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  **Audit of Valencia Community College's Gaining Early Awareness and
  Readiness for Undergraduate Programs Matching Requirement**

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### 

### 

### FINAL AUDIT REPORT

### ED-OIG/A07-B0011

### May 2003

+----------------------------+-------------+---------------------------+
| Our Mission is to promote  | ![](media/  | U.S. Department of        |
| the efficiency,\           | image3.wmf) | Education                 |
| effectiveness, and         |             |                           |
| integrity of the\          |             | Office of Inspector       |
| Department's programs and  |             | General                   |
| operations.                |             |                           |
|                            |             | Kansas City, Missouri     |
|                            |             | Office                    |
+----------------------------+-------------+---------------------------+

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# NOTICE

Statements that managerial practices need improvements, as well as other

conclusions and recommendations in this report

represent the opinions of the Office of Inspector General.
Determinations of

corrective action to be taken will be made by the appropriate Department
of Education officials.

In accordance with Freedom of Information Act (5 U.S.C. § 552), reports

issued by the Office of Inspector General are available, if requested,
to

members of the press and general public to the extent information
contained therein is not subject to exemptions in the Act.

# Audit of Valencia Community College's Gaining Early Awareness and Readiness for Undergraduate Programs Matching Requirement

### Table of Contents

**Executive Summary** [1](#executive-summary)

**Introduction** [3](#introduction)

**Audit Results** [5](#audit-results)

## Finding No. 1 -- Partnerships Did Not Contribute The Required  {#finding-no.-1-partnerships-did-not-contribute-the-required .unnumbered}

##  Non-Federal Cost-Share To The Projects [5](#finding-no.-1-partnerships-did-not-contribute-the-required-non-federal-cost-share-to-the-projects) {#non-federal-cost-share-to-the-projects-5 .unnumbered}

## Finding No. 2 -- All Non-Federal Costs Claimed Were Improperly Calculated [11](#finding-no.-2-all-non-federal-costs-claimed-were-improperly-calculated) {#finding-no.-2-all-non-federal-costs-claimed-were-improperly-calculated-11 .unnumbered}

###### Finding No. 3 -- Duplicated, Unallocable and Unreasonable Room Usage Claims [16](#finding-no.-3-duplicated-unallocable-and-unreasonable-room-usage-claims)

# Objectives, Scope and Methodology [19](#objectives-scope-and-methodology)

> **Statement on Management Controls**
> [21](#statement-on-management-controls)
>
> **Attachment 1: Valencia Community College Comments on the Draft
> Report** [22](#attachment-1)

# Audit of Valencia Community College's Gaining Early Awareness and Readiness for Undergraduate Programs Matching Requirement

# Executive Summary

We found that Valencia Community College (VCC) officials did not
administer the matching requirement for its Gaining Early Awareness and
Readiness for Undergraduate Programs (GEAR UP) projects in accordance
with legislative, regulatory, and administrative requirements. VCC is
the fiscal agent for three GEAR UP partnership grants awarded in 1999,
three continuation awards in 2000, and four new GEAR UP partnership
grants awarded in 2000 totaling \$3,023,019. The objectives of our audit
were to determine whether the seven partnerships were eligible entities;
whether VCC maintained adequate documentation to support the required
match totaling \$4,972,373; and whether the claimed matching costs were
allowable, allocable, and reasonable. We found that:

-   The partnerships met the requirements for an eligible entity by
    providing documentation of minimal participation by two community
    partners for each grant.

-   VCC did not assure that it complied with the programs' matching
    requirement in accordance with legislative, regulatory, and
    administrative requirements. Contrary to Federal regulations, six of
    the seven GEAR UP partnerships did not contribute \$1,600,749 of the
    required non-Federal cost-share (match). VCC fell short of required
    match amounts because VCC only claimed sufficient match to meet the
    statutory minimum 50 percent of total project costs instead of the
    higher proposed percentages as required by GEAR UP regulations and
    contained in the applications.

-   VCC claimed unallowable matching costs totaling \$4,105,975 for all
    GEAR UP grants because all costs were calculated using commercial
    rental rates instead of the actual depreciation costs or use
    allowance as required by Federal cost principles.

-   VCC included unallowable, unallocable, and unreasonable room usages
    on the spreadsheets documenting the facilities match costs. The
    spreadsheets contained numerous overstatements because duplicated
    costs were claimed, shared use rooms were charged 100 percent to the
    grant, and claimed hours were in excess of actual hours used. We
    have not calculated all instances of these errors and overstatements
    because we have already questioned the costs based on the
    unallowable method of calculating facilities costs.

We recommend that the Assistant Secretary for Postsecondary Education
require that VCC officials:

1.1 refund \$496,932, the amount of Federal expenditures required to be
converted to match in order to conform to the regulation requiring the
partnership to comply with the application match percentages for the six
under-matched grant awards.

1.2 comply with the stated percentage in each of its GEAR UP
applications each year.

1.  refund \$1,325,932 of Federal funds required to be converted to
    match in order to conform to the regulation requiring the
    partnership to comply with the application match percentages to
    cover the unallowable facilities and equipment match claim.

2.2 establish controls to ensure any future claims of partners'
facilities and equipment are computed using depreciation or use
allowances.

3.1 establish and implement policy and procedures to maintain proper
record keeping for in-kind, non-Federal match according to applicable
Federal regulations, including assurance that all claimed matching costs
are allowable, allocable, and reasonable.

VCC provided narrative comments in response to our draft report. VCC's
narrative comments are included in their entirety in Attachment 1. VCC
did concur that it had claimed duplicated and shared costs and with
recommendation 3.1, but it did not concur with the remainder of our
findings or recommendations. We summarized VCC's comments and provided
our response following each finding. Our analysis of the VCC's comments
did not persuade us to change our overall conclusions or recommendations
for any of the findings.

# Introduction

**Gaining Early Awareness and Readiness for Undergraduate Programs (GEAR
UP)**

Congress authorized the Gaining Early Awareness and Readiness for
Undergraduate Programs as part of the Higher Education Amendments of
1998 (Public Law 105-244). The GEAR UP initiative is designed to
accelerate the academic achievement of cohorts of disadvantaged middle
and secondary school students. GEAR UP gives disadvantaged students and
their families pathways to college by partnering middle and high schools
with colleges and community organizations. The goal is to support
institutions of higher education, local schools, community-based
organizations, businesses, and States in working together to help
students and their parents gain needed knowledge and strengthen academic
programs and student services in the schools. GEAR UP provides two types
of competitive grants, partnership and State, which support early
college preparation and awareness activities at local and state levels.
The Office of Postsecondary Education's Policy, Planning, and Innovation
Office currently administers GEAR UP. GEAR UP grants are five years in
length.

Partnership grants are submitted on behalf of a locally designed
partnership between one or more local education agencies (LEA) acting on
behalf of an elementary or secondary school, one or more degree-granting
institution of higher education, and at least two community
organizations or entities. These other entities could include such
organizations as businesses, professional associations, philanthropic
organizations, community-based organizations, religious groups, college
student organizations, State or local agencies, and parent groups.

Partnership grants must include an early intervention component. The
early intervention component involves the project providing early
college awareness and preparation activities for participating students
through comprehensive mentoring, counseling, outreach, and supportive
services. The mission of GEAR UP is to significantly increase the number
of low-income students who are prepared to enter and succeed in
postsecondary education.

