Management report, Department of Education, an organizational unit of the state of Georgia, year ended June 30, 1998

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MANAGEMENT REPORT DEPARTMENT OF EDUCATION AN ORGANIZATIONAL UNIT OF THE STATE OF GEORGIA
YEAR ENDED JUNE 30, 1998
STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS
254 WASHINGTON STREET
ATLANTA, GEORGIA 30334-8400

DEPARTMENT OF EDUCATION MANAGEMENT REPORT - TABLE OF CONTENTS -

LETTER OF TRANSMITTAL

SECTION I

SELECTED FINANCIAL INFORMATION

EXHIBITS

A ANALYSIS OF CHANGES IN FUND BALANCE

BUDGET FUND

1

SCHEDULES OF FUNDS AVAILABLE AND EXPENDITURES

COMPARED TO BUDGET

BUDGET FUND

B

"A" DEPARTMENT OF EDUCATION

2

C

"B" LOTTERY FOR EDUCATION

5

D RECONCILIATION OF TRAVEL

6

E SUMMARY OF SALARIES, TRAVEL, AND PER DIEM AND FEES

7

SECTION II AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS

SECTION ill CURRENT YEAR FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS

CLAUDE L. VICKERS
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
254 Washington Street, S.W., Suite 214 Atlanta, GeorgiR 30334-8400
January 22, 1999

Honorable Roy E. Barnes, Governor Members ofthe General Assembly of Georgia Members of the State Board of Education
and Honorable Linda C. Schrenko, State Superintendent of Schools Department of Education
Ladies and Gentlemen:
As part of our audit ofthe statutory basis financial statements of the State of Georgia presented in the Report ofthe State Auditor, the general purpose financial statements of the State of Georgia presented in the State ofGeorgia Comprehensive Annual Financial Report, and the issuance of a Statewide Single Audit Report pursuant to the Single Audit Act Amendments, as ofand for the year ended June 30, 1998, we have performed certain audit procedures at the Department of Education. Accordingly, the fmancial statements and compliance activities of the Department of Education were examined to the extent considered necessary in order to express an opinion as to the fair presentation of the fmancial statements contained in the foregoing documents and to issue reports on compliance and internal control as required by the Single Audit Act Amendments of 1996.
This Management Report contains information pertinent to the fmancial and compliance activities of the Department of Education as of and for the year ended June 30, 1998. The particular information provided is enumerated in the Table of Contents.
This report is intended solely for the use of management of the Department of Education. However, this report is a matter of public record and its distribution is not limited.

CLV:jb

Claude L. Vickers State Auditor

SECTION I SELECTED FINANCIAL INFORMATION

DEPARTMENT OF EDUCATION ANALYSIS OF CHANGES IN FUND BALANCE
BUDGET FUND YEAR ENDED JUNE 30. 1998

EXHIBIT "A"

FUND BALANCE - JULY 1. 1997
Reserved SurplUS
ADDITIONS
Adjustments to Prior Year's Accounts Payable Grants Payable
Change in Reserve for Inventory Donated Food Program Food Distribution Program Emergency Food Assistance Program
Excess of Funds Available over Expenditures Exhibit"B" Exhibit"C"
Reimbursement of Prior Year's Expenditures Grants Other
DEDUCTIONS
Unreserved Fund Balance (Surplus)
Returned to Office of Treasury and
.Fiscal Services Year Ended June 30,1997
Adjustments to Prior Year's Accounts Receivable
Reserved Fund Balance Carried Over from Prior Year as Funds Available
FUND BALANCE - JUNE 30.1998

"A" DEPARTMENT OF
EDUCATION

"B" LOTTERY FOR
EDUCATION

$

3,330,542.63

$

2,724,303.21 $ 9,392,992.32

$

6,054,845.84 $ 9,392,992.32 $

TOTAL
3,330,542.63 12,117,295.53
15,447,838.16

$

789,963.45 $

30,050,085.81

317,747.95 $ 1,107,711.40

416,104.18

30,466,189.99

114,713.35 680,994.67

114,713.35 680,994.67

-29,814,188.74

477,870.41

-29,814,188.74 477,870.41

4,961,087.46 93,593.08

1,061,228.49 26.95

6,022,315.95 93,620.03

$

6,876,249.08 $ 2,272,977.98 $ 9,149,227.06

$

2,724,303.21 $ 9,392,992.32 $ 12,117,295.53

37,368.07

37,368.07

1,877,947.75

1,877,947.75

$

4,639,619.03 $ 9,392,992.32 $ 14,032,611.35

$

8,291 ,475.89 $ 2,272,977.98 $ 10,564.453.87

SUMMARY OF FUND BALANCE
ReserVed Federal Financial Assistance Inventories Supply Donated Food Food Distribution Program Emergency Food Assistance Program Georgia Academic and Medical System (GSAMS) Training Georgia School for the Deaf School Improvements Teacher Honorarium Payment Technology General Obligation Bond Funds Other Funds
Surplus

