oversight

Contribution Accounts Delegated to the Assistant Secretary for Intergovernmental and Interagency Affairs.

Published by the Department of Education, Office of Inspector General on 2002-10-18.

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

 Contribution Accounts Delegated to the Assistant Secretary for 

          Intergovernmental and Interagency Affairs



                             FINAL AUDIT REPORT





                         Control Number ED-OIG/A17-B0018

                                   October 2002


Our mission is to promote the efficiency,                      U.S. Department of Education
effectiveness, and integrity of the Department’s                  Office of Inspector General
programs and operations.                           Financial Statements Internal Audit Team
                                                                              Washington, DC
 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 actions to be taken
            by the appropriate Department of Education officials.

In accordance with the Freedom of Information Act (5 U.S.C. § 552), reports
    issued by the Office of Inspector General are available, if requested, to
  members of the press and general public to the extent information contained
                therein is not subject to exceptions in the Act.
              Contribution Accounts Delegated to the 

 Assistant Secretary for Intergovernmental and Interagency Affairs


Executive Summary ...........................................................................................................1


Audit Results......................................................................................................................2 


   GAO Standard - #1 Control Environment......................................................................3 


   GAO Standard - #2 Risk Assessment.............................................................................4 


   GAO Standard - #3 Control Activities ...........................................................................5 


   GAO Standard - #4 Information and Communication .................................................11 


   GAO Standard - #5 Monitoring....................................................................................13 


Other Matters ...................................................................................................................14 


Department Comments ....................................................................................................15 


Background ......................................................................................................................16 


Objective, Scope, and Methodology................................................................................17 


   Appendix A – Department’s Comments ......................................................................19 

Final Audit Report
Contribution Accounts Delegated to the Assistant Secretary for Intergovernmental and Interagency Affairs


                                     Executive Summary

The Department of Education Organization Act authorizes the Secretary of Education “to
accept, hold, administer, and utilize gifts, bequests and devises of property, … for the
purpose of aiding or facilitating the work of the Department.” In August 1994, the
Assistant Secretary for the Office of Intergovernmental and Interagency Affairs (OIIA)
received delegated authority from the Secretary of the U.S. Department of Education
(Department) “to solicit, accept, hold, administer, and utilize … gifts that are earmarked
for a specific event, such as a conference, meeting, or ceremony.” These gifts
(donations) are accounted for in one of 20 accounts (also referred to as projects or
limitations) within the Department’s Contribution Fund. For the delegated accounts, in
fiscal years (FY) 2000 and 2001, the Department recorded the receipt of 54 donations
totaling $1,046,800. On September 30, 2001, the unobligated balance in the accounts
delegated to OIIA was $100,046.

Our objectives were to determine if (1) controls over the receipt and disbursement
processes for the contribution accounts delegated to the Assistant Secretary for OIIA
were adequate, and (2) controls over the accounting for the activity in those contribution
accounts were adequate.

Based on our audit, we have determined that controls over (1) the receipt and
disbursement processes and (2) the accounting for the activity in the contribution
accounts delegated to the Assistant Secretary for OIIA are not adequate. The control
system does not meet General Accounting Office’s (GAO) Standards for Internal
Control in the Federal Government. As a result, the following occurred:

    • 	 A donation was not cleared by the Office of the General Counsel (OGC).
    • 	 Some expenses were unrelated to the purposes of the donations.
    • 	 Documentation was insufficient to determine specifically for what purpose two
        donations were spent.
    • 	 The unobligated balance for one account was understated by $4,011, or four times
        the recorded balance.

We recommend that the Assistant Secretary for OIIA provide written delegations of
authority to staff, conduct a risk assessment, strengthen control activities, prepare
financial reports, and develop a monitoring strategy. We also recommend that the Chief
Financial Officer designate fund balance at Treasury at the account level in the
proprietary accounts and reconcile the proprietary accounts and the budgetary accounts.

During our audit, we discussed the issues above and other control weaknesses we
identified with OIIA. OIIA has initiated steps to address some of the control weaknesses.

During our audit, we noted another matter that warrants consideration by the Assistant
Secretary for OIIA. The statute authorizing the Department to accept gifts does not




ED-OIG/A17-B0018                                                                                           1
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specifically state that the Department has the authority to solicit. We recommend that the
Assistant Secretary for OIIA request OGC to reexamine this issue in light of recent laws
that specifically provide Federal Agencies with the authority to solicit.

OIIA generally concurred with our findings and recommendations. The full text of the
OIIA’s response is included as Appendix A.


                                          Audit Results

Based on our audit, we have determined that controls over the receipt and disbursement
processes and the accounting for the activity in the contribution accounts delegated to the
Assistant Secretary for OIIA are not adequate. We evaluated OIIA’s control system over
the contribution accounts delegated to the Assistant Secretary for OIIA in effect during
FYs 2000 and 2001. For the purpose of this report, we assessed and classified the
management control structure for the receipts, disbursement, and accounting processes
under the five standards from the GAO’s Standards for Internal Control in the Federal
Government: 1

      1. 	 Control environment – “Management and employees should establish and
           maintain an environment throughout the organization that sets a positive and
           supportive attitude toward internal control and conscientious management.”

      2. 	 Risk assessment– “Internal Control should provide for an assessment of the risks
           the agency (OIIA) faces from both external and internal sources.”

      3. 	 Control activities– “Internal control activities help ensure that management’s
           directives are carried out. The control activities should be effective and efficient
           in accomplishing the agency’s control objectives.”

      4. 	 Information and communication– “Information should be recorded and
           communicated to management and others within the entity who need it and in a
           form and within a time frame that enables them to carry out their internal control
           and other responsibilities.”

      5. 	 Monitoring– “Internal control monitoring should assess the quality of
           performance over time and ensure that the findings of audits and other reviews are
           promptly resolved.”

The Assistant Secretary for OIIA and the management of OIIA are responsible for
establishing and maintaining a management control structure. In fulfilling this
responsibility, estimates and judgments by management are required to assess the
expected benefits and related costs of control procedures. The objectives of a control


1
    (GAO/AIMD-00-21.3.1, November 1999)


ED-OIG/A17-B0018                                                                                           2
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system are to provide management with reasonable, but not absolute, assurance that
assets are safeguarded against loss from unauthorized use or disposition, and that the
transactions are executed in accordance with management’s authorization and recorded
properly, so as to permit effective and efficient operations.

Because of inherent limitations in any management control structure, errors or
irregularities may occur and not be detected. Also, projection of any evaluation of the
system to future periods is subject to the risk that procedures may become inadequate
because of changes in conditions, or that the degree of compliance with the procedures
may deteriorate.

Based on our assessment, we determined that the control system does not meet GAO’s
Standards for Internal Control in the Federal Government. As a result, the following
occurred:

    • 	 A donation was not cleared by the Office of the General Counsel (OGC).
    • 	 Some expenses were unrelated to the purposes of the donations.
    • 	 Documentation was insufficient to determine specifically for what purpose two
        donations were spent.
    • 	 The unobligated balance for one account was understated by $4,011, or four times
        the recorded balance.

Below we have grouped the conditions we found under the five internal control standards
from GAO’s Standards for Internal Control in the Federal Government. During our
audit, we discussed the conditions listed below with OIIA. OIIA has begun corrective
actions to address some of the control weaknesses.


