oversight

Utah: Use of Funds and Data Quality for Selected American Recovery and Reinvestment Act Programs

Published by the Department of Education, Office of Inspector General on 2011-05-13.

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

        U.S. Department of Education
        Office of the Inspector General


    American Recovery and
      Reinvestment Act
     Utah: Use of Funds and Data Quality for Selected
    American Recovery and Reinvestment Act Programs

                   Final Audit Report




ED-OIG/A09K0001                                 May 2011
                                      UNITED STATES DEPARTMENT OF EDUCATION
                                           OFFICE OF INSPECTOR GENERAL

                                                                                                AUDIT SERVICES
                                                                                            SACRAMENTO REGION




                                                            May 13, 2011


Ron Bigelow
Executive Director
Utah Governor’s Office of Planning and Budget
State Capitol, Suite 150
Salt Lake City, Utah 84114

Larry Shumway, Ed.D.
State Superintendent of Public Instruction
Utah State Office of Education
250 East 500 South
Salt Lake City, Utah 84114

Dear Mr. Bigelow and Dr. Shumway:

This final audit report, Control Number ED-OIG/A09K0001, presents the results of our audit
titled “Utah: Use of Funds and Data Quality for Selected American Recovery and Reinvestment
Act Programs.” The purpose of the audit was to determine whether selected State and local
recipients and subrecipients in Utah (1) used Recovery Act funds in accordance with applicable
laws, regulations, and guidance; and (2) reported data that were accurate, reliable, complete, and
in accordance with Recovery Act reporting requirements.

Statements that managerial practices need improvement, as well as other conclusions and
recommendations in this report, represent the opinions of the Office of Inspector General.
Determinations of corrective action to be taken, including the recovery of funds, will be made by
the appropriate Department of Education officials in accordance with the General Education
Provisions Act.

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




 The Department of Education's mission is to promote student achievement and preparation for global competitiveness by fostering educational
                                                   excellence and ensuring equal access.
                              Ann Whalen
                              Deputy Director for Programs
                              Implementation and Support Unit
                              U.S. Department of Education
                              400 Maryland Avenue, S.W., Room 7W206
                              Washington, DC 20202

                              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

                              Alexa E. Posny, Ph.D.
                              Assistant Secretary
                              Office of Special Education and Rehabilitative Services
                              U.S. Department of Education
                              550 12th Street, S.W., Room 5107
                              Washington, DC 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/

                                             Raymond Hendren
                                             Regional Inspector General for Audit

Enclosures
       Abbreviations, Acronyms, and Short Forms
                  Used in this Report
___________________________________________________
C.F.R.                Code of Federal Regulations

Department            U.S. Department of Education

FTEs                  Full-time Equivalents

Granite               Granite School District

IDEA                  Individuals with Disabilities Education Act, Part B

IHEs                  Institutions of Higher Education

LEAs                  Local Educational Agencies

Nebo                  Nebo School District

OIG                   Office of Inspector General

OMB                   Office of Management and Budget

Planning and Budget   Governor’s Office of Planning and Budget

Recovery Act          American Recovery and Reinvestment Act of 2009

Salt Lake CC          Salt Lake Community College

SFSF                  State Fiscal Stabilization Fund

Title I               Title I, Part A of the Elementary and Secondary Education Act

USTAR                 Utah Science Technology and Research

Utah Education        Utah State Office of Education

Utah Housing          Utah Housing Corporation

Utah U                University of Utah
Final Audit Report
ED-OIG/A09K0001                                                                     Page 1 of 39

            Utah: Use of Funds and Data Quality for Selected
           American Recovery and Reinvestment Act Programs
                              Control Number ED-OIG/A09K0001

                                            PURPOSE

The American Recovery and Reinvestment Act of 2009 (Recovery Act) places a heavy emphasis
on accountability and transparency and, in doing so, increases the responsibilities of the agencies
that are impacted by the Act. The U.S. Department of Education (Department) is ultimately
responsible for ensuring that education-related Recovery Act funds reach intended recipients and
achieve intended results. This report provides the results of our audit to determine whether
selected recipients and subrecipients in Utah: (1) used Recovery Act funds in accordance with
applicable laws, regulations, and guidance; and (2) reported data that were accurate, reliable,
complete, and in compliance with Recovery Act reporting requirements.

We reviewed four education-related programs funded under the Recovery Act: State Fiscal
Stabilization Fund (SFSF) Education Stabilization; SFSF Government Services; Title I, Part A of
the Elementary and Secondary Education Act (Title I); and the Individuals with Disabilities
Education Act, Part B (IDEA). We reviewed selected costs charged to these grants from
February 17 to December 31, 2009, and data reported for the quarterly reporting period ending
December 31, 2009. Our review covered four data elements that must be reported under
Section 1512 of the Recovery Act—estimated number of jobs created or retained, vendor
information, amount of funds received, and amount of funds spent.


                                      RESULTS IN BRIEF

The State and local recipients and subrecipients we reviewed did not consistently use Recovery
Act funds in accordance with applicable laws, regulations, and guidance. Our review identified
several instances of noncompliance with applicable Federal requirements. Two State entities we
reviewed made improper charges to the SFSF Government Services grant totaling more than
$65,000. One of these entities also did not remit interest earned on Recovery Act funds that
were received before the funds were needed to cover program costs. At one of the two local
educational agencies (LEAs) reviewed, we identified more than $1.3 million in improper Title I
and IDEA charges as well as significant internal control weaknesses. Additionally, neither LEA
maintained sufficient documentation to support personnel costs charged to Title I and IDEA
grants.

For the Section 1512 reporting period ending December 31, 2009, we concluded that the
recipients covered by our review generally reported accurate, reliable, and complete information
for only one of the four data elements reviewed—the amount of funds received. In contrast, we
identified data quality issues related to the estimated number of jobs, vendor information, and
amount of funds spent, as well as inadequate controls over reporting. Because of the data quality
issues and internal control weaknesses we identified at the Governor’s Office of Planning and
Final Audit Report
ED-OIG/A09K0001                                                                    Page 2 of 39

Budget (Planning and Budget) and the Utah State Office of Education (Utah Education), we
determined that the data for the number of jobs, vendor information, and amount of funds spent
that were reported on Recovery.gov for the reporting period ending December 31, 2009, were
not reliable. Utah Education also improperly included Federal expenditures and certain
inappropriate State and local expenditures in its Title I school-by-school per-pupil expenditures
report submitted to the Department. As a result, the report does not accurately portray State and
local expenditures at the school level and cannot be relied upon by the Department.

In response to our monetary findings, the entities told us they had corrected the deficiencies by
adjusting the charges made to the applicable Recovery Act grants. Several entities also
implemented or were in the process of implementing corrective actions to improve their internal
controls and monitoring procedures to ensure that Recovery Act funds are used in accordance
with Federal requirements and that high quality data are reported under Section 1512. Many of
the corrective actions were implemented after we completed our on-site work and, thus, were not
verified by us. This report discusses (1) instances of improper uses of Recovery Act funds and
Section 1512 data quality issues, (2) specific actions taken or planned to address our findings and
recommendations, and (3) additional actions needed to further enhance compliance with Federal
requirements and improve the quality of data reported in future Section 1512 reports.

We provided a preliminary version of this final audit report to Planning and Budget and Utah
Education for review and comment on February 16, 2011. In most cases, Planning and Budget
and Utah Education did not state whether they agreed with the findings in our report but stated
that they had implemented corrective actions for most of the recommendations. Regarding
Finding No. 2, Planning and Budget did not agree with our finding on reporting omissions
related to vendor information. After further review, we have modified the finding and removed a
recommendation contained in the preliminary report related to the reporting of vendor
information. Comments provided by Planning and Budget and Utah Education are summarized
at the end of each finding. The entire narrative of their comments is included respectively as
Enclosure 1 and Enclosure 2 to this report.


                                       BACKGROUND

The Recovery Act was signed into law on February 17, 2009, and had three immediate goals:
(1) create new jobs and save existing ones, (2) spur economic activity and invest in long-term
growth, and (3) foster accountability and transparency in government spending. Recipients are
required to submit quarterly reports on Recovery Act awards, spending, and jobs impact under
Section 1512 of the Act. According to the Office of Management and Budget (OMB), the
reports should contain detailed information on the projects and activities funded by the Recovery
Act in order to provide the public with transparency into how Federal dollars are being spent.
The reports will also help drive accountability for the timely, prudent, and effective spending of
Recovery Act funds.

The Governor of Utah was awarded more than $479 million in SFSF funds. He designated
Planning and Budget as the entity responsible for administering the two SFSF grants as follows:
Final Audit Report
ED-OIG/A09K0001                                                                                 Page 3 of 39

     • SFSF Education Stabilization Grant. Utah received about $392 million in SFSF
       Education Stabilization funds, which were awarded to Planning and Budget (prime
       recipient) in two phases—$263 million in April 2009 and $129 million in March 2010.
       These funds were allocated to 130 subrecipients, including 41 school districts, 71 charter
       schools, and 18 institutions of higher education (IHEs). 1

    •   SFSF Government Services Grant. Utah received $87.3 million in SFSF Government
        Services funds, which were also awarded in two phases—$58.5 million in April 2009 and
        $28.8 million in July 2009. The funds we reviewed were used to support State-
        administered programs expected to stimulate the State’s economy. Planning and Budget
        considered the State entities that received funds from this grant as either prime recipients
        or subrecipients, depending on the entity. Along with Planning and Budget, an entity
        such as Utah Science Technology and Research (USTAR) is considered a prime recipient
        and an entity such as the Utah Housing Corporation (Utah Housing) a subrecipient. 2

Utah Education was awarded about $49 million in Title I funds and about $105 million in IDEA
funds under the Recovery Act. These funds were allocated to most of the LEAs operating in the
State.

Our review covered two State-level agencies, Planning and Budget and Utah Education, which
received education-related Recovery Act grants from the Department. Our review also covered
four other State entities that received SFSF funds from Planning and Budget—University of
Utah (Utah U), Salt Lake Community College (Salt Lake CC), USTAR, and Utah Housing.
Our review of USTAR included its subaward of SFSF Government Services funds to Utah U.
Lastly, our review included two LEAs, Granite School District (Granite) and Nebo School
District (Nebo), that received SFSF Education Stabilization, Title I, and IDEA funds under the
Recovery Act through allocations from Utah Education.

As of December 31, 2009, the State and local recipients and subrecipients we reviewed had spent
about $85 million, or 56 percent of the approximately $151 million they had been allocated. We
summarize their Recovery Act allocations and spending for selected grants in the Figure below.




