duty statements.”

We commend CDE for initiating timely corrective action in response to the audit’s finding and
recommendations. The actions that CDE describes in its comments, in response to our
recommendations, would appear to address our finding, but the Department will ultimately make
this determination.

We did not modify the report’s finding, except to add clarification where warranted and to
provide additional information on the amount of Department funds expended. Based on
information provided by the Department, we replaced the Department’s Chief Financial Officer
as the lead action official for our recommendations with the Department’s Office of Elementary
and Secondary Education.
Final Report
ED-OIG/A09J0004                                                                    Page 10 of 15



                  OBJECTIVE, SCOPE, AND METHODOLOGY


The objective of our audit was to assess whether Federal funds reserved for use at CDE were
expended in accordance with applicable Federal laws, regulations, and Department guidance.
Our review covered CDE’s policies and procedures over personnel costs for the period
July 1, 2007, through June 30, 2009.

To gain an understanding of CDE’s internal controls over personnel costs, we—

      Reviewed CDE’s written policies and procedures for payroll reporting and cost
       allocation.
      Reviewed organizational information posted on CDE’s Web site.
      Interviewed CDE officials in the Offices of Accounting and Purchasing, and Human
       Resources.
      Obtained an understanding of the Colorado Personnel Payroll System (CPPS) and the
       Colorado Financial Reporting System (COFRS).
      Reviewed the sections of the Colorado Statewide Single Audit Reports applicable to
       CDE, as of June 30, 2006, 2007, and 2008. We also discussed Single Audit Reports
       issued prior to these years with the Colorado State Auditor’s Office.

To evaluate CDE’s internal controls over personnel costs charged to Federal grants, we
judgmentally selected a sample of eight employees, based on their job titles. The personnel costs
for seven of the eight employees were allocated to multiple grants, where at least one grant was a
Department grant. The personnel costs for the eighth employee were charged to a single
Department grant. For each of the employees selected for review, we examined documentation
maintained in the Offices of Accounting and Purchasing, and Human Resources. For the period
July 2007 through February 2009, we reviewed all monthly timesheets for each sampled
employee, as well as their job descriptions and the associated form CDE-43. We also
interviewed each of the employees and CDE supervisors and managers.

We performed fieldwork at CDE’s offices located in Denver, Colorado. We provided CDE with
a draft of our finding but did not hold an exit meeting, because CDE’s managers determined that
they had no questions after reviewing our draft finding.

We conducted this performance audit in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions
based on our audit objectives. We believe that the evidence obtained provides a reasonable basis
for our findings and conclusions based on our audit objectives.
Final Report
ED-OIG/A09J0004                                                                     Page 11 of 15



                            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 Education Department action
officials, who will consider them before taking final Departmental action on this audit. The lead
action official is identified below.

                              Thelma Meléndez de Santa Ana, Ph.D.
                              Assistant Secretary
                              Office of Elementary and Secondary Education
                              U.S. Department of Education
                              400 Maryland Avenue, S.W. Room 3W315
                              Washington, DC 20202

All other action officials are at the same address with different room numbers as follows:

Alexa Posny, Assistant Secretary, Office of Special Education and Rehabilitative
   Services (OSERS) Room 5107
Brenda Dann-Messier, Assistant Secretary, Office of Vocational and Adult Education
   (OVAE) Room 11140
Richard Smith, Acting Assistant Deputy Secretary, Office of English Language
   Acquisition (OELA) Room 5C132
James Shelton III, Assistant Deputy Secretary, Office of Innovation and Improvement
   (OII) Room 4W317
Kevin Jennings, Assistant Deputy Secretary, Safe and Drug Free Schools (OSDFS)
   Room 10087
Stuart Kerachsky, Delegated the Authority of the Commissioner, National Center for
   Education Statistics (NCES) Room 9116

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.
Final Report
ED-OIG/A09J0004                                                                    Page 12 of 15

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/

                                            Raymond Hendren
                                            Regional Inspector General for Audit




Attachments

cc:
Robert Hammond, Deputy Commissioner, Administration and Operations, CDE
Bill Windler, Audit Liaison, CDE
Zollie Stevenson, Director, Student Achievement and School Accountability, OESE
Delores Warner, Audit Liaison Officer, OESE
Anthony White, Audit Liaison Officer, OSERS
John Miller, Audit Liaison Officer, OVAE
Samuel Lopez, Audit Liaison Officer, OELA
Liza Araujo, Audit Liaison Officer, OII
Michelle Padilla, Audit Liaison Officer, OSDFS
Tom Brown, Audit Liaison Officer, Institute for Education Sciences
Final Report
ED-OIG/A09J0004                                                           Page 13 of 15



