> ![](media/image1.wmf){width="0.875in" height="0.875in"}**UNITED STATES
> DEPARTMENT OF EDUCATION**

OFFICE OF INSPECTOR GENERAL

Audit Services

Chicago/Kansas City Audit Region

November 20, 2007

> **Control Number**
>
> **ED-OIG/A05H0009**

Dr. Paul R. Brown

President

Zane State College

1555 Newark Road

Zanesville, Ohio 43701

Dear Dr. Brown:

This ***Final Audit Report***, entitled *Zane State College's
Administration and Oversight of Its Title III Grant*, presents the
results of our audit of the Title III Strengthening Institutions grant
provided to Zane State College by the U.S. Department of Education
(Department). The objectives of the audit were to determine whether Zane
State College (1) could support the information reported to the
Department on its annual performance reports, and (2) used grant funds
only for allowable, reasonable, and necessary costs. Our audit covered
the period October 1, 2003, through September 30, 2006.

BACKGROUND

Zane State College (College), formerly Muskingum Area Technical College,
is located in Zanesville, Ohio. The College, officially chartered in
September 1969, is a two-year technical college that offers students the
opportunity to earn an associate degree while participating in
experienced-based learning in their chosen field. The College primarily
serves three Ohio counties, enrolls more than 2,000 students, and offers
25 technology programs. It is governed by a nine-member District Board
of Trustees, accredited by the Higher Learning Commission, and a member
of the North Central Association of Colleges and Schools.

A Title III, Strengthening Institutions, grant (CFDA number 84.031A) is
to improve the academic quality, institutional management, and fiscal
stability of eligible institutions in order to increase their
self-sufficiency and strengthen their capacity to make a substantial
contribution to the higher education resources of the nation. According
to its grant proposal, the College's project was to improve
administrative and academic quality through technology. Under the
administrative component, the College was to move from a management
information system that was "heavily reliant on three COBOL programmers
for access to institutional and student information to an open systems,
client-server, computerized information system." Under the academic
component, the College was to "develop a comprehensive faculty
development program, including two annual workshops" and a "program of
faculty and curriculum development that \[would\] result in at least 50
technology-enhanced courses to accommodate diverse student learning
styles and improve student outcomes."

The Department awarded the College a five-year grant in the amount of
\$1.75 million. The grant period was from October 1, 2001, through
September 30, 2006. The College drew down the following amounts over the
five years of the grant.

  ---------------------------------------------- -------------------------
  Title III Grant Draw Downs                     

  Year 1                                         \$255,000

  Year 2                                         \$373,160

  Year 3                                         \$313,348

  Year 4                                         \$421,000

  Year 5                                         [\$387,492]{.underline}

  Total                                          \$1,750,000
  ---------------------------------------------- -------------------------

AUDIT RESULTS

The College can support the information that it reported to the
Department in its annual performance reports for the three grant years
ended September 30, 2004, 2005, and 2006. However, the financial
information the College reported to the Department was incorrect for
these three grant years. The expenditure information was incorrect for
the two grant years ended September 30, 2004 and 2006. The carryover and
non-federal expenditures (match) information was incorrect for the three
grant years ended September 30, 2004, 2005, and 2006.

In addition, the College used grant funds only for allowable,
reasonable, and necessary costs during the three grant years ended
September 30, 2004, 2005, and 2006. However, the College was unable to
locate the following property purchased with \$3,727 of Title III funds:
two laptop computers and five Apple iPod Shuffles.

The College concurred with our findings and recommendations. The text of
its response is provided in full as an Attachment to this report.

**Finding No. 1 The College Incorrectly Reported Financial Information
in Its Annual Performance Reports**

The College incorrectly reported financial information in its annual
performance reports for the three grant years ended September 30, 2004,
2005, and 2006. The College reported lower than actual expenditures for
the grant years ended September 30, 2004 and 2006.[^1] During our audit,
the College provided us accounting records showing the correct amount of
expenditures for each grant year.

+-----------------+---------------+--------------+--------------------+
| Year Ended      | Reported      | Actual       | Difference         |
|                 | Expenditures  | Expenditures |                    |
|                 |               |              | (Reported Less     |
|                 |               |              | Actual)            |
+-----------------+---------------+--------------+--------------------+
| September 30,   | \$356,005     | \$440,073    | (\$84,068)         |
| 2004            |               |              |                    |
+-----------------+---------------+--------------+--------------------+
| September 30,   | \$247,119     | \$272,955    | (\$25,836)         |
| 2006            |               |              |                    |
+-----------------+---------------+--------------+--------------------+

In addition, the College incorrectly reported carryover data for the
grant years ended September 30, 2004, 2005, and 2006.