1
 The 18 IHEs include 9 campuses associated with the Utah College of Applied Technology providing technical
education to both high school and adult students.
2
  USTAR is a State-supported investment to foster the development of new technologies and services to stimulate
the State’s economy. Utah Housing is a public corporation created by the State of Utah that administered two new
home purchase incentive programs to stimulate the State’s depressed housing industry. As a public corporation,
Utah Housing was independent of State government and considered a subrecipient by Planning and Budget.
Final Audit Report
ED-OIG/A09K0001                                                                    Page 4 of 39




                        FINDINGS AND RECOMMENDATIONS

FINDING NO. 1 – Planning and Budget and Utah Education Need to Ensure
                Recovery Act Funds Are Used in Accordance With Federal
                Requirements

We identified several instances where recipients and subrecipients covered by our review did not
comply with applicable Federal requirements. At the State level, Utah Housing and Utah U
(a subrecipient of USTAR) charged unallowable costs totaling more than $65,000 to the SFSF
Government Services grant. Moreover, Utah Housing did not remit interest earned on SFSF
Government Services funds. At the LEA level, one of the two LEAs reviewed improperly
charged more than $1.3 million in Recovery Act funds for Title I and IDEA personnel costs and
capital improvements. This LEA also had significant internal control weaknesses in its payroll
processes. Furthermore, neither LEA maintained sufficient documentation to support personnel
costs that were charged to the Title I and IDEA grants provided under the Recovery Act. Our
work at the two LEAs did not disclose any issues regarding their use of SFSF Education
Stabilization funds nor did we find any issues at the two IHEs regarding their use of these funds.
The Utah Legislature required the State’s LEAs to use SFSF Education Stabilization funds to
backfill reductions in State funding for personnel costs associated with Social Security and
pension benefits.

We also found that Planning and Budget and Utah Education did not implement procedures to
monitor recipient and subrecipient use of Recovery Act funds. Title 34 Code of Federal
Regulations (C.F.R.) Section 80.40(a) addressing grantee monitoring states that:
Final Audit Report
ED-OIG/A09K0001                                                                                Page 5 of 39

        [g]rantees are responsible for managing the day-to-day operations of grant and subgrant
        supported activities. Grantees must monitor grant and subgrant supported activities to
        assure compliance with applicable Federal requirements and that performance goals are
        being achieved. Grantee monitoring must cover each program, function or activity.

At the time of our review, Planning and Budget was not monitoring State recipient and IHE use
of SFSF funds to ensure that the entities complied with applicable laws, regulations, and
guidance. In addition, Planning and Budget did not ensure that other State recipients had
implemented effective monitoring procedures over SFSF subawards made to State and local
subrecipients. As a result of our finding, Planning and Budget revised its policies and
procedures to include monitoring of State recipients and subrecipients that received Utah’s SFSF
grant funds, as well as steps for Utah Education to monitor LEA use of SFSF Education
Stabilization funds. However, our review of those revised policies and procedures identified two
areas that may need enhancement—the number of personnel available to perform monitoring and
the design of risk assessments used to help identify which entities should be the subject of
reviews.

State Entities’ Use of SFSF Funds

We identified compliance issues related to Utah U’s and Utah Housing’s use of SFSF
Government Services funds, including improper charges totaling $65,552 and, in one case,
failure to remit $1,806 of interest earned on Federal funds. The improper charges of $65,552
were identified from the $610,800 of direct costs charged to the SFSF Government Services
grant that we selected for review. 3 Although Planning and Budget developed SFSF monitoring
procedures in response to our finding, which include activities to ensure grant costs are
allowable, we are concerned that it may not have adequate resources to effectively implement the
monitoring procedures.

Utah U Charged Maintenance Costs
As a subrecipient of USTAR, Utah U improperly charged $55,000 to the SFSF Government
Services grant for an annual maintenance service agreement. Section 14004(c)(1) of the
Recovery Act and USTAR’s contract with Utah U specifically prohibit the use of SFSF funds for
maintenance expenditures, as well as equipment or facilities.

At the time of our review, Utah U and Utah State University had received SFSF Government
Services subawards from USTAR and incurred expenditures to support new technology
development research teams. USTAR’s Financial Manager informed us that these IHEs
submitted monthly reimbursement claims, along with detailed backup, to USTAR for each of the
claimed expenses. However, USTAR’s Financial Manager did not review supporting
documentation to verify that expenses were allowable under the grant terms and conditions or
Federal regulations. Furthermore, our review of USTAR’s draft policy and procedure manual
revealed that it did not include any formal monitoring procedures to ensure that its subrecipients
were complying with applicable Federal requirements.


3
 Detailed information on the number and amount of transactions we selected for testing and the respective
universes, is provided in Attachment 1 for Utah U and in the Scope and Methodology section for Utah Housing.
Final Audit Report
ED-OIG/A09K0001                                                                               Page 6 of 39

In a written response to this issue, Utah U and USTAR officials did not dispute that the
maintenance service agreement was an unallowable use of SFSF Government Services funds.
Utah U’s Manager of Budget and Analysis stated that Utah U would offset a future
reimbursement claim by the amount of the improper charge. USTAR also added procedures
requiring in-depth reviews of subrecipients’ reimbursement claims to ensure that the claimed
costs conform to applicable Federal requirements. Because these procedures had not been
implemented when we concluded our on-site work, we did not verify their implementation.

Utah Housing Charged Interest Costs
Utah Housing improperly charged $10,552 to the SFSF Government Services grant as interest
expense for the use of non-Federal funds it advanced to launch a new home purchase incentive
program. Utah Housing began to disburse funds to homebuyers in March 2009 and used about
$7 million of its own funds before Planning and Budget began drawing down SFSF Government
Services funds from the U.S. Treasury in June 2009. We concluded that the interest charged to
the grant was not reasonable and necessary because Utah Housing chose to begin disbursing
funds to homebuyers before the SFSF Government Services funds had been awarded to the State.

On December 24, 2009, the Department issued SFSF program guidance recognizing that SFSF
funds were essentially general aid and could support a broad array of activities. 4 The guidance
specifies that the cost principles in OMB circulars do not apply to SFSF grants. However, the
guidance also states that expenditures attributed to SFSF must still be “reasonable and
necessary.” Although OMB Circular A-87, “Cost Principles for State, Local, and Indian Tribal
Governments,” would not specifically apply to the use of SFSF funds, we believe that its
principles can still be used as a guide in determining whether a particular cost was reasonable
and necessary. The interest costs charged by Utah Housing do not appear to be reasonable and
necessary because it chose to begin disbursing funds to homebuyers on March 24, 2009, almost a
month before the Governor’s application for SFSF Government Services funds was even
submitted for Department approval. Furthermore, even though the SFSF Government Services
funds were available in April 2009, Planning and Budget did not draw down the funds from the
U.S. Treasury until June 2009. Planning and Budget’s Financial Manager confirmed that
drawdowns did not occur earlier because Planning and Budget wanted to ensure that grant
recipients had incurred costs before drawing funds and needed time to establish a system and
process to make drawdowns.

In a written response to this finding, Planning and Budget and Utah Housing disagreed with our
position regarding the interest expense. Utah Housing believed that the interest expense was
reasonable because it could not have received the funds when the program began in March 2009.
Planning and Budget believed that the SFSF Government Services grant was awarded as money
that should be quickly distributed to support the economic recovery. Nevertheless, in its written
response, Utah Housing told us it reallocated the Recovery Act funds previously used for the
interest expense to pay for additional housing grants. Utah Housing’s Controller also provided
documentation confirming that it reallocated the funds to the homebuyer grants.



4
 “Guidance for Grantees and Auditors State Fiscal Stabilization Fund Program,” U.S. Department of Education,
December 24, 2009.
Final Audit Report
ED-OIG/A09K0001                                                                     Page 7 of 39

Utah Housing Did Not Remit Required Interest
Utah Housing earned but did not remit $1,806 of interest it had earned by holding Federal cash
that was not needed to cover program costs as of December 31, 2009. When receiving Federal
funds in advance of its needs, Federal regulation requires the entity to minimize the time between
when it receives and disburses the funds. The Federal regulation at 34 C.F.R. Section 80.21(i)
requires grantees and subgrantees to promptly but at least quarterly remit interest earned on
Federal advances to the Department. Utah Housing earned the interest because Planning and
Budget disbursed $10 million of SFSF Government Services funds to Utah Housing in June
2009—an amount that exceeded its immediate needs.

Utah Housing and Planning and Budget agreed to remit the interest earned on the SFSF
Government Services funds advanced for the home purchase incentive programs. In a written
response to our finding, Planning and Budget stated that all State subrecipients were formally
instructed to request SFSF Government Services funds on a reimbursement basis to minimize
instances of Federal funds being disbursed before they were needed to cover program costs.

Planning and Budget’s Ability to Implement
Monitoring Procedures
In response to the compliance issues we identified related to State entities’ use of SFSF
Government Services funds, Planning and Budget revised its policies and procedures to include
monitoring of State recipients and subrecipients of SFSF funds and designed a comprehensive,
risk-based monitoring system. However, based on our interviews and observations, we are
concerned that Planning and Budget may not have sufficient personnel dedicated to Recovery
Act activities to effectively implement the revised policies and procedures.

The revised policies and procedures entail a multi-step process focused on the adequacy of State
entities’ grant administration processes and internal controls. The first step would be to survey
State recipients and subrecipients for documentation of their processes to (1) safeguard SFSF
funds, (2) ensure that SFSF funds are used for allowable purposes, (3) produce accurate
Section 1512 reporting data, and (4) in the case of IHEs, monitor the progress they are making to
further educational reforms. Planning and Budget would then evaluate this information to
identify entities that are at risk of noncompliance with Federal requirements and conduct more
in-depth on-site reviews at those entities it classifies as high-risk. At the conclusion of the on-
site reviews, Planning and Budget would communicate the results to the State entities. In
addition to its risk-based monitoring, Planning and Budget planned to conduct on-site reviews
during 2010 at six randomly selected IHEs.

Because Planning and Budget revised its policies and procedures after our on-site visit, we did
not verify whether the monitoring procedures were implemented nor did we evaluate their
effectiveness. Although the revised procedures encompass a risk-based approach to monitoring,
Planning and Budget may face challenges in implementing its monitoring program with existing
resources because it planned to rely on three existing personnel to implement the monitoring
program. At the time of our review, these personnel were already dedicated to Recovery Act
activities and extensively involved in carrying out other critical processes, such as Section 1512
reporting and financial oversight of Recovery Act funds. Assigning additional monitoring tasks
to these staff could be a challenge because Planning and Budget officials expressed concern
Final Audit Report
ED-OIG/A09K0001                                                                                 Page 8 of 39

during our review about the lack of sufficient resources to effectively carry out Recovery Act
grant administration and oversight responsibilities unrelated to the new monitoring program.

LEAs’ Use of Title I and IDEA Funds

We found instances of noncompliance at Nebo and Granite related to their use of IDEA and
Title I funds under the Recovery Act. Specifically, Nebo improperly charged more than
$1.3 million in IDEA and Title I personnel costs as well as Title I capital improvement costs.
First, improper personnel costs of $1.29 million were identified from a total of $2,095,916 in
adjusting journal entries related to charges to the Recovery Act IDEA grant. In addition, our
review of a Nebo personnel report showed that one teacher did not work at a Title I school
resulting in $2,859 and $2,446 being improperly charged to the Recovery Act Title I grant and
the regular Title I grant, respectively. Lastly, of the $254,659 of nonpersonnel costs reviewed at
Nebo, we determined that $20,084 was charged to its Recovery Act Title I grant for unallowable
capital improvements. 5

We also found significant control weaknesses in Nebo’s payroll processes that expose Federal
funds to improper use. Furthermore, neither Nebo nor Granite documented personnel costs to
support that they were allocable to the Title I and IDEA grants. Utah Education should consider
the issues we identified when it monitors LEAs to better ensure compliance with applicable
Federal requirements and to ensure that Federal grant funds are safeguarded.

