District of Columbia: Financial and Program Management Improvements Needed for Tuition Assistance Grant Program
Published: 2005-10-28T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Congress created the District of Columbia Tuition Assistance Grant (DCTAG) program in 1999 to provide D.C. college-bound residents with greater choices among institutions of higher education by affording them the benefits of in-state tuition at state colleges and universities outside the District of Columbia. Congress appropriated $17 million annually for fiscal years 2000 through 2004 and $25.6 million for fiscal year 2005. GAO was asked to assess whether (1) adequate controls exist over the use of federal funds, including processes to determine institution and student eligibility, manage the cash needs of the program, and pay administrative expenses; (2) funds for the DCTAG program are accounted for separately from the District's general fund; and (3) administrative expenses for the program charged against federal funds are within the 7 percent limit of the total amount appropriated for the program.
section_title: What GAO Found
paragraphs: The District's State Education Office (SEO) has taken actions to put program and financial management procedures in place, but DCTAG is at risk in the areas of student eligibility and program budgeting. The District of Columbia Tuition Assistance Grant program has effective controls for determining the eligibility of higher education institutions to participate in the program and for processing institutions' invoices for payment. Other controls, however, were less effective. SEO did not have sufficient documentation to demonstrate that some students approved for DCTAG program funds were eligible because documents required to be submitted by applicants were not available. The most commonly missing documents were those intended to establish domicile in the District. Moreover, SEO officials were not verifying applicants' Social Security numbers, which should be used to establish citizenship. Furthermore, SEO did not have documentation or procedures for determining the eligibility of applicants with special circumstances. The SEO has experienced significant turnover at the top management levels since it was created by legislation in 2000. High management turnover affects an organization's control environment and its ability to plan, direct, and control operations to effectively and strategically achieve its mission. The District established dedicated cash accounts for the DCTAG program, separate from the District's general fund, as required by law. Reconciliations between these dedicated bank accounts and the District's financial management system, however, had not been performed prior to our review. At our request, the Office of Finance and Resource Management (OFRM) reconciled the dedicated bank accounts and discovered that the District's general fund had not been reimbursed for approximately $8.3 million for prior-period cash expenditures made from the District's general fund on behalf of the DCTAG program. Also, about $2.7 million in interest earned since the DCTAG-dedicated accounts were established had not been recorded as funds available for the program. The District's forecasting method to project the number of students eligible to receive DCTAG funds in current and future years has not been reviewed for methodological soundness. While projections are based on the numbers of students that apply for the first time and those who submit renewal applications during a fiscal year, these projections have not been measured against actual results to include the historical experience of the program. While the District reported that it used 5.3 percent ($0.9 million) of the federal funds during fiscal year 2004 for DCTAG program administrative expenses, the District does not track the full amount of administrative expenses incurred for the program. District officials estimate that operating the DCTAG program costs more than the 7 percent legislatively set limit, and these additional costs were absorbed using District funds.

section_title: Letter
paragraphs: The District of Columbia College Access Act of 1999 (1999 Act), as  amended by the District of Columbia College Access Improvement Act of  2002 (2002 Amendment), established a program to provide eligible college- bound students who are domiciled in the District of Columbia with greater  choices among institutions of higher education.  The program was  established under the administrative control of the Mayor of the District of  Columbia and is commonly referred to as the District of Columbia Tuition  Assistance Grant (DCTAG) program.  Day-to-day DCTAG program  operations are carried out through the District of Columbia government’s  State Education Office (SEO).
The DCTAG program is funded by the “Federal Payment for Resident  Tuition Support” to the District of Columbia that, beginning with fiscal year  2000, has been included in the annual District of Columbia appropriations  act.  The federal payment remains available until expended. For fiscal years  2000 through 2004, $17 million in federal payments were appropriated  annually for the DCTAG program.  The amount of the federal payment was  increased to $25.6 million for fiscal year 2005.
Under the DCTAG program, the District pays the difference between in- state and out-of-state tuition, within certain capped amounts.  The District  also provides grants for students to attend private Historically Black  Colleges and Universities (HBCU) nationwide as well as private institutions  in the District of Columbia metropolitan area.  As provided in the DCTAG  legislation, students attending a participating public institution can receive  a tuition grant of up to $10,000 per year (calculated as the difference  between in-state and out-of-state tuition rates), with a total lifetime cap of  $50,000 per student.  D.C. residents attending private colleges and  universities, including HBCUs, may receive an annual grant award of up to  $2,500 annually, with a total lifetime cap of $12,500 per student.
The House Committee on Appropriations directed that we review the  DCTAG program.  As agreed to with your office, our specific objectives  were to assess whether (1) adequate controls exist over the use of federal  funds, including processes to determine institution and student eligibility,  manage the cash needs of the program, and pay administrative expenses;  (2) funds for the DCTAG program are accounted for separately from the  District’s general fund in dedicated cash accounts; and (3) administrative  expenses charged against federal funds for the program are within the  7 percent limit of the total amount of federal funds appropriated for the  DCTAG program.  We also reviewed projections for future program funding  requirements and the methodologies used to formulate those projections.
To determine whether adequate controls were in place over the use of  federal funds, we identified the internal controls built into the processes  through interviews, reviews of policies and procedures, and walk-throughs  of transactions.  In addition, we selected statistical samples of tuition  assistance payments made during fiscal year 2004 to test internal controls  over the processes in place to test institution and student eligibility, as  defined by the legislation and regulations, and the related disbursements.   To review the District’s accounting for DCTAG program funds, we reviewed  the procedures for (1) maintaining the dedicated cash accounts for the  DCTAG program and (2) reimbursing the District’s general fund for  disbursements made on behalf of the program.  We also inquired about the  frequency of reconciliations performed and reviewed the differences  identified as a result of the District’s first-ever reconciliation of the  dedicated DCTAG bank accounts to the balances shown in the District’s  financial management system.  To assess whether administrative expenses  charged against federal funds for the program were within the established  7 percent limit of the total amount of federal funds appropriated for the  DCTAG program, we obtained information concerning the types and  amounts of administrative expenses incurred to operate the DCTAG  program, and reviewed the procedures followed by the District intended to  provide safeguards that the 7 percent limit on these expenses was not  exceeded.  We took several steps to assess the reliability and  reasonableness of the DCTAG program disbursement transactions for  fiscal year 2004, in the District’s financial management system, System of  Accounting and Reporting (SOAR).  Overall, we found the disbursement  transaction data to be sufficiently complete and reliable for the purpose of  testing the controls over institution and student eligibility and for  documenting the total amount of DCTAG program administrative expenses  paid with federal funds for fiscal year 2004.  We conducted our work from  March 2004 through June 2004 and from February 2005 through July 2005 in  accordance with U.S. generally accepted government auditing standards.   See appendix I for more details on our scope and methodology.
