oversight

Massachusetts Department of Elementary and Secondary Education's Oversight of Local Educational Agency Single Audit Resolution

Published by the Department of Education, Office of Inspector General on 2016-01-25.

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

                       UNITED STATES DEPARTMENT OF EDUCATION
                                    OFFICE OF INSPECTOR GENERAL



                                                                                            AUDIT SERVICES
                                                                                       Sacramento Audit Region


                                                 January 25, 2016

                                                                                    Control Number
                                                                                    ED-OIG/A09P0001

Dr. Mitchell D. Chester
Commissioner
Massachusetts Department of Elementary and Secondary Education
75 Pleasant Street
Malden, MA 02148

Dear Dr. Chester:

This final audit report, “Massachusetts Department of Elementary and Secondary Education’s
Oversight of Local Educational Agency Single Audit Resolution,” presents the results of our
audit. The purpose of the audit was to determine whether the Massachusetts Department of
Elementary and Secondary Education (ESE) provided effective oversight to ensure that local
educational agencies (LEAs) took timely and appropriate action to correct single audit findings.
Our review covered ESE’s processes and activities related to the resolution of LEA single audit
findings that occurred in fiscal years (FYs) 2011–2013. 1 In this report, we use the term “audit
resolution” to refer to all activities required to ensure that LEA single audit findings are fully and
appropriately corrected. See the Background section for the specific requirements of the audit
resolution process.

We determined that ESE’s oversight of LEA single audit resolution activities was not sufficient
to ensure that LEAs took timely and appropriate corrective action. In many cases, ESE did not
identify and require appropriate corrective actions for LEAs to take to adequately resolve their
findings. Further, ESE did not have a tracking process for individual LEA findings and did not
follow up on the status of corrective actions for many of the repeat findings covered by our
review. Additionally, ESE generally did not communicate effectively with LEA officials
regarding audit resolution, and none of ESE’s management decision letters that we reviewed met
all Federal requirements for content.

We made a variety of recommendations to the Director of the Office of the Chief Financial
Officer’s Post Audit Group within the U.S. Department of Education (Department) that would
require ESE to bring its oversight of LEA single audit resolution into compliance with applicable
Federal requirements and improve associated internal controls. Specifically, ESE should work
proactively with all LEAs that have single audit findings and expand its audit resolution efforts
for repeat findings, especially when repeat findings have or may have significant program or
fiscal impacts. ESE should also develop written policies and procedures covering all facets of its
oversight in this area, implement a formal tracking system so it can monitor the status of LEA
1
    Massachusetts LEAs operate on a fiscal year that begins on July 1 and ends on June 30.
Final Report
ED-OIG/A09P0001                                                                                         Page 2 of 26

corrective actions, and employ routine management reviews and periodic quality assurance
reviews to assess the effectiveness of its oversight of LEA single audit resolution activities in the
future.

ESE acknowledged that it had shortcomings in its oversight of LEA single audit resolution, but
disagreed with some parts of the finding. ESE stated that it intended to review the
recommendations and make improvements to its processes but did not state whether it agreed or
disagreed with each recommendation. ESE expressed concern that the audit did not cover all of
ESE’s monitoring and oversight activities to support the effective delivery of public education in
Massachusetts. ESE stated that even though it provides many different forms of fiscal and
programmatic monitoring, our report leaves an impression that single audit resolution is ESE’s
only tool to ensure that LEAs use Federal funds appropriately. ESE also noted that its response
to the draft audit report was designed to present a broader representation of its oversight work.




                                                 BACKGROUND


The Single Audit Act of 1984 established uniform audit requirements for State and local
governments (recipients and subrecipients) 2 that receive Federal financial assistance. Many of
these recipients receive annual grant awards from multiple Federal agencies. Before the Single
Audit Act, the grant-by-grant audit processes of Federal agencies were not coordinated. This
resulted in overlapping audits in some cases, which increased costs to the Federal government
and placed an undue administrative burden on recipients. In other cases, recipients were not
subject to any grant audits for multiple fiscal years. In 1990, the Office of Management and
Budget (OMB) issued Circular A-133 to extend the single audit process to nonprofit
organizations. In 1997, OMB revised Circular A-133 pursuant to Single Audit Act Amendments
of 1996 to extend Circular A-133’s coverage to audits of State and local governments. For fiscal
years ending after December 31, 2003, recipients that spent $500,000 or more in Federal awards
during a fiscal year were required to have a single audit or program-specific audit conducted in
accordance with OMB Circular A-133. In December 2013, OMB published final regulations for
Uniform Grant Guidance (Title 2 of the Code of Federal Regulations (C.F.R.)), which
consolidated and superseded requirements from eight OMB Circulars, including A-133, Part 200
of the Uniform Grant Guidance streamlined the administrative requirements, cost principles, and
audit requirements for Federal awards, and increased the single audit expenditure threshold to
$750,000. Uniform Grant Guidance requirements became effective for recipients’ fiscal years
beginning on or after December 26, 2014.

2
    In the remainder of this report, the term “recipient” is inclusive of subrecipients unless otherwise noted.
Final Report
ED-OIG/A09P0001                                                                                   Page 3 of 26

As pass-through entities, State educational agencies (SEAs) are responsible for distributing
Department grant funds to subrecipients. OMB Circular A-133 specifies the responsibilities of
pass-through entities related to the administration of Federal awards. 3 In their oversight role,
SEAs are responsible for advising LEAs of the requirements associated with the use of Federal
funds; monitoring LEAs’ use of Federal funds to ensure they comply with laws, regulations, and
grant agreements; and ensuring that LEAs achieve program goals. SEAs must also ensure that
all LEAs that meet the expenditure threshold for a given fiscal year have a single audit
performed.

As part of the single audit resolution process, the SEA must issue a management decision to the
LEA stating whether the SEA sustains each audit finding 4 and describing the corrective actions
the LEA must implement. According to OMB Circular A-133, Section 400(d)(5), SEAs must
ensure that LEAs take timely and appropriate action to correct any control weaknesses or
instances of noncompliance identified through the single audit process. OMB Circular A-133
includes detailed requirements for the content of the management decision, the timeframe for its
issuance, and related SEA responsibilities.

The Department does not directly monitor the LEA single audit resolution practices of SEAs.
Instead, it relies on statewide single audits to identify SEAs that have incomplete or ineffective
oversight processes for LEA single audit resolution. The Department is responsible for
overseeing the resolution of single audit findings at SEAs that involve Federal education
programs.

According to OMB Circular A-133, the auditee (SEA or LEA) holds primary responsibility for
following up on its audit findings and ensuring that corrective action is taken. This responsibility
includes the development of a corrective action plan to address each current-year finding and a
schedule of prior-year findings that details the status of each prior finding. For unresolved
prior-year findings, the SEA or LEA must describe any corrective action that has been taken to
date and what remaining corrective actions are planned. For subrecipient audits, the SEA has an
oversight role and must ensure that the LEA’s planned corrective actions are appropriate and
implemented timely. LEA and SEA officials must have a shared commitment to correcting LEA
audit findings for the audit resolution process to be successful.

Massachusetts has received, on average, about $625 million in Federal educational assistance
each year since 2011. The two largest Federal elementary and secondary education grant

3
  Although OMB Circular A-133 has been superseded by the Uniform Grant Guidance, the SEA requirements
described in this report continue to be in effect under the new regulations. We cite OMB Circular A-133
requirements in this report because the Uniform Grant Guidance was not in effect during the period covered by the
audit.
4
 In this report, “audit finding” refers to a compliance finding for a Federal education program reported in the OMB
Circular A-133 single audit, unless otherwise stated.
Final Report
ED-OIG/A09P0001                                                                                     Page 4 of 26

programs are Title I, Part A of the Elementary and Secondary Education Act (Title I), which
assists LEAs and schools with high numbers or high percentages of children from low-income
families, and Part B of the Individuals with Disabilities Education Act (IDEA), which assists
States and LEAs in meeting the needs of children with disabilities. Figure 1 shows the total
amounts of Federal elementary and secondary education funds that the Department awarded to
Massachusetts from FYs 2011–2015 for Title I, IDEA, and all other Federal elementary and
secondary education programs combined.