Nebo’s Personnel Costs, Capital Improvements, and Payroll Process
We identified the following compliance issues and control weaknesses at Nebo:

    •   Unallowable Title I and IDEA Personnel Costs. Nebo incurred $1,289,554 in IDEA
        personnel costs from August 2008 through February 2009, which was prior to the grant’s
        start date, and inappropriately charged the costs to the Recovery Act grant retroactively.
        The Federal regulation at 34 C.F.R. Section 74.28 states “[w]here a funding period is
        specified, a recipient may charge to the grant only allowable costs resulting from
        obligations incurred during the funding period….” In response to our finding, Nebo
        adjusted the IDEA personnel costs that were charged prior to the start of the Recovery
        Act grant to instead reflect allowable costs incurred during months that were within the
        grant period.

        Nebo also improperly charged a total of $5,305 ($2,859 to the Recovery Act Title I grant
        and $2,446 to the regular Title I grant) for an employee who did not work at a Title I
        school. Appendix A, Section C of OMB Circular A-87, describes the basic guidelines for
        determining the allowability of costs. Part 3.a states that “[a] cost is allocable to a
        particular cost objective if the goods or services involved are chargeable or assignable to
        such cost objective in accordance with the relative benefits received.”

        We also found that Nebo did not have written procedures for charging costs to the Title I
        and IDEA grants funded by the Recovery Act or for allocating personnel costs to these
5
 Detailed information on the number and amount of transactions we tested at Nebo and Granite, and the respective
universes, is provided in Attachment 1.
Final Audit Report
ED-OIG/A09K0001                                                                         Page 9 of 39

       grants. Moreover, the LEA did not have an independent review process to ensure that the
       charges to the grants were accurate, allowable, and allocable.

   •   Unapproved Title I Capital Improvement Costs. Nebo charged $20,084 to its
       Recovery Act Title I grant for built-in desks and cabinets without obtaining prior
       approval from Utah Education. OMB Circular A-87, Appendix B, Part 15.b.(3) requires
       prior approval for capital expenditures:

              Capital expenditures for improvements to land, buildings, or equipment which
              materially increase their value or useful life are unallowable as a direct cost
              except with the prior approval of the awarding agency.

       Nebo’s Director of Federal Programs told us that the charges were part of a larger
       $250,000 project to install built-in desks and cabinets throughout the district. The
       $20,084 charge was for desks and cabinets installed in the Special Education and Federal
       Programs office. In response to our finding, Utah Education’s Internal Auditor informed
       us that Nebo discussed the unapproved capital improvements with Utah Education.
       According to Utah Education’s Internal Auditor, Nebo subsequently adjusted the
       Recovery Act Title I grant for $20,084 and charged the costs to non-Federal sources
       instead.

   •   Control Weaknesses in Payroll Processes. Based on our limited assessment of Nebo’s
       payroll processes and related internal controls, we concluded that its payroll processes
       appeared vulnerable to waste, fraud, or abuse. Adequate controls over payroll are
       important because Nebo must use all SFSF Education Stabilization funds it received for
       personnel costs and also planned to use a significant portion of the Title I and IDEA
       funds received under the Recovery Act for personnel costs.

       Nebo’s payroll system automatically generated payroll checks for contract employees
       (most teachers and administrative personnel) unless a payroll specialist intervened to
       suspend payments to specific employees. Because payroll specialists were located in
       Nebo’s administration building, they might not be aware of the employees who worked in
       other locations that had quit or been terminated. Thus, an employee would continue to be
       automatically paid if termination paperwork was delayed or never submitted to the
       payroll unit.

       We also noted that payroll specialists and their computers were located in a non-secure
       area that was easily accessible by other Nebo employees and the public. Moreover,
       computers were (b) (7)(E)

                                               Additionally, Nebo management did not
       periodically review computer access to the payroll system to ensure that only authorized
       personnel had access. We identified one Information Technology employee who had
       been terminated in 2008 but was still on the payroll system’s access list. Lastly, Nebo
       did not generate exception reports for key payroll data changes, such as employee
       terminations, address changes, bank account changes, or pay rate changes. Such reports
Final Audit Report
ED-OIG/A09K0001                                                                                   Page 10 of 39

        would enable appropriate Nebo personnel to independently verify that any changes to key
        payroll data fields were legitimate and had been authorized by management.

Nebo and Granite Documentation for Personnel Costs
Nebo and Granite did not adhere to Federal requirements for documenting personnel costs
charged to the Title I and IDEA grants funded by the Recovery Act. Specifically, employees did
not complete required certifications and/or personnel activity reports when they worked on a
single or multiple Federal programs.

OMB Circular A-87, Appendix B, Part 8.h.(3), addresses certification requirements for
employees that work on a single Federal program:

        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.

Nebo employees working entirely on either the Title I or IDEA program did not complete the
required semi-annual time and effort certifications during fiscal year 2009. We selected three
Nebo employees that worked on a single Federal program in fiscal year 2009 and found that two
employees that worked on the IDEA program had not prepared the required certifications. 6
Nebo employees completed the required certifications in the first half of fiscal year 2010.
At Granite, we selected nine employees who worked on a single Federal program and found that
they had completed the required certifications. However, the certifications for five Title I
employees did not adequately define the period covered by the certification and/or clearly
indicate that the employee worked exclusively on a single Federal program.

We also determined that Nebo and Granite employees working on multiple Federal programs did
not prepare the required activity reports. OMB Circular A-87, Appendix B, Part 8.h.(4),
addresses documentation requirements for employees who work on multiple programs:

        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 8.h.(5) of this appendix….

At Nebo, we selected three employees who charged time to multiple funding sources and found
that they did not complete required activity reports. Although we did not test Granite employees
that charged time to multiple Federal programs, payroll personnel acknowledged that Granite did
not require such employees to complete activity reports.

In a written response to this finding, Utah Education informed us that it provided training to
LEAs on the proper certifications for Federal funds in accordance with OMB Circular A-87.

6
  The other employee worked on the Title I program and prepared a semi-annual time and effort certification for
fiscal year 2010, which covered the costs charged to the grant.
Final Audit Report
ED-OIG/A09K0001                                                                                       Page 11 of 39

Utah Education also provided training to independent public accountants performing audits at
Utah LEAs to ensure that they understood the requirements for payroll certifications and treated
compliance with these requirements as high-risk. In response to our finding, Utah Education
planned to conduct monitoring at LEAs to verify that proper certifications for personnel costs are
prepared.

Utah Education Monitoring of LEAs
Planning and Budget’s revised policies and procedures for monitoring State entities also included
steps for Utah Education to monitor LEA use of SFSF Education Stabilization funds. First, Utah
Education’s Internal Auditor and Finance Auditor were to evaluate the results of LEA financial
and Single Audits for fiscal year 2009 to identify LEAs that appear to be at high-risk for
noncompliance. 7 High-risk conditions could include the identification of significant internal
control weaknesses and/or findings that questioned the appropriate use of Federal funds. Utah
Education would then send a letter to LEAs identified as high-risk requesting a status update on
the corrective action(s) for the identified findings. All LEAs would also be required to complete
a survey regarding internal controls over SFSF Education Stabilization funds, the amount of
funds spent, cash management practices, how the funds are being used, and progress in achieving
education reforms. Based on its risk assessment of the audits and the survey results, Utah
Education would then identify those high-risk LEAs that would be subject to on-site visits,
conduct a monitoring visit, and report the monitoring results to LEA management and Planning
and Budget. Utah Education would also conduct follow-up visits when deemed necessary. Utah
Education informed us that their monitoring program would also evaluate LEA compliance with
Federal requirements related to payroll certifications and reimbursements for costs charged to
Federal grants. Utah Education’s Internal Auditor informed us that the above monitoring
activities also covered Title I and IDEA funds provided under the Recovery Act.

We did not verify whether Utah Education implemented the revised monitoring policies and
procedures nor did we evaluate their effectiveness. However, when conducting monitoring
activities and on-site reviews, Utah Education should consider the LEA compliance issues we
identified, such as those found at Nebo, in order to help ensure it detects significant internal
control weaknesses. In addition, Utah Education should not rely solely on Single Audits to
identify high-risk LEAs or to identify issues that may be considered high-risk for
noncompliance. We noted that the Single Audit performed at Nebo for fiscal year 2009 did not
address any of the payroll-related vulnerabilities that we identified during our review. As a
result, Nebo management was not aware of the potential vulnerabilities and had not implemented
needed controls. Moreover, Utah Education's review of Nebo's Single Audit report alone would
likely not have resulted in the LEA being classified as high-risk for noncompliance and,
therefore, warranting an on-site monitoring visit.




7
 Single Audits are required for non-Federal entities that expend $500,000 or more of Federal awards in a year and
must be performed in accordance with generally accepted government auditing standards published by the
Comptroller General of the United States to ensure the entities are complying with Federal laws and regulations.
School districts and charter schools that are not required to have a Single Audit would be considered higher risk and
subject to more extensive review, especially if internal control issues were identified in the financial statement audit.
Final Audit Report
ED-OIG/A09K0001                                                                      Page 12 of 39

RECOMMENDATIONS

We recommend that the Director of the Implementation and Support Unit require Planning and
Budget to:

1.1    Ensure that the improper charges and other deficiencies we identified for the SFSF
       Government Services grant were corrected by confirming that (1) Utah U reduced a
       future reimbursement claim by $55,000 to reimburse the improperly charged
       maintenance costs and (2) Utah Housing remitted the $1,806 of interest earned as of
       December 31, 2009, plus any interest earned after December 31, 2009, to the Department.

1.2    Notify all State entities receiving funds from the SFSF Government Services grant of the
       types of deficiencies identified in Recommendation 1.1 and instruct them to identify and
       correct such deficiencies, if found, to ensure that similar unallowable costs are not
       charged to the grant.

1.3    Assess its monitoring process on an ongoing basis to identify and address significant
       challenges to effective implementation (e.g., lack of personnel), systemic issues as they
       arise, and the status of corrective actions taken by State recipients.

1.4    Review monitoring policies and procedures for other State recipients, including USTAR,
       that subaward SFSF grant funds to evaluate whether they are adequate, identify
       deficiencies in State recipients’ monitoring activities, and require State recipients to take
       appropriate corrective actions to improve subawardee monitoring.

We recommend that the Director of the Implementation and Support Unit, in conjunction with
the Assistant Secretary for Elementary and Secondary Education and the Assistant Secretary for
Special Education and Rehabilitative Services, require Utah Education to:

1.5    Ensure the deficiencies we identified at selected LEAs are corrected by requiring that
       (1) Nebo reimburse its Recovery Act Title I grant and regular Title I grant for the $5,305
       in personnel costs that were improperly charged for the non-Title I employee; and
       (2) Nebo and Granite maintain sufficient supporting documentation for employee time
       charged to the Title I and IDEA Recovery Act grants in accordance with OMB
       Circular A-87, Appendix B, Part 8.h.

1.6    Notify LEAs statewide of the types of deficiencies identified in Recommendation 1.5 and
       instruct LEAs to identify and correct such deficiencies, if found, to ensure that similar
       unallowable costs are not charged to the Title I and IDEA grants under the Recovery Act.