subsections: section_title: Background
paragraphs: The 1999 Act, as amended, establishes a program to provide college-bound  students domiciled in the District of Columbia with greater choices among  institutions of higher education by affording them the benefits of in-state  tuition at state colleges and universities outside the District of Columbia.   The District is authorized to use the federal payment for residential tuition  support to pay institutions the difference between in-state and out-of-state  tuition on behalf of eligible students, within certain capped amounts.   The  District also provides grants for eligible students to attend private HBCUs  nationwide as well as private institutions in the District of Columbia  metropolitan area. The University of the District of Columbia (UDC) is  not eligible to participate in the DCTAG program because in-state tuition  rates are already available for D.C. residents attending that institution.  For  academic year 2004-2005, 4,731 students participated in the DCTAG  program, attending about 650 different public or private colleges and  universities.  Figure 1 shows the distribution of DCTAG-approved  applicants for the academic year 2004-2005 by ward in the District of  Columbia.  The District disbursed about $28.6 million in DCTAG funds for  academic year 2004-2005 to public and private colleges and universities.   Figure 2 shows the distribution of DCTAG program payments for the 2004- 2005 academic year by type of institution.
D.C. students attending a participating public college or university can  receive tuition assistance of up to $10,000 per year (calculated as the  difference between in-state and out-of-state tuition rates), with a total cap  of $50,000 per student.  D.C. residents attending private institutions in the  District of Columbia metropolitan area and private HBCUs nationwide  may receive an annual grant award of up to $2,500 per year, with a total cap  of $12,500 per student.  DCTAG program funds can be applied only to a  student’s tuition and fee costs and must not supplant other grant funding  that otherwise would be provided to eligible students.  As a result, DCTAG  program funds are considered as the final or “last dollar” that is added to a  student’s financial aid package.  Because this assistance can be applied  only to tuition and fees, other costs associated with college attendance,  such as room and board fees, books, and transportation costs, must be paid  by other means.
For fiscal years 2000-2004, Congress appropriated $17 million annually for  the DCTAG program and appropriated $25.6 million for fiscal year 2005.   This funding remains available until expended.  Table 1 shows the amount  of funds available and the use of those funds for grants and administrative  expenses.
section_title: Controls over Determining Institution Eligibility Were Generally Operating Effectively, but Controls over Student Eligibility Need Improvement
paragraphs: On the basis of our detailed reviews of processes and supporting  documentation, we concluded that SEO’s controls over determining  institution eligibility were generally operating effectively.  Institutions that  we tested that had received DCTAG program funds met eligibility  requirements and had signed PPAs.  In addition, these institutions were  providing the required information to SEO along with their invoices.  We  also found that SEO reviewed the accompanying student information prior  to approving the invoices for payment.  However, we found that SEO’s  controls over determining student eligibility were less effective because  some of the documents required to determine if applicants were eligible  were not in the files.  Missing paperwork included required documents,  such as photocopies of Social Security cards and documents proving  domicile in the District of Columbia.  Moreover, even when photocopies of  Social Security cards were provided, we found that SEO officials were not  taking steps to ensure the validity of applicants’ Social Security numbers.   Furthermore, we found that SEO had no process in place to document how  eligibility determinations were made for those applicants with unusual or  extraordinary circumstances that precluded them from providing the  required documents.  We also found that the high management turnover  that occurred at the SEO since the DCTAG program’s inception affected the  organization’s control environment and program operations.
subsections: section_title: Controls over Institution Eligibility and Payments Are Generally Effective
paragraphs: On the basis of our detailed review of processes and supporting  documentation of college and university invoices paid by the District with  DCTAG program funds, we concluded that (1) the billing institutions were  eligible to participate in the DCTAG program and (2) the required  information was provided with the invoices.  To test specific controls at  SEO and OFRM, we selected a statistical sample of payment transactions  made during fiscal year 2004 totaling about $11 million from DCTAG  disbursement transactions of approximately $28 million.
As mentioned, institutions eligible to participate in the DCTAG program  include public colleges and universities as well as public and private  HBCUs nationwide, and private colleges and universities in the District of  Columbia metropolitan area.  An eligible institution must have signed a  PPA, which is also signed by the Mayor of the District of Columbia, to  participate in the DCTAG program.  The PPA states that the institution  must follow the DCTAG program regulations and all provisions of the  legislation that established the program.  Once the SEO has a signed PPA  on file, the District makes grant payments directly to that institution for the  approved applicants in the DCTAG program attending that institution.   Payments for each academic period are based on invoices submitted by the  institutions to the SEO.  Each payment period, institutions must submit a  roster of eligible students for payment containing (1) the institution’s Tax  Information number and Dun and Bradstreet number; (2) the student’s  name, Social Security number, permanent address, enrollment status,  amount of financial aid received, amount of tuition and fees charged for the  payment period, the amount that would be charged to an in-state student  for the payment period, and the award amount that should be paid to the  institution for the payment period for each student on the roster.  When the  SEO receives an invoice, it verifies that both the institution submitting the  invoice and all students listed on the roster are eligible for the DCTAG  program funds, before payment of the invoice.  In addition, the SEO  determines the maximum payment allowed to each student considering  program annual and lifetime limits.  Invoices are then processed for  payment by the District’s Office of Finance and Resource Management  (OFRM) and recorded in SOAR.