Figure 1. Federal Elementary and Secondary Education Program Funds Awarded to
Massachusetts in Millions (a)
     $700            $632                $625                                     $623                $643
                                                             $599
     $600

     $500

     $400

     $300

     $200

     $100

       $-
                     2011                2012                2013                 2014              2015 (b)
                  IDEA, Part B          Title I, Part A        Other Elementary/Secondary Level Programs


(a) Source: State Formula Grant Allocation Tables from the Department’s Web site. Award totals do not include
Federal education funds awarded directly by the Department on a competitive basis.
(b) 2015 grant totals are estimated.

Of the 401 LEAs operating in Massachusetts in FY 2012, 265 reported having a single audit
performed. We reviewed single audit data from the Federal Audit Clearinghouse
(Clearinghouse) and identified 28 Massachusetts LEAs that had at least one audit finding that
repeated for 3 or 4 years from FYs 2010–2013. 5 We judgmentally selected 6 of the 28 LEAs for
review based on the number and significance of their repeat findings and the LEA’s size, based
on student enrollment. 6 Table 1 provides details about the six LEAs selected for review.




5
 The Clearinghouse collects and disseminates information about the results of single audits of State and local
governments and nonprofit entities. The U.S. Census Bureau administers the Clearinghouse on behalf of OMB.
6
    The results of our work at the six selected LEAs cannot be projected to the population of all Massachusetts LEAs.
Final Report
ED-OIG/A09P0001                                                                                Page 5 of 26

Table 1. Massachusetts LEAs Selected for Review
    Selected LEA                   Enrollment (a)                        Repeat Finding(s)
    Boston Public Schools               54,312         Noncompliance with cash management requirements
                                                       Incorrect indirect cost rate charged to Federal
    Worcester Public Schools            25,254         education grants, lack of controls over compliance
                                                       with suspension and debarment requirements
    Fall River Public School                           Lack of controls over equipment and fixed capital
                                        10,246
    District                                           assets
                                                       Personnel time and effort certifications not
    Malden Public Schools               6,564
                                                       maintained, late and inaccurate financial reporting
                                                       Personnel time and effort certifications not
    Peabody Public Schools              5,972
                                                       maintained, late financial reporting
                                                       Personnel time and effort certifications not
    Bridgewater-Raynham                                maintained, late financial reporting, noncompliance
                                        5,301
    Regional School District                           with cash management requirements, late submission
                                                       of single audit reports
(a) Student enrollment totals as of October 1, 2014. Source: 2014–2015 Enrollment by Grade Report obtained from
ESE’s Web site.

Most LEAs in Massachusetts are organized as a department within their city or town, rather than
as independent local government entities. Consequently, the LEAs are audited as part of the
overall single audit for the city or town. The single audit threshold is based on the municipality’s
total Federal expenditures, and municipalities generally receive funding from numerous Federal
agencies. This may result in more LEAs being subject to a single audit than would otherwise be
the case if the threshold was determined solely based on the LEA’s Federal expenditures. This
form of organizational structure may also result in certain challenges and inefficiencies. For
example, the LEA’s single audit reporting may be late due to delays in the overall audit of the
city or town. In addition, city or town officials may disagree with LEA officials about the best
course of action to resolve LEA audit findings.

ESE’s Audit and Compliance Unit (Audit and Compliance) is responsible for oversight of LEA
single audit resolution at ESE. Audit and Compliance is also responsible for (1) identifying
which LEAs are required to have a single audit each year, (2) receiving the audit reports and
checking them for completeness, and (3) determining which ESE unit should issue the
management decision for each applicable finding. Based on data available at the time of our
review, Audit and Compliance issued about 80 percent of ESE’s management decisions. 7 The
remaining letters for audit findings associated with Federal education programs were issued by
ESE’s Title I and Special Education program offices. As part of our review, we evaluated the

7
 ESE communicated its decisions on individual LEA audit findings by issuing management decision letters. We
calculated the percentage of management decision letters that Audit and Compliance prepared based on entries in
ESE’s audit tracking file, which indicated whether Audit and Compliance or an ESE program office prepared each
management decision letter.
Final Report
ED-OIG/A09P0001                                                                    Page 6 of 26

audit resolution activities of the ESE program offices that oversee Title I and IDEA because they
issued management decision letters relevant to our review and because of the large amount of
funds they administered and the potential impact that significant audit findings could have on
these two programs at the LEA level.




                                     AUDIT RESULTS


ESE’s oversight of LEA single audit resolution was not sufficient. In particular, ESE did not
always work collaboratively or communicate effectively with LEAs that had audit findings to
ensure that the LEAs took timely and appropriate corrective action. This was the case even for
those LEAs that had significant audit findings that repeated over a period of many years. ESE’s
internal controls were not sufficient to ensure that it provided adequate oversight of the LEA
audit resolution process. ESE also did not appear to make LEA audit resolution a high priority.
Only one person in Audit and Compliance worked on audit resolution activities and did so on a
part-time basis. ESE also did not comply with Federal requirements that prescribed how it
should oversee LEA single audit resolution. Because of weaknesses in its oversight of LEA
single audit resolution, ESE did not always identify and require LEAs to implement appropriate
corrective actions. These weaknesses have also resulted in lengthy delays in LEAs
implementing necessary corrective actions that would correct past deficiencies and prevent
future audit findings. In some cases, Federal funds may not have been collected and remitted
back to the U.S. Treasury.

We provided a draft of this report to ESE for review and comment on September 28, 2015. ESE
provided its comments on November 6, 2015. Although ESE disagreed with some parts of the
finding, it acknowledged that improvements were needed. ESE stated that it planned to take
action to improve its oversight of LEA audit resolution but did not state whether it agreed with
each of our recommendations. We did not change our finding or recommendations based on
ESE’s comments to the draft audit report. We summarized ESE’s comments at the end of the
finding and provided responses to its comments as warranted. We also included the full text of
ESE’s comments as Attachment 2 to this report.

FINDING – ESE Did Not Ensure That LEAs Took Timely and Appropriate Action
          to Correct Audit Findings

ESE did not always identify and require appropriate corrective actions for LEAs to take to
resolve their audit findings. In many cases, ESE approved LEA corrective action plans included
in audit reports that lacked necessary detail or would not correct the underlying condition that
resulted in the finding. ESE also did not record or track individual LEA findings or the status of
corrective actions and did not follow up with LEAs to ensure they timely implemented corrective
Final Report
ED-OIG/A09P0001                                                                                   Page 7 of 26

actions after ESE issued management decision letters. ESE did not expand its audit resolution
activities for findings that repeated for multiple years, even in cases of significant noncompliance
that resulted in substantial questioned costs. In one case, Audit and Compliance did not take
action on a finding involving nearly $2 million in Federal questioned costs even after ESE’s own
legal counsel rendered an opinion that supported the return of the Federal funds. Furthermore,
ESE generally did not communicate effectively with LEA officials regarding audit resolution,
either before or after the issuance of the management decision letter. Officials at LEAs in our
review with significant repeat findings did not report any communication or contact with ESE
related to the resolution of their findings. Finally, none of ESE’s management decision letters
that we reviewed met all OMB Circular A-133 requirements for content.

ESE Did Not Identify and Require Appropriate Corrective Actions

In Massachusetts, the management decision letter is the official mechanism for the SEA to
communicate with the LEA regarding the resolution of its audit findings. The management
decision letter provides crucial information including whether the audit finding is sustained, what
corrective actions are required, and the timeframes for follow-up regarding the completion of the
corrective actions. Before the SEA can determine what corrective actions the LEA should take
on each finding, it must have complete information about the nature of the audit finding and the
LEA’s planned corrective actions, including the status of their implementation. If the SEA
cannot obtain all pertinent information from the audit finding and corrective action plan in the
audit report, SEA officials should contact the LEA to obtain additional details.

