December 30, 2003

Dr. Ernest McNealey

Stillman College

P.O. Box 1430

Tuscaloosa, AL 35403

Dear Dr. McNealey:

This **Final Audit Report** (Control Number ED-OIG/A04-D0013) presents
the results of our audit of Stillman College's compliance with the
administration of the Title III, Part B, Strengthening Historically
Black Colleges and Universities Program. Audit coverage included the
period October 1, 1997, through, March 31, 2003. The audit objective was
to determine whether the College complied with Education Department
General Administrative Regulations (EDGAR) and Departmental laws and
regulations regarding Title III cash management and grant expenditures.
We found that the College drew down more Title III funds than it
expended for program activities and did not inform the Department of
changes in key personnel.

**AUDIT RESULTS**

**Finding No. 1 -- The College Drew Down More Title III Funds Than It
Expended for Title III Program Activities**

The College drew down more Title III funds than it needed for program
expenditures. This occurred because the College's Title III
reconciliation process was not adequate. As a result, the College drew
down \$76,151 in Title III funds that it did not expend for its Title
III activities.

The regulations at 34 C.F.R. § 74.22(b)(2) and (b)(3) (2002)[^1] state:

> Cash advances to a recipient organization are limited to the minimum
> amounts needed and be timed to be in accordance with the actual,
> immediate cash requirements of the recipient organization in carrying
> out the purpose of the approved program or project.
>
> The timing and amount of cash advances are as close as is
> administratively feasible to the actual disbursements by the recipient
> organization for direct program or project costs and the proportionate
> share of any allowable indirect costs.

As of April 2003, the College had drawn down more Title III funds than
it expended for its closed 1997-2002 grant. As a result, drawdowns
exceeded expenditures by \$76,151.[^2] Table 1.1 below illustrates the
differences in drawdowns and expenditures for the 1997-2002 Title III
program (10/01/1997 - 09/30/2002) by the College's fiscal year (July
1^st^ through June 30^th^).

######### Table 1.1 -- 1997-2002 Title III Grant Drawdowns and Expenditures by the College's Fiscal Year

+----------------+-------------+-------------+------------------------+
| ######## Dates | **          | **Exp       | **Over                 |
|                | Drawdowns** | enditures** | draws/(Underdraws)\*** |
+----------------+-------------+-------------+------------------------+
| 10/            | \$ 645,146  | \$ 716,889  | \$ (71,743)            |
| 01/97-06/30/98 |             |             |                        |
+----------------+-------------+-------------+------------------------+
| 07/            | 615,000     | 859,438     | (244,438)              |
| 01/98-06/30/99 |             |             |                        |
+----------------+-------------+-------------+------------------------+
| 07/            | 1,327,262   | 1,049,621   | 277,641                |
| 01/99-06/30/00 |             |             |                        |
+----------------+-------------+-------------+------------------------+
| 07/            | 1,197,292   | 1,053,373   | 143,919                |
| 01/00-06/30/01 |             |             |                        |
+----------------+-------------+-------------+------------------------+
| 07/            | 1,565,192   | 928,716     | 636,476                |
| 01/01-06/30/02 |             |             |                        |
+----------------+-------------+-------------+------------------------+
| 07/            | 397,370     | 331,972     | 65,398                 |
| 01/02-09/30/02 |             |             |                        |
+----------------+-------------+-------------+------------------------+
| A              | 0           | 731,102     | (731,102)              |
| djustments\*\* |             |             |                        |
+----------------+-------------+-------------+------------------------+
| **Net          |             |             | **\$76,151**           |
| Overdraw**     |             |             |                        |
+----------------+-------------+-------------+------------------------+

> \*An overdraw indicates that the College drew more funds than it
> needed to reimburse the expenditures it made. An underdraw indicates
> that the College drew less funds than it needed to fully reimburse the
> Title III expenditures it recorded.
>
> \*\* Adjustments are expenditures that the College had not recorded in
> its Title III accounting ledgers due to error.

Prior to any adjustments, the difference between drawdowns and
expenditures was \$807,253. The College provided documentation to show
that this amount should be decreased by expenditures made between April
2000 and July 2002 totaling \$819,962 that had not been entered into the

Title III ledgers as of the time of our audit. We reviewed this
information and determined that \$731,102 of these expenditures were
allowable Title III expenditures that should have been recorded in the
College's accounting ledgers. We added these expenditures back to the
College's total Title III expenditures for the period in the
"Adjustments" line item in the table above. At the completion of our
fieldwork, the College had not adjusted its accounting ledgers to record
these Title III expenditures.

