oversight

Lessons from Implementing the American Recovery and Reinvestment Act of 2009 . X09M0002, Date Issued: 09/23/2014 PDF (1.32M)

Published by the Department of Education, Office of Inspector General on 2014-09-23.

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

Lessons from Implementing the
American Recovery and Reinvestment
Act of 2009

Final Management Information Report
ED-OIG/X09M0002
September 2014




NOTICE
This management information report issued by the Office of Inspector General will be made
available to members of the press and general public to the extent information contained in the
report is not subject to exemptions in the Freedom of Information Act (5 U.S.C. § 552) or
protection under the Privacy Act (5 U.S.C. § 552a).
                      UNITED STATES DEPARTMENT OF EDUCATION
                            OFFICE OF INSPECTOR GENERAL




September 23, 2014


TO:            James H. Shelton, III
               Deputy Secretary

FROM:          Patrick J. Howard /s/
               Assistant Inspector General for Audit

SUBJECT:       Final Management Information Report:
               Lessons From Implementing the American Recovery
                   and Reinvestment Act of 2009
               Control Number ED-OIG/X09M0002


The attached report provides the OIG’s perspective on challenges that were faced when
administering education-related grant programs funded by the Recovery Act, how the
challenges were addressed, and what lessons should be considered in the event that legislation
providing a large yet temporary funding increase (like the Recovery Act) is enacted in the future
or for new or existing programs. We primarily drew on our experience from performing audit
and investigation work related to the Act from February 2009 through June 2014 to prepare the
draft report. However, we enhanced our understanding of activities related to the Recovery Act
by reviewing Department and OIG responses to the Recovery Accountability and Transparency
Board’s 2012 survey of Federal agencies about the lessons learned from implementing the Act.

An electronic copy of the report has been provided to the applicable program officials and audit
liaison officers. The Department did not need to submit a corrective action plan because the
report did not contain recommendations. We appreciate the cooperation given to us during
this review. If you have any questions, please contact me at (202) 245-6949 or Raymond
Hendren at (916) 930-2399.

Attachment

cc:     Implementation and Support Unit (ISU), Office of the Deputy Secretary (ODS)
        Risk Management Service (RMS), ODS
        Office of Elementary and Secondary Education (OESE)
        Office of Special Education and Rehabilitative Services (OSERS)
        Office of Innovation and Improvement (OII)
        Office of the Chief Financial Officer (OCFO)
        Office of the Chief Information Officer (OCIO)
Table of Contents
Results in Brief .............................................................................................................................................. 1
Purpose of This Report.................................................................................................................................. 5
Background ................................................................................................................................................... 6
Recovery Act Challenges, Lessons, and Suggestions .................................................................................... 9
   Challenge 1: Requirement to Investigate Recovery Act Whistleblower Cases Indefinitely May Divert
   OIG Resources From Other Critical Activities ......................................................................................... 10
       Lesson: Opportunity Period to Allege Whistleblower Reprisals Should be Aligned With the
       Availability of Funding Provided Through Legislation......................................................................... 11
   Challenge 2: Department, Recipients, and Subrecipients Faced Challenges as They Implemented
   Processes to Administer Grants .............................................................................................................. 12
       Lesson: Grant Recipients Benefit from Comprehensive and Timely Guidance, Training, Technical
       Assistance, and Outreach.................................................................................................................... 13
   Challenge 3: The Department Addressed a Variety of Recovery Act Implementation Issues, but
   Persistent Monitoring and Oversight Challenges Remain ...................................................................... 16
       Lesson: Addressing Persistent Challenges on Monitoring and Oversight Should Improve Program
       Integrity and Compliance .................................................................................................................... 17
       Lesson: Independent Oversight is a Key Tool to Promote Transparency and Accountability ........... 20
       Lesson: The Department Needs Alternative Processes for Oversight and Monitoring For New or
       Temporary Grant Programs ................................................................................................................ 22
   Challenge 4: New Reporting and Transparency Requirements Created Implementation Challenges .. 25
       Lesson: The Department Took Steps to Improve Data Quality, but Accuracy and Reliability Issues
       Remained ............................................................................................................................................ 27
Scope and Methodology ............................................................................................................................. 31
Appendix 1. Appropriated Funding for Recovery Act Programs Administered by the Department ......... 33
Appendix 2. Compendium of OIG Products and Other Activities Related to the Recovery Act ................ 35
Appendix 3. Department Comments on the Draft Report ........................................................................ 50


List of Tables
Table 1. Appropriated Funding for Recovery Act Programs the Department Administered .................... 33
Table 2. States Where OIG Performed Recovery Act Phase I, Phase II, or Phase IV Audits and Identified
Compliance Issues ....................................................................................................................................... 36
List of Figures
Figure 1: Funding for Recovery Act Program Areas Administered by the Department............................... 6
Figure 2: Percentage of States Where OIG Performed Recovery Act Audits and Identified Compliance
Issues ........................................................................................................................................................... 18
               Abbreviations, Acronyms, and Short Forms
                          Used in This Report

Department         U.S. Department of Education

ESEA               Elementary and Secondary Education Act of 1965, as amended

GAO                U.S. Government Accountability Office

IDEA               Individuals with Disabilities Education Act, Part B, Section 611

LEA                Local Educational Agency

MOE                Maintenance of Effort

OIG                Office of Inspector General

OMB                Office of Management and Budget

Recovery Act       American Recovery and Reinvestment Act of 2009

Recovery Board     Recovery Accountability and Transparency Board

SEA                State Educational Agency

SFSF               State Fiscal Stabilization Fund

Title I            ESEA, Title I, Part A

TSA                Treasury-State Agreement
Final Management Information Report
ED-OIG/X09M0002                                                                       Page 1 of 49


Results in Brief
Congress enacted the American Recovery and Reinvestment Act (Recovery Act or the Act) in
February 2009 in the midst of the most severe economic downturn since the Great Depression.
The Act appropriated more than $98 billion for existing and new education-related grant
programs. It had several goals, including creating and saving jobs, spurring economic activity,
investing in long-term growth, and fostering enhanced levels of accountability and transparency
in government spending.

The U.S. Department of Education (Department) Office of Inspector General (OIG) also received
funds under the Recovery Act to audit education programs and grants funded by the Act and to
investigate possible misuse of funds. Since 2009, we have issued more than 50 audit reports on
Department, recipient, and subrecipient implementation of the Act. We have also opened 218
criminal investigations involving allegations of fraud, waste, or abuse, and have reviewed 143
allegations of reprisal against people seeking whistleblower protection.

What We Did
This management information report provides OIG’s perspective on challenges that were faced
when administering education-related grant programs funded by the Recovery Act, how the
challenges were addressed, and what lessons should be considered in the event that legislation
providing a large yet temporary funding increase (like the Recovery Act) is enacted in the future
or for new or existing programs. In preparing this report, we primarily drew on our experiences
in performing audit and investigation work related to the Act from February 2009 through June
2014. Specifically, we reviewed our Recovery Act audit and investigation reports, training and
outreach materials related to implementation and administration of the Act, Semiannual
Reports to Congress, and annual Management Challenges reports. We also reviewed reports
published by the Recovery Accountability and Transparency Board (Recovery Board) and the
U.S. Government Accountability Office (GAO). We also enhanced our understanding of
Department and OIG activities related to the Act by reviewing our respective responses to the
Recovery Board’s 2012 survey of Federal agencies about the lessons learned from
implementing the Act.

Most of our audits focused on the three largest Recovery Act grant programs administered by
the Department where funds were awarded to States (recipients) and passed through to local
agencies (subrecipients): the State Fiscal Stabilization Fund (SFSF); Elementary and Secondary
Education Act of 1965, as amended (ESEA), Title I, Part A (Title I); and Individuals with
Disabilities Education Act, Part B, Section 611 (IDEA). This report provides conclusions based in
part on audit work performed at a cross-section of recipients and subrecipients that received
Recovery Act funding. Because we did not use statistical sampling methods to select these
entities, the information in this report should not be generalized to the universe of recipients
and subrecipients that received Recovery Act funds.
Final Management Information Report
ED-OIG/X09M0002                                                                       Page 2 of 49

Most of our investigative work focused on improper activities associated with the Federal Pell
grant program. We also investigated more cases involving whistleblower retaliation than any
other Federal OIG.

Recovery Act Challenges, Lessons, and Suggestions
The Recovery Act presented numerous challenges for the Department, its funding recipients
and subrecipients, and the OIG as each planned for, implemented, monitored, or reported on
grant programs and activities funded by the Act. The substantial amount of audit and
investigative work performed by OIG provided an opportunity to identify lessons and offer
suggestions for Congress, the Office of Management and Budget (OMB), and the Department to
consider when authorizing, implementing, and overseeing future education-related spending
programs like the Recovery Act. The Recovery Act posed unique challenges for education
program implementation because thousands of subrecipients administered and spent a
significant portion of the Act’s grant funds. We organized the Recovery Act challenges into
four broad categories in this report. We also present six related lessons and suggestions
relevant to each lesson. Some of the lessons and resulting suggestions are also applicable to
the Department’s ongoing grant programs. The challenges and lessons are not necessarily
presented in their order of priority or importance.

Challenge 1: Requirement to Investigate Recovery Act Whistleblower Cases Indefinitely May
Divert OIG Resources From Other Critical Activities

Lesson: Opportunity Period to Allege Whistleblower Reprisals Should be Aligned With the
Availability of Funding Provided through Legislation

Suggestions: For future legislation like the Recovery Act, we suggest that Congress (1) include a
provision that establishes a reasonable statute of limitations for filing complaints, (2) consider
providing additional funding to support investigations of whistleblower complaints made after
the funding for such investigations has expired, and (3) allow OIGs additional flexibility to
manage their investigative responsibilities.

Challenge 2: Department, Recipients, and Subrecipients Faced Challenges as They
Implemented Processes to Administer Grants

Lesson: Grant Recipients Benefit from Timely Guidance, Training, Technical Assistance, and
Outreach

Suggestion. The Department should assess outreach and technical assistance activities
performed in response to the Recovery Act and consider conducting similar activities for new
programs and for existing programs that receive substantial increases in funding to ensure
program integrity and effectiveness. This should include providing timely guidance for new
grant programs and to new recipients.
Final Management Information Report
ED-OIG/X09M0002                                                                         Page 3 of 49

Challenge 3: The Department Addressed a Variety of Recovery Act Implementation Issues,
but Persistent Monitoring and Oversight Challenges Remain

Lesson: Addressing Persistent Challenges on Monitoring and Oversight Should Improve
Program Integrity and Compliance

Lesson: Independent Oversight is a Key Tool to Promote Transparency and Accountability

Lesson: The Department Needs Alternative Processes for Oversight and Monitoring For New
or Temporary Grant Programs

Suggestions. The Department should ensure that its program offices responsible for
monitoring recipients are using robust, risk-based monitoring strategies that devote available
resources to the highest risk recipients and issues, and work with recipients to ensure that they
are employing similar strategies when monitoring their subrecipients. The Department should
continue its efforts to enhance audit resolution, including identifying trends in audit findings, so
that compliance issues can be timely resolved through agreed upon corrective actions. The
Department should also identify effective corrective actions that can be employed to resolve
common issues across various recipients and subrecipients. For future legislation like the
Recovery Act, we encourage the Department to work with Congress and OMB to provide
supplemental funds for State and local audit agencies to oversee new or supplemental Federal
grant funds. The Department should also continue implementing early compliance oversight
and monitoring processes for newly created or temporarily funded programs under legislation
similar to the Recovery Act. For newly created programs or programs receiving temporary
funding, the Department should work with the U.S. Treasury early in program implementation
to determine whether the programs should be added to States’ Treasury-State Agreements for
cash management purposes.

Challenge 4: New Reporting and Transparency Requirements Created Implementation
Challenges

Lesson: The Department Took Steps to Improve Data Quality, But Accuracy and Reliability
Issues Remained

Suggestions. For future temporary legislation like the Recovery Act, other efforts intended to
increase transparency, or to improve ongoing grant programs, the Department should, in
conjunction with OMB when appropriate, look for additional ways to improve the quality of
recipient and subrecipient data and continue to emphasize the need for appropriate data
quality reviews by State and local agencies. Options to improve data quality include piloting
new reporting requirements and mechanisms for new or existing programs, establishing a
formal process to identify and remediate situations in which recipients or subrecipients
demonstrate systemic or chronic reporting problems, ensuring that recipients implement
adequate and effective internal controls to ensure high-quality data for key reporting elements,
Final Management Information Report
ED-OIG/X09M0002                                                                      Page 4 of 49

and requiring reporting entities to submit management certifications on data quality and to
disclose known data limitations.

Department Comments and OIG Response
We provided a draft of this report to the Department for review and comment on July 31, 2014.
The Department provided written comments on September 2, 2014. In its response, the
Department stated that the report’s suggestions provide insights that may be applied to
Department programs in the future. However, the Department commented that the report
does not fully recognize the intensity of its early outreach and technical assistance efforts and
also stated that the wording of the headings for two challenges unintentionally conveys a
negative tone and fails to reflect the positive steps that were taken in each area. In Challenge
2 we revised the Lesson heading and one subheading to reflect both the comprehensiveness
and timeliness of the Department’s efforts but did not revise the main Challenge 2 heading.
In Challenge 3 we reiterated our belief that our frequent internal control findings call for
continued emphasis by the Department to address persistent monitoring and oversight
challenges. We did not revise the Challenge 3 heading as a result. We address the
Department’s comments in more detail at the end of Challenge 2 and 3.

