oversight

Followup Process for External Audits in the Office of Special Education and Rehabilitative Services

Published by the Department of Education, Office of Inspector General on 2015-09-22.

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

                          UNITED STATES DEPARTMENT OF EDUCATION
                                      OFFICE OF INSPECTOR GENERAL

                                                                                                            AUDIT SERVICES



                                                September 22, 2015
                                                                                             Control Number
                                                                                             ED-OIG/A19P0003

Michael K. Yudin
Assistant Secretary
Office of Special Education and Rehabilitative Services
U.S. Department of Education
400 Maryland Avenue, S.W.
Washington, DC 20202-4300

Dear Mr. Yudin:

This Final Audit Report, titled Audit of the Followup Process for External Audits in the Office
of Special Education and Rehabilitative Services, presents the results of our audit. This audit
was part of a review of the audit followup process for Office of Inspector General (OIG) external
audits being performed in several principal offices. The objective of the audit was to evaluate
the effectiveness of the Department of Education’s (Department) process to ensure that external
auditees implement corrective actions as a result of OIG audits. A summary report will be
provided to the Chief Financial Officer, the Department’s audit followup official, upon
completion of the audits in individual principal offices.



                                                BACKGROUND


Office of Management and Budget (OMB) Circular A-50, “Audit Followup,” provides the
requirements for establishing systems to assure prompt and proper resolution and
implementation of audit recommendations. The Circular provides that audit followup is an
integral part of good management, a shared responsibility of agency management officials and
auditors, and management’s corrective action on resolved findings and recommendations is
essential to improving the Government’s effectiveness and efficiency. Agencies are responsible
for establishing systems that provide a complete record of actions taken on findings and
recommendations to assure that audit recommendations are promptly and properly resolved.

The Department established the “Handbook for the Post Audit Process” (OCFO-01), dated
June 22, 2007 (Handbook), to provide policies and procedures for the resolution and followup
of internal and external audits of Department programs, activities, and functions. External
audits are of external entities that receive funding from the Department, such as State
educational agencies, local educational agencies, institutions of higher education, contractors,
and nonprofit organizations. External OIG audit reports generally include recommendations
for Department management to require the external entity to take corrective action. These
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              Promoting the efficiency, effectiveness, and integrity of the Department’s programs and operations.
Final Audit Report
ED-OIG/A19P0003                                                                         Page 2 of 6

recommendations may be either monetary, which recommend that the entity return funds to the
Department, or nonmonetary, which recommend that the entity improve operations, systems, or
internal controls. The audit resolution process begins with the issuance of a final audit report.

An external audit is considered resolved when the Department issues a program determination
letter (PDL) to the external entity that is agreed to by the OIG. Upon resolution, the Department
is responsible for followup to ensure that corrective actions are actually taken. An audit is
considered closed when the Department ensures that all corrective actions have been
implemented including funds repaid or settlement made.

The Handbook provides that Assistant Secretaries (or equivalent office head) with
cooperative audit resolution or related responsibilities must ensure that the overall
cooperative audit resolution process operates efficiently and consistently. An Assistant
Secretary may delegate in writing part or all of the cooperative audit resolution
responsibilities to an Action Official(s) (AO) within the Assistant Secretary's
organization.

The Handbook notes specific responsibilities of the Assistant Secretaries or designated AOs that
include:

   •   Determining the action to be taken and the financial adjustments to be made in resolving
       findings in audit reports concerning respective program areas of responsibility,
   •   Monitoring auditee actions in order to ensure implementation of recommendations
       sustained in program determinations, and
   •   Maintaining formal, documented systems of cooperative audit resolution and followup.

The Department’s Audit Accountability and Resolution Tracking System (AARTS) is a web-
based application designed to assist Department management with audit followup and closure.



                                     AUDIT RESULTS


We found that the Office of Special Education and Rehabilitative Services’ (OSERS) audit
followup process was not always effective. Specifically, we found that while OSERS adequately
maintained documentation of audit followup activities for the audits included in our review, it
did not close audits timely. Between October 1, 2008 and September 30, 2013, OSERS closed
14 external OIG audits. Of the 14 closed audits, 11 (79 percent) were closed more than
2 years after resolution, and 2 (14 percent) were closed more than 5 years after resolution. The
total of the monetary recommendations associated with the 14 audits was $356,490,506.

