# June 17, 2004

#  [ED-OIG/A09-D0032]{.underline}

## 

######## Dr. Peter N. Smits

Executive Director

California State University, Fresno Foundation

4910 N. Chestnut Avenue, M/S OF123

Fresno, CA 93726-1852

Dear Dr. Smits:

This Final Audit Report, entitled *California State University, Fresno
Foundation's Administration of GEAR UP Partnership Grant No.
P334A990267*, presents the results of our audit. The purpose of the
audit was to determine whether the California State University, Fresno
Foundation (Foundation) (1) complied with the grant's matching
contributions requirement and (2) properly expended funds provided by
the grant. Our review covered the first four years of the five-year
grant. For the four‑year period from September 1, 1999 to August 31,
2003, the Foundation's Gaining Early Awareness and Readiness for
Undergraduate Programs (GEAR UP) grant expenditures totaled \$1,401,142
and the required matching contribution was \$600,489 (30 percent of
total program costs).

In its response to the draft report, the Foundation generally concurred
with our findings. The Foundation agreed to return the costs improperly
charged to the grant, described the corrective actions to be taken to
address our procedural recommendations, and submitted additional
documentation for claimed matching contributions. Based on additional
supporting documentation of matching contributions submitted by the
Foundation, we revised our conclusions and one recommendation in Finding
No. 1. The Foundation disagreed with our recommendation to provide
additional documentation or return the amount charged for the original
Project Director's salary and related costs. The Foundation's comments
are summarized in the AUDIT RESULTS section of the report at the end of
each finding and the full text of the comments is included as an
attachment.

# BACKGROUND

GEAR UP is a discretionary grant program designed to increase the number
of low-income participants who are prepared to enter and succeed in
postsecondary education. Under the GEAR UP program, the U.S. Department
of Education (Department) provides five-year grants to states and
partnerships to provide services at high poverty middle and high
schools. Grantees serve an entire cohort of participants beginning no
later than the 7th grade and follow the cohort through high school. The
Policy, Planning, and Innovation Office within the Department's Office
of Postsecondary Education (OPE) administers the GEAR UP program.

Partnerships are required to provide matching contributions each year of
the GEAR UP project. The regulations at 34 C.F.R. § 694.7 specify the
percentage of the grant award that must be matched from non-Federal
sources. OPE guidance on the GEAR UP program reiterates that the
matching amount for an individual year must be met in that year and the
grantee cannot "catch up" in later years of the grant. The non-Federal
share may be provided in cash or in-kind.

The purpose of the Foundation's GEAR UP project was to prepare and
motivate students for postsecondary education opportunities by providing
early developmental outreach services, along with career planning and
parent workshops on related topics. GEAR UP Partnership Grant
No. P334A990267 provided funding for the project for the five-year
period from September 1, 1999 through August 31, 2004, totaling
\$1,858,546. The grant funds expended and the related expected matching
contributions from non-Federal sources[^1], for the first four years of
the grant, are shown in the following table.

  ---------------- -------------------- ---------------- -----------------
  **Award Year**   **Grant Award        **Expected       **Total**
                   Expended**           Matching         
                                        Contribution**   

  1999             \$240,000            \$102,857        \$342,857

  2000             \$332,758            \$142,610        \$475,368

  2001             \$414,981            \$177,849        \$592,830

  2002             \$413,403            \$177,173        \$590,576

  **Total**        **\$1,401,142**      **\$600,489**    **\$2,001,631**
  ---------------- -------------------- ---------------- -----------------

## 

## AUDIT RESULTS

We concluded that the Foundation did not meet the required matching
contributions for any of the four years covered by our review because
the Foundation did not have the required documentation for the claimed
contributions. Additionally, we found that the Foundation did not use
and properly account for the GEAR UP grant funds in accordance with
Federal regulations. During the period September 1, 1999 through August
31, 2003, the Foundation charged 2,580 transactions, totaling
\$1,401,142, to the GEAR UP grant. Our review of 327 transactions,
totaling \$340,670, found that the Foundation lacked required
documentation for personnel costs charged to the grant and improperly
charged other costs. As a result, we were unable to determine whether
\$101,536 of personnel costs were properly allocated to the GEAR UP
grant and questioned \$8,940 of other costs.[^2]

**FINDING NO. 1 - Foundation Did Not Meet the Required Matching
Contributions for the GEAR UP Grant**

At the time of our review, the Foundation claimed to have received
\$1,253,799 in matching contributions for the GEAR UP grant. While this
amount exceeded the needed total contributions from non-Federal sources
of \$600,489,[^3] the Foundation did not have sufficient documentation
for the required contributions.

OMB Circulars Specify the Documentation Required to Accept Donations As
Part of the Matching Contributions

The Foundation and other non-profit organizations receiving Federal
grants must comply with the requirements set forth in *Office of
Management and Budget Circular A-110 Uniform Administrative Requirements
for Grants and Agreements With Institutions of Higher Education,
Hospitals, and Other Non-Profit Organizations* (OMB Circular A-110). OMB
Circular A-110, Appendix A, Subpart C, paragraph 23(a) specifies the
requirements for accepting matching contributions.