  ----------------------- ----------------------- -----------------------
  Year Ended              Reported Carryover      Actual Carryover
                          Balance                 Balance

  September 30, 2004      \$89,096                (\$56,536)

  September 30, 2005      (\$102,881)             (\$80,639)

  September 30, 2006      \$0                     (\$3,594)
  ----------------------- ----------------------- -----------------------

Finally, the Director of Accounting Services informed us that the
College incorrectly reported the non-federal expenditures (match)
related to the Title III grant. The official stated the College
incorrectly reported its match for the three grant years ended September
30, 2004, 2005, and 2006. The College could not provide us with a yearly
breakdown of the actual match amounts, but provided a spreadsheet that
showed the five-year cumulative match. The spreadsheet showed cumulative
match of \$849,054, which is \$186, 418 more than the match required per
the grant proposal. The College reported exactly the same amount of
match as it had budgeted in the grant proposal for the grant years ended
2005 and 2006. The amount reported for the grant year ended September
30, 2004, differed from the budgeted amount.

According to 34 C.F.R. § 75.720, a grantee is required to submit
financial and performance reports annually. According to 34 C.F.R. §
75.702, a grantee shall use fiscal control and fund accounting
procedures that insure proper disbursement of and accounting for federal
funds.

The College reported less than its actual expenditures for the grant
year ended September 30, 2004, because it only included nine months of
expenditures. The nine months of expenditures covered October 2003
through June 2004, coinciding with the end of the College's fiscal year.
The College reported less than its actual expenditures (\$272,955) for
the grant year ended September 30, 2006, because it wanted the ending
carryover balance to be zero. Therefore, the College reported \$247,119
as its actual expenditures, resulting in a reported carryover balance of
zero. The College reported the incorrect carryover balance in the grant
year ended September 30, 2004, but we were unable to determine the
source of this incorrect carryover balance. This amount was carried
forward to the other two grant years resulting in the carryover balances
for the grant years ended September 30, 2005 and 2006 also being
incorrect. The College reported it did not track the match yearly
because it believed that it was exceeding the match amount. Turnover in
the grant administrator position contributed to the match not being
tracked by year. The Director of Accounting Services stated that the
match figures in the annual performance report were not correct by year.
Budgeted numbers from the Grant Proposal were reported instead of the
actual match amount for each year.

Reporting accurate financial information in the annual performance
report is important. The report provides the Department information on
whether a grantee is expending funds at the expected rate and, if not,
an explanation as to why. When it receives an annual performance report
with incorrect information, the Department could assume the reported
financial information is correct and could rely on this information to
make funding decisions.

**Recommendations**

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

1.  Establish a system of internal control sufficient to provide
    reasonable assurance that it reports complete and accurate financial
    information to the Department in its annual performance reports, and

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12. Submit corrected annual performance reports to the Department for
    the grant years ended September 30, 2004, 2005, and 2006.

**Finding No. 2 The College was Unable to Account for Property Purchased
with Title III Grant Funds**

The College could not account for all property purchased with Title III
grant funds. During our physical review of property, the College could
not locate two laptop computers and five Apple iPod Shuffles.[^2]

According to 34 C.F.R. § 74.34(f), recipients of federal funds must
maintain accurate records for equipment acquired with federal funds. The
College is required to take a physical inventory of equipment and
reconcile the results with the equipment records at least once every two
years. The College is required to investigate and determine the causes
of any differences between quantities determined by the physical
inspection and in the equipment records. In addition, the College is
required to have a control system in place to insure adequate safeguards
to prevent loss, damage, or theft of the equipment. Any loss, damage, or
theft of equipment must be investigated and fully documented. The
College is required to notify the Secretary in cases where equipment
purchased with federal funds cannot be accounted for.

The definition of equipment per 34 C.F.R. § 74.2 is tangible,
nonexpendable, personal property including exempt property charged
directly to the award, having a useful life of more than one year and an
acquisition cost of \$5,000 or more per unit. However, consistent with
recipient policy, lower limits may be established. The College\'s policy
is that any individual item with an acquisition cost of \$1,000 or more
must be inventoried.

In the first years of the grant, the College did not have a control
system in place that included adequate safeguards to prevent loss,
damage, or theft of equipment. Weaknesses in the College's inventory
control system included (1) not maintaining accurate records for
equipment purchased with Title III grant funds and (2) not taking a
physical inventory of equipment and determining the causes of any
differences between quantities determined by the physical inspection and
the quantities recorded in the College's equipment records. The College
has made an effort to strengthen its inventory control system by using
automated systems, performing physical inspections, and reconciling
differences as they are identified.