The first GEAR UP grant was awarded in 1999. During this first year, ED
awarded 164 partnership grants and 21 State grants totaling \$120
million. In 2000, 73 new partnership grants and 7 new State grants were
awarded and in 2001, 6 new partnership grants and 2 new State grants
were awarded. GEAR UP appropriations for 2000 totaled \$200 million,
with \$295 million appropriated in 2001.

**Valencia Community College (VCC)**

Valencia Community College was established in the fall of 1967. Today
VCC serves more than 50,000 students a year, making it the fourth
largest of Florida's 28 community colleges. VCC maintains four campuses
and two centers in the Orlando area. VCC became eligible for
participation in the Federal student aid programs and other Higher
Education Act programs, November 27, 1968. VCC is fully certified with
the U.S. Department of Education (ED) and holds a current Program
Participation Agreement that will expire on September 30, 2003.

ED awarded VCC, as fiscal agent, seven GEAR UP partnership grants. For
fiscal year 1999, VCC was awarded three GEAR UP grants totaling
\$873,600. The following year in 2000, VCC was granted continuations for
its three grants in addition to being awarded four new GEAR UP grants.
The total Federal grant dollars for fiscal year 2000 was \$ 2,149,419.

# 1999 Grants Federal Award

P334A990094 Osceola Campus of Valencia Community College \$252,000

P334A990149 East Campus of Valencia Community College \$354,400

P334A990234 West Campus of Valencia Community College
[\$267,200]{.underline}

\$873,600

# 2000 Continuation Grants

P334A990094 Osceola Campus of Valencia Community College \$252,000

P334A990149 East Campus of Valencia Community College \$354,400

P334A990234 West Campus of Valencia Community College
[\$267,200]{.underline}

\$873,600

# 2000 Grants

P334A000155 Osceola Campus of Valencia Community College \$301,961

P334A000226 West Campus of Valencia Community College \$331,190

P334A000185 West Campus of Valencia Community College \$306,163

P334A000184 West Campus of Valencia Community College
[\$336,505]{.underline}

\$1,275,819

# Audit Results

We found that VCC officials did not administer its GEAR UP projects in
accordance with legislative, regulatory, and administrative requirements
for non-Federal match. VCC was able to provide documentation of minimal
participation by two community partners for each of its seven GEAR UP
grants. However, VCC did not maintain adequate documentation to support
the required match, claimed facilities and equipment costs were
improperly calculated, and matching claims included unallowable,
unallocable, and unreasonable room usages.

####### 

######### Finding No. 1 -- Partnerships Did Not Contribute The Required Non-Federal Cost-Share To The Projects

Contrary to Federal regulations, the partnership did not contribute
\$1,600,749 of the required non-Federal cost-share (match) for six grant
awards. VCC fell short of required match amounts because VCC only
claimed sufficient match to meet the statutory minimum 50 percent of
total project costs instead of the higher percentages proposed in its
approved grant applications as required by GEAR UP regulations. Since
the GEAR UP partnerships did not provide the proper proportion of
non-Federal match, we recommend that the Assistant Secretary for
Postsecondary Education require VCC to refund \$496,932. The refund
would achieve the required match proportion by converting Federally
funded project costs to non-Federal match. We also recommend that VCC
comply with the proposed partnership match for each grant, each year.

A partnership must comply with the match percentage stated in its
application each year, and the percentage may not be less than 50
percent to comply with the regulations in 34 C.F.R. § 694.7.

> What are the matching requirements for a GEAR UP Partnership?
>
> \(a\) In general. A Partnership must\--
>
> \(1\) State in its application the percentage of the cost of the GEAR
> UP project the partnership will provide for each year from non-Federal
> funds, subject to the requirements in paragraph (b) of this section;
> and
>
> \(2\) Comply with the matching percentage stated in its application
> for each year of the project period.
>
> \(b\) Matching requirements.
>
> \(1\) ... the non-Federal share of the cost of the GEAR UP project
> must be not less than 50 percent of the total cost over the project
> period.

Each of the seven original applications, which included detailed budgets
of Federal and non-Federal matching costs as required for consideration
in the grant competition, exceeded the required 50 percent minimum
non-Federal share of total project costs. The proposed match ranged from
51 to 74 percent, all exceeding the required 50 percent minimum of total
project costs. The partnerships proposed to provide a total \$4,972,373
for the 10 grant awards audited.

Review of VCC accounting records showed that all awarded Federal dollars
were spent or encumbered, however the partnerships have significantly
under matched six of the grant awards.