ESE’s management decision letters did not always identify and require appropriate corrective
actions to resolve LEA audit findings. In most of the cases we reviewed, 8 ESE approved LEA
corrective action plans described in single audit reports without contacting LEA officials for
additional information, even when the corrective action plan did not provide sufficient
information for ESE to evaluate whether the proposed actions would correct the finding.
Fourteen of the 20 management decision letters that we reviewed stated that the LEA’s planned
corrective actions were reasonable, but ESE could not demonstrate that it contacted LEA
officials to obtain information needed to assess the reasonableness of the corrective actions
before approving them. Two other management decision letters that we reviewed did not
address the corrective actions described in the audit report or specify other required actions.
These 16 management decision letters covered corrective actions for 31 separate audit findings.
We reviewed the corrective action plans for all 31 findings and found that 21 did not describe
clear and specific steps that could reasonably be expected to correct the underlying condition of
8
 We reviewed 14 management decision letters issued by Audit and Compliance for selected repeat findings at the
6 LEAs included in our review and 6 letters issued to 6 other LEAs by ESE’s Title I and Special Education program
offices. The 20 management decision letters addressed a total of 39 audit findings. The results of our review of the
20 management decision letters cannot be projected to the population of all management decision letters issued by
ESE. See the Objective, Scope, and Methodology section of this report for a description of our methodology for
selecting management decision letters for review.
Final Report
ED-OIG/A09P0001                                                                                  Page 8 of 26

the finding. Consequently, ESE did not ensure that LEAs took appropriate corrective action to
resolve their audit findings, as required by OMB Circular A-133, Section 400(d)(5).

Three ESE units (Audit and Compliance, the Title I program office, and the Special Education
program office) issued management decisions for audit findings associated with Federal
education programs during the period covered by our review. We noted differences in the extent
of communication that each unit had with LEAs before issuing a management decision letter.
For example, the Title I program office provided evidence that it followed up with LEA officials
to gain additional information about findings and planned corrective actions before issuing each
of the three Title I management decision letters that we reviewed. The Special Education office
provided evidence that it communicated with LEA officials prior to issuing one of the three
management decision letters that we reviewed. However, Audit and Compliance did not provide
evidence that it contacted LEA officials for additional information before issuing any of the 14
management decision letters that we reviewed.

ESE did not always identify and require appropriate corrective actions even for findings that
repeated year after year and that could have significant monetary impacts. For example,
Worcester Public Schools has a repeat indirect cost finding that auditors first reported in FY
2010 and remained unresolved in its FY 2014 audit report. The auditors identified nearly
$2 million in total questioned costs during this period. In 2010, the City of Worcester began
charging a 3-percent indirect cost rate on education grants, even though the approved rate in the
grant agreements was 1-percent. The city’s cognizant agency 9 approved a 3-percent indirect cost
rate in 2010, and the city believed it was entitled to charge this rate on all Federal grants,
including education grants. Worcester Public Schools disagreed with the city and contended that
its school committee, which had approved the 1-percent rate, must authorize all education grant
spending. At Worcester Public School’s request, ESE’s legal counsel reviewed the issue and in
April 2012 determined that the 3-percent indirect cost rate approved by the city’s cognizant
agency did not apply to the education grants because the grants were passed through ESE.
Counsel stated that ESE was the grantee and the Department was ESE’s cognizant agency and
concluded that 1-percent was the maximum rate that Worcester Public Schools could charge. In
2013, the city sent conflicting legal opinions from the city’s solicitor and ESE’s legal counsel to
OMB and requested that OMB render a decision regarding the appropriate indirect cost rate that
could be charged.

Over the 5 years that the indirect cost finding repeated, Audit and Compliance did not take
reasonable measures to safeguard Department program funds. Upon learning about the finding
and the dispute between the city and Worcester Public Schools, Audit and Compliance should
have, at a minimum, instructed the city to charge the lower rate for education grants until the
finding was resolved. Instead, Audit and Compliance’s FYs 2011–2013 management decision

9
 The cognizant agency is the Federal agency responsible for reviewing, negotiating, and approving indirect cost
proposals on behalf of all Federal agencies.
Final Report
ED-OIG/A09P0001                                                                                    Page 9 of 26

letters stated, “[a]fter discussion with your staff the corrective action plans and steps that will be
taken to resolve the findings…appear to be reasonable and in order.” However, the corrective
action plans, which the city prepared, did not describe any steps to correct the finding. Instead,
they provided background information regarding the city’s use of the 3-percent indirect cost rate,
and in FYs 2012–2013, stated that the contrary opinions from the city’s Law Department and
ESE’s legal counsel had been referred to OMB for determination. Officials at the city and
Worcester Public Schools who were responsible for resolving this audit finding stated that Audit
and Compliance had not contacted them regarding the finding.

In another example of repeat findings with the potential for significant monetary impacts, Boston
Public Schools (Boston) has a repeat finding related to noncompliance with Federal cash
management requirements that auditors first reported in FY 2011 and remained unresolved in
Boston’s FY 2014 audit report. The finding states that Boston draws down its entire allocation
for numerous Federal education grants before incurring program expenditures. For example,
during its fiscal year beginning July 1, 2010, Boston drew down its entire grant allocations for
Title I, IDEA, and other Federal education programs by August 31, 2010, even though it had
incurred only a limited amount of costs. Boston had significant balances of unspent Federal
grant funds remaining as of June 30, 2011 (fiscal year-end). Boston did not comply with Federal
requirements to minimize the time between the drawdown of funds and the payment of
expenses. 10 The management decision letters that Audit and Compliance issued to Boston for
the FY 2011 and 2012 findings indicated some disagreement with the auditor about the finding
but did not state whether ESE had sustained the finding or what corrective actions were
required. 11 Audit and Compliance’s management decision letters explained ESE’s approach to
cash management rather than addressing the noncompliance identified in the finding and did not
instruct Boston to modify its procedures to ensure they were aligned with Federal cash
management requirements. Given the knowledge that Boston had held significant cash balances
of unspent Federal funds over multiple grant periods, Audit and Compliance should have
instructed Boston to calculate the interest earned on excess funds for all years in which a finding
was reported and remit the interest to the Department.

ESE Did Not Track Findings or Follow Up on the Status of Corrective Actions

Audit and Compliance, the unit with principal responsibility for overseeing LEA single audit
resolution for ESE, did not record or track individual LEA findings or the status of related
corrective actions. Audit and Compliance tracked each LEA that had one or more findings only
to ensure that it issued a management decision letter to each of these entities. This tracking

10
  34 C.F.R. § 80.21 requires subgrantees (subrecipients) to minimize the time between the transfer of funds and
disbursement, and to remit interest earned on held funds.
11
  At the time of our fieldwork, ESE had not yet issued the management decision for 2013 because it did not receive
the audit report until January 2015. An ESE official stated that the decision would likely be similar to the decision
for the prior year.
Final Report
ED-OIG/A09P0001                                                                                   Page 10 of 26

process did not include information on individual findings at the LEAs or the status of corrective
actions, and ESE only retained these records for the most recent year. An Audit and Compliance
official stated that the agency did not track individual LEA findings or the status of corrective
actions because the cost of doing so would outweigh the benefit. However, the tracking of audit
findings is an essential component of an SEA’s oversight of LEA audit resolution. Without a
multiyear tracking system for individual findings, ESE cannot easily identify specific findings
reported at individual LEAs across the State, determine how many times each finding has
repeated, or effectively follow up to ensure that LEAs take timely corrective actions. In addition,
Audit and Compliance lacks a valuable tool that could provide a control mechanism allowing it
to periodically assess the pervasiveness of LEA risks of noncompliance with Federal
requirements, the existence of systemic control weaknesses across LEAs, and the risk of
improper payments.

Officials in each of the ESE units that had an oversight role in LEA single audit resolution for
audit findings associated with Federal education programs stated that they generally did not
follow up on the status of corrective actions after they issued management decision letters. Thus,
although the management decisions typically approved each LEA’s planned corrective actions,
ESE officials did not subsequently contact LEA officials to ensure that the corrective actions
were in process or completed. Section 400(d)(5) of OMB Circular A-133 requires the
pass-through entity (SEA) to “ensure that the subrecipient takes appropriate and timely
corrective action.” Section 405(d) states that subrecipient “[c]orrective action should be initiated
within six months after [the SEA’s] receipt of the audit report and proceed as rapidly as
possible.”

