GAO Review of LEA Controls over and Uses of Recovery Act Education Funds (Avery County Schools)
Gao ID: GAO-10-746R July 9, 2010
The American Recovery and Reinvestment Act of 2009 (Recovery Act) mandates GAO to review states' and localities' use of funds made available under the act. Since April 2009, GAO has published bimonthly reports on our findings related to federal, state, and local implementation of the Recovery Act. Currently, we are examining the efforts of selected states and local educational agencies (LEA) to ensure appropriate uses of Recovery Act funds. In North Carolina, we have been reviewing efforts undertaken by the North Carolina Department of Public Instruction (DPI) and selected LEAs to administer and oversee the use of Recovery Act funds under the State Fiscal Stabilization Fund (SFSF) education stabilization funds; Title I of the Elementary and Secondary Education Act of 1965 (ESEA Title I), as amended; and Part B of the Individuals with Disabilities Education Act (IDEA); as amended. As part of this effort, we met with various DPI staff and, from February 1 through 3, 2010, we visited Avery County Schools (ACS) to review and test the adequacy of controls and procedures in place pertaining to Recovery Act funds for these three federal programs. During our visit, we interviewed finance and program officials regarding internal controls, procurement procedures, and use of Recovery Act education funds. We also reviewed a nonstatistical sample of 13 expenditures of Recovery Act funds for goods and services under these three programs. As of January 27, 2010, ACS spent about $755,000 in Recovery Act funds. We primarily focused our work on two expenditures in our sample that ACS officials reported as their largest Recovery Act nonsalary expenditures. These two expenditures totaled nearly $105,000. We conducted our work from February 1, 2010, to April 20, 2010, in accordance with generally accepted government auditing standards. The purpose of this report is to bring to the attention of DPI our findings related to ACS.
In the course of our work, we observed that ACS has an internal control system in place for processing purchasing documents and payments of invoices. However, we found a weakness in the procurement processes related to the Recovery Act expenditures that we reviewed. Specifically, we found the following: For its two largest Recovery Act purchases, ACS staff could not provide documentation to show that the district obtained multiple bids or price quotes for contracts for goods and services. ACS's two largest purchases with Recovery Act funds were for student assessment software and handheld computer devices entitled "Wireless Generation" that were purchased with ESEA Title I and IDEA Part B Recovery Act funds for $91,058.98 and a teacher planning software and professional development package entitled "Rubicon" for which the district used $13,680.00 of its ESEA Title I Recovery Act funds. Regarding both purchases, ACS officials acknowledged that their procurement processes were not in compliance with state management directives for Recovery Act funds or with ACS's purchasing policy, at the time, to solicit bids or obtain price quotes for purchases costing $10,000 or more. For these two contracts, ACS officials did not maintain documentation of multiple bids or price quotes for contracts purchased with Recovery Act funds. ACS officials provided what appeared to be two conflicting justifications for electing not to follow the above-referenced state management directives. Officials said that one reason they did not obtain multiple price bids or quotes was that they considered aspects of the contracts to be "purchased services" (i.e., software subscriptions), which are not required to be competed under the LEA's purchasing policy. However, ACS officials also said that the district did not obtain multiple price quotes for the equipment associated with the "Wireless Generation" purchase because they believed that only one vendor could provide the service and equipment.
GAO-10-746R, GAO Review of LEA Controls over and Uses of Recovery Act Education Funds (Avery County Schools)
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GAO-10-746R:
United States Government Accountability Office:
Washington, DC 20548:
July 9, 2010:
June St. Clair Atkinson, Ed.D.
State Superintendent:
North Carolina Department of Public Instruction:
Subject: GAO Review of LEA Controls over and Uses of Recovery Act
Education Funds (Avery County Schools):
Dear Dr. Atkinson:
The American Recovery and Reinvestment Act of 2009 (Recovery Act)
[Footnote 1] mandates GAO to review states' and localities' use of
funds made available under the act.[Footnote 2] Since April 2009, GAO
has published bimonthly reports on our findings related to federal,
state, and local implementation of the Recovery Act.[Footnote 3]
Currently, we are examining the efforts of selected states and local
educational agencies (LEA) to ensure appropriate uses of Recovery Act
funds. In North Carolina, we have been reviewing efforts undertaken by
the North Carolina Department of Public Instruction (DPI) and selected
LEAs to administer and oversee the use of Recovery Act funds under the
State Fiscal Stabilization Fund (SFSF) education stabilization funds;
Title I of the Elementary and Secondary Education Act of 1965 (ESEA
Title I), as amended; and Part B of the Individuals with Disabilities
Education Act (IDEA); as amended. As part of this effort, we met with
various DPI staff and, from February 1 through 3, 2010, we visited
Avery County Schools (ACS) to review and test the adequacy of controls
and procedures in place pertaining to Recovery Act funds for these
three federal programs. During our visit, we interviewed finance and
program officials regarding internal controls, procurement procedures,
and use of Recovery Act education funds. We also reviewed a
nonstatistical sample of 13[Footnote 4] expenditures of Recovery Act
funds for goods and services under these three programs. As of January
27, 2010, ACS spent about $755,000 in Recovery Act funds. We primarily
focused our work on two expenditures in our sample that ACS officials
reported as their largest Recovery Act nonsalary expenditures. These
two expenditures totaled nearly $105,000. We conducted our work from
February 1, 2010, to April 20, 2010, in accordance with generally
accepted government auditing standards. The purpose of this report is
to bring to your attention our findings related to ACS.