+----------+-----+--------+--------+-----+--------+-----+----------+
| *        | **A | **Fed  | **Re   |     | **C    |     | **Under  |
| *Award** | war | eral** | quired |     | laimed |     | Match    |
|          | d** |        | M      |     | M      |     | ^4^**    |
|          |     | *      | atch** |     | atch** |     |          |
|          | **  | *Award |        |     |        |     |          |
|          | Yea | (a)**  |        |     |        |     |          |
|          | r** |        |        |     |        |     |          |
+----------+-----+--------+--------+-----+--------+-----+----------+
|          |     |        | **Am   | **% | **     | **% |          |
|          |     |        | ount** | ^1  | Amount | ^3  |          |
|          |     |        |        | ^** | ^2^**  | ^** |          |
+----------+-----+--------+--------+-----+--------+-----+----------+
| P33      | 1   | \$2    | \$2    | 51. | \$     | 60. | None     |
| 4A990234 | 999 | 67,200 | 78,886 | 07% | 4      | 81% |          |
|          |     |        |        |     | 14,605 |     |          |
+----------+-----+--------+--------+-----+--------+-----+----------+
| P33      | 1   | \$2    | \$3    | 60. | \$     | 50. | \        |
| 4A990094 | 999 | 52,000 | 93,484 | 96% | 2      | 98% | $131,411 |
|          |     |        |        |     | 62,073 |     |          |
+----------+-----+--------+--------+-----+--------+-----+----------+
| P33      | 1   | \$3    | \$3    | 50. | \$     | 55. | None     |
| 4A990149 | 999 | 54,400 | 67,874 | 93% | 4      | 98% |          |
|          |     |        |        |     | 50,642 |     |          |
+----------+-----+--------+--------+-----+--------+-----+----------+
| P33      | 2   | \$2    | \$2    | 51. | \$     | 65. | None     |
| 4A990234 | 000 | 67,200 | 80,505 | 21% | 5      | 45% |          |
|          |     |        |        |     | 06,153 |     |          |
+----------+-----+--------+--------+-----+--------+-----+----------+
| P33      | 2   | \$2    | \$3    | 61. | \$     | 56. | \$68,490 |
| 4A990094 | 000 | 52,000 | 94,840 | 04% | 3      | 43% |          |
|          |     |        |        |     | 26,350 |     |          |
+----------+-----+--------+--------+-----+--------+-----+----------+
| P33      | 2   | \$3    | \$3    | 51. | \$     | 65. | None     |
| 4A990149 | 000 | 54,400 | 69,493 | 04% | 6      | 05% |          |
|          |     |        |        |     | 59,709 |     |          |
+----------+-----+--------+--------+-----+--------+-----+----------+
| P33      | 2   | \$3    | \$6    | 66. | \$     | 50. | \        |
| 4A000226 | 000 | 31,190 | 65,309 | 76% | 3      | 07% | $333,179 |
|          |     |        |        |     | 32,130 |     |          |
+----------+-----+--------+--------+-----+--------+-----+----------+
| P33      | 2   | \$3    | \$6    | 66. | \$     | 54. | \        |
| 4A000184 | 000 | 36,505 | 69,902 | 56% | 4      | 86% | $260,899 |
|          |     |        |        |     | 09,003 |     |          |
+----------+-----+--------+--------+-----+--------+-----+----------+
| P33      | 2   | \$3    | \$8    | 74. | \$     | 50. | \        |
| 4A000185 | 000 | 06,163 | 73,395 | 04% | 3      | 13% | $565,650 |
|          |     |        |        |     | 07,745 |     |          |
+----------+-----+--------+--------+-----+--------+-----+----------+
| P33      | 2   | \$3    | \$6    | 69. | \$     | 59. | \        |
| 4A000155 | 000 | 01,961 | 78,685 | 21% | 4      | 17% | $241,120 |
|          |     |        |        |     | 37,565 |     |          |
+----------+-----+--------+--------+-----+--------+-----+----------+
| Totals   |     | \$3,0  | \$4,9  |     | \$4,1  |     | \$1      |
|          |     | 23,019 | 72,373 |     | 05,975 |     | ,600,749 |
+----------+-----+--------+--------+-----+--------+-----+----------+
| 1.       |     |        |        |     |        |     |          |
|  Federal |     |        |        |     |        |     |          |
|          |     |        |        |     |        |     |          |
|  Award + |     |        |        |     |        |     |          |
|          |     |        |        |     |        |     |          |
| Required |     |        |        |     |        |     |          |
|          |     |        |        |     |        |     |          |
|   Match/ |     |        |        |     |        |     |          |
| Required |     |        |        |     |        |     |          |
|          |     |        |        |     |        |     |          |
|    Match |     |        |        |     |        |     |          |
|          |     |        |        |     |        |     |          |
| 2.  Per  |     |        |        |     |        |     |          |
|          |     |        |        |     |        |     |          |
|  January |     |        |        |     |        |     |          |
|     14,  |     |        |        |     |        |     |          |
|     2002 |     |        |        |     |        |     |          |
|     set  |     |        |        |     |        |     |          |
|     of   |     |        |        |     |        |     |          |
|          |     |        |        |     |        |     |          |
|  claimed |     |        |        |     |        |     |          |
|          |     |        |        |     |        |     |          |
|   costs. |     |        |        |     |        |     |          |
|          |     |        |        |     |        |     |          |
| 3.       |     |        |        |     |        |     |          |
|  Federal |     |        |        |     |        |     |          |
|          |     |        |        |     |        |     |          |
|  Award + |     |        |        |     |        |     |          |
|          |     |        |        |     |        |     |          |
|  Claimed |     |        |        |     |        |     |          |
|          |     |        |        |     |        |     |          |
|    Match |     |        |        |     |        |     |          |
| /Claimed |     |        |        |     |        |     |          |
|          |     |        |        |     |        |     |          |
|    Match |     |        |        |     |        |     |          |
|          |     |        |        |     |        |     |          |
| 4.       |     |        |        |     |        |     |          |
| Required |     |        |        |     |        |     |          |
|     (p   |     |        |        |     |        |     |          |
| roposed) |     |        |        |     |        |     |          |
|          |     |        |        |     |        |     |          |
|   amount |     |        |        |     |        |     |          |
|     less |     |        |        |     |        |     |          |
|          |     |        |        |     |        |     |          |
| claimed. |     |        |        |     |        |     |          |
+----------+-----+--------+--------+-----+--------+-----+----------+

The failure to provide the proposed non-Federal match for six of the
grant awards harmed the Federal interest as it significantly reduced the
size of the projects in those years and increased the proportion of the
project funded by the Federal government.

+-----------+-------+-----------+-------+---------+--------+--------+
| **Actual  |       |           |       |         |        |        |
| Federal   |       |           |       |         |        |        |
| Exp       |       |           |       |         |        |        |
| enditures |       |           |       |         |        |        |
| and Non   |       |           |       |         |        |        |
| Cash      |       |           |       |         |        |        |
| Match**   |       |           |       |         |        |        |
+-----------+-------+-----------+-------+---------+--------+--------+
| **Award** | **    | **Total   |       | **      |        | **Fed  |
|           | Award | Project   |       | Project |        | Shar   |
|           | Y     | ^1^**     |       | Redu    |        | e^2^** |
|           | ear** |           |       | ction** |        |        |
+-----------+-------+-----------+-------+---------+--------+--------+
|           |       | **P       | **Act | **A     | **Per  | **Incr |
|           |       | roposed** | ual** | mount** | cent** | ease** |
+-----------+-------+-----------+-------+---------+--------+--------+
| P3        | 1999  | \$645,484 | \$51  | \$      | 20.36% | 9.98%  |
| 34A990094 |       |           | 4,073 | 131,411 |        |        |
+-----------+-------+-----------+-------+---------+--------+--------+
| P3        | 2000  | \$646,840 | \$57  | \       | 10.59% | 4.61%  |
| 34A990094 |       |           | 8,350 | $68,490 |        |        |
+-----------+-------+-----------+-------+---------+--------+--------+
| P3        | 2000  | \$996,499 | \$66  | \$      | 33.43% | 16.69% |
| 34A000226 |       |           | 3,320 | 333,179 |        |        |
+-----------+-------+-----------+-------+---------+--------+--------+
| P3        | 2000  | \$        | \$74  | \$      | 25.92% | 11.70% |
| 34A000184 |       | 1,006,407 | 5,508 | 260,899 |        |        |
+-----------+-------+-----------+-------+---------+--------+--------+
| P3        | 2000  | \$        | \$61  | \$      | 47.95% | 23.91% |
| 34A000185 |       | 1,179,558 | 3,908 | 565,650 |        |        |
+-----------+-------+-----------+-------+---------+--------+--------+
| P3        | 2000  | \$980,646 | \$73  | \$      | 24.59% | 10.04% |
| 34A000155 |       |           | 9,526 | 241,120 |        |        |
+-----------+-------+-----------+-------+---------+--------+--------+
| Total     |       |           |       | \$1,    |        |        |
|           |       |           |       | 600,749 |        |        |
+-----------+-------+-----------+-------+---------+--------+--------+
| 1.  Total |       |           |       |         |        |        |
|           |       |           |       |         |        |        |
|   Project |       |           |       |         |        |        |
|     Costs |       |           |       |         |        |        |
|     =     |       |           |       |         |        |        |
|           |       |           |       |         |        |        |
|   Federal |       |           |       |         |        |        |
|           |       |           |       |         |        |        |
|   Award + |       |           |       |         |        |        |
|     Non   |       |           |       |         |        |        |
| --Federal |       |           |       |         |        |        |
|     Match |       |           |       |         |        |        |
|           |       |           |       |         |        |        |
| 2.        |       |           |       |         |        |        |
|   Federal |       |           |       |         |        |        |
|     Share |       |           |       |         |        |        |
|           |       |           |       |         |        |        |
|  Increase |       |           |       |         |        |        |
|     =     |       |           |       |         |        |        |
|           |       |           |       |         |        |        |
|  Required |       |           |       |         |        |        |
|     %     |       |           |       |         |        |        |
|           |       |           |       |         |        |        |
|   Match - |       |           |       |         |        |        |
|           |       |           |       |         |        |        |
|   Claimed |       |           |       |         |        |        |
|     %     |       |           |       |         |        |        |
|     Match |       |           |       |         |        |        |
|     From  |       |           |       |         |        |        |
|     Table |       |           |       |         |        |        |
|     Above |       |           |       |         |        |        |
+-----------+-------+-----------+-------+---------+--------+--------+

Although VCC submitted grant applications to ED with higher non-Federal
match percentages and those proposals were incorporated into the GEAR UP
grants award notifications, VCC officials informed us they only had to
match at the minimum 50 percent of total project costs. However, as
stated above, the regulations are clear that the required match is the
proposal percentage.