All contributions, including cash and third party in-kind, shall be
accepted as part of the recipient's cost sharing or matching when such
contributions meet all of the following criteria.

(1) Are verifiable from the recipient's records.

(2) Are not included as contributions for any other federally-assisted
    project or program.

(3) Are necessary and reasonable for proper and efficient accomplishment
    of project or program objectives.

(4) Are allowable under the applicable costs principles.

(5) Are not paid by the Federal Government under another award . . . .

(6) Are provided for in the approved budget when required by the Federal
    awarding agency.

(7) Conform to other provisions of this Circular, as applicable.

Paragraph 23(c) states that values for recipient contributions of
services and property shall be established in accordance with applicable
cost principles. The cost principles applicable to the Foundation are
contained in *Office of Management and Budget Circular A-122 Cost
Principles for Non-Profit Organizations* (OMB Circular A-122). Both OMB
Circular A-110 and OMB Circular A-122 provide specific guidance on the
required documents and methods for determining the value of different
types of contributions.

In addition, OPE's issued guidance on the GEAR UP program states that
documentation of the match should contain adequate source documentation
for claimed cost sharing, provide clear valuation of in-kind
documentation, and provide support of cost sharing by grant partners.

##### The Foundation Did Not Have Required Documentation for Matching Contributions

The Foundation provided an In-Kind Contribution Report for each claimed
contribution, which identified the contributor, the nature of the
contribution (i.e., volunteer services and travel, office space,
equipment, etc.), and the value for each contribution. The Foundation
either did not have supporting documents for the claimed contributions
or the supporting documents did not meet Federal criteria for accepting
contributions for the required match from non-Federal sources.

With regard to in-kind contributions from third parties, OMB Circular
A-110, Appendix A, Subpart C, paragraph 23(h)(5) states---

(i) Volunteer services shall be documented and, to the extent feasible,
    supported by the same methods used by the recipient for its own
    employees.

> \(ii\) The basis for determining the valuation for personal services,
> material, equipment, buildings and land shall be documented.

OMB Circular A-122, Attachment B, paragraph 7.m (4) states---

> Salary and wages of employees used in meeting cost sharing or matching
> requirements on awards must be supported in the same manner as
> salaries and wages claimed for reimbursement from awarding agencies.

The following examples show the limited documentation that was available
for the contributions that comprised the \$1,253,799 claimed by the
Foundation.

-   The Foundation claimed \$849,428 of in-kind contributions from the
    Fresno County Probation Department. The In-Kind Contribution Reports
    for these contributions (one for each grant year) referred to a
    Fresno County Probation Department letter, dated October 3, 2003,
    stating that, during the past four years, its Youth Challenge
    Community Program (YCCP) served 39 "targeted Gear-Up students" who
    attended the junior high school included in the Foundation's GEAR UP
    application. The letter stated that the allotted yearly per student
    budget for the YCCP was about \$21,780, which included personnel
    costs. The Foundation applied about one-quarter of the total
    contribution to each year of the grant. The letter lists
    after-school tutoring, recreational activities, and individual
    therapy as services provided to students. The letter did not
    identify the students who participated each year, the costs included
    in the yearly per student budget, or the services provided to each
    student.

-   The Foundation also claimed \$14,337 in contributions of volunteers'
    time and travel for participation in career and health fairs. The
    In-Kind Contribution Reports showed the volunteer's name, the total
    hours donated, the rate used to determine the value of the donated
    hours, and the miles that the volunteer traveled to participate in
    the fair. To meet the requirements in OMB Circulars A-110 and A-122,
    the Foundation should have maintained documentation similar to that
    used for the Foundation's hourly employees. The Foundation required
    hourly employees to submit timesheets twice per month showing their
    daily arrival and departure times, total hours worked, type of work,
    rate of pay, and the project to be charged.

Of the remaining \$390,034 of claimed matching contributions, most were
only supported by an In‑Kind Contribution Report. Some claimed
contributions had other documentation, such as invoices or activity
listings, but none of the documentation was sufficient to meet the
requirements.

In its response to the draft report, the Foundation submitted additional
supporting documentation. We concluded that the additional documentation
was sufficient to support \$214,884 of the claimed matching
contributions. This amount consisted of \$190,584 in salary and benefits
paid to the probation officer in charge of the YCCP and \$24,300 in
salary and benefits paid to the principal of one of the schools
participating in the GEAR UP project.

