oversight

Reconciliation of Principal Office Records to the United States Department of Education's Central Automated Processing System.

Published by the Department of Education, Office of Inspector General on 2004-07-08.

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

                          UNITED STATES DEPARTMENT OF EDUCATION
                                          OFFICE OF THE INSPECTOR GENERAL


                                                       JUl         8 31M

                                                                                                     CONTROL NUMBER
                                                                                                      ED-OIG/AI7-EOOOI




Jack Martin, Chief Financial Officer
Office of the Chief Financial Officer
United States Department of Education
Federal Building No.6, Room 4E313
400 Maryland Avenue, SW
Washington, DC 20202

Dear Mr. Martin:

This Final Audit Report (Control Number ED-OIG/A17-E0001) presents the results of our
audit to determine if Principal Offices (PO's) reconcile their accounting records to the United
States Department of Education's (Department) Central Automated Processing System
(EDCAPS) to ensure accuracy and completeness of information for the period October 2002
through February 2004.

                                                 AUDIT RESULTS

The objective ofthe audit was to determine if PO's reconcile their accounting records to
EDCAPS to ensure accuracy and completeness of information. Reconciliation is a basic
financial accounting control and its occurrence, frequency and timeliness helps ensure the
accuracy and completeness of financial information. Our audit revealed that PO's are
reconciling their accounting records of administrative expenditures to EDCAPS, however,
improvements to the reconciliation process are needed. We found that PO's did not retain
summary level documentation on a consistent basis to support reconciliations are being
performed. In addition, PO's are not performing reconciliations at the same frequency. The
Office of the Chief Financial Officer (OCFO) needs to effectively inform PO's of new EDCAPS
reports that facilitate the reconciliation process. We have made recommendations to the Chief
Financial Officer to improve the Department's reconciliation process and strengthen financial
management.

OCFO responded to our draft report, concurring with the results and supporting the
recommendations provided. OCFO also described specific corrective actions it intends to take to
address the issues noted. The full text ofOCFO's response is included as Attachment 2 to this
audit report.



                                      400 MARYLAND AVE ., S.W., WASHINGTON, DC 20202-1510
                                                               www.ed.gov 


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

Reconciliation of Principal Office Records to the United States Department of Education Central Automated Processing System
Control Number ED-OIG/A17-E0001


Improvements Needed for Reconciling Principal Office Administrative Expenditures to EDCAPS

OCFO has not provided PO’s written policies and procedures for reconciling administrative
expenditures to EDCAPS. As a result, each PO has established an ad hoc reconciliation process.
We found that PO’s did not retain summary level documentation on a consistent basis to support
the occurrence, frequency, timeliness and overall accuracy and completeness of reconciliations.
Several PO’s disclosed that upon completion of reconciliation, reports generated and used are
disposed of and not maintained.

Reconciliations should be performed at a frequency sufficient to detect and correct problems in
the financial records in a timely manner. We found that the PO’s are not performing
reconciliations of administrative expenditures to EDCAPS on a consistent basis. Of the 16 PO’s
interviewed, 8 PO’s reconcile monthly, 4 PO’s reconcile at different times throughout the year, 2
PO’s reconcile at time of obligation, 1 PO reconciles quarterly, and 1 PO reconciles at year-end
only.

The PO’s lack guidance from OCFO on reconciling their records to EDCAPS and are developing
their own ad hoc procedures and practices. Without Department-wide policies, there is no
assurance that reconciliations are being performed in an appropriate, timely, and consistent
manner. As a result, the Department lacks a key control for ensuring data is accurate and
complete, errors or irregularities are detected, differences are resolved quickly, and year-end
reporting of administrative expenditures and unexpended obligations are accurate. At a
minimum a policy should require reconciliations, establish frequency and timeliness, and address
retention of records, supporting timely reconciliation.

OCFO has made report enhancements in EDCAPS that will assist the PO’s with researching and
monitoring expenditures at the object class level,1 but it has not effectively communicated the
availability of new reports to the PO’s. After receiving requests for report enhancements in
EDCAPS, OCFO created the EDCAPS Transaction History Report that includes expenditures at
the object class level. Despite OCFO notifying PO’s of this report via email in September 2003,
it appears the PO’s are not aware of the improved tools available for reconciling administrative
expenditures to EDCAPS. The report was not mentioned by any of the 16 PO’s interviewed, and
11 of the PO’s specifically cited this type of report as one that would assist them with their
reconciliation responsibilities.

