GAO Review of LEA Controls over and Uses of Recovery Act Education Funds (Winston-Salem/Forsyth County Schools)
Gao ID: GAO-10-747R July 9, 2010The American Recovery and Reinvestment Act of 2009 (Recovery Act) mandates GAO to review states' and localities' use of funds made available under the 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. According to Education regulations, grant funds may only be used for allowable costs and reasonable fees or profit to cost-type contractors, and state and local governments must follow the cost principles set out in OMB Circular No. A-87 for determining allowable costs. North Carolina's Office of Economic Recovery & Investment (OERI) issued management directives regarding the use of Recovery Act funds for procurement of goods and services. 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.
Winston-Salem/Forsyth County Schools (WSFCS) expended $38,400 of ESEA Title I funds on a program that included some expenses that appeared to constitute entertainment, a potentially unallowable use of these funds. WSFCS officials told us that the LEA paid ESEA Title I Recovery Act funds to the Housing Authority of Winston-Salem (HAWS) for a 2009 summer educational program for students entitled the "Summer Teaching Enrichment Program" (STEP). According to STEP officials, the ESEA Title I funds comprised the majority of STEP's 2009 budget, which also included funding from a local corporation and the local police department. WSFCS and STEP officials described the program as providing remedial academic assistance in reading, math, science, and technology to help students retain educational gains over the summer months. Furthermore, the WSFCS Superintendent said that the district's arrangement with the STEP program was to use district funds to pay only for teachers' salaries, and that other sources of funds would be used to pay for noneducational activities. HAWS officials said that they were instructed by a WSFCS official to make sure that all of the children enrolled in the program attended ESEA Title I schools and that they obtained confirmation from the district that all of the children did so. In our review of documents, we found evidence that in addition to paying teachers a total of $17,270 in salaries, HAWS also used ESEA Title I funds to pay for STEP activities that included other salaries and field trip-related expenses, including tickets for movies, a water park, fast food, and other entertainment. The invoice that HAWS provided to WSFCS lacked supporting documentation for the full range of activities paid with ESEA Title I funds. Instead, payment was made at a rate of $800 per child attending the program, but no attendance records were provided in support of the invoice. WSFCS staff could not provide documentation to show that the district obtained multiple bids or price quotes for contracts for goods and services. WSFCS officials also could not provide us with documentation of the district having obtained multiple bids or price quotes for contracts for services. WSFCS officials also acknowledged that for at least one contract, they were not in compliance with WSFCS's purchasing policy to solicit bids/price quotes for purchases of items costing more than $5,000 but less than $90,000.
GAO-10-747R, GAO Review of LEA Controls over and Uses of Recovery Act Education Funds (Winston-Salem/Forsyth County Schools)
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GAO-10-747R:
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 (Winston-Salem/Forsyth 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 23 through 25, 2010, we visited
Winston-Salem/Forsyth County Schools (WSFCS) 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 63 expenditures of Recovery
Act funds for goods, services, and salaries under these three
programs. As of February 12, 2010, WSFCS had expended about $17.6
million in Recovery Act funds. Expenditures in our sample totaled
$618,814.84, of which $185,256.83 represented nonsalary expenses. We
conducted our work from February 9, 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 WSFCS.
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 4] 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 5] in addition to other
controls.[Footnote 6]
According to Education regulations, grant funds may only be used for
allowable costs and reasonable fees or profit to cost-type
contractors, and state and local governments must follow the cost
principles set out in OMB Circular No. A-87 for determining allowable
costs.[Footnote 7] For example, OMB Circular No. A-87 states that
costs for entertainment, promotional materials (such as souvenirs),
alcoholic beverages, certain lobbying, and organized fund-raising and
campaigns to raise capital are unallowable. States and LEAs that
receive federal funds must ensure that the funds are spent on
allowable costs as described in OMB Circular No. A-87, agency program
regulations, and the terms of grant and subgrant agreements.[Footnote
8]
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 9]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
procurement of goods and services.[Footnote 10] 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 WSFCS has an internal
control system in place for processing purchasing documents and
payments of invoices, with defined segregation of duties among those
approving purchases, paying invoices, and delivering payments to
vendors. We also learned of efforts by administrators to improve
processes to ensure that funds are well-spent. For example, according
to WSFCS officials, the ESEA Title I office implemented additional
controls over school purchases of food for parental involvement
meetings to avoid overspending. However, we found several problems
related to some of the Recovery Act expenditures we reviewed.