GAO Standard - #1 Control Environment

Delegations of authority did not comply with Department policy.

The Secretary’s delegation of authority permits the Assistant Secretary for OIIA to
redelegate. Staff in OIIA informed us that the current and previous Assistant Secretaries
for OIIA have verbally authorized managers and staff in OIIA to solicit and accept gifts.

The Departmental Directive on “Delegations of Authority” states:

        The transfer of authority must be stated in writing and signed by the official
        authorized to delegate the authority.

The control environment over contribution accounts delegated to the Assistant Secretary
for OIIA can be strengthened if authority and responsibility are clearly assigned and
communicated.




ED-OIG/A17-B0018                                                                                           3
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GAO’s Standards for Internal Control in the Federal Government states:

        Authorizations should be clearly communicated to managers and employees.

Written delegations would help ensure that authority and responsibility are clearly 

communicated.


Recommendation to Strengthen Control Environment


We recommend that the Assistant Secretary for OIIA: 


        1.1 	    Provide written delegations of authority to staff involved with the
                 contribution accounts. Those delegations should indicate the scope of
                 authority being delegated.


GAO Standard - #2 Risk Assessment

A risk assessment of the contribution accounts delegated to OIIA had not been
done.

Prior to this audit, a risk assessment of the contribution accounts delegated to OIIA had
not been done. As part of this audit, we discussed with staff from OIIA, OGC, Office of
the Chief Financial Officer (OCFO), and Budget Service the objectives of the accounts,
the risks inherent in the process, and the consequences and likelihood of those risks
occurring. We also discussed what control activities had been established to provide
reasonable assurance that objectives are met.

GAO’s Standards for Internal Control in the Federal Government states:

        Management needs to comprehensively identify risks and should consider all
        significant interactions between the entity and other parties as well as internal
        factors at both the entity-wide and activity level.

A risk assessment can provide the basis to determine the nature and type of control
activities needed. The lack of a risk assessment coupled with weak monitoring,
discussed later in this report, contributed to other control weaknesses not addressed by
not identifying risk and weaknesses in control activities.

Recommendations on Conducting a Risk Assessment

We recommend that the Assistant Secretary for OIIA:

        2.1 	    Meet periodically with staff in the other offices involved with the
                 contribution accounts to discuss the objectives, risks, and controls in the
                 processes. Based on these discussions, update the risk assessment for the


ED-OIG/A17-B0018                                                                                           4
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                 contribution accounts. As appropriate, modify existing controls or
                 institute new controls to address risks identified.

        2.2 	    Include a requirement for a periodic risk assessment as a part of the
                 Assistant Secretary’s delegation of authority to OIIA staff involved with
                 the contribution accounts.


GAO Standard - #3 Control Activities

For the contribution accounts, the Department and OIIA have established control
activities over the receipt, disbursement, and accounting processes. In this section, we
discuss control activities for each process separately.

Control Activities in the Receipt Process

The Department established a clearance process for the acceptance of donations to
prevent conflict of interest. For donations to the contribution accounts delegated to the
Assistant Secretary for OIIA, OGC reviews a list of potential sponsors prior to the
sponsors being contacted to support a particular activity. The donations from the
sponsors on that list are cleared by OGC only for that particular activity. Additional
donations from those sponsors require a new clearance. The clearance process is
documented in e-mail messages.

During our review, we identified a donation that was not cleared by OGC. We also
found that the responsibility for receiving checks was not separate from the responsibility
for soliciting donations and that documentation in OIIA’s central files was incomplete.

A donation was not cleared by OGC.

One of the 18 donations we selected to review was not cleared by OGC. Specifically, the
Department received a donation in March 2001 from the Daimler Chrysler Corporation
Fund for $25,000 for the School Recognition or Blue Ribbon project. Attached to that
donation was an OGC clearance dated April 5, 2000, for Daimler Chrysler Corporation.
This April 5, 2000, clearance was also attached to a $6,000 donation from Daimler
Chrysler Corporation Fund in May 2000 for the “Building Partnerships for the New
Century” event.

We contacted OGC to determine if there was another clearance for one of these two
donations. OGC’s records confirmed the one clearance on April 5, 2000. OGC also
indicated that the April 2000 clearance might not apply to a March 2001 donation
because situations may change over time, making a previously acceptable donation
unacceptable at a later date. Therefore, the clearance on April 5, 2000, appears to have
been intended for the May 2000 donation and the March 2001 donation was not cleared.




ED-OIG/A17-B0018                                                                                           5
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The Secretary’s Delegation of Authority states:

        The authority under this delegation to accept gifts, bequests, and devises of
        property, both real and personal, or unconditional gifts of services, may not be
        exercised without advance written concurrence by the Office of General Counsel.

Accepting donations without written concurrence by OGC could result in a conflict of
interest.

The responsibility for receiving checks from sponsors was not separate from the
responsibility for soliciting donations.

Staff in OIIA told us that sponsors were instructed to mail checks to the staff member
who solicited the sponsor for the donation. When the check arrives, the staff member
who solicited the donation prepared a memorandum to transmit the check to OCFO and
gave the memorandum and the check to another staff member in OIIA. That person then
took the check to OCFO.

GAO’s Standards for Internal Control in the Federal Government states:

        Key duties and responsibilities need to be divided or segregated among different
        people to reduce the risk of error or fraud. This should include separating the
        responsibilities for authorizing transactions, processing and recording them,
        reviewing the transactions, and handling any related assets.

Soliciting donations and receiving the checks from the donors are key duties that should
be divided among different people. To ensure that checks are received from the sponsor,
the person receiving the checks would need to be diligent in monitoring the checks being
received. In many cases, the timeframe between the identification of a need for funds
and the need for the funds is short. Having a second person monitor for the receipt of the
check and deposit that check with OCFO would strengthen overall control.

The documentation in OIIA’s central files on receipts was incomplete.

We also found that the documentation in OIIA’s central files on receipts was insufficient
to demonstrate compliance with the Department’s policies on clearance, timely deposit
with OCFO, and recording in the accounting records. Specifically,

    • 	 The documentation in the central file for two of the 18 receipts we selected to
        review did not include an OGC clearance. Ultimately, the clearances for these
        two donations were provided.
    • 	 The central file did not include documentation of the date the check was
        transferred to OCFO. Such documentation provides evidence that checks are
        deposited with OCFO in a timely manner.




ED-OIG/A17-B0018                                                                                           6
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    • 	 The central file did not include documentation on the purpose of the donation,
        such as a letter to or from the sponsor. Such a letter provides evidence that the
        donation was assigned to the correct project in the accounting records.

In addition, we noticed that the e-mail messages that document the OGC clearances were
not always precise about what the clearance was for. For example, the April 5, 2000,
clearance for Daimler Chrysler Corporation was for “Blue Ribbon and other stuff.”
Since clearances are for each activity, the activity should be specifically stated in the e-
mail messages.

GAO’s Standards for Internal Control in the Federal Government states:

        Internal control and all transactions and other significant events need to be clearly
        documented, and the documentation should be readily available for examination.