Because the College could not account for two laptop computers (\$3,232)
and five Apple iPod Shuffles (\$495)[^3] purchased with \$3,727 of Title
III funds, it cannot demonstrate that the funds were used for their
intended purposes. In addition, the laptop computers and Apple iPod
Shuffles were not available for instructors or employees who needed them
to help fulfill the objectives of the grant.

**Recommendations**

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

1.  Return to the Department the \$3,727 used to purchase the property
    it cannot locate, and

2.  Strengthen its system of internal control to provide reasonable
    assurance that it can account for all equipment and other property
    purchased with federal grant funds.

OBJECTIVES, SCOPE, AND METHODOLOGY

The objectives of the audit were to determine whether the College (1)
could support the information reported to the Department on its annual
performance reports and (2) used grant funds only for allowable,
reasonable, and necessary costs. Our audit covered the period October 1,
2003, through September 30, 2006.

To achieve our objectives, we performed the following procedures.

1.  Obtained and reviewed audit reports prepared by the College's
    independent public accountants for the four years ended June 30,
    2003, 2004, 2005, and 2006.

2.  Gained an understanding of the College's internal control structure,
    policies, procedures, and practices applicable to the administration
    of its Title III grant by interviewing College officials and
    reviewing written policies and procedures.

3.  Reviewed the College's annual performance reports covering the four
    years ended September 30, 2006, and traced information that we
    deemed critical to budget, academic, administrative, and financial
    information the College maintained.

4.  Obtained the College's accounting records and identified all Title
    III grant funds expended for the period October 1, 2003, through
    September 30, 2006.

5.  Judgmentally selected a sample of non-personnel expenditures for the
    period October 1, 2003, through September 30, 2006, and traced the
    expenditures to requisition forms, purchase orders, invoices, and
    cancelled checks to determine whether they were allocable,
    reasonable, necessary, and adequately supported. We sampled
    \$210,695 of the \$618,614 of non-personnel expenditures the College
    recorded in its accounting records. We selected the expenditures
    based on the type of item (software, hardware, and contracts), the
    dollar amount of the item, and the date that the item was purchased.

6.  Judgmentally selected a sample of \$23,126 of the \$319,331 in
    salaries and stipends paid for the period October 1, 2003, through
    September 30, 2006. We selected six pay periods for five employees
    paid salaries from the Title III grant. We traced the pay period
    information back to time sheets, time and effort forms, payroll
    documents, and bank statements to ensure the personnel expenditures
    were allocable, reasonable, necessary, and adequately supported and
    to confirm that employees were paid. We selected the employee's
    first pay period that occurred during the audit period plus one
    additional pay period to cover all years under audit. We also
    verified through discussions that two employees still at the College
    received their salaries. We reviewed each employee's contract and
    time and effort forms and the detail of each pay period. We reviewed
    the detail looking for data out of the ordinary and obtained
    explanations for extraordinary data. Further, we verified employees
    paid under the grant received the same fringe benefit package as
    employees not paid under the grant and verified that the overall
    fringe benefit rate charged to the grant agreed to the rate set
    forth in the grant proposal. In addition, we judgmentally selected
    10 of 44 faculty who received a stipend by selecting the first name
    and then every ninth name from a list of faculty who received a
    stipend. We verified that these 10 faculty members received their
    stipends by contacting each faculty member.

7.  Verified the existence of a judgmentally selected sample of hardware
    and software purchased for \$5,000 or more per unit during the
    period October 1, 2003, through September 30, 2006. We selected
    hardware and software purchases based on the dollar amount of the
    item and the date that the item was purchased, ensuring we selected
    purchases from each of the three years within this period. We
    verified the existence of \$302,034 of the \$502,289 expended by the
    College for hardware and software.

8.  Verified the existence of all \$174,142 in property purchased for
    less than \$5,000 per unit during the period October 1, 2003,
    through September 30, 2006.

9.  Interviewed College officials regarding Title III grant
    administration procedures related to the issues disclosed by our
    testing.

We also relied, in part, on data provided to us by the College from its
computer system. We compared the College's data to the Department's
financial data. We compared the dates for the transactions the College
recorded with the audit period (October 1, 2003, through September 30,
2005). We also compared the data with purchase orders, invoices,
cancelled checks, and other information on paper documents maintained by
the College. Based on these comparisons, we concluded that the
College-provided data was sufficiently reliable for the purposes of our
audit.

We performed our audit work at the College in Zanesville, Ohio, and our
offices from February through June 2007. We discussed the results of our
audit with College officials on June 29, 2007. Our audit was performed
in accordance with generally accepted government auditing standards
appropriate to the scope of the audit described above.

ADMINISTRATIVE MATTERS

Statements that managerial practices need improvements, as well as other
conclusions and recommendations in this report, represent the opinions
of the Office of Inspector General. Determinations of corrective action
to be taken, including the recovery of funds, will be made by the
appropriate Department of Education officials, in accordance with the
General Education Provisions Act.