Specifically, we found the following:
* WSFCS expended $38,400 of ESEA Title I funds[Footnote 11] on a
program that included some expenses that appeared to constitute
entertainment, a potentially unallowable use of these funds.[Footnote
12] WSFCS officials told us that the LEA paid ESEA Title I Recovery
Act funds to the Housing Authority of Winston-Salem (HAWS) for a 2009
summer educational program for students entitled the "Summer Teaching
Enrichment Program" (STEP). According to STEP officials, the ESEA
Title I funds comprised the majority of STEP's 2009 budget, which also
included funding from a local corporation and the local police
department.[Footnote 13] WSFCS and STEP officials described the
program as providing remedial academic assistance in reading, math,
science, and technology to help students retain educational gains over
the summer months. Furthermore, the WSFCS Superintendent said that the
district's arrangement with the STEP program was to use district funds
to pay only for teachers' salaries, and that other sources of funds
would be used to pay for noneducational activities. HAWS officials
said that they were instructed by a WSFCS official to make sure that
all of the children enrolled in the program attended ESEA Title I
schools, and that they obtained confirmation from the district that
all of the children did so. STEP officials told us that students spent
approximately 3 hours, 4 days a week, on educational activities and 8
hours, 1 day a week, on academic field trips. STEP officials said that
these field trips included trips to science centers, planetariums, and
colleges. They also said that the program included workshops on
conflict resolution and crime prevention. However, in our review of
documents, we found evidence that in addition to paying teachers a
total of $17,270 in salaries, HAWS also used ESEA Title I funds to pay
for STEP activities that included other salaries and field trip-
related expenses, including tickets for movies, a water park, fast
food, and other entertainment. For example, activities for students
included a trip to the movie theatre to see movies entitled Ice Age
(for K-5 graders) and Terminator (6-12 graders) for a total of $405.50
and a trip to a water park, Wet and Wild Emerald Point, for $961.23
(including food and locker rentals). The invoice that HAWS provided to
WSFCS lacked supporting documentation for the full range of activities
paid with ESEA Title I funds. Instead, payment was made at a rate of
$800 per child attending the program, but no attendance records were
provided in support of the invoice. Furthermore, WSFCS officials told
us that they did not provide oversight of STEP activities. Finally, we
observed and WSFCS officials confirmed that the LEA's final purchase
order for this expenditure did not specifically state that the grant
was for teacher salaries, or that the children participating in the
program must come from ESEA Title I schools. Also, we observed and
WSFCS officials confirmed that the purchase order was not signed by
the ESEA Title I Director, per the typical procedure WSFCS officials
described to us during our visit. A WSFCS official with signature
authority acknowledged that the signatures on the purchase order were
not in accordance with LEA practice. In response to our observations,
WSFCS officials reported to us that they plan to reprogram all or part
of the ESEA Title I funds spent on this activity to nonfederal funding
sources.
* WSFCS staff could not provide documentation to show that the
district obtained multiple bids or price quotes for contracts for
goods and services. WSFCS officials acknowledged that their practices
were not in compliance with state management directives requiring
competition or advertising. WSFCS could not provide us with
documentation to show that the district solicited multiple bids or
obtained multiple price quotes for contracts for goods purchased with
Recovery Act funds. In response to our request for information on bids
or price quotes for purchases of high-definition televisions,
computers, and other electronic equipment (not purchased from state
contractors) using ESEA Title I Recovery Act funds, WSFCS staff
provided us with one list of various items, the chosen vendor for each
of these items, and the items' price. WSFCS officials also could not
provide us with documentation of the district having obtained multiple
bids or price quotes for contracts for services. A senior WSFCS
official said that documentation was not available because the LEA
does not solicit bids or obtain multiple price quotes for professional
development services. WSFCS officials also acknowledged that for at
least one contract, they were not in compliance with WSFCS's
purchasing policy to solicit bids/price quotes for purchases of items
costing more than $5,000 but less than $90,000.
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 14] Therefore, we are referring our findings to your
agency for follow-up. We are also sending copies of this report to the
Superintendent of Winston-Salem/Forsyth 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
WSFCS 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] 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.
[5] 34 C.F.R. § 80.20(b)(3).
[6] See e.g., 34 C.F.R. §§ 80.26 (audit) and 80.40 (monitoring).
[7] 34 C.F.R. § 80.22.
[8] 34 C.F.R. § 80.20(b)(5).
[9] 34 C.F.R. § 80.36(b)(1).
[10] 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."
[11] Of those funds, $6,400 were Recovery Act ESEA Title I funds and
$32,000 were regular ESEA Title I funds.
[12] OMB Circular No. A-87 states that the costs of entertainment,
including amusement, diversion, and social activities, and any costs
directly associated with such costs (such as tickets to shows or
sports events, meals, lodging, rentals, transportation, and
gratuities) are unallowable.
[13] The total amount of Recovery Act and regular ESEA Title I funds,
$38,400, comprised 74 percent of STEP's total estimated budget of
$52,400.
[14] 34 C.F.R. § 80.40(a).
[End of section]
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