ESE did not expand its audit resolution activities for LEAs with repeat findings. The content of
ESE’s management decision letters was typically identical from year to year, indicating that ESE
officials did not reevaluate or modify the required LEA corrective actions for repeat findings to
ensure that the LEA implemented appropriate corrective action. For example, the
Bridgewater-Raynham Regional School District had a repeat Federal time and effort audit
finding that was reported in FYs 2009–2012. 12 We reviewed ESE’s management decision letters
for FYs 2011 and 2012, which both stated that the LEA’s planned corrective action was
reasonable. The LEA’s corrective action plan was identical for each year, stating, “[t]he District
is currently in the process of implementing policies and procedures to address the administration
of its federal programs. The District intends such policies and procedures will address ‘time and
effort’ documentation in accordance with federal cost circulars.” Officials at the LEA did not
recall ESE officials contacting them about the resolution of this or any other repeat finding. To
facilitate resolution of repeat findings, ESE could require LEAs with repeat findings to provide
evidence that they had implemented the corrective actions that they have agreed to in prior years.
ESE also did not expand its audit resolution activities even when audit findings resulted in
12
  The LEA had not yet issued its FY 2013 or 2014 single audit reports at the time of our fieldwork, so we do not
know whether the finding has been corrected or repeated in those years.
Final Report
ED-OIG/A09P0001                                                                                   Page 11 of 26

significant questioned costs or situations where Federal funds likely should have been returned to
the U.S. Treasury. For example, Audit and Compliance could not demonstrate that it took any
action beyond issuance of the management decision letter to Worcester Public Schools for the
indirect cost finding discussed earlier in this report. For this finding, ESE should have contacted
the Department’s Indirect Cost Group for guidance and assistance or promptly determined
whether OMB was the appropriate agency to render an opinion on the matter.

ESE Did Not Communicate Effectively With LEA Officials Regarding Audit Resolution

ESE generally did not communicate with LEAs regarding their audit findings, either to obtain
necessary information while preparing the management decision letter, or to ensure LEAs
implemented needed corrective actions after ESE issued the management decision. We
interviewed officials at six LEAs that had repeat findings during our audit period for which
Audit and Compliance was responsible for overseeing resolution. 13 Even though the
management decision letters that Audit and Compliance issued to five of the six LEAs stated that
ESE had communicated with the LEA officials before issuing the letters, the officials at these
LEAs did not recall having been contacted by Audit and Compliance regarding their repeat audit
findings. Audit and Compliance did not provide evidence that it had contacted officials at the six
LEAs prior to issuing management decision letters.

ESE addressed its management decision letters to LEA superintendents, but in most cases,
nobody appeared to have subsequently disseminated the letters to the appropriate action officials
at each LEA. Officials who were responsible for audit resolution activities at four of the six
LEAs were not familiar with the significance of the management decision letter in the audit
resolution process and did not recall receiving any management decision letters from ESE related
to their repeat findings. Because management decision letters are a central part of the audit
resolution process, ESE should work with LEA officials to ensure that the officials responsible
for implementing corrective action receive them. For example, ESE could distribute the letters
directly to these LEA action officials with a copy to the superintendent.

OMB Circular A-133 does not specify the degree of outreach and communication that SEAs
must have with LEAs related to single audit resolution, so long as SEAs fulfill the specific
requirements for pass-through entities. However, proactive and cooperative engagement with
LEA officials facilitates the audit resolution process by enabling the SEA to ensure that LEAs
take corrective actions that are both timely and appropriate. The Department’s guide on
cooperative audit resolution provides guidance for how entities can improve communication and



13
  We spoke with all staff at the LEA and the city who were identified as having a role in each LEA’s single audit
resolution process. This was generally the LEA’s chief financial officer or business manager, and sometimes
included LEA program officials, the LEA’s superintendent, the city auditor, or other representatives of the city.
Final Report
ED-OIG/A09P0001                                                                                       Page 12 of 26

interaction during the audit resolution process. 14 The guide states that oral communication
between the auditee and oversight agency is an essential component of audit resolution and that
complex or repeat findings may require full and open dialogue among all participants on a
continuing basis. Although the guide targets cooperation between Federal and State agencies
when resolving State level audit findings related to Federal programs, it also states that SEAs and
LEAs can apply the tenets of cooperative audit resolution. Principles of cooperative audit
resolution are also included in the Uniform Grant Guidance as a requirement for Federal
agencies. According to 2 C.F.R § 200.25, “[c]ooperative audit resolution means the use of audit
follow-up techniques which promote prompt corrective action by improving communication,
fostering collaboration, promoting trust, and developing an understanding between the Federal
agency and the non-Federal entity.”

ESE’s Management Decision Letters Did Not Meet Federal Requirements

None of ESE’s management decision letters that we reviewed met all OMB Circular A-133
requirements for content. According to Section 405(a) of OMB Circular A-133, “[t]he
management decision shall clearly state whether or not the audit finding is sustained, the reasons
for the decision, and the expected auditee action to repay disallowed costs, make financial
adjustments, or take other action. If the auditee has not completed corrective action, a timetable
for follow-up should be given. … The management decision should describe any appeal process
available to the auditee.” We reviewed 20 management decision letters that ESE issued for LEA
findings in FYs 2011–2013 and determined that none of the letters contained all of the required
content. Further, 16 of the letters did not contain any of the required content.

We also determined that ESE issued 4 of the 20 management decisions letters late. Section
400(d)(5) of OMB Circular A-133 requires the SEA to issue a management decision for
subrecipient audit findings within 6 months of receiving the audit report. However, ESE did not
provide evidence of the date it received LEA audit reports for FYs 2011 and 2012, and for FY
2013, many months elapsed between the date that an LEA’s audit report was completed and
submitted to the Clearinghouse and the date that ESE received the report. For these reasons, we
used the date that the LEA audit reports were completed in the Clearinghouse to determine
whether ESE’s management decision letters were timely. 15 Based on our assessment, ESE
issued the 4 management decision letters between 1 and 4 months late.

ESE did not issue two required management decision letters. At the time of our fieldwork, Audit
and Compliance had not issued a management decision letter to Boston for its FY 2013 audit

14
  U.S. Department of Education, Cooperative Audit Resolution and Oversight Initiative (1999). “Discovering New
Solutions Through Cooperative Audit Resolution: A Guide. Washington, D.C.
15
  Under the Uniform Grant Guidance (2. C.F.R. § 200.521 (d)) the SEA is required to issue the management
decision letter within 6 months of the date that the audit report is accepted by the Clearinghouse, rather than the date
that the SEA received the audit report, as specified by OMB Circular A-133.
Final Report
ED-OIG/A09P0001                                                                                  Page 13 of 26

findings. An ESE official stated that Audit and Compliance had not issued the management
decisions because it did not receive Boston’s FY 2013 single audit report until January 2015.
However, we confirmed that the audit report was submitted to the Clearinghouse on time in
March 2014. Audit and Compliance attributed its late receipt of the report to a collection error.
Audit and Compliance also did not issue a management decision to Fall River Public School
District for two findings identified in its FY 2012 audit. An ESE official stated that Audit and
Compliance did not issue these management decisions because the findings were not applicable
to any of ESE’s programs. However, because the audit report identified the findings as
applicable to the Title I and Special Education programs, ESE was required to issue a
management decision letter, even if it did not sustain the findings.

Factors Underlying ESE Weaknesses in Overseeing LEA Audit Resolution

We concluded that ESE’s internal controls were not sufficient to ensure that it provided adequate
oversight of the LEA single audit resolution process. ESE did not have written policies and
procedures identifying the Federal requirements for SEA oversight of LEA single audit
resolution, such as the processes that ESE personnel should follow when reviewing each LEA
finding and corrective action plan or developing the management decision letter. ESE also did
not have policies and procedures describing the methods for, and how frequently it should,
follow up on LEA activities to ensure that LEAs took appropriate corrective action within
agreed-on timeframes or to describe more intensive audit resolution oversight practices for repeat
findings. Further, ESE did not have a quality assurance process to periodically evaluate its
oversight of LEA single audit resolution. As a result, ESE had no means to systematically detect
errors, control weaknesses, or noncompliance with regulatory requirements. Finally, ESE did
not have a process to facilitate management control and oversight of the LEA single audit
resolution function. For example, the senior official with authority over Audit and Compliance
did not receive reports on the status of LEA findings across the State or other metrics to gauge
the effectiveness of ESE’s audit resolution activities or to provide guidance on the appropriate
actions that ESE should take to resolve significant repeat findings.

