February 11, 2004

Mr. Dennis Silas, Superintendent

Drew School District

286 West Park Avenue

Drew, MS 38737-3347

Dear Mr. Silas:

This Final Audit Report (ED-OIG/A06-D0017) presents the results of our
audit of the 21^st^ Century Community Learning Centers (21^st^ Century)
grant to Project ASCEND (After School and Community Enrichment for a New
Direction) for the period June 1, 2001, through March 31, 2003. Our
objective was to determine whether Project ASCEND properly accounted for
and used 21^st^ Century grant funds in accordance with the Elementary
and Secondary Education Act of 1965 (ESEA), as amended by the Improving
America's Schools Act of 1994; Education Department General
Administration Regulations (EDGAR); grant terms; and the cost principles
in Office of Management and Budget (OMB) Circular A-87.

We provided a draft of this report to Project ASCEND. In its response to
our draft report, Project ASCEND officials provided additional support
and we reduced the amount of unallowable costs to \$100,291 and the
unsupported costs to \$147,386. We have summarized Project ASCEND's
comments in the body of the report and have included the response as
Attachment B.

Title X, Part I, of the ESEA, as amended, authorizes the 21^st^ Century
program. The program awards three-year grants that provide funds to
rural and inner city schools or consortia of schools to enable them to
plan, implement, or expand projects that benefit the educational,
health, social service, cultural, and recreational needs of the
community. The program, funded at nearly \$846 million for fiscal year
2001, enables schools to stay open longer and set up community learning
centers.

A community learning center is an entity within a public elementary or
secondary school building that provides educational, recreational,
health, and social service programs for residents of all ages within a
local community and a local educational agency operates the community

learning center in conjunction with local governmental agencies,
businesses, vocational educational programs, institutions of higher
education, community colleges, and cultural, recreational, and other
community and human service entities. The center must include no less
than 4 of the 13 activities listed in Title X, Part I, Section 10905 of
the ESEA, as amended. The local educational agency is encouraged to use
the funds to accomplish activities that offer significant expanded
learning opportunities for children and the community members in a safe
and supervised environment before and after school. The programs may
support health needs, literacy education, children's day care services,
and telecommunications and technology education for individuals of all
ages.

The Department of Education awarded Project ASCEND a 21^st^ Century
grant totaling \$2,820,780. The award amounts, by budget period, were---

> June 1, 2001 - May 31, 2002 \$ 985,020
>
> June 1, 2002 - May 31, 2003 \$ 915,337
>
> June 1, 2003 - May 31, 2004 [\$]{.underline} [920,423]{.underline}

Total \$2,820,780

Project ASCEND includes seven sites in three school districts in two
counties in Mississippi, Sunflower County and Montgomery County. Drew
School District has the fiduciary responsibilities for the grant;
however, each individual school district is responsible for documenting
and accounting for their own expenditures.

In its first two years of operation, Project ASCEND's programs included
after school, summer school, General Educational Development (GED),
adult computer class, art classes, and drug-free and gang seminars.

Project ASCEND did not properly account for and use 21^st^ Century grant
funds in accordance with all applicable regulations, grant terms, and
cost principles. Project ASCEND charged the grant for unallowable costs
(\$100,291) and costs for which it did not maintain adequate support
(\$147,386). The unallowable amount consists of charges for payments to
a contractor for professional services that were contingent upon the
school districts receiving the grant (the scheduled payments to the
contractor totaled \$169,247 of which \$100,291 was paid during the
first two years of the grant). The unsupported amount consists of
charges for payroll (\$126,669), fringe benefits (\$19,211), and general
expenses (\$1,506) for which Project ASCEND did not provide adequate
documentation that the costs were reasonable, allowable, and allocable.

OMB Circular A-87, *Cost Principles for State,* *Local,* *and Indian
Tribal Governments,* *Attachment A, Paragraph C.1* (1997) provides
that---

> To be allowable under Federal awards, costs must . . . Be necessary
> and reasonable for proper and efficient performance and administration
> of Federal awards . . . Be allocable to Federal awards . . . Be
> adequately documented.

We concluded that this condition occurred because the three school
districts did not establish a formal system of management controls,
policies, procedures, and practices to consistently administer Project
ASCEND's 21^st^ Century grant. The schools used informal procedures to
document "hand written" vendor transactions and did not develop a
personnel distribution system. Details of the unallowable and
unsupported costs are discussed in Attachment A.

> We recommend that the Assistant Secretary for Elementary and Secondary
> Education instruct Project ASCEND to---

1.  Refund to the Department of Education unallowable costs of
    \$100,291;

2.  Not claim \$68,956 for unallowable costs for contracted professional
    services; and

3.  Provide sufficient documentation to support \$147,386 or refund that
    amount to the Department of Education.

Project ASCEND provided additional documentation to support the
unsupported costs identified in the draft report. Project ASCEND's
comments included comments from each of the school districts in the
consortium.