These expenditures were not recorded in the College's accounting ledgers
for the following reasons:

-   The College incurred expenditures in the amount of \$326,887 between
    April 2000 and October 2001 that it paid for with institutional
    funds. We reviewed these expenditures and determined that \$238,027
    of these expenditures were allowable Title III expenditures and
    should have been paid with Title III funds.

-   The College\'s auditors transferred \$493,075 in Title III
    expenditures for equipment out of the Title III ledgers in June and
    July 2002 and recorded these items as long-term assets on the
    College\'s financial statements. However, these were allowable Title
    III expenditures and should have remained on the Title III ledgers.

Therefore, the College drew down \$76,151 more Title III funds than it
expended for program purposes (\$807,253 difference between drawdowns
and expenditures less \$238,027 allowable expenditures less \$493,075
allowable expenditures recorded as long-term assets).

We determined that the overall cause for the College drawing down
excessive funds was the lack of an effective control procedure for
reconciling the total amount of drawdowns and expenses on a cumulative
basis. The College used a yearly reconciliation worksheet that included
all funds drawn down and posted for the current fiscal year. However, it
did not include drawdowns and expenditures from previous fiscal years.
As a result, funds that were over- or underdrawn in the previous fiscal
year were not taken into consideration when the College drew down grant
funds in the current fiscal year. In addition, the College\'s auditors
erroneously transferred allowable Title III expenditures out of the
Title III accounting ledgers, which caused the College\'s fund
availability figures to be misstated in the accounting system.

### 

### **RECOMMENDATIONS**

We recommend that the Chief Financial Officer, in conjunction with the
Assistant Secretary for Postsecondary Education, require Stillman
College to:

1.  Return \$76,151 not expended for the closed 1997-2002 Title III
    grant.

2.  Adjust its Title III ledgers for the 1997-2002 grant to record
    \$731,102 in allowable expenditures to the Title III grant.

3.  Adopt a reconciliation process that identifies the amount of
    drawdowns and expenditures that have accumulated for the Title III
    grant for the current fiscal year, as well as for the entire grant
    period to avoid drawing Title III funds in excess of accumulated
    expenses.

**STILLMAN RESPONSE**

On December 3, 2003, the College's Business Office Manager provided a
written response to the draft report (see attachment). The written
response stated that the College had implemented procedures to ensure
that Title III expenses and revenue are properly coded and recorded to
the correct grant year. As part of the new procedures, a monthly
reconciliation is done to make certain that all funds drawn down reflect
expenses paid or will be paid within three business days. In light of
the fact that the Title III award year crosses the College fiscal year,
a separate reconciliation spreadsheet is done for each award year,
allowing the College to correctly match the expenses for a particular
award year with funds requested. Between April 2000 and October 2001,
the College incurred Title III expenditures in the amount of \$326,887,
which were paid with institutional funds. OIG determined that \$238,027
were allowable Title III expenses. The College would like to know why
the remaining \$88,860 was disallowed. The College has asked its
auditors to note the \$731,102, which was taken off the ledger as part
of the 2002 audit, as allowable expenditures for Title III in the 2003
audit reports.

**OIG COMMENTS**

The College provided detail information for 11 expenditures totaling
\$326,887 that it claimed were allowable Title III expenditures paid
with institutional funds and that had not been transferred to the
Title III accounting ledgers. We reviewed the Title III accounting
ledgers and found that 4 of the 11 expenditures had already been
transferred into the Title III accounting ledgers. We did not include
these four expenditures totaling \$88,860 (three for \$20,000 each and
one for \$28,860) as part of the total allowable Title III expenditures
because the expenditures had already been recorded in the Title III
accounting ledgers and should not be counted twice. We did not change
our figures in the final report.

We appreciate the College's effort to strengthen its procedures to
improve its accounting practices. The actions described in the College's
written response should help ensure that it meets Departmental
requirements regarding the drawdown and expenditure of Title III funds.
The College's revised procedures should also ensure that all Title III
expenditures incurred are properly recorded in the College's accounting
ledgers and reported in its annual audit.