The documentation in OIIA’s central files should be readily available to demonstrate
compliance with Department policies and procedures. To address these issues, OIIA has
already begun to include the letter to the sponsor in the central files for the receipts. The
letter provides documentation of the donation’s purpose. The transmittal letter to OCFO
now includes a list of the attachments: OGC’s clearance and the correspondence to or
from the donor. Preparing such a list should promote better documentation.

Recommendations to Strengthen Control Activities over the Receipt Process:

We recommend that the Assistant Secretary for OIIA:

        3.1 	    Instruct staff to clearly identify the activity to receive the donation when
                 requesting clearances from OGC.
        3.2 	    Separate the responsibilities for the solicitation of funds from the receipt
                 of checks. The person responsible for receiving the checks would also be
                 responsible for ensuring that all the checks are received.

We recommend the General Counsel:

        3.3 	    Instruct staff to clearly identify the activity to receive the donation when
                 responding to requests for clearances and be more specific on what
                 entities are being cleared.

Control Activities in the Disbursement Process

OIIA developed Request Forms for purchase orders, third party drafts, and purchase
cards to document approvals and the purposes for the expense. These forms provide for
the approval of expenses by the team leader, executive officer, and chief of staff. During
our review, we identified some expenses that were unrelated to the purposes of the
donations. We also found that for some expenses supporting documents were incomplete
and evidence of approval was missing.


ED-OIG/A17-B0018                                                                                           7
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Some expenses were unrelated to the purposes of the donation.

Expenses should be assigned to accounts based on the purpose of the donation. We
identified expenses that were unrelated to the account to which the expense was charged.
For example, the following expenses paid from the Higher Education Meetings Account
lacked supporting documentation linking the expense to that account:

    • 	 Luncheon at the National Press Club for 15 guests - $476
    • 	 Performance at the U.S. Brazil Conference - $500
    • 	 Luncheon for the Hero's award program - $2,000
    • 	 A working dinner related to the Memorandum of Understanding (MOU) with
        Northern Ireland - $388

The total expenses in this account were $32,179. The remaining expenses in this account
were spent for a Summit on Teacher Quality.

In another example, in December 1999, the Department paid $21,570 for 55,000 bags to
be handed out during “America Goes Back to School” events. Part of the cost, $5,306,
was charged to the Education Technology Conference project because there were not
sufficient funds in the America Goes Back to School project. As of September 30, 2001,
the $5,306 had not been returned to the Education Technology Conference project nor
was there sufficient balance in the America Goes Back to School project to return the
funds.

In most cases, a donor specifies the use for a donation, sometimes broadly and sometimes
narrowly. As with all funding, donated funds provided to the Department for a particular
purpose should be used for that purpose. When donated funds are used for other
purposes not specifically authorized by the donor, the Department’s integrity may be
negatively affected.

Supporting documentation for some expenses was incomplete.

The documentation in the central files on some expenses was insufficient to demonstrate
readily the appropriateness of the expense. Documentation should provide information
on what the expense was for, how much the expense was, and how the expense relates to
the account it is charged against.

We found that some payments from contribution accounts were for charges on a credit
card used for office travel. The supporting documents for these payments in the central
files were the first pages of the credit card statements. There was no explanation of the
charges paid by the contribution accounts.




ED-OIG/A17-B0018                                                                                           8
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We also found that the supporting documents for an expense of $150 included only the
request forms. There was no invoice attached. In another example, the request form
indicated an expense of $500 while the actual expense was $600. There was no
indication that the additional $100 expended was authorized. The explanation on the
request form for another expense of $140 was “food for special lunch.” There was no
documentation on how this lunch related to the project that paid for it.

GAO’s Standards for Internal Control in the Federal Government states:

        Internal control and all transactions and other significant events need to be clearly
        documented, and the documentation should be readily available for examination.

Evidence of approval of some expenses was missing.

We reviewed the Request Forms and other supporting documents to determine that the
executive officer and at least one other person, for example, a team leader, approved each
expense. We randomly selected 30 expenses for each of FY 2000 and 2001 for review.

    • 	 For FY 2000, eight expenses in the sample of 30 (or 26 percent) did not have all
        the signatures for approval.
    • 	 For FY 2001, seven expenses in the sample of 30 (or 23 percent) did not have all
        the signatures for approval.

In some cases, the Request Form, which contains a space for approvals, was not included
in the supporting documents. In other cases, the spaces for approval on the Request Form
were blank. The executive officer indicated that his review was to determine availability
of funds and allowability in accordance with government regulations. His review did not
include determining if the expense related to the purpose of the donation. By reviewing
the expenses, management helps ensure that the expense is appropriate.

Recommendations to Strengthen Control Activities over the Disbursement Process:

We recommend that the Assistant Secretary for OIIA:

        3.4 	    Define responsibilities in the approval process to ensure that someone is
                 specifically charged with determining that the expense relates to the
                 purpose of the donation.
        3.5 	    Require that OIIA’s Request Forms be filled out completely.

Control Activities in the Accounting Process

The Department established accounts or projects within the Contribution Fund to provide
accounting and funds control over the donations. Accounting control is provided by the
donation and the expenses paid with that donation being recorded in the same account.
During our review, we found that the unobligated balance for one account was
understated by $4,011, and that donations assigned to the Receptions Account were not


ED-OIG/A17-B0018                                                                                           9
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subject to specific, individual, donation-by-donation accounting or fund control, although
the account itself was subject to the same accounting or fund control as every other
account.

The unobligated balance for one account was understated by $4,011, or four times
the recorded balance.

Our review showed that the unobligated balance for one account was understated.
Specifically, at September 30, 2001, the unobligated or available balance for the Hispanic
American Initiative was $651. This balance did not include a refund of $3,015 that was
received in August 2000. OIIA had the refund deposited in a timely manner, but it did
not deobligate the funds from the purchase order in a timely manner. In addition, OIIA
should have deobligated $996 when the final bill was paid in April 2000 for less than the
amount obligated.

Donations assigned to the Receptions Account were not subject to specific,
individual, donation-by-donation accounting or fund control.

OIIA used 20 separate accounts to record the receipts and expenses. Nineteen of the 20
accounts were for specific activities and contain only a few donations. For donations
recorded in these 19 accounts, OIIA could determine what expenses were paid with the
donations.

The remaining account, the Receptions Account, was used for several activities. In FYs
2000 and 2001, 24 different donations were recorded in the Receptions Account.
According to staff in Budget Service, the Receptions Account was established because
setting up a project in the accounting system for every donation would place a heavy
burden on the system. We determined that the information in the accounting system was
not sufficient to determine what expenses were paid for each specific donation because
all the donations are commingled. However, we were able to identify expenses for the
Receptions Account as a whole.

We selected two donations recorded in the Receptions Account and requested OIIA to
identify the expenses paid for by each donation. We found that:

    • 	 For a July 2001 donation of $40,000 to support the Principal Leadership Summit,
        OIIA identified expenses of $32,432 or 80 percent of the donation.
    • 	 For a June 2000 donation of $50,000 to support the Early Childhood Summit,
        OIIA identified expenses of $29,242 or 60 percent of the donation.

Since the September30, 2001, unobligated balance, in the Receptions Account was
$1,028, the remainder of both donations has been spent. However, because so many
donations were recorded in the Receptions Account, the specific expenses that were paid
for with the remainder of these two donations cannot be identified.