Drew School District provided activities logs for Project ASCEND's
director that were kept on her computer monthly and submitted unsigned.
The logs were subsequently signed and dated. In addition, Drew submitted
documentation for the following unsupported costs: mileage sheets as
support for the unsupported transportation costs of \$5,516, hotel
receipts and a travel reimbursement request for unsupported travel costs
of \$1,908, a copy of a check from the Director for a reimbursement that
was "inadvertently" paid twice for unallowable travel costs of \$129,
and various documentation to support the unsupported general expenses of
\$1,506.

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Montgomery County School District did not provide any additional
documentation but they did state that they changed how they document
time for employees working from different funding sources.

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Sunflower County School District did not provide any additional
documentation but did provide an affirmation "that the hours worked by
the employees were correctly paid."

Regarding the unallowable contract cost of \$100,291, Project ASCEND
stated the grant writer drew up his standard contract and that Project
ASCEND officials were unaware that the contract was illegal. Project
ASCEND also stated that if they had known there was a problem with the
contract, they would not have signed it.

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After reviewing Project ASCEND's response, we reduced the amount of
unsupported costs by \$7,424 and unallowable costs by \$129. We accepted
the following documentation as adequate support: mileage sheets as
support for the unsupported transportation costs of \$5,516, hotel
receipts and travel reimbursement request for unsupported travel costs
of \$1,908, and a copy of a check from the Director for a reimbursement
that was "inadvertently" paid twice for unallowable travel cost of
\$129. We made adjustments to the figures in this report.

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With regards to the payroll and fringe benefits, we did not make any
changes to our unsupported costs or recommendations. All documentation
and affirmations were made after our audit period and fieldwork had
ended, and these documents need to be evaluated by the Office of the
Chief Financial Officer. In addition, we did not make any changes to the
unallowable contract costs.

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The objective of our audit was to determine whether Project ASCEND
properly accounted for and used 21^st^ Century grant funds from June 1,
2001, through March 31, 2003, in accordance with the ESEA, as amended;
EDGAR; grant terms; and the cost principles in OMB Circular A-87,
effective August 29, 1997. We expanded our scope to include the
unallowable contract costs that were outside of our audit period.

To accomplish our objective, we---

-   Reviewed the financial statement and OMB Circular A-133 audit report
    for the year ended June 30, 2002;

-   Reviewed Project ASCEND's 21^st^ Century grant application and
    budget narrative;

-   Reviewed Project ASCEND's Grant Performance Reports;

-   Reviewed Drew School District and Montgomery County Board Minutes
    for meetings from April 2001 through March 2003;

-   Reviewed written policies and procedures for budgeting, accounting,
    procurement, payroll, and fringe benefits for the 21^st^ Century
    grants;

-   Judgmentally selected and reviewed 4 of 20 pay periods and all the
    associated payroll transactions. We selected months that were: (1)
    near the beginning or end of our audit period; (2) during the summer
    program; or (3) during winter break;

-   Judgmentally selected and reviewed purchase orders, invoices,
    cancelled checks, receipts, and other supporting documents for 163
    transactions from a universe of 563 transactions. The reviewed
    transactions account for 69 percent of the total dollars expended to
    vendors. They were selected based on the type of service provided
    without regard to dollar value; and

-   Interviewed various Project ASCEND employees, and Department of
    Education officials.

To achieve our audit objective, we relied, in part, on
computer-processed data related to the 21^st^ Century program contained
in Drew School District, Sunflower County School District, and
Montgomery County School District accounting systems. We verified the
completeness of the data by comparing source records to
computer-generated data, and verified the authenticity by comparing
computer-generated data to source documents. Based on these tests, we
concluded that the data were sufficiently reliable to be used in meeting
the audit's objective.

We conducted our fieldwork at Project ASCEND's three business office
locations in the Drew, Sunflower County, and Montgomery County School
Districts between April 28, 2003, and May 29, 2003. We discussed the
results of our audit with Project ASCEND officials at the three
locations on May 6, May 8, and May 29, 2003, respectively. An exit
conference was held with Project ASCEND officials on August 18, 2003.

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

As part of our review, we relied on substantive testing of costs charged
to the 21^st^ Century grant to test management controls. Our testing
disclosed instances of non-compliance with federal regulations, grant
terms, and cost principles that led us to conclude that weaknesses
existed in Project ASCEND's controls over the 21^st^ Century grant.
These weaknesses and their effects are discussed in the AUDIT RESULTS
section of this report.