In order to meet the regulation requiring the partnership to comply with
the application match percentages for the above six grant awards, a
portion of project costs paid by Federal funds would need to be
converted to match. The amounts required to be converted from Federal to
partnership funding range from \$26,662 to \$146,785 for a total
\$496,932, which should be subtracted from the project costs paid from
Federal funds and refunded.

+------------+------+--------+-----------+--------+--------+---------+
| **C        |      |        |           |        |        |         |
| alculation |      |        |           |        |        |         |
| of         |      |        |           |        |        |         |
| Required   |      |        |           |        |        |         |
| Match and  |      |        |           |        |        |         |
| Refund     |      |        |           |        |        |         |
| Amount**   |      |        |           |        |        |         |
+------------+------+--------+-----------+--------+--------+---------+
| **Award**  | **A  | **     | **R       | **Re   | **C    | **To    |
|            | ward | Actual | equired** | quired | laimed | Refu    |
|            | Ye   | Pro    |           | Matc   | M      | nd^2^** |
|            | ar** | ject** | **Match   | h^1^** | atch** |         |
|            |      |        | Percent** |        |        |         |
+------------+------+--------+-----------+--------+--------+---------+
| P          | 1999 | \$5    | 60.96%    | \$3    | \$2    | \       |
| 334A990094 |      | 14,073 |           | 13,379 | 62,074 | $51,305 |
+------------+------+--------+-----------+--------+--------+---------+
| P          | 2000 | \$5    | 61.04%    | \$3    | \$3    | \       |
| 334A990094 |      | 78,350 |           | 53,025 | 26,363 | $26,662 |
+------------+------+--------+-----------+--------+--------+---------+
| P          | 2000 | \$6    | 66.76%    | \$4    | \$3    | \$      |
| 334A000226 |      | 63,320 |           | 42,832 | 32,124 | 110,708 |
+------------+------+--------+-----------+--------+--------+---------+
| P          | 2000 | \$7    | 66.56%    | \$4    | \$4    | \       |
| 334A000184 |      | 45,508 |           | 96,210 | 08,986 | $87,224 |
+------------+------+--------+-----------+--------+--------+---------+
| P          | 2000 | \$6    | 74.04%    | \$4    | \$3    | \$      |
| 334A000185 |      | 13,908 |           | 54,537 | 07,752 | 146,785 |
+------------+------+--------+-----------+--------+--------+---------+
| P          | 2000 | \$7    | 69.21%    | \$5    | \$4    | \       |
| 334A000155 |      | 39,526 |           | 11,826 | 37,578 | $74,248 |
+------------+------+--------+-----------+--------+--------+---------+
| Total      |      |        |           |        |        | \$      |
|            |      |        |           |        |        | 496,932 |
+------------+------+--------+-----------+--------+--------+---------+
| 1.  Actual |      |        |           |        |        |         |
|            |      |        |           |        |        |         |
|    Project |      |        |           |        |        |         |
|     \*     |      |        |           |        |        |         |
|            |      |        |           |        |        |         |
|   Required |      |        |           |        |        |         |
|     Match  |      |        |           |        |        |         |
|            |      |        |           |        |        |         |
|    Percent |      |        |           |        |        |         |
|            |      |        |           |        |        |         |
| 2.         |      |        |           |        |        |         |
|   Required |      |        |           |        |        |         |
|     Match  |      |        |           |        |        |         |
|     --     |      |        |           |        |        |         |
|            |      |        |           |        |        |         |
|    Claimed |      |        |           |        |        |         |
|     Match  |      |        |           |        |        |         |
|     (This  |      |        |           |        |        |         |
|     amount |      |        |           |        |        |         |
|     is     |      |        |           |        |        |         |
|            |      |        |           |        |        |         |
|  converted |      |        |           |        |        |         |
|     from   |      |        |           |        |        |         |
|            |      |        |           |        |        |         |
|    Federal |      |        |           |        |        |         |
|     to     |      |        |           |        |        |         |
|     N      |      |        |           |        |        |         |
| on-Federal |      |        |           |        |        |         |
|     to     |      |        |           |        |        |         |
|     comply |      |        |           |        |        |         |
|     with   |      |        |           |        |        |         |
|            |      |        |           |        |        |         |
|   proposed |      |        |           |        |        |         |
|     match  |      |        |           |        |        |         |
|     p      |      |        |           |        |        |         |
| ercentage) |      |        |           |        |        |         |
+------------+------+--------+-----------+--------+--------+---------+

######## Recommendations

We recommend that the Assistant Secretary for Postsecondary Education
require that VCC:

1.1 refund \$496,932, the amount of Federal expenditures required to be
converted to match in order to conform to the regulation requiring the
partnership to comply with the application match percentages for the six
under-matched grant awards.

1.2 comply with the stated percentage in each of its GEAR UP
applications each year.

######## Auditee Comments and OIG Response

VCC asserted that the partnership did, in fact, meet the required
non-Federal cost-share for each of the grants because the required cost
share was only 50 percent of total project costs. The response provided
nine points to support the partnership's position. We have summarized
each of those points below along with our response to those points.

1.  The partnerships committed to in-kind matching that exceeded the
    minimum requirement of 50 percent of program costs in the grant
    proposals for each of the grants.\
    \
    [OIG Response]{.underline}. Consistent with the applicable
    regulations in 34 C.F.R. 694.7, we used the proposed match for each
    of the grants to determine the required match in the finding.

2.  The 1999 and 2000 GEAR-UP application instructions provided that the
    partnerships could choose how much to match in any award year as
    long as the non-Federal contribution equaled at least 50 percent of
    the total project costs.\
    \
    [OIG Response]{.underline}. Any applicant does have the choice of
    varying the match percent in its application. This is consistent
    with the regulation (34 C.F.R. § 694.7 (a)(1)) that requires that
    the partnership state, each year, the percentage of total project
    costs to be provided from non-Federal funds. However, 34 C.F.R.
    § 694. 7 (a) (2) requires the partnership to comply with the
    percentage proposed each year. The requirement to provide the
    percentage match in the year proposed was also included in the
    application instructions: ". . . the non-Federal matching dollars
    must be spent during the year in which they are listed in the budget
    . . ." as stated in the page from the application instructions
    submitted by VCC as Attachment D to the response.

3.  None of the award letters states a matching commitment in the space
    provided for that purpose.\
    [\
    ]{.mark}[OIG Response]{.underline}. The specific non-Federal
    matching amounts were not printed in Block 7 of the Grant Award
    Notification documents (award letters). However, the Terms and
    Conditions sections of the award letters specifically state that the
    application was incorporated in each grant agreement.