We reviewed the supporting documentation to assess whether (1) the  institution met the criteria for an eligible institution as defined in the law  and regulations, (2) the SEO had a signed and dated PPA on file for that  institution at the time of the payment, (3) the information on the invoice  submitted by the institution agreed with the information on the approved  invoice sent to OFRM for payment, (4) payment of the invoice was  authorized and dated by an appropriate individual in OFRM, and (5) all  information shown on the paid invoice agreed with the transaction amount  and information recorded in SOAR.  We did not note any exceptions or  discrepancies for these tests, and as a result, concluded that the SEO has  effective controls for determining institution eligibility and processing  payments to those institutions for the DCTAG program.
section_title: Controls over Refund Processing Are Generally Effective
paragraphs: Occasionally, the SEO receives refunds of DCTAG grant funds from  institutions due to student withdrawals from college or other factors, such  as a reduction in a student’s course load below half-time.  When refunding  all or part of a tuition grant, institutions are required to submit certain  information with the refund check, including the students’ names, Social  Security numbers, brief explanations for the refunds, and the academic  periods to which the refunds relate.  We examined the documentation  relating to 16 refunds, which represented the entire population of refunds,  received by the District during fiscal year 2004.  In reviewing this  documentation, we verified that (1) all of the required information was  submitted with the refund check and the paperwork was signed and dated,  (2) the receipt of the refund was posted to the student’s account in SEO’s  Automated Information System (AIS) so that the student’s annual and  lifetime totals were correct, and (3) the refund amounts shown on the  paperwork from the institutions agreed with the total refund amount  deposited back to the District’s general fund and recorded in SOAR by  OFRM. For these 16 transactions, we found that all the required  information was submitted and the refunds were properly recorded in  SOAR.  We also found that students’ accounts were correctly adjusted for  the refunded amounts.  We did not audit to determine whether all refunds  due the District were paid.  Refunds are initiated solely by the participating  institutions unless the SEO receives information indicating that a program  participant was not entitled to some or all of the tuition assistance  received.
section_title: The SEO Did Not Have Sufficient Documentation to Show Whether Internal Controls over Student Eligibility Are Operating Effectively
paragraphs: The SEO did not have sufficient documentation in the applicants’ files we  reviewed to demonstrate that applicants approved for DCTAG funds met  the criteria in the DCTAG legislation and program regulations.  On the basis  of the results of our work, we estimated that documentation for 35.6  percent of the 3,094 students receiving DCTAG funds was inadequate to  demonstrate their eligibility to participate in the DCTAG program.  For  example, we noted that some first-time applicants did not include a  photocopy of their Social Security card with their application as required  by DCTAG program regulations.  We also found that the SEO was not  verifying the Social Security numbers of DCTAG applicants which is used  to establish citizenship, as required by the 2002 Amendment.  In addition,  we found that some applicants’ files did not contain records sufficient to  establish that the applicant was domiciled in the District of Columbia.   Without adequate documentation in the applicants’ files, we could not  determine whether some students were eligible to receive DCTAG tuition  grants.
We selected a random sample of students who received DCTAG funds  during fiscal year 2004 from the population of students that were included  in the grant payment transactions that we tested.  For each of the  students, we reviewed the application submitted for the academic year,  which was indicated on the institutional invoice for that student.  If that  application was a renewal application, we also reviewed that applicant’s  initial application for DCTAG funds as well because the initial application  would have been required to include key documents as evidence of the  applicant’s identity and domicile in the District.  Using the relevant  application for each year, we tested whether the (1) applications were  completed properly, (2) applications were signed and dated, and  (3) required documents were in the file with the application. From the  student files we reviewed, we noted 16 exceptions.  More specifically, we  determined that 14 of the 45 sample files were missing required  documentation—such as photocopies of Social Security cards and utility  bills demonstrating domicile in the District of Columbia.  We also found 1  of the 45 sample files where a student’s application for academic year 2002- 2003 was missing and another file where a student had not signed the  affirmation statement on the renewal application for academic year 2003- 2004 as required.  In addition, we found that SEO officials did not have  procedures to verify Social Security numbers—which provide a key  verification for eligibility to receive federal funds for education.  We could  not determine whether the applicants had not provided all the requisite  documentation or whether they had done so and SEO had not retained it in  the relevant files.
section_title: Lack of Social Security Number Verification
paragraphs: The required photocopy of the Social Security card is intended to establish  the applicant’s identity and citizenship.  While several applicants can have  the exact same name, the Social Security number is a unique identifier that  does not change.  We also found that for those applicants that submitted a  photocopy of their Social Security card, the SEO did not verify the validity  of the Social Security number.
DCTAG program regulations require applicants to provide a copy of their  signed Social Security card for identification purposes with their initial  application for DCTAG funds.  Furthermore, GAO’s Standards for Internal  Control in the Federal Government require that all transactions and other  significant events be clearly documented, and that the documentation be  readily available for examination.  During our testing of student eligibility  for DCTAG funds, we checked students’ applications to determine if the  initial application submitted was accompanied by a signed copy of the  applicant’s Social Security card.  We found that for 5 of the 45 student files  we reviewed, there was no record of receipt of a photocopy of the  applicants’ Social Security card.  According to SEO officials, either the  photocopy of the Social Security card was not received from these  applicants or the SEO did not retain the copy received.  SEO officials stated  that during the 9-month period after the DCTAG program was started, they  focused more on creating awareness of the program than adhering to  established policies and procedures.  However, we did find that two of the  five student files missing Social Security card documentation occurred in  the 2002-2003 academic year, after the initial start-up year of the DCTAG  program had passed. SEO officials informed us that while they have  resolved this internal control issue by having the staff verify the applicants’  Social Security numbers against those recorded on the District of Columbia  Individual Income Tax return, Form D-40, or the public income source  documents required for domicile verification, they recognize that the  program remains vulnerable.   The SEO’s failure to collect or maintain  proper documentation of applicants’ Social Security cards prior to the  disbursement of funds is a violation of its own procedures.  Moreover, the  District is at increased risk that individuals not meeting DCTAG program  requirements, including citizenship, are receiving DCTAG funds, or  individuals are receiving DCTAG funds through the use of fraudulent Social  Security numbers and may not be eligible for these funds.