The timely and appropriate resolution of LEA single audits did not appear to be a priority for
ESE based on its allocation of resources. Audit and Compliance was responsible for overseeing
the LEA single audit resolution process for ESE. At the time of our review, Audit and
Compliance had a director and seven staff members, but the director was the only person
overseeing LEA single audit resolution. One staff member reviewed LEA single audit reports
for completeness but was not involved in the audit resolution process. The remaining staff
members had duties that were also unrelated to LEA single audit resolution, such as performing
internal control and grant monitoring reviews at LEAs. The amount of work required to identify
appropriate corrective actions for 100 or more 16 LEA audit findings each year, produce

16
  ESE did not track the number of individual findings in each year. This figure is an OIG estimate based on
analysis of available data.
Final Report
ED-OIG/A09P0001                                                                     Page 14 of 26

management decision letters for each finding that meet applicable requirements, track and follow
up on the status of LEA corrective actions on prior audit findings, and expand audit resolution
activities for repeat findings appears to be beyond the capacity of one person working part-time
on these tasks.

As a result of the weaknesses in ESE’s oversight of LEA single audit resolution identified in this
report, most LEAs received limited or no guidance from ESE on how to properly resolve their
audit findings, putting Federal education program funds and program outcomes at risk. Many
LEAs did not receive instructions from ESE regarding appropriate steps to correct their findings,
even when their corrective action plans lacked necessary detail or included steps that would not
correct the findings. In addition, significant amounts of questioned costs may go uncollected for
multiple years. For example, the City of Worcester’s indirect cost findings from FYs 2010–2014
resulted in nearly $2 million in questioned costs. It is also possible that other LEAs in
Massachusetts could have weaknesses in their cash management process that are similar to those
identified in Boston. ESE officials could not demonstrate that ESE had collected questioned
costs related to any LEA finding that occurred in FYs 2011–2013. Based on our analysis of
single audit data from the Clearinghouse and review of related audit reports, about 10 percent of
Massachusetts LEAs that submitted audit reports to the Clearinghouse had at least one finding
that repeated for 3 or 4 years during FYs 2010–2013. This was among the highest number of
LEAs with repeat findings in any State. The repeat findings included those described earlier as
well as multiple findings at other LEAs related to inaccurate or untimely financial reporting for
Federal education grants, insufficient documentation of personnel time and effort charged to
Federal grants, and failure to check the Federal suspension and debarment list before awarding
large-dollar contracts to vendors, among other issues.

We used a judgmental selection process to choose sample LEAs and management decision
letters for review. As a result, we cannot project our results to the population of all LEAs in
Massachusetts or all management decision letters issued by ESE. However, based on the
pervasiveness of issues we identified in our sample items and the high proportion of repeat
findings among Massachusetts LEAs, it is possible that the results identified in this report are not
limited to the LEAs and management decisions included in our audit.

Recommendations

We recommend that the Director of the Office of the Chief Financial Officer’s Post Audit Group
require ESE to—

1.1    Take immediate action to ensure that all LEAs that currently have unresolved repeat
       findings, including those highlighted in this report, take prompt and appropriate
       corrective actions. ESE should initially prioritize the resolution of the findings with the
       greatest program or fiscal impacts and contact the Department for guidance and
       assistance, as necessary.
Final Report
ED-OIG/A09P0001                                                                    Page 15 of 26

1.2    Design and implement written policies and procedures for overseeing the LEA single
       audit resolution process to ensure that ESE’s activities result in timely and appropriate
       correction of LEA audit findings. The policies and procedures should cover the entire
       audit resolution process, including the review of each LEA finding and corrective action
       plan, preparation of management decisions, follow-up activities, and steps to effectively
       resolve repeat findings.

1.3    Establish a tracking system for individual LEA audit findings that includes data for
       current and prior years to facilitate effective oversight and timely LEA finding resolution.
       Once ESE enters an audit finding into the tracking system, it should not remove the
       finding until the LEA has fully implemented all required corrective actions.

1.4    Ensure that management decision letters meet regulatory requirements such as clearly
       stating whether ESE sustains the auditor’s finding, timely issuance, and communicating
       appropriate corrective actions the LEA must take. ESE should also establish a timeframe
       for LEAs to complete corrective actions.

1.5    Implement routine internal management reviews covering the status and performance of
       ESE’s oversight activities related to LEA single audit resolution and a periodic quality
       assurance process for the oversight activities to detect and correct errors, control
       weaknesses, and noncompliance with regulatory requirements.


ESE Comments and OIG Responses

We summarize ESE’s comments to specific parts of our finding and provide our responses in the
following sections. See Attachment 2 for a copy of the full text of ESE’s comments.

ESE General Comments
ESE stated that it understood that the audit was focused on its oversight of LEA single audit
resolution and agreed that this was an important part of ESE’s oversight work. However, ESE
expressed concern that the audit did not cover all of ESE’s monitoring and oversight activities to
support the effective delivery of public education in Massachusetts. ESE stated that even though
it provides many different forms of fiscal and programmatic monitoring, our report leaves an
impression that single audit resolution is ESE’s only tool to ensure that LEAs use Federal funds
appropriately.

OIG Response
We agree that SEAs have an important oversight role that extends beyond LEA single audit
resolution. As noted in the Background section of this report, SEA responsibilities include
advising LEAs of the requirements associated with the use of Federal funds; monitoring LEAs’
use of Federal funds to ensure they comply with laws, regulations, and grant agreements; and
ensuring that LEAs achieve program goals. Our audit focused on ESE’s oversight of LEA single
Final Report
ED-OIG/A09P0001                                                                        Page 16 of 26

audit resolution because the single audit is a primary control mechanism used by Federal
agencies to ensure accountability for Federal awards. The single audit helps to ensure that
Federal funds are safeguarded against improper use and that Federal programs operate as
intended. Our focus on the single audit resolution process is not intended to diminish the value
of ESE’s other LEA monitoring and oversight activities.

Indirect Cost Finding in the City of Worcester

ESE Comments
ESE stated that its financial and programmatic staff, as well as its legal counsel, have weighed in
on the recurring indirect cost finding in the City of Worcester and are in agreement that the city
was charging an unallowable indirect cost rate for education grants. However, ESE strongly
disagreed with two statements in the draft report.

ESE disagreed that it should have contacted the Department’s Indirect Cost Group for assistance
regarding resolution of the finding. ESE believed it had taken the proper approach by waiting
for OMB to provide guidance on the appropriate indirect cost rate that the City of Worcester
could charge on education grants. ESE explained that the City and Public Schools of Worcester
were looking for an independent voice to decide the outcome of their disagreement and that input
from another education unit (that is, the Department) would not resolve the matter.

ESE also disagreed that it should have immediately required the return of questioned costs
resulting from the finding. ESE stated that it intentionally did not request funds back from the
City of Worcester. ESE thought it was prudent to let the appeal to OMB run its course and wait
until OMB rendered an independent decision on the finding. ESE said that if its opinion was
ultimately upheld, it would request a refund of all questioned costs, including interest. ESE
added that if it recouped the questioned costs as proposed by OIG, and OMB ultimately decided
in favor of the city, ESE would be in the position of refunding the questioned costs with interest
after some of the grant awards that the funds applied to had closed.

OIG Response
We did not recommend the immediate return of questioned costs to the Federal government.
We did state that ESE should have required the City of Worcester to charge the lower indirect
cost rate until the finding was resolved, and it is still our position that using the lower rate while
the finding is unresolved is appropriate.

As the oversight entity charged with issuing management decisions for LEA audit findings
associated with its pass-through grants, ESE has the legal authority to determine the appropriate
actions needed to resolve those audit findings. Additionally, the Department delegates authority
to SEAs to develop and approve indirect cost rates for their LEAs. Thus, ESE had the authority
to decide the appropriate indirect cost rate that the city could charge and resolve the finding.
ESE should have contacted the Department’s Indirect Cost Group if it desired guidance or
technical assistance related to the finding. OMB was not the correct authority to decide the
Final Report
ED-OIG/A09P0001                                                                     Page 17 of 26

matter. Additionally, according to a Worcester Public Schools’ official, as of November 30,
2015, OMB had not responded to the City of Worcester’s 2013 request that it render an opinion
on the finding.

In its comments to this report, ESE stated that it concurred with the finding that Worcester was
charging an indirect cost rate that was higher than the allowable rate. We noted in the report that
ESE’s counsel had already rendered an opinion that Worcester was charging the wrong indirect
cost rate for education grants. ESE had the authority and responsibility to timely resolve this
issue and safeguard Federal funds. ESE could have ensured that the finding was resolved as
early as 2011, which would have prevented the apparent unallowable use of more than $1.5
million in Federal funds. However, as a result of ESE’s inaction, the finding remains
unresolved.