The Department also stated that Table 2 (Appendix 2) of the report does not provide the
necessary context for the timing of many of the recommendations made in OIG’s Recovery Act
reports and thus should include the dates of the audits to provide a more complete picture of
the compliance issues that were identified. The Department added that some of the
compliance issues that OIG reported on were identified before some States (recipients) and
subrecipients even started planning or spending the funds. The Background section of the
report discusses the focus of each of OIG’s four Recovery Act audit phases and provides general
timeframes for when each phase began. Table 2 identifies the audit phase(s) in which each
State (and subrecipients) were covered by compliance audits (Phases I, II, and IV). As discussed
in Background, we initiated the first phase of audits in 2009 to assess the adequacy of internal
controls over Recovery Act funds. OIG intentionally performed this work before a significant
amount of Recovery Act funds had been spent in an effort to help ensure that future
expenditures would comply with Federal requirements. To provide additional context on the
timing of our audits and recommendations related to compliance issues, we have provided the
general timeframes in which audits were started and completed under the three applicable
phases in the Appendix 2 introduction. However, individual State and subrecipient audits
conducted in each phase may not have begun or ended at the same times.

The Department’s written response is included as Appendix 3 of this report.
Final Management Information Report
ED-OIG/X09M0002                                                                                        Page 5 of 49


Purpose of This Report
The objective of this management information report is to provide OIG’s perspective on
(1) challenges that were faced when administering education-related grant programs funded by
the Recovery Act, (2) how the challenges were addressed, and (3) what lessons can be learned
for future legislation that provides a large yet temporary funding increase (like the Recovery
Act). These lessons may also apply to other new or existing Department programs. The
Recovery Act posed unique challenges for education program implementation because
thousands of subrecipients administered and spent a significant portion of the Act’s grant
funds. Some of these challenges also applied to existing Department programs that received
substantial temporary funding increases under the Recovery Act. The report also provides
suggestions for Congress to consider during the legislative process and the Department to
consider when implementing or overseeing future education-related programs.

This report summarizes and synthesizes information and issues we identified in Recovery Act
audits and investigations from February 2009 through June 2014. The report also draws on our
participation in the efforts of the Recovery Board and from similar work performed by GAO.
We also attribute information to Department officials. Unless otherwise specified, this
information is from the Department’s response to a 2012 survey conducted by the Recovery
Board to identify the actions, processes, and mechanisms that were beneficial or posed
challenges to agencies, departments, and their respective Inspectors General in meeting the
requirements of the Recovery Act. Unless the subject matter was covered in an audit, we did
not verify the information contained in the Department’s survey responses. We describe
Recovery Board surveys of Federal agencies in the Compendium in Appendix 2.

Although the report presents the results of OIG Recovery Act audits in 36 States and 79 local
educational agencies’ (LEAs), the information should not be generalized to the universe of
States and LEAs that received Recovery Act funds because we did not use statistical sampling
methods to select the States and LEAs included in our reviews.1 Furthermore, the report does
not cover postsecondary education programs administered by the Department or any related
audits performed by OIG. We do cover activities of the OIG’s Investigation Services related to
criminal and other investigations involving education programs.




1
 Throughout this report, we refer to State educational agencies as recipients and LEAs or school districts as
subrecipients. Other recipients and subrecipients included entities such as State governors, institutions of higher
education, and other State agencies.
Final Management Information Report
ED-OIG/X09M0002                                                                                         Page 6 of 49


Background
The President signed the Recovery Act into law on February 17, 2009, in the midst of the most
severe economic downturn since the Great Depression. Congress committed $787 billion in
public funds to spur economic activity, create and save jobs, and invest in long-term growth.2
The Act also emphasized unprecedented levels of transparency and accountability in how
Federal agencies and recipients managed and used the funds. Congress appropriated more
than $98 billion, or about 12 percent of the total funds available, for education-related
programs administered by the Department. With a few exceptions, Recovery Act funds were
available for expenditure from the law’s enactment through September 30, 2011.3 The
legislation established several new grant programs and significantly increased funding for
certain existing programs. Nearly all of the education funding appropriated under the Act was
for seven program areas as shown in Figure 1. Appendix 1 provides funding information for
each of the Recovery Act grant programs administered by the Department.

Figure 1: Funding for Recovery Act Program Areas Administered by the Department


                                      Education for the
                                       Disadvantaged
                                          $13,000                                    School Improvement
                   Federal Student Aid                                                    Programs
                                           (13%)
                        $17,374                                                              $720
                         (17%)                 Special Education                             (1%)
                                                     $12,200                            Rehabilitative
                                                      (12%)              Other       Services & Disability
                                                                         $2,064            Research
                       State Fiscal
                                                                          (3%)               $680
                    Stabilization Fund
                         $53,600                                                             (1%)
                           (55%)                                                       Other Programs
                                                                                            $664
                                                                                            (1%)



                                                          Funding Amount (millions)
                                                                Total $98,238
Note: The Education for the Disadvantaged program area includes the Elementary and Secondary Education Act
Title I grant program and the Special Education area includes the Individuals with Disabilities Education Act Part B
grant program.

2
 Most of this commitment represented funds made available for Federal grants, contracts, and loans. However,
about $212 billion, or 27 percent, represented reductions in Federal revenue including tax credits, incentives, and
other benefits for individuals and businesses.
3
 The funds for Federal Student Aid were available only for the 2009-2010 school year. The two smaller funds
under SFSF; the Race to the Top State Incentive Grants and Investing in Innovation funds are available only through
September 30, 2015, and September 30, 2019, respectively.
Final Management Information Report
ED-OIG/X09M0002                                                                            Page 7 of 49

The OIG received $14 million under the Recovery Act that was available through
September 30, 2012 to oversee education programs and grants funded by the Act. Shortly after
the Recovery Act’s passage in February 2009, OIG began conducting outreach and training
activities and initiating audits of the Department’s activities to implement the Recovery Act.
OIG also performed audits of State and LEA administration and use of Recovery Act funds. In
total, our State and local Recovery Act audit work spanned 36 States, the District of Columbia,
Puerto Rico, and the U.S. Virgin Islands. We conducted audits at State governors’ offices; State
educational agencies (SEAs); and 87 entities including LEAs, institutions of higher education,
and other State entities. We also opened 218 criminal fraud investigations from Recovery Act
enactment through June 30, 2014 and reviewed 143 whistleblower reprisal complaints from
enactment through March 31, 2014. The compendium in Appendix 2 summarizes the body of
audit work performed by OIG related to Department, recipient, and subrecipient
implementation of the Recovery Act.

Most of our Recovery Act audits focused on the three largest Recovery Act grant programs
administered by the Department: the State Fiscal Stabilization Fund (SFSF); Elementary and
Secondary Education Act of 1965 (ESEA), Title I, Part A (Title I); and Individuals with Disabilities
Education Act, Part B, Section 611 (IDEA).4 The Department awarded these funds to State
governors or SEAs, which passed most of the funds through to the more than 16,000 LEAs.

          SFSF. The Recovery Act provided $48.6 billion in new formula grants. The Act also
           provided up to $5 billion in new competitive grants to States and eligible education-
           related entities through the Race to the Top and Investing in Innovation programs.
           The formula grants had two components: the Education Stabilization Fund (Education
           Stabilization), which accounted for most of the SFSF funds, and the Government
           Services Fund (Government Services). The Education Stabilization fund (ESF) was
           awarded to State governors to provide fiscal relief to States to prevent tax increases or
           reductions in critical education services. Whereas States were required to pass ESF
           funds through to LEAs and public institutions of higher education, recipients could use
           Government Services funds for public safety and other government services, including
           education services.

          Title I. The Recovery Act provided about $10 billion to supplement the existing Title I
           grant program. Title I funds help LEAs serve educationally disadvantaged students.
           The Department awarded Recovery Act Title I grants by statutory formula to SEAs,
           which then awarded funds by formula to LEAs.

          IDEA. The Recovery Act provided more than $11 billion to supplement the existing IDEA
           grant program. IDEA funds support early intervention programs for children who need
           additional academic and behavioral support to succeed in a general education
           environment and special education and related services for children with disabilities. As

4
    For a complete list of our completed Recovery Act audits please refer to Appendix 2.
Final Management Information Report
ED-OIG/X09M0002                                                                                    Page 8 of 49

        with Title I, the Department awarded Recovery Act IDEA funds to SEAs, which then
        awarded funds to LEAs.

OIG’s Recovery Act audits covered issues such as recipient and subrecipient internal controls,
compliance with Federal use-of-funds requirements, and the quality of required Recovery Act
data reporting. Most of our audits focused on elementary and secondary education programs.
Our Recovery Act investigations focused on fraud and whistleblower reprisal. The majority of
fraud investigations concerned the Federal Pell Grant program, which provides grants to low-
income students to promote access to postsecondary education.5

       Audits of the Department. Our audits of the Department’s Recovery Act activities
        included reviews of the Education Stabilization program. The reviews addressed specific
        issues such as Department processes for calculating and allocating funds; SEA
        application reviews; program staffing; and grant program monitoring plans. Our reports
        also addressed Department challenges associated with new reporting requirements
        under Section 1512 of the Act.

       Audits of State and Local Entities. Within months of the Act’s passage, we provided the
        Department with information on pervasive fiscal issues that we had identified in prior
        audits and recommendations that we made that could be beneficial to the
        Department’s oversight of Recovery Act funds.

        We conducted nearly all of our State and local audits using a phased approach. In 2009,
        we initiated the first phase of audits to assess the adequacy of internal controls over
        Recovery Act funds at State governors’ offices, SEAs, and 26 school districts in 8 States
        and Puerto Rico. In 2010, we initiated the second phase of Recovery Act audits in
        11 States and 30 school districts to determine whether Recovery Act funds were spent
        in accordance with Federal requirements and whether required Recovery Act reports
        were accurate, reliable, and complete. In 2011, we began the third phase of our work
        focusing on how one school district in each of 22 States used their Recovery Act funds.
        In 2012, we initiated our fourth and final phase of Recovery Act audits to determine
        whether nine LEAs in four States and Puerto Rico spent final Recovery Act funding on
        reasonable, allocable, and allowable activities in accordance with Federal requirements.

        In addition to the multiple audit phases, we conducted additional audits of grant
        programs that were affected by the Recovery Act. For example, we reviewed
        Department monitoring, core services, performance, and Section 1512 reporting for
        12 Centers for Independent Living operating in 11 States. We also reviewed SEA and
        LEA compliance with an IDEA provision allowing flexibility in maintenance of effort
        (MOE) requirements in six States.

5
  The Recovery Act provided $17.1 billion for increased Pell grants in school year 2009-2010. The maximum Pell
grant award increased from $4,850 to $5,350 under the Recovery Act.
Final Management Information Report
ED-OIG/X09M0002                                                                                         Page 9 of 49

          Investigations. In conjunction with the information on pervasive fiscal issues identified
           in pre-Recovery Act audits, we also provided information to the Department on the
           results of prior criminal investigations involving fraud schemes at LEAs and charter
           schools and suggested ways to mitigate fraud risks under the Recovery Act. We also
           conducted and reported on investigations that included Recovery Act funds and
           complaints of whistleblower reprisal.

Other Federal agencies with key oversight roles under the Recovery Act included the Recovery
Board, OMB, and GAO. The Act created the Recovery Board to promote accountability by
coordinating and conducting oversight of Recovery Act funds and programs and to foster
transparency by providing the public with accurate, user-friendly information. With the
assistance of various Federal Inspectors General, the Recovery Board’s oversight work included
several reviews and reports on data quality, including recipient efforts to report reliable and
transparent information under Section 1512 of the Act.6 OMB provided initial and updated
guidance on implementing the Recovery Act and Section 1512 reporting requirements.7 GAO
issued numerous reports addressing education-related Recovery Act issues.8 Similar to our
work, GAO’s education-related reports were primarily focused on accountability and
transparency issues and typically covered the Recovery Act SFSF, Title I, and IDEA grant
programs.

Recovery Act Challenges, Lessons, and Suggestions
The Department, its funding recipients and subrecipients, and the OIG faced numerous
challenges as they planned for, implemented, monitored, and reported on grant programs and
activities funded by the Recovery Act. In OIG’s annual report on the most serious management
challenges for fiscal year (FY) 2010, we identified the Recovery Act for the Department. With
responsibility for 55 State and territorial educational agencies and more than 16,000 LEAs, the
Department faced a formidable challenge ensuring that Recovery Act funds reached the
intended recipients and achieved the desired results. Our management challenges report
included several actions that the Department needed to take, such as providing effective
oversight and monitoring of recipients and subrecipients, and ensuring that the information
reported to and by the Department was accurate, reliable, and complete.9

The issues that we found during our Recovery Act work and other longstanding issues continue
to warrant the Department’s attention because most affect ongoing programs. To the extent



6
    Recovery Board reports are available at http://www.recovery.gov/Pages/default.aspx.
7
 Specific OMB guidance and communications that we reference in this report are generally available at OMB’s
Recovery Act Web site at http://www.whitehouse.gov/omb/recovery_default.
8
    GAO’s Recovery Act-related reports are available on its Web site at http://www.gao.gov/recovery/.
9
    These annual reports are available at http://www2.ed.gov/about/offices/list/oig/managementchallenges.html.
Final Management Information Report
ED-OIG/X09M0002                                                                                     Page 10 of 49

that we reported deficiencies in the Department’s administration and oversight of ongoing
programs the Department should work to implement corrective actions.

In this report, we organize the Recovery Act challenges into four broad categories with six
lessons and related suggestions for consideration. Although we present the lessons and
suggestions under specific challenges, some lessons relate to more than one challenge area.
The challenges and lessons are not necessarily in their order of priority or importance.

Challenge 1: Requirement to Investigate Recovery Act Whistleblower Cases
Indefinitely May Divert OIG Resources From Other Critical Activities

The Recovery Act extended whistleblower reprisal protection to employees of any non-Federal
employer that received funds under the Act. Employees were protected from reprisal for
disclosing information on Recovery Act contracts, grants, or funds when they reasonably
believed there was evidence of gross mismanagement; gross waste; a substantial and specific
danger to public health or safety; an abuse of authority; or a violation of law, rule, or
regulation. Whistleblower protections are an important mechanism for promoting program
integrity and accountability because they remove barriers that could discourage employees
from reporting wrongdoing for fear that their employer might discharge, demote, or
discriminate against them.