Not ensuring that corrective actions are taken as quickly as possible allows identified
deficiencies to continue to exist. As such, the risk remains that related programs are not
effectively managed and funds are not being used as intended.
Final Audit Report
ED-OIG/A19P0003                                                                                      Page 3 of 6

In its response to the draft audit report, OSERS did not state whether it agreed or disagreed with
the finding, but concurred with the recommendation. OSERS discussed changes it has made to
its audit resolution process and actions planned by the Department to enhance AARTS to support
the appropriate and timely closure of OIG audit findings. OSERS also suggested edits to provide
additional context regarding the amount of questioned costs cited in footnote 1.

In response to OSERS’ comments we edited the applicable footnote. No other changes were
made. OSERS’ comments and our response to those comments are summarized at the end of the
finding. The full text of OSERS’ response is included as Attachment 3 to this report.

FINDING NO. 1 – The Office of Special Education and Rehabilitative
                          Services’ Audit Followup Process Was Not Always Effective
We found that improvements are needed in OSERS’ audit followup process. Specifically, we
found that while OSERS adequately maintained documentation of audit followup activities for
the sample of three audits included in our review, it did not close audits timely. We reviewed the
Department’s AARTS data to determine the number of external OIG audits that were closed
between October 1, 2008 and September 30, 2013. We noted that OSERS closed 14 audits
during this time period. Of the 14 closed audits, 11 (79 percent) were closed more than 2 years
after resolution, and 2 audits (14 percent) were closed more than 5 years after resolution. The
total of the monetary recommendations associated with the 14 audits was $356,490,506 1 as
depicted in Table 1.

    Table 1. Count and Percentage 2 of OSERS Closed Audits by Elapsed Time Between
                                Resolution and Closure

Elapsed Time               Number of           Percentage of        Total of Monetary         Percentage of
                            Audits                Audits            Recommendations             Monetary
                                                                                            Recommendations
73 to 84 months                  2                  14%                  $6,058,889                2%
61 to 72 months                  0                   0%                      $0                    0%
49 to 60 months                  5                  36%                  $6,602,145                2%
37 to 48 months                  3                  21%                $328,000,000               92%
25 to 36 months                  1                   7%                      $0                    0%
Less than 25                     3                  21%                 $15,829,472                4%
months
Total                           14                                     $356,490,506




1
  The Department of Interior’s Bureau of Indian Affairs Administration of the Individuals with Disabilities
Education Act (IDEA) Part B Funds (ED-OIG/A06F0019) represents $328,000,000 (92 percent) of the
$356,490,506 total for the 14 audits. Of the $328 million, $111 million represents questioned costs of IDEA funds
administered by OSERS, while the remaining $217 million includes funds provided by the Department to the
auditee that are not administered by OSERS.
2
  Percentages do not add to 100 due to rounding.
Final Audit Report
ED-OIG/A19P0003                                                                                     Page 4 of 6

OMB Circular A-50, “Audit Followup,” states that each agency shall establish systems to assure
the prompt and proper resolution and implementation of audit recommendations. These systems
shall provide for a complete record of action taken on both monetary and nonmonetary findings
and recommendations. It further states that corrective action is essential to improving the
effectiveness and efficiency of Government operations and should proceed as rapidly as possible.

The Department’s “Audit Resolution and Followup” (OCFO 1-106), dated January 29, 2013,
states that principal offices are subject to OMB A-50 and are responsible for conducting audit
followup responsibilities for external audits, including monitoring, ensuring implementation of
corrective actions, and requesting audit closure.

OSERS officials stated that the staff that were assigned to the audits included in the table above
are now either retired or working elsewhere. Therefore, the officials were unable to provide an
explanation for why it took so long to close the majority of the audits. 3

As stated in the Department’s Handbook, “The effectiveness of the post audit process depends
upon taking appropriate, timely action to resolve audit findings and their underlying causes, as
well as providing an effective system for audit close-out, record maintenance, and followup on
corrective actions.” Not ensuring that corrective actions are taken as quickly as possible allows
identified deficiencies to continue to exist. As such, the risk remains that related programs are
not effectively managed and funds are not being used as intended.