4.  The GEAR-UP program officer sent an email to the VCC grants
    coordinator in November 2000, ". . . directing the college to reduce
    its matching budgets. . . ." The email informed them that the
    required match was the amount of Federal funding (a 50 percent
    match) and listed the amounts of required match exactly equal to the
    Federal funds for the three grants awarded in 1999 (a 50 percent
    match) and the amount of the direct Federal funds for the four
    grants awarded in 2000 (a less than 50 percent match). The revised
    budgets were requested to resolve issues about matching costs
    duplicated between the grants, the appropriateness of indirect costs
    charged and to bring the matching in line with the 50 percent
    requirement. [\
    \
    OIG Response]{.underline}. The email discussed in the VCC response
    resulted from a concern over apparent improprieties with the source
    of proposed matching funds in the application budgets for several
    grants. The grant applications appeared to use the same funds to
    provide the match on more than one grant. For example, the grants
    listed part-time efforts of personnel that added to more than 100
    percent when all the grants were put together. In addition, there
    were other concerns that facilities usage might be included in the
    VCC indirect cost rate. [\
    \
    ]{.underline}The purpose of the email was not to reduce the budgeted
    match costs to 50 percent or that VCC was directed to reduce the
    match percentage but to resolve the concerns regarding possible
    duplication of proposed match as stated by VCC.\
    \
    Regardless, 34 C.F.R. § 75.900 prohibits any employee of ED from
    waiving any regulation, unless the regulation specifically provides
    that it may be waived. The regulation requiring the partnership to
    comply with the match as stated in the application, 34 C.F.R. §
    694.7 only allows a reduction to 30 percent if certain conditions
    (which the partnerships do not meet) are met. Therefore, the ED
    Program Specialist (EPS) was not allowed to reduce the match below
    the percentage proposed in the grant applications.

5.  VCC provided revised budgets to the program officer in December 2000
    with reduced matching budgets.\
    \
    [OIG Response]{.underline}. The EPS lacked authority to waive the
    regulation requiring the partnership to comply with the match as
    stated in its application. Even if she could have waived the
    regulation requiring compliance with the application match, the
    budgets submitted in December 2000 were only for the 2000 -- 2001
    award year. The budgets did not cover the 1999 - 2000 award year and
    grant P334A990094 was under matched that award year.

6.  The program officer responded that the budgets were "much, much
    better" and that some questions remained. However, VCC also noted
    that the purpose of the budgets were to resolve the duplicated match
    issues, and that the match commitment was not questioned.\
    \
    [OIG Response]{.underline}. As documented in the email message
    attached to the VCC response, the revised budgets were not approved
    by the EPS. In fact, the last message from the EPS stated that there
    were still some questions remaining to be answered. In our opinion,
    the comments could only be construed to refer to the removal of
    duplicated and unallowable matching costs. The email did not
    provide, nor was it intended to provide, a specific approval for a
    match reduction.

7.  VCC quoted 34 C.F.R. § 74.25(m) that requires ED to notify the
    recipient whether budget revisions have been approved. The response
    stated that after 30 days and ". . . having received no disapproval
    . . ." VCC implemented the revised matching budgets.\
    \
    [OIG Response]{.underline}. ED actions regarding the budget
    revisions are irrelevant because, pursuant to 34 C.F.R. 75.900, no
    official, agent, or employee of ED could waive the regulation
    requiring the partnership to comply with the match as stated in its
    application. Even if ED's actions could be construed as a waiver,
    the claimed non-Federal costs did not match the "revised matching
    budgets" in either content (source and type of cost) or total. In
    fact, the claimed match for three of the grants was less than the
    amount committed to in the December 2000 budgets:\
    \
    [Grant Number]{.underline} [12/2000 Budget]{.underline} [Match
    Claimed]{.underline} [Shortfall]{.underline}\
    P334A000155 \$470,379 \$437,565 \$ 32,814\
    P334A000185 \$414,379 \$307,745 \$106,634\
    P334A000226 \$341,774 \$332,130 \$ 9,644

8.  VCC stated that it provided budgets with a 50 percent match to
    program staff for the 2001 and 2002 award years and was verbally
    assured that it was only required to meet the 50 percent match. VCC
    pointed out that the subsequent grant award notifications for the
    2001 and 2002 award years also did not specify specific match
    amounts.\
    \
    [OIG Response]{.underline}. The 2001 and 2002 award years are
    outside our audit period. Our audit period covered the 1999 and 2000
    award years and as stated above, 34 C.F.R. § 75.900 prohibits any
    employee of ED from waiving any regulation, unless the regulation
    specifically provides that it may be waived.

9.  The partnership actually overmatched all award years by claiming at
    least as much match as the total Federal award.\
    \
    [OIG Response]{.underline}. We disagree. The partnership did not
    maintain the percentage of match contained in the approved
    applications for six of the grant periods.

VCC also disagreed with the recommendations because they contended that
they had received approval to reduce the match percentage to the
statutory minimum of 50%.

[OIG Response]{.underline}. We did not alter our findings or
recommendations because:

1.  The regulations require the partnerships to comply with the
    percentage of match proposed each budget year,

2.  No approval was sought or given to alter the match for the 1999 --
    2000 budget period,

3.  The communications with the EPS neither directed or granted approval
    to reduce the match percentages for the 2000 -- 2001 budget periods,
    regardless of whether the EPS had the authority to approve the use
    of the lower percentage,

4.  The claimed match was still less than the unapproved December 2000
    proposed match budgets for three grants, and

5.  Even if the EPS had clearly approved the match reduction, the EPS
    did not have the authority to waive the program regulation requiring
    the partnership to comply each year with the match percentage
    included in the proposal for that year.

####### 

######### Finding No. 2 -- All Non-Federal Costs Claimed Were Improperly Calculated

All \$4,105,975 of matching costs claimed by VCC for the GEAR UP grants
were unallowable because all costs were calculated using commercial
rental rates instead of the actual depreciation cost or use allowance as
required by Federal cost principles. VCC used the commercial rental
rates because it did not meet its responsibility as fiscal agent by
maintaining the proper records to claim the use of partners' facilities
and equipment. Therefore, we recommend that the Assistant Secretary for
Postsecondary Education require VCC to meet the required match by
refunding another \$1,325,932 of project costs originally paid with
Federal funds.

We analyzed the summary schedules and spreadsheets provided by VCC to
support its claimed in-kind matching costs for the 1999/2000 and
2000/2001 award years for the seven grants. In both funding cycles,
rather than providing proposed match from community partners that
included volunteer tutors and mentors, marketing and personnel or
facilities, VCC claimed the use of existing VCC and LEA facilities as
its total non-Federal in-kind match. The spreadsheets showed the dates,
the number of hours and the rooms used at VCC and the LEA for GEAR UP
activities. These matching costs were calculated at an hourly rate based
on estimated commercial, hourly rental rates ranging from \$20 to \$150
based on the type of room. VCC also claimed a small amount of LEA owned
equipment at estimated commercial rental rates.

The use of commercial, hourly rates to cost the partners' facilities and
equipment is not an allowable method to account for project costs. The
cost principles applicable to VCC (Office of Management and Budget (OMB)
Circular A-21) and the LEAs (OMB Circular A-87) require accounting for
the use of grantees' buildings and equipment using either depreciation
or use allowance.