                          Acronyms/Abbreviations Used in this Report

CDE          Colorado Department of Education

CDE-43       Request for Personnel and/or Position Action

COFRS        Colorado Financial Reporting System

CPPS         Colorado Personnel Payroll System

Department   U.S. Department of Education

ED-OIG       U.S. Department of Education / Office of Inspector General

NCES         National Center for Education Statistics

OELA         Office of English Language Acquisition

OESE         Office of Elementary and Secondary Education

OGC          Office of the General Counsel

OII          Office of Innovation and Improvement

OMB          Office of Management and Budget

OSDFS        Office of Safe and Drug Free Schools

OSERS        Office of Special Education and Rehabilitative Services

OVAE         Office of Vocational and Adult Education

WestEd       WestEd, subcontractor for Southwest Comprehensive Center,
             a Regional Education Laboratory
Final Report
ED-OIG/A09J0004                                                                                Page 14 of 15

  Attachment 1 - CDE’s Personnel Costs Charged to Department Programs

  Office         CFDA                       Program Name                            FY 2008          FY 2009
                          Improving Basic Programs Operated by LEA’s
 OESE            84.010                                                         $ 1,109,329      $ 1,452,529
                          (Title 1, Part A)
 OESE            84.011   Migrant Education – Basic State Formula Grants        $    645,852     $      800,856
                          Migrant Education Coordination – Grants and
 OESE            84.144                                                         $         0      $       36,655
                          Contracts
                          Education for Homeless Children and Youths –
 OESE            84.196                                                         $     85,342     $       87,752
                          Grants for State and Local Activities
                          Jacob K. Javits Gifted and Talented Student
 OESE            84.206                                                         $      2,027     $               0
                          Education
 OESE            84.213   Even Start                                            $     11,188     $        7,718
                            st
 OESE            84.287   21 – Century Community Leaning Centers                $    221,898     $      272,141
 OESE            84.298   Innovative Programs                                   $    305,163     $       78,079
 OESE            84.318   Enhancing Education Through Technology Program        $    109,762     $      124,364
 OESE            84.332   Comprehensive School Reform Program                   $     29,241     $               0
 OESE            84.357   Reading First                                         $ 1,055,887      $ 1,005,350
 OESE            84.358   Small Rural School Achievement                        $     11,753     $        7,637
 OESE            84.366   Mathematics and Science Partnerships                  $     42,598     $       81,335
 OESE            84.367   Improving Teacher Quality State Grants                $    651,941     $      740,778
 OESE            84.369   Grants for State Assessments                          $    865,329     $      899,975
 OESE            84.377   School Improvement Grants                             $         0      $       90,418
 Totals – OESE                                                                  $ 5,147,310      $ 5,685,587
 OSERS           84.027   Special Education – Grants to States                  $ 3,869,371      $ 4,873,870
 OSERS           84.126   Vocational Rehabilitation State Grants                $     43,500     $       69,140
 OSERS           84.173   Preschool Grants for Children with Disabilities       $    440,842     $      434,052
 OSERS           84.181   Grants for School-Based Student Drug Testing          $         0      $       20,222
                          Special Education – State Personnel Development
 OSERS           84.323                                                         $    281,147     $      188,023
                          Grants Program
                          Special Education – National Activities – Technical
 OSERS           84.326                                                         $     79,603     $       52,224
                          Assistance and Dissemination
 Totals – OSERS                                                                 $ 4,714,463      $ 5,637,531

 OVAE            84.002   Adult Education – Basic Grants to States              $    523,202     $      552,126

 OELA            84.365   English Language Acquisition State Grants             $    285,869     $      349,935

 OII             84.282   Charter School Program                                $    200,510     $      230,055
                          Safe and Drug-Free Schools and Communities –
 OSDFS           84.186                                                         $    217,839     $      220,838
                          State Education Agency Grants
 NCES            84.000   Unclassified Grants and Contracts                     $     95,761         $ 100,684

 Grand Totals                                                                   $ 11,184,954     $ 12,776,756
Final Report
ED-OIG/A09J0004                                        Page 15 of 15




                           Attachment 2
                  CDE’s Comments to the Draft Report
December 7, 2009

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

Re: Response to Draft Audit Report No. A09J0004

Dear Mr. Hendren:

         This letter responds to the above-referenced Audit Report entitled “Colorado Department
of Education’s Use of Federal Funds for State Employee Personnel Costs.” Your finding states,
“The methodology used by the Colorado Department of Education (CDE) to allocate personnel
costs paid with Federal funds did not fully comply with Office of Management and Budget (OMB)
Circular A-87, Cost Principals for State, Local, and Indian Tribal Governments.”


CDE’s Response to Finding

         To the extent your phrase “fully comply” means 100 percent compliance with the multi-
tiered elements of sub-paragraph (h) “support of salaries and wages” under the OMB Circular A-87
requirements of “compensation for personnel services,” CDE concurs with the draft finding.
However, it should be noted that virtually all of the 113 employees who were single funded from
one Federal source worked on a single cost objective and satisfied the OMB Circular A-87
requirements. In addition, most of the 127 employees funded under multiple Federal and State cost
objectives, or through interagency contracts, had their effort aligned with proper funding sources for
the 24-month period of July 1, 2007 to June 30, 2009. We do expect to find, however, that some
employee efforts may not be 100 percent compliant with federal funding sources.

