**UNITED STATES DEPARTMENT OF EDUCATION**

**OFFICE OF INSPECTOR GENERAL**

32 OLD SLIP, 26^th^ FLOOR

FINANCIAL SQUARE

NEW YORK, NEW YORK 10005

PHONE (646) 428-3860 FAX (646) 428-3868

July 25, 2006

> **Control Number ED-OIG/A02F0017**

Honorable Rafael Aragunde

Secretary of Education

Puerto Rico Department of Education

P.O. Box 190759

San Juan, Puerto Rico 00919-0759

Dear Secretary Aragunde:

This **Final Audit Report**, entitled *Puerto Rico Department of
Education, Salinas School District's Administration of Title I Funds,*
presents the results of our audit. The objective of the audit was to
determine whether the Puerto Rico Department of Education (PRDE),
Salinas School District (Salinas), properly administered Elementary and
Secondary Education Act (ESEA), Title I, Part A (Title I), non-salary
funds in accordance with grant requirements, and Federal laws and
regulations. Our review covered the grant period, July 1, 2003, through
June 30, 2004.

In its response to the draft report, dated June 15, 2006, PRDE generally
concurred with our findings and recommendations. Based on proper
documentation PRDE provided supporting certain expenditures, we adjusted
Findings 1 and 2. Because of the voluminous number of attachments
included in PRDE's comments to the draft report, we have not included
them in this report. Copies of the attachments are available on
request**.** We summarized PRDE's comments at the end of each finding
and included them as **Attachment B** to the report.

BACKGROUND

The community schools are the functional units of the public educational
system of Puerto Rico. Puerto Rico Law Number 18 of June 16, 1993,
created the community schools and granted them academic, fiscal, and
administrative autonomy. The Community Schools Administration (CSA), a
division of PRDE, acts as a pass-through entity for the transfer of
State and Federal funds to the community schools.

In January 2002, the PRDE Secretary established the Fiscal Components of
the community schools,[^1] and placed them in the school districts.[^2]
The Fiscal Components included Purchasing, Payment, Bank Account
Reconciliation, Receiving and Collecting Officers, and Property
Custodians.

For the grant period, July 1, 2003, through June 30, 2004, the CSA
transferred \$670,689 in Title I, non-salary funds to the PRDE-Salinas
community schools bank accounts. PRDE-Salinas had a total of 20
community schools.

All of the PRDE-Salinas schools received Title I funds. The Title I
program is the largest elementary and secondary education program, which
supplements State and local funding for low-achieving children,
especially in high-poverty schools.[^3] Title I provides financial
assistance to ensure that all children have a fair, equal, and
significant opportunity to obtain a high-quality education and reach, at
a minimum, proficiency on challenging State academic achievement
standards and State academic assessments.

Title I funds may be used for schoolwide or for targeted assistance
programs. Under a schoolwide program, Title I funds can be consolidated
with other Federal, State, and local funds to upgrade the entire
educational program of a school if not less than 40 percent of the
children enrolled in the school are from low-income families. Federal
funds consolidated in a schoolwide program lose their specific program
identity and may be used for any costs of a schoolwide program. All 20
PRDE-Salinas schools operated schoolwide programs.

AUDIT RESULTS

In general, PRDE-Salinas properly administered Title I, non-salary funds
in accordance with grant requirements, and Federal laws and regulations.
However, we found that PRDE-Salinas failed to provide proper
documentation to support disbursements totaling \$19,829, paid out
\$7,385 in program funds untimely, and lacked appropriate supervisory
oversight of its cash management activities.

**FINDING 1 -- PRDE-Salinas failed to provide proper documentation to
support expenditures totaling \$19,829.**

We reviewed PRDE-Salinas' support for all 365 purchase transactions,
totaling \$342,358, and their related disbursements, for our sample of 7
of 20 PRDE-Salinas schools.

We found 12 transactions, totaling \$19,829, for which required
documentation was not available. The missing documentation included
either purchase requisitions, receiving reports, invoices, or cancelled
checks. As a result, we determined that \$19,829 of expenditures was
unsupported. A detail of the missing documentation is included as
**Attachment A** to the report.

#### According to 34 C.F.R. § 80.20(a), "Fiscal control and accounting procedures of the State . . . must be sufficient to (2) Permit the tracing of funds to a level of expenditures adequate to establish that such funds have not been used in violation of the restrictions and prohibitions of applicable statutes."

#### 

#### Pursuant to 34 C.F.R. § 80.20(b)(6), accounting records must be supported by such source documentation as cancelled checks, paid bills, payrolls, time and attendance records, contract and subgrant award documents, etc.