Since the Foundation did not have the necessary evidence to document the
remaining \$385,605 (\$600,489 less \$214,884) of the required
contributions, the Foundation has not met the required 30 percent match
from non-Federal sources. The Federal regulations at
34 C.F.R. § 694.7(a) state that "\[a\] 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, . . . and
(2) Comply with the matching percentage stated in its application for
each year of the project period." In order to meet the above regulation,
a portion of project costs paid by Federal funds must be converted to
match. The table below shows the amount for each grant year that should
be converted by subtracting the amount from the project costs paid from
Federal funds and returning the total amount to the GEAR UP grant
account.

+-------+------------+-----------+----------+-------------+----------+
| **C   |            |           |          |             |          |
| alcul |            |           |          |             |          |
| ation |            |           |          |             |          |
| of    |            |           |          |             |          |
| Req   |            |           |          |             |          |
| uired |            |           |          |             |          |
| Match |            |           |          |             |          |
| and   |            |           |          |             |          |
| R     |            |           |          |             |          |
| efund |            |           |          |             |          |
| Amo   |            |           |          |             |          |
| unt** |            |           |          |             |          |
+-------+------------+-----------+----------+-------------+----------+
| **    | **Actual   | *         | **       | *           | **Refund |
| Award | Project    | *Required | Required | *Documented | to GEAR  |
| Y     | Costs**    | Match     | Ma       | Match**     | UP grant |
| ear** |            | Per       | tch^a^** |             | acco     |
|       |            | centage** |          |             | unt^b^** |
+-------+------------+-----------+----------+-------------+----------+
| 1999  | \$280,262  | 30%       | \$84,079 | \$40,263    | \$43,816 |
+-------+------------+-----------+----------+-------------+----------+
| 2000  | \$392,714  | 30%       | \        | \$59,956    | \$57,858 |
|       |            |           | $117,814 |             |          |
+-------+------------+-----------+----------+-------------+----------+
| 2001  | \$480,190  | 30%       | \        | \$65,209    | \$78,848 |
|       |            |           | $144,057 |             |          |
+-------+------------+-----------+----------+-------------+----------+
| 2002  | \$462,859  | 30%       | \        | \$49,456    | \$89,402 |
|       |            |           | $138,858 |             |          |
+-------+------------+-----------+----------+-------------+----------+
| **To  |            |           |          |             | **\$2    |
| tal** |            |           |          |             | 69,924** |
+-------+------------+-----------+----------+-------------+----------+
| ^a^   |            |           |          |             |          |
| A     |            |           |          |             |          |
| ctual |            |           |          |             |          |
| pr    |            |           |          |             |          |
| oject |            |           |          |             |          |
| costs |            |           |          |             |          |
| multi |            |           |          |             |          |
| plied |            |           |          |             |          |
| by    |            |           |          |             |          |
| the   |            |           |          |             |          |
| req   |            |           |          |             |          |
| uired |            |           |          |             |          |
| match |            |           |          |             |          |
| perce |            |           |          |             |          |
| ntage |            |           |          |             |          |
|       |            |           |          |             |          |
| ^b^   |            |           |          |             |          |
| Req   |            |           |          |             |          |
| uired |            |           |          |             |          |
| match |            |           |          |             |          |
| less  |            |           |          |             |          |
| the   |            |           |          |             |          |
| docum |            |           |          |             |          |
| ented |            |           |          |             |          |
| match |            |           |          |             |          |
| (this |            |           |          |             |          |
| a     |            |           |          |             |          |
| mount |            |           |          |             |          |
| is    |            |           |          |             |          |
| conv  |            |           |          |             |          |
| erted |            |           |          |             |          |
| from  |            |           |          |             |          |
| Fe    |            |           |          |             |          |
| deral |            |           |          |             |          |
| to    |            |           |          |             |          |
| n     |            |           |          |             |          |
| on-Fe |            |           |          |             |          |
| deral |            |           |          |             |          |
| funds |            |           |          |             |          |
| to    |            |           |          |             |          |
| c     |            |           |          |             |          |
| omply |            |           |          |             |          |
| with  |            |           |          |             |          |
| req   |            |           |          |             |          |
| uired |            |           |          |             |          |
| match |            |           |          |             |          |
| p     |            |           |          |             |          |
| ercen |            |           |          |             |          |
| tage) |            |           |          |             |          |
+-------+------------+-----------+----------+-------------+----------+

**The Foundation Needs to Ensure Its Staff Adhere to the Foundation's
Process for Documenting Matching Contributions and Are Knowledgeable of
Documentation Requirements**

The Project Director was responsible for maintaining documentation of
contributions used to meet the grant's matching requirement and
providing the information necessary for Foundation staff to record the
contribution amounts in the Foundation's accounting system. The Interim
Project Director informed us that the Foundation did not have
documentation for the GEAR UP grant because the original Project
Director left the Foundation without providing other GEAR UP staff with
the documentation. Also, the Project Director did not provide Foundation
staff with the information for entry into the accounting system.

At the time of our review, the Interim Project Director for the GEAR UP
grant and the other grant staff were attempting to recreate
documentation for the contributions by reviewing calendars and
schedules. Based on our discussions with the Interim Project Director
and staff, we concluded that they were not familiar with the
documentation required by the OMB Circulars.

