U. S. Department of Education Office of Inspector General Semiannual Report to Congress: N



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DATA

RELIABILITY

Our audit at the Kentucky Department of Technical Education found that Kentucky's

controls were inadequate to ensure that data submitted to the Department were complete,

accurate, and reliable and that three sub-recipients we examined also had inadequate

controls. We recommended that the Department require Kentucky to take appropriate

corrective action. Kentucky generally agreed with our findings and recommendations.

("Kentucky Department of Technical Education's Management Controls Over Perkins III

Performance Data Needs Strengthening," ED-OIG/A04-D0007; October 20, 2003)

Semiannual Report To Congress: #48

5

MANAGEMENT

CONTROLS FOR

SCORING STATE

ASSESSMENTS

We conducted a study to provide information for the Department in helping

states to ensure data quality and reliability. We determined that the

Department should consider developing and issuing best practices for

management controls over scoring of the state assessments required under the

No Child Left Behind Act of 2001. ("Best Practices for Management Controls

Over Scoring of the State Assessments Required Under the No Child Left

Behind Act of 2001," ED-OIG/X05-D0016; February 3, 2004)



ELEMENTARY, SECONDARY, AND HIGHER EDUCATION

PROGRAMS

Our work in elementary, secondary, and special education programs disclosed weaknesses

in program administration by state and local educational agencies and in schools'

adherence to program requirements, and a continuing need for careful monitoring by the

Department.

CHARTER

SCHOOLS' ACCESS

TO AND USE OF

FEDERAL FUNDS

We conducted several audits to determine if charter schools received and expended federal

funds in three programs according to applicable statutes and regulations.

Our audit of 20 Arizona charter schools' use of funds under Title I, Part A of the

Elementary and Secondary Education Act of 1965 (ESEA) and Part B of the Individuals

with Disabilities Education Act (IDEA) found that, contrary to the law and regulations, the

Arizona Department of Education (ADE) provided Title I and IDEA funds directly to

private, for-profit entities. We recommended that the Department instruct ADE to refund

approximately $1.1 million and cease providing Title I and IDEA funds directly to such

entities. We also recommended that ADE be instructed to return the funds it provided to

for-profit charter schools after our audit period.

ADE disagreed with our recommendations and asserted that federal law does not preclude

for-profit charter schools from receiving federal funds. We did not change our position.

The Department has not resolved this issue and has been working with Arizona officials to

gather more information before making a decision. We also found that two Arizona

charter schools expended Title I funds improperly. ("Audit of 20 Arizona Charter Schools'

Uses of U.S. Department of Education Funds for the Period October 1, 2000, through

September 30, 2001," ED-OIG/A05-D0008; November 6, 2003)

Our audits of Arizona charter schools receiving federal funds under the Charter Schools

Program (CSP) disclosed that Cesar Chavez Middle School and Aztlan Academy could

not support expenditures of about $184,000 and $148,000, respectively. In addition, we

reported that Cesar Chavez Middle School used approximately $13,000 for unallowable

purposes. We also reported that Sonoran Desert School and Sonoran Science Academy

used approximately $37,000 and $19,000, respectively, for unallowable purposes.

Semiannual Report To Congress: #48

6

We recommended that the Department require

Cesar Chavez and Aztlan Academy to refund

approximately $197,000 and $148,000,

respectively, and regularly reconcile the amount

of CSP funds received with the amount spent.

Officials from both schools did not comment on

our report. ("The Cesar Chavez Middle School's

Use of U.S. Department of Education Federal

Funds for the period July 1, 2001, through June

30, 2002," ED-OIG/A05-D0018; October 30,

2003. "The Aztlan Academy's Use of U.S. Department of Education Funds for the Period

July 1, 2001, through June 30, 2002," ED-OIG/A05-D0023; October 14, 2003. "The

Sonoran Desert School's Use of U.S. Department of Education Funds for the Period

September 1, 2001, through August 31, 2002," ED-OIG/A05-D0029; October 31, 2003.

"The Sonoran Science Academy's Use of U.S. Department of Education Funds for the

Period August 1, 2001, through July 31, 2002," ED-OIG/A05-D0028; November 19,

2003)


At the California Department of Education (CDE), we found that CDE and three of the

four local educational agencies (LEAs) we reviewed did not provide sufficient information

to existing charter schools on requirements pertaining to expansion dates and on the

definition of "significant expansion of enrollment." CDE also did not have adequate

procedures to ensure that Title I allocations to charter school LEAs were timely and

proportionate. CDE concurred with these findings and our recommendations.

We also found that CDE could not document that 65 charter school LEAs had approved

LEA plans. CDE stated that it is assessing this finding and our recommendation.