The Recovery Act mandated that Federal OIGs complete investigations of whistleblower reprisal
complaints within 180 days.10 After completing each investigation, the Inspector General has to
submit a report of his/her findings to the employee, the employer, the Recovery Board, and the
head of the Federal agency. Within 30 days of receiving the report, the head of the Federal
agency has to determine whether the complainant suffered reprisal and order relief if
appropriate.

Among the Federal OIGs, we received the most whistleblower complaints related to Recovery
Act funds. This could be reflective of the large number of education-related recipients,
subrecipients, and contractors who are potential whistleblower complainants. When OIG’s
Recovery Act funding expired on September 30, 2012, we had received 121 complaints or about
62 percent of all Recovery Act related complaints received by all Federal Inspectors General.
Our investigations substantiated only 2 of the 121 complaints. We submitted reports on both
investigations to the Secretary of Education, who concluded that both complainants had been

10
  The Recovery Act did not require an OIG to investigate a whistleblower reprisal complaint that was frivolous, did
not relate to Recovery Act funds, or when another Federal or State judicial or administrative proceeding had
previously been invoked to resolve the complaint. In addition, the Recovery Act allowed OIGs to not conduct or
continue an investigation, provided that they submitted a written explanation of such decision to the complainant
and the employer and list investigations that they decided not to conduct or continue in their semiannual reports
to Congress. We investigated every complaint that met the Recovery Act’s requirements for investigation. We
discontinued investigations only when we determined that the employer had not reprised against the
complainant.
Final Management Information Report
ED-OIG/X09M0002                                                                     Page 11 of 49

subjected to prohibited reprisals. One case involved a charter school that had improperly
terminated an employee after she alleged that the school was improperly spending special
education funds. Our investigation did not sustain any allegation of fraud. The other case
involved an employee of a contractor who was improperly terminated after he reported he was
not being paid the prevailing wage as required by law. Although the investigation of that case
confirmed that there was a violation of the wage law, none of the other 120 whistleblower
investigations substantiated a criminal or civil fraud violation.

In addition to using existing staff, OIG used Recovery Act funds to hire two temporary
investigators to record whistleblower complaints and complete related investigations.
We continue to receive whistleblower complaints even though our Recovery Act funding has
expired. As of March 31, 2014, we have received 22 additional whistleblower complaints.
Further, we could continue to receive whistleblower complaints for an indefinite period
because the Act did not establish a time limit for whistleblowers to submit complaints and
some education-related grants, like Race to the Top, have not expired.

Absent additional funding, we must rely on existing investigative resources to handle current
and future Recovery Act whistleblower reprisal complaints. The investigations that we have
completed consumed already scarce resources. Future investigations of this type may affect
our ability to address other higher priority criminal and civil fraud activity.

The Recovery Act whistleblower requirements also impact resources at the Department,
because the Secretary of Education is responsible for issuing an order denying or granting relief
to a complainant within 30 days after receiving the OIG’s report. In the case of the employee
who was terminated after reporting prevailing wage violations, the employer did not comply
with the Secretary’s order to reinstate the complainant or provide him back pay. Instead, it
petitioned a court of appeals to vacate the Secretary’s order. The court granted the employer’s
petition and vacated the Secretary’s order because it found that due process required a hearing
in which the employer could cross examine witnesses. This resulted in no administrative
remedy for the employee in question, which could be the result in other cases where an
employer does not comply with the Secretary’s order in a reprisal case. Moreover, if the
Department is required to provide a hearing for each case in which the Secretary orders relief
to a complainant, it would need to do so within the 30-day time period in which the Secretary
must issue his decision.

Lesson: Opportunity Period to Allege Whistleblower Reprisals Should be
Aligned With the Availability of Funding Provided Through Legislation
Unlike the Recovery Act, other statutes that incorporate whistleblower provisions have
established periods in which a complainant must formally make an allegation. For example,
under the Sarbanes-Oxley Act, employees seeking whistleblower protection must file a
complaint within 180 days after the date on which the violation occurred or the employee
became aware of the violation. Under a pilot program, the National Defense Authorization Act
of 2013 established a 3-year statute of limitations for whistleblower complaints.
Final Management Information Report
ED-OIG/X09M0002                                                                        Page 12 of 49

Providing OIGs with greater flexibilities in carrying out whistleblower investigations could help
alleviate resource constraints. Additional flexibility could include allowing OIGs to extend
deadlines for performing investigations without the whistleblower's approval, specifically when
deadlines interfere with an OIG’s ability to conduct higher priority investigations.

Suggestions: Establish a Statute of Limitations, Augment Funding for Whistleblower
Investigations, and Provide Greater Flexibilities. For future legislation like the Recovery Act
Congress could include provisions that (1) establish a reasonable statute of limitations for filing
complaints, (2) provide additional funding to support investigations of whistleblower
complaints made after the funding for such investigations has expired, and (3) allow OIGs
additional flexibility to manage their investigative responsibilities.

Challenge 2: Department, Recipients, and Subrecipients Faced Challenges as
They Implemented Processes to Administer Grants
The scope and magnitude of the education-related Recovery Act grants required the
Department and its recipients to modify existing and implement new processes to successfully
administer the grants. The Department administered more than $98 billion in Recovery Act
funds that fully or partially funded more than 20 education-related grant programs. The largest
program, SFSF, was newly created and involved awarding grants to recipients and subrecipients
that might not have been familiar with Federal requirements or that did not have prior
experience administering Federal grants. Further, the grant programs had different purposes,
goals, and administrative requirements. The Recovery Act also expanded funding for existing
programs, nearly doubling the amount of Title I and IDEA funds available to SEAs and LEAs, for
example. The challenges we identified included longstanding administrative and oversight
challenges that we previously reported to the Department.

Challenges for the Department
    The Department faced the dual challenge of disbursing Recovery Act funds quickly to
       spur economic activity and ensuring that the funds were spent wisely.

      The Department needed to quickly organize existing staff and systems and hire
       additional staff to implement the new grant programs and expand existing programs to
       meet the Act’s objective of providing immediate economic stimulus combined with
       increased accountability requirements.

      The Department needed to develop guidance and provide training and technical
       assistance to recipients and subrecipients on the requirements applicable to Recovery
       Act grants. This was particularly important for new recipients and to help all recipients
       comply with the new transparency and reporting requirements.
Final Management Information Report
ED-OIG/X09M0002                                                                                     Page 13 of 49

Challenges for Recipients and Subrecipients
    Recipients and subrecipients had to take additional steps to apply for Recovery Act
       grants. They also had to develop spending plans that met the Act’s dual challenges of
       spending funds quickly but wisely.

          To administer their Recovery Act grants, new recipients needed to perform a variety of
           tasks that they might have been unfamiliar with or did not have experience doing. For
           example, State governors’ offices historically did not administer Federal education
           funds. Under the Act, they were the designated recipients of SFSF funds and thus had to
           either establish an agreement with a State agency to administer the funds or develop
           their own processes. Additionally, all recipients had to meet new reporting
           requirements under the Recovery Act.

Lesson: Grant Recipients Benefit from Comprehensive and Timely Guidance,
Training, Technical Assistance, and Outreach
State and local agencies that administer and oversee Federal grants require and benefit from
timely and up-to-date guidance. State and local agencies also benefit from ongoing training,
technical assistance, and outreach to help ensure program integrity and effectiveness and
compliance with Federal requirements. Timely information and assistance were particularly
important under the Recovery Act as all levels of government had to develop policies and
procedures to administer and oversee the funds while ensuring that the funds were spent
quickly. The Department provided comprehensive and timely guidance to recipients and
subrecipients and conducted training, technical assistance, and outreach activities that were
valuable to implementing and overseeing the Recovery Act.

The Department’s Comprehensive and Timely Guidance, Training, Technical Assistance, and
Outreach Were Valuable to the Implementation and Oversight of Recovery Act Funds
Within a few months of the Act’s passage, the Department developed and issued general and
program-specific guidance to inform recipients and subrecipients about applicable
requirements as Recovery Act grant funds were made available. The Department also updated
its guidance as needed, in response to updated Section 1512 guidance from OMB and questions
from recipients, subrecipients, and State and local auditors. The Department also obtained OIG
comments on guidance that the Department was developing for non-Federal auditors on SFSF
compliance requirements.11 For each grant program, the guidance addressed application and
allocation procedures; activities that could be supported by the funds; opportunities for
waivers, if applicable; fiscal issues; and transparency, accountability, and reporting
requirements. The Department posted the guidance on its Recovery Act Web site.12



11
     “Guidance for Grantees and Auditors – State Fiscal Stabilization Fund Program,” December 24, 2009.
12
     The Department’s Recovery Act Web site is at http://www.ed.gov/recovery.
Final Management Information Report
ED-OIG/X09M0002                                                                                  Page 14 of 49

The Department also provided training, technical assistance, and outreach to recipients and
subrecipients, particularly on new grant programs like SFSF and for entities that might have
been unfamiliar with Federal requirements. According to Department officials, program offices
provided this assistance by:

        hosting conferences, webinars,13 and conference calls;
        communicating informally with individual recipients by telephone or email; and
        providing feedback to individual recipients based on reviews of grant applications

The Department coordinated across its program offices and hosted nearly 20 general-purpose
webinars applicable to all Recovery Act programs on topics such as cash management,
subrecipient monitoring, and Section 1512 reporting. In addition, the Department conducted
program-specific webinars covering topics such as SFSF application requirements and strategic
uses of Recovery Act Title I and IDEA funds. The Department estimated that more than 10,000
people participated in these webinars which were also archived on the Department’s Website
so they could be viewed or downloaded later.

Department officials reported that the Department also initiated or built on several efforts to
help coordinate Recovery Act activities across the agency. For example, it created an Intranet
Web site to provide a common repository of documents, data, and tools for Department users.
The Department’s Risk Management Services coordinated an agencywide effort to offer
customized technical assistance to six State agencies that received among the largest amounts
of formula grant funds under the Recovery Act. The Department also established a Metrics and
Monitoring Team, made up of representatives from all of its component offices impacted by
the Recovery Act. OIG participated on this team in an advisory capacity by providing insights on
accountability matters based on our prior and ongoing audits and investigations and keeping
the Department informed about our planned and ongoing Recovery Act work. We believe that
the training, technical assistance, and outreach activities carried out by the Department were
valuable to the implementation and oversight of Recovery Act funds and would be a best
practice in the event of similar legislation in the future.

The OIG Also Provided Outreach, Training, and Fraud Referrals
The OIG also conducted Recovery Act-specific training and outreach activities at the
Department and State and local entities. Within months of enactment, we developed new
presentation materials and provided extensive outreach and fraud and abuse training to
Recovery Act managers and staff at the Department; State and local oversight agencies,
including States’ top Recovery Act officials; recipients and subrecipients; and institutions of
higher education.

The Recovery Act enabled us to augment our ongoing outreach and training activities. We
developed presentations specific to the elementary and secondary education and Federal
13
  A webinar is a Web-based seminar that allows for presentations and interaction between the presenter and the
audience.
Final Management Information Report
ED-OIG/X09M0002                                                                      Page 15 of 49

student assistance communities. We also provided information on the education-related
components of the Act related to fraud prevention, whistleblower protections, and critical
issues identified in prior OIG audits and investigations that applied to the Act’s implementation.
We also participated with other Federal and State law enforcement groups, to present or
disseminate our outreach and training materials. In addition to distributing fraud awareness
posters and flyers, we provided State and local grant recipients with our outreach and training
materials and made them available on the OIG Web site.

Suggestion: Conduct Similar Training, Technical Assistance, and Outreach. The Department
should assess outreach and technical assistance activities performed in response to the
Recovery Act and conduct similar activities for new programs and for existing programs that
receive substantial increases in funding to ensure program integrity and effectiveness. This
should include providing timely guidance for new grant programs and to new recipients.

Department Comments

The Department acknowledged that the report provided examples of Department practices
that made ARRA implementation successful. However, the Department also stated that the
draft report did not fully recognize the intensity of its outreach efforts, especially during the
pre-grant award planning and technical assistance period. The Department also noted that the
proactive nature of the nearly daily contact that it had with grantees, including responding to
calls for assistance from State and local officials who were unfamiliar with the Department’s
grant and oversight process, was one key to its success. The Department also commented that
the heading for Challenge 2 unintentionally conveyed a negative tone and failed to reflect the
positive steps that were undertaken.

OIG Response

Our report did not go into detail regarding the Department’s early outreach efforts, including
the pre-grant award planning and technical assistance period, because we had a limited basis to
independently report on these activities. Our early audit efforts at the Department focused on
issues such as SFSF implementation and data quality. In addition, most of our early audit and
investigative resources were devoted to helping ensure that Recovery Act funds were spent in
accordance with Federal requirements. Our report did recognize that the Department faced
additional challenges because it was awarding grants to recipients and subrecipients that might
not have been familiar with Federal requirements or that did not have prior experience
administering Federal grants. We acknowledged in our draft report that the Department’s
efforts were both comprehensive and timely and provided examples of its many efforts to
provide guidance and assistance. Also, we suggested that the Department look for
opportunities to replicate its efforts in other program areas. Accordingly, we agree with the
Department and revised two headings related to the Lesson in Challenge 2 to reflect both the
comprehensiveness and timeliness of the Department’s efforts. However, we did not revise
the overall heading for Challenge 2 because the challenge describes the challenges that the
Department, recipients, and subrecipients faced implementing, administering, or overseeing
Recovery Act grants.
Final Management Information Report
ED-OIG/X09M0002                                                                                   Page 16 of 49


Challenge 3: The Department Addressed a Variety of Recovery Act
Implementation Issues, but Persistent Monitoring and Oversight Challenges
Remain

OMB and Department Recovery Act guidance highlighted the Act’s emphasis on accountability
and transparency so that taxpayers could be assured that recipients spent the funds in
accordance with Federal requirements. To achieve program integrity, the Department and
States needed to provide clear and timely guidance and conduct monitoring and oversight
activities. The Department and States also relied on independent audits of internal controls
and expenditures, including required annual Single Audits.