For the 40 applications that did have documentation of the applicants’  Social Security card, we found that the SEO did not take steps to ensure the  validity of the student’s Social Security number.  According to SEO  officials, they have not implemented a policy calling for verification of  applicants’ citizenship.  For other federal financial aid, applicants are  required to file a Free Application for Federal Student Aid (FAFSA) form.   We were told that some applicants and their families do not see the need to  complete or submit this form to apply for DCTAG funds because the  DCTAG program is not need or merit based.  However, if the SEO required  all DCTAG program applicants to submit the FAFSA form through the U.S.  Department of Education, applicant citizenship and identity would then be  verified through the normal process for providing federal student  assistance.  The Social Security Administration (SSA) matches  information provided on FAFSA forms with information on file to verify  name, date of birth, U.S. citizenship status, Social Security number, and  possible date of death. After these matches are completed, applicants  receive Student Aid Reports (SAR).  Without procedures to verify identity  and citizenship, and by not requiring applicants to submit SARs, the SEO is  at risk of disbursing DCTAG funds to ineligible individuals.
section_title: Required Documents Proving District Domicile Were Not Available for Many DCTAG Participants
paragraphs: DCTAG program regulations require applicants to submit sufficient  documents demonstrating domicile in the District of Columbia for at least  12 consecutive months prior to the start of their freshman year in college.   The DCTAG program regulations define domicile as the current fixed place  of residence to which the applicant returns following temporary absences and where the applicant intends to reside indefinitely.  Applicants are to  submit such documentation with their initial application, and must include  sufficient evidence of continued domicile in the District of Columbia with  each renewal application.  SEO accepts copies of domicile documentation  and does not authenticate the validity of documents provided.  If the  student is a dependent, the DCTAG application (first-time D.C. private- school graduates and renewals) must include a copy of the certified Form  D-40, filed by the applicant’s parent(s), guardian, or spouse from the most  recent tax year.  The certified copy of the tax return must include Schedule  S of the Form D-40, showing the applicant as a dependent.  Independent  applicants are required to provide a certified copy of their own tax return  for the most recent tax year with their applications.  In cases where District  taxes are not required to be filed (for example, receipt of public assistance,  unemployment, retirement, or disability payments), copies of official  agency letters showing receipt of these types of income may be filed with  the DCTAG application in lieu of tax returns.
In addition, applicants are to submit copies of two current utility bills or  copies of two earnings and leave statements (pay stubs).  Copies of utility  bills submitted must not be older than 45 days from the date of the  application and should have the name and address of the parent(s),  guardian, or spouse for dependent students. For independent applicants,  the name and address of the student must be on the utility bill.  Utilities  that meet the criteria are those for residential service only and available  from gas, electric, water, telephone, or cable providers.  For situations in  which utility costs are included in monthly rent payments, the SEO will  accept a notarized letter from the rental/leasing agency verifying this  arrangement.  Alternatively, applicants may submit two pay stubs that must  be for different pay periods.  For applicants who are dependents, the copies  of the pay stubs must have the name and address of a parent, guardian, or  spouse.  Pay stubs submitted for an independent applicant must have the  applicant’s name and address.
In testing to determine if students were eligible for DCTAG program funds,  we found 9 of the 45 student files we reviewed lacked sufficient proof of  domicile in the District of Columbia.  For these 9 students, we found that  either applicants did not provide the required documents or the documents  filed did not provide sufficient evidence of domicile in the District of  Columbia.  According to SEO officials, this lack of sufficient  documentation was caused by the creation of a new program and the time  needed to firmly establish procedures for reviewing applications.  These  officials explained that most of the weaknesses in documentation occurred  during the DCTAG program’s first year in operation.  However, 6 of the 9  instances we identified were exceptions relating to academic years after  2000-2001, which was the first year of operation for the program.  Without  the required proof of domicile documentation, the District is at increased  risk that individuals who are not domiciled in the District of Columbia are  receiving DCTAG program funds.
section_title: How the SEO Determined Eligibility Was Unclear for Applicants with Unusual Circumstances
paragraphs: While reviewing student applications for eligibility, we encountered several  cases where applicants were not able to provide the prescribed documents  due to unusual or special circumstances.  For example, a D.C. resident who  is a ward of the court may not have all of the documents required to  demonstrate domicile in the District of Columbia.  A ward of the court is a  person 21 years of age or younger who is in the custodial care of the  District’s foster care system due to the absence of parents or a legal  guardian.  Once a ward of the court turns the age of 22, they are technically  no longer in the District’s foster care system.  Therefore, these applicants  may not be able to produce the typical documents to demonstrate domicile  in the District of Columbia, such as certified D-40 tax returns and recent  utility bills with a District of Columbia address.  In these extraordinary  situations, DCTAG program regulations allow the SEO to determine on a  case-by-case basis the domicile of applicants based on the particular facts  and circumstances.  In our review, we could not tell how SEO officials  made these case-by-case determinations for those applicants with unusual  circumstance because the SEO had no process in place to document how  eligibility determinations are to be made for those applicants.  Without a  uniform procedure to document the facts and circumstances for each  applicant, there is no way to tell how SEO officials satisfied themselves  that the students were eligible for DCTAG funds.