Recommendations

We recommend that the Assistant Secretary for OSERS:

1.1     Ensure that audits are being closed timely once all appropriate corrective actions have
        been taken.

OSERS Comments

OSERS concurred with the recommendation and described actions it has taken to improve the
timeliness of its audit resolution process as well as actions planned by the Department to
leverage the use of AARTS to facilitate timely closure of OIG audits. OSERS noted it
centralized its audit resolution function and established a comprehensive audit tracking system
and as a result has improved its timeliness in resolving audits. Further, OSERS noted that the
Department is in the process of exploring ways to facilitate timely closure of OIG audits through
AARTS, including establishing a workgroup to determine the feasibility of enhancements to
AARTS to support the appropriate and timely closure of OIG audit findings.

OSERS also suggested edits to footnote 1 so that readers can understand the basis for such a
large and seemingly disproportionate amount of questioned costs cited in a previously issued
OIG audit report that was included as part of this review.


3
 As of June 19, 2015, OSERS had closed only one additional audit since the end of our audit scope period and had
only one open audit. This one open audit had only recently been resolved. Therefore we were unable to perform a
more recent analysis of closure timeliness to determine if any improvements had been made.
Final Audit Report
ED-OIG/A19P0003                                                                        Page 5 of 6

OIG Response

We appreciate the efforts noted by OSERS to improve the timeliness of audit resolution.
However, our audit and related finding focused on the review of OSERS’ process for audit
followup and closure. As noted in the background section of this report, audit followup begins
after an audit has been resolved and the Department has issued a PDL to the external entity. The
Department is responsible for followup to ensure that corrective actions as specified in the PDL
are actually taken. The audit is considered closed when the Department ensures that all
corrective actions have been implemented including funds repaid or settlement made.

As a result of OSERS’ comments, we did not make any changes to the audit finding or the
related recommendation. We did edit the applicable footnote as suggested.



                         OBJECTIVE, SCOPE, AND METHODOLOGY


The objective of our audit was to evaluate the effectiveness of the Department’s process to
ensure that external auditees implement corrective actions as a result of OIG audits. To
accomplish our objective, we gained an understanding of the Department’s and OSERS’s
followup and closure processes for external OIG audits. We reviewed applicable laws and
regulations and Department policies and procedures including OMB Circular A-50 and the
Department’s Handbook for the Post Audit Process, dated June 22, 2007. We also reviewed
prior OIG audit reports relevant to our audit objective. We conducted interviews with OSERS
staff responsible for following up and closing corrective actions for the audits selected. We
reviewed documentation provided by OSERS staff to support the corrective actions taken for the
recommendations in the audits included in our review as identified in the applicable PDLs.

The scope of our audit included OIG audits of OSERS programs at external entities with
monetary or nonmonetary findings that were reported by the Department’s AARTS and the
OIG’s Audit Tracking System (ATS) as closed during the period October 1, 2008 to
September 30, 2013.

Overall, we identified a total of 14 closed audits in the universe. We selected a nonstatistical
sample of three audits for our review. The three audits consisted of all audits that had monetary
findings of $5 million or more. We excluded any internal and non-sustained recommendations
included in these audits from our review. Overall, the three audits in our review included a total
of 13 recommendations. A complete listing of the selected audits is included as Attachment 2 to
this report. Because there is no assurance that the nonstatistical sample used in this audit is
representative of the respective universe, the results should not be projected over the unsampled
audits.

We subsequently obtained a listing from AARTS of audits closed or resolved between
October 1, 2013 and June 19, 2015 and conducted a limited analysis of these audits to determine
the timeliness of audits closed during this more current time period. 4

4
    See footnote 3 for additional information on the results of this review.
Final Audit Report
ED-OIG/A19P0003                                                                       Page 6 of 6

We relied on computer-processed data obtained from the Department’s AARTS and OIG’s ATS
to identify OIG external audits closed during the scope period. We reconciled the data in these
two systems to ensure that we captured all audits closed during this period. Based on this
assessment, we determined that the computer-processed data were sufficiently reliable for the
purpose of this audit.