In each of the last 5 years, we identified monitoring and oversight of grant recipients as a
management challenge for the Department. Furthermore, our Recovery Act audit reports have
noted that effective monitoring and oversight of the Department’s programs and operations
are critical to ensuring that grant funds are used for the intended purposes and programs are
achieving stated goals and objectives. Many of our audit findings repeated previous
compliance issues of prior audits of State and local agencies, including the need for recipients
to strengthen program oversight and subrecipient monitoring procedures. The Department
bears significant oversight responsibility because of the number of programs and entities that
receive Federal education funds, the amount of funding awarded to States that is passed
through to subrecipients, and the adverse impacts that ineffective monitoring could have on
students and taxpayers. However, because most elementary and secondary education
spending and service delivery occurs at the local level, the Department requires States to take
the lead on monitoring subrecipients’ implementation of Federal programs.

Ensuring enhanced accountability for Recovery Act funds presented challenges to the
Department, its recipients and subrecipients, and the OIG. We identified three lessons from
our work that we believe could enhance oversight of large yet temporary appropriations like
the Recovery Act and improve program integrity and compliance for ongoing programs:
addressing persistent challenges, independent oversight, and Single Audit processes.14

Challenges to the Department

        The Department needed to ensure that education-related Recovery Act grant programs
         were effectively administered and implemented.
14
  Currently, the Single Audit Act Amendments of 1996 (31 U.S.C. Ch. 75) and OMB Circular A-133 generally require
that each State, local government, or nonprofit organization that expends $500,000 or more in Federal awards in a
year must have a Single Audit conducted for that year subject to applicable requirements. OMB increased the
expenditure threshold requiring a Single Audit to $750,000 on December 26, 2013. The new threshold will apply to
audits covering fiscal years beginning on or after December 26, 2014.
Final Management Information Report
ED-OIG/X09M0002                                                                     Page 17 of 49

      The Department needed to ensure that Recovery Act funds were spent on allowable
       activities and properly safeguarded, especially considering the longstanding compliance
       challenges that had been identified through our audits.

      The Department needed to develop new and modify existing monitoring and oversight
       procedures to help ensure accountability, particularly for the new SFSF grants.

Challenges to Recipients and Subrecipients
    Recipients and subrecipients needed to quickly establish new or modify existing
       processes and controls to properly account for and safeguard Recovery Act funds and
       monitor compliance with Federal laws and regulations.

      Recipients needed to ensure that subrecipients complied with applicable Federal
       requirements and properly safeguarded Recovery Act funds. In addition to
       administering their existing Federal education programs, recipients had to provide
       guidance and technical assistance to their own staff and subrecipients on implementing
       the Recovery Act. They also had to develop new or modify existing subrecipient
       monitoring procedures.

Challenges to the OIG
    We needed to modify existing audit and investigation strategies and redirect resources
       to focus our audit and investigation efforts on assessing accountability for Recovery Act
       funds.

Lesson: Addressing Persistent Challenges on Monitoring and Oversight Should
Improve Program Integrity and Compliance
Persistent compliance issues continued to challenge recipients of Federal education funds. Our
prior audits of State and local agencies identified many of these issues, including the need for
recipients to strengthen their program and subrecipient monitoring procedures, as well as
issues related to allowable costs, cash management, and the quality of data reported by
recipients. Single Audits have identified similar issues.

Subrecipient monitoring is an important aspect of program oversight and is even more critical
under temporary legislation like the Recovery Act. Federal regulations require the
Department’s grantees to monitor activities supported by the grant, including subrecipients’
activities. Adequate monitoring helps to ensure that subrecipients comply with applicable
Federal requirements and meet performance goals. Because most elementary and secondary
education programs are implemented at the local level, a risk-based approach has the potential
for yielding the greatest impact. A risk-based approach can help identify the most important
programs, recipients, and issues and allows the Department and recipients to effectively
prioritize oversight resources.
Final Management Information Report
ED-OIG/X09M0002                                                                                      Page 18 of 49

For both new and existing programs, temporary funding could increase the risk that recipients
will continue to have problems with longstanding compliance challenges and that funds might
be misused absent necessary internal controls. For example, for existing programs like Title I
and IDEA, a sudden influx of additional funding might affect a subrecipient’s ability to manage
and spend the funds appropriately and in a timely manner. For new programs like SFSF,
recipients and subrecipients faced a learning curve on issues such as what are allowable uses of
the funds and new reporting requirements.15 Recipients also needed to establish new or
modify existing monitoring processes to ensure subrecipient compliance.

OIG Work Highlighted the Need for the Department to Address Longstanding Challenges
Our multiphase Recovery Act audits assessed various compliance issues in 21 States and
identified findings related to subrecipient monitoring, use of funds, cash management, and
data quality, highlighting the need for the Department to address longstanding deficiencies.
Although we identified issues in most of the States we reviewed, the issues generally were
related to internal control weaknesses and resulted in only minor questioned costs. Figure 2
shows the proportion of States where we performed these audits and identified weaknesses in
these four compliance areas.

Figure 2: Percentage of States Where OIG Performed Recovery Act Audits and Identified
Compliance Issues

     Subrecipient Monitoring
      (Reviewed in 9 States)

 Use of/Accounting for Funds
   (Reviewed in 21 States)

          Cash Management
        (Reviewed in 9 States)

           Data Quality
      (Reviewed in 17 States)

                                 0%    10%    20%     30%     40%    50%     60%     70%    80%     90%    100%

                           Percentage of States reviewed with specific compliance Issue


Source: OIG audit reports as of October 2012.

In July 2009, we provided information to the Department on compliance issues at SEAs and
LEAs that we identified in more than 40 pre-Recovery Act audit reports issued from October

15
  The Recovery Act allowed significant flexibility and contained only limited prohibitions on use of SFSF funds. For
example, LEAs were specifically prohibited from using these funds for maintenance costs; stadiums or other
facilities where the public pays to watch athletic or other events; vehicles; stand-alone facilities that are not
primarily used to educate children, including buildings used for central office administration, operations, or
logistical support; or renovating schools when not consistent with State law (Section 14003).
Final Management Information Report
ED-OIG/X09M0002                                                                                  Page 19 of 49

2002 through April 2009. We believed that this information would be useful to the Department
in overseeing Recovery Act grant funds provided to recipients and subrecipients. Many of these
prior audits identified inadequate subrecipient monitoring as a common internal control
weakness that resulted in significant amounts of questioned costs not being prevented or
detected in a timely manner and Federal education funds being at risk.16

Despite the Department’s increased emphasis on oversight, guidance, and technical assistance
efforts, our Recovery Act audits continued to identify weaknesses in many recipients’ ability to
effectively monitor their subrecipients. We also identified specific findings in the areas of
allowable costs, cash management, and data quality. In some instances, we found problems in
areas we had reported on previously. For example, our Phase I and II Recovery Act audits found
that cash management problems persisted in some states even though we had previously
issued reports at the State and local levels with similar findings.

In June 2010, we reported on issues we identified regarding States’ plans to monitor their
subrecipients. The most common issue we identified was that States had not sufficiently
modified existing monitoring plans and programs to provide reasonable assurance of
subrecipient compliance with Recovery Act requirements. Other issues we identified included
(1) State monitoring plans not addressing fiscal requirements such as cash management,
(2) States not reviewing supporting documentation or verifying Recovery Act expenditures
before disbursing the funds to subrecipients, and (3) States not determining which State entity
would be responsible for monitoring subrecipients’ use of SFSF funds.17

We encouraged the Department to use the information presented in the June 2010 report and
our individual State Recovery Act reports when assessing risk and planning monitoring visits to
States. One way to use this information to address persistent challenges is through the audit
resolution process. In July 2012, we issued a report on the Department’s resolution of 93
external audits from 2007 through 2010, which included some of our Recovery Act audits. Of
these 93 audits, 84 (90 percent) were not resolved within the required 6-month timeframe for
external audits.18 As of June 30, 2014, 24 of 29 external Recovery Act audits that contained
recommendations have been resolved but none were resolved within the 6 month
requirement. In November 2012, the Department convened an Audit Resolution Advisory Panel
to establish milestones for resolution of overdue audits, coordinate resolution across principal
offices, and track the resolution of OIG and Single Audit findings. Resolving audit findings
timely is a critical step in improving program performance and ensuring compliance.




16
  “Fiscal Issues Reported in ED-OIG Work Related to LEAs and SEAs,” July 21, 2009 (ED-OIG/X05J0005).
17
  “Subrecipient Monitoring under the American Recovery and Reinvestment Act of 2009,” June 4, 2010
(ED-OIG/X05J0019).
18
     “The Department’s External Audit Resolution Process,” July 3, 2012 (ED-OIG/A19K0009).
Final Management Information Report
ED-OIG/X09M0002                                                                                  Page 20 of 49

The Department Emphasized the Importance of Oversight When it Provided Guidance and
Technical Assistance
The Department addressed a wide variety of implementation issues, including the importance
of oversight, in the Recovery Act guidance and technical assistance that we described in
Challenge 2. In its August 2010 webinar, the Department covered the requirements and its
expectations for subrecipient monitoring as well as best practices. One highlighted best
practice was for recipients to use a risk-based approach to monitoring. This method of
prioritizing subrecipient monitoring activities would be helpful when recipients have limited
resources to perform oversight, as we have previously suggested to the Department.19 The
Department also devoted specific webinars to strategic uses of funds for specific programs,
cash management requirements, and data quality and reporting.

Because we continued to identify persistent issues in our Recovery Act audits, including repeat
findings at some entities despite increased guidance and technical assistance by the
Department, we believe that the Department should take additional steps to eliminate audit
findings.

Suggestions: Ensure all Program Offices Use Effective Risk-Based Monitoring Approaches and
Encourage Recipients to Use the Same Approach for Subrecipient Monitoring. The
Department should ensure that its program offices responsible for monitoring recipients are
using robust, risk-based monitoring strategies that devote available resources to the highest
risk recipients and issues. The Department should work with recipients to ensure that their
subrecipient monitoring tools and approaches also address programmatic requirements and
risks.

Focus Efforts on the Audit Resolution Process and Better Target Guidance and Technical
Assistance. The Department should continue its efforts to enhance audit resolution, including
identifying trends in audit findings, so that compliance issues can be timely resolved through
agreed upon corrective actions. The Department should also identify effective corrective
actions that can be employed to resolve common issues across various recipients and
subrecipients.

Lesson: Independent Oversight is a Key Tool to Promote Transparency and
Accountability
Independent audits are another key accountability tool to assess whether internal control
systems are effective and recipient and subrecipient expenditures comply with applicable

19
  The OIG encouraged a risk-based monitoring approach in a 2007 perspective paper (ED-OIG/S09H0007: “An OIG
Perspective on Improving Accountability and Integrity in ESEA Programs,” October 2007, pages 15–18). In
addition, the Department also encouraged such an approach in their 2006 Departmental Executive Steering
Committee asked to review the efficiency and effectiveness of the Department’s discretionary and formula grants
processes (Department of Education Grant Pilot Project Final Report, January 26, 2007, pages 9–10).
Final Management Information Report
ED-OIG/X09M0002                                                                                     Page 21 of 49

Federal requirements. In addition to the OIG and GAO at the Federal level, State and local
auditors, controllers, and treasurers as well as independent auditors performing Single Audits
provide oversight over the use of Federal funds. However, OMB’s February 2009 guidance on
grants and cooperative agreements indicated that Single Audits of State and local entities and
the audit and investigation work of the Inspectors General were the primary tools to drive
accountability for funds awarded under the Recovery Act.20 Future legislation like the Recovery
Act should include financial support, similar to the supplemental funding that OIGs and GAO
received for oversight activities, specifically for relevant State and local audit agencies to
conduct oversight activities. Leveraging Federal, State, and local audit resources would
enhance independent oversight efforts and promote transparency and accountability.

Increased Independent Oversight May Require Additional Funding
Although the Recovery Act did not specifically provide funding for State and local oversight
agencies, it provided States the flexibility to use a portion of the funds for independent
oversight. For example, governors could have used SFSF Government Services funds for State
or local government services, which could have included allocating funds for oversight
activities. However, a Department summary of the States’ initial SFSF reports showed that they
generally used these funds for other government services such as public safety or elementary,
secondary, and higher education. Our Recovery Act audits identified only one State that used a
portion of its Government Services funds for audits of LEA construction projects paid with SFSF
funds. Other State oversight agencies used their own funds to conduct internal control reviews.

In May 2009, OMB established rules allowing a State to use up to one-half percent of the total
Recovery Act funds received by the State for central administrative costs associated with all
Recovery Act programs such as oversight, reporting, and audit requirements.21 For example, a
State that received a total of $1 billion in Recovery Act funds could use up to $5 million for
central administrative costs. While independent audits could be covered as an administrative
cost, states had discretion regarding how to use these administrative funds. Our Recovery Act
work did not cover the extent that States used Recovery Act funds for central administrative
costs such as oversight or audits.

