oversight

Controls Over Excessive Cash Draws by Office of Innovation and Improvement Grantees.

Published by the Department of Education, Office of Inspector General on 2006-10-16.

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

                           UNITED STATES DEPARTMENT OF EDUCATION
                                OFFICE OF INSPECTOR GENERAL

                                           400 MARYLAND AVENUE, S.W.
                                            WASHINGTON, DC 20202-1500


                                                     October 16, 2006


FINAL MANAGEMENT INFORMATION REPORT
State and Local No. 07-01

To:               Morgan Brown
                  Assistant Deputy Secretary
                  Office of Innovation and Improvement

From:             Helen Lew /s/
                  Assistant Inspector General for Audit Services

Subject:          Controls Over Excessive Cash Draws by Grantees
                  Control Number ED-OIG/X19F0025

The purpose of this Final Management Information Report is to provide the Office of
Innovation and Improvement (OII) with information that may be beneficial in future oversight of
excessive cash drawdowns made by grantees. This review was part of an overall audit to
determine whether the Department’s controls identify and prevent excessive cash drawdowns by
grantees. The results of this review in OII will be included in the overall audit report to the
Office of the Chief Financial Officer (OCFO).

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




                                                 BACKGROUND


Within the Department of Education (Department), Principal Offices (POs) are responsible for
monitoring the fiscal activities of grant award recipients. The Grants Administration and
Payment System (GAPS) is to be used as the primary tool for fiscal oversight.

On a monthly basis, OCFO’s Grants Policy and Oversight Staff (GPOS) generates an Excessive
Drawdown Report to identify those grantees that have drawn a large proportion of federal funds




      Our mission is to promote the efficiency, effectiveness, and integrity of the Department’s programs and operations.
Final Management Information Report                                                         ED-OIG/X19F0025
State and Local No. 07-01                                                                         Page 2 of 5

in any of the first three quarters of the grant’s current budget period.1 GPOS transmits this report
to each PO and requests staff to determine whether excessive drawdowns have been made, to
assist the grantee in resolving problems with excess cash balances, and provide GPOS with a
response for each drawdown on the report within a two to three-week timeframe.




                           OBSERVATIONS AND SUGGESTIONS


We found OII did not always effectively respond to and resolve individual drawdowns on the
Excessive Drawdown Reports. During Fiscal Year (FY) 2005, OII was responsible for resolving
236 of the 495 potentially excessive drawdowns on the reports. We found that OII did not
provide responses to GPOS for 85 of the drawdowns (36 percent). We also found resolution of 2
of the 29 draws sampled (7 percent) was not supported in the official grant files as required, and
in one case, the grantee did not return identified excess funds.

The Department’s Handbook for the Discretionary Grants Policy (Handbook), dated March 31,
2003,2 Section 6.4.5, subparagraph 9, states, “Program staff must document all monitoring
activity in each grantee’s official file.” Grants Policy Bulletin #27: Monitoring Discretionary
Grants for Excessive Drawdowns (Bulletin), dated May 24, 2001, and in effect during FY 2005,3
states,

        Program staff are responsible for maintaining written documentation in the
        official grant files of all discussions held with grantees regarding excess cash
        balances and actions the grantee will take to correct excess cash balances.
        Program staff are responsible for ensuring that excess cash balances are resolved
        by the grantee within two weeks after being notified.

The bulletin further states,

        In cases where large drawdowns are consistent with planned activity, program
        staff are responsible for documenting the official grant file accordingly and
        ensuring that program managers are informed that drawdown amounts are
        appropriate.



1
 The thresholds for excessive drawdown activity are as follows: more than 50% of the obligated funds for that
budget period have been drawn by the end of the first quarter, more than 80% of the obligated funds for that budget
period have been drawn by the end of the second quarter, and/or 100% of the obligated funds for that budget period
have been drawn by the end of the third quarter.
2
 The scope of our review was FY 2005 activity. The Department updated and reissued the Handbook on February
24, 2006. This requirement is also present in the updated Handbook, Section 5.3.8, subparagraph 13.
3
  The Bulletin was rescinded with the update of the Handbook in February 2006. These requirements are also
included in the updated Handbook, Section 5.3.8, subparagraphs 6, 7, and 13.
Final Management Information Report                                           ED-OIG/X19F0025
State and Local No. 07-01                                                           Page 3 of 5

In its transmittal of the Excessive Drawdown Reports to the POs each month, GPOS requests the
POs to provide responses for each grantee listed on the report, to include the following:

       1. Indicate how the drawdown is consistent with approved project activities and
          approved budget.
       2. If Program Staff determine that an excessive drawdown has occurred, indicate
          the date the grantee was contacted and notified of Department policy.
       3. Indicate the date the grantee resolved the cash management problem.
       4. Indicate if funds were (1) returned to ED or (2) the grantee made an on-line
          adjustment . . ..