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 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 officials, who will
consider them before taking final Departmental action on the audit:

> Jack Martin
>
> Chief Financial Officer
>
> Office of the Chief Financial Officer
>
> 400 Maryland Avenue, SW, Room 4E313
>
> Washington, DC 20202
>
> Raymond Simon
>
> Assistant Secretary for Elementary and Secondary Education
>
> U.S. Department of Education
>
> Federal Building No. 6, Room 3W315
>
> 400 Maryland Avenue, SW
>
> Washington, DC 20202

It is the policy of the U.S. Department of Education to expedite the
resolution of audits by initiating timely action on the findings and
recommendations contained therein. Therefore, receipt of your comments
within 30 days would be greatly appreciated.

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In accordance with Freedom of Information Act (5U.S.C §552), reports
issued by the Office of Inspector General are available, if requested,
to members of the press and general public to the extent information
contained therein is not subject to exemptions in the Act.

Sincerely,

**/Signed/**

Sherri L. Demmel

Regional Inspector General

for Audit

Attachments

##### **PROJECT ASCEND**

**21^st^ CENTURY COMMUNITY LEARNING CENTER GRANT**

**SCHEDULE OF UNSUPPORTED AND UNALLOWABLE COSTS**

## JUNE 1, 2001, THROUGH MARCH 31, 2003

+-------------------+---------------+-------+----------------+-------+
| **Cost Category** | **            | #     | *              | #     |
|                   | Unsupported** | Notes | *Unallowable** | Notes |
|                   |               |       |                |       |
|                   | **Costs**     |       | **Costs**      |       |
+-------------------+---------------+-------+----------------+-------+
| Payroll           | 126,669       | \(1\) | 0              |       |
+-------------------+---------------+-------+----------------+-------+
| Fringe Benefits   | 19,211        | \(2\) | 0              |       |
+-------------------+---------------+-------+----------------+-------+
| Transportation    | 0             |       | 0              |       |
+-------------------+---------------+-------+----------------+-------+
| Travel/Meetings   | 0             |       | 0              |       |
+-------------------+---------------+-------+----------------+-------+
| General Expenses  | 1,506         | \(3\) | 0              |       |
+-------------------+---------------+-------+----------------+-------+
| Contracts         | 0             |       | \*100,291      | \(4\) |
+-------------------+---------------+-------+----------------+-------+
| Totals            | \$147,386     |       | \$100,291      |       |
+-------------------+---------------+-------+----------------+-------+

\* The contract for grant writing services was for \$169,247. Project
ASCEND paid \$100,291 during the first two years of the grant.

Notes:

\(1\) Represents payroll charges (\$126,669) not supported by personnel
activity reports or equivalent documentation that meet the required
standards. *OMB Circular A-87,* *Attachment B, Paragraph 11.h (4)(a)*
(1997) states, "Where employees work on multiple activities or cost
objectives, a distribution of their salaries or wages will be supported
by personnel activity reports or equivalent documentation which meets
the standards in subsection (5).... Such documentary support will be
required where employees work on: (a) More than one Federal award." In
addition, *OMB Circular A-87,* *Attachment B, Paragraph 11.h (5)* (1997)
states that, "Personnel activity reports or equivalent documentation
must...account for the total activity for which each employee is
compensated...and must be signed by the employee...." Therefore, these
costs are questioned.

\(2\) Represents the fringe benefits (\$19,211) related to the salaries
not supported by personnel activity reports or equivalent documentation
that meet the required standards. *OMB Circular A-87,* *Attachment B,*
*Paragraph 11.d (5)* (1997) states, "\[Fringe\] benefits . . . shall be
allocated to Federal awards . . . in a manner consistent with the
pattern of benefits attributable to the individuals or group(s) of
employees whose salaries and wages are chargeable . . . " Because the
salary of these employees are questioned, the related fringe benefits
are questioned.

\(3\) Represents general expenses from "hand written" check transactions
(\$1,506) that Project ASCEND could not substantiate. According to *OMB
Circular A-87,* *Attachment A, Paragraph C,* *Subparagraph 1.j.* (1997),
to be allowable, costs must be adequately documented.

\(4\) Represents the contractual expenditures for grant writing services
(\$100,291). *OMB Circular A-87,* *Attachment B, Paragraph C,
Subparagraph 33 (a)* (1997) states, "Cost of professional and consultant
services rendered by persons or organizations that are members of a
particular profession or possess a special skill, whether or not
officers or employees of the governmental unit, are allowable, subject
to section 14 when reasonable in relation to the services rendered and
when not contingent upon recovery of the costs from the Federal
Government." The contract between the grant writer and Project ASCEND
called for payment of six percent of the total grant or \$169,247.
Because payment was contingent upon Project ASCEND receiving the grant,
the contract payments are not allowed. Project ASCEND has paid \$100,291
of the contracted amount.