oversight

The Greasy Public School Dependent District

Published by the Department of Education, Office of Inspector General on 2008-11-14.

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

                        UNITED STATES DEPARTMENT OF EDUCATION

                                          OFFICE OF INSPECTOR GENERAL




MEMORANDUM 	                                                                NOV 1 4 2008

TO: 	            Thomas Skelly
                 Acting Chief Financial Officer
                 Office of the Chief Financial Officer

                 Richard Smith 

                 Acting Assistant Deputy Secretary 

                 Office of English Language Acquisition 


                        lsI
FROM: 	          Richard T. Rasa
                 Director
                 State and Local Advice and Assistance

SUBJECT: 	 Final Report on the Greasy Public School Dependent District
           Control Number ED-OIG/S14J0002


Attached is the final report on the Greasy Public School Dependent District
(GPS) conducted by our contract audit firm, McBride, Lock and Associates. This
report was completed in response to a request from OELA staff for a fiscal review
of GPS.

The report identifies a variety of issues including GPS's lack of sufficient fiscal
controls and procedures, inadequate supporting documentation, and some
questionable charging practices. Therefore, our office is recommending that the
Department conduct a financial monitoring review regarding GPS's expenditure
of federal grant funds, including the possible duplication of reimbursements from
federal and state sources.

You have been designated as the action officials responsible for the resolution of
the findings and recommendations in the attached final report. We also provided
a copy to GPS and your audit liaison officers.

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.



                                400 MARYLAND AVE., S.W. WASHINGTON, D.C. 20202-1510 


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

We appreciate the cooperation of OELA staff during this review. If you have any
questions concerning this matter, please contact me at 202-245-6954.

Attachment


cc: 	   OIG Report Distribution List
        Cynthia Ryan
        Trinidad Torres-Carrion
        Samuel Lopez
        Sherrice Rucker
SUITE 900
1111 MAIN STREET
KANSAS CITY, MO 64105
TELEPHONE: (816) 221-4559
FACSIMILE: (816) 221-4563
EMAIL: MCBRIDELOCK@EARTHLlNK.NET
CERTIFIED PUBLIC ACCOUNTANTS


McBRIDE, LOCK & ASSOCIATES

u.s. Department of Education
Washington, DC 20202

RE:      Greasy Public School- Stilwell, Oklahoma

We have completed a post-award review of the Greasy Public School Dependent District
(District) Title III American and Alaska Native Children in School Program grant award,
PRlAward Number T365C030009. Our review was performed in accordance with Generally
Accepted Government Auditing Standards issued by the Comptroller General of the United
States and professional standards published by the 'American Institute of Certified Public
Accountants. It was conducted during the period August 13, 2007 through March 11,2008. The
scope of our review included:

      • 	 Capability of the District to administer discretionary grants through fiscal control and
          fund accounting procedures_
      • 	 Review of the District's financial statement history and analysis of independent auditor
          results.
      • 	 Review of prior on-site review conducted by the V_So Department of Education (ED) and
          follow-up from said review_
      • 	 Communications with an Investigative Auditor with the Office of the Oklahoma State
          Auditor and Inspector.
      • 	 Testing of grant disbursements to detennin,e allowability of costs and proper accounting
          for Federal funds.
      • 	 Physical observation of equipment purchased with Federal funds and determination of
          procedures to ensure proper control of and accounting for equipment inventory_

The objective of the review was to determine whether the grantee has in place adequate
personnel, systems, and controls to administer, safeguard and account for Federal grant funds in
accordance with ED requirements.

The review was performed for the period July 1, 2003 through June 18,2007. During that period
$596,924 in expenditures were claimed under the grant. The amended overall grant award is
$608,522. As a result of an on-site visit by ED in 2006, the grantee was designated as a high-risk
grantee relative to this grant award and was placed on a cost reimbursement basis. Of the total
expenditures identified above, $157,333 was received by the grantee subsequent to being placed
on the cost reimbursement basis.