          Prior to the Office of Inspector General (OIG) audit, CDE was in the process of identifying
and resolving employee funding issues in Federal programs. Such work began with a report
commissioned by Commissioner Dwight D. Jones in April 2008 by the Southwest Comprehensive
Center, a Regional Educational Laboratory through its subcontractor WestEd titled “Examination
of State and Federal Resources allocated to the Colorado Department of Education.” This was
followed by another study finalized by WestEd in February 2009 that reviewed all CDE positions
to assess whether they were appropriately funded per state and federal law. Immediately after
receiving your “Preliminary Findings” in September 2009, CDE commenced an intensive review
of employee effort during the subject 24-month period. The purpose of this ongoing review is to
reconstruct the compensation protocols that were used, and specifically, to measure the
alignment between employee effort and funding source. As you might expect, this reconstruction
effort is time consuming, and is not yet complete.
          The initial phase of the reconstruction involved interviews with supervisors, and others
with firsthand knowledge, to determine which cost objectives employees actually worked on. We
note that the OIG draft finding was based on your “review of monthly timesheets for eight
sampled employees.” Our review encompasses the full universe of CDE employees paid with
federal funds granted to CDE from the U.S. Education Department (ED).

        Once our reconstruction is complete, we will forward the results to you and the Office of
the Chief Financial Officer (OCFO) at ED. Based upon the information ascertained thus far, it
appears that most CDE employees concur with the alignment between effort they devoted to cost
objectives and the funding they received, when measured over each 12-month grant period.
From a monthly perspective, CDE employees may have worked more on some cost objectives,
and less on others. However, over the 12-month period, the effort generally comported with the
funding streams. This conclusion is based on a variety of factors including work product,
calendars, travel schedules, etc.

          We also recognize that our employees, whether funded with nonfederal funds or Federal
funds, in whole or in part, may have directed some effort, though de minimis, to extraneous
activities. It is our contention that as long as this de minimis effort is under 5 percent for each 12-
month period, we are in compliance with the effort and funding alignment.

          As we continue with this reconstruction, we are likely to find some instances where the
effort is not materially aligned with cost objectives. In these instances we will make the
necessary cost adjustments, including to our indirect cost recovery. In sum, the CDE
methodology to allocate personnel costs may not have been “fully compliant” with OMB Circular
A-87 because less than 100 percent of employee effort may not have been aligned with 100
percent of the Federal cost objectives. Once the reconstruction is complete, the necessary
adjustments will be made.


CDE Response to Recommendations

1.1     Provide documentation, based on actual work performed, supporting the personnel costs for
        CDE employees that should have been charged to Federal education grants for fiscal years
        2008 and 2009 or return the $23,962,000 in Department grants, plus related indirect costs to
        the Department.

         We concur. CDE will provide a detailed spreadsheet to cover every employee paid with
Federal funds from ED. Our analysis will be based on an exhaustive review of employee effort
during the 24-month period. Each employee, or supervisor with firsthand knowledge, will be
interviewed to assess the alignment between effort and funding source.

1.2     Make all necessary adjustments for personnel costs that have been charged to Federal
        Education grants in the current fiscal year (beginning July 1, 2009) that do not meet the
        requirements in OMB Circular A-87, along with necessary adjustments to indirect costs.

        We concur. We project that the adjustments for the current fiscal year will be made by
the end of the fourth quarter (June 20, 2010). CDE intends to be fully compliant, utilizing a new
methodology to allocate personnel costs, by July 1, 2010.

1.3     Work with [ED] to determine the most appropriate approach to account for personnel costs,
        including consideration of alternate methods allowed for under OMB Circular A-87.

         We concur. The new methodology will not use predetermined allocations. The monthly
effort reports will instead reflect the actual effort of the employee, and it will be the responsibility
of the supervisor to align effort with funding sources. We intend to submit this new methodology
to OCFO at ED once it is complete.




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1.4     Develop and implement enhanced policy and procedures for the system that was determined
        in Recommendation 1.3.

         We concur. CDE is currently working on the development of a new methodology for
allocating personnel costs. This new system will be fully operational on July 1, 2010.

1.5     Provide training for all CDE employees, supervisors, and managers on how to properly
        record and certify personnel costs to be paid with Federal education funds in accordance
        with the enhanced policy and procedures.

         We concur. Once we finalize the new methodology, we will promulgate a policy manual
for supervisors, and a policy manual for line employees. We will first train the supervisors
because they will be principally responsible for aligning effort with funding throughout the year.
We will then train employees in June 2010 to ensure that all employees conform to the new
methodology by July 1, 2010.


                                                  Sincerely,

                                                  /s/

                                                  Robert Hammond, Deputy Commissioner



Commissioner Dwight D. Jones
Michael Brustein, Brustein and Manasevit
Antony B. Dyl, Assistant Attorney General
Bill Windler, Director of Compliance and Special Projects
Jeff Blanford, Executive Director Management Services
David Grier, Colorado Department of Education Controller
Barbara Koerner, Office of Inspector General, Sacramento Office




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