In its July 2009 report, GAO highlighted the importance of effective internal controls over the
use of Recovery Act funds and the value of Single Audit results as an effective oversight tool for
programs funded under the Act. Moreover, OMB noted the increased responsibilities falling on
those who performed Single Audits. However, a National State Auditors Association survey
showed that most of the State audit respondents indicated that their staff had been cut or
would be required to take unpaid leave in the coming year. GAO recommended that Congress
consider mechanisms to provide additional resources to support those charged with carrying


20
  “Initial Implementing Guidance for the American Recovery and Reinvestment Act of 2009,” February 18, 2009
(OMB M-09-10).
21
     “Payments to State Grantees for Administrative Costs of Recovery Act Activities,” May 11, 2009 (OMB M-09-18).
Final Management Information Report
ED-OIG/X09M0002                                                                                       Page 22 of 49

out Single Audits and related audits to the extent that additional audit coverage was needed to
achieve accountability over Recovery Act programs.22

Leveraging Audit Resources Can Help Strengthen Oversight of Federal Grant Programs
Collaboration among Federal, State, and local audit agencies prior to and under the Recovery
Act could serve as models to help strengthen oversight of Federal grant programs and leverage
audit coverage. Although we performed Recovery Act audits in most States, our available
resources precluded us from performing detailed work in every State or at most of the
Department’s grant recipients and subrecipients. Recognizing this constraint, we leveraged
resources at the Federal, State, and local levels. For example, we coordinated our audit efforts
with GAO to minimize duplication and maximize audit coverage across the nation. Our
outreach activities with State and local audit agencies in 2009 supported the Act’s
accountability measures. We also shared our audit programs with these oversight agencies so
they could conduct similar work at Recovery Act recipients and subrecipients that our office
could not cover. To maximize the impact of available resources, the OIG will continue to
leverage its activities and resources with GAO and State and local oversight agencies to address
accountability challenges similar to those inherent in the Recovery Act.

Suggestions: Include Funding for State and Local Oversight. For future legislation like the
Recovery Act, we encourage the Department to work with Congress and OMB to provide
supplemental funds to State and local audit agencies to monitor and oversee new or
supplemental Federal funding provided to grant recipients and subrecipients.

Lesson: The Department Needs Alternative Processes for Oversight and
Monitoring For New or Temporary Grant Programs
Single Audits provide important oversight and monitoring information for ongoing education
grant programs. Single Audits can provide important information on areas of weakness with
grantees or programs that help the department to target its monitoring and oversight activities.
However, when additional requirements are attached to temporary funding increases in
existing grant programs or when a new grant program is implemented, the Department’s ability
to make use of single audits can be limited because the results may not be available before all
or most program funds could be spent. Because of the lag time between when grant funds are
awarded and spent, and when Single Audit results are available, the Department may not be
able to use those results to inform its monitoring and technical assistance efforts. Further, this
lag time delays when temporarily funded programs can be incorporated into States’ Treasury-
State Agreements (TSAs), which address the proper timing of fund exchanges between the
Federal government and States.




22
  “Recovery Act: States’ and Localities’ Current and Planned Uses of Funds While Facing Fiscal Stresses,” July 8,
2009 (GAO-09-829).
Final Management Information Report
ED-OIG/X09M0002                                                                                     Page 23 of 49

Single Audits Results Were Not Available to Inform Initial Departmental Monitoring and
Assistance Efforts.
Results from prior Single Audits covering existing grant programs like Title I and IDEA helped the
Department and OIG identify potential internal control and compliance issues before SEAs and
LEAs began to spend significant amounts of Recovery Act funding. The Department used Single
Audit results to help target technical assistance and oversight and to identify potential problem
areas and high-risk recipients. We considered Single Audit findings as a risk factor when
determining the objectives and scope of our Recovery Act work and selecting SEAs and LEAs to
include in our reviews.

OMB, the Department, and OIG sought to provide timely and appropriate guidance and
instructions to incorporate Recovery Act programs into the Single Audit process. However, the
Single Audit process relies on audit reporting that occurs up to 9 months after the end of an
entity’s fiscal year, which could be too late to incorporate findings into the Department’s
oversight and monitoring efforts for temporary funding increases to existing grant programs or
new programs.

In October 2009, OMB initiated a voluntary Single Audit Internal Control Project for Recovery
Act grants involving 16 States in an attempt to mitigate the time lag inherent in the Single Audit
process. Participating auditors were to issue internal control reports 3 months before the
complete Single Audit report was due. OMB continued the project in FY 2010 and 2011. In a
report covering the project’s first-year results that included several education programs, OMB
noted that participating auditors and comptrollers identified project benefits such as the early
reporting allowing for earlier correction of problems and providing more visibility on the
usefulness of Single Audits in identifying problems. However, participating auditors questioned
the value of early reporting when some Federal agencies did not effectively and timely resolve
audit findings.23 In its reports, GAO complimented OMB on the project as helping to identify
and report internal control issues more timely for certain Recovery Act programs. However,
GAO noted the limited scope of the project and recommended that Federal agencies should be
more timely in resolving audit findings.24 In March 2010, OMB instructed Federal agencies to
expedite their Single Audit processes. OMB’s guidance emphasized that agencies were to
review and resolve entities’ audit findings within 6 months, as required, focus audit resolution
on high-risk programs and grantees and not approve extensions for Single Audits that were due
for FY 2009 through FY 2011.
23
  “Report on Single Audit Internal Control Project—American Recovery and Reinvestment Act of 2009 (ARRA)
Programs,” April 2010. The U.S. Department of Health and Human Services Office of Inspector General led and
reported on the results of OMB’s pilot project.
24
  “Recovery Act: Status of States’ and Localities’ Use of Funds and Efforts to Ensure Accountability,” December 10,
2009 (GAO-10-231); “Recovery Act: One Year Later, States’ and Localities’ Uses of Funds and Opportunities to
Strengthen Accountability,” March 3, 2010 (GAO-10-437); “Recovery Act: States’ and Localities’ Uses of Funds and
Actions Needed to Address Implementation Challenges and Bolster Accountability,” May 26, 2010 (GAO-10-604).
The Recovery Act required GAO to review and report on selected States and localities’ use of funds provided in the
Act on a bimonthly basis.
Final Management Information Report
ED-OIG/X09M0002                                                                                  Page 24 of 49

In 2013, OMB continued to assess the Single Audit process and was working to revise its
uniform guidance on grants and cooperative agreements, to include eliminating and
streamlining certain requirements. According to OMB, many in the Federal agency and audit
community suggested reducing the lag time by shortening the due date for Single Audit reports
from the current 9 months to 6 months or 3 months. OMB voiced support for this idea but
noted that the change would require legislative action. OMB issued revised guidance on grants
and cooperative agreements on December 26, 2013.

Single Audits Should Not Determine Programs to Be Included in Treasury-State Agreements
When Programs Are New or Funding is Temporary
The lag time in Single Audit reporting creates a gap in TSAs when temporary legislation similar
to the Recovery Act is enacted. Single Audits determine the Federal programs to be included in
the TSA. Each year, every State establishes a TSA with the U.S. Treasury to provide details on
their implementation of the Cash Management Improvement Act of 1990, as amended. 25
Federal regulations require that the most recent available Single Audit data be used to identify
States’ federally funded programs for inclusion in the TSA.

In June 2011, we alerted the Department that using Single Audits to identify the major
education programs covered in TSAs might not be the best source for determining the status of
programs authorized or funded under temporary legislation like the Recovery Act.26 Based on
our review of the TSAs for 12 States, we found that Single Audit data for 10 of the States did not
include the 3 largest Recovery Act programs, including the nearly $49 billion SFSF program.
Because of the timing of Single Audit reporting, a new program like SFSF would not be included
in a State’s TSA until at least the second fiscal year after the State first received the program
funds, which could be after most or all of the funds had been spent. Including Recovery Act and
other programs funded by large, temporary appropriations in the TSAs would protect State and
Federal interests by either specifying interest-neutral funding techniques or by requiring one
party to compensate the other for the early or late transfer of Federal funds.27




25
  Congress enacted the Cash Management Improvement Act of 1990, as amended, to ensure greater efficiency,
effectiveness, and equity in the exchange of funds between the Federal Government and States. Federal programs
should be “interest-neutral” and result in no gains or losses by either the Federal or State governments in the
exchange of funds. Each State’s TSA establishes the dollar threshold for determining and identifying the major
Federal assistance programs covered by the TSA and documents the accepted funding techniques, including the
methods and timing for drawing Federal cash and methods for calculating interest.
26
  “American Recovery and Reinvestment Act of 2009: States’ Treasury-State Agreements Might Need to Include
American Recovery and Reinvestment Act, Education Jobs Fund, and Other Similarly Funded Programs,” June 20,
2011, (ED-OIG/L05L004).
27
  If Recovery Act and other similarly funded programs are excluded from TSAs, States must then comply with the
Education Department General Administrative Regulations at 34 C.F.R. §§ 80.20 and 80.21.
Final Management Information Report
ED-OIG/X09M0002                                                                     Page 25 of 49

Suggestions: Supplement Single Audit Activities. The Department should continue
implementing early compliance oversight and monitoring processes for newly created or
temporarily funded programs under legislation similar to the Recovery Act.

Update TSAs. For newly created programs or programs temporarily funded under legislation
similar to the Recovery Act, the Department should work with the U.S. Treasury early in
program implementation to determine whether the programs should be added to States’ TSAs
for cash management purposes.

Department comments

The Department stated that the Challenge 3 heading is also overly negative. The Department
referred to report statements noting that the Department emphasized the importance of
oversight when providing guidance and technical assistance and also noted that OIG generally
identified only minor findings in its Recovery Act audits as a basis for suggesting alternative
language for the Challenge 3 heading.

OIG Response

Our report recognizes that the Department significantly enhanced its efforts to ensure program
monitoring and oversight was adequate, and that it emphasized the need for oversight in its
communications with grantees. Nonetheless, our Recovery Act work identified weaknesses in
this area in all phases of our work that included audit procedures related to compliance or
oversight. Although our audits did not identify significant amounts of questioned or
unallowable costs, we believe that our frequent findings of internal control weaknesses call for
continued emphasis by the Department to address persistent monitoring and oversight
challenges. We urge the Department to consider our suggestions and look for opportunities to
apply lessons from its efforts to enhance oversight of Recovery Act funds to address
longstanding monitoring and oversight challenges.

Challenge 4: New Reporting and Transparency Requirements Created
Implementation Challenges
The Recovery Act’s emphasis on accountability and transparency increased the need for
information. To provide transparency over how funds were used, Section 1512 of the Act
required recipients to submit quarterly reports providing various data, such as the type, date,
and amount of their grant awards; descriptions of funded projects and their status; estimated
number of jobs created or retained; and the amount of Recovery Act funds received and spent
(collectively referred to as Section 1512 data).

The Recovery Board worked with OMB to establish two systems for collecting Section 1512 data
and making it available to the public. The FederalReporting.gov Web site worked in conjunction
with the Recovery.gov Web site as the technology platform for recipient reporting and data
transparency. The Recovery Board deployed FederalReporting.gov as a nationwide data
Final Management Information Report
ED-OIG/X09M0002                                                                                 Page 26 of 49

collection system for recipients to report their Section 1512 data. No later than 10 days after
the end of each calendar quarter, recipients had to submit Recovery Act data to
FederalReporting.gov. A subsequent correction period provided Federal agencies an
opportunity to review the data that recipients reported and notify them of significant data
omissions or errors. Recipients also had time to review submitted data and make any necessary
corrections. At the end of the correction period, recipient data were made available to the
public on Recovery.gov.

Our Recovery Act work on Section 1512 reporting identified several challenges for the
Department and its recipients and subrecipients as they collected and reported data. We have
long emphasized the need for accurate, reliable and complete data to manage education
programs and to assess outcomes.28

Challenges to the Department
    The Department had to develop clear and timely guidance and effective oversight
       procedures to help ensure that the Section 1512 data reported by recipients was
       accurate, reliable, and complete.

        The Department had to expend significant time and effort working with recipients and
         OMB to address transparency issues that were specific to education programs such as
         obtaining useful data on funds passed through to subrecipients and on jobs saved and
         created for part time teachers and other school employees at the subrecipient level.

        The Department had to provide timely technical assistance to recipients to help mitigate
         the potential for or eliminate any known significant deficiencies in reported data.

Challenges to Recipients and Subrecipients
    Recipients and subrecipients had to meet the Recovery Act’s new reporting
       requirements, including compliance with Section 1512. GAO reported that some
       recipients and subrecipients noted a burden associated with meeting the Recovery Act’s
       new reporting requirements, particularly due to limited resources.

        Each recipient had to develop a system for reporting Section 1512 data, including
         collecting data from subrecipients, assessing the quality of this data, and submitting the
         data to FederalReporting.gov on time. A Recovery Board report on recipients’ efforts to
         report Section 1512 information also identified recipients that were not able to




28
  In addition to our Recovery Act-specific findings on data quality, we made recommendations to the Department
on ways to improve data in “An OIG Perspective on Improving Accountability and Integrity in ESEA Programs,”
October 2007, (ED-OIG/S09H0007) and “An OIG Perspective on the Reauthorization of the Elementary and
Secondary Education Act,” February 1999, (ED-OIG/S1480010).
Final Management Information Report
ED-OIG/X09M0002                                                                                   Page 27 of 49

         implement effective data quality systems to ensure accurate and reliable data reporting
         because of budget and/or personnel resource constraints.29

        Each subrecipient had to separately account for Recovery Act funds and compile and
         submit timely Section 1512 data to the recipient.

Lesson: The Department Took Steps to Improve Data Quality, but Accuracy and
Reliability Issues Remained
Legislation that emphasizes transparency about how funds were spent makes it imperative that
the data are accurate, reliable, and complete, and that effective oversight and performance
reporting mechanisms are in place. The Recovery Act required transparency on an
unprecedented scale through the quarterly Section 1512 reports and other program-specific
reports. OMB and the Department provided guidance and technical assistance to help
recipients and subrecipients comply with the Section 1512 reporting requirements. OMB’s
government-wide guidance covered the process for reporting and correcting data; types of
entities that had to report specific data elements; the methodology for calculating the number
of jobs created, retained, or funded by the Act; the data correction period; and a common
framework for agencies to implement processes to ensure data quality. The Department issued
guidance specific to reporting Section 1512 data for each education-related grant program,
including how to calculate jobs. It also issued a Grant Policy Bulletin outlining the penalties for
recipients that failed to submit Section 1512 reports for two consecutive reporting quarters.
Although the guidance and Bulletin stated that the Department could withhold grant funds for
nonreporters, it did not address consequences for reporting poor quality data.