As discussed in more detail below, the organization could not provide detailed backup to support
the total funds, direct and indirect, claimed on this project. Based upon the automated
accounting system, the costs coded to the grant project results in the following breakdown of
charges:

                                                 1

                          T;y~e of Cost                   Amount             %
               Payroll                                     $343,470           58%
               Fringe Benefits                               90,609           15%
               Other Direct                                 139,577           23%
                  Total Direct                             $573,656           96%
               Undetermined (1)                              23,268            4%
                  Total Claimed Costs                      $596,924          100%

         (Footnote - 1: An indirect cost rate of 5% was allowable per the grant.)

The methodology used to conduct our review involved an assessment of control risk,
development of an audit plan and gathering of evidential matter through interview, observation
and testing of events occurring during the review adequate to provide assessment of the
capability to administer, safeguard and account for Federal grant funds.

Background of Greasy Public School

The District is a corporate body for public purposes and is part of the public school system of
Oklahoma under the general direction and control of the State Board of Education and is
financially dependent on State of Oklahoma support. The governing body of the District is the
Board of Education composed of elected members. The appointed superintendent is the
executive officer of the District.

District Comments

Prior to the current Superintendent's engagement at Greasy School, the fonner Superintendent
and the former Title III Program Director had an altercation regarding the expenditure of school
funds and the Title III grant award. Subsequent to this altercation, the Program Director resigned
from his position and contacted State and Federal officials resulting in audit(s) of the school's
expenditures. Shortly afterward, school finances, pending audit reports and pressure from the
board forced the Superintendent to retire. Following the departure of the Superintendent, the
only employees who had firsthand knowledge of the expenditures made under the Title III grant
was the Encumbrance Clerk and Administrative Assistant.

Audit Reply

The review takes no position on the background information provided. It is apparent that much
turnover of personnel was present.

Capability of the Organization to Administer Discretionary Grants

The District maintains its financial records on a basis of accounting required by Oklahoma
statutes and uses the Oklahoma Cost Accounting System (OCAS) using Municipal Accounting
Systems, Inc. software. The District changed from a DOS based version of the system to a
Windows version during the middle of the grant period under review. This change resulted in



                                                2

 the loss of some of the vendor identification infonnation for printed reports from the period prior
 to the Windows conversion.

 In addition to the automated system, the District maintained manual ledgers for the grant
 program; however, these records did not cover the entire grant period and could not be
 reconciled to amounts claimed. A review of these records identified some costs that were not
 found to be coded in the automated system to the grant program.       Additionally, some costs
 identified by the grant project number within the automated system had not been recorded to the
 manual ledgers.

 The District did not maintain all the detailed infonnation supporting the individual draws on the
 grant. A review of the supporting documentation maintained for the individual draws revealed
 several instances of duplicate claimed costs. The support for the individual draws on the grant,
 when available, consisted of detail from the automated system.

  The District was not able to readily identify all expenditures under the grant award sufficient to
, allow for the reconciliation of said expenditures to the draw downs from the ED website portal
  for electronic grants. The automated system generated reports for the grant project only
  accounted for expenditures of $573,656 of the total claimed costs of $596,924. The variance of
  $23,268 cou~d not be detennined. It should be noted that the original grant application included
  indirect costs at 5% of total direct costs.

 Overall, the District did not have sufficient fiscal controls and procedures in place to ensure and
 maintain proper stewardship of taxpayer dollars and ensure fiscal control over Federal funds.
 Full accountability for the total of all expenditures (direct and indirect) under the grant award
 were not supported by the financial records. Additionally, the interim requests included
 duplicate costs. Also, the manual records were not in agreement with either claimed costs or the
 automated system. Without documentation supporting 100% of the claimed costs, it cannot be
 assured that grant funds are being utilized in an allowable manner.