OMB Circular A-21, Section J. General provisions for selected items of
cost.

> 12\. Depreciation and use allowances. Institutions may be compensated
> for the use of their buildings, capital improvements, and equipment .
> . . Such compensation shall be made by computing either depreciation
> or use allowance. . . .

OMB Circular A-87, Attachment B -- Selected Items of Cost

> 15\. Depreciation and use allowances.

a.  Depreciation and use allowances are means of allocating the cost of
    fixed assets to periods benefitting from asset use. Compensation for
    the use of fixed assets on hand may be made through depreciation or
    use allowances. . . .

The use of commercial, hourly rental rates for partners' facilities and
equipment would result in the claiming of more than allowable project
costs because of the provision in such rates for profit, indirect costs
in excess of the restricted rate, and other unallowable costs.

Because all claimed non-Federal match claimed was calculated using
unallowable commercial rental rates, we have determined that the entire
\$4,105,975 amount claimed is unallowable. According to a VCC official,
VCC and the LEAs do not have a space usage study to calculate facilities
costs for allocation to cost centers. Therefore, we are unable to
determine a value for the use of partners' facilities and equipment. An
additional refund of \$1,325,932 for Federally funded project costs
requiring reprogramming to non-Federal match would be required to
fulfill 34 C.F.R. § 694.7 (a) (2) requiring the partnership to comply
with the match percentages stated in the applications for each year.

<table style="width:100%;">
<colgroup>
<col style="width: 13%" />
<col style="width: 4%" />
<col style="width: 10%" />
<col style="width: 12%" />
<col style="width: 11%" />
<col style="width: 9%" />
<col style="width: 9%" />
<col style="width: 8%" />
<col style="width: 10%" />
<col style="width: 11%" />
</colgroup>
<tbody>
<tr class="odd">
<td colspan="10"><strong>Unallowable Match and Calculation of Federal
Funds to Refund</strong></td>
</tr>
<tr class="even">
<td rowspan="2"><strong>Award</strong></td>
<td rowspan="2"><p><strong>Aw</strong></p>
<p><strong>Yr.</strong></p></td>
<td colspan="3"><strong>Non-Federal Match</strong></td>
<td></td>
<td rowspan="2"><p><strong>Total</strong></p>
<p><strong>Project Costs<sup>4</sup></strong></p></td>
<td colspan="2"><strong>Required</strong></td>
<td rowspan="2"><strong>To Be Refunded<sup>6</sup></strong></td>
</tr>
<tr class="odd">
<td><strong>Claimed<sup>1</sup></strong></td>
<td><strong>Unallowed<sup>2</sup></strong></td>
<td><strong>Finding 1 Refund <sup>3</sup></strong></td>
<td><strong>Federal<sup>1</sup></strong></td>
<td><strong>Match %</strong></td>
<td><strong>Match Amount<sup>5</sup></strong></td>
</tr>
<tr class="even">
<td>P334A990234</td>
<td>99</td>
<td>$414,605</td>
<td>$414,605</td>
<td>$0</td>
<td>$267,200</td>
<td>$267,200</td>
<td>51.07%</td>
<td>$136,459</td>
<td>$136,459</td>
</tr>
<tr class="odd">
<td>P334A990094</td>
<td>99</td>
<td>$262,073</td>
<td>$262,073</td>
<td>$51,305</td>
<td>$200,695</td>
<td>$252,000</td>
<td>60.96%</td>
<td>$153,619</td>
<td>$102,314</td>
</tr>
<tr class="even">
<td>P334A990149</td>
<td>99</td>
<td>$450,642</td>
<td>$450,642</td>
<td>$0</td>
<td>$354,400</td>
<td>$354,400</td>
<td>50.93%</td>
<td>$180,496</td>
<td>$180,496</td>
</tr>
<tr class="odd">
<td>P334A990234</td>
<td>00</td>
<td>$506,153</td>
<td>$506,153</td>
<td>$0</td>
<td>$267,200</td>
<td>$267,200</td>
<td>51.21%</td>
<td>$136,833</td>
<td>$136,833</td>
</tr>
<tr class="even">
<td>P334A990094</td>
<td>00</td>
<td>$326,350</td>
<td>$326,350</td>
<td>$26,662</td>
<td>$225,338</td>
<td>$252,000</td>
<td>61.04%</td>
<td>$153,821</td>
<td>$127,159</td>
</tr>
<tr class="odd">
<td>P334A990149</td>
<td>00</td>
<td>$659,709</td>
<td>$659,709</td>
<td>$0</td>
<td>$354,400</td>
<td>$354,400</td>
<td>51.04%</td>
<td>$180,886</td>
<td>$180,886</td>
</tr>
<tr class="even">
<td>P334A000226</td>
<td>00</td>
<td>$332,130</td>
<td>$332,130</td>
<td>$110,708</td>
<td>$220,482</td>
<td>$331,190</td>
<td>66.76%</td>
<td>$221,102</td>
<td>$110,394</td>
</tr>
<tr class="odd">
<td>P334A000184</td>
<td>00</td>
<td>$409,003</td>
<td>$409,003</td>
<td>$87,224</td>
<td>$249,281</td>
<td>$336,505</td>
<td>66.56%</td>
<td>$223,978</td>
<td>$136,754</td>
</tr>
<tr class="even">
<td>P334A000185</td>
<td>00</td>
<td>$307,745</td>
<td>$307,745</td>
<td>$146,785</td>
<td>$159,378</td>
<td>$306,163</td>
<td>74.04%</td>
<td>$226,683</td>
<td>$79,898</td>
</tr>
<tr class="odd">
<td>P334A000155</td>
<td>00</td>
<td>$437,565</td>
<td>$437,565</td>
<td>$74,248</td>
<td>$227,713</td>
<td>$301,961</td>
<td>69.21%</td>
<td>$208,987</td>
<td>$134,739</td>
</tr>
<tr class="even">
<td>Total</td>
<td></td>
<td></td>
<td>$4,105,975</td>
<td>$496,932</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td>$1,325,932</td>
</tr>
<tr class="odd">
<td colspan="6"><ol type="1">
<li><p>Including Proj. costs formerly paid by Fed. Funds from Finding
1</p></li>
<li><p>Claim amount (January 14, 2002) version.</p></li>
<li><p>Project costs converted from Federal funds in Finding No.
1</p></li>
</ol></td>
<td colspan="4"><ol start="4" type="1">
<li><p>Allowed Match + Federal</p></li>
<li><p>Total Proj. Costs * Required Match %</p></li>
<li><p>Required Match – Finding 1 Refund</p></li>
</ol></td>
</tr>
</tbody>
</table>

VCC did not fulfill its responsibility as fiscal agent in maintaining
accurate and complete records for the seven GEAR UP grants. OMB A-21
Appendix C contains the documentation requirements for claiming facility
and equipment costs. It states that an institution is required to
provide several pieces of information including an audited financial
statement and supporting data, a schedule showing amount by building of
use allowance and/or depreciation distributed to all functions, and a
reconciliation of equipment cost used to compute use allowance and/or
depreciation. Further, a grantee shall keep records that fully show the
amount of funds under the grant; how the grantee used the funds; the
total cost of the project; the share of that cost provided from other
sources; and other records to facilitate an effective audit. (34 C.F.R.
§75.730)

VCC originally proposed matching costs provided by a number of partners
including some facilities costs calculated at a commercial rental rate
based on square footage. During a site visit in 2001, VCC provided an ED
official with a single page listing totals for facility and personnel
costs for each grant, but was unable to provide support for how those
costs were calculated. When informed that detailed documentation of the
match was required, VCC prepared the spreadsheets of room and equipment
usage only at an hourly rate.