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:

> Diane Auer Jones

Assistant Secretary

Office of Postsecondary Education

U.S. Department of Education

1990 K Street, N.W.

Washington, D.C. 20006

> Lawrence A. Warder
>
> Chief Financial Officer
>
> Office of the Chief Financial Officer
>
> U.S. Department of Education
>
> Union Center Plaza
>
> 830 First Street, N.E.
>
> Washington, D.C. 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/
>
> Janice D. Keeney

Acting Regional Inspector General

for Audit

Attachment

**ATTACHMENT: College's Comments to the Draft Repor****t**

October 25, 2007

Mr. Gary D. Whitman

Acting Regional Inspector General for Audit

Chicago/Kansas City Audit Region

U.S. Department of Education

Office of Inspector General-Audit Services

500 West Madison Street, Suite 1414

Chicago, Illinois 60661

Re: Control Number ED-OIG/A05H0009

Dear Mr. Whitman:

Thank you for the opportunity to respond to the **Draft Audit Report**,
*Zane State College's Administration and Oversight of Its Title III
Grant*, which you provided last month. I would also like to thank the
staff of the OIG for their professionalism and courtesy throughout the
audit process.

Zane State College acknowledges that the College could not account for
two laptop computers and five iPod shuffles at the time of the audit and
that the College's annual performance reports for grant years three to
five included some expenditure data that was reported incorrectly.

The College found that some procedures at that time were insufficient or
were not always followed systematically. However, the College is
committed to taking several actions by the end of the year in order to
address the conditions described in the draft audit report. The College
will:

-   Reimburse the U.S. Department of Education the amount of \$3,727,
    the estimated value of the items which were not accounted for.

-   Correct and resubmit the budget tables from section 4 of the annual
    performance reports for years three, four, and five.

-   Maintain the improvements to the College's inventory control
    procedures that have been made during the last eighteen months.

-   Review, and if appropriate, revise the College's security policy to
    identify specific procedures employees must follow when equipment
    cannot be accounted for, and conduct appropriate awareness training
    for employees.

-   Review and revise the College's grant reporting
    procedures---especially in the case of online reporting---to ensure
    that there is appropriate review and approval by at least one
    administrator in addition to the project director.

As you know, the College began taking action in some of these areas
prior to the audit and made commitments on the others as soon as
exceptions were reported by the OIG.

Overall the College views its Title III project as a very successful
endeavor which has strengthened many aspects of the institution,
including a technological upgrade and integration of administrative
information systems and the introduction of many new technology
applications in academic programs.

Zane State College's Title III grant focused on the development and
conversion to a new management information system that is fully
integrated and supports web-based services and information.
Additionally, the grant developed the Instructional Design for Enhanced
Academics (IDEA) Center, a fully equipped facility for faculty to
develop skills and enhance curriculum. The Center also provides
technical assistance and training for faculty to develop proficiency in
using these resources.

During the late 1990's, the College's long range planning process
identified specific technology-related problems that threatened Zane
State's ability to successfully serve its constituents. Through focused
efforts, including the Title III grant, the College has succeeded in
securing the resources to resolve several of these problems. Zane State
College identified inadequate technology in both administrative
functions and the classroom as serious problems. The Title III grant was
integral in developing and converting the College's management
information system and developing the IDEA Center for the training of
faculty cohorts and piloting of revised curricula. The College has made
significant improvements in data integrity, hardware, reliability,
capacity, and integration of management information during the Title III
grant performance period.

Also noteworthy is that the College began institutionalizing the grant
activities as the project was completed. The College's operating budgets
for fiscal 2007 and again for fiscal 2008 have included funding to
continue the IDEA Center (now called the Center for Excellence and
Innovation in Teaching and Learning), the instructional technology
coordinator position, the web analyst position, and the annual
maintenance on the management information system.

In conclusion, I am certain that by accomplishing the objectives of its
Title III grant, the College has greatly strengthened its institutional
processes; and I am equally confident that the planned actions, based on
the findings of the audit and on the College's own review of internal
procedures, will ensure accurate reporting as well as full compliance
with all other regulations governing future grant awards.

Sincerely,

/S/

Paul R. Brown, Ed.D.

President

[^1]: The College correctly reported the amount of expenditures in its
    annual performance report for the grant year ended September 30,
    2005.

[^2]: The College purchased a total of five iPod shuffles to incorporate
    the use of podcasts for faculty lectures.

[^3]: Even though the Apple iPod Shuffles were not accountable property
    per the College's policy, the College agreed to reimburse the
    Department for their cost.