section_title: High Management Turnover at SEO Affected the Control Environment and Program Operations
paragraphs: The DCTAG program has experienced significant management turnover  since its beginning in 2000.  Four individuals have held the position of  DCTAG director.  In addition, there have been changes in management  positions providing oversight for the DCTAG program—two individuals  have held the position of director of the SEO and there have also been  changes in the position of director of higher education financial services at  the SEO.  The director of higher education financial services oversees the  DCTAG program as well as other college assistance programs within the  SEO.  The effect of increased turnover of personnel and the lack of  consistent leadership within the SEO was also identified by the District of  Columbia Auditor in a report about the performance of the District’s  special nutrition and commodities distribution program, for which the SEO  also has responsibility for administering.  According to the Standards for  Internal Control in the Federal Government, a positive control  environment is the foundation for all of the other internal control  standards, providing discipline and structure as well as the climate that  influences the quality of internal control.  The management of an  organization has a tremendous influence over an entity’s control  environment.  For example, management influences the control  environment by (1) setting and maintaining an organization’s ethical tone,  (2) ensuring employees have the proper knowledge and training, and  (3) creating the philosophy and operating style of the organization.   Without consistent leadership, the control environment of DCTAG was  unstable, changing with each shift in management.  This inconsistency  created a challenge for the program when attempting to develop an  effective and efficient control environment.
section_title: DCTAG Funds Are Being Accounted for Separately, but Routine Bank Reconciliations Are Needed
paragraphs: While the District had established dedicated bank accounts for the DCTAG  program as required by law, reconciliations were not being done between  these bank accounts and the account balances for the DCTAG program in  SOAR.  When District officials performed a reconciliation in May 2005 at  our request, they discovered a difference of approximately $11 million that  had not been reconciled—$8.3 million of which should have been  transferred from the DCTAG-dedicated bank accounts to the District’s  general fund and $2.7 million of which was interest that had been earned in  the dedicated bank accounts since these accounts were established.
subsections: section_title: DCTAG Funds Accounted for in Dedicated Accounts
paragraphs: The District has established two dedicated accounts for the DCTAG  program—one for funds to be expended in the short term (within the next  90 days) and the other for longer-term needs. The 2002 Amendment  requires that the District government establish a dedicated account that is  available solely for the DCTAG program and consists of the following  amounts: (1) federal funds appropriated to carry out the program,  (2) District-appropriated funds for the program, (3) any unobligated  balances from amounts made available to the DCTAG program from  previous fiscal years, and (4) interest earned on the balances in the  dedicated or separate accounts. When the District receives the annual  federal payment amount from the federal government for the DCTAG  program, the funds are deposited directly in the short- and longer-term  dedicated accounts.  Payments made from DCTAG program funds to  institutions for tuition grants and to vendors for administrative expenses  are recorded in SOAR and paid with funds from the District’s general fund.   On the basis of the pattern of grant payments, OFRM regularly initiates  transactions to transfer funds from the DCTAG-dedicated accounts to  reimburse the District’s general fund for disbursements made on behalf of  the program based on transactions recorded in SOAR.
section_title: Reconciliations Not Performed
paragraphs: According to our Standards for Internal Control in the Federal  Government, internal control should generally be designed to ensure that  ongoing monitoring occurs in the course of normal operations.  Ongoing  monitoring includes reconciliations of cash balances against the amounts  recorded in the financial management system.  A reconciliation process is a  necessary and valuable part of a sound system of financial management  controls.  The District has a process in place for disbursement of DCTAG  funds structured so that actual disbursements of tuition grants and  program administrative expenses are paid out of the District’s general fund  and then funds are transferred from the DCTAG-dedicated bank accounts  to reimburse the general fund.  Periodically, OFRM calculates the amount  of expenditures that have been paid out of the general fund and transfers  funds from the dedicated bank accounts to the general fund via wire  transfer.  However, these calculations are not based on a reconciliation of  DCTAG fund activity.  As a result of the reconciliation performed by OFRM,  we also found that a significant amount of expenditures, $8.3 million, had  not been captured in OFRM’s calculations of the amount to be reimbursed  to the District’s general fund, and had not been transferred from the  DCTAG-dedicated bank accounts to the District’s general fund.  According  to District officials, the transactions were year-end accruals that  subsequently became expenditures in succeeding fiscal years and were  paid from the District’s general fund on behalf of the DCTAG program, and  it was an oversight by OFRM to not have included them in its calculations  of the amount of funds to be transferred from the DCTAG-dedicated  accounts to the general fund.  In July 2005, District officials told us that  they had electronically transferred the $8.3 million from the DCTAG- dedicated accounts to the general fund to reimburse the general fund for  these expenditures.
The other part of the unreconciled difference of $11 million discussed  above, $2.7 million, was identified by District officials as interest earned on  funds from the time the dedicated bank accounts were established in 2001  through June 30, 2005.  Although these interest earnings appeared on the  bank statements, District officials informed us that the $2.7 million had not  been recorded as available funds for expenditure for the DCTAG program.   District officials told us that the interest earned is considered to be an  integral part of the long-term planning and available budget for the DCTAG  program; however, budget authority for the interest earned on DCTAG  program funds had not been requested.  The interest earned was not  included as funds available for the DCTAG program in quarterly reports  provided to congressional staff.  They explained that up until 2005, there  had been a carryover of funds from one year to the next for the DCTAG  program.  Due to the successful outreach of the program, District officials  stated that they have reached the point where the carryover has been  nearly exhausted. District officials also stated that based on their analysis  of cost drivers that affect the program, such as the number of students and  cost of tuition, it would be prudent for the District to budget the earned  interest during fiscal year 2006.
Without routine reconciliations between DCTAG-dedicated bank accounts  and SOAR, errors that occur can go undetected.  Errors that result in the  failure to reimburse the District general fund for DCTAG program  disbursements paid can affect the District’s cash flow and could potentially  contribute to the need for the District to borrow to cover short-term needs.   Moreover, these errors could result in the understatement or overstatement  of DCTAG program expenditures as well as the amount of funds available  to be expended.  Reconciliations are most effective when they are done  soon after the close of the month when differences can still be researched  easily.