The Department’s Administrative Communications System Departmental Directive OCFO:1-
103, January 13, 2004, Financial Management (Directive) defines financial management as the
coordination of activities, systems and personnel concerned with the acquisition, allocation,
control, oversight, effective utilization and disposition of Department-owned assets and
budgetary resources. The Directive applies to all offices within the Department and other
boards, commissions, and councils under the management/control of the Department and states
that all Department employees are responsible for the prudent stewardship of funds entrusted to
the Department. Among the specific responsibilities set forth in the Directive, the Chief
Financial Officer (CFO) shall establish/implement control policies regarding/including the
reconciliation of financial data; the Deputy CFO shall establish/implement management control

1
    An object class is a category in a classification system that presents obligations by the goods or services purchased.


                                                                                                                     Page 2 of 6
Reconciliation of Principal Office Records to the United States Department of Education Central Automated Processing System
Control Number ED-OIG/A17-E0001


policies regarding/including the reconciliation of financial data between PO program activity and
Departmental systems; and Principal Officers shall ensure that program/operational financial
data is reconciled to the Department’s accounting system. The Directive is not prescriptive on
reconciliation. The prior issuance of the Directive was silent on policies and procedures.

Recommendations:

To improve the Department’s reconciliation process and strengthen financial management, we
recommend that the CFO in coordination with the PO’s Executive Officer:

           1.1 Develop a written policy for reconciling PO’s accounting records of administrative
               expenditures to EDCAPS that addresses the retention of summary level
               documentation and establishes a frequency sufficient to detect and correct problems
               in financial records.

           1.2 Communicate the reporting enhancements in EDCAPS using various modes so PO’s
               can make use of them in reconciling their records to EDCAPS.

                                                      OTHER MATTERS

During our audit, PO’s indicated that EDCAPS does not report budgeted amounts at detail
operational levels needed for them to fully track budget execution. According to OCFO, the
Department controls and reports funds at the limitation level.2 As a result, 14 of the 16 PO’s
interviewed maintain accounting records separate from EDCAPS on administrative expenditures
and obligations at the object class level to track budget execution below the limitation level.
PO’s accounting records detail budgetary allotments and sub-allotments, actual expenditures, and
remaining funds available, providing the PO’s management with real-time data at the lowest
operational levels upon request. Attachment 1 summarizes the various types of accounting
records the 16 PO’s interviewed maintain to reconcile administrative expenditures with
EDCAPS. We suggest OCFO determine the feasibility of providing PO’s with an integrated
systematic solution for planning, executing, monitoring, and reconciling allotted funds at the
object class level.

                                                         BACKGROUND

The Office of Management and Budget (OMB) regulates the distribution of budget authority to
an agency through the apportionment process. Once OMB apportions funds to an agency, it is
the agency’s responsibility to control the use of those funds, and it is done so through the
allotment process. In the Department, PO’s are required to submit to Office of the Deputy
Secretary (ODS)/Budget Service an operating plan detailing the approximate dates funds will be
required, and allotments are issued in accordance with this plan.

EDCAPS, the Department’s core financial system, was implemented in October 1997. EDCAPS
is sponsored by the OCFO and consists of four major components:


2
    A limitation is a funding restriction that places a ceiling on obligation or spending authority.


                                                                                                                     Page 3 of 6
Reconciliation of Principal Office Records to the United States Department of Education Central Automated Processing System
Control Number ED-OIG/A17-E0001


     -    Contracts and Purchasing Support System (CPSS)
     -    Grant Administration and Payment System (GAPS)
     -    Financial Management Systems Software (FMSS)
     -    Travel Management System (TMS)

FMSS provides the functionality for general ledger and funds management, which includes
budget formulation, budget execution, funds control, and all the related internal and external
regulatory reports, including the financial statements as set forth by the Chief Financial Officer's
Act of 1990, amended in 1994. FMSS also currently includes receipt management and payments
management for administrative funds. In January 2002, the Department completed the
implementation of Oracle Federal Financials as the financial management system to perform
these functions. Currently, the Department is in the process of implementing Oracle Federal
Financials 11i.

Management is responsible for establishing and maintaining internal controls. PO’s
Executive Officers (and equivalent officers) have the day-to-day responsibility for
financial management and maintaining funds control for the programs and activities in
their PO’s. The responsibilities normally include: coordinating the financial management
activities of their PO’s, including the appropriate distribution of information and
documents; determining the availability of allotments of funds for commitments and
obligations; authorizing or recording commitments and obligations in appropriate financial
systems; preparing operating plans for monitoring the budget and financial execution of
programs and activities in their PO’s; accepting goods and services; and reviewing (and
certifying if necessary) financial documents and reports that show the status of funds
allotted to their POs.

