> ![](media/image1.png){width="0.9in"
> height="0.8604166666666667in"}**UNITED STATES DEPARTMENT OF
> EDUCATION**

OFFICE OF INSPECTOR GENERAL

Audit Services

Region IV

May 20, 2008

> **Control Number**
>
> **ED-OIG/****A04H0011**

Honorable Rafael Aragunde-Torres

Secretary

Puerto Rico Department of Education

P.O. Box 190759

San Juan, Puerto Rico 00919-0759

Dear Secretary Aragunde-Torres:

This Final **Audit Report**, entitled *Puerto Rico Department of
Education's Administration of Contracts Awarded to Excellence in
Education, Inc. and the University of Puerto Rico's Cayey Campus*,
presents the results of our audit. The purpose of the audit was to
determine whether the Puerto Rico Department of Education (PRDE) (1)
followed Federal and State laws in procuring services and awarding
contracts to Excellence in Education, Inc. (EIE) and the University of
Puerto Rico's Cayey campus (UPR-Cayey), and (2) ensured that contract
requirements were met prior to paying the contractors' invoices.

BACKGROUND

EIE is a private, for-profit corporation located in Caguas, Puerto Rico.
The mother of the former Under Director of PRDE's Office of Federal
Affairs (OFA) owns the corporation.

UPR-Cayey is one of eleven campuses that compose the UPR educational
system. According to Puerto Rico (PR) Law 174,[^1] approved on August
31, 1996, the faculty members of the UPR are allowed to submit proposals
through the UPR to provide services to different institutions and
government agencies in PR. If a contract is awarded, the faculty members
act as Project Directors,[^2] and become responsible for coordinating
all stages of the agreed-upon project. The owner of EIE was also a
faculty member of UPR-Cayey and submitted proposals to PRDE through
UPR-Cayey.

On August 16, 2005, PRDE awarded UPR-Cayey a professional services
contract in the amount of \$154,530 under the Title II, Part A, Teacher
and Principal Training and Recruiting Fund, to provide training to
teachers and directors from public and private schools with the
objective of enhancing teaching strategies. Under the contract, the
mother of the former OFA Under Director acted as Project Director.
According to the proposal, entitled "Innovative Strategies to Diversify
Teaching," and identified as Attachment 1 in the contract, UPR-Cayey
would bill PRDE \$130,050 for training related services, and \$24,480
for professional services. The training consisted of 64 workshops billed
at a rate of \$60 per participant.

On July 31, 2006, PRDE awarded EIE a professional services contract in
the amount of \$542,800 under the Title V, Part A, Innovative Program,
to provide training on photojournalism strategies to students from 4th
through 12th grade. According to the proposal, entitled "I am a
Photojournalist, I Can Communicate Effectively," and identified as
Attachment 1 in the contract, EIE would bill PRDE \$28,000 for
professional services, and \$514,800 for training. The training
consisted of a total of 396 workshops[^3] that would be provided to 33
schools (12 workshops per school), billed at a rate of \$1,300 per
workshop.

AUDIT RESULTS

We found that PRDE did not comply with Federal and State laws in
procuring services and awarding contracts to EIE and UPR-Cayey due to
the existence of a conflict of interest between the contractors and a
PRDE official. Further, we found that PRDE did not ensure that contract
requirements were met prior to paying EIE and UPR/Cayey's invoices. In
our review of two contracts, we identified questioned costs of \$189,011
(\$175,536 of excessive charges and \$13,475 of unsupported charges).

In its comments to the draft report, PRDE did not concur with our
findings and requested that the draft's findings and recommendations be
reconsidered. In response to PRDE's comments, we revised Finding No. 1
to exclude the conflict of interest finding related to the former
Director of OFA's April 2002 notarization of EIE's Corporate Annual
Report to the PR Department of State, which was done prior to her
appointment as PRDE's Director of OFA. However, PRDE did not provide any
additional information that would require a change to the conflict of
interest finding related to the former Under Director of OFA's family
relationship with the owner of EIE; Finding No. 2; or any of the related
recommendations. PRDE's comments are summarized after the
recommendations section of each finding. The full text of its comments
to the draft report is included as an Attachment to the report.

FINDING No. 1 -- Conflict of Interest in the Procurement and Contracting
Processes

A high level PRDE official had a conflict of interest when procuring
services and awarding contracts to EIE and UPR-Cayey during her tenure,
until she resigned in July 2007. Specifically, the former Under Director
of OFA is the daughter of EIE's owner. EIE's owner was also a faculty
member of UPR-Cayey and, as such, acted as Project Director for
contracts PRDE awarded to UPR-Cayey related to proposals she submitted
through the University. The conflict of interest occurred because PRDE
did not have an effective recusal process in place for employees and
contractors prior to participating in the procurement and administration
of contracts awarded with Federal funds once a conflicting situation was
discovered. As a result of the conflict of interest, PRDE did not comply
with Federal and State laws in procuring services and awarding contracts
to EIE and UPR-Cayey and did not maintain independence in contracting,
which is necessary to instill contractors' confidence in receiving an
equal opportunity to do business with PRDE. In December 2006, PRDE
received a complaint from a competing contractor alleging a serious
conflict of interest and violations of the Government Ethics Law
regarding a UPR-Cayey proposal submitted by the former OFA Under
Director's mother.