("Charter Schools' Access to Title I and IDEA, Part B Funds in the State of California,"

ED-OIG/A09-D0018; March 29, 2004)

At the New York State Education Department (NYSED), we found that NYSED needed to

take steps to ensure that LEAs comply with applicable federal laws and regulations.

Specifically, NYSED should ensure that LEAs provide charter schools with meaningful

information about timely access to funds. NYSED concurred with the finding and

generally agreed with our recommendations. ("Charter Schools Access to IDEA, Part B

Funds in the State of New York," ED-OIG/A09-D0014; November 19, 2003)



PUERTO RICO

DEPARTMENT OF

EDUCATION

Our audits of expenditures by the Puerto Rico Department of Education (PRDE) disclosed

that PRDE had allowed approximately $148 million in Title I and Special Education funds

to lapse for the grant award years 1997 through 2001. We also reported $82.8 million in

lapsed grant funds for other programs at PRDE. In addition, we found that PRDE could

not provide supporting documentation for nearly $123,000 in transportation expenditures

in Special Education funds and had improperly expended almost $50,000 in Title I

funding.


The Department designated PRDE as a "high-risk" grantee two years ago because of

problems in PRDE's fiscal and program accountability, including late submission of Single

Audits, failure to adhere to procurement regulations and procedures, lack of proper

Semiannual Report To Congress: #48



7

internal controls, and actions leading to the indictments of the former Puerto Rico

Secretary of Education and other associated individuals.

We recommended that PRDE provide evidence to the Department of any valid obligations

associated with the lapsed funds and implement procedures to better track grant funding

from the Department. We also recommended that PRDE refund to the Department the

improperly expended funds we identified. PRDE stated that it is working with the

Department on these issues. ("Puerto Rico Department of Education's Title I Expenditures

for the period July 1, 2002 to December 31, 2002," ED-OIG/A02-D0014; March 30, 2004

and "Puerto Rico Department of Education's Special Education Expenditures for the

period July 1, 2002 to December 31, 2002," ED-OIG/A02-D0020; March 30, 2004)

ADMINISTRATION

OF 21ST

CENTURY

COMMUNITY

LEARNING

CENTERS GRANTS

Our audits of four grantees' administration of the 21st Century Community Learning

Centers (CCLC) grants found that all four grantees did not properly account for and use

21st Century grant funds. All four 21st CCLC grantee audits were suggested by the

Department because of concerns about the administration of these particular programs.

Our review of Alum Rock Union Elementary School District's charges to the CCLC grant

found that it improperly used grant funds totaling approximately $65,000. We found that

Project ASCEND (Drew, Mississippi) charged the grant for approximately $100,000 in

unallowable costs and about $147,000 in unsupported costs. We identified more than

$55,000 in questioned costs and over $400,000 in unsupported costs in Gonzales,

California, as well as approximately $62,000 in unsupported costs in New York.

We recommended that the Department require Alum Rock to submit student attendance

documentation for the grant extension period, assess whether it provided services to a

sufficient number of students, and return more than $17,000. The school district concurred

with some of our findings and recommendations and disagreed with others. ("Alum Rock

Union Elementary School District's Administration of the 21st Century Community

Learning Centers Grant," ED-OIG/A09-D0012; March 17, 2004)

For Project ASCEND, we recommended that

the Department require the consortium to

refund the identified unallowable costs, not

claim nearly $69,000 for unallowable costs

for contracted professional services, and

provide sufficient documentation to support

approximately $147,000 or refund that

amount to the Department. Project

ASCEND officials generally agreed with our

findings and recommendations and stated

that they have started corrective action.

("Project ASCEND (After School and Community Enrichment for a New Direction,") EDOIG/

A06-D0017; February 11, 2004)

We recommended that the Department require Gonzales to return approximately $55,000

that was charged improperly to its grant. We recommended that New York either provide

sufficient documentation supporting approximately $61,000 or return that amount to the

Department. ("Gonzales Unified School District's Administration of the 21st Century

Semiannual Report To Congress: #48

8

Community Learning Centers Grant No. S287A000704," ED-OIG/A09-D0015; December

19, 2003. "Audit of the New York City Department of Education (NYCDOE), Manhattan

High Schools Superintendent's District's (District) Administration of the 21st Century

Community Learning Centers (21st CCLC) Program," ED-OIG/A02-D0007; November

24, 2003)



TALENT SEARCH Our audits of Talent Search programs at three entities found that in each case, the program

may have served fewer participants than it was funded to serve or provided services to

ineligible participants. At the Communities in Schools of San Antonio, San Antonio,

Texas, we recommended that the Department require the organization to refund more than

$298,000, the entire amount expended during the 2001-2002 budget period, and follow

procedures to ensure that only those participants receiving eligible services are counted as

Talent Search participants, and that those services are properly documented. Communities

in Schools of San Antonio did not concur with our finding or refund recommendation.