>   

######## Recommendations

We recommend that the Assistant Secretary for Postsecondary Education
require that VCC:

2.1 refund \$1,325,932 of Federal funds required to be converted to
match in order to conform to the regulation requiring the partnership to
comply with the application match percentages to cover the unallowable
facilities and equipment match claim.

2.  establish controls to ensure any future claims of partners'
    facilities and equipment are computed using depreciation or use
    allowances.

######## Auditee Comments and OIG Response

[Auditee Comments]{.underline}. VCC disagreed and stated that the
facilities costs were properly calculated using fair market value
because ED had verified the correctness of their method of calculating
the facilities match through approval of the grant and a site visit
report and that another set of criteria should apply. The response
stated that the use of fair market value was specified in the grant
application and budget submissions and approval of the application and
other budgets implied that the Secretary had verified that the
facilities costs charged at those rates were allowable. Additional
support for ED approval was provided by a report of a site visit by an
ED representative who reviewed the match and had notified the college
that the review was closed. Finally, VCC claimed that OMB Circular A-21,
Section J-12 should not apply because of the use of the word
compensated. Because the space was donated by partners as in-kind match,
they were not "compensated." The response also stated that, even if the
section is applicable, it should not be followed because Circular A-21,
Section J also states "In case of a discrepancy between the provisions
of a specific sponsored agreement and the provisions below, the
agreement should govern." The VCC response infers that the approval of
the application and subsequent budgets again should allow VCC's
methodology of valuing the facilities. VCC claimed that the actual cost
principals which applied was Circular A-110, Sub-part C, section 23(h)
(3) which provides that the value of donated space shall not exceed the
fair-market value of comparable space.

[]{.mark}

[OIG Response]{.underline}. ED did not approve the facilities costs at
the rates, which were actually claimed. The facilities costs in the
applications included office space that ranged from \$5.83 per square
foot to \$120 per square foot, and classrooms on the VCC West Campus
that were quoted at \$529 per month. In the budgets submitted in
December 2000, the same classrooms, quoted at \$529 per month, were
changed to 960 square feet at \$22.26 per square foot (or \$1,780) per
month. However, when the summer program was held, the classrooms were
claimed at an hourly rate of \$125 per hour for 9 hours per day totaling
\$1,125 per day or (\$125 \* 9 hours \* 20 days) \$22,500 per month.

The site visit report from the Department representative also did not
grant approval of the use of the match as claimed. Following the
language quoted in the response, the report stated:

> ...Although I was as thorough as possible in the review, I do not
> presume to be all-inclusive in the report. Therefore, the absence of
> statements regarding any specific practices followed by your
> institution does not imply approval of those practices. In short, the
> specific nature of this letter does not limit your obligation to
> comply with all statutory and regulatory provisions governing the
> program...

Circular A-110, Sub-part C, section 23(h) (1) makes it clear that the
section does not apply to the donation of recipient facilities to be
used as cost-sharing, but rather for facilities donated to the recipient
by a third party.

[]{.mark}

(1) The value of donated land and buildings shall not exceed its fair
    market value at the **time of donation to the
    recipient**...\[emphasis added\]

In addition, the first part of section (5)(ii) quoted in the response
also makes the context of third-party donations clear:

(5) The following requirements pertain to the recipient's supporting
    records for in-kind contributions **from third parties**. \[emphasis
    added\]

Thus, the fair-market rates are not applicable to donations by the grant
recipients. The cited cost principal provisions also do not pertain to
LEA facilities or equipment because the LEAs are not third parties.
Although VCC is the fiscal agent, the GEAR UP grants were awarded to the
entire partnership for each grant. The HEA (§404A(c)) states that an
eligible entity for a GEAR UP award means a State, or a partnership
consisting of one or more LEAs acting on behalf of one or more
elementary or secondary schools, one or more degree granting
institutions of higher education and at least two community
organizations or entities. To be declared an eligible entity, a
partnership must have the requisite parts, including at least one LEA.
If the LEA was to be considered a third party and not part of the
partnership, there would be no eligible entity, and no entitlement to a
grant award under GEAR UP.

The VCC response did not cause us to alter our findings or
recommendations. The grant application instructions page provided as
Attachment D to the response (underlined) states that ". . . the value
assigned to in-kind contributions included in the non-Federal match must
be reasonable. . . ."

# Finding No. 3 -- Duplicated, Unallocable, and Unreasonable Room Usage Claims

VCC included unallowable, unallocable, and unreasonable room usages on
the spreadsheets documenting the facilities match costs. The
spreadsheets contained numerous overstatements because duplicated costs
were claimed (within and between grants), shared use rooms were charged
100 percent to the grant, and claimed hours were in excess of actual
hours used. We have not calculated all instances of these
overstatements.

*Duplicated Costs Were Claimed as Non-Federal, In-Kind Match.* Federal
regulations state that cost sharing or matching must not be included as
contributions for any other Federally assisted project or program \[34
C.F.R. 74.23 (a) (2)\]. We found 48 duplications totaling \$71,100 in
the 1999-2000 award year and 44 duplications totaling \$50,437.50 in the
2000-2001 award year where the same room at the same date and time were
claimed on two or more of the GEAR UP grants. We also found instances
where use of a particular room was claimed twice at the same time for
the same grant.

*Shared Costs Were Claimed as Non-Federal, In-Kind Match.* OMB Circular
A-21, Part C, 2 states that allowable costs must be reasonable,
allocable, and given consistent treatment. Numerous instances were found
where rooms being shared were charged 100 percent to GEAR UP grants as
in-kind matching cost. The examples include:

-   Meetings attended by personnel from more than one GEAR UP grant, or
    GEAR UP and other Federally sponsored programs at the college were
    charged to one of the GEAR UP grants needing additional matching
    costs instead of being allocated fairly. The shared use was
    emphasized because the cost in one grant was supported by the
    calendar of meetings for the staff working on another GEAR UP grant.

-   The school media center was charged as a dedicated GEAR UP lab (at a
    \$125 hourly rate based on a computer equipment training room). The
    "lab" was actually a few tables at the back used for tutoring during
    normal school time while the school continued normal usage of the
    library.

-   The regular classrooms, during classroom times were charged to one
    GEAR UP grant when GEAR UP personnel were assigned as classroom
    aides instead of operating a pull-out tutoring program.

*Room Usage for Unreasonable Hours Were Claimed as Non-Federal, In-Kind
Match.* Federal regulations also require that matching costs be
necessary and reasonable \[34 C.F.R. 74.23 (a) (3)\]. The hours of room
usage claimed were poorly documented and excessive. For example:

-   Rooms in the LEAs were claimed as GEAR UP labs from the beginning of
    September 2000, for the initial years of the grants, even though
    grant personnel did not move into the school until February 2001,
    and tutoring did not begin until March 2001. A few grants charged
    rooms prior to the grant period beginning on September 15, 2000.

