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

OFFICE OF INSPECTOR GENERAL

AUDIT SERVICES

Chicago/Kansas City/Dallas Audit Region

> September 29, 2008
>
> Control Number
>
> ED-OIG/A07H0017

Dr. D. Kent King

Commissioner of Education

State of Missouri

P.O. Box 480

Jefferson City, MO 65102

Dear Dr. King:

This Final **Audit Report**, entitled *St. Louis Public School
District's Use of Selected U.S. Department of Education Grant Funds*,
presents the results of our audit. The objective of the audit was to
determine whether St. Louis Public School District (District) used Title
I, Part A - Improving Basic Programs Operated by Local Educational
Agencies (Title I, Part A); Title I, Part B - Student Reading Skills
Improvement Grants - Reading First (Reading First); Title II, Part A -
Improving Teacher Quality (Title II, Part A); and Individuals with
Disabilities Education Act, Part B (IDEA, Part B), program funds only
for costs that were allowable and in accordance with applicable laws,
regulations, and grant provisions. Our audit covered the period July 1,
2005, through June 30, 2006.

BACKGROUND

The District includes the entire corporate city limits of St. Louis,
Missouri, and operates as the largest public school system in Missouri.
The District has a total of 5,122 full-time and part-time employees and
operates 91 schools with an average daily attendance of 34,600 students.
According to the Missouri State Department of Elementary and Secondary
Education, the District was governed by a 7 member Board of Education
prior to June 15, 2007. Effective June 15, 2007, the Missouri State
Board of Education (MSBE) voted to revoke the District's accreditation
and removed the 7 member Board of Education. The Board of Education
filed a petition in Cole County Circuit Court (Court) to stop the MSBE
intervention. The Court denied the Board of Education's petition,
allowing MSBE to replace the 7 member Board of Education with an
appointed committee.

According to the A-133 compliance audit report, *Comprehensive Annual
Financial Report* (CAFR), the District expended \$47,745,265 of U.S.
Department of Education funds for the four programs reviewed during the
year ended June 30, 2006. The District's expenditures for the programs
were

[Program]{.underline} [Funds]{.underline}

Title I, Part A \$26,507,282

Reading First \$ 3,880,386

Title II, Part A \$ 4,393,834

IDEA, Part B [\$12,963,763]{.underline}

> Total \$47,745,265

The Title I, Part A, program provides financial assistance to local
educational agencies (LEA) and schools with high numbers or high
percentages of poor children to help ensure that all children meet
challenging state academic standards. The Reading First program provides
assistance to establish reading programs for children in kindergarten
through grade three that ensures that every child can read at grade
level or above no later than the end of grade three. The Title II, Part
A, program provides assistance to improve the quality and quantity of
teachers and principals in schools. The IDEA, Part B, program provides
assistance for special education and related services to children with
disabilities.

AUDIT RESULTS

During the period July 1, 2005, through June 30, 2006, the District
generally used the Reading First funds we tested as part of our audit
only for costs that were allowable and in compliance with the law,
regulations, and grant provisions. However, the District did not always
use Title I, Part A; Title II, Part A; and IDEA, Part B, funds only for
costs that were allowable and in compliance with the laws, regulations,
and grant provisions. Contrary to the No Child Left Behind Act of 2001,
OMB Circular A-87, and selected regulations governing the allowability
of costs, the District (1) did not maintain effective control and
accountability for all personal property purchased with grant funds,
resulting in a loss of over \$178,000; (2) charged unallowable costs of
\$37,035 to the Title I, Part A, and IDEA, Part B, programs; and (3)
charged inadequately documented costs of \$549,342 to the Title I, Part
A; Title II, Part A; and IDEA, Part B, programs.

In its comments to the draft report, the Missouri Department of
Elementary and Secondary Education (DESE) concurred with the findings
and generally concurred with the recommendations. DESE's comments are
summarized at the end of each finding and the full text of the comments
are included as an Attachment to this report.

