DEPARTMENT OF EDUCATION

OFFICE OF THE INSPECTOR GENERAL

INTERNAL AUDIT

Grants Administration and Monitoring

Final Report

Audit Number
06/07-05A

November 6, 2007
Executive Summary 
The Department of Education (DOE), Office of the Inspector General (OIG) has performed an audit of the Office of Workforce Education’s processes for administration and monitoring of grant awards emanating from the Carl D. Perkins Vocational and Technical Education Act of 1998.  The Act’s purpose is to more fully develop the academic, vocational, and technical skills of secondary students and postsecondary students who elect to enroll in career and technical education programs.  
The objectives of this audit were to ensure that: 1) grants were awarded and executed in accordance with controlling laws, rules, procedures, and/or good business practices; 2) payments were made in accordance with grant terms; 3) the delivery of services was properly monitored; and 4) grant recipients fulfilled the terms of the grant.  The scope of the audit focused on the 2006-07 grant award cycle.  
Summary of Findings 
The Carl D. Perkins grant award for the fiscal year 2006-07 totaled $69,293,615 (including prior year roll forward funding).  Of this amount, ninety percent represented aid to local education agencies to assist in paying costs for personnel, furniture and equipment, travel, supplies and materials, etc.  Remaining funds were designated for discretionary leadership programs, funding for disadvantaged students, and program administration costs.  
Audit procedures focused on evaluating the system of internal controls over grant administration and monitoring.  This report includes findings relating to the Bureau of Grants Administration and Compliance’s administration and monitoring activities.  It also includes findings regarding management controls over grant recipient budgeting and disbursement reporting, involving oversight by the DOE Comptroller Office’s and the Bureau of Contracts, Grants, and Procurement.  Specific conditions identified include: 
•	Compliance monitoring of grant recipients needs improvement.
•	Project disbursement reporting is of limited usefulness. 
•	Budget detail on equipment should be improved.
•	Written procedures had not been prepared.
•	Grant allocation methodologies were not fully documented in the Florida State Plan.
Recommendations in the report are intended to assist management in establishing an effective control environment that will help ensure grants are appropriately administered and effectively monitored.  
Background
This audit was identified in the Office of Inspector General’s (OIG) annual risk assessment and included in the approved annual audit plan.  It was performed in support of the Department’s goal of quality efficient services with the purpose of promoting the strategic imperative of aligning financial resources with performance. 
The grant award program designated for audit was selected based on an assessment of risks and on input received from Department management.  The Office of Workforce Education provides career and technical education as well as other educational services to help students attain skills that enable them to become or remain economically self-sufficient.  Workforce programs are provided by 28 community colleges and 67 school districts throughout the state.  
The Federal award program which funds the grants audited emanates from the Carl D. Perkins Vocational and Technical Education Act of 1998.  The Act’s purpose is to more fully develop the academic, vocational, and technical skills of secondary students and postsecondary students who elect to enroll in career and technical education programs.  
Staff members in the Office of Workforce Education provide technical assistance and consultative services to local educational agencies and other eligible providers under the Act.  The staff also has responsibility to monitor grant recipients’ compliance with program and fiscal requirements according to applicable federal and state laws and regulations. 
The Carl D. Perkins grant award for the fiscal year 2006-07 totaled $69,293,615 (including prior year roll forward funding).  Of this amount, ninety percent represented aid to local education agencies to assist in paying costs for personnel, furniture and equipment, travel, supplies and materials, etc.  Remaining funds were designated for discretionary leadership programs, funding for disadvantaged students, and program administration costs.  

Audit Objectives and Scope
This audit focused on evaluating the Office of Workforce Education’s system of internal controls over grant administration and monitoring as they related to the administration and monitoring of Carl D. Perkins grant awards.  The objectives were to ensure that: 1) grants were awarded and executed in accordance with controlling laws, rules, procedures, and/or good business practices; 2) payments were made in accordance with grant terms; 3) the delivery of services was properly monitored; and 4) grant recipients fulfilled the terms of the grant.  The scope of the audit included the 2006-07 grant award cycle, but included records outside that period for selected tests.  