According to 34 CFR § 80.36(a) ---

> When procuring property and services under a grant, a State will
> follow the same policies and procedures it uses for procurements from
> its non-Federal funds. The State will ensure that every purchase order
> or other contract includes any clauses required by Federal statutes
> and executive orders and their implementing regulations.

According to Article 6(A) of the Government of Puerto Rico Ethics Law
---

> All public servants must avoid taking any action, whether or not
> specifically prohibited by the Regulations that could result in or
> create the appearance of

-   Using the powers of the position, or public funds or

> property for private ends;

-   Giving preferential treatment to any person, without just cause;

-   Impeding or hampering the governmental efficiency and economy;

-   Losing complete independence or impartiality;

-   Making decisions outside the official channels;

-   Adversely affecting public confidence in the integrity and honesty
    of government institutions; and

-   Promoting an official action without observing established
    procedures.

In addition, Article 1.2(s) of the Government of Puerto Rico Ethics Law
defines conflict of interest as those situations in which the personal
or economic interest of an employee or persons related to him could be
in conflict with the public interest. Accordingly, the relationship
between PRDE and the two entities (EIE and UPR-Cayey) violates Puerto
Rico's conflict of interest laws, which is described in the Ethics Law
as a situation that must be avoided.

During the period of August 2005 through August 2006, PRDE awarded six
contracts to EIE and UPR-Cayey totaling \$1,478,783. Two of the
contracts were awarded to EIE and four were awarded to UPR-Cayey[^4]
(including two amendments). Our review was limited to two contracts, one
with EIE and one with UPR-Cayey. We found that the former OFA Under
Director participated in the procurement and contracting processes for
the EIE contract reviewed prior to resigning from her position. Although
we did not review the remaining four contracts, based on our analysis of
the position description detailing the responsibilities[^5] of the Under
Director of OFA, it appeared that she had, at a minimum, oversight in
the administration of all six contracts.

Our review of two other project proposals[^6] -- EIE's proposal for
School Transformation (ST), and UPR-Cayey's proposal for Systemic
Initiative for School Transformation (SIST) with EIE's owner as Project
Director -- provides detail that demonstrates the level of the Under
Director's involvement in procurement activities related to EIE's and
UPR-Cayey's proposals submitted by the OFA Under Director's mother. We
found that, despite the conflict of interest, the former Under Director
of OFA participated in the procurement process for both projects prior
to her resignation, including the coordination and administration of the
evaluation process, and signing procurement documents.

Specifically, after the EIE proposal for ST did not receive the minimum
required score to be considered for selection, PRDE canceled the project
stating that the requirements established in the Request for Proposal
(RFP) needed to be modified. Six days after cancelling the project, PRDE
published a new RFP for the SIST project, essentially for the same
project as the ST proposal. This time, the former OFA Under Director's
mother submitted a proposal through UPR-Cayey acting as Project
Director, and her proposal was selected. However, in December 2006, PRDE
received a complaint from a faculty member of UPR-Cayey, whose proposal
had not been selected. The complainant alleged a conflict of interest
and violations of the Puerto Rico Ethics Law in the procurement process.

In January 2007, in response to the PRDE Secretary's request for an
evaluation of the complaint, the Puerto Rico Government Ethics Office
(PRGEO) issued an opinion stating that although the two contracting
parties (PRDE and UPR-Cayey) were government entities, it was necessary
for the public servant and the agency to establish a method of recusal
to avoid the appearance of improper conduct. It also stated that the
former OFA Under Director should be recused in writing from every
process in which UPR-Cayey and/or her mother were involved. Finally, in
regards to the contracts awarded to EIE, the PRGOE stated that it could
not express an opinion on events that had already taken place.[^7] Based
on PRGEO's opinion, PRDE sent a letter to the Chancellor of UPR-Cayey,
stating that to avoid the appearance of improper conduct, the award for
the SIST project had been canceled.

The participation of employees, officers, and/or agents of the grantee
or subgrantee in the administration of the procurement and/or
contracting process that could result in, or create the appearance of a
possible conflict of interest, can adversely affect the public
confidence in the integrity of government institutions. In addition, the
conflict of interest reported in this finding may have resulted in
special considerations given to EIE's and UPR-Cayey's proposals and the
excessive charges detailed in Finding No. 2.

**Recommendations\
**

We recommend that the Assistant Secretary for Elementary and Secondary
Education require PRDE to ---

1.  Establish an effective method for employees and contractors to
    ensure their independence prior to participating in the procurement
    and administration of contracts awarded with Federal funds;

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1.  Establish an effective recusal process for when a conflict of
    interest is discovered;

2.  Establish an effective monitoring process to ensure that the
    processes established for independence and recusal are followed; and

3.  Determine whether a conflict of interest existed in the procurement
    and administration of the remaining contracts with EIE and
    UPR-Cayey; and ensure that PRDE made no improper payments on those
    contracts.