FINDING NO. 1 -- Ineffective System of Control and Accountability
Resulted in the Loss of Laptop Computers Purchased with Federal Funds

The District did not maintain effective control and accountability for
personal property purchased with federal grant funds. In July 2005, the
District purchased 700 laptop computers with IDEA, Part B, program
funds. Upon delivery, the District stored the laptop computers in an
unlocked room on the third floor of the District's administration
building. In addition, the District used about 300 laptop computers for
a training session without ensuring adequate safeguards were in place.
Further, teachers left the District and not all of them returned their
laptop computers. The District conducted an audit and concluded that
some laptop computers were either stolen or no record was maintained to
document the location. As of the end of our field work, the District
still could not account for 125 of the 700 laptop computers.

Pursuant to 34 C.F.R. § 80.20(a),[^1] "A State must expend and account
for grant funds in accordance with State laws and procedures for
expending and accounting for its own funds." In addition, pursuant to 34
C.F.R. § 80.32(b), "A State will use, manage, and dispose of equipment
acquired under a grant by the State in accordance with State laws and
procedures."

According to the *Missouri Financial Accounting Manual,* issued by DESE,
under *Accounting Principles and Policies for Equipment Capital Outlay,*

> M. Equipment costing \$1,000 or more per unit and having a useful life
> expectancy of more than one year is considered to be capital outlay
> and costs will be entered and controlled in the General Fixed Assets
> Account Group. The district may establish a local policy to use a unit
> cost of less than \$1,000 to determine capital outlay expenditures.

In addition, under *Capital Outlay and Accounting for Property*,

> I. The LEA Board of Education and administration should develop
> policies and procedures outlining the various responsibilities for the
> care and custody of the fixed assets and for the taking of the
> physical inventory.
>
> J. In the final analysis, the financial records should be capable of
> producing two separate listings:

(1) A detailed list of property owned by the district.

(2) School district personnel should perform an annual physical
    inventory by making a list of property verified by visual
    inspection.

> These two lists should then be compared and reconciled by the LEA
> staff. If losses are discovered, administrative action may be taken
> and the accounting records posted to reduce the Accession Ledger and
> the General Ledger.

Without effective policies and procedures over the care and custody of
fixed assets, equipment purchased with federal funds is not safeguarded
against loss, damage, or theft. The District could not account for
laptop computers purchased with IDEA, Part B, program funds. As of
January 10, 2008, the District indicated the current status of the 700
laptop computers was 556 located, 19 stolen, and 125 missing. The total
purchase price for the 125 laptop computers was \$178,625.[^2] When such
losses occur, there is harm to the federal interest: (1) the property is
not available for essential program activities, (2) the District and the
Department do not have assurances that the property was necessary to
operate the program, and (3) information on the laptop computers could
be sensitive and contain personally identifiable information.

## Recommendations {#recommendations .RptSubcaption}

##  {#section .RptSubcaption}

We recommend that the Assistant Secretary for Special Education and
Rehabilitative Services require the Missouri State Board of Education to
direct the District to---

1.  Provide evidence that it has located or recovered the 125 laptop
    computers or return \$178,625 to the Department; and

2.  Develop and implement an inventory control system that provides
    reasonable assurance that loss, damage, or theft of the equipment
    will be prevented. The system should cover (a) maintenance of
    complete and accurate inventory records, (b) the conduct of an
    annual physical inventory, (c) adequate safeguards to prevent the
    disclosure of sensitive and personally identifiable information,
    and (d) the investigation of any equipment that is lost, stolen, or
    damaged.

**DESE's Comments**

DESE concurred with the finding but noted the number of
missing/unaccounted for laptop computers changed. DESE explained the
draft report indicated 125 laptop computers, but an exception report
given to the District during the audit indicated 102 laptop computers,
for a discrepancy of 23 laptop computers or \$32,867.