-   GEAR UP labs and offices were claimed for up to 11 hours a day even
    though tutoring was only occurring an hour before school and during
    the school day.

-   A gym was charged to a summer program for 6 hours a day while only
    being used for an hour after lunch.

VCC has centralized controls over accounting for Federal funds; however,
the accounting for in-kind match is maintained within the individual
GEAR UP projects. The spreadsheets documenting match costs have been
changed several times to account for changes in room rates,
duplications, unsupported costs and other errors, but many errors
remain. The documentation supporting the spreadsheet summaries of room
usage is minimal and contradictory. We have concluded that the
conditions under which the VCC matching records were generated, lack
sufficient administrative controls to be reliable and are insufficient
to detect errors and irregularities.

Some of the unallowable facilities usage claims have been acknowledged
by VCC officials through their numerous restatements of facilities
usages after we questioned them on specific instances. However, many of
the duplicated, unallocable, and unreasonable charges still remain.
Since all claimed costs have been disallowed because of the use of
unallowable commercial rental rates, we have not calculated the full
scope of the unallowable, unreasonable, and unallocable claims.

######## Recommendation

We recommend that the Assistant Secretary for Postsecondary Education
require that VCC:

3.1 establish and implement policy and procedures to maintain proper
record keeping for in-kind, non-Federal match according to applicable
Federal regulations, including assurance that all claimed matching costs
are allowable, allocable, and reasonable.

######## Auditee Comments and OIG Response

[Auditee Comments]{.underline}. VCC concurred that there were duplicated
and shared costs in the matching costs claimed and concurred with the
recommendation and has implemented procedures to update matching records
monthly and have asked the internal auditors to review, twice a year,
match claims.

However, VCC did not concur that there were unallocable and unreasonable
room usage claims because claiming the use of rooms before the grant
period was allowable pre-award costs. The rooms were charged when not
used because they were dedicated to the use of the grant and comparable
space cannot be rented for minutes at a time. The college also did not
concur that documentation supporting spreadsheet summaries of room usage
was minimal and contradictory because they followed the methods of
documentation provided by an ED representative and maintained records of
the location, size, room number or name, date, hours of use and
fair-market value.

[]{.mark}

[OIG Response]{.underline}. We disagree with VCC's claim that facilities
usage prior to grant award dates was allowable pre-award costs to allow
the staff to prepare for the grants. Staff were not hired until well
after that time. In addition, services were not provided in the LEAs
until six months after the grant period began. VCC's comment that space
could not be rented for minutes at a time conflicts with their claimed
method of valuing space usage in 60-minute increments. Even after
interviewing grant personnel and review of supporting documentation, we
were not able to resolve all questions about specific rooms used or
dates.

#### Objectives, Scope, and Methodology

The purpose of our audit was to determine whether VCC administered the
GEAR UP program in accordance with legislative, regulatory, and
administrative matching and eligible entity requirements. Specifically,
if:

-   Each partnership included "at least two community organizations or
    entities";

-   VCC maintained adequate documentation to support the required match;
    and

-   Claimed matching costs were allowable, allocable, and reasonable.

To accomplish our audit objectives, we reviewed applicable laws and
regulations governing the enactment of the GEAR UP program. In addition,
we conducted interviews with program officials and staff in the GEAR UP
office located in Washington, D.C. and obtained and analyzed
documentation related to the projects. We reviewed the seven VCC funded
grant applications, the claimed in-kind facilities partnership match and
the documentation supporting those claims at both VCC and the ED.

An entrance conference was held on June 4, 2001, on the campus of VCC.
Fieldwork was conducted the weeks of June 4-15, 2001, October 2-5, 2001,
and December 11-14, 2001. We visited the ED's GEAR UP program office
located in Washington, DC on April 9, 2002. VCC declined an exit
conference: therefore, we updated our fieldwork on October 18, 2002.

We focused our review on funding cycles FY 1999 and FY 2000. To perform
our work, we focused on seven grants. Three GEAR UP grants were awarded
in FY 1999, covering the period September 1, 1999, through August 31,
2001. Four GEAR UP grants were awarded in FY 2000, covering the period
September 15, 2000, through September 14, 2001.

We relied on VCC computerized accounting records to determine the
Federal funds received and spent for each grant award. We tested the
accuracy and support for the data by comparing source records to
reported expenditures and project revenue to Federal drawdown records.
Based on our assessments and tests, we concluded that the data used was
sufficiently reliable for the purpose of our audit.

Our audit was conducted in accordance with generally accepted government
auditing standards appropriate to the scope of the review described
above.

######## 

######## Auditee Comments and OIG Response

The response also commented that the scope and purpose of the audit had
evolved and changed since it began and commented on the delay in
receiving the draft audit report. While one objective was added at the
end of the survey phase of the audit, the primary objectives were always
to determine whether VCC maintained adequate documentation to support
the required match and whether the claimed matching costs were
allowable, allocable, and reasonable. We added the objective to
determine whether the seven partnerships were eligible entities at the
end of the survey due to the significant changes from the grant
applications, including changes from the significant match provided by
community partners to the claimed match records with no contribution by
community partners. We informed VCC of the added objective at the
interim briefing we held with them at the end of the survey phase of the
audit in October 2001.

The delay in receiving the draft report was largely the result of
numerous restatements by VCC of its records, provided to support room
usage and rates. Considering the duplicated, unreasonable, and
unallocable room usage claims, as discussed in Finding No. 3, these
numerous restatements required that we compare the restated records for
new duplications that occurred for each change.

[]{.mark}

The VCC response made several comments it asserts are attributable to
the OIG audit staff. The statements made in the response inferring bias
or misrepresentation by the audit staff are in error or have been taken
out of context. Our audit was conducted in accordance with [Generally
Accepted Government Auditing Standards]{.underline} (GAGAS). As such,
our work was conducted with the objectivity and independence required
under GAGAS. The issues audited and developed during the course of this
audit were determined by the data available to the audit staff
conducting the assignment and the determination of its reliability. The
conclusions drawn by auditors are subject to change as new data is
available. These conclusions are discussed with auditees as early as
practical. These early discussions are not fully developed, but are
discussed to obtain auditee input as soon as practical to assure the
audit focuses on meaningful issues to both the auditee and the
Department of Education.

#### Statement on Management Controls

As part of our audit, we assessed the system of management controls,
policies, procedures, and practices applicable to VCC's administration
of the GEAR UP programs. Our assessment was performed to determine the
level of control risk for determining the nature, extent, and timing of
our substantive tests to accomplish the audit objectives.

For the purpose of this report, we assessed and classified the
significant controls into the following categories:

-   partnership in-kind match claimed

-   community partnership participation

Because of inherent limitations, a study and evaluation made for the
limited purposes described above would not necessarily disclose all
material weaknesses in the management controls. However, our assessment
disclosed significant management control weaknesses which adversely
affected VCC's ability to administer the GEAR UP programs. These
weaknesses included non-compliance with Federal regulations regarding
partnership in-kind match claimed. These weaknesses and their effects
are fully discussed in the AUDIT RESULTS section of this report.

########  Auditee Comments and OIG Response

VCC did not concur. As fully discussed in the AUDIT RESULTS section of
this report, we disagree with VCC comments and have provided our
response at the conclusion of each of the three findings.

####### Attachment 1

# Valencia Community College

**Comments on the Draft Report**