1.7    Ensure Nebo has not improperly charged personnel costs to Federal grants and has taken
       appropriate actions to secure its payroll environment and strengthen related controls to
       include (1) periodically generating and reviewing reports of changes to employee status,
       address, and payroll data; (2) (b) (7)(E)
                                                           and (3) regularly reviewing computer
       access to the payroll system to ensure only authorized employees have access.
Final Audit Report
ED-OIG/A09K0001                                                                      Page 13 of 39

1.8    Include an evaluation of the compliance issues we identified in this finding when it
       conducts monitoring activities to ensure that LEAs operating in the State (1) have
       adequate internal controls over SFSF Education Stabilization, Title I, and IDEA grants
       funded by the Recovery Act and (2) are complying with applicable Federal requirements.

Planning and Budget and Utah Education Comments

Planning and Budget did not state whether it concurred with Finding No. 1 or our
recommendations. Utah Education did not state whether it concurred with most parts of Finding
No. 1 or our recommendations. Utah Education did state that Nebo and Granite agreed with the
issues identified in the finding that pertained to them. Regarding our identified compliance issue
at Nebo related to unapproved Title I Recovery Act capital improvement costs, Utah Education
stated that it clarified internal policy and provided training to each LEA related to prior approval
for capital expenditures and improving compliance with Federal requirements.

In their comments, Planning and Budget and Utah Education described the corrective actions
already taken or planned in response to our recommendations applicable to each entity:

Recommendation 1.1. Planning and Budget stated that Utah U concurred with our finding,
reduced a subsequent reimbursement claim by $55,000, and added formal monitoring procedures
to ensure that subrecipients comply with Federal requirements. In addition, Planning and Budget
stated that it remitted all interest earned on SFSF Government Services funds.

Recommendation 1.2. Planning and Budget stated that it notified all State entities receiving
funds from the SFSF Government Services grant of the types of deficiencies identified in
Recommendation 1.1 and instructed them to identify and correct such deficiencies if found.

Recommendation 1.3. Planning and Budget stated that it would continue to assess its
management of the SFSF grants on an ongoing basis, including data quality and subrecipient
monitoring processes.

Recommendation 1.4. Planning and Budget stated that it established, and would continue to
follow, an ongoing process for reviewing the use and management of SFSF Government
Services funds by State entities, including an examination of the entities’ subrecipient
monitoring processes.

Recommendation 1.5. Utah Education stated that Nebo would reimburse $5,305 to the Title I
Recovery Act grant and regular Title I grant for the employee who did not work at a Title I
school. Regarding documentation of personnel costs, Nebo adjusted its payroll processes to
ensure payroll certifications would be completed in compliance with Federal requirements.
Granite bolstered its efforts and requirements to obtain paper certifications while it is developing
a district wide electronic system to obtain the required certifications and/or personnel activity
reports.

Recommendations 1.6 and 1.7. Utah Education stated that it provided information and
instruction to LEAs regarding payroll certifications in compliance with Federal requirements.
Final Audit Report
ED-OIG/A09K0001                                                                      Page 14 of 39

Additionally, Utah Education said it would perform reviews at Nebo and Granite during 2011 to
determine compliance with payroll certification requirements.

In its comments regarding Recommendation 1.5, Utah Education also described Nebo’s controls
over its payroll process, which the report addressed in Recommendation 1.7. Utah Education
stated that Nebo did not believe that the issue of automatically generated payroll checks for
contract employees was significant because it had implemented compensating controls. School
principals review employee lists on a quarterly basis to ensure that proper employees are on the
correct payroll. Moreover, Nebo prepares diagnostic reports listing the types of changes made to
the payroll system and reviews the reports for propriety and appropriateness.

Recommendation 1.8. Utah Education stated that monitoring and risk assessment activities are
conducted throughout the year and involve many factors, including LEAs’ audited financial
statements and associated findings. The processes outlined in Planning and Budget’s SFSF
monitoring plan were completed for SFSF Phase I funds and were in process for SFSF Phase II.
Moreover, Utah Education said it reviewed payroll certification and allowable-cost issues
identified in this report.

Office of Inspector General (OIG) Response

Except as noted below, the corrective actions identified in Planning and Budget’s and Utah
Education’s comments address our recommendations. However, we did not evaluate their
implementation or the adequacy of the corrective actions. We did not modify our finding or
recommendations based on Planning and Budget’s and Utah Education’s comments.

Recommendation 1.6. Because Utah Education did not provide details about the information it
provided to LEAs regarding payroll certifications, we could not determine whether the
information addressed the specific deficiencies noted in our finding. Utah Education needs to
ensure that its information and instructions to LEAs address the documentation needed for both
periodic certifications for employees funded by a single grant and personnel activity reports for
employees funded by multiple grants to ensure LEAs comply with OMB Circular A-87.
Furthermore, Utah Education should instruct LEAs to identify and correct deficiencies regarding
personnel costs to ensure that unallowable costs are not charged to the Title I and IDEA
Recovery Act grants.

Recommendation 1.7. Although Nebo’s compensating controls for its payroll system appear
reasonable based on available resources, Utah Education needs to ensure that Nebo takes
appropriate steps to secure its payroll environment, including implementing controls to (b) (7)
                                                                                           (E)
                        and that it routinely reviews its payroll system to verify that access is
limited to authorized employees only.
Final Audit Report
ED-OIG/A09K0001                                                                                    Page 15 of 39

FINDING NO. 2 – Planning and Budget and Utah Education Need to Implement
                Review Procedures to Ensure Reported Section 1512 Data Are
                Accurate, Reliable, and Complete

The State of Utah used a centralized reporting system whereby Planning and Budget submitted
Section 1512 Recovery Act data for all State agencies to FederalReporting.gov, the nationwide
data collection system deployed by the Recovery Accountability and Transparency Board. 8
Depending on the Recovery Act grant, Planning and Budget collected, compiled, and calculated
certain required Section 1512 data elements and relied on State recipients and subrecipients to
perform these functions for some or all data related to other data elements. Under Utah’s
reporting system, Planning and Budget as well as State and local recipients and subrecipients
were collectively responsible for establishing controls to ensure accurate, complete, and timely
reporting of Section 1512 data.

For the reporting period ending December 31, 2009, we identified data quality issues related to
the estimated number of jobs created and retained, vendor information, and amount of funds
spent. As a result, the Section 1512 data that Planning and Budget reported for these data
elements, which were posted on Recovery.gov, were not reliable. Specifically, we found that
State recipients and subrecipients underreported more than 2,300 jobs and Utah Education did
not collect or report LEA vendor information. For SFSF Education Stabilization, Planning and
Budget overreported the amount of funds spent (Utah Education disbursements to LEAs) by
about $25 million and underreported the amount of funds spent by more than $2 million for one
IHE. These reporting issues occurred because recipients and subrecipients did not follow OMB
guidance and State recipients did not have adequate data quality review procedures in place to
ensure the reported data were accurate, reliable, and complete. In response to our audit, Planning
and Budget included data quality monitoring activities in its revised policies and procedures for
administering the SFSF grants.

Reporting Errors Related to the Estimated Number of Jobs

We identified data quality issues related to the number of jobs reported by all of the entities we
reviewed, except for Utah Housing. Based on multiple errors across the four Recovery Act
grants reviewed, we estimated underreporting of at least 2,344 jobs, or more than 50 percent.
Planning and Budget did not calculate the jobs estimate correctly for some IHEs and did not
adequately monitor the quality of the jobs data submitted by Salt Lake CC, Utah Education, and
USTAR. Moreover, Utah Education and USTAR did not have review procedures in place to
ensure the quality of reported subrecipient data.


8
  Section 1512 of the Recovery Act requires recipients of Recovery Act funds to report on various data elements,
such as the amount of Recovery Act funds received and spent, the number of jobs created or retained, and vendor
information. No later than 10 days after the end of each calendar quarter, recipients must submit their data through
an online web portal at FederalReporting.gov. A continuous correction period takes place between this initial data
submission and the end of the quarter in which the data were submitted. During this period, Federal agencies are
required to review the data reported by recipients and notify them of data errors that need to be corrected.
Recipients should also review their submitted data and make necessary corrections. Reports are available on
Recovery.gov, a public Web site where taxpayers can see how and where Recovery Act funds were spent.
Final Audit Report
ED-OIG/A09K0001                                                                                    Page 16 of 39

Although Planning and Budget did not correctly calculate the number of jobs for the reporting
period ending December 31, 2009, corrective action is not warranted. OMB Memorandum
M-10-34, “Updated Guidance on the American Recovery and Reinvestment Act,”
September 24, 2010 (OMB guidance M-10-34), states that recipients may not initiate changes to
the number of jobs reported in prior Section 1512 reports.

Planning and Budget Misreported IHE Jobs
Planning and Budget miscalculated the number of jobs for 9 of the 18 IHEs that received
SFSF Education Stabilization funds and underreported its IHE jobs estimate to
FederalReporting.gov by about 15 percent. 9 The reporting error occurred because Planning and
Budget used IHE jobs data for only the month of December 2009 and did not include the
October and November data in its calculation. According to OMB Memorandum M-10-08,
“Updated Guidance on the American Recovery and Reinvestment Act – Data Quality,
Non-Reporting Recipients, and Reporting of Job Estimates,” December 18, 2009 (OMB
guidance M-10-08), recipients must estimate the total number of jobs that were funded by the
Recovery Act during each reporting period (quarter). Planning and Budget’s error resulted in a
total of 1,241 jobs being reported for all IHEs—225 fewer jobs than the 1,466 jobs that should
have been reported.

Utah Education Miscalculated LEA Jobs
Utah Education miscalculated the number of LEA jobs for the three Recovery Act grants we
reviewed, which resulted in Planning and Budget underreporting the LEA jobs estimate to
FederalReporting.gov by 75 percent. The reporting error occurred because Utah Education used
annualized data rather than quarterly data in its calculations. OMB guidance M-10-08 states that
the methodology for calculating jobs is based on hours worked in the most recent quarter. Utah
Education used the equivalent of a full year's salary in the denominator when it performed its
jobs calculations, reflecting the 2,080 hours a full-time employee would work in a year. 10
It should have used the quarterly salary amount reflecting the 520 hours a full-time employee
would work in a quarter. As shown in Table 1, we estimated that Utah Education’s
miscalculations resulted in the reporting of about 2,072 fewer jobs than should have been
reported across the three grants.




9
    Our review did not cover the nine Sub-Recipient Institution Reports for the Utah College of Applied Technology.
10
  Utah Education used an alternative method for estimating the number of jobs. Instead of calculating jobs based
on the hours worked in the reporting period, Utah Education divided the amount of funds spent on employee salaries
and benefits for a particular Recovery Act grant by the average salary amount (including benefits) for the grant.
This alternative method appeared reasonable.
Final Audit Report
ED-OIG/A09K0001                                                                   Page 17 of 39

 Table 1: Impact of Utah Education Calculation Errors on the Number of LEA Jobs Reported for
          the Period Ending December 31, 2009
                                                        Number of Jobs
                                  Number of Jobs                              Number of Jobs
 Recovery Act Grant                                    that Should Have
                                    Reported                                  Underreported
                                                        Been Reported
 SFSF Education Stabilization           649.2               2,597.0               1,947.8
 Title I                                 25.1                 100.4                  75.3
 IDEA                                    16.7                  66.8                  50.1
         Total                            691               2,764.2               2,073.2

Utah Education had not established review procedures to prevent or detect this type of error for
the number of jobs reported for LEAs. In response to our finding, Utah Education officials told
us on June 8, 2010, that its Internal Auditor has been tasked with reviewing the Section 1512
data prior to submission to Planning and Budget in future reporting periods.