We conducted fieldwork at Department offices in Washington, DC, during the period
February 2014 through June 2015. We provided our audit results to Department officials during
an exit conference conducted on June 1, 2015.

We conducted this performance audit in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions
based on our audit objectives. We believe that the evidence obtained provides a reasonable basis
for our findings and conclusions based on our audit objective.



                            ADMINISTRATIVE MATTERS


Corrective actions proposed (resolution phase) and implemented (closure phase) by your office
will be monitored and tracked through the Department’s AARTS. Department policy requires
that you develop a final 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 finding and
recommendation contained in this final audit report.

In accordance with the Inspector General Act of 1978, as amended, the OIG is required to report
to Congress twice a year on the audits that remain unresolved after 6 months from the date of
issuance.

In accordance with the Freedom of Information Act (5 U.S.C. § 552), reports issued by the OIG
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 us during this review. If you have any questions, please
call Michele Weaver-Dugan at (202) 245-6941.


                                             Sincerely,



                                             Patrick J. Howard /s/
                                             Assistant Inspector General for Audit
                                                                           Attachment 1

             Acronyms/Abbreviations/Short Forms Used in this Report

AARTS            Audit Accountability and Resolution Tracking System

AO               Action Official

ATS              Audit Tracking System

CAP              Corrective Action Plan

Department       U.S. Department of Education

Handbook         Handbook for the Post Audit Process

IDEA             Individuals with Disabilities Education Act

OMB              Office of Management and Budget

OIG              Office of Inspector General

OSERS            Office of Special Education and Rehabilitative Services

PDL              Program Determination Letter
                                                                            Attachment 2

                      OSERS Audits Included in This Review

Audit Control
  Number                           Audit Report Title
 A02B0014       Puerto Rico Vocational Rehabilitation Administration
 A02E0009       Puerto Rico Department of Education’s Special Education Program
                Services
 A06F0019       The Department of Interior’s Bureau of Indian Affairs Administration of
                the Individuals with Disabilities Education Act (IDEA) Part B Funds
                                       OSERS Response to Draft Report                                         Attachment 3

                              UNITED S'fATES DEPARTMENT OF EDUCATION
                     OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES

                                                                                                   TF-IE ASSISTANT SECRE'J'AIZY

                                              AUG 3 12015

Ms. Michele Weaver-Dugan, Director
Operations Inte111al A11dit Team
U.S. Depa1iment ofEducatio11
Office of Inspector General
400 Maryland J\ venue, S. W.
Washington, DC 20202-1500

Dear Ms. 'A'eaver-Dugan:

Thank you for providing the Office of Special Education and f.~chabilitative Services (OSERS)
the opport1tnity to review at1d con1n1cnt on the Draft Audit Report: Audit of the follow-up
Process for External Audits in the Office of Special Education and Rehabilitative Services.
Control Number ED-OIG/Al 9P0003, issued on August 5, 2015. We have reviewed the {)raft
Repo1i and concur with the Office of Inspector General's (010) si11glc recon11nendation to:
'"Ensure that audits are being closed timely once all appropriate corrective actions have been
taken.'' We subn1it the fol\o\ving con1ments to clarify and to provide context to certain aspects
of the Draft Report. We \viii discuss, in tun1. audits handled by the Office of Special Education
Progra111s (OSEP) and those handled by the Rehabilitation Services Ad1ninistration (f{SA).