section_title: The SEO’s Forecasting Method to Project Future Funding Needs Has Not Been Reviewed for Methodological Soundness
paragraphs: The District’s forecasting method to estimate the number of students and  the average cost per student for those participating in the DCTAG program  each year for future years is based on assumptions that have not been  reviewed against historical experience or developed using other available  information.  The SEO’s projections for fiscal years 2007 through 2010 are  based on a flat 6 percent increase in the number of students in the program  each year and an annual increase of 10 percent in the average cost per  student to attend college.  SEO officials do not have documentation or  analysis supporting the appropriateness of these percentages for  estimation purposes.  According to SEO officials, the DCTAG program is  unique because no other city in the United States has this type of program  and, therefore, information already available on the numbers of high school  graduates continuing on to college in other states or jurisdictions is not  applicable.  SEO officials stated that they recognize the need to develop a  sound methodology for making these projections, but the focus has been  on recruitment of students and colleges and universities to participate in  the program.  The officials explained that they have not yet had an  opportunity to develop such a methodology or obtain the historical data  needed to project current and future needs based on District information.   This would require capturing, among other information, tuition rates at  DCTAG participating institutions as well as historical graduation data from  the District’s public schools, 54 charter schools, and D.C.’s private high  schools, and keeping statistics on the number of high school graduates that  continue on to college and remain in college in subsequent years.  With the  development of a sound methodology for projecting the numbers of eligible  applicants applying for DCTAG program funds, both Congress and the  District will be able to make more informed funding and budgeting  decisions necessary to sustain the program.
section_title: Total Amount of the Administrative Expenses for the DCTAG Program Unknown
paragraphs: While the District reported that it used 5.3 percent ($0.9 million) of the  $17 million of federal funds appropriated in fiscal year 2004 appropriated  funds, less the rescission, the District does not track the full amount of  administrative expenses incurred for the program.  The SEO does not  allocate indirect costs by program, thereby likely undercharging the  DCTAG program for administrative expenses incurred.   District officials  acknowledged that they did not know how much the total administrative  costs were, but estimated that operating the DCTAG program costs more  than the 7 percent legislatively set limit for federal funding.  They explained  that these additional costs are absorbed using District funds.  According to  SEO officials, they are working on a cost allocation process so that they  can more fully track administrative expenses.
The 2002 Amendment provides that the DCTAG program may not use more  than 7 percent of the total amount appropriated for the program since  November 12, 1999, for administrative expenses.  Administrative  expenses are defined as any program costs other than tuition grants, and  generally include such things as payroll, supplies, materials, and utilities as  well as SEO overhead costs.  As noted, the District used 5.3 percent of the  DCTAG federal payment for administrative expenses for fiscal year 2004.   For fiscal year 2004 we reviewed, but did not audit, the administrative  expense information included in the quarterly expenditure reports  submitted to the Senate and House appropriations committees.  The  amount of DCTAG administrative expenses reported for fiscal year 2004  may not be the full amount of those expenses.  District officials told us that  they estimate the cost of administrative expenses for the DCTAG program  based on the established limit of 7 percent, and explained that they do not  have a process where they can accumulate and assign administrative costs  to the SEO’s various programs, including DCTAG.  Also, during our review  of fiscal year 2004 expenditures, we identified nine transactions amounting  to $34,510 of non-DCTAG expenditures for fiscal year 2004 that had been  charged to the program in error.  These expenditures were for  administrative expenses incurred by the District’s Tuition Assistance  Program Initiative for Temporary Assistance for Needy Families.  Once we  notified the District of these improperly recorded transactions, District  officials made the correcting entries in SOAR.  District officials informed us  that steps would be taken to implement routine reviews of expense  allocations to ensure the accuracy of each transaction, including the  assignment of expense to the appropriate SEO program.
section_title: Conclusions
paragraphs: The SEO has taken actions to put program and financial management  procedures in place, but DCTAG is at risk in the areas of student eligibility  and program budgeting.  Internal controls for determining whether  applicants are eligible for program funds are not adequately designed and  are not operating as prescribed in the DCTAG legislation and regulations.   The District needs well-designed and executed internal controls to provide  reasonable assurance that DCTAG program objectives will be met and that  only District residents meeting the eligibility criteria are awarded these  tuition grants.  These controls are crucial for the credibility of the program  and the appropriate use of federal funding.  To address the challenges of a  growing program, the SEO will need continuity of leadership going forward  to plan, direct, and control operations to effectively and strategically  achieve the goals of the DCTAG program.  Moreover, SEO and OFRM  officials must closely monitor DCTAG program funds to ensure that  accurate records are maintained, account reconciliations are performed  and documented, and that sufficient funds are available to meet current  and future financial needs.  To ensure that the District has the resources to  meet the demand for DCTAG tuition grants, the District needs projections  of both the short-term and long-term financial needs of the program based  on a sound analytical methodology.  It is also important for the District to  be able to accurately measure the administrative costs of the DCTAG  program so that total operational costs can be determined.  As the program  continues to grow, monitoring of DCTAG program funds will become more  crucial.
section_title: Recommendations for Executive Action
paragraphs: We recommend that the Mayor of the District of Columbia direct the head  of the State Education Office to  require applicants for DCTAG program funds to provide a valid Student  Aid Report or other document with similar information with their  applications so that applicants’ identities and citizenship will have been  verified by the federal government before the District receives the  information,  establish and implement procedures to ensure that sufficient evidence is  obtained and maintained to demonstrate that applicants are actually  domiciled in the District prior to providing participants with DCTAG  funding,  develop and retain documentation that clearly shows how eligibility  decisions are reached when it reviews applications submitted by  students with unusual circumstances,  develop a sound methodology for forecasting (1) numbers of  students  in the program and (2) funds needed for future fiscal years,  coordinate with OFRM and the Office of Budget and Planning to ensure  that interest earned on DCTAG-dedicated bank accounts is made  available to be expended for the DCTAG program, and  refine the current mechanisms for identifying and recording the actual  costs of administering the DCTAG program, in coordination with the  Office of the Chief Financial Officer and OFRM.
We recommend that the Chief Financial Officer of the District of Columbia  direct the Office of Finance and Resource Management to   routinely conduct reconciliations and document the reconciliations  performed between the DCTAG bank accounts and financial data in  SOAR and   establish and implement procedures to ensure that reimbursements that  are due the District’s general fund for all expenditures made on behalf of  the DCTAG program are executed timely for the correct amounts.
section_title: Agency Comments and Our Evaluation
paragraphs: We received written comments on a draft of this report from the Mayor of  the District of Columbia and the District’s Chief Financial Officer.   The  Mayor and Chief Financial Officer generally agreed with our findings and  recommendations and provided additional discussion about the issues  raised in the report.  Their written comments are reprinted in appendixes II  and III, respectively.