Salt Lake CC Used Incorrect Data
Salt Lake CC incorrectly used budget data when calculating its jobs estimate for the SFSF
Education Stabilization grant, which resulted in Planning and Budget underreporting the number
of jobs to FederalReporting.gov by more than 20 percent for this entity. OMB guidance
M-10-08 states that the number of jobs reported is to be expressed as full-time equivalents
(FTEs) and allows colleges and universities to proportionately count the percentage of effort
directly charged to Recovery Act awards as an FTE. Based on our analysis of payroll records
showing actual payroll expenditures for the 3-month period ending December 31, 2009, we
determined that Salt Lake CC should have reported 198 jobs rather than the 151 jobs it did
report.

USTAR Misreported Subrecipient Jobs
For its SFSF Government Services subawards to Utah U, USTAR did not report accurate jobs
data to Planning and Budget because it used data for only 1 month of the reporting period to
calculate jobs. Utah U only provided USTAR one Sub-Recipient Institution Report for the
quarter ending December 31, 2009. Utah U reported about 60 jobs on the subject report, dated
October 31, 2009, based solely on data for October. Based on our work at Utah U, we
determined that the subrecipient reporting form that USTAR relied on to collect subrecipient
data did not define what jobs data should be entered onto the form. Specifically, Planning and
Budget’s Sub-Recipient Institution Report template included a field for the “Number of Jobs”
but did not define whether subrecipients were to report a cumulative jobs number over a
specified period or only the jobs number for the month in which they were reporting. We were
not able to determine the impact on the number of jobs reported by USTAR for the SFSF
Government Services grant because Utah U jobs data were not readily available for the omitted
months at the time of our review.
Final Audit Report
ED-OIG/A09K0001                                                                             Page 18 of 39

Reporting Omissions Related to Vendor Information

Utah Education, as the prime recipient for the IDEA Recovery Act grant, did not collect or report
required subrecipient information to Planning and Budget for two vendors that received
payments from Nebo exceeding $25,000. OMB Memorandum M-09-21, “Implementing
Guidance for the Reports on Use of Funds Pursuant to the American Recovery and Reinvestment
Act of 2009,” June 22, 2009 (OMB guidance M-09-21), addresses the required vendor
information:

       [T]he reporting sub-recipients must also report one data element associated with any
       vendors receiving funds from that sub-recipient. Specifically, the sub-recipient must
       report, for any payments greater than $25,000, the identity of the vendor by reporting the
       D-U-N-S number, if available, or otherwise the name and zip code of the vendor’s
       headquarters. . . . If a sub-recipient is not delegated the responsibility to report . . . any
       sub-recipient vendor information, the prime and sub-recipients must develop a process by
       which this information will be reported . . .

Based on our review of Nebo’s accounting records covering the period February 17 to
December 31, 2009, we determined that the LEA paid one vendor $218,250 for software
licensing and another vendor $49,069 for computer equipment. As the entity responsible for
statewide Section 1512 reporting, Planning and Budget did not report information identifying the
two vendors even though the vendors had each received payments of more than $25,000 in IDEA
funds under the Recovery Act. Although we only identified the reporting omissions at Nebo,
Utah Education’s Internal Auditor stated that LEA vendor data were not reported statewide for
the reporting period ending December 31, 2009.

Reporting Errors Related to Funds Spent

We identified data quality issues related to the amount of SFSF Education Stabilization funds
spent for the reporting period ending December 31, 2009. For SFSF Education Stabilization,
Planning and Budget overreported the amount of funds that Utah Education disbursed to LEAs
by about $25 million and did not ensure that nearly $2.5 million disbursed to an IHE was
reported to FederalReporting.gov.

Planning and Budget Misreported Utah Education Expenditures
Utah Education reported SFSF Education Stabilization disbursements to LEAs totaling
$245 million when it submitted data on funds spent to Planning and Budget for the reporting
period ending December 31, 2009. However, the amount Utah Education reported
inappropriately included about $25 million in State funds that were disbursed to LEAs.
Moreover, Planning and Budget officials were aware that the reported amount was about
$25 million more than the amount of Recovery Act funds awarded to the State as of
December 31, 2009. The reporting discrepancy occurred because of timing differences between
the time when SFSF funds were awarded and when the State Legislature appropriated the
Final Audit Report
ED-OIG/A09K0001                                                                                  Page 19 of 39

funds. 11 Utah was awarded SFSF Education Stabilization funds in two phases, as described in
the Background section. Planning and Budget’s SFSF officials informed us that, before learning
the grant would be awarded in two phases, the State Legislature appropriated the full amount of
SFSF Education Stabilization funds the State expected to receive. Because the Phase II SFSF
funds were not yet awarded as of the end of the reporting period, the State chose to use its own
funds to reimburse LEAs for SFSF-related expenses when the Phase I funds were exhausted by
November 2009. Once awarded, Planning and Budget planned to use Phase II funds to
reimburse the State for the amounts disbursed to LEAs.

Because it reported more Recovery Act funds spent than were awarded or received, Planning and
Budget did not adhere to OMB’s reporting guidance. For the amount of funds spent, the
“Recipient Reporting Data Model V3.0, Final Production Release - for Quarter Ending
December 31, 2009” states that recipients should report the “amount of recovery funds received
that were expended to projects or activities (‘Federal Share of Expenditures’)” and the
cumulative total for the amount of Federal funds expended. 12 Planning and Budget’s SFSF
officials informed us that it intentionally overreported the amount of SFSF Education
Stabilization funds spent because the reported data represented the actual amount of funds spent
by the LEAs and the awarding of Phase II funds was expected in the near future. Moreover,
Planning and Budget officials stated that Department officials did not raise any objections to
Utah’s reporting the higher amount of funds spent when it raised the reporting issue. Although
the overreported funds spent represented a reporting error for the period ending December 31,
2009, the error was corrected in the subsequent reporting period when Utah was awarded its
Phase II SFSF Education Stabilization funds in March 2010. As a result, corrective action is not
warranted.

IHE Expenditures Omitted in FederalReporting.gov
Planning and Budget disbursed $2,483,000 in SFSF Education Stabilization funds to Utah Valley
University that was not included in its Section 1512 report. As a result, the amount spent for the
SFSF Education Stabilization grant was underreported by 1 percent. The reporting error came to
our attention when we compared reporting data in Planning and Budget records to information
reported to FederalReporting.gov. In response to our finding, Planning and Budget’s SFSF
Specialist confirmed that Utah Valley University’s data were submitted and posted to the
centralized statewide data collection system and included in the file used to upload Utah’s data to
FederalReporting.gov. However, the SFSF Specialist could not determine how the data were
excluded after being transmitted to FederalReporting.gov. To prevent omissions such as this in
the future, the SFSF Specialist informed us that she would spot-check the accuracy of future
submissions to FederalReporting.gov.



11
   Utah’s Legislature includes Federal funds in its annual budget and appropriation processes. After enactment of
the Recovery Act in February 2009, LEAs were not able to spend SFSF funds allocated to them until such funds had
been appropriated by the Legislature. On May 20, 2009, Utah’s Governor called a special session of the Legislature,
in part, to make appropriations to the Minimum School Program Budget Amendments, effective in fiscal year 2009,
and reallocate SFSF funds.
12
  This guidance also included a validation rule that the total Federal amount of Recovery Act expenditures should
not exceed the amount of the award.
Final Audit Report
ED-OIG/A09K0001                                                                       Page 20 of 39

Planning and Budget’s Revised
Monitoring Policies and Procedures

In response to the data quality issues we identified, Planning and Budget revised its policies and
procedures for SFSF grant administration to include monitoring the quality of State recipients’
Section 1512 data. Planning and Budget outlined the following analytical and review procedures
it planned to implement in addition to the risk assessments and on-site reviews described in
Finding No. 1:

      •   Compare Planning and Budget’s records for amounts drawn and expended with State
          recipients’ reported data to ensure consistency;
      •   Review the reported amount of funds spent to ensure the amounts disbursed to State
          recipients were less than or equal to the amount awarded;
      •   Review the jobs calculation submitted by Utah Education;
      •   Compare the number of jobs reported by IHEs to their respective budget plans;
      •   Test to determine the reasonableness of the average reported dollars spent per the number
          of reported jobs created and retained; and
      •   Informally review all other data submitted by State recipients for reasonableness.

Planning and Budget also planned to contact the specific individual submitting the report for the
respective State recipient in order to resolve data quality issues identified by the procedures
above. Although the revised policies and procedures appear to promote the reporting of quality
data, we did not verify whether the procedures were implemented or evaluate their effectiveness,
because they were implemented after we concluded our on-site work.

RECOMMENDATIONS

We recommend that the Director of the Implementation and Support Unit require Planning and
Budget to:

2.1       Implement plans to verify that Section 1512 data submitted to FederalReporting.gov,
          including updates and corrections, are successfully uploaded to the nationwide data
          collection system. If submitted data are missing, ensure the data are corrected in
          FederalReporting.gov during the continuous correction period.

2.2       Implement revised data quality review procedures and monitoring activities for State
          subrecipients of SFSF funds and ensure State recipients that subaward SFSF funds,
          including USTAR and Utah Education, implement appropriate review procedures to
          monitor the quality of subrecipient data. When data quality issues are identified, notify
          the Department of any material omissions and/or significant reporting errors and correct
          the data in a timely manner to ensure compliance with Section 1512 reporting
          requirements.

2.3       Assess Planning and Budget and State recipient data quality monitoring processes on an
          ongoing basis to ensure effective implementation.
Final Audit Report
ED-OIG/A09K0001                                                                   Page 21 of 39

2.4   Notify all State recipients of material data quality and reporting issues identified by
      Planning and Budget and/or State recipients during the data quality reviews to prevent
      future errors.

We recommend that the Director of the Implementation and Support Unit, in conjunction with
the Assistant Secretary for Elementary and Secondary Education and the Assistant Secretary for
Special Education and Rehabilitative Services, require Planning and Budget and Utah Education
to:

2.5   Resolve the data omissions we identified related to vendor information when individual
      subrecipient payments to vendors using Recovery Act funds exceed $25,000 to ensure the
      data are accurate and complete for the Section 1512 reporting period ending December 31,
      2009, and subsequent periods if warranted.

2.6   Develop and implement data quality review procedures to ensure reported LEA jobs and
      vendor information related to Recovery Act grants administered by Utah Education are
      accurate, reliable, and complete. When data quality issues are identified, notify the
      Department of any material omissions and/or significant reporting errors and correct the
      errors in a timely manner to ensure compliance with Section 1512 reporting requirements.

2.7   Assess internal data quality monitoring processes on an ongoing basis to ensure effective
      implementation.

Planning and Budget and Utah Education Comments

Neither Planning and Budget nor Utah Education stated whether it concurred with Finding
No. 2 or our recommendations. However, Planning and Budget partially disagreed with the
section on reporting omissions related to vendor information and informed us that Salt Lake CC
concurred with the section of the finding regarding its jobs data.