 In general, grantees are required to have financial management systems that provide for accurate,
 current, and complete disclosure of results regarding the use of funds under grant projects in
 order to maintain the grant integrity and ensure compliance with Federal fiscal and
 administrative oversight activities as authorized by the Elementary and Secondary Education Act
 of 1965, as amended, 20 U.S.C. § 6822 and the Education Department General Administrative
 Regulations (EDGAR), 34 CFR Parts 75 and 80. The financial management system did not
 produce the required accurate, current and complete disclosure of the results of the use of funds
 under this grant.

 Review of Financial Statement History and Analysis of Independent Auditor Results

 This analysis included the audits for fiscal years 2004 through 2006. In general the reports all
 contained a qualified opinion with respect to the statutory basis of accounting and contained
 disclosure of lack of segregation of duties as a reportable condition in the internal controls over
 major programs, which was not considered a material weakness. The reports for the first two
 years disclosed no instances of noncompliance material to the financial· statements, no audit
 findings which are required to be reported under Office of Management and Budget (OMB)


                                                  3

Circular A-133 and an unqualified opinion report was issued on the compliance of major
programs. The grant under this review was determined to be a major program by the
Independent Auditor in all three years.

The audit report for the fiscal year ended June 30, 2006 disclosed reportable conditions in
internal controls over financial reporting that were considered to be material weaknesses. These
conditions related to the Child Nutrition Program, the Coordinated School Physical Education
(PE) Program and in Appropriations. None of these areas would have a material impact upon the
grant program under review. However, this audit also disclosed reportable conditions in internal
controls over major programs considered to be material weaknesses. Specifically, due to the on­
site visit conducted by ED, this audit disclosed certain critical areas of concern, as follows:

   • 	 Adequate documentation to support program objectives was not properly maintained by
       the Title III Project Director.
   • 	 Expenditures were not made within the approved budgeted line items and no approved
       budget amendments were observed.
   • 	 Due to the overlapping of dates when preparing expenditure reports for reimbursement,
       expenditures were claimed twice, in the amount of$9,422.88.

The external auditors further reported, "However, it does appear through the examination of
supporting documentation concerning the identification of the Limited English Proficiency
(LEP) students and the supporting documentation for program expenditures, that the program
objectives were carried out and expenditures were spent for allowable expenditures and for the
benefit of the LEP students."

The items disclosed by the audit directly affect the grant program under review and raise the
same concerns as documented by the on-site visit and our post-award review. We noted
additional expenditures that were claimed twice. However, using the system generated
expenditure reports charged to the project, we were able to document $573,656 in direct
expenses. The remaining costs of $23,268 could not be determined.

While the independent audit determined the lack of segregation of duties as a reportable
condition, this is considered an inherent limitation in small organizations. The District has an
encumbrance clerk, whose duties are separate from the recording, disbursing, and reconciliation
functions over bank accounts. Additionally, the recording, disbursing and reconciliation
functions have been segregated. We consider these compensating controls adequate to reduce
the risk of any material misstatements, which the audit results support in all three years as the
segregation of duties concern was not considered to be a material weakness.

It should be noted that the audited financial statements indicate that approximately 50% of
revenues are derived from Federal sources with approximately 20% of that total from the Title
III grant.

Prior On-Site Review

Staff members of the Title III Native American and Alaska Native Children in School Program
of ED and the Oklahoma State Department of Education conducted an on-site visit to the District

                                               4

during the period September 25 through September 26,2006. As a result of the visit, seven areas
of critical issues concerning project performance and fiscal compliance were identified, as
follows:

    • 	 No grant file or other documentation to establish implementation of the grants in
        accordance with the approved applications;
    • 	 Grantee failed to establish that it is one of the eligible entities listed in section 3112(a);
    • 	 No evidence of Native American LEP students participating in the program;
    • 	 Grantee failed to inform parents of the LEP students participating in the program, Section
        3302 - Parental Notification;
    • 	 Entity received a sub-grant under Title III, Section 3114 while receiving the Native
        American and Alaska Native Children in School grants, contrary to Section 3112(c) of
        the ESEA;
    • 	 Grantee failed to carry out the activities and achieve the objectives proposed in the
        original application;
    • 	 Grantee failed to hire a certified Literacy SpecialistlResource Teacher and a certified
        Native Language Instructor/Counselor as described in the original application.