GPOS also includes in the transmittal a specific deadline for the POs’ responses.

Responses Were Not Provided in a Timely Manner for All Reported Excessive Drawdowns

During FY 2005, GPOS provided OII with eight Excessive Drawdown Reports containing 236
potentially excessive drawdowns for resolution. We reviewed the responses OII provided to
GPOS, and found OII did not provide any responses for the listed drawdowns on three of the
eight exception reports. These three reports contained 75 individual excessive draws. In
addition, we found that OII did not provide responses for an additional 10 potentially excessive
draws on reports to which it did respond. In total, OII did not provide timely responses for 85 of
the 236 excessive drawdowns the PO was responsible for researching (36 percent) by the
deadline established by GPOS. While OII stated that it provided responses to these drawdowns
in subsequent reports, Department policy as cited above requires POs to resolve potentially
excessive drawdowns within two weeks of being notified.

GPOS stated that OII did not respond to two of the three Excessive Drawdown Reports due to
staffing changes with the person in charge of resolving the listed excessive drawdowns. OII did
not provide GPOS with an explanation as to why the drawdowns on the remaining Excessive
Drawdown Report were not resolved.

In response to our observations, OII provided the following response:

       Due to the heavy grant workload last summer, attributed to the excessive number
       of earmarks we received in FY 2005, OII did not respond to several excessive
       drawdown reports. However, it was our understanding that when a POC
       [Principal Office Component] does not respond to a specific report, GPOS rolls
       the entries into the subsequent or the next month's report. Thus, we believed that
       our response to the Excessive Drawdown Reports sent to us in August and
       November provided responses to the 75 individual excessive draws contained on
       the three reports referenced in OIG's Observations document. In addition, OII
       notified GPOS by phone that they were unable to respond to certain of the
       monthly reports but would include the missing responses in the subsequent
       report(s).
Final Management Information Report                                               ED-OIG/X19F0025
State and Local No. 07-01                                                               Page 4 of 5

Resolution of Excessive Drawdowns Was Not Supported

We reviewed a sample of 29 potentially excessive drawdowns to which OII provided a response.
We obtained and reviewed the official grant files to determine whether OII staff documented the
resolution of these draws as required. We identified two drawdowns (7 percent) for which
resolution of the drawdowns was not supported by the grant files, as follows:

   ·   One grantee drew down 58 percent of the budget within the first quarter. In fact, the
       grantee’s first drawdown 15 days into the grant period represented 21 percent of the total
       grant amount. Over 43 percent of the grant amount was drawn in just over one month of
       the grant period. OII’s response to GPOS was that project activity included the purchase
       of equipment in the first quarter. However, the budget justification stated the project
       focuses on curriculum and instructional development, and the largest percentage of the
       budget is for personnel expenditures. The budget for equipment purchases totaled less
       than 19 percent of the grant funds, so this information does not support OII’s response to
       GPOS. The grant file did not document any contacts with the grantee on the excessive
       drawdown.

   ·   The other grantee drew 100 percent of the grant amount by the end of the second quarter.
       Documentation in the grant file dated in August 2005 stated that the grantee would return
       the excess cash. However, the funds were never returned. The grant ended in December
       2005.

We referred our results to OII and noted that staff did not provide additional information for the
first drawdown. We also noted that prior to our review, OII was not aware that funds from the
second drawdown had not been returned to the Department. OII did not provide a response to
these issues.

By not timely researching each drawdown on the Excessive Drawdown Report, OII does not
have assurance that grantees are financially compliant with Department policies and regulations
and are not making drawdowns in excess of their immediate cash needs. Without appropriate
documentation, program staff cannot ensure grantees have been contacted regarding excess cash
balances and actions are being taken by the grantees to correct these balances and funds are
returned, if applicable.


                                        OIG Suggestions
We suggest that the Acting Assistant Deputy Secretary for the Office of Innovation and
Improvement require program staff ensure that all grants appearing on the Excessive Drawdown
Report are researched, excess cash balances are resolved, and the official grant file is
documented accordingly, as required. We further suggest that OII implement procedures to
ensure timely responses on Excessive Drawdown Report are provided to GPOS.