Cooperative Audit Resolution

ESE Comments
ESE referenced the Department’s Cooperative Audit Resolution and Oversight Initiative
(CAROI) three times in its comments. ESE stated that it has dedicated limited resources to
follow-up activities related to single audit findings (which it described as an “after the fact”
activity) and instead uses the bulk of its resources to conduct field visits to grantees, enabling
ESE to highlight issues and offer assistance before an audit period. ESE described this approach
as being consistent with the principles of CAROI and said this proactive approach with LEAs is
beneficial and productive. ESE also stated that it had followed the concepts of CAROI in its
oversight of the indirect cost finding in the City of Worcester.

OIG Response
CAROI’s purpose is to reduce audit findings, and it achieves this purpose through a two-pronged
approach: it provides a cooperative framework for resolving existing audit findings and supports
proactive oversight activities to identify and correct problems before they become audit findings.
As described in this report, ESE generally did not engage in cooperative audit resolution
activities with its LEAs. In many cases, including the indirect cost finding in the City of
Worcester, ESE could not demonstrate that it had taken any actions to resolve LEA findings
beyond the issuance of management decision letters. We agree that proactive oversight for
preventative purposes is important. However, it is critical that ESE work to address and
effectively resolve known instances of noncompliance and control weaknesses that have been
reported through the LEA single audit process.

Tracking of Audit Findings

ESE Comments
ESE stated that the Audit and Compliance unit has never been designated as responsible for
tracking and monitoring all LEA findings and management decision letters for ESE. The
primary role of Audit and Compliance is to collect all LEA audit reports, review the reports for
Final Report
ED-OIG/A09P0001                                                                     Page 18 of 26

completeness and adherence to standards, and notify ESE program units when there is a finding
regarding one of their programs. ESE explained that Audit and Compliance has taken on
responsibility for additional duties, including preparation of some management decision letters,
because it was efficient to do so.

OIG Response
We found that the Audit and Compliance unit maintained a spreadsheet to track high-level
information regarding LEAs that had audit findings and the associated management decision
letters. More generally, we found that the Audit and Compliance unit was responsible for nearly
all of the principle functions related to ESE’s oversight of the LEA single audit resolution
process. In light of its already established responsibilities in this area, Audit and Compliance
appears reasonably well-positioned to assume an official tracking role for ESE. However, ESE
may assign responsibility for monitoring and tracking the LEA audit resolution process to any
unit that it deems best suited for this role.

Content and Timeliness of Management Decision Letters

ESE Comments
ESE agreed that its management decision letters lacked content required by Federal regulations.
However, ESE disagreed with our finding that it had issued some management decision letters
late because we used the dates that the audit reports were completed and submitted to the
Clearinghouse as ESE’s date of receipt for the reports. ESE noted that we referenced the new
requirements of the Uniform Grant Guidance in a footnote. Under OMB Circular A-133
requirements, timeliness of management decision letters was measured from the date that the
SEA received each LEA’s audit report. However, under the new Uniform Grant Guidance,
timeliness is now measured from the date the audit report was submitted to the Clearinghouse.
ESE noted that the Uniform Grant Guidance became effective for ESE on July 1, 2015, and thus
the OMB Circular A-133 requirement was in effect during the audit period.

OIG Response
As stated in the report, ESE did not provide evidence of the date that it had received LEA audit
reports for FYs 2011 and 2012. Since ESE did not provide its actual date of receipt, we could
not use this date to assess the timeliness of its management decision letters. As a result, we used
the date that the FY 2011 and 2012 audit reports were submitted to the Clearinghouse to assess
timeliness for those years.

ESE did provide the dates that it had received audit reports for FY 2013. However, we found
that ESE’s date of receipt for one LEA’s audit report was nearly 6 months after the report had
been completed and submitted to the Clearinghouse. Because of this, and to ensure that our
analysis was consistent from year to year, we decided that the date that the audit reports were
submitted to the Clearinghouse was the most appropriate measure of timeliness for FY 2013 as
well.
Final Report
ED-OIG/A09P0001                                                                    Page 19 of 26

SEAs have a responsibility to be proactive to ensure that they receive each LEA’s audit report in
a timely manner. As noted in this report, the SEA is responsible for ensuring that all audit
findings contained in LEA audit reports are corrected timely and appropriately. The SEA is also
responsible for ensuring that each LEA that meets the Federal expenditure threshold has a single
audit performed. To fulfill these responsibilities, the SEA must obtain each LEA’s single audit
report promptly. The SEA should also follow up on any cases where it has not received an
LEA’s audit report by the regulatory deadline.

In a footnote to this report, we explained that the Uniform Grant Guidance changed the
requirements related to determining timeliness of management decision letters. The footnote
was included to provide the reader with contextual information. It was not used as criteria to
support the finding. We stated in the Background section that OMB Circular A-133 was in
effect during our audit period.
Final Report
ED-OIG/A09P0001                                                                    Page 20 of 26


                                     OTHER MATTER


According to Section 200(a) of OMB Circular A-133, non-Federal entities with Federal grant
expenditures that meet or exceed a specified threshold are subject to single audit requirements in
that year. ESE did not have a process to obtain year-end Federal expenditure data from its
subrecipients to determine which had met the single audit expenditure threshold. Instead, ESE
used historical information to anticipate which LEAs would likely meet the expenditure
threshold. Because ESE did not use the correct expenditure data, it could not identify with
certainty which subrecipients should have a single audit or ensure that it oversaw the resolution
of all findings associated with Federal education programs.

To correct this issue, ESE could explore options for obtaining each subrecipient’s total Federal
expenditure data soon after the end of the fiscal year and determining which entities are required
to have a single audit for that year. Since many of ESE’s subrecipients are municipalities that
receive Federal awards from numerous pass-through entities, ESE should ensure that it obtains
Federal expenditure data from all applicable sources. One option could be for Massachusetts to
designate a single State agency to compile expenditure data for all recipients of Federal funds,
identify the entities that are required to have a single audit each year, and communicate that
information to the State agencies that administer Federal pass-through grants.
Final Report
ED-OIG/A09P0001                                                                   Page 21 of 26


                  OBJECTIVE, SCOPE, AND METHODOLOGY


The objective of our audit was to determine whether ESE provided effective oversight to ensure
that LEAs took timely and appropriate action to correct single audit findings. Our audit covered
ESE’s processes and activities related to the resolution of LEA single audit findings that
occurred in FYs 2011–2013.

To achieve our audit objective, we performed the following procedures:

   1. Reviewed applicable sections of the Single Audit Act of 1984, OMB Circular A-133, the
      OMB Circular A-133 Compliance Supplement dated March 2014, and the Uniform Grant
      Guidance to gain an understanding of the oversight responsibilities of the Department and
      SEAs related to LEA single audit resolution.

   2. Reviewed reports issued by the Department’s Office of Inspector General and the U.S.
      Government Accountability Office that addressed various aspects of SEA oversight of
      LEAs, including the resolution of LEA audit findings.

   3. Interviewed officials with the Department’s Office of the Chief Financial Officer’s Post
      Audit Group, Risk Management Service, Office of Elementary and Secondary Education,
      and Office of Special Education Programs to gain an understanding of how the
      Department monitors SEA oversight of LEA single audit resolution.

   4. Judgmentally selected six Massachusetts LEAs for review (see “Sampling Methodology”
      below).

   5. Reviewed the FYs 2011–2013 single audit reports for ESE and the six LEAs (if available
      in the Clearinghouse) to identify information relevant to the audit objective, including
      significant or repeat findings and areas of internal control weakness at the entities.

   6. Interviewed ESE officials and reviewed ESE’s written policies and procedures to gain an
      understanding of ESE’s oversight processes related to LEA single audit resolution and
      other areas relevant to the audit objective.

   7. Interviewed officials at each of the six LEAs to obtain information about the repeat
      findings and to evaluate the nature and extent of ESE’s interaction with the LEAs related
      to the resolution of the findings.

   8. Obtained 20 management decision letters that ESE issued to 12 LEAs for 39 audit
      findings (see “Sampling Methodology” below) and reviewed the letters for adherence to
Final Report
ED-OIG/A09P0001                                                                     Page 22 of 26

       regulatory requirements for content. We performed additional procedures to determine
       whether ESE had issued the management decision letters timely. We also obtained and
       reviewed any other available documentation regarding ESE communications with the
       LEAs related to the resolution of audit findings.

