oversight

Risk Areas Associated with Grantees' Administration of 21st Century Community Learning Centers.

Published by the Department of Education, Office of Inspector General on 2004-10-22.

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

Final Management Information Report 	                                                   ED-OIG/X05-E0019


                                             Review Results
Our audits identified two major risk areas that OESE should address with SEAs1:
monitoring of grantees use of funds and monitoring cash management. Nine of the 10
grantees we audited were referrals from OESE and not randomly selected. Because we
did not select a statistically valid sample, the results of our audits should not be
considered representative of the entire population of 21st Century grantees.

Risk Area 1 – Use of Grant Funds

Nine of 10 grantees charged unallowable and/or unsupported personnel and non-
personnel costs to their 21st Century grants. In general, the 9 grantees could not provide
documentation to show that costs charged to the grant were reasonable, allowable,
allocable, and adequately documented, violating the cost principles in Office of
Management and Budget (OMB) Circular A-87, Cost Principals for State, Local, and
Indian Tribal Governments.

For example,

• 	 Alum Rock Union Elementary School District (Alum Rock) charged $65,523 of
    unallowable and $139,741of unsupported costs to its 21st Century grant. The
    unallowable costs consisted of computer purchases erroneously charged to the grant
    more than once ($48,430), salaries paid to employees for non-grant related work
    ($12,289), expenditures for an event that occurred before the start of the 21st Century
    program ($3,198), and unallowable charges for food ($1,606). The unsupported costs
    consisted of payroll charges unsupported by personnel activity reports ($123,622),
    undocumented charges for a field trip ($14,403), and admission fees ($1,716).

       OMB Circular A-87, Attachment A, Paragraph C.1, provides, in part, that costs must
       be (1) necessary and reasonable for proper and efficient performance and
       administration of federal awards; (2) allocable to federal awards; and (3) adequately
       documented. In addition, OMB Circular A-87, Attachment B, Paragraphs 11(h)(4)
       and (5)(e), require periodic certifications for employees who work on multiple
       activities, and prohibits the use of percentages that are determined before the services
       are performed as support for charges.

• 	 Gonzales Unified School District (Gonzales) charged $55,682 of unallowable and
    $418,323 of unsupported costs to its 21st Century grant. The unallowable costs
    consisted of charges for preparing the grant proposal without prior approval from the
    Department ($31,211), personnel charges for employees who did not perform grant
    related activities ($14,384), unreasonable and unrelated travel ($7,973), and unrelated
    supplies ($2,114). The unsupported charges were for personnel costs for which
    Gonzales did not have personnel activity reports ($418,323). OMB Circular A-87,
    Attachment A, Paragraph C.1.

1
    The 21st Century grant is no longer a discretionary grant. It is a formula grant that SEAs oversee.


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Final Management Information Report 	                                ED-OIG/X05-E0019



    Gonzales also violated other cost principles. OMB Circular A-87, Attachment B,
    Paragraph 34 states proposal costs can be charged directly to a federal award only
    with approval of the awarding agency. In addition, OMB Circular A-87, Attachment
    B, Paragraphs 11(h)(3), (4), and (5) require periodic certifications for employees
    who work on a single federal grant, personnel activity reports for employees who
    work on multiple activities, and specific elements for personnel activity reports.

• 	 Project After School and Community Enrichment for a New Direction (Project)
    charged $169,247 of unallowable and $147,386 of unsupported costs to its 21st
    Century grant. The unallowable cost was for contractual services that were
    contingent upon receiving the grant ($169,247). The unsupported costs consisted of
    payroll ($126,699), fringe benefits ($19,211) and general expenses ($1,506). OMB
    Circular A-87, Attachment A, Paragraph C.1.

• 	 Mt. Judea Public School (Mt. Judea) charged $24,786 of unallowable and $372,714
    of unsupported costs to its 21st Century grant. The unallowable charges consisted of
    severance pay that the Department denied and unrelated suspension pay ($18,000),
    fringe benefits associated with the unallowable salary charges ($3,516), unrelated
    charges for day care services ($2,932), employee reimbursement for unsubstantiated
    expenses ($224), and excessive and unallowable travel charges ($114). The
    unsupported charges consisted of payroll charges unsupported by personnel activity
    reports ($314,255) and related fringe benefits ($58,749). OMB Circular A-87,
    Attachment A, Paragraph C.1.