**PRDE's Comments**

PRDE did not concur with our finding. In its comments to the draft
report, PRDE stated that although the former Director of OFA notarized
EIE's Corporate Annual Report to the Department of State in 2002, she
never served as EIE's attorney. According to PRDE, notarizing a document
several years prior does not rise to the level of creating a conflict of
interest. Accordingly, any allegations regarding the former Director of
OFA's involvement in procuring services and awarding contracts to EIE
and UPR-Cayey should be reconsidered and withdrawn. As for the former
Under Director of OFA, while PRDE recognized the potential for the
appearance of a conflict of interest due to her family relationship with
the Executive Director of EIE (also a UPR-Cayey faculty member), PRDE
stated that the specific acts she may have been involved with under the
ST and SISTS projects would not create a conflict of interest. PRDE
pointed out that at early stages in preparing and issuing an RFP, it is
unknown who the bidders will be, so a conflict of interest cannot arise
at that time.

PRDE stated that while it disagreed with the finding, it takes concerns
of conflict of interest in contracting extremely seriously. As such,
PRDE agreed with our recommendations and stated that it is willing to
review its current procedures to ensure it has an effective method for
employees and contractors to ensure their independence prior to
participating in the procurement and administration of contracts awarded
with Federal funds.

**OIG's Response**

PRDE is correct that the former Director signed EIE's Corporate Annual
Report as a notary prior to her appointment as PRDE's Director of OFA
and we revised the finding accordingly. However, a conflict of interest
remained with the Under Director of OFA and, therefore, we did not
change our recommendations. The participation of the former Under
Director of OFA in the coordination and administration of the
procurement processes for the ST and SISTS projects may have resulted in
special considerations given to EIE's and UPR-Cayey's proposals.
Although we found that on August 3, 2005, the former Under Director sent
a letter to the former Director recusing herself from participating and
signing documents related to projects in which UPR-Cayey was involved,
this recusal process was not enforced. PRDE did not submit documentation
for a recusal from the former Under Director for projects related to EIE
until the December 2006 complaint[^8] was formally submitted. In
response to the complaint, the PRGEO indicated that the former Under
Director should recuse herself from every process in which her mother
was involved.

As detailed in Finding No. 1, the former Under Director was informed of
the RFP status for both the ST and SIST projects. During the RFP
conducted for the ST project, she was informed of the RFP results, which
included EIE's proposal submitted by her mother. In addition, the former
Under Director signed the ST project cancellation letters sent to the
bidders, including EIE, on behalf of the former Director. The
cancellation letters also announced that a new RFP would be published.
When the new RFP was published, the mother of the former Under Director
submitted a proposal as Project Director through UPR-Cayey. According to
the documentation we obtained, the former Under Director actively
participated in the administration and coordination of the evaluation
process of the SIST project until the complaint was formally submitted
to PRDE. Such involvement constitutes a direct violation of Puerto
Rico's own conflict of interest laws as described in the Government of
Puerto Rico Ethics Law.

FINDING No. 2 -- PRDE Lacked Controls in Administering Contracts

PRDE did not have adequate controls to enforce compliance with contract
requirements and Federal regulations; and, therefore, did not adequately
administer contracts awarded to EIE and UPR-Cayey. In the two contracts
we reviewed, we found that PRDE paid \$189,011 in excessive and
unsupported charges -- \$166,575 related to the contract with EIE and
\$22,436 related to the contract with UPR-Cayey. For the period of our
review, PRDE paid \$175,536 in excessive charges and \$13,475 in
unsupported charges. Payments were made on these contracts without
ensuring that the contractors met the deliverable requirements of the
contracts, or submitted proper and reliable supporting documentation for
costs claimed.

We reviewed payments PRDE made on the two contracts[^9] totaling
\$641,649.[^10] Table 2.1 shows the amount of questioned costs,
including excessive and unsupported charges PRDE paid to EIE and
UPR-Cayey under both contracts. Although Table 2.1 shows as paid the
second invoice submitted by UPR-Cayey in the amount of \$44,349, our
review was limited to payments made as of August 29, 2007,[^11] with the
exception of a limited review conducted for EIE's third invoice in the
amount of \$219,767.