In his October 14, 2005, letter (see app. II), the Mayor generally agreed with  our findings and recommendations, stating that the SEO will or has already  implemented the six recommendations.   In his comments, the Mayor  characterized the findings in the draft report as stemming from weaknesses  existing in the program’s start-up years versus more currently.  However, as  described in our scope and methodology (see app. I), our testing was based  on a sample of payments from all fiscal year 2004 expenditure transactions  for the DCTAG program.  These expenditure transactions for fiscal year  2004 included payment transactions for students receiving grants for both  the 2003-2004 and 2004-2005 school years.  Students receiving payments  during that time period may have submitted their original applications  during previous years depending on the year in which they entered the  program.  In order to test the sufficiency of documentation to obtain  assurances on student eligibility, we reviewed the initial application  submitted by each student, as well as the application submitted for fiscal  year 2004.  Our report identified a total of 16 exceptions that occurred as  follows: 6 in the initial year of the program (2000-2001); 1 during academic  year 2001-2002; 4 for academic year 2002-2003; and 5 during academic year  2003-2004.  Thus, weaknesses in assessing eligibility in the early years can  impact the use of DCTAG program payments in subsequent years.
The Mayor stated that appropriate internal controls are currently in place  to ensure that the errors of the past are not replicated.  The Mayor also  stated that SEO agrees with or has already implemented the  recommendations made by GAO.  The Mayor also had the following  specific responses to our recommendations: The Mayor stated that the SEO will modify its OneApp (application for  financial assistance) and will add the Student Aid Report, as criteria for  eligibility for the 2006-2007 school year application, to address our  recommendation that students’ Social Security numbers be verified.
The Mayor agreed that it is critical that domicile information be verified  and maintained, and stated that the SEO is confident that its current  approach satisfies our recommendation to establish and implement  procedures to verify that applicants are domiciled in the District.
The Mayor stated that a “letter to the file” is prepared for each applicant  with unusual or special circumstances.  However, at the time of our  review, none of the applicant files where special case-by-case  determinations were made contained a letter to the file or any other  written evidence documenting how eligibility decisions were made for  applicants with unusual or special circumstances.
The Mayor also stated that SEO is in the process of developing  comprehensive District of Columbia high school graduation and college  retention data to further improve its ability to forecast student  participation in the DCTAG program and related costs.  In responding to  the related recommendation, the Mayor noted that SEO will improve  upon its current forecasting methodology through additional analysis of  District of Columbia high school graduation data as well as college  retention data.
The Mayor noted that SEO, OFRM, and the Office of Budget and  Planning have coordinated as we recommended in the draft report and  the interest earned on the funds in the dedicated accounts has been  budgeted for fiscal year 2006.  According to the Mayor, SEO and OFRM  have also worked together to improve the recording of actual  administrative costs incurred in operating the DCTAG program.
In commenting on a draft of this report, the CFO expressed his  appreciation for our assessment and recommendations for the DCTAG  program.  According to the CFO, the District is required to reconcile all  bank accounts to verify that the balances in the District’s financial system  (SOAR) correspond with bank account balances each quarter and at year- end.  The CFO added that these reconciliations were performed timely.   However, we found that the reconciliations had not been performed prior  to our review.  The CFO explained that the District’s procedure is to use its  own funds to pay DCTAG expenditures, including tuition payments, and  then be reimbursed with federal funds maintained in the DCTAG-dedicated  bank accounts.  The CFO added that when GAO made the request, the  District’s general fund had not been fully reimbursed for all DCTAG  expenditures. The CFO also noted that going forward the District will  reimburse the general fund for all DCTAG expenditures on a monthly basis  and reconcile quarterly.
The CFO agreed that the earned interest in the dedicated bank accounts  had not been included in budget authority.  While the CFO stated that the  earned interest was reflected in the annual budget submissions to  Congress, our review of information provided by the Office of Budget and  Planning shows that the earned interest was not included in the budget  request submissions.  According to the CFO, the interest had not been  budgeted because in the early years of the DCTAG program, the yearly  congressional appropriation was more than sufficient to meet total  expenditures.  However, the CFO has concluded that budgeting the earned  interest during fiscal year 2006 would be prudent, as the program growth  has resulted in nearly exhausting the carry-forward of funds from previous  years.
In his comments, the CFO stated that the District is absorbing some of the  indirect costs that might otherwise be charged to the DCTAG program,  while using federal funds to pay direct costs to the program.  However, the  CFO agreed that it is important to assess the total administrative cost of the  DCTAG program.  The CFO added that a methodology will be developed to  document this information.
We will send copies of this report to the Mayor of the District of Columbia,  the Chief Financial Officer of the District of Columbia, and the Director of  the SEO.  We are also sending copies of this report to the Chairman and  Ranking Minority Members of the Subcommittee on Oversight of  Government Management, the Federal Workforce, and the District of  Columbia, Senate Committee on Homeland Security and Governmental  Affairs; the House Committee on Government Reform; appropriate  congressional committees; and other interested parties.  We will also make  copies of this report available to others on request.  In addition, the report  will be available at no charge on GAO’s Web site at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  Jeanette M. Franzel, Director, Financial Management and Assurance, at  (202) 512-9471 or FranzelJ@gao.gov.  Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report.  GAO staff that made major contributions to this report are  listed in appendix IV.
section_title: Scope and Methodology
paragraphs: To understand the processing of the District’s Tuition Assistance Grant  (DCTAG) program transactions, we reviewed reports issued by the Office  of the Inspector General, U.S. Department of Education, and the Office of  the District of Columbia Auditor.  We interviewed District officials within  the Office of the Chief Financial Officer (OCFO), the Office of Finance and  Resource Management (OFRM), and the State Education Office (SEO) and  reviewed documents to understand how DCTAG appropriated funds are  recorded, monitored, and expended.  We received an overview of the  processing of DCTAG transactions and conducted walk-throughs of all  processes at the SEO and OFRM to identify the internal controls built into  these processes.  We interviewed SEO officials to obtain an understanding  of how institution and student eligibility for participation in the DCTAG  program is determined and conducted walk-throughs of the steps taken to  reach eligibility decisions.