A lack of controls over the 21st Century program at the grantee level was the primary
cause of these instances of noncompliance. One of the 10 grantees we audited agreed
that its accounting process was non-compliant and it was in the process of revising the
procedures. Another grantee did not know that a contingency contract was unallowable.
A third grantee stated its procedures for documenting personnel transactions were
governed by its state’s accounting system.

The Department has valuable insights that it needs to share with SEAs. Specifically,
while the 21st Century program was a discretionary grant program, the Department could
have (1) provided expanded guidance to grantees outlining how to maintain adequate
documentation to support 21st Century costs, (2) clearly described allowable costs in the
regulations, and (3) tested grantees’ use of funds as part of its yearly evaluations. To
continue improving accountability over and the integrity of the 21st Century program, the
Department needs to share its insights with SEAs.

Suggestions

We suggest that the Assistant Secretary for OESE

1.1 	   Issue guidance to SEAs on allowable costs and how to improve grantees’
        documentation of costs.


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Final Management Information Report 	                                  ED-OIG/X05-E0019



1.2 	   Require SEAs to provide all 21st Century grantees guidance on using grant funds.

1.3 	   Require SEAs to include testing of grantees use of grant funds during the SEA’s
        yearly evaluations of the 21st Century grantees.

1.4 	   Develop and distribute, in conjunction with the Office of the Chief Financial
        Officer, a grant toolbox for all new grantees. The toolbox could be part of the
        application approval process and outline all the requirements and regulations
        grantees must follow.

Risk Area 2 – Cash Management

Four of the 10 grantees audited maintained excess cash. The 4 grantees did not comply
with the cash management requirements listed in 34 C.F.R. § 80.21(b) and 31 C.F.R.
§ 205.7(c)(4) and violated the 3-day draw down rule.

For example,

• 	 East Cleveland City Schools took 8, 10, 3, and 2 months to disburse funds made from
    4 different draw downs ($97,292, $97,291, $100,000, and $189,087). It also had not
    used $123,074 of $354,927 drawn down in November 2001 as of March 2002.

• 	 Community Consolidated School District 62 drew down two years of funding,
    $799,783, in August 2001. It expended most of the funds between August 2001 and
    June 2002. However, as of the end of June 2002, the District still maintained
    $28,594.

• 	 New York City Department of Education, Manhattan High Schools Superintendent’s
    District, took between 13 and 202 days to expend a draw down of $137,111. It drew
    down an additional $291,990 in June 2001 and took between 4 and 146 days to
    expend the additional funds.

• 	 Elk Grove Unified School District drew down its entire year's funding ($1,585,789)
    in October 2003. Elk Grove reimbursed itself for costs incurred for the grant but
    maintained $1,279,250 as advance payments. As of January 2004, Elk Grove still
    had not expended $858,918 of the draw down.

The OIG reported that one grantee said it was its practice to draw down money similar to
how it drew down state funds, and it was unaware of the federal requirements. Another
grantee knew of the three-day draw down rule, but it maintained excess cash even though
GAPS required a response to the statement that funds would be expended in three days.
Two other grantees lacked proper internal controls over cash management.




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Final Management Information Report 	                                 ED-OIG/X05-E0019


Suggestions

We suggest that the Assistant Secretary for OESE

2.1 	   Issue guidance to the SEAs on how to properly monitor grantee draw downs.

2.2 	   Require SEAs to provide guidance to grantees on proper cash management,
        including draw downs and spending of grant funds.

2.3 	   Review the guidance the SEAs will provide the grantees.

                            Action Official Comments
OESE concurred with the suggestions and said it will ensure that these topics are
discussed at the next meeting with SEA 21st Century coordinators in January 2005. In
addition, OESE agreed to issue additional guidance to the SEAs and provide them with
appropriate materials to enable them to better monitor their 21st Century sub-grantees.

OESE, however, disagreed with the causes of the risk areas. OESE did not believe that a
lack of controls at the Department level and grantee level were the causes of the risk
areas. OESE program officers became aware of the problem grantees through program
oversight. Also, OESE said that our statement “because our selection process was not
statistically valid, we cannot project the results of these 10 audits to the entire
population” grossly distorts the fact that OESE program officials provided the OIG with
the most problematic grantees out of 1,600 grantees. OESE’s comments are included in
their entirety as Attachment B.

We considered OESE’s comments and made changes to the report. Specifically, we
added language to the report stating the OESE referrals to the OIG were based on
OESE’s program oversight efforts. We also revised the cause in Risk Area 1 and
removed the sentence regarding a lack of controls at the Department level being a
contributing cause for the instances of noncompliance disclosed by our audits.