Table 2.1 Questioned Costs, Excessive Charges and Unsupported Charges

+-----------+-----------+--------+------------+------------+---------+
| C         | Invoices  | Pa     | Excessive  | U          | Total   |
| ontractor |           | yments |            | nsupported |         |
|           |           |        | Charges    |            | Que     |
|           |           |        |            | Charges    | stioned |
|           |           |        |            |            |         |
|           |           |        |            |            | Costs   |
+-----------+-----------+--------+------------+------------+---------+
| EIE       | \(1\)     | \$1    | \$47,250   | \$4,550    | \       |
|           | \$139,700 | 39,700 |            |            | $51,800 |
+-----------+-----------+--------+------------+------------+---------+
|           | \(2\)     | \$1    | \$47,833   | \$8,775    | \       |
|           | \$176,933 | 76,933 |            |            | $56,608 |
+-----------+-----------+--------+------------+------------+---------+
|           | \(3\)     | \$2    | \$58,167   | Not        | \       |
|           | \$219,767 | 19,767 |            |            | $58,167 |
|           |           |        |            | Rev        |         |
|           |           |        |            | iewed[^12] |         |
+-----------+-----------+--------+------------+------------+---------+
| UPR-Cayey | \(1\)     | \$1    | \$22,286   | \$150      | \       |
|           | \$105,249 | 05,249 |            |            | $22,436 |
+-----------+-----------+--------+------------+------------+---------+
|           | \(2\) \$  | \$     | Not        | Not        | \$0.00  |
|           | 44,349    | 44,349 | Rev        | Reviewed   |         |
|           |           |        | iewed[^13] |            |         |
+-----------+-----------+--------+------------+------------+---------+
| **Total** | \$685,998 | \$6    | \$175,536  | \$13,475   | \$      |
|           |           | 85,998 |            |            | 189,011 |
+-----------+-----------+--------+------------+------------+---------+

According to 34 CFR § 76.702, "A State and subgrantee shall use fiscal
control and fund accounting procedures that insure proper disbursement
of and accounting for Federal funds." In addition, 34 CFR § 80.20(b)(3)
provide that "Effective control and accountability must be maintained
for all grant and subgrant cash . . . ." Further, 34 CFR § 80.20(b)(6)
states that, "Accounting records must be supported by such source
documentation as cancelled checks, paid bills, payrolls, time and
attendance records, contract, subgrant award documents, etc." Finally,
Clauses 11 and 12 of the contracts established that payments would be
made once the invoices were properly certified and their corresponding
documentation, such as quotes, purchase orders, invoices, cancelled
checks, attendance rosters, training materials, and progress reports,
were received by PRDE.

**EIE's Contract**

EIE did not provide contracted services according to the contract terms.
According to the proposal, EIE would provide a total of 396 workshops to
33 schools (12 workshops per school) billed at a rate of \$1,300 per
workshop, for a total of \$514,800 for training. We found that EIE
billed PRDE a total of \$514,000 for training in three invoices for 279
workshops to 24 schools[^14] at a rate of approximately \$2,040 per
workshop on the first invoice, and \$1,785 per workshop on both the
second and third invoices, instead of billing at the rate of \$1,300
provided in the contract. As a result, the three invoices reviewed
included excessive charges of \$153,250 --- \$47,250 in the first
invoice, \$47,833 in the second, and \$58,167 in the third. In addition,
EIE's first two invoices included billing errors of \$1,950 and
unsupported costs of \$13,325.

All three invoices EIE submitted to PRDE were confusing, and the method
used by EIE to arrive at the rate per workshop was not adequately
documented. As such, PRDE paid the contractor what was billed without
adequate information/documentation to understand what the charges
included. We found that, by changing the method of calculating the rate
per workshop, the contractor ensured it would receive almost the entire
contracted amount for workshops without providing the full level of
required services to the total number of schools included in the
contract -- 396 workshops to 33 schools. The following paragraphs detail
the \$166,575 in excessive and unsupported charges we found in our
review of the two invoices PRDE had paid to EIE as of August 29, 2007,
and the charges for the workshops EIE billed on the third invoice it had
submitted to PRDE as of that date, but PRDE had not paid.

**[Invoice One]{.underline}**

**Excessive Charges of \$47,250**

On the first invoice, EIE billed PRDE \$139,700 (\$11,200 for
professional services and \$128,500 for workshops). We determined that
the \$11,200 billed for professional services was in accordance with the
contract terms. However, the \$128,500 billed for workshops was
excessive because EIE billed at the increased rate of \$2,040 per
workshop, instead of the contracted rate of \$1,300.

The \$128,500 billed for workshops on the first invoice consisted of 63
workshops provided to 21 schools at the increased rate of \$2,040 per
workshop. We determined that based on the contracted rate of \$1,300 per
workshop, EIE should have billed PRDE \$81,900 for the 63 workshops
provided to the 21 schools (63 x \$1,300). As a result, EIE's invoice
included excessive charges of \$46,600 (\$128,500 invoiced - \$81,900
contracted rate).

We also found that EIE did not provide workshops to the students of the
Barinas School on September 19 and 25, 2005, due to administrative work
being done at the school. However, EIE billed PRDE for those two days,
resulting in additional excessive charges of \$650[^15] for workshops
that were not provided.

**Unsupported Charges of \$4,550**

The supporting documentation EIE submitted to PRDE with the first
invoice did not include evidence of attendance rosters for three
workshops offered at the Inés María Mendoza school. As a result, EIE's
invoice included \$3,900 (3 x \$1,300) in unsupported charges for those
three workshops. In addition, EIE did not submit evidence for two days
of workshops, one offered at the Jorge Lucas Valdivieso school and
another at the Ramón Alejandro Ayala school, resulting in additional
unsupported charges of \$650 for those workshops.