                            OBJECTIVE, SCOPE AND METHODOLOGY

The objective of the audit was to determine if PO’s reconcile their accounting records to
EDCAPS to ensure accuracy and completeness of information. To accomplish our objective, we
gained an understanding of the controls in place at the Department over the reconciliation
process. We reviewed applicable Department policies and procedures. We conducted interviews
with 16 PO’s (9 Program Offices, 1 Management Office and 6 Staff Offices) to determine the
methods used to reconcile expenditures to EDCAPS. Additional interviews were held with
OCFO/Grants Policy and Oversight Staff, ODS/Budget Service and the Office of Management
(OM).

We selected three program offices and focused on reconciliations for the months of April and
November 2003. In addition, we observed Office of Postsecondary Education (OPE)
reconciliation operations and activities for February 2004. Our efforts did not focus on year-end
reconciliations nor did we perform program office reconciliations. We judgmentally selected:
one program office that did not maintain separate accounting records and therefore, did not
reconcile outside of EDCAPS; one that used The Ledger Tracker-Access software package
developed by a consultant in OM; and one that used a software package other than The Ledger
Tracker (i.e. Excel or Access). The three program offices selected were: OPE; Office of
Elementary and Secondary Education (OESE); and Office of Vocational and Adult Education
(OVAE).


                                                                                                                     Page 4 of 6
Reconciliation of Principal Office Records to the United States Department of Education Central Automated Processing System
Control Number ED-OIG/A17-E0001




We relied, in part, on computer data generated from EDCAPS. We assessed the reliability of
this data by comparing EDCAPS reports to accounting records maintained by PO’s. Based on
our preliminary assessment, we concluded that the data was sufficiently reliable for use in
meeting the audit objective.

Our audit focused on the period October 2002, through February 2004. We performed our
fieldwork at applicable Department PO’s located in Washington, DC, from October 27, 2003,
through March 1, 2004. We held an exit conference with Department officials on March 19,
2004. We performed our audit in accordance with generally accepted government auditing
standards appropriate to the scope of review described above.

                               STATEMENT ON MANAGEMENT CONTROLS

As part of our review we gained an understanding of the management controls, policies and
practices applicable to the Department’s administration of reconciliations. Our review was
performed to determine the level of control risk for determining the nature, extent, and timing of
our substantive test to accomplish the audit objective.

For the purpose of this report, we gained an understanding of the Department’s controls over the
reconciliation process and classified the significant controls into the following categories:

                     •   occurrence
                     •   frequency
                     •   timeliness, and
                     •   accuracy and completeness of information.

Our assessment disclosed management control weaknesses that adversely affected the PO’s
reconciliation of administrative expenditures to EDCAPS. The weaknesses and their effects are
fully discussed in the AUDIT RESULTS sections of this report.

                                            ADMINISTRATIVE MATTERS

Corrective actions proposed (resolution phase) and implemented (closure phase) by your office
will be monitored and tracked through the Department’s Audit Accountability and Resolution
Tracking System. Department policy requires that you develop a proposed corrective action plan
(CAP) for our review in the automated system within 30 days of the issuance of this report. The
CAP should set forth the specific action items, and targeted completion dates, necessary to
implement final corrective actions on the findings and recommendations contained in this final
audit report.

In accordance with the Inspector General Act of 1978, as amended, the Office of Inspector
General (OIG) is required to report to Congress twice a year on the audits that remain unresolved
after six months from the date of issuance.




                                                                                                                     Page 5 of 6
Reconciliation of Principal Office Records to the United States Department ofEducation Central Automated Processing System
Control Number ED-OIG/A17-EOOOI


Statements that managerial practices need improvements, as well as other conclusions and
recommendations in this report represent the opinions of the OIG. Determinations of corrective
action to be taken will be made by the appropriate Department of Education officials.
In accordance with the Freedom ofInformation Act (5 U.S.C. §552), reports issued by the DIG
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 given to us during this review. If you have any questions
concerning this report, please contact Greg Spencer, Director, Financial Statements Internal
Audit Team, at (202) 245-6015.

