###  **Audit Services**

### **New York Audit Region**

January 29, 2008

> **Control Number**
>
> **ED-OIG/A02H0006**

Dr. Laverne Terry

Acting Commissioner

Virgin Islands Department of Education

No. 44-46 Kongens Gade

St. Thomas, VI 00802

Dear Dr. Terry:

This **Final Audit Report**, entitled *Audit of the Virgin Islands
Department of Education's 2003 Reopened Consolidated Grants*, presents
the results of our audit. The purpose of the audit was to determine
whether the Virgin Islands Department of Education (VIDE) had sufficient
evidence of obligations to support its request to reopen the 2003
Consolidated Grant. Our review covered the period February 2006 through
May 2006.

BACKGROUND

The U. S. Department of Education (ED) has determined that the Virgin
Islands (VI) is a "high-risk grantee" under 34 C.F.R. § 80.12. According
to 34 C.F.R. § 80.12, a grantee may be considered high-risk if an
awarding agency determines that a grantee or subgrantee has a history of
unsatisfactory performance or has not conformed to the terms and
conditions of previous awards.

VIDE has had a history of unsatisfactory performance of not meeting the
requirements of previous ED awards. ED entered into a three-year
comprehensive Compliance Agreement with VIDE on September 23, 2002. The
Compliance Agreement was designed so that ED and VIDE could develop
integrated and systemic solutions to VIDE's problems with managing
Federal education funds and programs. VIDE did not comply with the terms
and conditions of the 2002 Compliance Agreement and, as a result, VIDE
was required to hire a third-party fiduciary to manage all grant funds
starting with the 2004 grant awards.

In December 2005, VIDE requested ED's approval to reopen the 2003
Consolidated Grant. ED responded to VIDE in February 2006 and requested
that VIDE provide the amount obligated, amount to be drawn, reason for
the need to reopen, an attestation that the obligations were valid and
that the costs were allowable, and an explanation of the failure to
liquidate funds in a timely manner. VIDE submitted a brief letter
stating that it had \$4,959,803 in expenditures that could be charged to
the 2003 Consolidated Grant, and an attestation signed by the former
VIDE Commissioner. ED approved the request to reopen the 2003
Consolidated Grant on March 24, 2006, and VIDE made three drawdowns
totaling \$3,952,676.

AUDIT RESULTS

The objective of our audit was to determine whether VIDE had sufficient
evidence of obligations to support its request to reopen the 2003
Consolidated Grant. We found that VIDE did not have sufficient evidence
of obligations to support its entire request to reopen the 2003
Consolidated Grant. VIDE did not have documentation to support over \$1
million of the \$4.9 million requested to reopen the 2003 Consolidated
Grant. In addition, VIDE did not include an additional \$1.3 million
available for liquidation because it did not reconcile the grant
balances. Therefore, \$2.3 million of the 2003 Consolidated Grant may
lapse.

In its response to the draft report, VIDE concurred with the finding and
recommendations. VIDE's comments are summarized at the end of the
finding. The full text of VIDE's comments on the draft report are
included as an Attachment to the report.

FINDING -- VIDE did not have sufficient evidence of obligations to
support its entire request to reopen the 2003 Consolidated Grant

We found that VIDE did not have sufficient evidence of obligations to
support \$1,007,585 of its \$4,959,803 request to reopen for liquidation
the 2003 Consolidated Grant. We reviewed the 2003 Consolidated Grant
approval and noted that the budget period for the 2003 Consolidated
Grant was from July 1, 2003 to September 30, 2004. VIDE received an
additional 12 months to obligate these funds under the Tydings
Amendment. VIDE requested, and ED approved, the reopening of the 2003
Consolidated Grant to liquidate \$4,959,803 of expenditures, the amount
VIDE requested. VIDE provided ED with an attestation,[^1] signed by the
VIDE Commissioner of Education in February 2006, that it had valid
expenditures to support its request to reopen and expend funds from the
2003 Consolidated Grant. ED approved the request for \$4,959,803. We
found that VIDE only had evidence to support expenditures of \$3,952,218
of the \$4,959,803. (See Table 1.)

**[Table 1]{.underline}****: 2003 Consolidated Grant Funds Reopened to
VIDE**

  -------------------------------------- --------------------------------
  Amount Requested by VIDE to reopen     \$4,959,803

  Amount of Request Supported by VIDE    \$3,952,218

  Amount of Request Unsupported by VIDE  \$1,007,585
  -------------------------------------- --------------------------------

Our review of VIDE's supporting documentation determined that VIDE based
its request on erroneous information from the VI Financial Management
System (FMS) that had not been verified or reconciled to ED's Grant
Administration and Payment System (GAPS). VIDE submitted the unverified
information to ED. A VIDE staff member, who prepared the documents
submitted to ED, stated that VIDE did not have accurate information at
the time of the liquidation request because some expense information was
not ready to be processed. This VIDE staff member further stated that
VIDE simply took the data from FMS, applied the Indirect Cost Rate to
the FMS totals, and provided the information to the Commissioner so that
it could be forwarded to ED.

Although the laws and regulations for reopening grants are very clear,
they allow discretion regarding the necessary actions to be followed in
approving or not approving the reopening of grants.

According to 34 C.F.R. § 80.23(b), "A grantee must liquidate all
obligations incurred under the award not later than 90 days after the
end of the funding period. The Federal agency may extend this deadline
at the request of the grantee."

Many State-administered programs are also "forward-funded;" i.e.,
Congress makes the funds available for obligation by the states on July
1 before the start of the fiscal year, instead of at the start of the
fiscal year on October 1.

Per 34 C.F.R. § 76.709 (a) and (b), after adding the extra three months
at the beginning of the grant and the twelve-month Tydings period at the
end of the grant, grantees and sub-grantees have 27 months to obligate
grant funds. Funds not obligated within the Tydings period lapse and
must be returned to the U.S. Treasury.