We assessed the reliability of the District’s DCTAG financial data by  (1) reviewing existing documentation related to data sources, (2) analyzing  the data to identify obvious problems with completeness or accuracy,  (3) interviewing knowledgeable agency officials about the data, and (4) reviewing reports to identify known data reliability issues affecting the  District financial management system, System of Accounting and  Reporting (SOAR).  We determined that the data were sufficiently reliable  for purposes of this report.
In addition, we reviewed supporting documentation and reconciled the  totals of disbursement transactions as recorded in SOAR with similar  information provided in the quarterly reports that the District submitted to  the Senate and House appropriations committees for fiscal year 2004.  We  also reviewed the disbursement transactions to identify any duplicate or  missing amounts.  Overall, we found the disbursement transaction data to  be sufficiently complete and reliable for the purpose of testing the controls  over determining institution and student eligibility and for documenting the  total DCTAG program administrative expenses paid through SOAR for  fiscal year 2004.
To test whether the data used to test student and institution eligibility were  complete and accurate, we obtained a database of all fiscal year 2004  expenditure transactions from SOAR, and sorted the expenditures by  object class.  Each object class total was compared to the quarterly  expenditure report compiled by OFRM in order to verify the completeness  and accuracy of the population against actual expenditures.  We analyzed  the data to identify any duplicate or improperly classified transactions.  We  identified all refund transactions in the database provided to us and found  that 16 refunds were posted during fiscal year 2004.  We tested 100 percent  of the refund transactions and verified that (1) all of the required  information was submitted with the refund check and the paperwork was  signed and dated, (2) the receipt of the refund was posted to the student’s  account in the SEO’s Automated Information System (AIS) so that the  student’s annual and lifetime totals were correct, and (3) the refund  amounts shown on the paperwork from the institutions agreed with the  total refund amount deposited for that transaction.
To test controls over institutional payment transactions, we selected a  dollar unit sample of 58 tuition assistance payments made to institutions  during fiscal year 2004, totaling about $11.3 million from payments totaling  about $27.7 million.  We tested the tuition grant payments made to  institutions to determine whether the institutions were eligible to receive  DCTAG payments.  Eligible institutions in this context were those  institutions that met the criteria specified in the DCTAG legislation and  executed signed Program Participation Agreements, which had also been  signed by the Mayor of the District of Columbia.
In testing the selected payments to institutions, we verified that the billing  institutions were eligible to participate in the DCTAG program and that the  required information was provided with the invoices. Specifically, we  determined whether (1) the institution met the criteria for an eligible  institution as defined in the law and regulations, (2) the SEO had a signed  and dated PPA on file for that institution, (3) the information on the invoice  submitted by the institution agreed with the documentation that was  forwarded to OFRM for payment processing, (4) payment of the invoice  was authorized and dated by an appropriate individual in OFRM, and (5) all  information shown on the paid invoice agreed with the transaction as  recorded in SOAR.
To test controls over the SEO’s processes to determine student eligibility  for DCTAG program funds, we selected a random sample of 45 transactions  from 3,094 individual payments made on behalf of students that were  identified on the invoices from institutions that were selected in the dollar- unit sample discussed above.  For each student selected, we reviewed the  initial application submitted by that student as well as the application  submitted for fiscal year 2004.  We also reviewed applicant files to ensure  that (1) all of the documents required to be submitted with the application  were present, (2) the required documents provided were reviewed by the  SEO, and (3) on the basis of that information, whether the students were  eligible to receive DCTAG funds.
To assess whether funds for the DCTAG program were being accounted for  separately in dedicated accounts, we reviewed District procedures for  maintaining the dedicated accounts for the DCTAG program and for  reimbursing the District’s general fund for disbursements made on behalf  of the program.  We requested and reviewed (1) bank statements from the  two dedicated bank accounts for fiscal year 2004 and June 2005 and (2) documentation showing the calculation of reimbursements to the  District’s general fund.  We reconciled the bank statements to reports from  SOAR, the District’s financial management system.  We also inquired about  the frequency of reconciliations performed between the DCTAG bank  accounts and the account balances in SOAR, and reviewed the results of  two reconciliations performed by OFRM staff between the dedicated bank  account balances and the balances recorded in SOAR.
To determine whether administrative expenses charged against federal  funds are within the 7 percent limit of the total amount of federal funds  appropriated for the DCTAG program, we obtained and reviewed  information on the types and amounts of administrative expenses incurred  to operate the DCTAG program.  We reviewed the policies and procedures  followed by the District intended to provide safeguards that the 7 percent  limit on these expenses is not exceeded.  To ensure that the administrative  expense data we reviewed were complete and accurate, we obtained a  database of all fiscal year 2004 expenditure transactions from SOAR, and  sorted the expenditures by object class.  We compared each object class  total to the quarterly expenditure report compiled by OFRM in order to  verify the completeness and accuracy of the population.  We analyzed the  data to identify any duplicate or improperly classified transactions that  existed.  We requested a breakdown of administrative expenses incurred  during fiscal year 2004 by each program under the SEO’s responsibility,  however, the SEO was unable to provide us this information.
We conducted our work from March 2004 through June 2004 and from  February 2005 through July 2005 in accordance with U.S. generally  accepted government auditing standards.
section_title: Comments from the Mayor of the District of Columbia
section_title: Comments from the Chief Financial Officer of the District of Columbia
section_title: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Acknowledgments
paragraphs: The following individuals also made important contributions to this report:   Norma Samuel, Sharon Byrd; Richard Cambosos; Lisa Crye; Katelin  Carnahan; James Maziasz; Philip Reiff; John Saylor; Sandra Silzer;  Christopher Spain; and Sabrina Springfield.