##### Recommendations

We recommend that the Chief Financial Officer, in collaboration with the
Assistant Secretary for Postsecondary Education, require the Foundation
to---

1.  Provide documentation supporting at least \$385,605 of the remaining
    claimed matching contributions or return \$269,924 to the GEAR UP
    account, the amount of Federal expenditures required to be converted
    to match in order to conform to the regulation requiring the
    Foundation to comply with the required match percentage for the
    grant.

2.  Establish procedures to ensure that contributions used to meet the
    matching requirements are properly documented in accordance with OMB
    Circular requirements and OPE guidance.

**Foundation's Comments**

The Foundation submitted additional documentation for \$843,055 of the
claimed matching contributions. The Foundation stated it is drafting
procedures for review and approval of documentation for matching
contributions.

**OIG's Response**

We revised our finding and Recommendation 1.1 to reflect the additional
documentation submitted by the Foundation. We concluded that the
documentation was sufficient to confirm \$214,884 of the claimed
matching contributions. The documentation provided for the remaining
\$628,171 did provide detailed lists of amounts used to derive the
claimed matching contributions (i.e., salaries, number of classrooms,
unit costs, etc.), but the Foundation did not provide documentation to
support the listed amounts. Also, some of the listed amounts were based
on budgeted rather than actual costs. We encourage the Foundation to
work with the Department on acceptable methods for adequately supporting
the claimed matching contributions.

#### FINDING NO. 2 - Foundation Lacked Required Documentation for Personnel Costs 

#### Charged to the Grant

The Foundation did not require employees, who were paid on a salary
rather than an hourly basis, to prepare personnel activity reports.[^4]
All salaried employees who worked on grant activities were required to
submit monthly attendance reports. However, these reports did not show
an accounting of the actual time spent on grant activities. Instead, the
Foundation allocated salaries to the grant based on predetermined
distribution percentages shown on the employees\' personnel action
forms.

OMB Circular A-122, Attachment B, paragraph 7.m (2) requires monthly
personnel activity reports for all employees who work on grant
activities.

> Reports reflecting the distribution of activity of each employee must
> be maintained for all staff members (professionals and
> nonprofessionals) whose compensation is charged, in whole or in part,
> directly to awards . . . .

The paragraph also lists the required elements for personnel activity
reports and specifically states that percentages determined before the
services are performed do not qualify as support for charges to Federal
grants, as follows---

(a) The reports must reflect an *after-the-fact* determination of the
    actual activity of each employee. Budget estimates (i.e., estimates
    determined before the services are performed) do not qualify as
    support for charges to awards.

> \(b\) Each report must account for the total activity for which
> employees are compensated and which is required in fulfillment of
> their obligations to the organization.
>
> \(c\) The reports must be signed by the individual employee, or by a
> responsible supervisory official having first hand knowledge of the
> activities performed by the employee, that the distribution of
> activity represents a reasonable estimate of the actual work performed
> by the employee during the periods covered by the reports.
>
> \(d\) The reports must be prepared at least monthly and must coincide
> with one or more pay periods.

The Foundation's Director of Financial Services stated that having
employees submit an after‑the-fact annual certification of the time
worked was sufficient to meet the requirements. The Director did not
provide us with such certifications and, even if the annual
certifications were completed, the documentation would not have met the
requirement for reporting at least monthly.

The original Project Director was the only employee charged to the grant
whose salary was funded by more than one source. Except as noted in the
following paragraph, her salary was charged 50 percent to the GEAR UP
grant and 50 percent to another OPE grant. The other employees\'
salaries were charged 100 percent to the GEAR UP grant. While the
Foundation did not have the required documentation, we concluded that
salaries charged 100 percent to the grant appeared reasonable based on
our observations and interviews with current employees. The current
staff, whose salaries were charged 100 percent to the GEAR UP grant, are
representative of the number of staff whose salaries were charged to the
grant during the four years reviewed in our audit. During interviews,
the current staff stated they provided before school, after school, and
lunchtime tutoring, as well as being available to the students
throughout the day. Also, we observed at the school sites that the staff
were located in a room dedicated to GEAR UP activities. However, we have
no assurance that the \$101,536 charged to the grant for the original
Project Director\'s salary represents a proper allocation of costs based
on her GEAR UP program activities.