ED-OIG/A17-B0018                                                                                           10
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GAO’s Internal Control Management and Evaluation Tool 2 states:

          Transactions and events are appropriately classified and promptly recorded so that
          they maintain their relevance, value, and usefulness to management in controlling
          operations and making decisions.

Not tracking donations in the Receptions Account limits OIIA’s ability to account for the
use of funds back to the donor. Since the number of accounts OIIA can use to track
donations is limited by practicality, the accounts need to be set up efficiently. Five of the
20 accounts had a zero balance as of September 30, 1999, and received no donations in
FY 2000 or 2001.

Recommendations to Strengthen Control Activities over Accounting:

We recommend that the Assistant Secretary for OIIA:

          3.6 	   Reassess the separate accounts currently being used to identify those
                  accounts that can be closed.
          3.7 	   Track funds in the Receptions Account to ensure that they are spent for
                  the purpose intended.
          3.8 	   Develop and implement a mechanism for communicating to donors how
                  unspent funds will be handled.


GAO Standard - #4 Information and Communication

Our review found that there were no management reports on receipts and expenses or
written policies and procedures for the contribution accounts delegated to the Assistant
Secretary for OIIA.

There were no management reports on the receipts and expenses of the contribution
accounts delegated to the Assistant Secretary for OIIA.

Our review disclosed no management reports have been generated on receipts and
expenses of the contribution accounts delegated to the Assistant Secretary for OIIA.
OIIA staff provided to OIIA management a report on unobligated balances. The report
listed the 20 accounts and the unobligated balance for each from the accounting system.

In addition, no year-end management reports on receipts and expenses were prepared.
Not having these reports made it difficult for the Department to respond efficiently to
requests for information by external parties. For example, to respond to a GAO request
on donations received, the Department relied upon a worksheet maintained by the Budget
Analyst instead of the official accounting records.


2
    (GAO-01-1008G, August 2001)


ED-OIG/A17-B0018                                                                                           11
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GAO’s Standards for Internal Control in the Federal Government states:

        Financial information is needed for both external and internal uses. It is required
        to develop financial statements for periodic external reporting, and on a day-to-
        day basis, to make operating decisions, monitor performance, and allocate
        resources.

OIIA management should have periodic reports on the donations received and how those
donations were spent. The Secretary should also receive periodic reports on the
contribution accounts. During our audit, OIIA staff began preparing a management
report on the contribution accounts.

There were no complete, current, written policies and procedures for the
contribution accounts.

Our review found that while there were some written policies and procedures for some
activities related to the contribution accounts, there were no written policies and
procedures for other activities. OCFO had written policies for the deposit of funds and
for the reconciliation of the proprietary accounts to Treasury. OGC provided guidance
on ethics issues related to the accounts. The Secretary’s delegation includes the
requirement for clearance by OGC. The policy of clearance for each activity was not in
writing. There were no other written policies and procedures for the process. For
example, there were no written policies on what documents should be maintained in
OIIA’s central files.

GAO’s Standards for Internal Control in the Federal Government states:

        Internal control and all transactions and other significant events need to be clearly
        documented, and the documentation should be readily available for examination.
        The documentation should appear in management directives, administrative
        policies, or operating manuals and may be in paper or electronic form.

The lack of written policies and procedures hindered efficient control and management.
During our review, we noted weaknesses that may have been prevented had applicable
policies and procedures been communicated. Written policies and procedures also make
it easier for someone else to fill in when the assigned person is absent. At the request of
the Secretary of the Department, OGC is preparing written policies and procedures for all
the Department’s contribution accounts.




ED-OIG/A17-B0018                                                                                           12
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Recommendations to Strengthen Information and Communication

We recommend that the Assistant Secretary for OIIA:

        4.1 	    Prepare a year-end report on the accounts delegated to the Assistant
                 Secretary for OIIA, obtain concurrence from OCFO and Budget Service,
                 and submit the report to the Secretary of the Department.
        4.2 	    Prepare and review periodic financial reports on donations received and
                 expenses paid.
        4.3 	    Once completed, review the Department’s policies and procedures with
                 OIIA staff involved with the process to ensure that everyone understands
                 their role and responsibilities in the process.


GAO Standard - #5 Monitoring

Our review found that the Proprietary Accounts were not reconciled to the Budget
Accounts and that deposits of checks may not have been made timely with OCFO.

Proprietary Accounts were not reconciled to the Budgetary Accounts.

Even though the Contribution Fund does not include appropriated funds, the budget
process of allotments and setting up obligations is still followed. The total of the
available balance (money received but not obligated) plus the obligated balance
(obligated but not paid) should reconcile to the fund balance at Treasury.

The Proprietary Accounts were not reconciled to the Budgetary Accounts. 3 At
September 30, 2001, the available balance on the Year End Closing Statement for the
entire contribution fund was $115,581 and the obligated/unexpended balance was
$41,024. Fund balance at Treasury was $265,418. We were unable to reconcile the
difference between available balance plus obligated balance and the fund balance at
Treasury of $108,813. We identified part of the difference as a $3,015 refund that was
included in fund balance at Treasury but not in the budgetary accounts.

GAO’s Standards for Internal Control in the Federal Government states:

        It [monitoring] includes regular management and supervisory activities,
        comparisons, reconcilations, and other actions people take in performing their
        duties.

Reconciling the proprietary accounts to the budgetary accounts at the account level
would provide some assurance that transactions are properly recorded. The first step in
reconciling would be assigning the balance from 1996 and some accounting adjustments

3
 Federal accounting involves proprietary and budgetary accounting. Proprietary accounting accounts for
assets, liabilities, and capital. Budgetary accounting tracks the status of budget authorities.


ED-OIG/A17-B0018                                                                                           13
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to specific projects. Receipt and disbursements have been designated at the account level
in the proprietary accounts but the balance from 1996 and adjustments have not been
designated at the account level.

Deposits do not appear to have been made timely.

We reviewed the timeliness of deposits. The number of days between the date on OIIA
memorandums indicating receipt of the check from a sponsor and the date on the deposit
ticket (Standard Form 215) indicating when OCFO deposited the check exceeded two
days for seven of eighteen donations we reviewed. The number of days for deposit
ranged from three to twenty-two days. We selected the 18 donations at random from the
54 receipts recorded in FYs 2000 and 2001. We used the deposit tickets to determine the
date OCFO took custody of the check because OIIA did not have documentation on when
the checks were delivered to OCFO.

Recommendations to Strengthen Monitoring:

We recommend that the Assistant Secretary for OIIA:

        5.1 	    Develop a monitoring strategy to ensure that policies and procedures,
                 including timely deposit with OCFO, are being followed.

We recommend the Chief Financial Officer:

        5.2 	    Designate fund balance at the account level in the proprietary accounts.
        5.3 	    Reconcile the proprietary accounts and the budgetary accounts.


                                          Other Matters

The Department’s Gift Authority

The Department's gift authority was established by section 421 of the Department of
Education Organization Act that created the Department. This statute does not
specifically state that the Department has the authority to solicit for gifts. OGC provided
us with a 1991 memorandum addressing the gift acceptance authority of the Institute of
Museum Services. In that memorandum, OGC concluded that the Department’s gift
authority included solicitation, as there has been no general prohibition against the
solicitation of donations, when the agency has authority to accept donations.