   9. Evaluated ESE’s internal control over LEA single audit resolution by reviewing ESE’s
      policies and procedures, internal audit tracking sheets, and other relevant documentation;
      interviewing ESE and LEA officials; and testing the content and timeliness of
      management decision letters.

Sampling Methodology

Selection of LEAs. We extracted and analyzed data from the Clearinghouse to identify
Massachusetts LEAs that had repeat audit findings during the audit period. We identified
28 LEAs that had findings that repeated for 3 or 4 years from 2010–2013. We obtained and
reviewed the single audit reports for each of the 28 LEAs to gain more information about the
nature and significance of the repeat findings. To achieve our objective, we judgmentally
selected 6 of the 28 LEAs for review based on the following factors: (a) significance of the
repeat findings, (b) number of years that the findings repeated, (c) total number of repeat
findings at the LEA, and (d) the size of the LEA in terms of student enrollment. The six LEAs
we selected for review were Fall River Public School District, Worcester Public Schools, Boston
Public Schools, Malden Public Schools, Bridgewater-Raynham Regional School District, and
Peabody Public Schools. The results of our work at the six selected LEAs cannot be projected to
the population of all Massachusetts LEAs.

Selection of Management Decision Letters. We requested copies of the management decision
letters that ESE issued for 30 audit findings reported in FYs 2011–2013 at the 6 selected LEAs.
ESE provided 14 management decision letters that covered 27 of the 30 findings. ESE officials
informed us that, at the time of our fieldwork, ESE had not issued management decision letters
for the three remaining findings. The 14 letters were issued by ESE’s Audit and Compliance
unit. Based on interviews with ESE officials and our review of the spreadsheet that ESE used to
track the issuance of management decision letters for the most recent year, we determined that
the Title I and Special Education program offices also issued management decision letters for
audit findings associated with Federal education programs. To ensure that our sample of
management decision letters included letters issued by each of the three groups, we judgmentally
selected six additional management decision letters from the tracking sheet for review. The six
letters included three letters issued by the Title I office and three letters issued by the Special
Education office for FY 2013 findings at LEAs that we did not select for review. The six
additional management decision letters were issued to the public schools of Chelsea, Greenfield,
Leominster, Falmouth, Weymouth, and Palmer, and covered a total of 12 findings. The results
of our review of the 20 total management decision letters cannot be projected to the population
of all management decision letters issued by ESE. We could not determine the total number of
Final Report
ED-OIG/A09P0001                                                                  Page 23 of 26

management decision letters that ESE had issued during the audit period because ESE did not
maintain multiyear information of this kind.

We held an entrance conference with ESE officials and performed audit work at ESE’s offices in
Malden, MA, in January 2015. We interviewed officials at Fall River Public School District and
Worcester Public Schools at their offices in January 2015 and interviewed officials at Boston
Public Schools, Malden Public Schools, Bridgewater-Raynham Regional School District, and
Peabody Public Schools by telephone in February and March 2015. We discussed the results of
our audit with ESE officials on July 30, 2015.

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 finding and conclusions based on our audit objective.
Final Report
ED-OIG/A09P0001                                                                     Page 24 of 26


                            ADMINISTRATIVE MATTERS


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

This report incorporates the comments that you provided in response to the draft 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
official, who will consider them before taking final Departmental action on this audit:

                              Charles Laster
                              Director, Post Audit Group
                              Office of the Chief Financial Officer
                              U.S. Department of Education
                              550 12th Street SW
                              6th Floor
                              Washington, D.C. 20202

It is the policy of the U. S. Department of Education to expedite the resolution of audits by
initiating timely action on the findings and recommendations contained therein. Therefore,
receipt of your comments within 30 calendar 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.

We appreciate the cooperation and assistance extended by your employees during our audit. If
you have any questions or require additional information, please do not hesitate to contact me at
(916) 930-2399.

                                             Sincerely,

                                             /s/

                                             Raymond Hendren
                                             Regional Inspector General for Audit

Attachments
Final Report
ED-OIG/A09P0001                                                                   Page 25 of 26


                                                                                  Attachment 1

                Abbreviations, Acronyms, and Short Forms Used in this Report


Audit and Compliance      ESE Audit and Compliance Unit

Audit finding             Compliance finding for a Federal education program reported in an
                          OMB Circular A-133 single audit

Boston                    Boston Public Schools

CAROI                     Cooperative Audit Resolution and Oversight Initiative

C.F.R.                    Code of Federal Regulations

Clearinghouse             Federal Audit Clearinghouse

Department                U.S. Department of Education

ESE                       Massachusetts Department of Elementary and Secondary Education

FY                        Fiscal Year

LEA                       Local Educational Agency

OMB                       Office of Management and Budget

SEA                       State Educational Agency

Uniform Grant
Guidance                  Title 2 of the Code of Federal Regulations
Final Report
ED-OIG/A09P0001                            Page 26 of 26

                                           Attachment 2




                   Auditee Comments on
                  the Draft Audit Report
                     Massachusetts Department of
                     Elementary and Secondary Education
                     75 Pleasant Street, Malden, Massachusetts 02148-4906        Telephone: (781) 338-3000
                                                                            TTY: N.E.T. Relay 1-800-439-2370




November 6, 2015

Raymond Hendren
Regional Inspector General for Audit
U.S. Department of Education
Office of Inspector General
501 I Street, Suite 9-200
Sacramento, California 95814-2559

Dear Mr. Hendren:

The Department of Elementary & Secondary Education (ESE) acknowledges and appreciates the time
and effort contained in this review by the USED OIG audit. We respect the professional interactions
between USED OIG, ESE and LEA staff during your audit. While we have may have differing views of
the Department’s oversight of LEA federal funds activity, we share a cooperative approach to
identifying opportunities to work in partnership with our LEAs, USED and USED/OIG.

General Observation
The Department understands that the focus of this audit was focused on ESE’s SEA role in providing
effective oversight of LEA corrective action findings to ensure timely and appropriate corrective action.
While this responsibility is an important part of the Department’s oversight of local schools and districts,
it does not represent the entirety of the daily work conducted in the agency to support the effective
delivery of public education in the Commonwealth. We have concerns that the singular focus of this
audit does not present an accurate representation of all of the Department’s district oversight work in the
expenditure of federal education funding.
While LEA Single Audits have an important place in the overall accountability structure, they are not
the only requirement utilized by ESE. Through federal regulations and Compliance Supplements from
OMB, the SEA is now required and tasked with providing many different forms of fiscal and
programmatic monitoring and oversight that takes many shapes and forms with greater success in our
dealings with the LEAs. The message of this report, while it carries importance, is single focused in its
nature. ESE’s response is designed to present a broader representation of our work.
ESE Response to Audit Results

The Department appreciates the audit’s view that ESE audit resolution process is insufficient. We will
intend to review the offered recommendation and make improvements to our processes. The audit
leaves an impression that Single Audit resolution is the only tool to ensure our oversight of the
utilization of federal education funds in our LEAs. The impression is inaccurate and fails to recognize
the amount of ESE’s effort that does occur on a daily basis across the Department.
The report’s chart shows that a number of the findings in the districts reviewed were for personnel time
and effort certifications not maintained and late financial reporting. These were for mostly lack of semi-
annual certifications and districts submitting their SEA mandated final grant report later than the 60 days
allowed. These Single Audit findings at the LEA are derived from basically reviewing files and not in-
depth research involving the LEA staff. This was a long ongoing problem we noted years ago and is one
of the primary reasons we started on site, internal control interviews and reviews at the LEA business
office and administrative staff level.
We have found that it has been more beneficial to use the CAROI process to assist the LEA staff in
finding ways to resolve issues and directing them to resources in federal, state and other district offices.
The report correctly points out that the Audit and Compliance Unit has dedicated limited resources in
the follow up of Single Audit findings (after the fact) and instead uses 75% of its staff positions to
conduct field visits of our grantees which enables us to highlight issues and offer assistance prior to an
audit period (proactive).
In this manner we can accomplish many different things as compared to just financial reviews. The
Single Audit simply cites lack of lack of semi-annual certifications, but the Audit and Compliance Unit
staff hands out examples of forms and compliance documents along with facilitating contact with staff
in other districts that have found appropriate ways to process their systems.
Most districts that are Single Audit eligible only review singularly or a combination of the Title I, Sped
or the School Lunch programs. The Audit and Compliance Unit over the past few years have directly
reviewed eligible spending under the Title IIa, Title III, Perkins, Ed Jobs, Kindergarten and Adult Basic
Education funds to name a few programs. The Department has found that this is a more viable way of
reviewing our 1,100 grantees (LEA’s are approximately 400 of these) and being a watchdog of the
federal and state resources that we issue to these entities.
Regarding the finding that ESE did not ensure that LEA took timely and appropriate action to correct
audit findings, we acknowledge that we fall short in the boilerplate, technical and regulatory language
that is missing from the MD letters. The level of specifically identifying each component for correcting
the underlying conditions for each finding vary with the levels of the involved issues or severity of the
findings themselves. Due to the timing of these audits the LEAs and their cities and towns are already
into the subsequent year of their audit work as the follow up would be commencing.