Regarding recommendation 1.1, DESE asked that the District be allowed to
replace/purchase 102 laptop computers of equal quality and functionality
from local/state funds by January 1, 2009, instead of returning the
funds to the Department. According to DESE, this would allow the planned
online IEP \[individualized education program\] and Medicaid Recovery
Management System to come online as planned. To require the District to
return funds from local/state sources and purchase more laptop
computers, either from state or federal sources, would result in a
double penalty which would be detrimental to the educational programs
for children with disabilities.

**OIG Response**

Based on the most recent status report provided by the District, 125
laptop computers still were missing. DESE is correct in stating that the
initial exception report given to the District indicated 102 laptop
computers were missing. However, District personnel provided the OIG
with an updated status report on the laptop computers at the end of our
fieldwork, dated January 10, 2008. We used the updated status report
data in the draft audit report. We made no changes to the report
regarding the number of missing laptop computers.

In regards to replacing/purchasing laptop computers instead of returning
the funds, the Department can take that into consideration during audit
resolution. We did not change our recommendation.

FINDING NO. 2 -- Unallowable and Inadequately Documented Costs Charged
to the Title I, Part A; Title II, Part A; and IDEA, Part B, Programs

During the period July 1, 2005, through June 30, 2006, the District
charged unallowable and inadequately documented costs to federal
education programs.

**Unallowable Costs**

The District used Title I, Part A, program funds at ineligible schools
and used IDEA, Part B, program funds for an unnecessary laptop computer
purchase.

[Title I, Part A, Program Funds Used at Ineligible Schools]{.underline}

The District used Title I, Part A, program funds for costs incurred by
two schools that were not eligible Title I, Part A, schools. The
District did not designate these two schools as Title I eligible,
because they did not meet the poverty threshold requirement. These two
schools used approximately \$34,627[^3] in Title I, Part A, funds to
cover personnel costs during the 2005-2006 school year.

According to the *No Child Left Behind Act of 2001*, section 1113(a), "A
local educational agency shall use funds received under this part only
in eligible school attendance areas."

[IDEA, Part B, Program Funds Used for Unnecessary Lapto]{.underline}[p
Computer Purchase]{.underline}

The District used federal funds to purchase a laptop computer that was
not necessary for the operation of its IDEA, Part B, program. In January
2006, a Special Education Senior Business Analyst purchased a laptop
computer for approximately \$2,408 with personal funds. The District
later reimbursed the Senior Business Analyst for the purchase of the
laptop computer. The District could not provide an adequate explanation
for the purchase of this laptop computer when six months prior it had
purchased 700 laptop computers for use in the IDEA, Part B, program.

Pursuant to OMB Circular A-87[^4], Attachment A (C)(1), "To be allowable
under Federal awards, costs must (a) Be necessary and reasonable for
proper and efficient performance and administration of Federal awards .
. . and (j) Be adequately documented."

**Inadequately Documented Costs**

The District did not provide adequate documentation to support two
months of transportation costs. The District charged the Title I, Part
A, program \$57,627 for the transportation of students participating in
supplemental education services during the months of March and April of
2006.[^5] Of the multitude of transportation billings for each month,
the District could not provide us with documentation that identified the
billings that made up the costs charged to the Title I, Part A, program.

In addition, the District did not maintain time and effort
certifications for employees whose salaries and benefits were charged to
the Title I, Part A; Title II, Part A; and IDEA, Part B, programs. (The
District provided time and effort certifications for employees whose
salaries and benefits were charged to the Reading First program.) We
reviewed the records for 28 employees whose salaries and fringe benefits
were charged to the Title I, Part A; Reading First; Title II, Part A;
and IDEA, Part B, programs. For the period July 1, 2005, through June
30, 2006, all 28 employees were required to submit semi-annual
certifications. However, the District could not provide certifications
for 9 of the 28 employees. These 9 employees received \$491,714 in
salaries and benefits during the period July 1, 2005, through June 30,
2006.[^6]