**[Invoice Two]{.underline}**

**Excessive Charges of \$47,833**

On the second invoice, EIE billed PRDE \$176,933 (\$5,600 for
professional services and \$171,333 for workshops). We determined that
the \$5,600 billed for professional services was in accordance with the
contract terms. However, the \$171,333 billed for workshops was
excessive because EIE billed at the increased rate of \$1,785 per
workshop, instead of the contracted rate of \$1,300.

The \$171,333 billed for workshops on the second invoice consisted of 96
workshops provided to 24 schools at the increased rate of \$1,785. We
determined that based on the contracted rate of \$1,300 per workshop,
EIE should have billed PRDE \$124,800 for the 96 workshops offered to
the 24 schools (96 x \$1,300). As a result, EIE's invoice included
excessive charges of \$46,533 (\$171,333 invoiced - \$124,800 contracted
rate).

We also found that EIE did not provide workshops to the students of the
Henry Longfellow, David Antongiorgi, Benigno Fernández, and Federico
Degetau schools on October 4, 5, 11, and 16, 2005, due to administrative
work being done at the schools. However, EIE billed PRDE for those four
days, resulting in additional excessive charges of \$1,300 for workshops
that were not provided.

**Unsupported Charges of \$8,775**

We found that the supporting documentation EIE submitted to PRDE did not
include evidence of attendance rosters for six workshops (one offered at
the Hipólito García school, one offered at the Ramón Alejandro Ayala
school, and four offered at the Vicente Palés Anes school). This
resulted in unsupported charges paid for workshops of \$7,800 (6 x
\$1,300). In addition, EIE did not submit evidence for three days of
workshops offered at the Intermedia Urbana Salinas, Jagueyes, and
Hipólito García schools, resulting in additional unsupported charges of
\$975.

**[Invoice Three]{.underline}**

**Excessive Charges of \$58,167**

On the third invoice, EIE billed PRDE \$214,167 for workshops. This
amount was excessive because EIE billed at the increased rate of \$1,785
per workshop instead of the contracted rate of \$1,300. The \$214,167
billed for workshops on the third invoice consisted of 120 workshops
offered to 24 schools at the increased rate of \$1,785. We determined
that based on the contracted rate of \$1,300 per workshop, EIE should
have billed PRDE \$156,000 for the 120 workshops offered to the 24
schools (120 x \$1,300). As a result, EIE's invoice included excessive
charges of \$58,167 (\$214,167 invoiced - \$156,000 contracted rate).

**UPR-Cayey's Contract**

UPR-Cayey submitted to PRDE two invoices, one in the amount of
\$105,249, and one in the amount of \$44,349.[^16] As of October 2007,
PRDE had paid the two invoices submitted. However, our review was
limited to the payment made as of August 29, 2007 in the amount of
\$105,249. During our review we found \$22,436 in questioned costs
related to four items on the first invoice PRDE paid to UPR-Cayey, as
detailed in the following table.

Table 2.2 Questioned Costs on UPR-Cayey's Invoice

+----------------+------------+-------------------+-------------------+
| Item           | Questioned | Excessive         | Unsupported       |
|                |            |                   |                   |
|                | Costs      | Charges           | Charges           |
+----------------+------------+-------------------+-------------------+
| Workshops      | \$16,800   | \$16,800          | \$ 0              |
+----------------+------------+-------------------+-------------------+
| Lunches        | 338        | 338               | 0                 |
+----------------+------------+-------------------+-------------------+
| Training       | 48         | 48                | 0                 |
| Materials      |            |                   |                   |
+----------------+------------+-------------------+-------------------+
| Stipends       | 5,250      | 5,100             | 150               |
+----------------+------------+-------------------+-------------------+
| **Total**      | **         | **\$ 22,286**     | **\$150**         |
|                | \$22,436** |                   |                   |
+----------------+------------+-------------------+-------------------+

**Excessive Charges of \$22,286**

According to the proposal, UPR-Cayey would bill PRDE for 64 workshops at
\$60 per participant. UPR-Cayey billed PRDE \$69,000 for 1,150
participants who attended 46 workshops (1,150 participants at \$60 per
participant). The supporting documentation we reviewed showed that only
870 participants attended the 46 workshops. As a result, UPR-Cayey
should have billed PRDE \$52,200 for workshops (870 participants at \$60
per participant). The overstatement of 280 participants on the invoice
resulted in excessive charges paid for workshops of \$16,800 (\$69,000
invoiced - \$52,200 actual costs).

According to the proposal, UPR-Cayey would bill PRDE lunch expenses[^17]
at \$8 per participant. UPR-Cayey billed PRDE \$3,906 for lunches served
to 555 participants. We determined that this amount was not based on the
proposed rate of \$8 per participant. In addition, the supporting
documentation we reviewed showed that 446 participants attended the
morning sessions, not the 555 claimed by UPR-Cayey. As a result,
UPR-Cayey should have billed PRDE \$3,568 for lunches (446 x \$8). The
overstatement of 109 participants on the invoice resulted in excessive
charges paid for lunches of \$338 (\$3,906 invoiced - \$3,568 actual
costs).