#### PRDE-Salinas lacked an adequate record-keeping system to effectively account for Federal funds. The lack of available records is a problem that leaves funds awarded at risk of mismanagement and misuse.

Recommendations:

We recommend that the Assistant Secretary for Elementary and Secondary
Education instruct PRDE-Salinas to:

1.  Submit the required missing documentation to account for the Federal
    funds disbursed, or return the \$19,829 in unsupported expenditures
    to ED; and

2.  Establish an effective record-keeping system to provide an
    appropriate audit trail of Federal funds.

**PRDE Comments**

[]{.mark}

PRDE reviewed the files at PRDE-Salinas and found most of the documents
requested. PRDE provided supporting documentation for \$17,120 of the
\$37,701 disbursements questioned in the draft report. In addition, PRDE
included a copy of a check made to the Puerto Rico Treasury Department
totaling \$752, as evidence of the reimbursement of funds received for
two purchase orders that were cancelled.

[]{.mark}

**OIG Response**

We reviewed documentation submitted by PRDE to support disbursements
made totaling \$17,872 (\$17,120 + \$752), and determined that the
documentation accounted for the Federal funds disbursed. As a result, we
decreased the questioned costs to \$19,829 (\$37,701 - \$17,872).

**FINDING 2 --** **PRDE-Salinas paid out \$7,385 in program funds
untimely.**

# 

We reviewed \$342,358 in Title I, non-salary funds received by 7 of 20
schools in PRDE-Salinas and found that \$7,385 was disbursed untimely.
The \$342,358 represented the universe of Title I, non-salary funds
PRDE-Salinas requested from the CSA for our sample of 7 of 20 District
schools for the grant period, July 1, 2003, through June 30, 2004.

#### Of the \$7,385 PRDE-Salinas disbursed untimely, \$4,535 represented payments made as a corrective action measure in February 2006, after the OIG auditor submitted to the Payment Officers a list of unexpended Title I funds. This happened because PRDE-Salinas did not have a structured cash management system to effectively manage the receipt and ultimate disbursement of ED funds. 

According to PRDE's "Guide of Fiscal Procedures," after purchases have
been made or services have been received, the Payment Officers must
submit to the CSA a "Petition of

Funds," detailed by purchase order number, vendor's name, invoice
number, and expense account to disburse the funds. After the funds have
been deposited in the schools' bank accounts, the Payment Officers
should make the appropriate disbursements.

Pursuant to 34 C.F.R. § 76.702, a State and its sub-grantees must use
fiscal control and fund accounting procedures that ensure proper
disbursement and accounting for Federal funds.

The regulations at 31 C.F.R. § 205.15(a), establish that a State will
incur an interest liability to the Federal Government if Federal funds
are in a State account prior to the day the State pays out funds for
program purposes. A State interest liability will accrue from the day
Federal funds are credited to the State account to the day the State
pays out the Federal funds for program purposes.

#### Failure to properly account for and disburse grant funds could place the funds at risk of being misused and adversely affect PRDE-Salinas' ability to properly administer ED programs. In addition, PRDE-Salinas incurred an interest liability to ED. 

####### Recommendations:

We recommend that the Assistant Secretary for Elementary and Secondary
Education instruct PRDE-Salinas to:

1.  Return to ED the interest accrued between the time PRDE-Salinas
    received \$7,385 in Title I funds, and the time the funds were paid
    out for program purposes; and

2.2 Establish a structured cash management system to ensure that ED
funds are properly accounted for and disbursed timely.

**PRDE Comments**

[]{.mark}

Regarding questioned costs of \$2,850 included in the draft report, PRDE
asserted that it disbursed the funds, and provided supporting
documentation. The funds were transferred between August 2004 and April
2005; and paid out in August 2005 and April 2006. PRDE calculated the
accrued interest, which amounted to \$88. PRDE also calculated interest
of \$154 accrued for untimely payments of \$4,535 included in the draft
report.

[]{.mark}

**OIG Response**

[]{.mark}

We reviewed documentation submitted by PRDE to support the disbursements
made for \$2,850 and determined that the documentation accounted for the
Federal funds disbursed. As a result, we removed the \$2,850 in
questioned costs. PRDE must return to Ed the accrued interest resulting
from the untimely disbursement of the \$7,385 in Title I funds.