The Department Took Steps to Improve Data Quality
Data quality has been a longstanding issue for the Department even before the Recovery Act.
Our 1999 and 2007 perspective papers on reauthorization of the ESEA addressed the
importance of accurate, reliable, and complete data and described deficiencies that we
identified in prior audits of performance data that SEAs reported to the Department. Although
the Department required management certifications on the accuracy of data submitted by
SEAs, we concluded that it should expand the certifications to also cover the reliability and
completeness of the data to promote accountability and further highlight the importance of
high quality data at all levels.30 With regard to the Recovery Act, OMB guidance for reporting
Section 1512 data did not require recipients to submit management certifications on data
quality or disclose known data limitations. However, Department guidance encouraged


29
  “Recovery Act Data Quality: Recipient Efforts to Report Reliable and Transparent Information,” September 13,
2010, Recovery Board.
30
  “An OIG Perspective on the Reauthorization of the Elementary and Secondary Education Act,” February 1999
(ED-OIG/S1480010); “An OIG Perspective on Improving Accountability and Integrity in ESEA Programs,” October
2007 (ED-OIG/S09H0007).
Final Management Information Report
ED-OIG/X09M0002                                                                                    Page 28 of 49

recipients to disclose known data quality issues and recommended that they advise the
Department when unable to correct or remedy identified data deficiencies.

Consistent with OMB’s Recovery Act guidance, the Department established data quality review
procedures to identify material omissions or significant reporting errors. It also instructed
recipients and subrecipients to advise the Department if reported data contained known
deficiencies. In 2011, we reported that obtaining high-quality data from recipients would be a
continuing challenge for the Department. Although the Department’s processes to ensure the
accuracy and completeness of recipient-reported data were generally effective, we still
identified data quality issues such as recipients reporting data that were inconsistent with data
in the Department’s grants management system, documentation in contract files, or
information contained in other reports submitted by recipients; and that the Department had
inadequate controls and procedures to identify systemic or chronic recipient reporting issues. 31

Our multiphase Recovery Act audits identified specific causes for inaccurate or incomplete
reporting by recipients and subrecipients. Before the first Section 1512 reports were due, we
concluded that all nine States (including Puerto Rico) that we reviewed during Phase I had
potential data quality issues at the recipient or subrecipient level. We reported that ineffective
or nonexistent controls for tracking Recovery Act activities and implementing internal review
processes hampered data quality. Our Phase II audits addressed the second quarterly Section
1512 reports, which covered the use of Recovery Act funds as of December 31, 2009. We
identified data quality issues in 9 of the 11 States we audited. Multiple issues affected the
accuracy, reliability, and completeness of the data that recipients reported. OMB notified
recipients of revised guidance on reporting definitions just two weeks before the end of the
reporting period. Because of the late revisions to reporting instructions, recipients had
inadequate time to produce high-quality data. Recipients also did not always use the data
correction period to correct known errors.32 Our Recovery Act audits of selected Centers for
Independent Living also identified data quality issues, such as missing data or entire reports,
untimely reporting, and inaccurate data.33

Reporting Jobs Data Were Especially Problematic for Recipients and Subrecipients
Our Recovery Act work showed that estimating the number of jobs created or retained as a
result of the Act was especially problematic for recipients and subrecipients and might have
diminished the usefulness of the jobs data. The Recovery Board’s 2010 report on data quality
concluded that the two main causes for inaccurate jobs reporting were that recipients did not
follow OMB’s Section 1512 reporting guidance and made errors when calculating or posting the
number of jobs. The definition used to estimate the number of jobs created, retained, or

31
     “The Effectiveness of the Department’s Data Quality Review Processes,” August 22, 2011 (ED-OIG/A19K0010).
32
  Table 2 of the Compendium in Appendix 2 identifies the States where we identified data quality issues during
our multiphase reviews. The Compendium also describes the Recovery Act audits that covered data quality.
33
  “Centers for Independent Living Compliance, Performance, Recovery Act Reporting, and Monitoring,”
September 12, 2012 (ED-OIG/A06K0011).
Final Management Information Report
ED-OIG/X09M0002                                                                                      Page 29 of 49

funded by the Recovery Act also caused confusion and inhibited accountability and
transparency.

Several factors contributed to reporting errors including inadequate recipient processes and
controls for collecting, compiling, and reviewing jobs data. The Recovery Board’s 2010 report
also attributed errors in jobs data to difficulties associated with the timing of guidance and
changes in the methodology for estimating and reporting the number of jobs. In August 2012,
Department officials confirmed that implementing the guidance for education grant programs
proved to be confusing and burdensome for the Department and its recipients.

Suggestions: Improve Data Quality. For future temporary legislation like the Recovery Act,
other efforts intended to increase transparency, or to improve data for ongoing grant
programs, the Department should implement measures that improve the quality of recipient
and subrecipient data and continue to emphasize the need for appropriate data quality
reviews. Measures to improve data quality include:

     a. piloting the reporting requirements and mechanisms with a small group of recipients
        and subrecipients to identify and correct reporting issues before implementing the
        requirements nationwide or when the requirements substantially change as they did for
        reporting jobs data;

     b. establishing a process to identify and remediate situations in which grant recipients
        demonstrate systemic or chronic reporting problems or otherwise fail to correct the
        problems, including imposing penalties on nonreporters or for reporting poor quality
        data;

     c. providing more focused technical assistance on data quality, especially for recipients
        identified as having systemic or chronic reporting problems, including how recipients
        and subrecipients could incorporate more analytical procedures into their data quality
        systems, and ensuring that they implement the procedures;

     d. ensuring that recipients implement adequate and effective internal controls to ensure
        high-quality data for key reporting elements;

     e. requiring reporting entities to submit management certifications on data quality and to
        disclose known data limitations that could affect the quality or usefulness of the
        information.34

Because education spending and services primarily occur at the local level, the need for
accurate, reliable, and complete subrecipient data is critical. The Department should also
34
  Although governors or their designee were required to submit an application for SFSF funding that included
various assurances, including multiple assurances related to accountability, transparency, and reporting
requirements, there was no assurance related to the quality of data (accuracy, reliability, and completeness) that
States were required to submit under the Recovery Act.
Final Management Information Report
ED-OIG/X09M0002                                                                    Page 30 of 49

develop clear and timely guidance that addresses the need for strong subrecipient internal
controls for tracking and reporting data.
Final Management Information Report
ED-OIG/X09M0002                                                                       Page 31 of 49


Scope and Methodology
The overall objective of this management information report was to provide the OIG’s
perspective on challenges that were faced when administering education-related grant
programs funded by the Recovery Act, how the challenges were addressed, and lessons to
consider in the event that Congress enacts legislation similar to the Recovery Act in the future.

To accomplish our objective, we primarily drew on our experience from the audit and
investigation work we performed related to the Recovery Act from February 2009 through June
2014. Specifically, we reviewed more than 50 OIG audit and investigation reports and other
OIG products related to Department, State, and local agency implementation of the Act. Most
of our Recovery Act audits focused on the three largest education-related Recovery Act grant
programs: SFSF, Title I, and IDEA. We also reviewed OIG’s annual reports on management
challenges for FY 2010 through FY 2013; and OIG’s Recovery Act training and outreach
materials. Our investigations responded to allegations of fraud and whistleblower reprisals
involving Recovery Act funds.

We also reviewed reports published by the Recovery Board related to the Recovery Act’s
Section 1512 reporting requirements and data quality and GAO reports that addressed
Recovery Act topics and issues included in this report. We also reviewed OMB’s Recovery Act
guidance on implementing the Act, Section 1512 reporting requirements, and the 2009 A-133
Compliance Supplement and Addendum.

To gain an understanding of the Department’s activities, challenges, and responses associated
with implementing the Act, we reviewed its Recovery Act guidance and materials associated
with outreach and technical assistance activities. We also reviewed Department and OIG
responses to a 2012 Recovery Board survey of Federal agencies and Inspectors General about
the lessons learned from implementing the Act. To confirm the reasonableness of the survey
responses, we corroborated the information on implementation activities by reviewing
available OIG, Department, Recovery Board, and GAO information described above.

This management information report provides our conclusions based in part on audit work
performed at selected recipients and subrecipients that received Recovery Act funding.
Because we did not use statistical sampling methods to select the State and local entities
covered in our reviews, the information in this report should not be generalized to the universe
of recipients and subrecipients that received Recovery Act funds.

The scope of our work was limited to OIG, GAO, Recovery Board, and Department products and
activities related to the Recovery Act from February 2009 through June 2014. For this report,
we performed our work from March 2012 through June 2014.

Except for reporting on our own Recovery Act activities and audits, we conducted the work for
this management information report in accordance with OIG quality standards for alternative
products. Those standards require that we plan the work to obtain sufficient and appropriate
Final Management Information Report
ED-OIG/X09M0002                                                                    Page 32 of 49

data and other information to provide a reasonable basis for our conclusions. We could not
conform to the independence standard when reporting on our own work related to OIG’s
challenges, activities, and lessons learned. However, we believe that the information obtained
provides a reasonable basis for the conclusions contained in the report.
      Final Management Information Report
      ED-OIG/X09M0002                                                                       Page 33 of 49


      Appendix 1. Appropriated Funding for Recovery Act Programs
      Administered by the Department
      Under the Recovery Act, Congress appropriated more than $98 billion to the Department for
      24 new and existing grant programs, Department administration and oversight, and OIG
      oversight activities.

      Table 1. Appropriated Funding for Recovery Act Programs the Department Administered
                                                            Catalog of      Appropriated
                                                                                                Percent of
                                                         Federal Domestic     Amount
Recovery Act Program                                                                           Department
                                                            Assistance      (Rounded, in
                                                                                              Appropriation
                                                             Number           millions)

State Fiscal Stabilization Fund
State Allocations (Education Stabilization and
                                                          84.394, 84.397         $ 48,586          49.5%
Government Services Fund) (a)
Race to the Top State Incentive Grants                       84.395               $4,350            4.4%
Investing in Innovation Fund                                 84.396                $650             0.7%
Administration and Oversight                                    -                    $14           <0.1%
                          Subtotal for SFSF Programs            -                $53,600           54.6%
Federal Student Aid
Federal Pell Grants                                          84.063              $17,114           17.4%
Federal Work-Study Grants                                    84.033                $200             0.2%
Student Aid Administration                                      -                    $60            0.1%
         Subtotal for Federal Student Aid Programs              -                $17,374           17.7%
Education for the Disadvantaged (b)
ESEA Title I Grants to LEAs (Part A)                         84.389              $10,000           10.2%
ESEA Title I School Improvement Grants                       84.388               $3,000            3.1%
                         Subtotal for Title I Programs          -                $13,000           13.3%
Special Education
Special Education–Grants to States (IDEA Part B
                                                             84.391              $11,300           11.5%
§ 611)
Special Education–Grants For Infants/Families
                                                             84.393                 $500            0.5%
(Part C)
Special Education–Preschool Grants (IDEA Part B
                                                             84.392                 $400            0.4%
§ 619)
                       Subtotal for IDEA Programs               -                $12,200           12.4%
School Improvement Programs (b)
Education Technology State Grants                            84.386                 $650            0.7%
Education of Homeless Children and Youth                     84.387                  $70            0.1%
        Subtotal for School Improvement Programs                -                   $720            0.7%
       Final Management Information Report
       ED-OIG/X09M0002                                                                            Page 34 of 49


                                                             Catalog of        Appropriated
                                                                                                      Percent of
                                                          Federal Domestic       Amount
 Recovery Act Program                                                                                Department
                                                             Assistance        (Rounded, in
                                                                                                    Appropriation
                                                              Number             millions)

 Rehabilitative Services and Disability Research (c)
 Vocational Rehabilitation State Grants                       84.390                     $540              0.5%
 Centers for Independent Living                               84.400                      $88              0.1%
 Independent Living Services for Older Blind
                                                              84.399                       $34            <0.1%
 Individuals
 Independent Living State Grants                              84.398                       $18            <0.1%
   Subtotal for Rehabilitative Services and Disability
                                                                                         $680              0.7%
                                  Research Programs              -
 Institute of Education Sciences:
                                                              84.384                     $250              0.3%
 Statewide Longitudinal Data Systems
 Innovation and Improvement
 Teacher Incentive Fund                                       84.385                     $198              0.2%
 Administration and Oversight                                    -                         $2             <0.1%
           Subtotal for Innovation and Improvement
                                                                 -                       $200              0.2%
                                           Programs
 Higher Education: Teacher Quality Partnerships               84.405                      $100             0.1%
 Impact Aid
 Impact Aid Construction Competitive Grants                   84.401                      $59              0.1%
 Impact Aid Construction Formula Grants                       84.404                      $40             <0.1%
 Administration and Oversight                                    -                         $1             <0.1%
                   Subtotal for Impact Aid Programs              -                       $100              0.1%
 Office of Inspector General                                     -                        $14             <0.1%

                                   Total Recovery Act            -                    $98,238           100.0%
 (a) $268 million of the appropriation for the SFSF State Allocations and Rehabilitative Services and Disability
 Research programs was for U.S. territories including American Samoa, Guam, Northern Mariana Islands, and
 Virgin Islands.
 (b) U.S. territories may combine Recovery Act funding provided under Title I, School Improvement, Educational
 Technology, and Education for Homeless Children and Youths into one program: Consolidated Grants to
 Insular Areas (CFDA 84.402).
 (c) Funding for Capacity Building for Traditionally Underserved Populations (CFDA 84.406) was included in the
 more than $140 million appropriated for independent living programs under the Recovery Act.