During our testing, we identified an error in recording a journal entry
used to transfer a portion of the original Project Director's salary and
benefits costs for the period September 1, 1999 to July 31, 2000, to the
GEAR UP grant. As recorded, the journal entry resulted in 52 percent of
the salary and 61 percent of the benefits being charged to the GEAR UP
grant. If the Foundation provides sufficient documentation to support
the 50 percent distribution of salary costs for the original Project
Director, the overcharges caused by the erroneous journal entry would
total \$1,854 (\$734 in salary costs and \$1,120 in benefits costs).[^5]

**Recommendations**

We recommend that the Chief Financial Officer, in collaboration with the
Assistant Secretary for Postsecondary Education, require the Foundation
to---

1.  Provide documentation supporting the allocation percentage used to
    charge the GEAR UP grant for personnel costs of the original Project
    Director, or return \$101,536, plus related benefits and indirect
    costs. If sufficient documentation is provided to support the
    allocation percentage, the Foundation should return the \$1,854 of
    overcharges for the original Project Director's salary and benefits,
    plus related indirect costs.

2.  Implement a personnel activity report for employees paid on a salary
    basis that complies with OMB Circular A-122 requirements.

### Foundation's Comments

The Foundation agreed with our finding, but disagreed with
Recommendation 2.1. The Foundation provided a letter stating that, based
on its review of the original Project Director's calendar, the original
Project Director spent 20 percent of her time on scheduled GEAR UP
activities and an additional 30 percent of her time on administrative
and other activities related to the GEAR UP project. The original
Project Director's supervisor signed the letter, certifying that the
original Project Director spent 50 percent of her time on the GEAR UP
project. The Foundation did agree to return the excess salary and
benefit amounts charged, plus related indirect costs, totaling \$2,002.
To address our procedural recommendation, the Foundation stated that a
personnel activity report for salaried employees would be developed and
implemented.

###### OIG's Response

We did not change Recommendation 2.1. The Foundation's response to the
draft report and the supervisor's certification were not sufficient for
us to conclude that the salary costs charged to the grant for the
original Project Director were reasonable. The Foundation did not
provide copies of the calendar used to conclude that approximately 20
percent of her time was spent on scheduled GEAR UP activities and we
have no basis for assessing the Foundation's conclusion that it is
reasonable to conclude that an additional 30 percent of her time was
spent conducting administrative and other activities related to the GEAR
UP project. The supervisor's certification was prepared on April 16,
2004, for activities of the original Project Director that were
conducted during the period from September 1999 to June 2003.

##### FINDING NO. 3 - Foundation Improperly Charged \$8,940 to the GEAR UP Grant

The Foundation charged the GEAR UP grant for costs that were unnecessary
or not properly allocated to the grant. OMB Circular A-122, Attachment
A, paragraph A.2.a states that to be allowable under a grant, costs must
"be reasonable for the performance of the award and be allocable thereto
under these \[cost\] principles."

##### Foundation Used GEAR UP Funds for Purchases and Services That Were Not Necessary for Performance of the Grant Purpose

######## The Foundation used grant funds for costs of computer equipment, cell phone service, and food that were not necessary for performance of the GEAR UP program. OMB Circular A-122, Attachment A, paragraph A.3 defines reasonable costs---

In determining the reasonableness of a given cost, consideration shall
be given to:

a.  Whether the cost is of a type generally recognized as ordinary and
    necessary for the operation of the organization or the performance
    of the award.

> [Computer Equipment Costs]{.underline}. We identified purchases,
> totaling \$4,157 for a Macintosh PowerBook computer, a portable zip
> drive, and a Pocket PC that the Foundation could not locate and the
> GEAR UP staff did not recall receiving for the grant.[^6] The original
> Project Director, who is no longer with the Foundation, purchased
> these three items and the documentation does not contain any
> explanation of the purpose for the purchases. The Macintosh PowerBook
> (\$3,397) and zip drive (\$247) were purchased in October and December
> 1999, respectively. The GEAR UP staff advised us that they do not use
> Macintosh products and they had no need for an external zip drive
> since their computers were equipped with zip drives. The Pocket PC
> (\$513) was purchased in January 2001. The OPE GEAR UP Director and
> assigned OPE Program Officer advised us that the Pocket PC was not
> necessary for performance of the GEAR UP grant.

[Cell Phone Costs]{.underline}. We identified service costs totaling
\$2,630, charged to the GEAR UP grant for the original Project
Director's cell phone that were not ordinary and necessary costs for
performance of the grant. The budget for the GEAR UP grant did not list
cell phone expenses and the OPE GEAR UP Director and assigned OPE
Program Officer advised us that cell phones would only be approved under
GEAR UP grants in rare cases when the grantee has several sites that are
not located near each other and the staff spend significant time
traveling between sites. The school sites under the grant were located
just blocks apart, and thus, the cell phone expenses were not necessary
costs for performance of the grant.

[Food Costs]{.underline}. We identified food expenses, totaling \$382,
that were not necessary costs for performance of the grant purpose.

-   The Foundation charged the grant for staff to attend a California
    K-16 Partnerships and Student Success Conference in June 2001. The
    amount charged included additional amounts, totaling \$90, for
    attendees' dinners on the RMS Queen Mary cruise ship. The dinner was
    an option offered to attendees and was not a part of the conference
    agenda.