  ----------------- ------------------ ------------------- ------------------
  **Program**       **No. of Employees **No. Without       **Salaries and
                    Reviewed**         Certifications**    Benefits Received
                                                           for Employees
                                                           Without
                                                           Certifications**

  Title I, Part     5                  4                   \$203,862
  A[^7]                                                    

  Title II, Part A  6                  4                   \$230,843

  Reading First     6                  0                   \$0

  IDEA, Part B      11                 1                   \$57,009

  Total             28                 9                   \$491,714
  ----------------- ------------------ ------------------- ------------------

Pursuant to 34 C.F.R § 80.20(a)(2), fiscal control and accounting
procedures of the state and its sub-grantees must be sufficient to
"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."

In addition, OMB Circular A-87, Attachment B, section (8)(h), *Support
of salaries and wages,* states:

> \(3\) Where employees are expected to work solely on a single Federal
> award or cost objective, charges for their salaries and wages will be
> supported by periodic certifications that the employees worked solely
> on that program for the period covered by the certification. These
> certifications will be prepared at least semi annually and will be
> signed by the employee or supervisory official having first hand
> knowledge of the work performed by the employee.

When a grantee uses federal funds for unallowable costs, those funds are
not available to pay for items and services that will advance the
program. In addition, when a grantee fails to maintain adequate
supporting documentation, we cannot determine if program funds were used
only for allowable purposes.

**Recommendations**

We recommend that the Assistant Secretary for Elementary and Secondary
Education and the Assistant Secretary for Special Education and
Rehabilitative Services, as appropriate, require the Missouri State
Board of Education to direct the District to---

2.1 Provide adequate documentation to support the eligibility of the two
ineligible schools that received Title I, Part A, program funds or
return to the Department that portion of the \$34,627 in Title I, Part A
funds that was provided to the ineligible school or schools;

2.2 Provide adequate documentation to support that \$57,627 in
transportation costs charged to the Title I, Part A, program was
allowable under OMB Circular A-87 or return the amount that was not
allowable to the Department;

2.3 Return to the Department \$2,408, the purchase price of the
unnecessary laptop computer purchased with IDEA, Part B, funds;

4.  Provide time and effort certifications or other similar evidence
    covering the period July 1, 2005, through June 30, 2006, to support
    the personnel costs for the 9 employees paid with Title I, Part A;
    Title II, Part A; and IDEA, Part B, funds or return to the
    Department that portion of the \$491,714 paid to those employees
    that cannot be supported with proper evidence; and

5.  Develop a process to obtain and maintain time and effort
    certifications to support salaries and wages paid from federal
    awards.

**Auditee Comments**

DESE concurred with the finding and the recommendations as a whole.
However, in response to recommendation 2.4, DESE stated it would allow
the District to retroactively provide time and effort certifications
that cover the period from July 1, 2005, through June 30, 2006, if those
staff members can be contacted. According to the comments, the targeted
completion date for this action is October 20, 2008.

**OIG Response**

We agree with the corrective action being undertaken by the District as
sufficient to address recommendation 2.4, as long as time and effort
certifications or some other similar evidence are obtained from those
employees. Because the corrective action has not been completed, we did
not modify our recommendation.

OBJECTIVE, SCOPE, AND METHODOLOGY

The objective of our audit was to determine whether the District used
Title I, Part A, Reading First, Title II, Part A, and IDEA, Part B,
program funds only for costs that were allowable and in accordance with
applicable laws, regulations, and grant provisions. Our audit covered
the period July 1, 2005, through June 30, 2006.

To achieve our objective, we performed the following procedures.

1.  Reviewed the *Comprehensive Annual Financial Report,* prepared by
    RubinBrown LLP, independent public accountants, for the years ended
    June 30, 2005, and 2006.

2.  Reviewed the allocation reports, payment histories, and final
    expenditure reports for the District's Title I, Part A; Reading
    First; Title II, Part A; and IDEA, Part B, programs for the period
    July 1, 2005, through June 30, 2006.