("Talent Search Program at Communities in Schools of San Antonio," ED-OIG/A07-

D0015; January 29, 2004)

At Wahupa Educational Services, California, we recommended that the Department

require Wahupa to refund $122,900, a portion of the amount expended for its Talent

Search program during the 2001-2002 budget period, and follow established procedures to

ensure that only those participants receiving eligible services are counted as Talent Search

participants. Wahupa did not concur with our findings or refund recommendation.

("Talent Search Program at Wahupa Educational Services," ED-OIG/A07-D0009;

November 25, 2003) Our findings at the University of New Hampshire were similar, but

did not involve monetary recommendations. The university stated that it recognized that

more complete documentation is required. ("Talent Search Program at University of New

Hampshire," ED-OIG/A07-D0001; January 15, 2004)



ELIGIBILITY FOR

GEAR UP

Our audit of GEAR UP at the University of Illinois at Chicago (UIC) determined that the

program did not serve the number of participants it was funded to serve and that its

partnership did not provide the required matching funds. We recommended that the

Department require UIC to refund all the funds, more than $1 million, received during the

first three years of the grant. UIC agreed with some of our findings but disagreed with the

refund recommendation. ("The University of Illinois at Chicago's (UIC) Gaining Early

Awareness and Readiness for Undergraduate Programs Project," ED-OIG/A05-D0017;

January 14, 2004)

We also audited the administration of GEAR UP at Magdalena Municipal Schools in New

Mexico. We found several problems in Magdelena's administration of this program

including improper use of grant funds and scholarship awards to ineligible students.

Magdalena agreed to refund $16,500 in scholarships to ineligible students based on our

finding. ("Audit of Magdalena Municipal Schools' Administration of the Gaining Early

Awareness and Readiness for Undergraduate Programs Grant for the period September 15,

2000, through September 30, 2003," ED-OIG/A06-D0027; March 30, 2004)



ADMINISTRATION

OF TRIO

PROGRAMS

Our audits of administration of TRIO programs by a non-profit corporation and by a

university disclosed problems in both. The North Alabama Center for Educational

Excellence (NACEE) used TRIO funds improperly. For example, NACEE used TRIO

Semiannual Report To Congress: #48

9

funds to pay for employee performance awards and for supplies and failed to maintain

documentation to support certain expenditures. It also violated the conflict of interest

regulations regarding payment for rental space at its central office. We recommended that

the Department require NACEE to return improper payments and submit documentation

for certain costs. We also recommended that the Department take appropriate action to

protect future grant funds. NACEE disagreed with some of our findings and

recommendations. ("North Alabama Center for Educational Excellence's Administration

of the TRIO Programs Needs Improvement," ED-OIG/A04-D0001; November 24, 2003)

At Stillman College, we found that the school used more than $300,000 in TRIO funds that

it documented as program expenditures. We also found that the college lacked adequate

controls over the expenditure of TRIO funds and did not have adequate accounting

controls for reporting program expenditures. We recommended that the Department

require Stillman to return excess funds and establish effective controls for TRIO

expenditures. Stillman disagreed with the amount of undocumented program

expenditures, but stated that it was implementing a new accounting system to correct

issues our audit noted. ("Stillman College's Administration of the Federal TRIO Programs

Needs Improvement," ED-OIG/A04-C0019; December 30, 2003)



CONTROLS OVER

INFORMATION ON

ALTERNATIVE

TEACHER

CERTIFICATION

We audited the Education Resources Information Center (ERIC) Clearinghouse on

Teaching and Teacher Education (CTTE) at the American Association of Colleges for

Teacher Education at the request of the Chairman of the House Education and Workforce

Committee. Our objective was to determine if ERIC CTTE had adequate management

controls to ensure that it had disseminated a range of information on alternative teacher

certification from January 1, 2002 through June 30, 2003. We concluded that ERIC CTTE

had adequate management controls during the period, and had provided unbiased

information on alternative teacher certification. ("Audit of the American Association of

Colleges for Teacher Education's Administration of the ERIC Clearinghouse on Teaching

and Teacher Education," ED-OIG/A03-D0021; March 8, 2004)

FRAUD IN OTHER

EDUCATION

PROGRAMS

Our ongoing investigation of fraud and misuse of vocational rehabilitation funds resulted

in Abilities of Florida (AFI), a provider of vocational rehabilitation services, repaying the

Department more than $500,000 in vocational rehabilitation program funds. Two former

State of Florida employees have pled guilty; these employees created false payment

vouchers to obtain vocational rehabilitation benefits and property for themselves and

family members. Their supervisor has resigned her position.