That memorandum relied on a 1977 memorandum opinion from the Office of Legal
Counsel of the Department of Justice (Justice), which noted that only one federal statute
dealt with the solicitation of gifts by federal employees. The OGC memorandum
concluded that the Institute of Museum Services could, as part of its gift acceptance
authority, solicit gifts as long as, among other things, it was not part of a formal, broad



ED-OIG/A17-B0018                                                                                           14
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scale program and staff avoided excessive involvement in solicitation. Since Justice’s
1977 opinion, Congress has specifically included authority to “seek”, “encourage” or
“solicit” gifts in various gift acceptance statutes. In one instance, Congress amended a
gift acceptance statute to specifically include solicitation authority.

We recommend that the Assistant Secretary for OIIA request OGC to reexamine whether
the Department’s gift acceptance statute is sufficient to authorize the solicitation of gifts
on the scale conducted by OIIA and seek additional legislative authority if necessary.

Reimbursement Unrelated to the Contribution Accounts

During our review of expenditures, we identified a $42.90 reimbursement to an OIIA
employee in February 2001 that was unrelated to the contribution accounts.

We recommend that the Assistant Secretary for OIIA request repayment of this
reimbursement from the employee.



                                  Department Comments

In general, OIIA concurred with the findings and recommendations in the report and has
begun corrective action. The full text of OIIA’s response is included as Appendix A.

OIG had recommended that the requirement for periodic risk assessment be included in
the delegation of authority for OIIA staff involved with the contribution accounts
(Recommendation 2.2). Instead, OIIA proposed to include a procedure for a periodic risk
assessment in the new policies and procedures manual. In our opinion, including a
procedure for periodic risk assessment in the policies and procedure manual is a
reasonable alternative to the recommendation.

OIIA notes that while developing the new Delegation of Authority, OGC reviewed the
issue of solicitation and has determined that the Department’s gift acceptance statute is
sufficient. We were referred to a Justice directive that authorized solicitation under
Justice's gift acceptance statute, which like the Department's did not include "solicit" in
the statutory language. Solicitation, however, is severely restricted under the Justice
directive; every proposed solicitation must be personally approved in advance by the
Attorney General or the Deputy Attorney General. Since OIIA's delegation from the
Secretary does not have similar controls we continue to believe that OIIA would benefit
from additional review of this issue to ensure that the Department's solicitation program
is fully authorized by the Department's gift acceptance statute.




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                                             Background

The Department's gift authority was established by section 421 of the Department of
Education Organization Act that created the Department. This statute states:

           The Secretary is authorized to accept, hold, administer, and utilize
           gifts, bequests, and devises of property, both real and personal, and to
           accept donations of services, for the purpose of aiding and facilitating
           the work of the Department. Gifts, bequests, and devises of money
           and proceeds from sales of other property received as gifts, bequests,
           or devises shall be deposited in the Treasury and shall be available for
           disbursement upon the order of the Secretary.4

The Department has interpreted this statute to include the authority to solicit funds. In
August 1994, the Assistant Secretary for OIIA was delegated by the Secretary of the
Department of Education “to solicit, accept, hold, administer, and utilize … gifts that are
earmarked for a specific event, such as a conference, meeting, or ceremony.” On
September 5, 2002, the Secretary signed a delegation of authority for the Assistant
Secretary for OIIA.

The gifts are accounted for in the “Contribution, Department of Education – 91X8258”
fund. Within this fund, the Department establishes projects or limitations to account for
the various gifts. In this report, these projects or limitations are referred to as “accounts.”
The 20 accounts listed below have been delegated to the Assistant Secretary for OIIA:

           Nine accounts received donations in FYs 2000 or 2001:
              • Receptions
              • Presidential Scholars Program
              • Hispanic American Initiative
              • Satellite Town Meetings
              • Professional Development Awards
              • School Recognition or Blue Ribbon
              • Family Involvement
              • Education Technology Conference
              • Historically Black Colleges and Universities

           Five accounts did not received donations in FYs 2000 or 2001 but had expenses:
              • U.S. Mexico Conference
              • Higher Education Meetings
              • School Design Conference
              • Regional Conference
              • America Goes Back to School


4
    (Pub. L. 96-88; 93 Stat. 687; 20 U.S.C. 3481)


ED-OIG/A17-B0018                                                                                           16
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        One account, OSERS/OECD Conference, had a balance of $132 as of September
        30, 2001, but no recorded activity during FYs 2000 or 2001.

        Five accounts had no balance as of September 30, 1999, and no recorded activity
        during FYs 2000 and 2001:
            • Presidential Education Awards
            • High School Reform
            • National Education Goals
            • Professional Development
            • Cooperative Publishing

Except for the Receptions Account, the other 19 accounts were set up for specific
activities. In FY 2000 and 2001 for the accounts delegated to OIIA, the Department
recorded 54 donations, totaling $1,046,800. On September 30, 2001, the available
balance in the accounts delegated to OIIA was $100,046.


                        Objective, Scope, and Methodology

Our objectives were to determine if (1) controls over the receipt and disbursement
processes for the contribution accounts delegated to the Assistant Secretary for OIIA
were adequate, and (2) controls over the accounting for the activity in the contribution
accounts were adequate.

To accomplish our audit objective, we reviewed applicable federal laws and regulations,
Department policy guidance, and program information available in reports and on the
Internet. We interviewed staff in OIIA, OCFO, OGC, and Budget Service. During those
interviews, we discussed the processes for receipts and disbursements, and the
accounting for the contribution accounts. We tested controls over receipts and
disbursements from FYs 2000 and 2001.

To test controls over receipts, for FYs 2000 and 2001, we selected 18 donations at
random from the 54 donations recorded in FYs 2000 and 2001. To assure that we had a
complete list of receipts, we reconciled the receipts listed in a worksheet maintained in
Budget Service with the deposit account of fund balance at Treasury. We obtained the
electronic file of the deposit account of fund balance at Treasury from OCFO. Our
sample has a plus or minus 19 percent accuracy with 95 percent confidence.

To test controls over expenses, we selected 30 expenses at random from each fiscal year.
We selected our sample from the items recorded by fiscal year in the payment account of
fund balance at Treasury. For FY 2000, 227 items were recorded. For FY 2001, 156
items were recorded. Our sample was biased towards expenses in excess of $10,000 that
were paid for with Third Party Drafts. Third Party Drafts were limited to $10,000.
Expenses in excess of $10,000 paid with the drafts appear as more than one item in the
payment account. An expense paid for this way has a greater likelihood of being


ED-OIG/A17-B0018                                                                                           17
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Contribution Accounts Delegated to the Assistant Secretary for Intergovernmental and Interagency Affairs


included in the sample. This bias does not affect our objective of determining if controls
were being followed.

To test the accounting control, we reviewed all the transactions in three projects:
Historically Black Colleges and Universities, Higher Education Meetings, and School
Design Conference. We selected these projects because the budgetary and proprietary
data were reconciled providing some assurance that all transactions related to these
projects were identified. We also reviewed all the expenses OIIA identified as related to
the two donations accounted for in the Receptions Account. We judgmentally selected
these two donations to review.

We performed on-site fieldwork at the offices of the OIIA, OCFO, and Budget Service
located in Washington, DC, during the time period October 2001 and March 2002. We
held an exit conference on April 24, 2002, with the Assistant Secretary for OIIA and staff
from OIIA, OGC, and OCFO. We conducted the audit in accordance with government
auditing standards appropriate to the scope of review described above.