According to the proposal, UPR-Cayey would bill PRDE for training
manuals at \$23.75 each. Our review disclosed that UPR-Cayey invoiced
PRDE \$10,688 for 450 training manuals, but according to the
documentation provided, only 448 were distributed. As a result,
UPR-Cayey should have billed PRDE \$10,640 for the 448 training manuals
(448 manuals at \$23.75 each). The overstatement of two training manuals
on the invoice resulted in excessive charges paid for training materials
of \$48 (\$10,688 invoiced - \$10,640 actual costs).

The proposal established that UPR-Cayey would pay teachers a stipend of
\$25 for each workshop they attended on Saturdays. According to the
supporting documentation, UPR-Cayey issued checks to 74 participants
totaling \$6,350, but billed PRDE \$6,300 (\$50 less than the
documentation supported). We found that as of May 16, 2006, when the
invoice was submitted to PRDE for payment, UPR-Cayey had not disbursed
any of the checks, although copies of the checks[^18] were submitted as
proof of the expense incurred. On August 3, 2007, we visited UPR-Cayey
to review the documentation and found that of the 74 checks that had
been issued, only 14, totaling \$1,200, had been disbursed, and two in
the amount of \$200 (\$100 each) had been claimed twice. The remaining
58 checks, totaling \$4,950, had not been disbursed. According to a
UPR-Cayey official, the remaining 58 checks had not been disbursed
because they had not been able to locate the teachers. The official also
stated that the 58 checks that had not been disbursed had not expired,
although the institution's policy was to cancel all checks that had not
been disbursed within three months of being issued. Since UPR-Cayey had
not disbursed the funds for 58 of the participants, it should not have
invoiced PRDE for that expense, nor for the two checks claimed twice. As
a result, UPR-Cayey's invoice included excessive charges, and PRDE paid
\$5,100 in excess of what should have been paid for stipends (\$6,300
invoiced -- \$1,200 actual costs).

**Unsupported Charges of \$150**

We found that for 3 of the 14 checks that had been disbursed, there was
no evidence showing that the teachers had attended the workshops. The
three checks included attendance to more than one workshop (participants
were to be paid \$25 per workshop). As a result, we determined that PRDE
paid UPR-Cayey \$150 in unsupported charges for stipends.

**General Noncompliance with Contract Requirements**

During our review, we noted that the attendance rosters submitted by EIE
as supporting documentation had the following deficiencies.

-   None of the attendance rosters included the proper legal citation of
    the Federal program funding the project. The attendance rosters had
    written on the header "Promoted by Title IV, Part A," when the
    project was being funded with Title V funds. In addition, the
    attendance rosters with the EIE logo did not include PRDE's name.
    According to Clause 24 of the contract, all written documentation
    prepared as part of the project had to have the name of the Federal
    program funding the project, as well as PRDE's name.

-   The teachers' roll books were used as attendance rosters for some of
    the workshops, instead of an original document from EIE.

-   Some of the attendance rosters were not certified by the person who
    offered the workshop.

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-   None of the attendance rosters included the name of the workshop
    offered. In addition, for one school where EIE claimed that a
    workshop was offered, the attendance roster included only the names
    of the students who attended the workshop. It did not include the
    company's logo, the signature of the certifying official, the name
    of the school, or the name of the person who offered the workshop.

During our review, we noted that the attendance rosters submitted by
UPR-Cayey as supporting documentation had the following deficiencies.

-   The attendance rosters did not include the date workshops were
    conducted; instead they were identified as AM and PM sessions.

-   The invoice submitted and its supporting documentation were
    confusing and inconsistent. The documentation submitted showed
    participants attending more than one workshop on the same day and
    time. UPR-Cayey submitted with the first invoice attendance rosters
    for the following Saturdays -- September 3, 10, 17 and 24. A total
    of eight workshops were offered each of the four Saturdays, and each
    attendance roster submitted showed the same participants attending
    all eight workshops.

-   An appropriate official was not certifying attendance rosters to
    determine if the information provided was relevant and sufficient to
    support the services provided.

**Recommendations**

We recommend that the Assistant Secretary for Elementary and Secondary
Education require PRDE to ---

1.  Return to the Department \$175,536 in excessive charges paid;

2.  Return to the Department \$13,475 in unsupported charges paid, or
    provide supporting documentation for the unsupported charges;

3.  Review the second UPR-Cayey invoice and ensure that the payment was
    made based on the contracted rate;

4.  Establish adequate controls to ensure compliance with contract
    requirements and Federal regulations, and ensure that payments are
    made only after

-   Proper documentation is obtained from contractors; and

-   Supervisory review and approval of payments and supporting
    documentation is conducted;

2.5 Provide training and continuously monitor the staff responsible for
overseeing the administration of contracts to ensure that they are
capable and qualified to administer the Department's programs; and

2.6 Instruct its Internal Audit Division to audit the remaining
contracts awarded to EIE and UPR-Cayey.

**PRDE's Comments**

PRDE did not concur with our finding. In its comments, PRDE stated that
it had not had the opportunity to complete its review of the payments
made under the EIE contract, but that it had determined that the
proposed terms of the contract included a total of \$514,800 for 12
workshops, which would be offered to a variety of groups of varying
sizes. In addition, PRDE stated that the invoice clearly supported that
EIE offered the 12 workshops and did not bill PRDE above the amount
allotted under the contract for the 12 workshops.