**FINDING 3 --** **PRDE-Salinas lacked appropriate supervisory oversight
of its cash management activities.**

According to the Fiscal Component officials interviewed, the Regional
Supervisor[^4] did not exert a constant and effective supervision over
fiscal activities at PRDE-Salinas. Some Fiscal Component officials
stated that the Regional Supervisor only visited them a few times during
the year, and did not review any type of documentation. Other Fiscal
Component officials stated that the Supervisor did not visit them at
all. The only direct supervision they stated they had, came from the
Director of the school where their office was located, who was
responsible for approving their time and attendance. They also stated
that they had basically no communication with personnel from the Caguas
School Region.

According to 34 C.F.R. § 80.40(a), "Grantees are responsible for
managing the day-to-day operations of grant and subgrant supported
activities. Grantees must monitor grant and subgrant supported
activities to assure compliance with applicable Federal requirements and
that performance goals are being achieved. Grantee monitoring must cover
each program, function or activity."

PRDE lacked internal controls to properly supervise and monitor cash
management practices at the district level. Failure to supervise and
monitor cash management practices leaves ED funds vulnerable to misuse.

**Recommendation:**

We recommend that the Assistant Secretary for Elementary and Secondary
Education instruct PRDE to:

1.  Establish internal controls to ensure that all the Fiscal Components
    receive proper and constant supervision and monitoring.

**PRDE Comments**

PRDE concurred with the finding and recommendation and will implement
the following corrective actions:

-   The Executive or Auxiliary Director will visit the Fiscal Components
    of the District at least four times during the year to review the
    accuracy of accounting records, timeliness of disbursements, and
    cash management, and prepare a report with the results of the visit.
    Any finding or deficiency should then be corrected by the fiscal
    component; and

-   PRDE will develop a guide of Supervision Procedures to be used by
    the Supervisor during the visits.

**OIG Response**

PRDE's corrective actions described in its response may be considered by
ED's Assistant Secretary for Elementary and Secondary Education as part
of the audit resolution process. If fully implemented, the corrective
actions should help PRDE improve its current procedures to ensure that
Title I funds are spent in accordance with Federal requirements.

OBJECTIVE, SCOPE, AND METHODOLOGY

The objective of our audit was to determine whether PRDE-Salinas
properly administered Title I, non-salary funds in accordance with grant
requirements, and Federal laws and regulations. Our review covered the
grant period, July 1, 2003, through June 30, 2004.

To accomplish the audit objective, we evaluated the fiscal procedures
and practices followed by PRDE-Salinas to administer Federal funds. We
also reviewed data obtained from the PRDE's CSA, and the Fiscal
Components of the district. We interviewed the CSA Director, the
Director of PRDE's Finance Department, the Salinas District
Superintendent, School Directors, and the Fiscal Components of the
district.

We reviewed the Puerto Rico Law that created the Community Schools
System, PRDE's Guide of Fiscal Procedures, PRDE's Single Audit Report
for the year ended June 30, 2003, and various audit reports from the
Puerto Rico Comptroller's Office.

As part of our audit procedures, we obtained from the CSA, a list of all
the ED non-salary funds PRDE-Salinas requested for the grant period,
July 1, 2003, through June 30, 2004,

and segregated Title I from non-Title I funds. The list included all the
20 schools of PRDE-Salinas, detailed by school code. We identified the
Purchasing and Payment

Officers assigned to each school and judgmentally selected for review
the seven schools where the combinations of Purchasing/Payment officers
appeared first on the list.[^5]

The matrix shown below identifies the selection criteria used. The
numbers in **bold** identify the schools selected).

[Matrix of the Criteria Used to Select the Schools Reviewed]{.underline}

+----+-------------------+-------------+----------+-----------+--------+
|    |                   | Purchasing  |          |           |        |
|    |                   | Officers    |          |           |        |
+----+-------------------+-------------+----------+-----------+--------+
|    |                   | \(1\)       | \(2\)    | \(3\)     | \(4\)  |
+----+-------------------+-------------+----------+-----------+--------+
| >  | \(1\)             | **1**, 3,   | **5**    | **4**, 7  |        |
|  P |                   | 8, 12, 14,  |          |           |        |
| ay |                   | 16          |          |           |        |
| me |                   |             |          |           |        |
| nt |                   |             |          |           |        |
| >  |                   |             |          |           |        |
| Of |                   |             |          |           |        |
| fi |                   |             |          |           |        |
| ce |                   |             |          |           |        |
| rs |                   |             |          |           |        |
+----+-------------------+-------------+----------+-----------+--------+
|    | \(2\)             | **19**      | **2**,   | **10**,   |        |
|    |                   |             | 6, 9,    | 11, 15,   |        |
|    |                   |             | 13, 17   | 20        |        |
+----+-------------------+-------------+----------+-----------+--------+
|    | > \(3\)           |             |          |           | **18** |
+----+-------------------+-------------+----------+-----------+--------+

We reviewed 365 purchase transactions totaling \$342,358, representing
the universe of Title I, non-salary funds PRDE-Salinas requested from
the CSA for the seven selected schools, to determine whether the funds
were spent in accordance with ED grant requirements, and Federal laws
and regulations.