Internal control helps managers better achieve an entity's mission and
accountability for results through more effective stewardship of
public resources. Internal control includes management and program
policies, procedures, and guidance that help ensure effective and
efficient use of resources; compliance with laws and regulations;
prevention and detection of fraud, waste, and abuse; and the
reliability of financial reporting. According to the Office of
Management and Budget (OMB) Circular No. A-133, nonfederal entities
expending federal awards are required to maintain "internal control
over federal programs that provides reasonable assurance that the
auditee is managing federal awards in compliance with laws,
regulations, and the provisions of contracts or grant agreements that
could have a material effect on each of its federal programs."
[Footnote 5] U.S. Department of Education (Education) regulations also
require grantees and subgrantees (other than states) to maintain
effective internal control over "all grant and subgrant cash, real and
personal property, and other assets,"[Footnote 6] in addition to other
controls.[Footnote 7]
Education's regulations state that grantees and subgrantees will use
their own procurement procedures that reflect applicable state and
local laws and regulations, provided that the procurements conform to
applicable federal law and the standards identified in 34 C.F.R. §
80.36.[Footnote 8] In May 2009, according to state officials, North
Carolina's Office of Economic Recovery & Investment (OERI) issued
management directives regarding the use of Recovery Act funds for
procurements of goods and services.[Footnote 9] According to state
officials, OERI directives require recipients of Recovery Act funds to
advertise contracts for $5,000 or more and obtain multiple bids or
price quotes for Recovery Act procurements, among other things.
In the course of our work, we observed that ACS has an internal
control system in place for processing purchasing documents and
payments of invoices. However, we found a weakness in the procurement
processes related to the Recovery Act expenditures that we reviewed.
Specifically, we found the following:
* For its two largest Recovery Act purchases, ACS staff could not
provide documentation to show that the district obtained multiple bids
or price quotes for contracts for goods and services. ACS's two
largest purchases with Recovery Act funds were for student assessment
software and handheld computer devices entitled "Wireless Generation"
that were purchased with ESEA Title I and IDEA Part B Recovery Act
funds for $91,058.98 and a teacher planning software and professional
development package entitled "Rubicon" for which the district used
$13,680.00 of its ESEA Title I Recovery Act funds. Regarding both
purchases, ACS officials acknowledged that their procurement processes
were not in compliance with state management directives for Recovery
Act funds or with ACS's purchasing policy, at the time, to solicit
bids or obtain price quotes for purchases costing $10,000 or more.
[Footnote 10] For these two contracts, ACS officials did not maintain
documentation of multiple bids or price quotes for contracts purchased
with Recovery Act funds.[Footnote 11] ACS officials provided what
appeared to be two conflicting justifications for electing not to
follow the above-referenced state management directives. Officials
said that one reason they did not obtain multiple price bids or quotes
was that they considered aspects of the contracts to be "purchased
services" (i.e., software subscriptions), which are not required to be
competed under the LEA's purchasing policy. However, ACS officials
also said that the district did not obtain multiple price quotes for
the equipment associated with the "Wireless Generation" purchase
because they believed that only one vendor could provide the service
and equipment.
For your information, we have presented our preliminary findings to
ACS. In response, district officials said that they have implemented
additional controls to ensure additional supervisory approval of
purchases, required additional documentation of purchase receipt, and
held training sessions with school business staff regarding purchasing
procedures.
Federal regulations state that grantees are responsible for managing
the operations of grant and subgrant supported activities and must
monitor grant and subgrant supported activities to ensure compliance
with applicable federal requirements and achievement of performance
goals.[Footnote 12] Therefore, we are referring our findings to your
agency for follow-up. We are also sending copies of this report to the
Superintendent of Avery County Schools, the North Carolina Office of
the State Auditor, the U.S. Department of Education, and the U.S.
Department of Education's Office of the Inspector General. In
addition, this report will be available at no charge on GAO's Web site
at [hyperlink, http://www.gao.gov]. We included the issues raised in
this report, and any actions that DPI or ACS has taken to resolve
them, in our report issued on May 26, 2010, and will follow up with
you on the resolution of these issues.
If you or your staff have any questions about this report, please
contact me at (202) 512-8403 or ashbyc@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. Key contributors to this report include
Bryon Gordon, Assistant Director; Laura Acosta; Bonnie Derby; Brian
Egger; Tahra Nichols; and Kathleen Peyman.
Sincerely yours,
Signed by:
Cornelia M. Ashby:
Director, Education, Workforce, and Income Security Issues:
[End of section]
Footnotes:
[1] Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009).
[2] Recovery Act, div. A, title IX, § 901.
[3] For GAO bimonthly reports providing a national overview and
selected state reviews of Recovery Act spending, see [hyperlink,
http://www.gao.gov/recovery].
[4] We reviewed 13 of ACS's 15 expenditures of Recovery Act funds for
equipment, services, and supplies.
[5] OMB Circular No. A-133 §___.300(b). 34 C.F.R. § 80.26 requires
Education's state and local government grantees and subgrantees to
obtain audits in accordance with OMB Circular No. A-133.
[6] 34 C.F.R. § 80.20(b)(3).
[7] See e.g., 34 C.F.R. §§ 80.26 (audit) and 80.40 (monitoring).
[8] 34 C.F.R. § 80.36(b)(1).
[9] North Carolina Office of Economic Recovery & Investment Directives
3 and 3(b) (May 2009 and January 2010), "Contract Provisions for the
Procurement of Goods, Services, and Construction Projects Including
Design Services and Internal Procurement Directives."
[10] ACS officials reported to us that, at the time of our visit, the
LEA policy to obtain quotes for purchases of $10,000 or more exceeded
the state threshold. These officials later reported to us that as of
April 2010, the school board modified the purchasing policy so that it
is consistent with state purchasing requirements.
[11] Since our initial visit, ACS officials reported to us that they
require school officials to maintain documentation of having obtained
multiple price quotes related to purchase requests.
[12] 34 C.F.R. § 80.40(a).
[End of section]
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