The District submitted its responses within the twenty days as required. Upon review of the
documentation submitted, the Office of English Language Acquisition determined that the
concerns had not been completely addressed and thereby deemed the organization as a high-risk
grantee and imposed limitations on their ability to draw down funds, placing the school on a cost
reimbursement basis and requiring that receipts be submitted for all future expenditures.

The District, as a result of the on-site findings, began taking steps to correct the problems
identified and began documenting the activities as well as progress of the LEP students. It
received four reimbursements of funds after the date of the on-site visit. When the project ended
in June 2007, the District did not apply for a continuation grant and former employees on the
project have since quit or have been let go.

The District currently is in financial crisis and has begun reduction in force measures to enable it
to complete the school year. Most non-certified staff have been let go. The former
superintendent resigned and an interim superintendent was appointed in January of 2008.
Additionally, the District is under investigative audit by the Office of the Oklahoma State
Auditor and Inspector. Most of the employees involved in the project are no longer employed by
the District making it difficult to obtain the information needed to complete any review.

Investigative Audit of the Oklahoma State Auditor and Inspector

The Office of the Oklahoma State Auditor and Inspector is currently conducting an investigative
audit of the District due to suspected fiscal improprieties. At the request of an auditor from that
office, we contacted their office to discuss our review efforts. At that time, the State Auditor
asked whether the salaries of certain employees were being claimed for Federal reimbursement.
As explained by the State Auditor, the State reimburses the organization for the salaries of their
employees based upon Certified and Support Personnel Reports submitted to the Oklahoma
Department of Education. On these reports, the schools are to indicate any portion of a reported
employees' salary that is being covered by Federal funding. These reports stated that for the

                                                  5

Language Acquisition Specialist none of the salaries or fringe benefits were paid by Federal
funds. In actuality, 100% of this position's salary of $32,118 and fringes were paid by Federal
funds. Additionally, the report stated that the Project Director's salary was paid by Federal funds.
The salary infonnation is correct, however the report did not indicate that any fringe benefits for
this position were paid by Federal funds. This representation by the District results in
reimbursements of these employees' salaries and fringe benefits being made by both the State
and the Federal government. Potentially, this finding could apply to 44% of the salaries and
fringe claimed under the grant or approximately $149,750.

Additionally, the State reimburses schools for the health insurance expenses incurred by districts
for their employees. The District is receiving reimbursement through the grant program for
health insurance costs on the employees being charged to the grant program from the Federal
government. The State Auditor also believes the District is receiving duplicate payments for the
cost of this health insurance from the State.

Testing of Grant Disbursements to Determine All ow ability of Cost and Proper Accounting
for Federal Funds

Our review included testing of 45% of the total direct non-personnel related expenditures and
review of personnel charges related to two positions being charged to the grant. The positions
tested were judgmentally selected based upon the dollars being charged to the grant. Our review
was conducted to determine the disbursement procedures of the grantee, the allowability of costs
being charged to the grant, the adequacy of time and attendance records, and the appropriateness
of the grantee's accounting for expenditures. The following areas of concern or questioned costs
were identified:

    •   Lack of Supporting Documentation

        The District was unable to locate the purchase order, invoice and receiving
        documentation on 12 of the 29 items selected for testing, totaling $36,344 of direct non­
        personnel related expenditures. This represents a 41 % error rate. The District indicated
        that it had been audited several times during the past year and believes that some files
        have been misplaced due to this audit activity. The District had pulled all Title III
        documentation by fiscal year from its regular numeric Purchase Order files; however, the
        majority of documentation from fiscal year 2003 - 2004 and 2004 - 2005 could not be
        located. We did vouch these disbursements to the cleared checks in the bank statements
        to determine the vendor being reimbursed and to ensure that the amount paid agreed to
        the financial records. However, without a purchase order, invoice or receiving
        dqcumentation, it cannot be assured that grant funds are being utilized in an allowable
        manner.