Regarding vendor information, our preliminary report disclosed that Planning and Budget did not
report required information related to subrecipient payments to vendors. In its comments,
Planning and Budget stated that it was not required to report subrecipients’ vendor payments
under $25,000. As for subrecipient payments to vendors exceeding $25,000, Planning and
Budget stated that Utah U’s vendor payment of $50,049 for laboratory and technical supplies
was reversed and, therefore, did not need to be reported. Planning and Budget stated that it has
consistently issued guidance to subrecipients to report payments to vendors greater than $25,000.
Additionally, prior to submitting future Section 1512 reports, Planning and Budget said it would
confirm with subrecipient reporters that all information, including payments to vendors, has been
reported. Planning and Budget also stated that it was in the process of resolving data omissions
with respect to vendor payments through its existing monitoring process.
Final Audit Report
ED-OIG/A09K0001                                                                              Page 22 of 39

In their comments, Planning and Budget and Utah Education described the corrective actions
already taken or planned in response to our recommendations: 13

Recommendation 2.1. Planning and Budget stated that it has implemented its plan to verify that
Section 1512 data submitted to Federalreporting.gov are successfully and accurately uploaded to
the nationwide data collection system.

Recommendation 2.2. Planning and Budget stated that revised data quality review procedures
and monitoring activities have been implemented for State agencies and subrecipients receiving
SFSF funds. Quarterly FTE calculations were implemented for reporting period ending
March 31, 2010. USTAR reviews subrecipient reports for accuracy. Utah U has implemented
new procedures to review and monitor Recovery Act expenses and has added an additional staff
to assist with that new process.

Recommendation 2.3. Planning and Budget stated that it continues to assess data quality
monitoring processes on an ongoing basis and implement changes and improvements when
necessary.

Recommendation 2.4. Planning and Budget stated that it would continue to notify State
recipients of potential data quality issues identified through its monitoring and data quality
processes.

Recommendation 2.5. Planning and Budget stated that it has resolved data omissions in the
SFSF Education Stabilization report with respect to vendor payments through its monitoring
process. Utah Education stated that it collected vendor data for all expenditures made with SFSF
funds and properly reported the vendor data in the Section 1512 report for “quarter four.” Utah
Education’s Internal Auditor subsequently clarified the written comments by stating that LEA
vendor data were not reported for the period ending December 31, 2009, but were reported for
the period ending June 30, 2010 (“quarter four”).

Recommendations 2.6 and 2.7. Planning and Budget stated that it (1) has implemented data
quality review procedures; (2) worked with Utah Education to ensure LEA jobs and vendor
information are accurate, reliable, and complete; and (3) continues to assess its internal data
quality processes on an ongoing basis. Utah Education stated that its Finance Auditor compiles
the Section 1512 reports and its Internal Auditor reviews the data prior to submission to Planning
and Budget. The Internal Auditor reviews the underlying data, jobs calculation, and inclusion of
vendor data. Additionally, Planning and Budget reviews the Section 1512 data and brings issues
to Utah Education’s attention for resolution.

OIG Response

After further review of reporting requirements for vendor information, we concur that Planning
and Budget was not required to report subrecipients’ vendor payments under $25,000 nor
Utah U’s $50,049 vendor payment that was reversed. OMB Memorandum M-10-34 clarified
13
  In summarizing Planning and Budget’s and Utah Education’s corrective actions below, the recommendation
numbers reflect the numbering in this final audit report.
Final Audit Report
ED-OIG/A09K0001                                                                    Page 23 of 39

that vendor payments under $25,000 only include payments made by the prime recipient. We
have modified Finding No. 2 by (1) removing the finding related to State recipient and
subrecipient reporting of vendor payments less than $25,000 and Utah U’s vendor payment
exceeding $25,000 that was reversed, and (2) clarifying what vendor information subrecipients
are to report when payments exceed $25,000. We have also removed the recommendation
contained in the preliminary report (Recommendation 2.1 in the preliminary report) regarding
data omissions related to State recipients’ vendor payments funded by SFSF grants.

Except as noted below, the corrective actions identified in Planning and Budget’s and Utah
Education’s comments address our recommendations. However, we did not evaluate their
implementation or the adequacy of the corrective actions.

Recommendation 2.2. Planning and Budget’s implementation of revised review procedures and
monitoring activities only partially addresses the recommendation. Planning and Budget should
also implement procedures to ensure that, when data quality issues are identified, it notifies the
Department of material omissions and significant reporting errors and corrects the data in a
timely manner.

Recommendation 2.5. Utah Education’s comments did not address the reporting omissions we
identified at Nebo for the reporting period ending December 31, 2009. Utah Education also
needs to ensure that similar vendor data are reported for LEAs statewide when Title I, IDEA, and
SFSF Education Stabilization funds received under the Recovery Act are used for vendor
payments exceeding $25,000 for past and future reporting periods. As noted above, we modified
the finding to clarify what vendor information subrecipients are to report. We have also
modified Recommendation 2.5 to specifically address the resolution of omitted LEA vendor
information when vendor payments exceed $25,000.

Recommendations 2.6 and 2.7. Utah Education’s implementation of data quality review
procedures only partially addresses the recommendation. When data quality issues are
identified, Utah Education also needs to ensure that it notifies the Department of material
omissions and significant reporting errors and corrects the data in a timely manner. Additionally,
Utah Education should assess its data quality monitoring processes on an ongoing basis to ensure
effective implementation.


FINDING NO. 3 – Utah Education Should Correct Information in its Title I
                Per-Pupil Expenditures Report Submitted to the Department

Utah Education’s report on school-by-school per-pupil educational expenditures from State and
local sources inappropriately included Federal expenditures and State and local expenditures for
special education. Because Utah Education’s report included these inappropriate expenditures,
the per-pupil expenditures at the school level were overstated and valid comparisons of State and
local spending across schools within an LEA and across LEAs cannot be performed by the
Department. Although its report was not accurate, Utah Education did submit the required report
to the Department by the March 31, 2010, deadline specified in the Recovery Act.
Final Audit Report
ED-OIG/A09K0001                                                                              Page 24 of 39

Title VIII of Division A of the Recovery Act required each LEA receiving Title I funds under the
Act to “file with the State educational agency, no later than December 1, 2009, a school-by-
school listing of per-pupil educational expenditures from State and local sources during the
2008-2009 academic year.” The State Educational Agency was to compile and report the LEA
information to the Department by March 31, 2010. Departmental guidance for this reporting
requirement instructed States to exclude from the report expenditures from Federal programs, as
well as expenditures from State and local special education funds. 14 The instructions further
stated that “[t]hese data will be used to examine the extent to which school-level education
resources are distributed equitably within and across school districts.”

Utah Education began to instruct LEAs on per-pupil expenditure data in August 2009, several
months before the Department issued reporting instructions. Utah Education developed a
methodology and directed LEAs to use this methodology to compile and submit specific
categories of school-level expenditures. However, Utah Education’s instructions for compiling
the data did not inform LEAs that State and local expenditures related to special education
programs should be separately identified so that Utah Education could exclude them from its
report to the Department. When Departmental guidance was issued in November 2009, most
LEAs had already included special education costs in the school-level data. Even after receiving
the Department’s guidance specifically instructing reporting entities to exclude expenditures
from special education funds, Utah Education did not require LEAs to modify their original data
submissions.

Utah Education also did not exclude all Federal expenditures from its report even though its data
collection system separately identified Federal expenditures at the school level and the
Department’s instructions stated that expenditures from Federal sources should be excluded.
As a result, Utah Education’s submission to the Department inappropriately included both
Federal expenditures and State and local expenditures for special education, causing school-level
expenditure data to be overstated and preventing the Department from accurately assessing the
equity of education resources within or across school districts.

In a written response, Utah Education agreed that the reported school-level per-pupil
expenditures included special education funds and informed us that some LEAs do not account
for State special education expenditures at the school level. However, Utah Education disagreed
that reported expenditures included expenditures funded by Federal grants even though our
analysis of one school’s accounting records found that the expenditure data reported to the
Department included a portion of the school’s Federal expenditures.

RECOMMENDATION

We recommend that the Assistant Secretary for Elementary and Secondary Education require
Utah Education to:




14
  “Study of School-Level Expenditures, Form A: Data Reporting Instructions for School-Level Expenditure Data
for State Educational Agencies and Local Education Agencies,” U.S. Department of Education, November 19, 2009.
Final Audit Report
ED-OIG/A09K0001                                                                    Page 25 of 39

3.1    Recalculate Title I school-by-school per-pupil expenditures from State and local sources
       in accordance with Department guidance, ensuring that data related to Federal
       expenditures and State and local expenditures for special education are excluded, and
       submit a revised report to the Department.

Utah Education Comments

Utah Education stated that it used the instructions available from the Department at the time it
provided instructions to the LEAs for this report. Each LEA provided raw data, which included
all State and Federal expenditures, for Utah Education to use to calculate the school-level per-
pupil expenditures. Utah Education stated that it excluded all Federal expenditures and other
exempt expenditures, which were identified as not being appropriate to include in the
calculation, and reported this as the per-pupil expenditures. Utah Education agreed that State
special education expenditures were not excluded because not all LEAs track these expenditures
at the school level. Calculating these data would involve significant time and effort and likely
only provide estimated expenditures. Utah Education did not believe that it would be able to
produce more accurate data on a school-by-school basis if it were to recalculate the Title I
school-by-school per-pupil expenditures.

OIG Response

Utah Education did not provide any additional information that would cause us to modify
Finding No. 3 or our recommendation. As stated in the finding, our analysis of one school’s
accounting records showed that the expenditure data reported to the Department inappropriately
included a portion of the school’s Federal expenditures. The Department cannot accurately
assess the equity of education resources within or across school districts if the data underlying
the report is inappropriate.


                             SCOPE AND METHODOLOGY

The purpose of our audit was to determine whether selected recipients and subrecipients in Utah:
(1) used Recovery Act funds in accordance with applicable laws, regulations, and guidance; and
(2) reported data that were accurate, reliable, complete, and in compliance with Recovery Act
reporting requirements. Our review covered two State-level agencies, Planning and Budget and
Utah Education, to which the Department awarded education-related Recovery Act grants. Our
review also covered four other State entities that received SFSF funds from Planning and
Budget—Utah U, Salt Lake CC, USTAR, and Utah Housing. Our review of USTAR included
its subaward of SFSF Government Services funds to Utah U. Lastly, our review included two
LEAs, Granite and Nebo, which received SFSF Education Stabilization, Title I, and IDEA funds
under the Recovery Act through allocations from Utah Education.

Our review covered four education-related Recovery Act grants. For each grant, we identify the
original authorizing statute, abbreviated program name, and Catalog of Federal Domestic
Assistance number assigned for grant-tracking purposes below:
Final Audit Report
ED-OIG/A09K0001                                                                    Page 26 of 39

   •   Recovery Act, Title XIV
          o SFSF Education Stabilization (84.394)
          o SFSF Government Services (84.397)
   •   Elementary and Secondary Education Act of 1965, as amended
          o Title I Part A Basic Grants to LEAs (84.389)
   •   IDEA, as amended
          o Part B Section 611 Special Education—Grants to States (84.391)

Our review also focused on four data elements that Planning and Budget reported on behalf of
itself and Utah Education for the Section 1512 reporting period ending December 31, 2009.

   •   Number of Jobs. Recipients were to estimate the number of jobs created or retained by
       Recovery Act funds for the quarterly reporting period. Recipients were also to include
       the number of jobs created or retained by subrecipients and vendors.

   •   Vendor Information. Recipients were to report payments to vendors. Recipients could
       report individual payments to vendors of less than $25,000 either separately or in
       aggregate. Individual payments to vendors greater than $25,000 were to be reported
       separately along with additional information on (1) each vendor’s identification by its
       D-U-N-S number, (2) the amount of the payment, and (3) a description of what was
       obtained in exchange for the payment.

