Excerpts from the: UNITED STATES DEPARTMENT OF EDUCATION
OFFICE OF INSPECTOR GENERAL
April 16, 2010
FINAL ALERT MEMORANDUM
To: Philip Maestri, Director Office of the Secretary, Risk Management Service
From: Keith West /s/ Assistant Inspector General for Audit
Subject: Philadelphia School District Designation as a High-Risk Grantee
Control Number ED-OIG/L03K0002
In our final audit report…………..issued on January 15, 2010, we reported that PSD did not have adequate fiscal controls in place to account for Federal grant funds.1 The lack of adequate controls contributed to our determining a total of $138,376,068 as questionable costs ($17,284,250 in unallowable costs and $121,091,818 in inadequately documented costs).
Our final audit report included the following instances of noncompliance with laws, regulations, and Office of Management and Budget (OMB) Cost Principles:
PSD needed stronger controls over personnel expenditures charged to Federal grants. This included adequate controls to ensure salary costs charged to grant funds were supported and personnel costs paid by the Title I, Part A grant were allocable. Also, PSD’s payroll policies and procedures were not adequate.
PSD supplanted State and local funding with Federal funds. PSD used Department grant funds to supplant State and local funding totaling $6,979,063. We found district-level expenditures for contracting expenses, teacher training expenses, and computer equipment and software expenses that were funded by State and local funds in prior years and were transferred into Department grants during our audit period. PSD also may have supplanted local funding by charging a portion of the school choice transportation costs to the Title I, Part A grant ($1,293,386).
PSD did not have adequate controls in place to ensure that non-payroll expenditures met Federal regulations and grant provisions.
PSD’s policies and procedures were not adequate and/or enforced for journal voucher (JV) processing, travel, imprest fund reimbursements, inventory tracking, and contracting.
PSD did not have written policies and procedures for various fiscal processes, which included monitoring of budgets, using Title II, Part A Nonpublic grant funds, purchasing from the Office Depot vendor, charging of transportation costs, allocating single audit costs, and calculating and charging of indirect costs to grant funds.
We also reported in the Other Matters section of our report that PSD lacked position descriptions for some personnel in senior management positions, ordered excessive amounts of food for activities, needed improvement in its coding of expenditures, and did not maintain adequate supporting documentation for training and professional development expenditures.
Throughout its response to our draft audit report, PSD stated that its policies and procedures were adequate and included a general statement that its “financial practices provide sufficient internal controls to safeguard Federal funds against loss or misuse.” Furthermore, PSD stated in the response that it had implemented procedures in January 2009 concerning the retention of time and effort certifications for employees working on Federal awards. PSD did not provide the new procedures nor evidence of the implementation of the procedures. As of the date of this memorandum, PSD had not posted any new or revised policies and procedures to its Web site.
Similar issues have been reported in other recent reviews of PSD.2 For instance:
PSD’s OMB Circular A-133 Single Audit Report for Fiscal Year (FY) June 30, 2008, dated October 8, 2009, reported that PSD did not have policies and procedures in place to ensure that grant funds were liquidated within the required periods, time and effort certifications were not maintained for employees working on Federal grants, and Department grant funds were used for unallowable salary costs. Furthermore, it was found that PSD’s procurement policies and procedures did not ensure that the awarding of contracts for purchased services complied with Federal regulations. Also reported was that PSD had three prior audit findings, totaling $1,032,961, because Department grant funds were not liquidated within the required time period. PSD had not implemented and/or enforced policies and procedures as recommended in prior audit reports.
Report on Internal Control and on Compliance and Other Matters, Fiscal 2008, dated December 29, 2008, also reported conditions similar to our audit. The audit period for this review was July 2007 through June 2008. Weaknesses and/or improprieties with imprest funds were reported at all 15 schools reviewed. This included undocumented transactions, unexplained expenditures, missing receipts, pre-signed checks, questionable transactions, and insufficient segregation of duties. The report also noted personal property control deficiencies. Of the 50 items selected for review fromdistrict property reports, 13 (26 percent) could not be located, and 3 of 39 items (8 percent) observed at schools could not be found on PSD’s personal property records. It was also reported that PSD still had not developed formal payroll policies and procedures for entering and approving payroll information or processing termination pay.
School District of Philadelphia, Review of Credit Card and Other Employee Reimbursement Programs, dated March 14, 2008, reviewed the use of executive credit cards and employee reimbursements during FY 2007. This review found that PSD had reimbursed employees for items unallowable under its own travel policies (gas and out-of-town travel costs). Also, PSD reimbursed individuals for trips to vacation destinations, such as the Walt Disney World Resort and St. Petersburg, Florida, Beach Resorts. Additionally, it was found that for 67 percent of the reimbursements tested, the object code did not agree with the expenditure type. For example, reimbursements for florists, hotels, food, and groceries were recorded as bank fees.
Follow this link to DOE for the full letter and findings.