In its response to the draft report, OII restated its position that while it did not respond each
month, it did research and respond to each grant listed on the reports. OII stated its
Final Management Information Report                                             ED-OIG/X19F0025
State and Local No. 07-01                                                             Page 5 of 5

understanding that when a PO does not respond to a specific report, GPOS combines those
entries with any new listings in the next month’s report. OII stated,

       While we did not respond to each “monthly” report, we believed we did
       effectively research and respond to each recorded excessive cash draw, based on
       our understanding of GPOS’s policy to roll unresolved entries to subsequent
       reports.

OII also recommended that GPOS clarify its policy. However, as cited above, GPOS’ policy is
clear that POs are to resolve potentially excessive drawdowns within two weeks of being
notified. Notices sent by GPOS provide a date by which responses are to be provided. OIG does
not believe that GPOS’s policy in this area needs to be clarified.

No changes were made to our suggestions as a result of OII’s comments. We did make minor
clarifications to our observations to state that OII did not provide “timely” responses for the 85
drawdowns cited. OII’s response is provided in full as an attachment to this report.



                          PURPOSE AND METHODOLOGY


The purpose of this project was to provide information to the Office of Innovation and
Improvement on specific issues that were identified during our audit of Controls Over Excessive
Cash Draws by Grantees and offer suggestions for enhancing the OII’s monitoring of potential
excessive drawdowns. To achieve our purpose, we reviewed applicable laws and regulations,
and Department policies and procedures. We conducted interviews with GPOS regarding
Department policy and procedures, and OII staff regarding procedures for researching and
resolving excessive drawdowns. We reviewed OII’s responses to the monthly Excessive
Drawdown Reports provided by GPOS during FY 2005. In addition, we also reviewed
documentation in official grant files and otherwise provided by OII staff to support the resolution
of 29 selected excessive drawdowns that were reported on the FY 2005 Excessive Drawdown
Reports and for which OII provided a response to GPOS. We randomly selected 30 draws from
these reports and judgmentally selected 17 draws with responses that required additional
followup. We judgmentally excluded 18 draws that did not have a resolution provided by OII.
As a result, our sample consisted of 29 excessive drawdowns.

We provided Department officials with the information that would be presented in this
Management Information Report on July 20, 2006 and revised the report, as appropriate, to
reflect their comments. Our review was performed in accordance with generally accepted
government auditing standards appropriate to the scope described above.


Attachment

cc:    Liza Araujo-Rouse, OII Audit Liaison
                                                                                             Attachment


Ms. Nancy Brown
Acting Director, Operations Internal
 Audit Team
Office of Inspector General
400 Maryland Avenue, SW
Washington, DC 20202

Dear Ms. Brown:

Thank you for the opportunity to respond to the draft Management Information Report on audit number
ED-OIG/X19F0025, the Department’s Controls Over Excessive Cash Draws. The subject matter of the
report relates to OII’s oversight of excessive cash drawdowns made by grantees. OII was given the
opportunity to comment on OIG’s preliminary observations document before the draft Management
Information Report was formalized. Our specific comments are included in your draft. Thus, I have no
further comments at this time other than to reiterate our position.

The report stated, “OII did not always effectively respond to and resolve individual drawdowns on the
Excessive Drawdown Reports.” OII researched and responded to each grant listed on an excessive
drawdown report, but due to the workload associated with processing and awarding an enormous number
of earmarks in FY 2005, we did not respond each month. It is our understanding that when a POC does
not respond to a specific monthly report, GPOS combines those entries with any new listings in the next
month’s report. Our response to the August and November Excessive Drawdown Reports provided
responses to the 75 individual excessive draws contained on the three reports as referenced in OIG’s
Observations document. While we did not respond to each “monthly” report, we believed we did
effectively research and respond to each recorded excessive cash draw, based on our understanding of
GPOS’s policy to roll unresolved entries to subsequent reports.

In response to your suggestions, OII would like to recommend that GPOS modify or clarify its policy to
roll over unresolved entries appearing on the Excessive Drawdown Reports to subsequent monthly
reports. If POCs are going to be accountable for their response to “monthly” reports rather than a
justification for each entry, than unresolved entries should not be rolled over to the next month’s report.
Instead, GPOS should provide the POC with a list, by month, of those grants that have no justification for
excessive draws. If this policy had existed, it would be clear that OII responded to each entry referenced
in the management report.

OII is committed to effectively resolving and documenting all excessive cash draws by grantees. To this
end, we will review with all staff GPOS’s policies for monitoring discretionary grants for excessive
drawdowns. In addition, we will review and modify, as appropriate, our procedures for responding in a
timely manner. Thank you for undertaking a thorough analysis of the controls over excessive cash draws
and for the constructive suggestions you have provided to the Department.

                                                         Sincerely,


                                                         Morgan Brown