   •   Total Federal Amount of Recovery Act Funds Received or Invoiced (Funds
       Received). Recipients were to report the total cumulative amount of Recovery Act funds
       received from the Federal agency.

   •   Total Federal Amount of Recovery Act Expenditures (Funds Spent). Recipients
       were to report the total cumulative amount of Recovery Act funds spent on projects or
       activities.

To gain an understanding of the requirements applicable to the use of funds, cash management,
and Recovery Act reporting, we reviewed applicable Federal laws, regulations, OMB Circulars,
and OMB and Departmental guidance specific to the Recovery Act grants we reviewed. We also
interviewed Department officials responsible for administering the Recovery Act grants.

To address the audit objectives, at the State level we performed work at Planning and Budget and
Utah Education, which were the prime recipients for the Recovery Act grants we reviewed. We
selected and performed work at the other four State entities because two entities were the largest
recipients of SFSF Government Services funds (Utah Housing and USTAR) and the other two
entities were the largest recipients of SFSF Education Stabilization funds (Utah U and Salt Lake
CC) and in the Salt Lake City area. At the local level, we judgmentally selected two LEAs that
received SFSF Education Stabilization, Title I, and IDEA funds under the Recovery Act. The
two LEAs were among the largest LEAs in the State in terms of the total funds expended across
the three Recovery Act grants relative to other LEAs. We selected Granite because it was the
Final Audit Report
ED-OIG/A09K0001                                                                                     Page 27 of 39

largest LEA in terms of Recovery Act allocation amounts, and Nebo because it exercised the
maintenance of effort flexibility provision for IDEA grants. 15

At Planning and Budget and Utah Education, we reviewed applicable policies and procedures for
drawing down Recovery Act funds and monitoring the use of funds by other State entities and
LEAs. We also reviewed their procedures for collecting, compiling, and reporting Recovery Act
data received from other State entities and LEAs for submission to FederalReporting.gov or the
Department. We reviewed accounting records at Planning and Budget and Utah Education and
interviewed management and staff responsible for the administration of and accounting for
Recovery Act grant funds, as well as the collection and reporting of Recovery Act data.

At each of the other selected State entities and LEAs, we reviewed applicable policies and
procedures and other relevant documentation when available. We interviewed fiscal and
program officials responsible for administering the Recovery Act grants we reviewed. We also
reviewed and considered the results and findings of prior Single Audits, other State reviews, and
Departmental program monitoring visits. We evaluated the State entities’ and LEAs’ procedures
for requesting Federal funds. Where warranted, we compared drawdowns to expenditures to
determine whether Federal funds were in excess of an entity’s immediate need.

We performed limited assessments of the State entities’ and LEAs’ applicable policies and
procedures by reviewing selected personnel and nonpersonnel expenditures to determine whether
costs charged to Recovery Act grants complied with applicable laws, regulations, and other
requirements. To select our sample, we judgmentally selected personnel and nonpersonnel
expenditures for grants at the State entities and the three grants at the LEAs based on one or
more of the following attributes: account type; employee type and work location; high-dollar
transaction; and timing of disbursement. We also randomly selected personnel expenditures for
the SFSF Education Stabilization grant at Nebo and the three grants reviewed at Granite. We
summarize the amount of personnel and nonpersonnel costs and number of transactions selected
for testing at each entity and grant in Attachment 1. We traced the personnel and nonpersonnel
costs to accounting records, invoices, cancelled checks, payroll records, and other documents
supporting the amount of funds spent. Because we judgmentally selected the personnel and
nonpersonnel costs included in our review, the results presented in this report cannot be
projected to the universe of about $85 million of costs that were incurred for the period covered
by our review.

We also tested transactions associated with home buyer credits awarded and direct costs charged
by Utah Housing along with scholarships awarded by Salt Lake CC (these transactions are not
included in Attachment 1). We judgmentally selected 8 of the 3,335 applicants ($40,000 of
$16,642,000) to confirm that Utah Housing followed its verification process and awarded credits
to eligible home buyers. We also conducted a cursory review of the cost categories in the
agency’s Statement of Income and identified the $10,552 transaction for interest expense as an
unallowable cost from the $100,823 of direct costs included in the statement. For

15
  Under certain circumstances, in accordance with IDEA section 613(a)(2)(C), in any fiscal year that an LEA’s
subgrant allocation exceeds the amount that the LEA received in the previous fiscal year, that LEA may reduce the
level of local, or State and local, expenditures otherwise required by the maintenance of effort requirements by up to
50 percent of the increase in the LEA’s subgrant allocation.
Final Audit Report
ED-OIG/A09K0001                                                                  Page 28 of 39

Salt Lake CC’s scholarship program, we judgmentally selected the largest and one smaller
scholarship from 169 student scholarships ($1,340 of $81,141) to confirm the students were
awarded scholarships based on the college’s need-based process for determining eligibility.

To evaluate data quality, we compared the total expenditure amounts submitted to
FederalReporting.gov to records generated by Planning and Budget and Utah Education for the
four Recovery Act grants where applicable. We used the information from our work for cash
management and use of funds to substantiate amounts received and/or spent by the State entities
and LEAs. We also evaluated procedures used by the State entities and Utah Education to
calculate the estimated number of jobs, reviewed Planning and Budget’s data collection forms
for collecting Section 1512 data from other State entities, and performed analytical tests to
determine the validity and accuracy of the reported jobs data. We also used accounting records
at the State entities and LEAs to identify vendor payments.

For the Title I per-pupil expenditure report, we reviewed Utah Education’s instructions to LEAs
for collecting and reporting required data and the relevant Departmental guidance. We also
conducted a reasonableness test at one school selected by the Nebo Assistant Business
Administrator to determine whether Federal expenditures were included in the data reported to
the Department.

We relied on computer-processed data contained in the accounting systems of the prime
recipients (Planning and Budget and Utah Education), other State entities, and LEAs described
above. We traced amounts received and spent by the other State entities and LEAs to the
amounts in the prime recipients’ systems. We also verified the authenticity of the data by
comparing the costs in the automated accounting systems at the other State entities and LEAs to
source documentation provided by them. Because of the errors we identified in data that
recipients and subrecipients reported to Planning and Budget, Utah Education, and/or other State
entities, we could not rely on the computer-generated data related to the estimated number of
jobs, the required vendor information, and the amount of funds spent that was submitted to
FederalReporting.gov.

We conducted fieldwork at the offices of Planning and Budget, Utah Education, Utah U,
Salt Lake CC, and USTAR in Salt Lake City, Utah, between December 2009 and January 2010.
The fieldwork for Utah Housing was conducted in West Valley City between December 2009
and January 2010. We conducted fieldwork at Granite in Salt Lake City between March and
April 2010. The fieldwork for Nebo was conducted in March 2010 at its office in Spanish Fork.

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 Audit Report
ED-OIG/A09K0001                                                                            Page 29 of 39

                                             Attachment 1

      Information Related to OIG Testing of Personnel and Nonpersonnel Costs

At selected State and local subrecipients, we selected a sample of employees and a separate
sample of nonpersonnel transactions to determine whether the costs charged to the grants we
reviewed complied with applicable Federal requirements. We judgmentally selected a sample of
employees for all grants except for the SFSF Education Stabilization grant at Nebo where we
randomly selected employees. We also randomly selected employees for all three grants
reviewed at Granite. To test personnel costs, we selected employees at two IHEs and two LEAs
and reviewed personnel costs charged to one or more of the four Recovery Act grants reviewed,
as summarized in Table 2.

 Table 2: Total Personnel Costs for Reviewed Recovery Act Grants and Entities and the
            Personnel Costs and Number of Employees/Transactions Selected for Testing
                                                                   Entity
 Recovery Act Grant
                                     Utah U          Salt Lake CC           Granite             Nebo
 SFSF Government Services
                                    $2,416,297
   Total Costs
                                       (a)
   Selected Costs                    $519,808
   Number of Transactions
                                        14
     Selected
 SFSF Education Stabilization
                                                      $4,557,354
   Total Costs                    $14,234,944                            $25,682,481        $14,559,960
                                                           (b)
   Selected Costs                      $70,357          $109,742              $86,004            $37,248
   Number of Employees
                                         4                  3                  10                 6
     Selected
 IDEA
                                                                             $491,496
   Total Costs                                                                               $2,095,916
                                                                               (a)
   Selected Costs                                                             $30,643            $39,517
   Number of Employees
                                                                                8                 3
     Selected
 Title I
                                                                             $919,795
   Total Costs                                                                                 $245,359
                                                                               (a)
   Selected Costs                                                               $2,750           $10,018
   Number of Employees
                                                                                8                 3
     Selected
 (a) Total and selected personnel costs were incurred from February 17 to December 31, 2009. Some
     of the costs were reimbursed after December 31, 2009, and some costs were scheduled for
     reimbursement after that date.
 (b) The amount of SFSF Education Stabilization funds disbursed by Salt Lake CC includes the funds
     awarded to Utah in Phase I, as well as the State funds that the entities received before the
     Department awarded Phase II funds in March 2010.
Final Audit Report
ED-OIG/A09K0001                                                                      Page 30 of 39


To test nonpersonnel costs, we judgmentally selected transactions at Utah U and two LEAs and
reviewed nonpersonnel costs charged to one or more Recovery Act grants, as summarized in
Table 3.

 Table 3: Total Nonpersonnel Costs for Reviewed Recovery Act Grants and Entities and the
           Nonpersonnel Costs and Number of Transactions Selected for Testing
                                                                   Entity
 Recovery Act Grant
                                               Utah U              Granite              Nebo
 SFSF Government Services
                                              $556,203
   Total Costs
                                                  (a)
   Selected Costs                               $80,440
   Number of Transactions Selected                 9
 IDEA
                                                                  $1,375,684
   Total Costs                                                                       $376,954
                                                                      (a)
   Selected Costs                                                 $1,206,683         $221,284
   Number of Transactions Selected                                     9                   2
 Title I
                                                                   $ 270,565
   Total Costs                                                                         $42,712
                                                                      (a)
   Selected Costs                                                   $183,328           $33,375
   Number of Transactions Selected                                    14                   2
 (a) Total and selected nonpersonnel costs were incurred from February 17 to December 31, 2009.
     Some of the costs were reimbursed after December 31, 2009, and some costs were scheduled for
     reimbursement after that date.
Final Audit Report
ED-OIG/A09K0001                                        Page 31 of 39




                              Enclosure 1

                     Planning and Budget Comments
                     on the Preliminary Audit Report
Final Audit Report
ED-OIG/A09K0001                                                                         Page 32 of 39




                                             March 8, 2011




Ray Hendren
Regional Inspector General for Audit
U.S. Department of Education
501 I Street, Suite 9-200
Sacramento, CA 95814

RE: Preliminary Utah Recovery Act Report

Mr. Hendren,

Thank you for the opportunity to respond to the Office of the Inspector General’s Preliminary Report,
dated February 16, 2011. In response to the Preliminary Report, the Governor’s Office of Planning and
Budget (GOPB) and State Office of Education for the State of Utah (USOE), have prepared responses to
the findings list for your review. The attached document outlines the specific ways in which GOPB and
USOE are implementing or in the process of implementing the recommendations from the Utah: Use of
Funds and Data Quality for Selected American Recovery and Reinvestment Act Programs Preliminary
Audit Report.