Source: Appropriated funding amounts from the Recovery Act.
Final Management Information Report
ED-OIG/X09M0002                                                                     Page 35 of 49


Appendix 2. Compendium of OIG Products and Other
Activities Related to the Recovery Act
This compendium summarizes the OIG’s body of Recovery Act work from February 2009
through June 2014 by seven general areas of effort. We summarize each phase of our reviews
of recipients and subrecipients, our work on the Department’s implementation of the Act, and
other OIG reports related to the Act. For each general area of effort, we summarize the
purpose and results of the effort, reference the challenges and lessons addressed earlier in the
report, and list the related reports and other products that we published.

Our State and local audits focused on compliance for three review phases:

      Phase I focused on internal control systems and covered cash management,
       subrecipient monitoring, data quality, and use of or accounting for funds. These audits
       were conducted between February 2009 and December 2010.
      Phase II focused on recipient and subrecipient use of funds and the quality of recipient-
       reported data. These audits were conducted between October 2009 and January 2013.
      Phase IV focused on subrecipients’ use of remaining funds as Recovery Act grants
       expired. These audits were conducted between June 2012 and June 2013.

We summarize the four most pervasive compliance issues that we identified from the Phase I,
Phase II, and Phase IV audits in the table on the next page. Although we identified issues in
most of the States we reviewed, the issues generally were related to internal control
weaknesses and did not result in significant questioned costs.
 Final Management Information Report
 ED-OIG/X09M0002                                                                         Page 36 of 49

 Table 2. States Where OIG Performed Recovery Act Phase I, Phase II, or Phase IV Audits and
 Identified Compliance Issues
                        OIG                                                        Use of or      Number of
                      Review         Cash       Subrecipient                      Accounting     Compliance
 State                 Phase Management          Monitoring     Data Quality       for Funds        Issues
 Alabama                   II    not reviewed    not reviewed       ● Yes            ● Yes             2
 Arkansas                 IV     not reviewed    not reviewed    not reviewed        ● Yes             1
 California              I, II      ● Yes           ● Yes           ● Yes            ● Yes             4
 Delaware                 IV     not reviewed    not reviewed    not reviewed        ● Yes             1
 Florida                  IV     not reviewed    not reviewed    not reviewed        ● Yes             1
 Illinois                I, II      ● Yes           ● Yes           ● Yes            ● Yes             4
 Indiana                    I       ● Yes           ● Yes           ● Yes            ● No              3
 Louisiana               I, II      ● Yes           ● Yes           ● Yes            ● Yes             4
 Maryland                  II    not reviewed    not reviewed       ● Yes            ● Yes             2
 Missouri                  II    not reviewed    not reviewed       ● Yes            ● Yes             2
 Nebraska                 IV     not reviewed    not reviewed    not reviewed        ● No              0
 New York                   I       ● Yes           ● Yes           ● Yes            ● Yes             4
 Oklahoma                  II    not reviewed    not reviewed       ● Yes            ● Yes             2
 Pennsylvania               I       ● Yes           ● Yes           ● Yes            ● Yes             4
 Puerto Rico            I, IV       ● Yes           ● Yes           ● Yes            ● Yes             4
 South Carolina            II    not reviewed    not reviewed        ● No            ● Yes             1
 Tennessee                  I        ● No            ● No           ● Yes            ● No              1
 Texas                      I        ● No           ● Yes           ● Yes            ● Yes             3
 Utah                      II    not reviewed    not reviewed       ● Yes            ● Yes             2
 Virginia                  II    not reviewed    not reviewed        ● No            ● Yes             1
 Wisconsin                 II    not reviewed    not reviewed       ● Yes            ● Yes             2
 Number of States Where
 Specified Compliance Issue            9               9              17               21             21
 Was Covered by Audit
 Number of States With the
                                       7               8              15               18             20
 Specified Compliance Issue
 Percentage of States With
 the Specified Compliance            78%             89%             88%              86%            95%
 Issue
 Legend: ● Yes, OIG audit identified a compliance issue ● No, OIG audit did not identify a compliance issue

Source: OIG audit reports as of June 2014.
Final Management Information Report
ED-OIG/X09M0002                                                                            Page 37 of 49

Phase I: Internal Controls Over Recovery Act Funds
OIG External Reports

  California (A09J0006, 1/15/2010)
  Illinois (A05J0012, 2/23/2010)
  Indiana (A05J0011, 1/14/2010)
  Louisiana (A06K0001, 9/29/2010)
  New York SEA (A02J0006, 11/10/2009)
  New York LEAs (A02J0009, 2/17/2010)
  Pennsylvania SEA (A03J0010, 3/15/2010)
  Pennsylvania LEAs (A03K0003, 12/21/2010)
  Puerto Rico (A04K0001, 12/16/2010)
  Puerto Rico Vocational Rehabilitation (A04J0009, 12/14/2010)
  Tennessee SEA (A04J0010, 12/15/2009)
  Tennessee LEAs (A04K0002, 12/18/2009)
  Texas (A06J0013, 1/27/2010)
OIG Products to the Department

  Subrecipient Monitoring (X05J0019, 6/4/2010)
  Cash Management (L09J0007, 10/21/2009)
  State Fiscal Stabilization Fund Maintenance of Effort (L03J0011, 9/30/2009)

Purpose
Our Phase I audits determined whether selected State and local agencies charged with responsibility for
overseeing Recovery Act funds had systems of internal control that were sufficient to provide
reasonable assurance of compliance with applicable laws and regulations. The reviews focused on
controls over cash management, subrecipient monitoring, data quality, and use of funds for the
Recovery Act Education Stabilization and Government Services, Title I, IDEA, and Vocational
Rehabilitation grant programs. We performed our work at State governors’ offices, SEAs, other State
recipients and subrecipients, and 26 LEAs in 8 States and Puerto Rico. In addition to the State reports,
we issued separate products to the Department on issues identified in our State and local audits on SFSF
MOE, cash management, and subrecipient monitoring.

Results
The State and local recipients and subrecipients we reviewed had systems of internal controls in place or
were designing control systems to provide proper administration and oversight of Recovery Act funds.
However, we identified areas where controls could be strengthened or established to provide
reasonable assurance of compliance with applicable Federal requirements related to cash management,
subrecipient monitoring, data quality, and use of funds. In addition to specific improvements for each
State, we recommended that the Department provide technical assistance and guidance on cash
management, consider subrecipient monitoring when assessing risk and planning monitoring visits, and
ensure that States adhere to SFSF MOE requirements before awarding additional SFSF funding.
Final Management Information Report
ED-OIG/X09M0002                       Page 38 of 49

Audit Locations
Final Management Information Report
ED-OIG/X09M0002                                                                               Page 39 of 49

Phase II: Recovery Act Expenditures and Reporting
OIG External Reports

  Alabama (A04K0007, 2/15/2012)
  California (A09K0002, 4/28/2011)
  Illinois (A05K0005, 6/9/2011)
  Louisiana (A06K0003, 4/11/2011)
  Maryland (A03K0009, 1/3/2013)
  Milwaukee Public Schools (A02K0009, 4/21/2011)
  Missouri (A07K0002, 6/7/2011)
  Oklahoma (A06K0002, 2/18/2011)
  South Carolina (A04K0005, 4/20/2011)
  South Carolina Governor’s Office (A04K0006, 8/23/2011)
  Utah (A09K0001, 5/13/2011)
  Wisconsin (A02K0005, 9/29/2010)
  Virginia (A03K0008, 6/9/2011)
OIG Report to the Recovery Board
  Recovery Act Data Quality (S20K0002, 9/13/2010)
OIG Product to the Department
  Treasury-State Agreements (L05L0004, 6/20/2011)

Purpose
Our Phase II audits determined whether selected recipients and subrecipients in 11 States (1) used
Recovery Act funds in accordance with applicable laws, regulations, and guidance; and (2) reported
quality data in compliance with Recovery Act reporting requirements. The reviews covered selected
Recovery Act costs charged to the SFSF, Title I, and IDEA grant programs from February 17 through at
least December 31, 2009, and as late as June 30, 2010, at 30 LEAs, 6 institutions of higher education, and
2 State entities. The review also covered Section 1512 quarterly reports that the States submitted
during the audit periods. In addition to the State reports, we issued a report to the Recovery Board on
the results of a joint project by five Offices of Inspector General on selected recipients’ efforts to report
Section 1512 data. We also issued an alert memorandum to the Department on potential issues related
to annual TSAs between the U.S. Treasury and States when temporary legislation like the Recovery Act is
enacted.

Results
Most of the education-related recipients or subrecipients we reviewed did not always use Recovery Act
funds in accordance with Federal requirements and reported inaccurate, unreliable, or incomplete
Section 1512 data. In general, the amount of costs we questioned was not significant and the States
could take corrective action before the end of the grant period. The joint project for the Recovery Board
identified similar data quality issues and recommended several areas to enhance data quality. In our
alert memorandum, we recommended that the Department work with the U.S. Treasury to encourage
the Treasury and the States to determine whether TSAs should be amended to include applicable
Recovery Act, Education Jobs Fund, and other similarly funded programs, and to consider amending
TSAs as soon as possible rather than waiting until these programs were included in a Single Audit.
Final Management Information Report
ED-OIG/X09M0002                       Page 40 of 49

Audit Locations
Final Management Information Report
ED-OIG/X09M0002                                                                               Page 41 of 49

Phase III: How School Districts Used Recovery Act and Education Jobs
Funds
OIG Report to the Department

  Use of Recovery Act and Education Jobs Funds (A09L0006, 9/28/2012)

Purpose
Our Phase III review determined how selected school districts spent Federal funds awarded under the
Recovery Act for the Education Stabilization, Title I, and IDEA grant programs and under separate
legislation for the Education Jobs grant program (collectively referred to as “stimulus funds”). We
examined how 22 school districts spent or planned to spend their stimulus funds. We also determined
(1) whether the districts would spend all of their funds by the end of the respective grant periods,
(2) what factors influenced how they spent the funds, and (3) whether they expected to experience
unsustainable commitments (“funding cliffs”) after stimulus funds were no longer available. We also
collected limited information on results that the 22 districts identified after using the stimulus funds and
their use of an IDEA provision on MOE flexibility. We issued a single nationwide audit report to the
Department.

Results
The 22 school districts primarily used Education Stabilization and Education Jobs funds to maintain
existing services by supporting salaries and benefits. They were more likely to use Title I and IDEA funds
to expand existing or offer new services. As of December 31, 2011, the districts had spent all of their
Education Stabilization, more than 99 percent of Title I and IDEA, and more than 80 percent of Education
Jobs funds. Factors that influenced how they spent the funds included Federal requirements, State
actions and budget decisions, each district’s fiscal condition and educational priorities, and concerns
about funding cliffs. Most of the school districts expected to face moderate to significant funding cliffs
after stimulus funds were no longer available unless State or local revenues returned to prerecession
levels in the near future.

Audit Locations
Final Management Information Report
ED-OIG/X09M0002                                                                           Page 42 of 49

Phase IV: Final Recovery Act Expenditures
OIG External Reports

 Arkansas (A09M0003, 12/20/2012)
 Delaware (A03M0005, 12/19/2012)
 Florida (A02M0009, 6/27/2013)
 Puerto Rico (A04M0014, 2/20/2013)

OIG Report to the Department

  Final Recovery Act Expenditures for Selected LEAs (A04M0001, 7/8/2013)

Purpose
Our Phase IV audit determined whether selected LEAs obligated and spent final Recovery Act funding on
reasonable, allocable, and allowable activities in accordance with applicable Federal requirements. The
review covered Recovery Act Education Stabilization, Title I, and IDEA expenditures that nine LEAs
located in four States and Puerto Rico obligated or expended from January 1 through
December 31, 2011. In addition to a nationwide audit report to the Department, we issued
supplemental reports to three States and Puerto Rico so that they could take corrective action on
findings we identified.