                                                                Sincerely,


                                                                j{t~W
                                                                Helen Lew
                                                                Assistant Inspector General for Audit Services




Attachments




                                                                                                                      Page 6 of6
                                                                                              Attachment 1




Types of Accounting Records Maintained by PO's
                                The                                              No
Principal                     Ledger                                          Additional
  Office    Excel    Access   Tracker     Other                                Records
  OELA        X
   OIIA       X
 OSERS                           X
  OESE                           X
  OVAE                 X
  OCR *       X        X
   IES        X
   OPE                                                                               X
  OGC                                                                                X
   OII        X
   OM                                       X
  OCIO                                      X
  OCFO                 X
 OSDFS        X
  OLCA        X
   OS                            X
  Total       7        3         3          2                                        2
*OCR uses a combination of two software.




         OELA              Office of English Language Acquisition, Language Enhancement and
                             Academic Achievement for Limited English Proficient Students
         OIIA              Office of Intergovernmental and Interagency Affairs
         OSERS             Office of Special Education and Rehabilitative Services
         OESE              Office of Elementary and Secondary Education
         OVAE              Office of Vocational and Adult Education
         OCR               Office for Civil Rights
         IES               Institute of Education Sciences
         OPE               Office of Postsecondary Education
         OGC               Office of the General Counsel
         OII               Office of Innovation and Improvement
         OM                Office of Management
         OCIO              Office of the Chief Information Officer
         OCFO              Office of the Chief Financial Officer
         OSDFS             Office of Safe and Drug-Free Schools
         OLCA              Office of Legislation and Congressional Affairs
         OS                Office of the Secretary
                                                                                                             Attachment 2


                      UNITED STATES DEPARTMENT OF EDUCATION

                                  OFFICE OF THE CHIEF FINANCIAL OFFICER

                                                                         THE CHIEF FINANCIAL OFFICER

                                    JUN 1 6 2004



Mr. Greg Spencer
Director, Financial Statements Internal Audit Team
United States Department of Education
Office of Inspector General
400 Maryland Avenue, SW, Room 4200 MES
Washington, DC 20202

Dear Mr. Spencer:

Thank you for providing this Draft Audit Report concerning "Improvements Needed for
Reconciling Principal Office Administrative Expenditures to EDCAPS" (Control Number
ED-OIG//A17-EOOOl). We sincerely appreciate your efforts associated with this study
and the opportunity that your report provides to improve fiscal accountability across the
Department.

We generally concur with your statements concerning the need for improvements in the
processes used by individual Principal Offices (PO) to reconcile their financial records to
the Department's official general ledger (GL) data.

In response to your specific recommendations, we offer the following:

Finding:
       To improve the Department's reconciliation processes and strengthen financial
       management, we recommend that the CFO in coordination with the POs
       Executive Officers:

Recommendation:
     1.1 	 Develop a written policy for reconciling POs accounting records of
           administrative expenditures to EDCAPS that addresses the retention of
           summary level documentation and establishes a frequency sufficient to detect
           and correct problems in financial records.

 Response:
       We concur with this recommendation and will establish high-level policy to
       support periodic reconciliation by the PO's to assure accountability of their
       expenditures and obligation balances as they relate to the official GL balances
       maintained within EDCAPS, and to support retention of supporting reconciliation
       documentation.


                               400 MARYLAND AVE •• S.W.• WASHINGTON, D.C. 20202-4300
                                                     www.ed.gov

        Our mission is /0 ensure equal access to education and to promote educational excel/enoe throughout the Nat;"n.
                                                                        Mr. Greg Spencer
                                                                                      p.2


Recommendation:
     1.2 Communicate the reporting enhancements in EDCAPS using various modes
         so POs can make use of them in reconciling their records to EDCAPS.

Response:
      We concur that continued communications are vital and will provide additional
      communications specifically referencing the use of these reports, as well as
      infonnation pertaining to the new reconciliation policy and procedures.

       Enhancements have recently been made to three ED~APS reports, which provide
       detail level expenditure and obligation infonnation in support of reconciliation
       processes. Training on the EDCAPS "Document Summary Report," "Transaction
       History Report" and the "Status of Funds Report" is currently being provided and
       training materials have been made available on appropriate web sites for access
       by all EDCAPS users. In addition, frequent "Helpful Hints" email messages have
       been sent providing instruction for the use ofthese reconciliation reports.

Thank you again for providing this report and for your continued support. OCFO will
take corrective action as quickly as possible.

                                    Sincerely,