    •   Questioned Costs

        Our review of the remaining direct non-personnel related expenditures identified the
        following questioned costs:




                                                 6
           a. We noted the District claimed $7,140.00 in expenses from Southwest Parks and
              Playgrounds related to the purchase of playground equipment. The remainder of
              this invoice was charged to a Carol White PE Grant. We noted no justification for
              the allocation of this expense as an allowable cost to the Title III grant.
           b. We noted that the District claimed $574.50 in expenses paid to Carl Albert State
              College related to tuition payments for college courses for teacher aides. The
              classes being reimbursed were math courses and we noted no justification for the
              allocation of these expenses as an allowable cost to the Title III grant.
           c. We noted that a Literacy Specialist/Resource Teacher whose salary was charged
              in large part to the Title III grant was under contract to the District as a full time
              fourth grade teacher. The District was not able to explain how the employee
              could satisfactorily fulfill both duties on a full time basis. Time records did not
              support the charging of this salary to the Title III grant.

Physical Observation of Equipment Purchased with Federal Funds and Procedures
Ensuring Proper Control of and Accounting for Equipment Inventory

From the listing of expenditures of major items of equipment purchased under the Title III grant,
supporting documentation could not be located. Therefore, we were unable to identify or
physically observe specific items charged to the grant. We did note that the District has a
computer lab set up which it indicates was used for language studies by the LEP students.
Without documentation of the specific items charged to the grant, however, we were not able to
verify existence of the amounts charged. Without supporting documentation, we were not able
to determine the overall dollars charged as equipment.

Conclusion

The District does have an overall accounting system capable of ensuring fiscal control for grant
expenditures. However, the District did not provide for oversight of the grant nor did it have in
place the procedures necessary to ensure fiscal control.

Concerns regarding the a1lowability and allocability of costs to the grant program as well as
concerns over reimbursements of salaries and fringes by both the State and the Federal
government remain. We recommend that sufficient controls be established and analyzed to
maintain and ensure the proper stewardship of grant funds, as well as, the documentation of
equipment purchases. We further recommend that any duplication of reimbursements between
the State Department of Education and the U.S. Department of Education be fully investigated
and documented to establish questioned costs under this grant.

District Comments

On-Site Review

The current Superintendent was not employed with Greasy School at the time of your initial on­
site review of school records. On the date of your second site visit, neither the Administrative
Assistant nor Encumbrance Clerk showed up for work. As stated above, these employees were
the only individuals with firsthand knowledge concerning records and spending under the Title


                                                7

III program. Neither the current secretary nor the current Superintendent had information
concerning the details and whereabouts of supporting documentation relating to the Title III
grant at that time, however, the auditor did not mention a lack of supporting documentation or
request any additional information during the visit or after its conclusion.

Supporting Documentation

In May of 2008, our testing coordinator found three boxes of documents relating to the Title III
program. The current Superintendent made numerous calls to the auditor in order to notify her
about this additional information to ensure an accurate post-award reView of our Title III
program, however, the auditor failed to return the calls. In addition, the school did not receive a
copy of your recently completed review in a timely manner because the auditor had sent the draft
to the wrong address. This delayed the school's response to your findings.

Audit Findings

Greasy School has faced many challenging financial difficulties this year resulting from the
employment of the fanner Superintendent and fonner Title III Program Director. Under the
current Superintendent's supervision, the school has taken corrective measures to overcome the
negative impact of the actions taken by these fonner employees including careful expenditure of
funds and workforce reduction. Through these efforts and fmancial help from the Cherokee
Nation the school is currently financially solvent. Greasy School is committed to taking the
appropriate actions to reconcile the funding allocated from the State and the Federal government
under the Title III grant, however, the school wants the appropriate parties to be held responsible
for their inappropriate behavior.