-   The Foundation charged the grant \$292 for food for a holiday open
    house held in December 2000. The purpose of the open house was
    stated as "a Holiday Open House for all GEAR UP partners and
    supporters. It was an \[o\]pportunity to thank them for their
    support and for them to see our office. The University is seen as
    reaching out to the community and has a positive image in the
    Community\[.\] This is good for potential enrollments to the
    \[U\]niversity." Neither students participating in the GEAR UP
    program nor their parents attended the event.

The dinner and food were for activities not related to the purpose of
the GEAR UP grant, which is to prepare and motivate students for
postsecondary education opportunities by providing early developmental
outreach services, along with career planning and parent workshops on
related topics. Thus, the costs were not necessary for performance of
the grant.

###### Foundation Did Not Properly Allocate Costs to the GEAR UP Grant

The Foundation did not properly allocate charter bus and banner costs to
the GEAR UP grant. OMB Circular A-122, Attachment A, paragraph A.4.a
defines allocable costs---

> A cost is allocable to a particular cost objective, such as a grant,
> contract, project, service, or other activity, in accordance with the
> relative benefits received. A cost is allocable to a Federal award if
> it is treated consistently with other costs incurred for the same
> purpose in like circumstances and if it:

(1) Is incurred specifically for the award.

(2) Benefits both the award and other work and can be distributed in
    reasonable proportion to the benefits received . . . .

> [Charter Bus Costs]{.underline}. The Foundation improperly charged
> \$1,364 to the grant for charter bus expenses related to two student
> field trips.

-   The first trip, which occurred in February 2001, included students
    participating in the GEAR UP and Talent Search programs. The GEAR UP
    grant was charged for the entire \$679 cost for the charter bus
    (\$150 deposit and \$529 balance). According to the Interim Project
    Director, the cost of the charter bus should have been split between
    the two programs. The amount improperly allocated to the grant was
    \$339 (50 percent of \$679).

-   The second trip occurred in April 2001. The GEAR UP grant was
    charged for the charter bus expense of \$1,025 even though the
    Foundation's documentation showed the trip was for Talent Search
    participants only. The \$1,025 charge was mistakenly allocated to
    the GEAR UP grant.

> [Banner Costs]{.underline}. The Foundation improperly charged \$407 to
> the grant for the purchase of two vinyl banners. The Foundation's
> documentation identified the logos shown on each banner and the
> vendor's separate charges for each logo. The full amount of the
> purchases (\$449 and \$448) was charged to the GEAR UP grant even
> though the banners contained logos for programs and organizations
> unrelated to the Foundation's GEAR UP project. The costs of the
> unrelated logos improperly allocated to the GEAR UP grant were \$192
> and \$215, respectively.

######### Foundation Needs to Improve Procedures For Ensuring Costs Are Properly Charged to Grants

The Foundation's policies and procedures required supervisory review of
payment authorizations initiated by the project directors that exceeded
\$100, but the policies and procedures were not consistently followed.
Also, the Foundation's policies and procedures did not provide for
supervisory review of purchase orders or invoices approved without a
payment authorization.

We found that several documents reviewed for our sampled transactions
contained no evidence that a supervisor had reviewed the purchases or
services to ensure that the costs were reasonable costs of the grant and
properly allocated to the grant. For example, the purchase order for the
Macintosh PowerBook was prepared and approved by the original Project
Director and was not reviewed by her supervisor. Then, the same Project
Director approved payment of the invoice with no review from her
supervisor. Another example is the cell phone service. The supervisor
stated that he was not involved in the selection of the phone and
service plan and did not review invoices to determine if the phone was
being used strictly for GEAR UP activities. The improper use of GEAR UP
funds may not have occurred if the supervisor had reviewed purchase
orders, invoices, and payment authorizations.

**Recommendations**

We recommend that the Chief Financial Officer, in collaboration with the
Assistant Secretary for Postsecondary Education, require the Foundation
to---

1.  Return the \$8,940 (\$4,157+\$2,630+\$382+\$1,364+\$407), plus
    related indirect costs, that was improperly expended for costs that
    were not necessary for performance of the GEAR UP grant or were not
    properly allocated to the grant.

2.  Implement procedures requiring supervisory reviews of purchase
    orders initiated by project directors and invoices for equipment or
    services used solely by project directors.

3.  Ensure that required supervisory reviews are conducted and that
    reviews confirm purchases and services are necessary for performance
    of the grant purpose and costs are allocated in proportion to the
    benefits received.

Due to the extent of our testing and the small percentage of reviewed
transactions identified as improperly charged to the grant, we have not
recommended that the Foundation review the untested transactions for
allowability.

**Foundation's Comments**

The Foundation agreed with our finding and concurred with our
recommendations. The Foundation stated it would return \$9,655 for the
improper charges (amount includes related indirect costs). The
Foundation stated that management controls would be instituted that
include supervisory reviews of purchases of services or equipment used
solely by project directors and ensuring required reviews are performed.