The Governor’s Office of Planning and Budget continues to be committed to the proper use of
Stabilization Funds and the accurate reporting of 1512 data for public use.

We believe that Utah has successfully provided consistent and reliable data to the American public
through section 1512 reporting while investing in education and stimulating our state’s economy through
innovative economic development projects.

Please consider our responses to the findings and recommendations of the Office of the Inspector
General’s Preliminary Report in the enclosed documents.




Sincerely,

/s/

Ron Bigelow
Executive Director
Utah Governor’s Office of Planning and Budget
Final Audit Report
ED-OIG/A09K0001                                                                  Page 33 of 39

FINDING NUMBER 1—“Planning and Budget and Utah Education Need to Ensure Recovery Act
Funds are Used in Accordance With Federal Requirements.”

      Recommendation 1.1: Implemented

      The Governor’s Office of Planning and Budget is committed to compliance with all
      federal requirements associated with Stabilization Funds. Office staff has actively
      pursued guidance regarding how interest was to be remitted, and received such guidance
      from the U.S. Department of Education in February 2011. Immediately following the
      receipt of this guidance, the office’s Financial Manager prepared and submitted a check
      in accordance with the received guidance, remitting all interest earned on Government
      Services Funds.

      The University of Utah concurs with this finding and has resolved this issue by adding
      formal monitoring procedures to ensure sub-recipients are complying with Federal
      requirements. In addition, the University of Utah reduced a subsequent reimbursement
      claim by $55,000.

      Recommendation 1.2 Implemented

      The Governor’s Office of Planning and Budget has notified all State entities receiving
      funds from the SFSF Government Services grant of the types of deficiencies identified in
      Recommendation 1.1, and instructed them to identify and correct such deficiencies, if
      found.

      Recommendation 1.3: Implemented

      Utah will continue to assess its Stabilization Fund management on an ongoing basis,
      including data quality and sub-recipient monitoring processes.

      Recommendation 1.4: Implemented

      Utah has established, and continues to follow, an on-going process of reviewing the use
      and management of Stabilization Funds by State entities receiving Government Services
      funds, which includes an examination of the entities’ sub-recipient monitoring processes.

FINDING NUMBER 2— “Planning and Budget and Utah Education Need to Implement Review
Procedures to Ensure Reported Section 1512 Data Are Accurate, Reliable, and Complete”

      Salt Lake Community College concurs with the finding that it used incorrect budget data
      when identifying the number of FTE supported using ARRA SFSF funds during the
      referenced time frame. The institution has since taken corrective action beginning July 1,
      2010 and now uses actual expenditure data to identify the number of FTE supported
Final Audit Report
ED-OIG/A09K0001                                                                  Page 34 of 39

      using ARRA SFSF funds. The institution believes the corrective action implemented has
      resulted in compliance with federal FTE reporting requirements.

      Disagreements:

             Utah did not fail to report vendor payments made by sub-recipients under $25,000
             in 1512 reporting, as suggested by Table 2. OMB Memorandum 10-34 clarifies
             OMB’s intention that “Total Number of payments to vendors less than
             $25,000/award… only includes payments made by the prime recipient.” Utah’s
             omission of vendor payments less than $25,000 made by sub-recipients in 1512
             reports is in direct compliance with OMB guidance.

             We also do not concur with the portion of the recommendation applying to the
             University of Utah vendor payment of $50,049 for laboratory and technical
             supplies. This payment was reversed out and therefore did not need to be
             reported.

             We acknowledge payments to vendors greater than $25,000 should be reported if
             made by prime or sub-recipients and have consistently issued guidance to sub-
             recipients accordingly. In addition, prior to submitting future 1512 reports GOPB
             will confirm with sub-recipient reporters that all information, including payments
             to vendors, have been reported in our effort to provide accurate and reliable data
             to the public.

      Recommendation 2.1: In Process

      GOPB is in the process of resolving data omissions with respect to vendor payments
      through its existing in-depth monitoring process.

      Recommendation 2.2: Implemented

       GOPB has implemented its plan to verify 1512 data submitted to federalreporting.gov
      are successfully and accurately uploaded to the nationwide collection system.

      Recommendation 2.3: Implemented

      GOPB has implemented revised data quality review procedures and monitoring activities
      for state agencies and sub-recipients receiving Stabilization Funds as discussed in the
      Preliminary Audit Report.

      USTAR reviews sub-recipient reports for accuracy. Data element definitions provided by
      Planning and Budget were included in both (1) the Excel spreadsheets sent to sub-
      recipients and (2) the sub-recipient contracts. The definitions included FTE calculations.
Final Audit Report
ED-OIG/A09K0001                                                                    Page 35 of 39

      Quarterly FTE calculations were implemented for the reporting period ending March 31,
      2010 based on guidance from OMB Memorandum 10-08.

      The University of Utah follows the requirements received from the prime awardee. New
      procedures have been put into place to review and monitor the expenses. The University
      of Utah has added an additional staff to help with that new process and the USTAR
      Governing Board continues to act as an additional review over our process. The $50,049
      error to a vendor for laboratory and technical supplies was reversed, therefore FTE was
      not an issue for this expenditure.

      Recommendation 2.4: Implemented

      GOPB continues to assess data quality monitoring processes on an ongoing basis,
      implementing changes and improvements when necessary.

      Recommendation 2.5: Implemented

      GOPB will continue to notify State recipients of potential data quality issues identified in
      our existing monitoring and data quality processes.

      Recommendation 2.6: Implemented

      GOPB has resolved the data omissions in the SFSF Education Stabilization report with
      respect to vendor payments through its existing in-depth monitoring process.

      Recommendation 2.7: Implemented

      GOPB has successfully implemented data quality review procedures to ensure LEA jobs
      information is accurate, reliable, and complete. GOPB has worked in conjunction with
      USOE to ensure LEA vendor information reported is accurate, reliable, and complete in
      the future.

      Recommendation 2.8: Implemented

      GOPB continues to assess its internal data quality processes on an ongoing basis to
      ensure proper implementation.
Final Audit Report
ED-OIG/A09K0001                                        Page 36 of 39




                              Enclosure 2

                        Utah Education Comments
                     on the Preliminary Audit Report
Final Audit Report
ED-OIG/A09K0001                                                                    Page 37 of 39

March 8, 2011


Ray Hendren
Regional Inspector General for Audit
U.S. Department of Education
Office of Inspector General
501 I Street, Suite 9-200
Sacramento, CA 95814

RE: OIG audit control number ED-OIG/A09K0001

Mr. Hendren:

This letter is in response to the preliminary audit report, Utah: Use of Funds and Data Quality for
Selected American Recovery and Reinvestment Act Programs. We appreciate the chance to
respond to the findings noted below:

Recommendation 1.5:

Nebo School District
-The $1.29 million of personnel costs charged to ARRA IDEA prior to the grant’s start date were
subsequently adjusted to only reflect allowable costs made during the grant period. This error
occurred because of the calculation of a journal entry.

- $5,305 that was charged to the Title I and the ARRA Title I program occurred because a
teacher was moved from a Title I school to a non-Title I school during the year and her account
coding was not changed. The USOE Internal Auditor has verified that Nebo will be reimbursing
the Title I grant and ARRA IDEA grant for the $5,305 that was charged inappropriately. This
will occur in March 2011.

-Nebo District and the USOE agree that written approval was not obtained for capital
improvements totaling $20,084, which were charged to Title I. The District and the USOE
discussed the improvements in general, but no documentation was obtained. Nebo District has
repaid the Title I program with other non-federal funds. The USOE Title I Division has clarified
internal policy and provided training to each LEA regarding prior approval for capital
expenditures and improvements in compliance with A-87, Appendix B, Part 15.b(3).

- Nebo agrees that the District’s payroll system automatically generates payroll checks for
contract employees and, as a result, payroll specialists may not be notified timely of employees
who quit or are terminated. Nebo has a small payroll staff, and does not feel that this issue is
overly significant as they have implemented compensating controls. Principals are provided a
list of employees on a quarterly basis to ensure that proper employees are on the correct payroll.
Nebo District also runs a number of diagnostic reports that list the types of changes made to the
payroll system. These reports are reviewed for propriety and appropriateness.
Final Audit Report
ED-OIG/A09K0001                                                                    Page 38 of 39

-Nebo agrees that proper payroll certifications were not occurring, and have subsequently made
adjustments to their payroll processes to ensure that payroll certifications are occurring, in
accordance with OBM Circular A-87.

Granite School District
Granite School District agrees that proper payroll certifications were not occurring. Granite has
formulated a district-wide electronic solution to obtain the required certifications and/or
personnel activity reports. They have developed a process by which necessary corrections will
be processed if the employee effort is different from the costs charged to Federal program(s).
The district has mapped out the necessary computer programming to implement the solution and
has completed 50-60% of the necessary computer programming. The district expects to be 100%
completed and implemented by July 1, 2011. In the meantime the district has bolstered its
efforts and requirements to obtain paper certifications.

Recommendation 1.6 and 1.7:
Each LEA in Utah has been given information and instruction regarding payroll certifications in
compliance with OMB circular A-87 and A-122. Nebo and Granite Districts will be reviewed by
USOE internal audit during 2011 for compliance with payroll certification requirements.

Recommendation 1.8:
Monitoring and risk assessment activities occur throughout the year and involve many factors.
Audited financial statements and the associated findings are only one element of the risk
assessment and monitoring process. Each division, in cooperation with the USOE Internal Audit
Division, is improving the overall monitoring environment. The processes outlined in Utah’s
SFSF monitoring plan have been completed for SFSF Phase I monies and are currently in
process for SFSF Phase II. The specific issues noted in this audit of proper payroll certifications
and allowable costs were reviewed.

Recommendation 2.6:
Vendor data was collected for all expenditures made with SFSF funds and properly reported in
the quarter four 1512 reports. Vendor data is collected each quarter for all ARRA expenditures
and reported in the same quarter. All ARRA Education reports are in compliance with this
requirement.

Recommendation 2.7 and 2.8:
1512 reports are compiled by the USOE Finance Auditor and reviewed by the Internal Auditor
prior to submission to the Office of Planning and Budget. This review encompasses a review of
the underlying data, a review of jobs created-and-saved calculation, and inclusion of proper
vendor data. The Office of Planning and Budget also performs a review and returns issues to the
USOE for resolution.

Recommendation 3.1:
The USOE utilized the data and instructions available from the Federal Department of Education
at the time instructions were given to the LEAs. The USOE received raw data from each LEA,
which included all state and federal expenditures. USOE, using the approved charts of accounts
given to each LEA, excluded all federal expenditures and expenditures from other functions
Final Audit Report
ED-OIG/A09K0001                                                                   Page 39 of 39

which were identified as not being appropriate to include in the calculation. This adjusted
number was reported as the per pupil expenditures by USOE. USOE does agree that state
special education expenditures were not excluded, because not all LEAs track state special
education expenditures at the school level. The data is not readily available and calculating this
data would take significant time and effort, and most likely be an estimate at the LEA level.
USOE does not feel that it would be able to yield more accurate data on a school-by-school basis
were it to recalculate the Title I school-by-school per-pupil expenditures report.

Sincerely,

/s/

Todd Hauber
Associate Superintendent of Finance
Utah State Office of Education
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