Our investigation of the illegal diversion of $1.9 million in Impact Aid funds to private

bank accounts resulted in a federal jury finding two individuals who participated in this

scheme guilty. Five other individuals have pled guilty in the case. These individuals

changed the bank information used for depositing the Impact Aid funds to the school

districts that should have received these funds, to accounts some of them controlled.

The former Perkins Vocational Education Grant administrator at a community college in

Wisconsin was sentenced to 30 months in federal prison and ordered to pay more than

$900,000 in restitution after he submitted false claims inflating the number of students he

counseled and the services that were provided to increase the amount of grant funds paid to

the college.

Semiannual Report To Congress: #48



10

FINANCIAL MANAGEMENT

Financial accountability is inextricably linked to program integrity and effectiveness.

Without accurate and timely financial information, the Department cannot reliably assess

how, and how well, the billions of dollars in education program and operational funds it

disburses and spends are used.

FINANCIAL

STATEMENT

AUDIT

We transmitted this year's final audit reports covering the Department's and Federal

Student Aid's FY 2003 comparative financial statements eleven weeks ahead of the

statutory due date. Ernst & Young, LLP, Certified Public Accountants, conducted the

audits, and we monitored them to ensure their compliance with Government Auditing

Standards and their timely completion.

Both the Department and FSA earned an unqualified opinion on their comparative

financial statements. The Report on Internal Control for both entities noted reportable

conditions covering credit reform estimation and financial reporting and controls

surrounding information systems. The Report on Compliance with Laws and Regulations

in both cases noted that neither the Department's nor FSA's financial management system

substantially complied with the Federal Financial Management Improvement Act due to

control weaknesses surrounding information systems.

INTERNAL

CONTROL

WEAKNESSES

Two former Department employees were sentenced

following our investigation of their scheme to steal

approximately $163,000 by charging goods and

services for personal use to their government credit

cards. These employees also asked Department vendors or contractors to create false

invoices for services not rendered. One of these employees received a sentence of 33

months incarceration and was ordered to pay more than $146,000 restitution. The other

employee received six months incarceration and was ordered to pay more than $13,000

restitution. Two employees of one of the vendors involved pled guilty and were sentenced

to three years probation. A contractor also pled guilty and was sentenced to five years

probation and ordered to pay over $34,000 restitution.



EXPANDED ELECTRONIC GOVERNMENT

As the Department offers increasingly expanded electronic access to its student aid

programs, in response to legislation enacted over the last five years to guide federal efforts

toward electronic government, it must also address the risks inherent in such access.



ELECTRONIC

SIGNATURE

Our audit of the Department's implementation of electronic authentication signature

procedures for select direct loan and Pell grant transactions found that the Department

needs additional measures to reduce the risk of program fraud, waste, and abuse that could

arise from the possible misuse of its computer systems that use a Personal Identification

Number (PIN) for authentication and electronic signatures. We made several

recommendations, including improvements in periodic risk evaluations, enhancement to

technical controls, and enhancements to user warnings and notices to keep PINs

confidential. ("Implementation of Electronic Signatures for Select FSA Transactions,"

ED-OIG/A11-D0002; March 31, 2004)

Semiannual Report To Congress: #48

11

STRATEGIC MANAGEMENT OF HUMAN CAPITAL

In response to the President's Management Agenda, the Department developed the One-

ED Report and the strategic investment process that was intended to examine all work

functions in the Department within a three-year period. It also issued the Blueprint for

Management Excellence that identified numerous action steps intended to improve the

strategic management of human capital within the Department.



ONE-ED

STRATEGIC

INVESTMENT

PROCESS

Our inspection of the Phase I implementation of the One-ED strategic investment process

identified several concerns, including a lack of data to support activity-based costing

models; a lack of customer input into proposed re-engineering solutions; and a lack of

information on how quality will be improved, and how optimum staffing levels and cost of

competitive sourcing were determined.

Most critically, the strategic investment process has not served its anticipated purpose of

informing the Department's human capital planning process. The process has taken much

longer than originally envisioned and relatively few business functions have been covered

to date. In addition, the information produced has been extremely limited, in part because

the re-engineering efforts have tended to focus on very small segments of the business

functions performed by an individual component.

The Department has stated that it has made some improvements in the process and is

continuing to examine the need for further modifications.


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