Methodology
To achieve the objectives, the audit team:  1) researched and reviewed federal statutes and regulations, state reference guides, procedures and handbooks;  2) interviewed appropriate Department staff; and  3) reviewed selected grant documentation.  We assessed the methodology used to award federal funding to education entities and tested the accuracy of the allocation process and its compliance with the Florida State Plan.  Selected grant agreements were reviewed to determine whether applications were complete and budget narratives sufficiently documented.  Alternative methods were used to evaluate grant payment processing as recipient documentation supporting expenditure of funds was not available.  Grant monitoring was evaluated based on review of the monitoring process methodology and issued monitoring reports, as well as interviews with program office staff. 

Standards
This audit was conducted in accordance with the International Standards for the Professional Practice of Internal Auditing, published by the Institute of Internal Auditors. 

Audit Results
The findings below present the results of the audit as determined by: review of applicable statutes, procedures and processes; interviews of auditee staff; and performance of tests and other audit procedures.  Each finding is organized into five segments, as explained below:
•	Condition – The factual evidence found in the course of the examination. 
•	Criteria – The standards, measures, or expectations used in making an evaluation and/or verification.
•	Cause – The reason for the difference between the expected and actual conditions. 
•	Effect – The risk or exposure the Department may encounter because the condition is not consistent with the criteria (the impact of the finding).
•	Recommendation – Suggested course of action.
•	Management’s Response – Auditee opinion and statements regarding concurrence or non-concurrence with the finding and corrective action planned by management.

Finding 1 – Compliance monitoring of grant recipients needs improvement.

Condition:	Monitoring activities are not sufficient to provide assurance that grant recipients have performed in accordance with terms of the grant.  Our review of the compliance monitoring process and reports noted the following:
•	Compliance monitoring procedures only broadly address monitoring activities to be performed. 
•	The selection process for identifying education entities for on site monitoring was not risk-based. 
•	The frequency of on site monitoring visits was insufficient (once every five years). 
•	The monitoring instrument used (a checklist) did not adequately facilitate or document efforts performed by Department monitors to evaluate programmatic and fiscal compliance.  
•	Equipment verifications were not performed. 
•	Monitoring reports were much abbreviated, typically stating that subjects “generally” complied with requirements.  Details on monitoring methodology and results were not included. 
•	Documents supporting grant expenditures were not reviewed. 
•	On site monitoring activities have been suspended for nearly one year.  

The compliance monitoring staff was being reorganized and research on a more effective monitoring strategy was underway.  A monitoring plan was not in place as of the completion of our fieldwork.  
We are aware that audits of district school boards are performed annually by the Auditor General or by independent certified public accountants in compliance with Office of Management and Budget (OMB) Circular A-133.  Even though these audits might include Perkins grants (they would cover Perkins only if they were assessed high risk), they can not substitute for effective fiscal monitoring by the Department. 	
Criteria:	Section 112 (3) of the Carl D. Perkins Act of 1998 allots grant administration funds for use in monitoring and evaluating program effectiveness, assuring compliance with all applicable Federal laws, and providing technical assistance.
Section 80.40 (a) of the Education Department General Administrative Regulations (EDGAR) requires the Department (as grantee) to monitor grant and subgrant supported activities to assure compliance with applicable Federal requirements and achievement of performance goals. 
Office of Management and Budget Circular A-133 requires the Department to monitor the activities of subrecipients as necessary to ensure that performance goals are achieved and that federal funds are used for authorized purposes. 
Department activities that ensure grant funds are used and programs are operated in accordance with applicable federal and state statutes, rules, and regulations should be in place and operating effectively. 	
Cause:	The monitoring function initially in place was weakly designed, in part due to resource limitations.  Management’s recognition of this reportedly lead to the suspension of the function until changes could be made in the process and staff assigned.  	
Effect:	Effective monitoring can assist in identifying and reducing fiscal or program risks, thereby protecting public funds and ensuring the delivery of required services.  Monitoring is especially needed since documentation supporting expenditures of grant funds is not submitted for review by Department staff.  
In the absence of effective monitoring, it may be difficult to determine: whether the State received what it paid for; and whether expenditures processed were authorized by the grant agreement, were directly related to the project, and were properly supported.  The lack of compliance monitoring violates federal statutes and regulations. 	
Recommendation:	The Bureau of Grants Administration and Compliance should develop and implement an effective monitoring system that will assure: compliance with federal requirements; funds are appropriately used; and performance goals are achieved.	
Management Response:	On August 22, 2007, a Director of Compliance was hired by the Workforce Office of Grants Administration to develop, implement and manage a quality assurance system for grant compliance and monitoring.  The monitoring system will include the following components:  1) data review; 2) risk assessment; 3) on-going interventions; 4) on and off-site activities; 5) improvement and corrective action planning; 6) targeted technical assistance; and 7) reporting.  The compliance and monitoring system will be implemented in the spring of 2008.	