In ED's policy letter dated January 28, 2005, the principal operating
component (POC) within ED has the responsibility to consider and approve
or disapprove late liquidation requests made up to 12 months after the
end of the Tydings period.[^2] Late liquidation requests made after the
expiration of the Tydings Amendment must be approved by the Chief
Financial Officer (CFO) in conjunction with the Office of the Deputy
Secretary, the Office of the Under Secretary, and the Office of the
General Counsel. The CFO approves or disapproves the request, informs
the POC of its decision, and the POC takes the necessary steps to
process the late liquidation request.

In our report entitled, *The Virgin Islands Department of Education Did
Not Effectively Manage Its Federal Education Funds,* ED-OIG/A02C0012
issued September 2003, one of the Office of Inspector General's (OIG)
recommendations to ED was to ensure that VIDE provide ED program
officials with requisition documentation when requesting grants to be
reopened. ED agreed with this recommendation and further stated that the
condition should not occur in the future due to the September 2002
Compliance Agreement.

We requested and received from ED the documentation that had been
submitted in support of VIDE's request. We found that VIDE did not
ensure that the information submitted to ED was complete and accurate
according to its own financial system. As a result, VIDE did not have
competent financial data to fully support the requested amount of
\$4,959,803 submitted to ED to reopen its 2003 Consolidated Grant.

## Recommendations  {#recommendations .RptSubcaption}

We recommend that the Assistant Secretary for OESE require VIDE to:

1.1 Provide additional documentation of the type and amount of
expenditure when submitting a request to reopen a grant for late
liquidation, and

1.2 Ensure financial data is accurate, verified, and reconciled to GAPS,
FMS, and its own financial records before it is provided to OESE.

**VIDE Comments**

VIDE concurred with the finding and recommendations. In its response,
VIDE stated that, with the assistance of the third party fiduciary, it
has started to use reconciliations to certify that balances are
accurate, verification is made of all obligations, and confirmation is
given that all goods and services have been received before requesting a
late liquidation from the grantor agency. VIDE stated that in its FY
2004 late liquidation request, with the assistance of the third party
fiduciary, it had started to provide additional documentation and will
continue to do so on future requests. Further, in its FY 2004 late
liquidation request, VIDE used reconciled data and will continue to do
so in the future to ensure financial information is accurate.

OTHER MATTERS

VIDE is at risk of lapsing \$2.3 million from the 2003 Consolidated
Grant. VIDE did not maintain accurate financial records of grant
balances and expenditures and the entire available balance in GAPS. We
also found there was no evidence that VIDE reconciled the financial data
to GAPS. At the time of their request, VIDE had an available balance in
GAPS of \$6.2 million, but only requested \$4.9 million. VIDE
subsequently drew down \$3.9 million of the balance, leaving an
available grant balance of \$2.3 million. Approximately \$2.3 million is
likely to lapse and revert to the U. S. Treasury unless VIDE can provide
sufficient evidence of obligations to support a request for these
funds.[^3] (See Table 2.) VIDE could lose \$2.3 million of education
funds that could have been used to improve the educational system and
enhance education programs and activities in the VI.

**[Table 2]{.underline}:** **2003 Consolidated Grant Funds Available to
VIDE**

  --------------------------------------------- -------------------------
  Balance of Funds in GAPS Before Reopened      \$6,224,620

  Amount Drawn                                  \$3,952,676

  Amount of funds that may lapse                \$2,271,944
  --------------------------------------------- -------------------------

OBJECTIVE, SCOPE, AND METHODOLOGY

The objective of our audit was to determine whether VIDE had sufficient
evidence of obligations to support its request to reopen the 2003
Consolidated Grant.

To accomplish our audit objective, we:

-   Reviewed documentation regarding the reopened 2003 Consolidated
    Grant;

-   Interviewed VIDE officials to obtain an understanding of the process
    employed to request the reopening of the grant;

-   Reviewed VIDE check listings, miscellaneous disbursement vouchers,
    and drawdown requests;

-   Reviewed the 2003 Consolidated Grant award document;

-   Reviewed financial reports from ED's GAPS;

-   Reviewed correspondence between OESE and VIDE regarding the 2003
    Consolidated Grant.

We reviewed VIDE's listing of expenditures totaling \$3,952,218 to
determine whether there was adequate evidence of the obligations. Of
this amount, we judgmentally sampled the 20 largest non-payroll
expenditures totaling \$940,208 of \$3,952,676 in drawdowns for the 2003
Consolidated Grant to determine whether the expenditures were allowable.

We relied, in part, on computer-processed data from VIDE and VI Finance.
We verified the completeness of the data by comparing source records to
computer-generated data, and verified its authenticity by comparing
computer-generated data to source documents. Based on our testing, we
concluded that the computer-processed data was sufficiently reliable for
the purpose of our audit.

We performed our fieldwork at VIDE offices between January 2007 and July
2007.

We conducted the audit in accordance with generally accepted government
auditing standards appropriate to the limited 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 opinion of
the Office of Inspector General. Determinations of corrective action to
be taken will be made by the appropriate Department of Education
officials.

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

Kerri 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/

> Daniel P. Schultz

Regional Inspector General

> for Audit

Attachment

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height="6.320138888888889in"}

[^1]: The attestation stipulated, "under penalty of perjury under the
    laws of the United States that all attached information being
    submitted to the Office of Elementary and Secondary Education (OESE)
    for the purpose of liquidation of obligations was compete and
    accurate."

[^2]: ED's policy on reopening grants has been revised as of October
    2007.

[^3]: We did not determine whether VIDE has additional valid expenses as
    part of our review.