We conducted our fieldwork at the Fiscal Components' office, located at
the PRDE-Salinas' Santiago R. Palmer School, and the CSA.

To achieve our audit objective, we relied, in part, on
computer-processed data related to Title I, non-salary funds that we
obtained from the CSA. To test the reliability and completeness of the
data, we compared the CSA data with source records obtained from
PRDE-Salinas. Based upon this test, we concluded that the data was
complete and sufficiently reliable to be used in meeting the audit's
objective.

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

ADMINISTRATIVE MATTERS

Statement 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.

[]{.mark}

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:

##### Dr. Henry L. Johnson

> Assistant Secretary
>
> Office of Elementary and Secondary Education
>
> U.S. Department of Education
>
> FOB 6, Room 3W315
>
> 400 Maryland Avenue SW,
>
> 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 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/

Daniel P. Schultz

Regional Inspector General for Audit

Attachments

**Attachment A**

## Detail of Missing Documentation

+---------------+-------------+------------+--------------------------+
| **School ID** | **Purchase  | **Amount** | **Missing                |
|               | Order       |            | Documentation**          |
|               | Number**    |            |                          |
+---------------+-------------+------------+--------------------------+
|               |             |            |                          |
+---------------+-------------+------------+--------------------------+
| 52753         | 2004-012    | \$169      | Purchase Requisition     |
+---------------+-------------+------------+--------------------------+
| 52753         | 2004-017    | 2,237      | Purchase Requisition     |
+---------------+-------------+------------+--------------------------+
| 52753         | 2004-030    | 272        | Purchase Requisition     |
+---------------+-------------+------------+--------------------------+
| 52753         | 2004-064    | 240        | Receiving Report,        |
|               |             |            | Invoice, Cancelled Check |
+---------------+-------------+------------+--------------------------+
| 52795         | 2004-011    | 6,560      | Purchase Requisition     |
+---------------+-------------+------------+--------------------------+
| 52795         | 2004-017    | 60         | Purchase Requisition     |
+---------------+-------------+------------+--------------------------+
| 52795         | 2004-030    | 2,166      | Receiving Report,        |
|               |             |            | Invoice, Cancelled Check |
+---------------+-------------+------------+--------------------------+
| 52795         | 2004-307    | 5,495      | Purchase Requisition     |
+---------------+-------------+------------+--------------------------+
| 52795         | 2004-234    | 350        | Receiving Report,        |
|               |             |            | Invoice, Cancelled Check |
+---------------+-------------+------------+--------------------------+
| 52795         | 2004-292    | 1,045      | Receiving Report,        |
|               |             |            | Invoice, Cancelled Check |
+---------------+-------------+------------+--------------------------+
| 52795         | 2004-293    | 736        | Receiving Report,        |
|               |             |            | Invoice, Cancelled Check |
+---------------+-------------+------------+--------------------------+
| 52795         | 2004-295    | 499        | Receiving Report,        |
|               |             |            | Invoice, Cancelled Check |
+---------------+-------------+------------+--------------------------+
| ## Total      |             | \$19,829   |                          |
+---------------+-------------+------------+--------------------------+

Attachment B

![](media/image1.jpeg){width="6.59375in" height="8.745833333333334in"}

![](media/image2.jpeg){width="6.425694444444445in"
height="8.265972222222222in"}

![](media/image3.jpeg){width="6.120138888888889in"
height="7.934722222222222in"}

[^1]: The Fiscal Components were responsible for performing the fiscal
    activities of the schools.

[^2]: PRDE-Salinas is one of nine districts that belong to the Caguas
    School Region.

[^3]: Title I is authorized under the ESEA, as amended by the Improving
    America's Schools Act of 1994, Public Law 103-382, and the No Child
    Left Behind Act of 2001, Public Law 107-110.

[^4]: The Caguas School Region was responsible for supervising the
    Fiscal Components of PRDE-Salinas.

[^5]: There were four Purchasing Officers and three Payment Officers
    assigned to the 20 schools of PRDE-Salinas.