# OBJECTIVES, SCOPE, AND METHODOLOGY

######## Our audit objectives were to determine whether the Foundation (1) complied with the grant's matching contribution requirement and (2) properly expended funds provided by the GEAR UP Partnership Grant No. P334A990267. Our review covered the first four years of the five-year grant period from September 1, 1999 to August 31, 2003.

To accomplish our objectives, we reviewed the Foundation's GEAR UP grant
application, budgets, performance reports, and OMB Circular A-133 audit
reports for the years ended June 30, 2001 and June 30, 2002. We also
reviewed the Foundation's written policies and procedures applicable to
charges made to the GEAR UP grant and matching contributions. We
interviewed Foundation officials and staff responsible for implementing
the financial and program portions of the GEAR UP grant. We also
communicated with OPE staff responsible for monitoring the grant.

To achieve our audit objectives, we relied on reports of GEAR UP grant
expenditures for the period September 1, 1999 through August 31, 2003,
which Foundation staff generated from its financial accounting system.
We verified the completeness of the data by comparing the total
expenditures on the report to the total amount drawn down as shown in
the Department's Grants Administration and Payment System. We also
compared report information to information on source documents for
sampled transactions. Based on the results of these tests, we concluded
that the reports were sufficiently reliable to be used in meeting the
audit's objectives.

For the first grant year of our audit period, we reviewed all 44 payroll
transactions over \$100 shown on the Foundation-provided report. For the
remaining three years, we reviewed all 71 payroll transactions for the
original Project Director that were over \$100 and reviewed an
additional 30 payroll transactions randomly selected from the remaining
433 payroll transactions. We scanned all transactions related to the
staff benefits costs for unusual amounts. For non‑payroll transactions,
we reviewed 182 of the 1,106 transactions listed on the
Foundation-provided report. We judgmentally selected 92 non-payroll
transactions with the highest dollar amounts or identified as high risk.
We then randomly selected an additional 90 non-payroll transactions.

We performed our fieldwork at the Foundation in Fresno, California
during the period September to October 2003. We held an exit briefing
with Foundation officials on February 4, 2004. Our audit was performed
in accordance with generally accepted government auditing standards
appropriate to the scope of the review described.

**STATEMENT ON MANAGEMENT CONTROLS**

Our assessment of the Foundation's management control structure was
limited to those areas of control weaknesses identified while conducting
substantive tests of grant expenditures. Our review found that the
Foundation lacked the following management controls: standard procedures
for documenting matching contributions, personnel activity report system
for salaried employees, and sufficient supervisory reviews of purchasing
and payment documents. These weaknesses and their effects are discussed
in the Audit Results section of this report.

**ADMINISTRATIVE MATTERS**

Statements that managerial practices need improvement, as well as other
conclusions and recommendations in this report, represent the opinions
of the Office of Inspector General. Determinations of corrective actions
to be taken will be made by the appropriate Department officials.

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 officials who will
consider them before taking final Departmental action on this audit:

> Jack Martin
>
> Chief Financial Officer
>
> Office of the Chief Financial Officer
>
> U.S. Department of Education
>
> Federal Building No. 6, Room 4E313
>
> 400 Maryland Avenue, S.W.
>
> Washington, D.C. 20202
>
> Sally L. Stroup
>
> Assistant Secretary
>
> Office of Postsecondary Education
>
> U.S. Department of Education
>
> 1990 K Street, N.W.
>
> Room 7115
>
> Washington, D.C. 20006

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 under the Act.

> Sincerely,
>
> /s/
>
> Gloria Pilotti
>
> Regional Inspector General for Audit

**[ATTACHMENT]{.underline}**

**CALIFORNIA STATE UNIVERSITY, FRESNO FOUNDATION'S COMMENTS ON THE DRAFT
REPORT**

Because of the voluminous number of attachments included in the
Foundation's response, we have not included them in this Attachment.
Copies of the attachments have been provided to the Department's Office
of the Chief Financial Officer and Office of Postsecondary Education and
are available to others on request.

April 20, 2004

Gloria Pilotti

Regional Inspector General for Audit

U.S. Department of Education

Office of Inspector General

501 I Street, Suite 9-200

Sacramento, California 95814

Dear Ms. Pilotti:

We have reviewed the draft audit report, entitled *California State
University, Fresno Foundation's Administration of GEAR-UP Partnership
Grant No. P334A990267,* which covers the period of September 1, 1999 to
August 31, 2003. Our responses are listed below. We have included the
corrective actions corresponding to your recommendations.

**Finding No. 1 -- Foundation Did Not Meet the Required Matching
Contribution for the GEAR UP Grant**

**Recommendation**

1.1 Provide documentation supporting at least \$607,317 of the claimed
matching contributions or return \$1,396,383 it received for the first
four years of the grant.

**Response**

1.  Management has enclosed detailed documentation from third parties to
    support matching contributions in the amount of \$843,055.