ED-OIG/A17-B0018                                                                                           18
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Appendix A – Department’s Comments


                                                                                                                                       I


                                   UNITED STATES DEPARTMENT OF EDUCATION
                                                                                                                                       I•
                                    OFFICE OF INTERGOVERNMENTAL AND INTERAGENCY AFFAIRS

                                                                                                             THE ASSISTANT SECRETARY


               MEMORANDUM

               TO:              Thomas Carter
                                Assistant Inspector General for Audit                               1>




               FROM:            LaurieM.Rich             ~
               SUBJECT:         aliA's Comments to Findings and Recommendations in OIG Draft Audit
                                Report CAN: A17-B0018

               DATE:            September 18,2002


               In response to the Office of Inspector General's (OIG) Draft Audit Report of the
               Contribution Accounts Delegated to the Assistant Secretary for aliA (CAN: AI7-BOOI8)
               (Report), aliA provides the comments below in response to findings and
               recommendations contained in the Report.

               While alIA agrees in most part with each of the findings and recommendations, we have
               already implemented certain corrective actions, which address the purpose of the
               recommendations, but are not necessarily being implemented as outlined in the
               recommendations. Instead, we are following the control policies and procedures
               contained in the upcoming Policies and Procedures Manual (Manual), which was
               developed with the Office of General Counsel, and is expected to be finalized on October
               15,2002. The Manual was developed to control current and anticipated risks and,
               therefore, when fully implemented will addresses the recommendations contained in the
               Report. As discussed in our comments, aliA will routinely review the Manual and
               assess whether it continues to control risks in the management and operations of the
               contribution accounts.

               OIG Recommendation 1.1: We recommend that the Assistant Secretary for aliA
               provide written delegations of authority to staff involved with the contribution accounts.
               Those delegations should indicate the scope of authority being delegated.

               OIG Recommendation 2.1: We recommend that the Assistant Secretary for aliA meet
               periodically with staff in the other offices involved with the contribution accounts to
               discuss the objectives, risks, and controls in the processes. Based on these discussions,
               update the risk assessment for the contribution accounts. As appropriate, modify existing
               controls or institute new controls to address risks identified.



                                             400 MARYLAND AVE., S.W. WASHINGTON, D.C. 20202-3500
                                                                      www.ed.gov

                     Our mission is to ensure equal access to education and to promote educational excellence throughout the Nation.




ED-OIG/A17-B0018                                                                                                                       19
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Appendix A – Department’s Comments (Continued)




               OIG Recommendation 2.2: We recommend that the Assistant Secretary for OIIA
               include a requirement for a periodic risk assessment as part of the Assistant Secretary's
               delegation of authority to OIIA staff involved with the contribution accounts.

                      OIIA Comments: OIIA agrees with recommendations 1.1,2.1, and 2.2 for the
                      most part. OIIA worked with the Office of General Counsel to prepare written
                      delegations from the Secretary to the Assistant Secretary and from the Assistant
                      Secretary to appropriate OIIA staff. The Secretary's delegation to the Assistant
                      Secretary was signed on September 10,2002. The Assistant Secretary's
                      delegatiqn to OIIA staff is expected to be in place no later than October 15, 2002.
                      Also, on behalf of the Assistant Secretary, OIIA's Executive Officer and Deputy
                      Assistant Secretary for Intergovernmental, Constituent Relations, and Corporate
                      Liaison (lCRCL) will organize a semi-annual (twice a year) meeting between
                      staff from their offices and staff from OCFO, OGC, Budget Services and other
                      offices involved with the contributions accounts. The purpose of the meetings
                      will be to discuss objectives, risks, and controls in the contribution process and
                      determine whether updates to the new Policies and Procedures Manual are
                      necessary to continue to avoid risks in the management and ope.rations of the
                      contributions accounts. The first two meetings will take place in December
                      2002/January 2003 and June/July 2003.

                      Although OIIA and OGC did not include language in the Assistant Secretary's
                      delegation to staff requiring a periodic risk assessment, the staff will participate in
                      the semi-annual meetings organized by the Executive Officer and Deputy
                      Assistant Secretary to assess risks and whether the controls in the Policies and
                      Procedures Manual continue to minimize and address all risks in managing and
                      operating the accounts.

                OIG Finding: Control Activities in the Receipt Process - One of the 18 donations we
                selected to review one was not cleared by OGC.

                       OIIA Comments: OIIA agrees with the finding that one of the 18 donations that
                       OIG selected for review did not have OGC clearance. The cause for this finding
                       is difficult to address. OIIA can request and receive OGC clearance of a
                       corporation that intends to donate; however, when issuing the gift check, the
                       corporation may - without informing OIIA - decide to write the check from a
                       division of the corporation or its foundation other than what was communicated to
                       OIIA and cleared by OGC.

                       OIIA has initiated corrective action to prevent future incidents. We have
                       implemented a new procedure to clear donors a second time with OGC if we have
                       knowledge that an alternate entity with the company is issuing the check. The
                       procedure is included in the Policies and Procedures Manual. (Procedure #10)




                                                                                                            2




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Appendix A – Department’s Comments (Continued)




                OIG Finding: Documentation in ~UA's Central Files on Receipts was Incomplete­
                The documentation in the central file for two of the 18 receipts we selected to review did
                not include an OGC clearance. Ultimately, the clearances were provided.

                       OIlA Comments: OIlA agrees with the finding that documentation in the central
                       file for two of the 18 receipts selected by OIG for review did not include OGC
                       clearances. Although clearances were obtained in a timely manner for both
                       donations, and OIlA followed its long-standing practice of including OGC
                       clearances in the central files, the clearances identified in this finding were
                       misfiled.

                       OIlA has taken corrective action to prevent such findings in the future. We now
                       staple clearances directly to the check copy in the files. Additionally, per the new
                       Policies and Procedures Manual there is now a written procedure that requires
                       OIlA to keep a record for each gift, including OGC's clearance of the donor.
                       (Maintenance of Records and Reporting Procedures #3)

                OIG Finding: Documentation in ~UA's Central Files on Receipts was Incomplete - The
                central file did not include documentation of the date the check was transferred to OCFO.

                       OIlA Comments: OIlA agrees with the finding that the central file did not
                       include documentation of the date that the check was transferred to OCFO. OIlA
                       has implemented corrective action to ensure OIlA has documentation of when
                       checks are transferred to OCFO. Now, all checks are hand-carried to OCFO
                       (checks are no longer sent via internal office mail) and receipts are obtained when
                       checks are given to OCFO staff.

                       Additionally, the Policies and Procedures Manual contains a written procedure
                       that requires OIlA to obtain a receipt from OCFO (Procedure #3). There is also a
                       written procedure requiring OIlA to keep a record for each gift, including a copy
                       of the O~FO receipt. (Maintenance of Records and Reporting Procedures #3)

                OIG Finding: Documentation in ~UA's Central Files on Receipts was Incomplete -
                The central file did not include documentation on the purpose of the donation, such as a
                letter to or from the sponsor.