                                     Background
We coordinated with OESE to select grantees for review and audited 10, 21st Century
grantees. OESE’s Academic Improvement and Teacher Quality Programs referred 9 of
the 10 grantees to the OIG. All of the audits had a similar primary objective - to
determine whether the grantee properly accounted for and used funds in accordance with
the Elementary and Secondary Education Act of 1965, as amended, Education
Department General Administrative Regulations, grant terms, and OMB Circular A-87.
Three audits also had an objective to determine if the grantee served the number of
students projected in its grant award and reported in its annual report. The audit period
varied for each audit, but the 10 audit periods fell between June 1998 and May 2003.




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Final Management Information Report                                     ED-OIG/X05-E0019


The grantees we audited were:

                       Grantee                                          Award
Rockford Public Schools                                               $ 675,975
East Cleveland City Schools                                           $3,254,261
Community Consolidated School District 62 (Des
Plaines, IL)                                                          $1,198,596
Mt. Judea Public School                                               $ 915,493
New York City Department of Education, Manhattan
High Schools Superintendent’s District                                $3,097,918
Gonzales Unified School District                                      $1,560,573
Project After School and Community Enrichment for a
New Direction (Drew School District, MS)                              $2,820,780
Alum Rock Union Elementary School District                            $1,189,527
Baltimore City Public Schools                                         $1,226,190
Elk Grove Unified School District                                     $3,341,573

During fiscal year 2002, the Department awarded $1,000,000,000 to 6,800 grantees.

During our audit periods, Title X, Part I, of the Elementary and Secondary Education Act,
as amended, authorized the 21st Century program. The 21st Century program provided
three-year grants to rural and inner city schools or consortia of schools to enable them to
plan, implement, or expand projects that benefit the educational, health, social services,
cultural, and recreational needs of the community. The grant enabled schools to stay
open longer and set up community learning centers.

The No Child Left Behind Act reauthorized the 21st Century program. It is now
authorized under Title IV, Part B. The focus of the grant is to provide expanded
academic enrichment opportunities for children attending low performing schools. The
reauthorization now has made the grant a formula grant, and SEAs must apply for the
funds. Funds are awarded annually and allocated to the SEAs in proportion to each
state’s share of funds in the previous fiscal year under Part A of Title I of the Elementary
and Secondary Education Act. The funds must be for the purpose of meeting the needs
of the residents of rural and inner city communities through the creation or expansion of
community learning centers.

                       Objective, Scope, and Methodology
The objective of this report is to identify common risk areas associated with 21st Century
grants and provide OESE with suggestions for ensuring the integrity of the program. We
discussed the risk areas identified in this report with OESE officials on May 26, 2004.

To achieve our objective, we compared findings from 10 OIG audit reports and identified
common issues. We conducted our work in our regional office from April 2004 to June
2004. We performed our audit in accordance with generally accepted government
auditing standards appropriate to the scope of review described above.


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Final Management Information Report 	                               ED-OIG/X05-E0019



If you would like to discuss the information presented in this memorandum or obtain
additional information, please call Richard J. Dowd, Regional Inspector General for
Audit, at 312-886-6503.

Attachments

cc: 	   Jack Martin, Chief Financial Officer,
        Office of Chief Financial Officer




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     Final Management Information Report                                     Attachment A
     ED-OIG/X05-E0019


                    Grantees’ Administration of the 21st Century 

                       Community Learning Centers Grant


Control                        Report       Report      Grant       Unallowable     Unsupported
Number         Auditee          Type         Date      Amount         Costs            Costs
            Rockford Public
A05-B0039                       Final      2/11/2002   $675,975         $0                   $0
                Schools
             East Cleveland
A05-C0012                       Final      9/18/2002   $3,254,261     $27,396          $310,959
              City Schools
              Community
              Consolidated
A05-C0022    School District    Final      2/24/2003   $1,198,596       $0             $113,766
            62 (Des Plaines,
                   IL)
            Mt. Judea Public
A06-D0014                       Final      9/29/2003   $915,493       $24,786          $372,714
                 School
             New York City
             Department of
               Education,
A02-D0007   Manhattan High      Final      11/24/2003 $3,097,918        $0              $61,776
                Schools
            Superintendent’s
                 District
            Gonzales Unified
A09-D0015                       Final      12/19/2003 $1,560,573      $55,682          $418,323
             School District
              Project After
               School and
              Community
A06-D0017   Enrichment for a    Final      2/11/2004   $2,820,780     $169,247         $147,386
             New Direction
             (Drew School
              District, MS)
               Alum Rock
                 Union
A09-D0012                       Final      3/17/2004   $1,189,527     $65,523          $139,741
               Elementary
             School District
             Baltimore City
A03-D0010                       Final       6/2/2004   $1,226,190     $42,986               $835
             Public Schools
               Elk Grove
A09-E0010    Unified School                 7/20/04    $3,341,573     $15,056          $643,199
                                Final
                 District
Final Management Information Report                                                                                                Attachment B
ED-OIG/X05-E0019