**Recommendation**

1.2 Establish procedures to ensure that contributions used to meet the
matching requirements are properly documented and in accordance with OMB
Circular requirements and OPE guidance.

**Response**

> 1.2 Management concurs. Management is drafting procedures for review
> and approval of properly documented matching. The completion date of
> the draft will be 12/31/04. The implementation date will be 06/30/05.

**Finding No. 2 -- Foundation Lacked Required Documentation for
Personnel Costs**

**Charged to the Grant**

**Recommendation**

2.1 Provide documentation supporting the allocation percentage used to
charge the GEAR UP grant for personnel costs of the original Project
Director, or return \$101,536, plus related staff benefits and indirect
costs. If sufficient documentation is provided to support the allocation
percentage, The Foundation should return the \$1,854 of overcharges for
the original Project Director's salary and benefits, plus related
indirect costs.

**Response**

2.1 We have analyzed the project director's calendar and have determined
that the project director spent approximately 20% of her time on
scheduled GEAR-UP activities, such as, conferences, meetings and
training sessions. It is reasonable to conclude that an additional 30%
of her time was spent conducting administrative and other duties
relating to the GEAR-UP project. The deliverables of the contract
including the programmatic reports and fiscal reports, were submitted as
required and the project continues to operate successfully. We conclude
that the Project Director spent 50% of her time on the project and the
entire costs of salary, benefits and indirect related to the Project
Director should not be disallowed. We have enclosed a letter from the
Project Director's supervisor certifying that 50% percent of her time
was spent on the GEAR UP project. Management does concur with the
overcharge of \$1854, plus related indirect costs. Management agrees to
reimburse the amount of \$2002 for these overcharges.

**Recommendation**

2.2 Implement a personnel activity report for employees paid on a salary
basis that complies with OMB Circular A-122 requirements.

**Response**

2.2 Management concurs. Management will work with Human Resources to
develop an activity report to be completed by employees paid on a salary
basis. The implementation date will be 07/01/04.

**Finding No. 3 -- Foundation Improperly Charged \$8,940 to the GEAR UP
Grant**

**Recommendation**

3.1 Return the \$8,940 (\$4,157+\$2,630+\$382+\$1,364+\$407), plus
related indirect costs, that was improperly expended for costs that were
not necessary for performance of the GEAR UP grant or were not properly
allocated to the grant.

**Response**

3.1 Management concurs. Management agrees to reimburse \$9,655 for the
disallowed costs.

**Recommendation**

3.2 Implement procedures requiring supervisory reviews of purchase
orders initiated by project directors and invoices for equipment or
services used solely by project directors.

**Response**

3.2 Management concurs. The Foundation will have the appropriate
supervisor of the GEAR-UP program review purchase orders and invoices
for equipment or services used solely by the project directors. The
implementation date will be

07/01/04**.**

**Recommendation**

3.3 Ensure that required supervisory reviews are conducted and that
reviews confirm purchases and services are necessary for performance of
the grant purpose and costs are allocated in proportion to the benefits
received.

**Response**

3.3 **M**anagement concurs. The Foundation will implement a procedure to
ensure GEAR UP supervisory reviews have been performed to determine
purchases and services are necessary for the grant purpose and allocated
in proportion to the benefits received. The implementation date will be
07/01/04.

If you have any questions or if you wish to discuss the contents of the
report, please call Randy Larson at (559) 278-0838 or Linda Christian at
(559) 278-0852.

Sincerely,

/s/

Dr. Peter N. Smits

Executive Director

California State University, Fresno Foundation

Enclosures

[^1]: In July 2003, the Department approved a reduction of the
    Foundation's required annual matching percentage from 50 percent to
    30 percent of total project costs.

[^2]: The sample of 327 transactions included 182 transactions related
    to non-personnel costs. Of the 182 transactions, we concluded that
    17 sampled transactions were improperly charged to the GEAR UP
    grant. The questioned cost of \$8,940 includes the amount improperly
    charged for the 17 transactions and other related transactions.

[^3]: This amount includes the expected matching contributions for award
    years 1999 through 2002.

[^4]: The Foundation required employees who were paid on an hourly basis
    to prepare timesheets. We concluded that the documentation provided
    for these employees met the requirements listed in OMB Circular
    A-122.

[^5]: The \$101,536 amount mentioned in the previous paragraph
    represents the entire amount charged to the grant for the original
    Project Director's salary, which does not include benefits or
    indirect costs. The \$101,536 includes the \$734 salary overcharge.

[^6]: The Foundation maintains a Federal Equipment Listing of property
    purchased under each grant with a value of \$5,000 or more. Although
    none of the three purchases met the \$5,000 threshold, the Macintosh
    PowerBook was on the Federal Equipment Listing for the GEAR UP
    grant. The GEAR UP staff also maintained its own inventory for the
    GEAR UP program, but none of the items were on the list.