We do feel that we should comment on one finding highlighted in the report and our reasons for not
expanding on a significant finding. The USED OIG audit stated “In one case, Audit and Compliance
did not take action on a finding involving nearly $2 million in Federal questioned costs even after ESE’s
own legal counsel rendered an opinion that supported the return of the Federal funds”. Admittedly this
is a longstanding issue that has strong feelings on both sides of the situation. We are in agreement with
the OIG staff and the independent auditors regarding the difference between the City of Worcester and
the LEA disagreement about indirect cost rates being used on grants. However, we strongly disagree
with the OIG staff on two of their suppositions regarding this topic in this report.

The first one is their suggestion that we should have approached the US ED Indirect Cost Group section
for assistance on this matter. At this point the LEA, our Department’s financial and programmatic staff
along with our legal office have all weighed in on the matter and concurred with the LEA’s position. As
we have already explained, the reason that the City and LEA have approached OMB and requested that
they weigh in and help decide this is that they are looking for an independent voice on the issue.
Another education unit coming down on the side of the LEA was not about to tip the scales on this one.

The second point was that we should have immediately requested the funding back and the amounts be
returned to the federal government. The report states that we are putting federal funds at risk. Our
Department has been involved and monitoring this situation and have made a conscious decision not to
request the funds back at this time. This case is still in ligation as it were. We feel that it is much more
prudent to let this process run its course until an independent decision is rendered and issued to both
parties. If our opinion is upheld, as we believe it will be, we will request a refund of all questioned cost
(federal and state grants) including interest. However, in the event that OMB decides in the City’s
favor, if we had followed the OIG stance of immediately recouping the funds, we would be in the
position of refunding the questioned costs with interest and some of the grant awards these apply to
would have already been closed. It is our position that we have taken the proper course of action on this
case and have been following CAROI concepts since the beginning of this matter.

In regards to the comment that ESE did not track findings or follow up on the status of corrective actions
we note that the Audit and Compliance Unit has never been designated by the Department as responsible
for the tracking and monitoring of all LEA findings and Management Decision letters for the
Department as stated in the report. It’s primary role was and is the collection point of all received audit
reports (Single Audit and otherwise), the desk review of the reports for completeness and adherence to
standards and the notification to Department units if there was a grantee finding regarding one of their
programs.

The unit took on the responsibility of responding to general findings that may or may not have affected
multiple programs such as the earlier mentioned lack of semi-annual certifications and districts
submitting their SEA mandated final grant report later than the 60 days allowed. From a production
standpoint it did not appear efficient for multiple program to research and respond to the same minor
finding in a report that listed multiple programs. This process entailed a majority of reported findings
and enabled the cited program staff to expend their efforts on direct program issues that required their
expertise to work with the LEAs.

The report comments that ESE did not communicate effectively with LEA officials regarding audit
resolution and questions that we are sending the information to the Superintendent directly, instead of
the staff who may directly deal with the issues mentioned. If a “responsible person” is not listed in the
audit finding it is very difficult from an oversight position to know at any particular one of over 400
LEAs who the individual is that is best suited to address the issue. So it is prudent to approach the
known factor of the leadership position within the District. This is similar to the initial and ongoing
correspondence from the OIG staff to the SEA in this audit. Additionally, we have had long standing
workings with Superintendents requesting that correspondence be sent to their office so that they are
ensured that they are made aware of potential issues and situations regarding the Department and their
district.
The report comments that ESE’s management decision letters did not always meet OMB Circular A-133
requirements for content or timeliness. We acknowledge that we fall short in the boilerplate, technical
and regulatory language that is missing from the MD letters. With the commencement of the new
Uniform Grants Guidance, the Department is convening an internal group to construct the new
documentation and processes that we will have to maintain. We will include information regarding the
resolution of LEA audit findings in this process.

Regarding the determination of when a report was received in some cases the auditors are considering
the dates that the reports were completed and submitted to the Clearinghouse and footnoted this decision
using the Uniform Grant Guidance The Uniform Grant Guidance did not become effective for the SEA
until July 1, 2015 which is after the commencement and scope of this audit. Based on this fact we were
under the OMB requirements of six months after receipt of the reports. We disagree with the auditor
making a supposition in this instance.

Other Matter
The report references “Other Matter”. One comment was that ESE did not have a process to obtain
year-end Federal expenditure data from its sub recipients to determine which had met the single audit
expenditure threshold. Instead, ESE used historical information to anticipate which LEAs would likely
meet the expenditure threshold. The auditors suggested that “to correct this issue, ESE could explore
options for obtaining each sub recipient’s total Federal expenditure data soon after the end of the fiscal
year and determining which entities are required to have a single audit for that year. Since many of
ESE’s sub recipients are municipalities that receive Federal awards from numerous pass-through
entities, ESE should ensure that it obtains Federal expenditure data from all applicable sources.”

For years ESE staff would combine by financial information from its internal grants award system and
its USDA nutrition reimbursement funds to isolate by entity, who would qualify for a Single Audit
based on our pass through funds. Over the past two fiscal years we have been migrating our grant pass
thru funds to a different system, thereby having three systems that do not automatically combine
information. Since ESE had no significant increase in pass through funding (in fact one of our major
programs, Race to the Top, was eliminated) it was determined that to identify potential Single Audits
based on educational and USDA funding would be decided based on historical data. It was felt that this
would be statistically sufficient for the identification of these entities.

While we could use the state’s accounting system (MMARS) to attempt to determine which
municipalities received federal funds by the various state departments this approach would not be
comprehensively valid for a number of reasons. Some of these are:
   • Were the payments made to municipalities as a vendor as compared to a pass thru grant?
   • State agencies such as Universities and Colleges that have their own accounting systems and
      only report expenditures to the Commonwealth on an aggregate basis.
   • Other pass through funds come from State Authorities who are legally independent and have
      their own systems along with those funds from Private Universities and Colleges, or sub granted
      from original pass thru funds.
   • Additionally there are direct grants from the Federal government to these entities.
The OIG uses the phrase “soon after the end of the fiscal year”; however the Commonwealth’s financial
statements are not completely closed until six months after the end of the fiscal year. We determined
after looking at all of these variables it seemed that using a historical basis was a much more efficient
and prudent method for identifying potential Single Audit eligible entities.

The auditors also suggest that one option could be for Massachusetts to designate a single State agency
to compile expenditure data for all recipients of Federal funds, identify the entities that are required to
have a single audit each year, and communicate that information to the State agencies that administer
Federal pass-through grants. This suggestion should be made to a state oversight agency that would have
the ability to attempt to conduct this project, not one of approximately one of 160 state departments.
Secondly, any system as suggested would be cumbersome at best as it would also be constrained by all
of the points listed above and potentially more.

One last additional comment is that the OIG staff spells out that this report is draft… predecisional..and
the Department should not show or release its contents… or improper disclosure. However, in the
distribution of that draft report the OIG did just that by issuing it to outside entities such as the
Massachusetts State Auditor’s Office.

In conclusion the Department recognizes its shortcomings in this topic matter; however we maintain that
this resolution of these Single Audit findings is only one of the many tools that we employ to ensure our
oversight of the utilization of federal and state education funds in our LEAs. We strongly believe that
we are much more productive by following CAROI principles and being proactive in our dealings with
our districts in financial and programmatic issues.

We would be happy to discuss the content of this letter before the finalization of your audit report. We
additionally look forward to addressing those areas where improvement can be achieved.

Sincerely,

Signature on file

William Bell
Associate Commissioner for Administration & Finance