3.  Reviewed the District's organizational charts, DESE's Federal
    Programs Unit report and website, and conducted interviews to gain
    an understanding of the District's programs and organization.

4.  Gained a limited understanding of the District's internal control
    structure, policies, procedures, and practices applicable to the
    administration of the four programs by interviewing District
    officials, observing operations, and reviewing written policies and
    procedures. (We did not assess the adequacy of the control
    procedures.)

5.  Reviewed selected provisions of the No Child Left Behind Act, IDEA,
    Department regulations, and OMB Circulars applicable to the audit
    objective.

6.  Obtained and reviewed accounting records that identified federal
    funds expended for the Title I, Part A; Reading First; Title II,
    Part A; and IDEA, Part B, programs during the period July 1, 2005,
    through June 30, 2006.

7.  Selected a judgmental sample of non-personnel transactions charged
    to the Title I, Part A; Reading First; Title II, Part A; and IDEA,
    Part B, programs for the period July 1, 2005, through June 30, 2006.
    The transactions were selected based on dollar amount and type of
    transaction, and to provide coverage of all four programs. We
    selected 252 transactions totaling \$4,328,621 from a universe of
    25,092 transactions totaling \$16,916,582 for the Title I, Part A;
    Reading First; Title II, Part A; and IDEA, Part B, programs.

8.  Traced the selected non-personnel transactions to purchase orders,
    invoices, and cancelled checks to determine whether they were
    allowable.

9.  Selected a random sample of personnel transactions charged to the
    Title I, Part A; Reading First; Title II, Part A; and IDEA, Part B,
    programs for the period July 1, 2005, through June 30, 2006. We
    selected 120 transactions totaling \$170,669 from a universe of
    13,415 transactions totaling \$20,339,173 for the Title I, Part A;
    Reading First; Title II, Part A; and IDEA, Part B, programs.

10. Reviewed 28 employees' records for time and effort certifications.
    We identified these employees from the transactions discussed in #9
    above. We reviewed time and effort certifications for (a) 5
    employees in the Title I, Part A, program, (b) 6 employees in the
    Reading First program, (c) 6 employees in the Title II, Part A,
    program, and (d) 11 employees in the IDEA, Part B, program.

11. We traced the selected personnel transactions to payroll records and
    certifications, when available, to determine whether the
    transactions were allowable, adequately documented, and properly
    allocated to each of the four federal programs. We reviewed fringe
    benefits for each employee selected in our sample.

12. Selected a judgmental sample of 66 of the 556 laptop computers the
    District could locate (of the 700 laptop computers purchased with
    IDEA, Part B, program funds). We verified the District located the
    66 laptop computers selected. We judgmentally selected the laptop
    computers based on locations that had the most computers.

13. Selected a judgmental sample of 41 of 138 computers (laptops and
    desktops) selected as part of our judgmental sample of Reading First
    non-personnel transactions. We verified the District could locate
    all 41 computers selected. We judgmentally selected the computers
    based on the locations that had the most computers.

14. Selected a judgmental sample of five employees from each of the four
    programs. We conducted interviews with each employee to verify the
    employees' existence, job functions, and the program on which they
    worked.

We also relied, in part, on personnel and non-personnel transaction data
provided to us by the District from its Systems, Applications, and
Products (SAP) system. We performed an initial assessment of the
reliability of the personnel and non-personnel data. We reviewed the
data for completeness to determine if the District could account for all
funds received. We also reviewed the records for relevance to ensure
they included only transactions from our audit period. We further
reviewed transactions for accuracy by tracing them to supporting records
such as invoices and receipts. We assessed whether the data were
reliable by comparing the data with purchase orders, invoices, cancelled
checks, and other information on paper documents maintained by the
District. Based on these comparisons, we concluded that the data the
District provided for personnel and non-personnel transactions were
sufficiently reliable for the purposes of our audit.