**Finding No. 2 -- The College Did Not Inform the Title III Program
Office of a Change in Key Personnel**

The College did not notify the Title III program office that it had
changed its Title III Project Director. As a result, the College was not
in compliance with EDGAR. The Business Office Manager stated that this
was due to an oversight on the part of the College.

The regulations at 34 C.F.R. § 74.25(c)(2) (2002) state:

> For nonconstruction awards, recipients shall request prior approvals
> from ED for one or more of the following program or budget related
> reasons: (2) Change in a key person specified in the application or
> award document.

The previous Project Director left in January 2003 and, at that time,
the College designated a new Title III Project Director. However, as of
the end of June 2003 the College had not requested approval from ED for
the change in the Title III Project Director, a key person specified in
the award.

According to the Business Office Manager, the College did not report a
change in the Title III Director due to an oversight on the part of the
College. When the previous Title III Director resigned, the College's
focus was to find a replacement and keep operations running properly. As
a result of not informing the program office of the change in Project
Director, the College was not in compliance with EDGAR.

### **RECOMMENDATION**

We recommend that the Chief Financial Officer, in conjunction with the
Assistant Secretary for Postsecondary Education, require Stillman
College to:

1.  Inform the Title III program office of its change in Project
    Director and of any future changes in key personnel for its Title
    III grant in a timely fashion.

**STILLMAN RESPONSE**

The College will promptly notify the Title III program office when a new
Title III Director is assigned. The Title III program office was
notified when the new Title III Director was hired.

**OIG COMMENTS**

The College needs to ensure that the Title III program office is timely
notified of any future changes in key personnel for its Title III grant.

BACKGROUND

Stillman College is a four-year, private, non-profit, Historically Black
College located in Tuscaloosa, AL. The College was founded by the
General Assembly of the Presbyterian Church in 1875. The College is
accredited by the Southern Association of Colleges and Schools. The
College has an enrollment of about 1,500 full‑time students.

During the scope of this audit, the College received two 5-year Title
III grants, the closed 1997-2002 grant and the current 2002-2007 grant.
According to the College's approved Title III budgets, the College was
authorized a total of \$7,618,303 for these Title III grants as of March
31, 2003, as follows:

-   1997-2002 Grant (10/01/1997 -- 09/30/2002) - \$5,883,809

-   2002-2007 Grant (10/01/2002 -- 09/30/2007) - \$1,734,494

OBJECTIVES, SCOPE, AND METHODOLOGY

The audit objectives were to determine whether Stillman College complied
with EDGAR and Departmental laws and regulations regarding Title III
cash management and grant expenditures. Audit coverage included the
period October 1, 1997, through March 31, 2003.

To accomplish the audit objectives, we performed the following:

-   Reviewed applicable regulations.

-   Reviewed the latest independent auditors' OMB Circular A‑133 audits
    and financial statements for the years ended June 30, 1999, 2000,
    and 2001.

-   Interviewed Department of Education Title III and Office of the
    Chief Financial Officer officials in Washington, DC.

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-   Interviewed Stillman College officials responsible for cash
    management and grant expenditures.

-   Reviewed cash management procedures by verifying Stillman College
    records of fund receipts with the Department's drawdown records in
    the Grants Accounting and Payment System (GAPS), comparing GAPS
    drawdown records to Stillman College total program expenditures,
    verifying that the College established ledger control accounts for
    Title III expenditures, and checking for any questionable funds
    transfers out of the Title III accounting ledgers.

-   Reviewed the College's draw, posting, reconciliation, and
    performance reporting procedures for Title III funds.

-   Reviewed the College's policies for inventorying computer equipment
    and long-term assets.

-   Selected a random sample using dollar-unit sampling of 60 grant
    expenditures out of a universe of 1,894 transactions for all Title
    III activities from January 1, 2000, through March 31, 2003,
    including payroll and computer equipment expenses. Dollar-unit
    sampling produces a sample that determines through statistical
    methods a high dollar threshold and selects all transactions in a
    sample that are above that threshold. The remainder of the sample is
    chosen randomly. We used this type of sampling to ensure that we
    reviewed both relevant large dollar value transactions and a
    completely random set of transactions. The total dollar amount of
    the sample was \$1,934,850 out of a universe amount of \$4,575,110.
    By using dollar-unit sampling, we reviewed 42 percent of the total
    universe dollar amount, a much more significant amount than we could
    have reviewed by a simple random sample.

-   Verified that the selected grant expenditures were allowable,
    properly supported, and documented.