                        OIlA Comments: OIlA agrees with this finding that the central file did not
                        include documentation of the purpose of the donation, although it has been
                        OIlA's practice to state the purpose of the donation in letters to donors requesting
                        donations. Additionally, as noted by OIG, OIlA has begun to include solicitation
                        letters in the central file.

                        Within the Policies and Procedures Manual, there is a written procedure that
                        requires OIlA to keep a record for each gift, including a copy of the Request to
                        Obtain Funds (which will state the purpose of the event or activity being funded)
                        as well as all written materials related to the solicitation (which will include



                                                                                                              3




ED-OIG/A17-B0018                                                                                                  21
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Appendix A – Department’s Comments (Continued)




                       letters to the donor stating the purpose of the donation). (Maintenance of Records
                       and Reporting Procedures #3)

               OIG Recommendation 3.1: We recommend that the Assistant Secretary for aliA
               instruct staff to clearly identify the activity to receive the donation when requesting
               clearances from aGe.

                       aliA Comments: Because aGC clears entities on an activity-by-activity basis, alIA
                       agrees with the recommendation. In the Policies and Procedures Manual, the
                       procedure for documenting the purpose of a donation is outlined. There is a written'
                       procedure requiring that aliA include in its request for aGC clearance a copy of the
                       Request to abtain Gift Funds form, which states the purpose of the donation.
                       (Procedure #4). Also, following aGC's clearance to solicit, alIA will send a letter to
                       the donor clarifying the amount and purpose of the donation. (Procedure #8)

               OIG Recommendation 3.2: We recommend that the Assistant Secretary for aliA
               separate the responsibilities for the solicitation of funds from the receipt of checks. The
               person responsible for receiving the checks would also be responsible for ensuring all
               checks are received.

                       aliA Comments: aliA agrees with this recommendation to separate solicitation and
                       receipt responsibilities and has already implemented the recommendation.
                       Additionally, to ensure donors are aware of the separation, the Policies and
                       Procedures Manual contains a written procedure requiring alIA to advise donors to
                       send or deliver checks to a staff person other than the employee who solicited the gift.
                       (Procedure #9)

                OIG Finding: Some expenses were unrelated to the purpose of the donation - We
                identified expenses that were unrelated to the account that the expense was charged to.

                       aliA Comments: aliA agrees with the finding that some expenses were not
                       related to the purpose of the donation. Previously, there was not a policy for
                       returning excess donation funds. As a result, pursuant to donors' verbal
                       permission to use excess funds for purposes other than those for which the
                       donation was made, aliA would sometimes use excess donation funds to pay for
                       events and/or activities in addition to the event/activity for which the donation
                       was given (as was the case with the funds cited in this finding). (see also, alIA
                       Comments to Recommendation 3.8)

                OIG Finding: Supporting documentation for some expenses was incomplete - The
                documentation in the central files on' some expenses was insufficient to demonstrate
                readily the appropriateness of the expense.

                       aliA Comments: OIlA agrees with the finding that for some expenses,
                       supporting document was incomplete to demonstrate that the expenses were
                       related to the purpose of the donation.



                                                                                                             4




ED-OIG/A17-B0018                                                                                                  22
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Appendix A – Department’s Comments (Continued)




                      OIlA has taken action to ensure that documentation is readily available for all
                      future expenses. Staff in the Executive Office has been informed of the need to
                      ensure all supporting documentation is attached, including written documentation
                      that demonstrates the relation between each expense and the account against
                      which it is charged.

               OIG Recommendation 3.4: We recommend that the Assistant Secretary for OIlA
               define responsibilities in the approval process to ensure that someone is specifically
               charged with determining that the expense relates to the purpose of the donation.

                       OIlA Comments: OIlA agrees with this recommendation and will require the
                       requestor of the expense to define which event/fund code will be charged for the
                       expense when completing OIlA's internal purchase form.

               OIG Finding: Evidence of approval of some expenses was missing.

                       OIlA Comments: OIlA agrees that in some instances all signature lines on its
                       expense approval form were not filled out. The approval form is an internal OIlA
                       form developed by OIlA's Executive Officer for internal OIlA use. The form is
                       not an "official" form for government, GAO, or even ED purposes. The failure to
                       have all signature lines on the form signed often resulted because during transition
                       between administrations, the necessary staff member was not available for
                       signature.

               OIG Recommendation 3.5: We recommend that the Assistant Secretary for OIlA
               require that OIlA's request forms be completely filled out.

                       OIlA Co'mments: OIlA agrees with the recommendation and already has taken
                       corrective action. OIlA now has a process in place that requires all signatures on
                       the expense approval form prior to processing the expense.

                OIG Finding: The un-obligated balance for one account was understated by $4,011:
                At September 30,2001, the un-obligated (or available) balance for the Hispanic
                American Initiative was $651. That balance did not include a refund of $3,015 that was
                received in August 2000. Also, OIlA should have de-obligated $996 when the final bill
                was paid in April 2000 for less than the amount obligated.

                       OIlA Comments: OIlA agrees with the finding that $996 should have been, but
                       was not, de-obligated. The Primary Accounting System (and now ORACLE
                       System) should have automatically de-obligated the excess funds. To address this
                       finding, OIlA will begin to verify on a monthly basis that de-obligations occur
                       automatically.




                                                                                                            5




ED-OIG/A17-B0018                                                                                                23
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Appendix A – Department’s Comments (Continued)




               OIG Recommendation 3.6: We recommend that the Assistant Secretary for OIlA
               reassess the separate accounts currently being used to identify those accounts that can be
               closed.

                      OIlA Comments: OIlA agrees with this recommendation. On behalf of the
                      Assistant Secretary, OIlA's Executive Officer and Deputy Assistant Secretary for
                      ICRCL will review all accounts to determine which should be closed for
                      inactivity. The review will be completed by November 2002. OIlA will close out
                      the accounts that contain a zero balance and seek guidance from OGC on how to
                      handle the closure of inactive accounts that contain nominal funds.

               OIG Finding: Donations assigned to the Receptions Account were not subject to
               accounting or funding control - We determined that the information in the accounting
               systems was not sufficient to determine what expenses were paid for each donation
               because all the donations are commingled.

                      OIlA Comments: OIlA agrees that information in the Department's accounting
                      system is insufficient to determine what expenses were paid from a particular
                      donation since donations were commingled. OIlA has addressed the finding by
                      developing an internal OIlA system that allows expenses to be tracked by
                      incoming contribution check (see also comments to Recommendation 3.7).

               OIG Recommendation 3.7: We recommend that the Assistant Secretary for OIlA track
               funds in the Receptions Account to ensure that they are spent for the purpose intended.

                      OIlA Comments: OIlA agrees with this recommendation and, on behalf of the
                      Assistant Secretary, OIlA's Executive Officer and Executive Office staff have
                      taken steps to begin tracking funds in the receptions account. Since the
                      Department's financial system does not allow expenses to be tracked by incoming
                      check, OIlA has developed its own internal system to track expenses by incoming
                      contribution checks. Additionally, pursuant to the Policies and Procedure
                      Manual, there is a written policy requiring that every six months a report is
                      prepared that summarizes all gifts accepted during the previous six months.
                      Among other things, the report will include all disbursements (date, amount and
                      name of payee and purpose). (Maintenance of Records and Reporting Procedures
                      #4)

                OIG Recommendation 3.8: We recommend that the Assistant Secretary for OIlA
                develop and implement a mechanism for communicating to donors how unspent funds
                will be handled.