Regarding UPR-Cayey's contract, PRDE stated that the draft
misinterpreted the proposal's terms related to workshop costs. According
to PRDE, the proposal charted the costs for the workshops to be offered
under the contract at a total cost of \$12,000 and, while the proposal
may have included details based on the contractor's projections for
arriving at this cost, the proposal's terms clearly listed the "total
cost" for each workshop series at \$12,000.

For meal costs (lunch expenses)**,** PRDE stated that the draft claimed
excessive charges based on the number of participants who attended the
morning sessions of workshops, as opposed to the total number of
participants attending workshops on a given day. The proposal's terms
allowed for a total of \$4,800 in lunch expenses, which was based on
participant projections, averaged out to \$8 per participant. PRDE added
that the draft failed to address a Program Change--Justification for
Transfer of Funds form that UPR-Cayey submitted, which PRDE approved
allowing for an additional \$1,508 to be used for lunch expenses.

For training manuals**,** PRDE stated that it was not clear as to what
documentation the draft was pointing to, or the reasons that existed to
question the \$48 in manual costs.

Regarding stipends, PRDE stated that it had not yet had the opportunity
to conduct a thorough review of the questioned costs related to
stipends. PRDE added that it was going to work with UPR-Cayey to review
the questioned costs and ensure that any excessive or unsupported
charges related to stipends under the contract were returned.

**OIG's Response**

We considered PRDE's comments, but there was no additional information
provided that would warrant a change to our finding or recommendations.
Regarding EIE's contract, we maintain that EIE did not provide
contracted services according to the contract terms. All three invoices
EIE submitted to PRDE were confusing, and the method used by EIE to
arrive at the rate per workshop was not adequately documented. As such,
PRDE paid the contractor what was billed without adequate
information/documentation to understand what the charges included.

Regarding UPR-Cayey's contract, we agree with PRDE's statement that the
proposal included details based on the contractor's projections for
arriving at the cost per workshop. However, as stated in the finding,
the proposal established the cost for the workshops based on a rate per
participant and not on a "total cost" per workshop series.

For lunch expenses, PRDE did not provide any documentation to support a
change to our finding or recommendations. We maintain that a contract
was signed based on the costs proposed by UPR-Cayey in the proposal of
\$8 per participant for meals. The workshops consisted of morning and
afternoon sessions and, according to the attendance rosters submitted by
UPR-Cayey as supporting documentation, not all participants attended the
entire day of training. In addition, the Program Change--Justification
for Transfer of Funds form that UPR-Cayey submitted to PRDE was included
as part of the supporting documentation for expenses incurred under the
second invoice, not for the invoice we reviewed. According to the
documentation provided, UPR-Cayey submitted two Justifications for
Transfer of Funds, one dated May 30, 2006, and the other dated June 9,
2006, eight days after the contract period expired. The contract period
expired on June 1, 2006.

Regarding training manuals, the attendance rosters submitted by
UPR-Cayey as evidence to document the distribution of training materials
to the participants did not correspond to the amount of training
materials billed by UPR-Cayey in the first invoice.

Regarding stipends, as of May 16, 2006, when the invoice was submitted
to PRDE for payment, UPR-Cayey had not disbursed any of the checks,
although copies of the checks were submitted as proof of the expense
incurred. As such, the questioned costs related to stipends remain the
same based on documentation provided by UPR-Cayey officials on August 3,
2007.

OBJECTIVES, SCOPE, AND METHODOLOGY

Our audit objectives were to determine whether PRDE (1) followed Federal
and State laws in procuring services and awarding contracts to EIE and
UPR-Cayey; and (2) ensured that contract requirements were met prior to
paying the contractors' invoices.

To accomplish our audit objectives, we reviewed the process followed by
PRDE-OFA in procuring services under competitive proposals and awarding
contracts to EIE and UPR-Cayey. We randomly selected two contracts for
detailed testing; one awarded to UPR-Cayey and one awarded to EIE. We
also reviewed two project proposals, one submitted by EIE, and another
submitted by UPR-Cayey with EIE's owner acting as Project Director. We
reviewed the procurement and contract award processes PRDE followed
based on PR laws, PRDE-OFA's established guidelines, and pertinent
Federal regulations. We also reviewed the participation of the former
PRDE-OFA Director and Under Director in the procurement and contract
award processes.