                                      UNITED STATES DEPARTMENT OF EDUCATION

                                           OFFICE OF ELEMENTARY AND SECONDARY EDUCATION

                                                                                           THE ASSISTANT SECRETARY



              DATE:

              TO:              Richard Dowd
                               Regional Inspector General for Audit
                               Chicago,IL         /            ~~
              FROM:            Raymond Simon            /l~
                               Assistant Secretary

              SUBJECT:         Comments on Office ofthe Inspector General (OIG) Draft Management
                               Information Report: "Risk Areas Associated with Grantees'
                               Administration of 21 8t Century Community Learning Centers"
                               Control Number ED-OIG/X05-EOOI9

              I am writing in response to the OIG Draft Management Information Report cited above.
              In the draft report, the IG recommends that the Office of Elementary and Secondary
              Education (OESE) should address two major risk areas with the State educational
              agencies that are now responsible for administering the 21 8t Century Community
              Learning Centers (21 8t CCLC) program: monitoring of grantees use of funds and
              monitoring cash management. OESE concurs with these recommendations and will
              ensure that these topics are discussed at the next meeting with the State 21 8t CCLC
              coordinators, in January 2005, and that OESE will issue additional guidance to the States
              and provide them with appropriate materials to enable them to better monitor their 21 st
              CCLC sub-grantees.

               In fact, 21 8t CCLC program staff, working together with OIG and Office of General
               Counsel officials, have already provided extensive technical assistance on financial
               management practices to State and local grantees at the July and August Summer
               Institutes, and will continue to develop and implement procedures that keep our grantees
               aware of proper fmancial management practices.

               However, I disagree strongly with other findings in this report, in partiCUlar with the
               statement that "A lack of controls over the 21 8t Century program at the Department and
               grantee level was the primary cause of these instances of noncompliance" and with .
               subsequent examples of areas in which Department staff were negligent. In fact, though
               this is not explicitly acknowledged anywhere in this report, the 10 districts the OIG
               audited were specifically identified by OESE program officers because of problems
               encountered in managing these grants. The sites were not "coordinated with OESE to
               select grantees for review (p.5)," they were explicitly recommended to the OIG by 21 8t
               CCLC staff who were concerned .with the poor performance and management of these
               grantees. And to say that ,"Because our selection process was not statistically valid, we
               cannot project the results of these 10 audits to the entire population of 21st CCLC

                                               400 MARYLAND AVE .•    s.w. WASHINGTON, D.C. 20202·6100
                       Our mission is to ensure equal access to education cind to promote educationat exceUence throughout the Nation.
Final Management Information Report                                                                  Attachment B
ED-OIG/X05-E0019


              Page 2 ~ Memonmd\un to Richard Dowd ,

              gnmtees" grossly distorts the central fact that OESEprogram staff pointed the 010 to the
              grants we had identified as the most problematic out of 1,600 grants we managed in this
              program.

              I am recommending that the report should be clarified to note thatthe sites studied are in
              no way representative of the population of 21 at CCLC grantees, but were selected      '
              specifically because of persistent problems identified through diligent programmatic'
              oversight. If the 010 expects continuing candid cooperation with,program offices in
              identifying sites that are not managing their federal funds appropriately, then those
              program offices that have developed procedures to enable them to identify poorly
              performing grantees, and are willing to bring those sites to the attention of the 010,
              should not themselves become the object of 010 criticism.

              If you would like to discuss these issues and recommendations further, or if you have any
              questions, please do not hesitate to contact Robert Stonehill, the Deputy Director for
              Academic Improvement and Teacher Quality programs in OESE, at 202-260-9737 or via
              e-mail to robert.stonehill@ed.gov.

              cc:    Rich Rasa