Please contact the current Superintendent if you have any additional questions or concerns
regarding these conunents or the supporting documentation supplied by Greasy School. The
school is willing to provide any additional infonnation necessary to ensure an accurate post
award review of our Title III Grant.

Audit Reply

The response provides additional background on the reason for the issues cited in the report.
However, the information submitted within that response does not specifically dispute or provide'
evidence of resolution of any specific item within the report. The District has modified its postal
address since the examination was conducted.

No modification to the report has been made as a result of the District's response.

This report is intended for the information of ED and the Greasy Public School District and is
not intended to be and should not be used by anyone other than these specified parties.



                                                             McBride, Lock & Associates
                                                             June 11, 2008


                                                 8

ATTACHMENT 

                                                                    June 9,2008

Robert J. Lock
McBride, Lock & Associates
Suite 900
1111 Main Street
Kansas City, MO 64]05


RE: Greasy Public School


Dear Mr. Lock:

        I am writing this response in regards to your letter dated May 30, 2008, in which
you requested a response to a draft report completed by your accounting firm. I was
hired as interim Superintendent of Greasy Public School on January 31,2008. At the
commencement of my employment, I had limited knowledge concerning the background
history relating to the Title III American and Alaska Native Children in School Program
("Title Ill") grant awarded to Greasy School. Through careful review ofavailable
records as well as interviews ftom school personnel, I was able to ascertain the fonowing
information regarding tbe post-award review of Greasy Public School conducted by your
finn.                                       '

Background History

         Prior to my engagement at Greasy School, the former Superintendent, • •     a
_ , and the former Title HI Program Director,                   . had an altercation
regarding the expenditure of school funds and the Title III grant award. Subsequent to
this altercation,              resigned from his position and contacted state and federal
officials resulting in audit(s) ofthe school's expenditures_ Shortly afielWard, school
finances, pending audit reports and pressure from the board forced                to retire.
Following the departure o f _ , t h e only employees who had firsthand knowledge
of the expenditures made under the Title III grant was the Encumbrance Clerk, • •,
• •l. and Administrative Assistant, _ .
On-Site Review

       I was not employed with Greasy School at the time of your initial on-site review
of school records. On the date of your second site visit, conducted by• • • • • •
neither ,           nor                   showed up for work. As stated above, these
employees were the onJy individuals with firsthand knowledge concerning records and
spending under the Title III program. Neither the current secretary. _             nor
myself had information concerning the details and whereabouts of supporting
documentation relating to the Title IJI grant at that time, however,        •    did not
                               ----        --- - - - - - - - -




mention a lack ofsupporting documentation or request any additional information during
the visit or after its conclusion.

Supporting Documentation

        In May of 2008, our testing coordinator,                       found three boxes of
documents relating to the Title III program. I made numerous calls to                     in
order to notify her about this additional information to ensure an accurate post-award
review of our Title III program, however,                   failed to return my calls. In
addition, the school did not receive a copy of your recently completed review in a timely
manner because                   had sent the draft to the wrong address. This delayed the
school's response to your findings.

Audit Findings

        Greasy school has faced many challenging financial difficulties this year resulting
from the employment of the former Superintendent and fanner Title III Program              ­
Director. Under my supervision, the school has taken corrective measures to overcome
the negative impact of the actions taken by these fonner employees including careful
expenditure of funds and workforce reduction. Through these efforts and financial help
from the Cherokee Nation the school is currently financially solvent Greasy School is
committed to taking the appropriate actions to reconcile the funding allocated from the
state and the federal government under the Title III grant, however, the school wants the
appropriate parties to be held responsible for their inappropriate behavior.


        Please contact me if you have any additional questions or concerns regarding
these comments or the supporting documentation supplied by Greasy School. The school
is willing to provide any additional information necessary to ensure an accurate post~
award review ofour Title III grant.


Sincerely,




John Perry, Superintendent
Greasy Public School