We interviewed officials from PRDE-OFA's Proposal Unit, the Title II,
Title V, and Spanish Program Offices, school teachers, other PRDE
officials, and participants of the services provided under the
contracts. We also reviewed supporting documentation to determine if
PRDE followed the established guidelines in procuring services and
ensured that contract requirements were met prior to paying the
contractors' submitted invoices.

To test compliance with contract requirements, we reviewed proposals
submitted by the contractors, the contracts awarded, invoices with
supporting documentation, and payments made to the contractors.

We reviewed four paid invoices under the two contracts -- three from
EIE, one for \$139,700, one for \$176,933, and one for \$219,767; and
one for UPR-Cayey for \$105,249.

We selected random samples of participants who received services under
the two contracts, to determine if the services were provided according
to the contract terms. Our samples consisted of 25 teachers from a
universe of 210 for UPR-Cayey's contract and 10 schools from a universe
of 21 for EIE's contract.

The scope of our audit was contract activities from September 1, 2004,
through December 31, 2006. We performed our fieldwork at PRDE-OFA from
May 29, 2007, through November 6, 2007, the date we held the exit
conference with PRDE officials. Our audit was performed in accordance
with generally accepted government auditing standards appropriate to the
scope of the review described above.

We conducted this performance audit in accordance with generally
accepted government auditing standards. Those standards require that we
plan and perform the audit to obtain sufficient, appropriate evidence to
provide a reasonable basis for our findings and conclusions based on our
audit objectives. We believe that the evidence obtained provides a
reasonable basis for our findings and conclusions based on our audit
objectives.

ADMINISTRATIVE MATTERS

Statements that managerial practices need improvements, as well as other
conclusions and recommendations in this report, represent the opinion of
the Office of Inspector General. Determinations of corrective actions 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 official, who will
consider them before taking final Departmental action on this audit:

Kerry L. Briggs

Assistant Secretary

> Office of Elementary and Secondary Education
>
> U.S. Department of Education
>
> 400 Maryland Avenue, SW
>
> 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/

> Denise M. Wempe

Regional Inspector General

> for Audit
>
> Attachment

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[^1]: Law 174, amended Law 1 of January 20, 1966, with the objective of
    authorizing the UPR to establish the Intramural Practice Plan, which
    allows professors to offer services to individuals and public and
    private institutions.

[^2]: Project Directors can receive up to 80 percent of the net proceeds
    of the awarded contracts.

[^3]: According to the proposal, workshops consisted of 11 training
    sessions of four days and one training session of two days to be
    provided to the students, with the objective of improving their
    Spanish language skills through the use of photojournalism
    techniques.

[^4]: According to the documentation provided by PRDE, the mother of the
    OFA Under Director acted as Project Director of the four contracts
    awarded to UPR-Cayey.

[^5]: The position description included responsibilities for directing,
    organizing, coordinating, and supervising the work conducted by the
    OFA employees.

[^6]: These two proposals were not included in the six contracts awarded
    to EIE and UPR-Cayey, but rather were submitted in response to
    PRDE's solicitation (Request for Proposals) as part of the
    procurement process.

[^7]: The Secretary's request for the PRGEO opinion mentioned that since
    2002, the mother of the former Under Director of OFA had been
    submitting proposals to PRDE, with two proposals having been
    approved and converted to contracts while the former Under Director
    worked for PRDE.

[^8]: The complaint alleged a conflict of interest and violations of the
    Puerto Rico Ethics Law in the procurement process for the SIST
    project.

[^9]: The total of the two contracts was \$697,330 (\$542,800 on the EIE
    contract, and \$154,530 on the UPR-Cayey contract).

[^10]: Amount shown indicates the full amount of the invoices processed
    for payment before the appropriate deductions.

[^11]: As of August 29, 2007, UPR-Cayey's invoice in the amount of
    \$44,349 and EIE's third invoice had not been paid. As of November
    2007, the two invoices had been processed for payment.

[^12]: We reviewed the total payments made as of August 29, 2007 and
    conducted a limited review of EIE's third invoice that was processed
    for payment in October 2007. As of November 2007, PRDE had paid
    \$536,400 for the three EIE invoices. However, our review was
    limited to the charges for the workshops in the third invoice to
    determine the overall impact of the contractor's change in the
    billing rate from the contracted rate. The third invoice in the
    amount of \$219,767 included \$5,600 billed for professional
    services and \$214,167 billed for workshops offered.

[^13]: Invoice not audited.

[^14]: The first invoice included the workshops at 21 schools, the
    second added 3 more schools, and the third included the schools from
    both the first and the second invoice for a total of 24 schools
    served.

[^15]: The workshops lasted four days each. We estimated the cost of
    each workshop day to be \$325, based on the proposed rate of \$1,300
    per workshop and the four days duration of each workshop (\$1,300 /
    4 = \$325).

[^16]: As of August 29, 2007, this invoice had not been paid.

[^17]: Based on the invoice submitted by UPR-Cayey, a total of 450
    training manuals were provided to the participants who attended the
    morning session of the workshops. Therefore, lunch expenses should
    have been invoiced based on the 450 participants and not the 555.

[^18]: Copies of the front of the 74 checks were submitted.