Results
We did not identify any evidence that the nine LEAs in our review used Recovery Act funds in an
inappropriate or wasteful manner to avoid losing the funds when the grant period ended. They
generally obligated and spent the funds in accordance with applicable laws, regulations, guidance, and
program requirements. However, we identified a few instances of payments for late obligations,
unallowable expenditures, fiscal and management control issues, or internal controls weaknesses at five
of the LEAs. We questioned $237,302 in Education Stabilization costs at one LEA and $14,303 in Title I
costs at another LEA. We also identified internal control weaknesses over inventory and procurement
processes that could affect other Federal funds at two LEAs. We suggested that the Department
evaluate the issues we identified when planning and conducting future monitoring and grant closeout
processes. We also recommended specific steps that the States should take to ensure their LEAs
improve controls for inventory, procurement, and reconciliation of expenditure data.
Final Management Information Report
ED-OIG/X09M0002                       Page 43 of 49

Audit Locations
Final Management Information Report
ED-OIG/X09M0002                                                                             Page 44 of 49

Department Implementation of the Recovery Act
OIG Products to the Department

  Teacher Incentive Fund (A19L0005, 2/8/2013)
  Data Quality Review Processes (A19K0010, 8/22/2011)
  Implementation of SFSF (A19J0001, 9/24/2010)
  Quality of Recipient Data (Internal Memorandum to the Deputy Secretary, 1/6/2010)
  Peer Reviewers for Race to the Top (A19K0006, 8/16/2010)
  Data Quality for Recovery Act Reporting (A19J0004, 10/29/2009)
  Department Monitoring of Race to the Top Program Recipient Performance (A19M0003, 1/3/2014)

OIG Products to the Recovery Board

  Department Survey Results for Recovery Board Projects:

    Lessons Learned From the Recovery Act: An Agency and OIG Retrospective (U.S. Department of the
      Interior report, May 2013)
    Review of Contracts and Grants Workforce Staffing and Qualifications in Agencies Overseeing
      Recovery Act Funds (U.S. Department of Commerce report, March 2010)
    Recovery Act Data Quality: Errors in Recipients’ Reports Obscure Transparency (U.S. Department of
      Transportation report, February 2010)

Purpose
Our work focused primarily on the new Section 1512 reporting requirements and SFSF grant programs.
Section 1512 Reporting. For Section 1512 reporting, we issued multiple products in which we
(1) determined whether the Department had established a process to review the quality of recipient
reports for the first reporting quarter ended September 30, 2009; (2) followed up on the quality of data
that recipients submitted for the first reporting quarter, and (3) determined whether the Department’s
data quality review processes were effective for recipient reports submitted in 2010.
SFSF. For SFSF Race to the Top, we determined the appropriateness of Department actions to screen
and select peer reviewers for the grant competition and the effectiveness of its internal controls for
identifying conflicts of interest and other issues. For our audit of SFSF formula grants, we determined
whether the Department calculated State allocations properly and whether States submitted
applications that included all required information, and we evaluated the Department’s staffing and
monitoring plans.
Teacher Incentive Fund. For the Teacher Incentive Fund, we assessed the adequacy of the
Department’s processes for evaluating applications and assessed its monitoring plans and efforts.
Department Survey Responses. In addition to our audits, we participated in three Recovery Board
projects by collecting and reviewing Department survey responses on (1) data errors and omissions in
the first cycle of Section 1512 reports and actions taken to improve data quality (Transportation report);
(2) staffing, qualifications, and training for its contracts and grants workforce (Commerce report); and
(3) actions, processes, and mechanisms that were beneficial or posed challenges in meeting Recovery
Act requirements (Interior report).
Final Management Information Report
ED-OIG/X09M0002                                                                            Page 45 of 49

Results
Section 1512 Reporting. In October 2009, we reported that the Department had established a process
to perform limited data quality reviews. Following up on this report, in January 2010, we highlighted
data quality issues we identified in recipient reports that the Department should consider to strengthen
its data quality controls. In August 2011, we reported that the Department’s processes to ensure the
accuracy and completeness of recipient data were generally effective, and we recommended specific
actions to enhance its data quality review and monitoring processes and reporting guidance.
SFSF. In August 2010, we reported that the Department’s process for screening and selecting peer
reviewers for the Race to the Top grant competition was generally appropriate, and we recommended
specific actions to strengthen the integrity of the review process. In September 2010, we reported that
the Department’s initial implementation of SFSF was generally appropriate, and we recommended
specific actions to strengthen its efforts to ensure key application data were reasonably supported.
Teacher Incentive Fund. In February 2013, we reported that the Department’s application review
process did not ensure that applications demonstrated key stakeholder involvement and support.
Further, we found that the Department needed to improve its monitoring plans and efforts, including
correcting inconsistencies in standards applied to program applicants.

Department Survey Responses. Along with other participating OIGs, we provided our respective
agencies’ survey results to the Inspector General responsible for preparing the consolidated report to
the Recovery Board.
Final Management Information Report
ED-OIG/X09M0002                                                                            Page 46 of 49

Other OIG Reports Related to the Recovery Act
OIG External Reports

    IDEA Maintenance of Effort Flexibility (A09L0011, 7/25/2013)
    Investing in Innovation (I13M0001, 2/22/2013)
    Centers for Independent Living (A06K0011, 9/12/2012)
    School Improvement Grants (A05L0002, 3/29/2012)
    Virgin Islands Prior Audit Findings (L04J0015, 1/13/2010)

OIG Reports to the Department

  Corrective Actions for Prior Audits (L20K0003, 7/12/2010)
  Charter School Vulnerabilities (X42K0002, 3/9/2010)
  Catalog of Federal Domestic Assistance (L16J0075, 10/13/2009)
  LEA and SEA Fiscal Issues (X05J0005, 7/21/2009)

Purpose
Based primarily on prior audits and investigations, from July 2009 through July 2010 we provided
information to the Department about various issues to consider or correct as it implemented the
Recovery Act. We also issued reports that addressed several programs, SEAs, and LEAs affected by the
Recovery Act: an audit of the Virgin Island’s efforts to address prior audit findings, three nationwide
audits of existing programs that included supplemental funds under the Act, and an inspection report
for a new program under the Act.

Results
Information to the Department for Recovery Act Implementation. In July 2009, we reported on the
pervasive fiscal issues identified in 41 prior audits, summarized 13 investigations that resulted in
criminal convictions of LEA officials, and offered lessons and suggestions for enhancing guidance to SEAs
and LEAs. We issued a companion report in March 2010 to provide examples of fraud cases involving
charter schools. In October 2009, we identified corrections needed in program information in the
Catalog of Federal Domestic Assistance to ensure that grant administrators and auditors would not rely
on erroneous information. In July 2010, we reported on the Department’s progress in expediting
corrective actions from prior OIG audits of programs that subsequently received Recovery Act funding
and recommended enhancements for its risk management plan.
Virgin Islands. In January 2010, we reported that the SEA did not adequately address previously
identified audit deficiencies and that the significance of the issues was even more critical with the
addition of Recovery Act funds. We suggested that the Department take stronger action to bring the
SEA into compliance.
Other Nationwide Audits. The three audits identified compliance issues and recommended corrective
actions related to (1) SEA monitoring plans and award processes for the School Improvement Grants
program; (2) Department monitoring, provided services, performance, and Section 1512 reporting by
Centers for Independent Living; and (3) SEA and LEA eligibility for and the use of and accounting for
freed-up funds resulting from the IDEA maintenance of effort flexibility provision.
Final Management Information Report
ED-OIG/X09M0002                                                                             Page 47 of 49

Investing in Innovation Inspection Report. In February 2013, we reported that the Department
provided substantive monitoring of program recipients under the Investing in Innovation program, but
recipients did not always respond or respond timely to Department requests. We recommended the
development of appropriate requirements or consequences for nonresponsive recipients and suggested
ways to limit identified potential risks to the Department’s ability to monitor program recipients in the
future.
Final Management Information Report
ED-OIG/X09M0002                                                                           Page 48 of 49

Other OIG Products and Activities Related to the Recovery Act
OIG Products

  Presentations:
    Effect on the Single Audit (September 2009)
    Accountability (July 2009)
    Student Financial Assistance Programs (April 2009)
    State and Local Programs (April 2009)
    Implications for Federal Agencies, Recipients, and Subrecipients (March 2009)

  Annual Work Plans:
   FY 2014 (November 2013)
   FY 2013 (November 2012)
   FY 2012 (October 2011)
   FY 2011 (October 2010)
   FY 2010 (October 2009)
   FY 2009 (May 2009)

  Management Challenges Reports:
   FY 2014
   FY 2013
   FY 2012
   FY 2011
   FY 2010

  Semiannual Reports to Congress:
    Number 68 (10/1/2013–3/31/2014)
    Number 67 (4/1/2013–9/30/2013)
    Number 66 (10/1/2012–3/31/2013)
    Number 65 (4/1/2012–9/30/2012)
    Number 64 (10/1/2011–3/31/2012)
    Number 63 (4/1/2011–9/30/2011)
    Number 62 (10/1/2010–3/31/2011)
    Number 61 (4/1/2010–9/30/2010)
    Number 60 (10/1/2009–3/31/2010)
    Number 59 (4/1/2009–9/30/2009)
    Number 58 (10/1/2008–3/31/2009)

Purpose
In 2009, we developed several presentations for outreach and training purposes. We also outlined our
audit and investigation strategies for Recovery Act grants in our annual work plans for FY 2009 through
FY 2013. Further, we highlighted Recovery Act implementation as a challenge facing the Department in
the areas of oversight, monitoring, data quality, and reporting in FY 2010 through FY 2012. We also
regularly reported on our Recovery Act efforts in our semiannual reports to Congress beginning in 2009.
Final Management Information Report
ED-OIG/X09M0002                                                                            Page 49 of 49

Results
Outreach and Training. As of April 2013, we had conducted more than 250 outreach sessions and
trained more than 11,600 individuals in more than 70 training sessions. Topics included the Recovery
Act’s effect on State, local, and student financial aid programs; oversight efforts; fraud awareness;
whistleblower protection; and implications for Single Audits. We also made outreach and training
materials available on our Web site.
Fraud Cases. As of June 30, 2014, we had opened 218 investigations involving Recovery Act funds.
These have resulted in 265 criminal convictions, settlements, and judgments, and about $11.5 million in
recoveries and savings involving Recovery Act funds as of March 31, 2014.
Audits. From 2009 through 2013, we issued more than 50 audit reports to the Department, State
governors’ offices, and SEAs. In total, one or more aspects of our Recovery Act audits covered the
Department, 36 States, Puerto Rico, the U.S. Virgin Islands, and the District of Columbia.
Appendix 3. Department Comments on the Draft Report

                     UNITED STATES DEPARTMENT OF EDUCATION
                            OFFICE OF THE DEPUTY SECRETARY


TO:          Raymond Hendren
             Richard Rasa
             Office of the Inspector General

FROM:        Patrick Rooney (initialed by JGB for Patrick Rooney)
             Acting Director, Policy and Program Implementation
             Office of the Deputy Secretary, Implementation and Support Unit

SUBJECT:    Draft Management Information Report “Lessons from Implementing the
American Recovery and Reinvestment Act of 2009” (ED-OIG/X09M0002)

Thank you for the opportunity to comment on the draft Management Information
Report “Lessons from Implementing the American Recovery and Reinvestment Act of
2009” (ED-OIG/X09M0002). In the report, the Office of the Inspector General (OIG)
provides its perspective on the challenges that the American Recovery and
Reinvestment Act of 2009 (ARRA) presented for the Department, its funding recipients
and subrecipients, and the OIG. In drafting the report, the OIG relied primarily on its
audit and investigation work. OIG also reviewed the Department’s training and
outreach materials related to the implementation of the ARRA, Semiannual Reports to
Congress, and annual Management Challenges reports. Additionally, OIG reviewed
reports published by the Recovery Accountability and Transparency Board (Recovery
Board) and the U.S. Government Accountability Office (GAO). The report identified
four broad categories of challenges and presents suggestions and lessons related to each
challenge. We appreciate the work that went into this report and the important
information and suggestions provided.

We appreciate OIG’s recognition of the efforts made by the Department and its
recipients and subrecipients to implement the ARRA programs as expeditiously as
possible to address the immediate economic needs of States and localities while
maintaining compliance with applicable rules and regulations. We particularly
appreciate OIG’s recognition of the quality, value, and expediency of the Department’s
guidance, training, technical assistance, and outreach. As noted in the report, the
Department used a variety of approaches to provide information to ARRA recipients
and subrecipients on such topics as reporting, application requirements, and strategic
uses of funds.
While the report provides some examples of Department practices that made ARRA
implementation very successful, the report does not fully address and recognize the
intensity of the outreach efforts, especially during the pre-grant award planning and
technical assistance period. The key to planning and technical assistance that worked
well for ARRA was the proactive nature of the nearly daily contact the Department had
with grantees, responding to detailed calls for assistance from State and local officials,
many from Governor’s offices and State financial officials who were unfamiliar with
ED’s grant and oversight process. The Race to the Top State competition was widely
regarded as successful because of the Department’s continuous outreach to the states--
extensive guidance to state and local officials, and detailed training for peer reviewers.
Once implementation of the grants began, the Department’s strong proactive and
responsive technical assistance efforts were consistently timely and effective and
continued to provide the high-quality assistance and guidance that grantee came to
expect.

The suggestions in the report provide insights that may be applied to Department
programs in the future. However, we have concerns about the specific wording of two
of the challenges – “Challenge 2 “Department, Recipients, and Subrecipients Faced
Challenges as They Implemented Processes to Administer Grants” and “Challenge 3:
“The Department Addressed a Variety of Recovery Act Implementation Issues, but
Persistent Monitoring and Oversight Challenges Remain.” We believe that the specific
wording of these challenges unintentionally conveys a negative tone and fails to reflect
the positive steps that were undertaken in each area.

The wording of Challenge 2 does not align with the text describing the proactive steps
that the Department initiated to ensure that grantees were prepared to implement the
ARRA programs effectively and in a manner that was consistent with the authorizing
legislation and Department regulations. The report describes the various methods (e.g.,
webinars, conference calls, emails) that Department staff used to effectively
communicate with recipients and subrecipients. The report also describes the various
types of helpful guidance, training, technical assistance, and outreach that were
provided to grantees. We believe that the wording of the challenge would better reflect
the efforts of the Department and its recipients and subrecipients if it read:
“Department, Recipients, and Subrecipients Proactively Addressed Challenges as They
Implemented Processes to Administer Grants.”

We also believe the wording of Challenge 3 is more negative than it needs to be. The
report notes that the Department emphasized the importance of oversight when
providing guidance and technical assistance. Given the Department’s efforts to
improve State oversight of subrecipients and the generally minor findings identified in
audits, we recommend that Challenge 3 read, “While the Department Emphasized the
Importance of Subrecipient Oversight and Monitoring, Challenges Remain.”
Finally, Table 2 compiles information on OIG ARRA audits and notes the specific areas
in which compliance issues were identified. This table does not provide the necessary
context for the timing of many of the recommendations in the reports. OIG took great
strides to be out in the field in the summer and fall of 2009 during the early program
implementation stage of ARRA funds. Some of the compliance issues identified in the
early reports were found before some States and subrecipients even started planning
and spending the ARRA funds. We believe the table would provide a more complete
picture of the identified compliance issues if it included a column that provided the
dates of the respective audits.

Again, we appreciate OIG’s work in this area and thank you for the opportunity to
comment on the draft report. If you have any questions, please do not hesitate to
contact Jim Butler at James.Butler@ed.gov or 202-260-9737.