Finding 2 – Project disbursement reporting is of limited usefulness. 

Condition:	Annually, after grant terms expire, grant recipients submit a Project Disbursement Report which provides a summary of disbursements classified by function and object code.  This report was designed to provide a comparison of budgeted expenditures to actual disbursements.  We noted the following in our review of these reports:
•	Amounts shown in the budget column were amended budget amounts, not the original budget amounts approved in the grant application (budget narrative). 
•	Function and object codes shown on the report differed from those reported in the approved budget narrative. 
The Project Disbursement Report is not being used as a monitoring tool to compare actual expenditures to the original approved grant budget.  	
Criteria:	EDGAR Section 80.40 (a) requires the Department to monitor grant and subgrant supported activities to assure compliance with applicable Federal requirements and achievement of performance goals. 
A budget is a statement of expected results expressed in numerical terms.  As a control, it sets a standard for input of resources and what should be achieved as output and outcome.  Accountability (control) over use of grant funds by recipients can be better established when recipient expenditures are compared to the originally approved and amended project budgets and significant variances explained. 	
Cause:	Program management indicated that grant recipients are given flexibility on spending funds and are allowed to shift funds between categories, except as specified in the Green Book.  The budget narrative submitted with the grant application is considered an “estimate” and is not required to be recorded in the annual Project Disbursement Report.  	
Effect:	Budget controls are of limited use when project budgets are not compared to actual expenditures with an appropriate analysis of variances.  Spending funds in a manner different than the approved budget may impact recipients’ abilities to reach levels of performance established in the Florida State Plan.	
Recommendation:	The DOE Comptroller’s Office should create more effective means of evaluating how funds are used by recipients.  Requirements for more accountable reporting of actual expenditures of grant funds in comparison to the original budget should be considered.  The Project Disbursement Report should be re-designed to show a comparison of the original budget, amended budget, and actual expenditures.  This will permit more effective evaluation of expenditures and provide greater accountability over use of grant funds. 	
Management Response:	The Division of Finance and Operations including the Comptroller’s Office and the Bureau of Contracts, Grants, and Procurement will revise the DOE 399 (Project Disbursement Report) and similar reports to implement this recommendation.  It is anticipated that revisions will go into effect for projects funded July 1, 2008, and thereafter.	

Finding 3 – Budget detail on equipment should be improved.

Condition:	In 11 of 30 applications reviewed, insufficient detail of furniture, fixtures, and equipment were included in the budget narrative form.  For example, we noted budget narratives that included only descriptions of equipment types with a single (lump sum) cost; but did not show details of types, quantity, and cost of items to be purchased.  	
Criteria:	Including sufficient detail (i.e., equipment type, quantity, cost, and program to be served) of planned furniture and equipment purchases is needed to establish accountability, assess appropriateness, and facilitate monitoring confirmation of purchases.  	
Cause:	Management had not sufficiently prioritized and enforced the need for the detailed information.  	
Effect:	Adequately detailed budget narratives will promote more effective planning by applicants; facilitate physical verifications of equipment; and improve accountability for the equipment.  	
Recommendation:	The Bureau of Grants Administration and Compliance should require grant applicants to provide detailed descriptions of equipment included in budget narratives. 	
Management Response:	The Bureaus of Grants Administration and Compliance (Workforce) and Contracts, Grants and Procurement (Finance and Operations) will review existing procedures regarding descriptions of equipment to be included in budget narratives and make any changes needed.  Applicants and subrecipients, as well as staff of both bureaus will receive additional direction with respect to the level of detail required.  Any needed changes in procedures will be implemented for projects funded July 1, 2008, and thereafter.  Additional direction for applicants, subrecipients, and staff will be provided prior to July 1, 2008.  The equipment information provided by the grant recipients will be evaluated and monitored for compliance with state and federal requirements.	