We note that citing tl1e amount of total monetary recomn1endations in the OSEP audit sainple the
OIG reviewed may not accurately reflect program responsibilities. The OIG found that the
Bureau of Indian Education (Bil~) did not adequately document the provision of special
education and related services it provided \Vith Individuals \\'ith Disabilities Education Act
(IDf~A) Pati B funds. In its repoti. tl1e 010 apparently questioned not only the amount of the
BIE's [DEA Part B funds for wl1icl1 the BIE could not provide supporting docurnentation, but all
Federal grant funds a\\1arded to the BIE by the U.S. Depart1nent of Education (Departn1ent).
Although we agreed \.Vith the auditors that the BIE l1ad insufficient internal controls to ensure
that funds \Vere used for allovvable purposes, \Ve did not sec direct evidence of inappropriate use
of IDEA funds. The questioned costs i11 the BIE a1idit represent 92 percent of the total
questioned costs for all 14 audits in the sam])le, as noted in Footnote 1 of the Draft 1\udit Report.
V-./e suggest that the OIG qualify the statement of questioned costs related to the BI"f<~ audit so that
readers can understand the basis for q1testioning such a large and secn1ingly disproportionate
an1ount in a Drall Repo1i for OSERS. We reco1n1nend the insertion of the following in Footnote
1: '"The large amount of funds questioned in this audit represents both the full amount of IDEA
funds provided to the Bl E ($111 111illion) and the additional a1nount of Department J'unds
provided to the BIE ($217.3 inillion).'' The OlG apparently questioned the total ai11ount. not

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                                                      \V\V\v.ed.gov
The Department of EduC"ation 's mi..<;sion is to pro1note stiidc>nt achievement and preparation for global   conipetiti~·eness   by
                               fostering educational excellence and ensuring equal arcess.
Page 2- Ms. \\leaver-Dugm1



because of any direct evidence of unallowable use of the funds, but because of the BIE's
inability to provide adequate documentation for a sa1nple of the IDEA expenditures. The
apparent asswnption was that a lack of adequate internal controls called into question all
Department funds provided to the BIE."

RSA has made substantial process improvements in handling audits \vhich have resulted in
i1nproved and n1ore timely audit resolutions. As of July 2008, RSA 11ad a backlog of 113
unresolved audits, and ne\v audits continued to arrive regularly. RSA recognized that the audit
resolution function needed correction and took decisive action to improve it. RSA audits had
been historically presented for resolution to ten (later reduced to five) Regional Offices. Audit
A02B0014, of the Puerto Rico Vocational Rehabilitation Ad1ninistration was conducted by tl1e
OIG ai1d presented to the RSA Regional Office then responsible for Puerto Rico. It was 11ot
resolved in a timely manner due to the complexities of this particular audit and systemic
mai1agement and financial problems in Puerto Rico.

RSA's Regional Offices \Vere closed in a reorganization and the functio11s tl1at 11ad been
delegated to those offices were assumed by Headquarters. RSA centralized the audit resolution
function and established a con1prehensive audit tracking system. RSA added an expert in audit
resolution to the staff. RSA met with the Office of General Counsel (OGC) and 010 soon atler
the audit resolution specialist was on board to plan how best to work to\vard eliminating tl1e
backlog of unresolved audits. RSA, OGC, and 010 committed staff to focus on resolving these
audits. The approach agreed ttpon was to simultaneously \Vork to resolve the oldest audits while
expediting the processing of the incoming work. The approach has been successful in our view.

Since July 2008, RSA has resolved 311audits0\1erall. As of August 13, 2015, RSA has 25
audits re1naining to be resolved. Of those 25, only three are O\'erdue. RSA resolved the n1ost
recent two OIG at1dits as follows: Audit A06K0001 - Louisia11a ARRA was resolved one n1ontl1
late; a11d Audit A05J0011 -Indiana ARRA \Vas resolved three inonths earl;'. We believe these
data indicate that the timelii1ess of overall RSA audit resolution has i1nproved significantly.
RSA will continue to endeavor to comply with the Draft Report's recom1nendation to close
audits tin1ely.

The Draft Report notes that the prin1ary Departmental syste1u for tracking and closing audits is
the Audit Accountability and Resolution Tracking System (AARTS). OIG revie\ved data fron1
that system. The Department is presently exploring ways to facilitate timely closure ofOIG
audits through AARTS. A workgroup has been tasked with this activit}' and \Vill be determi11i11g
the feasibility of enhancements to AAR1'S to support the appropriate and timely closure of OfG
Page 3 - Ms. Weaver-Dugan

audit findings. A follow-on to AARTS would be expected to have improved functionality and a
better user interface. Those qualities would be expected to facilitate the mechanics of audit
tracking and resolution and thus improve the efficiency of the audit process.

We appreciate your consideration of our comments and we are available to answer any questions
or provide further clarification regarding the above.

                                           Sincerely.




                                           Michael K. Yudin