We conducted our audit from July 2007 through January 2008 at the
District's offices in St. Louis, Missouri, and at our offices. We
discussed the results of our audit with District officials on March 24,
2008.

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
objectives.

ADMINISTRATIVE MATTERS

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

Tracy R. Justesen

Assistant Secretary

Office of Special Education and Rehabilitative Services

U.S. Department of Education

> 400 Maryland Avenue, SW

Washington, D.C. 20202

[]{.mark}

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/

> Gary D. Whitman

Regional Inspector General

> for Audit

Attachment

ATTACHMENT

> Missouri Department of Elementary and Secondary Education's Comments

![](media/image2.jpeg){width="7.5in" height="1.6347222222222222in"}

July 23, 2008

Mr. Gary D. Whitman

Regional Inspector General for Audit

500 West Madison Street, Suite 1414

Chicago, IL 60661

RE: ED-OIG/A07H0017

Dear Mr. Whitman:

The Missouri Department of Elementary and Secondary Education (DESE) has
reviewed the findings and recommendations in Report ED-OIG/A07H0017
regarding the St. Louis Public School District (District). The DESE has
and will continue to work with the District to develop a corrective
action plan.

**Ineffective System of Control and Accountability Resulted in the Loss
of Computers** **Purchased with Federal Funds.** Both the DESE and the
District concur with finding Number 1 related to missing/unaccounted for
laptop computers. However, the draft audit report received by the DESE
indicates 125 laptop computers are unaccounted for. The exception
standard report given to the District indicates 102 laptop computers are
missing (a discrepancy of twenty-three computers or \$32,867).

In response to recommendation 1.1, the District proposes, and the DESE
accepts as a reasonable, student-effective response to this finding,
that the District replace/purchase 102 laptop computers of equal quality
and functionality from local/state funds by January 1, 2009. This will
allow the planned online IEP and Medicaid Recovery Management System to
come online as planned. To require the District to return funds from
local/state sources and purchase more computers, either from state or
federal sources, will result in a double penalty which will be
detrimental to the educational programs for children with disabilities.

**Unallowable and Inadequately Documented Costs Charged to the Title I,
Part A; Title II, Part A; and IDEA, Part B, Programs.** The DESE concurs
with finding Number 2 and with the recommendations as a whole. However,
in response to recommendation 2.4, the DESE would allow the District to
retroactively provide time and effort certifications that cover the
period from July 1, 2005 through June 30, 2006 if those staff members
can be contacted. A list of the nine uncertified employees is requested.
The targeted completion date for this finding is October 20, 2008.

If you have questions, please contact Bette Morff, DESE Director of
Financial Management, at

573-751-8280 or Bette.Morff@dese.mo.gov.

Sincerely,

D. Kent King

[^1]: Unless otherwise noted, references are to the July 1, 2005,
    edition of the C.F.R.

[^2]: Purchase price for each laptop computer was \$1,429.

[^3]: The two ineligible schools, Kennard CJA #503 and McKinley CJA
    #313, received \$17,528 and \$17,099 respectively.

[^4]: OMB Circular A-87, Revised 5/10/04

[^5]: The District charged transportation costs of \$27,662 for March
    and \$29,965 for April.

[^6]: We did not perform enough work to project our results to the
    entire population.

[^7]: In February 2008, the Department issued revised non-regulatory
    guidance for Title I, Fiscal Issues that includes Consolidating
    Funds in Schoolwide Programs. The revised guidance states that "if a
    school operating a schoolwide program consolidates Federal, State,
    and local funds under section 1114(a)(3) in a consolidated
    schoolwide pool . . . . an employee who is paid with funds from that
    pool is not required to file a semi-annual certification. Because
    Federal funds are consolidated with State and local funds in a
    single consolidated schoolwide pool, there is no distinction between
    staff paid with Federal funds and staff paid with State or local
    funds." The District consolidates only Title I, Part A funds in its
    schoolwide program. However, the Department's guidance became
    effective after our audit period.