Finding 4 – Written procedures had not been prepared.

Condition:	There were no formal written procedures for the processes used in allocating Carl D. Perkins grant funds.  Key processes that procedures should describe include aid to districts (secondary, post-secondary, and tech prep funding), discretionary projects that utilize reserve funding, and leadership projects to aid local programs.  Additionally, written procedures for the DOE Comptroller Office’s processing of the Carl D. Perkins annual grant roll-forward and the annual review of Project Disbursement Reports were not formally documented. 	
Criteria:	Written procedures are an essential component of the Department’s internal control structure that helps ensure compliance with laws, rules, and management directives.  They should be prepared and routinely reviewed and updated to assist management control processes and provide direction to staff.  	
Cause:	Management has relied upon information in the Florida State Plan and federal statutes regarding some of the core processes.  The need for detailed written procedures had not been prioritized as attention has been devoted to operational issues and reorganization.  	
Effect:	Adequately detailed written procedures will help ensure grant activities are consistently performed in accordance with applicable statutes and management directives.  Such procedures will provide a record of processes observed in the event of employee turnover, serve as a training tool for new staff, and provide continuity and uniformity in operations. 	
Recommendation:	The Bureau of Grants Administration and Compliance and the DOE Comptroller’s Office should develop written procedures for key processes noted above, as well as other important processes they believe should be formally documented.  	
Management Response:	Formal procedures for allocating Carl D. Perkins grant funds – in the form of business rules – have been developed by the Division of Workforce Education.   The business rules will be included in the new Florida State Plan.  The Bureaus of Grants Administration and Compliance (Workforce) and Contracts, Grants, and Procurement (Finance and Operations) will monitor the implementation of the business rules for the federal grants fiscal period beginning July 1, 2008.
The DOE Comptroller’s Office will develop written procedures for the processing of the annual grant roll-forward funds.
All three areas:  Grants Administration and Compliance (Workforce); Contracts, Grants, and Procurement (Finance and Operations); and the Comptroller’s Office (Finance and Operations) will collaborate on development of written procedures relative to the review of Project Disbursement Reports.  Staff from these three areas will also review all processes and procedures to determine if there are additional processes which would benefit from more formal documentation.
The review will be completed and all written procedures will be approved and implemented prior to the next federal grants fiscal period beginning July 1, 2008.	

Finding 5 – Grant allocation methodologies were not fully documented in the Florida State Plan.

Condition:	Actual methodologies used for allocating Perkins funding for the major grant programs (Secondary, Post-secondary, and Tech Prep) are not the same as those documented in the Florida State Plan.  Examples include: 
•	Secondary program allocations were computed based on different age groups than is specified in the Florida State Plan (which references the Perkins Act). 
•	Post-secondary program allocations were computed based on seven types of need-based financial aid, where only six types are documented in the Florida State Plan. 
•	Tech prep program allocations were computed using a computation that generates a “base” allocation amount equal to 75% of the prior year allocation, a step that is not documented in the Florida State Plan. 
Based on interviews with staff and our review of documents associated with allocation computations, we found no evidence that the 2006-07 allocations noted above were computed improperly.  	
Criteria:	Information in the Florida State Plan should accurately reflect methods used to allocate grant funds.  	
Cause:	Florida State Plan documentation contained errors that were the apparent result of administrative oversights and limiting the level of detail included in the document. 	
Effect:	Accurate documentation of allocation processes in the Florida State Plan will better ensure methodologies in use are consistently performed.  Process stakeholders will be more fully informed if the Florida State Plan accurately documents grant allocation methods used.  	
Recommendation:	The Bureau of Grants Administration and Compliance should ensure that allocation methods used are the same methods specified in the Florida State Plan.  	
Management Response:	Methodologies for allocating all categories of Carl D. Perkins funding – to include secondary, postsecondary and Tech Prep – have been written in the form of business rules and will be included in the new Florida State Plan.