                       OIlA Comments: OIlA agrees with this recommendation, and has already taken
                       action to implement it. Pursuant to new procedures, OIlA asks donors about the
                       use of the excess funds during initial discussions with the donors. Subsequently,
                       the conversation is put in writing to resolve the issue of using unspent gift funds
                       in an account. Additionally, within the Policies and Procedures Manual, there is a



                                                                                                            6




ED-OIG/A17-B0018                                                                                                24
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Appendix A – Department’s Comments (Continued)



                      written procedure requiring OIIA to obtain written clarification from the donor on
                      the method to be used to handle excess donations that are not expended for the
                      purpose for which they were donated. (Procedure #8)

               OIG Finding: There were no financial reports on the receipts and expenses of the
               contribution accounts delegated to the Assistant Secretary for ~UA. In addition, no
               year-end reports were prepared.

               During our audit, OIIA staff began preparing a financial report on the contribution
               accounts.

                      OIIA Comments: OIIA agrees with the finding that financial and year-end reports
                      were not prepared. Based on suggestions during recent meetings with OIG, OIIA
                      has begun to prepare and coordinate these reports with the other Principal Offices
                      involved. Additionally, reporting requirements are included in the Policies and
                      Procedures Manual (see also related comments to Recommendations 4.1 and 4.2).

               OIG Recommendation 4.1: We recommend that the Assistant Secretary for OIIA
               prepare a year-end report on the accounts delegated to the Assistant Secretary for OIIA,
               obtain concurrence from OCFO and Budget Services, and submit the report to the
               Secretary of the Department.

                      OIIA Comments: see comments to Recommendation 4.2

               OIG Recommendation 4.2: We recommend that the Assistant Secretary for OIIA
               prepare and review periodic financial reports on donations received and expenses paid.

                      OIIA Comments: OIIA agrees with recommendations 4.1 and 4.2 and, on behalf
                      of the Assistant Secretary, OIIA's Executive Office will prepare reports every 6
                      months according to the reporting requirements contained in the Policies and
                      Procedures Manual. OIIA's first two reports will cover October 1 to March 30
                      and April 1 to September 30. The reports will contain a summary of all gifts
                      accepted during the period and will include (1) the project name, (2) name of the
                      donor, (3) amount of the gift, (4) date of receipt, (5) disbursements, and (6) the
                      amount and source of any balances in all gift fund accounts maintained by OIIA.

                      OIIA will work with OCFO and Budget Services to prepare all reports and submit
                      them to OGC when finalized. OGC will review the reports to ensure they comply
                      with the Manual requirements and applicable law, and then forward the reports to
                      the Office of the Secretary. (Maintenance of Records and Reporting Procedures
                      #4 through #7)




                                                                                                           7




ED-OIG/A17-B0018                                                                                               25
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Appendix A – Department’s Comments (Continued)



               OIG Finding: There were no complete, current, written policies and procedures for
               the contribution accounts.

               At the request of the Secretary of the Department, OGC is preparing policies for all the
               Department's contribution accounts.

                       OIIA Comments: OIIA agrees with the finding that, at the time of the audit, there
                       were no complete, current, written policies and procedures for the contribution
                       accounts. OIIA has taken corrective action and worked with OGC to develop the
                       new Policies and Procedures Manual (see comments to Recommendation 4.3).

               OIG Recommendation 4.3: We recommend that the Assistant Secretary for OIIA, once
               established, review the Department's policies with OIIA staff involved with the process
               to ensure that everyone understands their role and responsibilities in the process and,
               where appropriate, establish written procedures to implement the Department's policies.

                       OIIA Comments: OIIA agrees with recommendation 4.3 and, working with
                       OGC, has developed a Policies and Procedures Manual to provide written policies
                       and procedures for the control of risks in the management and operations of the
                       contribution accounts. On behalf of the Assistant Secretary, OIIA's Executive
                       Officer and Deputy Assistant Secretary for ICRCL will review the policies and
                       procedures with staff in their offices that are involved in the contribution accounts
                       process by November 1, 2002 to ensure their understanding of roles and
                       responsibilities in the process. Additionally, Departmental Senior Staff already
                       has been informed.

               OIG Finding: Deposits do not appear to have been made timely - The number of
               days between the date on OIIA memorandums indicating receipt of the check from a
               sponsor and the date on the deposit ticket indicating when OCFO took custody of the
               check exceeded 2 days for 7 of 18 donations we reviewed. The number of days ranged
               from 3 up to 22 days.

                       OIIA Comments: OIIA agrees that the files lacked documentation to demonstrate
                       that checks were sent to OCFO in a timely manner. OIIA believes the checks
                       were, in fact, deposited timely. However, we did not receive receipts from OCFO
                       to include in the files to demonstrate timely deposits.

                       OIIA has taken corrective action to prevent this finding in the future. Procedures
                       have been implemented that require OCFO to issue a receipt before OIIA releases
                       a check to OCFO staff. (Procedure #13)

                OIG Recommendation 5.1: We recommend that the Assistant Secretary for OIIA
                develop a monitoring strategy to ensure that policies and procedures, including timely
                deposit with OCFO, are being followed.




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ED-OIG/A17-B0018                                                                                               26
Final Audit Report
Contribution Accounts Delegated to the Assistant Secretary for Intergovernmental and Interagency Affairs



Appendix A – Department’s Comments (Continued)



                       OIIA Comments: OIIA agrees with this recommendation. On behalf of the
                       Assistant Secretary, and upon full implementation of the Policies and Procedures
                       Manual, OIIA's Executive Officer and Deputy Assistant Secretary for ICRCL
                       will develop a strategy to monitor whether staff are following the policies and
                       procedures outlined in the Manual. OIIA will develop the monitoring strategy no
                       later than March 2003.

                OIG Recommendation (Misc.): We recommend that the Assistant Secretary for OIIA
                request OGC to reexamine whether the Department's gift acceptance statute is sufficient
                to authorize the solicitation of gifts on the scale conducted by OIIA and seek additional
                legislative authority if necessary.

                       OIIA Comments: While working with OGC to develop the Secretary's new
                       Delegation of Authority to the OIIA Assistant Secretary, OIIA and OGC already
                       have revisited the issue of solicitation. aGC determined that the Department's
                       gift acceptance statute is sufficient to authorize solicitation of gifts and included
                       the authority to solicit in the Secretary's delegation to the Assistant Secretary for
                       OIIA.

                OIG Finding: Misc. - During our review of expenditures, we identified a $42.90
                reimbursement to an OIIA employee in February 2001 that was unrelated to the
                contributions accounts.

                       OIIA Comments: OIIA agrees with the finding that a $42.90 reimbursement was
                       made to an OIIA employee for an expense unrelated to the contributions account.
                       Through the documentation and reporting procedures contained in the Policies
                       and Procedures Manual, OIIA will be able to monitor expenses more closely to
                       ensure they relate to the contributions account and prevent similar findings in the
                       future.


                OIG Recommendation (Misc.): We recommend that the Assistant Secretary for alIA
                request repayment of this reimbursement from the employee.

                        OIIA Comments: OIIA agrees with this recommendation, and will request
                        repayment of the reimbursement from the employee.




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