-   Verified that the goals and execution of the College's Title III
    activities conformed with approved Title III applications, yearly
    budgets, and performance reports.

During the audit, we relied on computer-processed data contained in the
College's computerized accounting system, Colleague. We used grant award
and disbursement data from GAPS to corroborate information obtained from
Stillman College. We did this by comparing Department records of program
and grant awards, drawdowns, and disbursements with the College's data.
We also held discussions with College officials to gain an understanding
of the processes for requesting and drawing down Federal funds, and for
its accounting of revenue from Department programs and grants. Based on
these tests and assessments, we concluded that the College's data were
sufficiently reliable for use in meeting the audit objectives.

Audit work was conducted during the period June, July, and August 2003.
An exit conference was held with Stillman College officials on August
28, 2003. The audit was performed in accordance with generally accepted
government auditing standards. Accordingly, the audit included such
tests of program and accounting records as considered necessary to meet
the audit objectives.

STATEMENT ON MANAGEMENT CONTROLS

As part of our review, we assessed the system of management controls,
policies, and practices applicable to Stillman College's administration
of Title III cash management of funds and grant expenditures. For the
purposes of this report, we assessed and classified significant controls
into the following categories: drawdown of Title III funds, recording of
Title III expenditures (including reconciliation), and preparing Title
III performance reports.

Due to inherent limitations, an evaluation made for the limited purposes
described above would not necessarily disclose all material weaknesses
in the management controls. We identified no significant deficiencies
with preparing performance reports. However, our overall assessment
disclosed management control weaknesses in each of the other control
areas mentioned above. These weaknesses are discussed in the AUDIT
RESULTS section of this report.

ADMINISTRATIVE MATTERS

If you have any additional comments or information that you believe may
have a bearing on the resolution of this audit, you should send them
directly to the following Education Department official, who will
consider them before taking final Departmental action on this audit:

Jack Martin

Chief Financial Officer

U.S. Department of Education

> 400 Maryland Avenue, SW, Room 4E313

Washington, DC 20202

It is the policy of the U.S. Department of Education to expedite the
resolution of audits by initiating timely action on the findings and
recommendations contained therein. Therefore, receipt of your comments
within 30 days would be greatly appreciated.

In accordance with the Freedom of Information Act (5 U.S.C. § 552),
reports issued by the Office of Inspector General are available to
members of the press and general public to the extent information
contained therein is not subject to exemptions in the Act.

> Sincerely,

**/s/ J. Wayne Bynum**

> J. Wayne Bynum
>
> Regional Inspector General
>
> Region IV

Attachment

**Attachment -- Written Response to the Draft Report**

![](media/image3.jpeg){width="5.999305555555556in"
height="7.7652777777777775in"}

**Attachment -- Written Response to the Draft Report**

**TITLE III OIG Audit Response**

**December 1, 2003**

> **Finding No. 1 -- The College drew down more Title III funds than it
> expended for the Title III Program activities**
>
> The College has implemented procedures to ensure that Title III
> expenses and revenue are properly coded and recorded to the correct
> grant award year. As part of the new procedures, a monthly
> reconciliation is done \[to\] make certain that all funds drawn down
> reflect expenses paid or will be paid within three business days. In
> light of the fact that the Title III award year crosses the College
> fiscal year, a separate reconciliation spreadsheet is done for each
> award year; allowing the College to correctly match the expenses for a
> particular award year with funds requested.
>
> Between April 2000 and October 2001, the College incurred Title III
> expenditures in the amount of \$326,887, which were paid with
> institutional funds. OIG determined that \$238,027 was allowable Title
> III expenses. The College would like to know why the remaining
> \$88,860 was disallowed.
>
> The College has asked its auditors to note the \$731,102, which was
> taken off the ledger as part of the 2002 audit, as allowable
> expenditures for Title III in the 2003 audit reports.
>
> **Finding No. 2 - The College did not inform the Title III Program
> Office of the change in key personnel**.
>
> The College will promptly notify the Title III Program Office when a
> new Title III Director is assigned. The Title III Program Office was
> notified when \[ \] was hired as the new Title III Director.

[^1]: Although the 2002 regulations are generally quoted in this report,
    the 1997 through 2003 regulations have the same requirements.

[^2]: As of March 31, 2003, drawdowns for the 2002-2007 Title III grant
    had not exceeded expenditures.