$

3,167,186.17

$ 3,167,186.17

85,000.00

85,000.00

154,807.80 2,093,495.10

154,807.80 2,093,495.10

879.36

879.36

38,922.60 1,950.00 5,464.78
231,595.59

38,922.60 1,950.00 5,464.78
231,595.59

$

5,779,301.40

$ 5,779,301.40

2,512,174.49 $ 2,272,977.98

4,785,152.47

$

8,291,475.89 $ 2,272,977.98 $ 10,564.453.87

- 1-

DEPARTMENT OF EDUCATION SCHEDULE OF FUNDS AVAILABLE AND EXPENDITURES
COMPARED TO BUDGET BUDGET FUND
"A" DEPARTMENT OF EDUCATION YEAR ENDED JUNE 30, 1998

EXHIBIT"B"

FUNDS AVAILABLE REVENUES
State Appropriation Federal Revenues Other Revenues Retained
CARRY-OVER FROM PRIOR YEAR Transfer from Reserved Fund Balance

BUDGET

ACTUAL

VARIANCEFAVORABLE (UNFAVORABLE)

$ 4,508,630,410.00 $ 4,508,630,410,00 $

768,180,627.00 673,659,052.89

10,505,848.00

8,217,422.90

$ 5,287,316,885.00 $ 5,190,506,885.79 $

0.00 -94,521,574.11
-2,288,425.10
-96,809,999.21

0.00

1,877,947.75

1,877,947.75

$ 5,287,316,885.00 $ 5,192,384,833.54 $ -94,932,051.46

EXPENDITURES
Personal Services Regular Operating Expenses Travel Motor Vehicle Purchases Equipment Computer Charges Real Estate Rentals Telecommunications Per Diem, Fees and Contracts Utilities aBE Formula Grants:
Kindergarten/Grades 1 - 3 Grades 4 - 8 Grades 9 -12 High School Laboratories Vocational Education Laboratories Special Education Gifted Remedial Education Staff Development and Professional
Development Media Indirect Cost Pupil Transportation Local Fair Share Midterm Adjustment Reserve

$ 36,996,646.00 $ 35,532,815.46 $

9,318,369.00

6,343,937.45

1,421,467.00

868,937.00

39,279.00

38,798.75

295,491.00

178,084.13

9,430,498.00

13,806,749.60

1,302,183.00

1,140,678.68

1,527,222.00

1,586,408.22

28,273,278.00

21,507,604.52

793,952.00

743,164.68

1,087,229,681.00 919,796,501.00 376,283,741.00 187,374,816.00 122,022,070.00 438,067,665.00 ,69,771,250.00 99,733,473.00

1,087,229,681.00 919,623,514.00 376,283,741.00 187,374,816.00 122,022,070.00 438,067,665.00 69,771,250.00 99,733,473.00

35,394,416.00 114,193,981.00 727,590,690.00 144,838,830.00 -668,034,272.00 78,027,895.00

35,394,416.00 114,193,981.00 727,591,755.00 144,838,811.00 -668,141,524.00 77,941,917.00

1,463,830.54 2,974,431.55
552,530.00 480.25
117,406.87 -4,376,251.60
161,504.32 -59,186.22 6,765,673.48 50,787.32
0.00 172,987.00
0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 -1,065.00 19.00 107,252.00 85,978.00

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DEPARTMENT OF EDUCATION SCHEDULE OF FUNDS AVAILABLE AND EXPENDITURES
COMPARED TO BUDGET BUDGET FUND
"A" DEPARTMENT OF EDUCATION YEAR ENDED JUNE 30, 1998

EXHIBIT"B"

DEPARTMENT OF EDUCATION SCHEDULE OF FUNDS AVAILABLE AND EXPENDITURES
COMPARED TO BUDGET BUDGET FUND
"A" DEPARTMENT OF EDUCATION YEAR ENDED JUNE 30, 1998

EXHIBIT"B"

Excess of Funds Available over Expenditures

$ 5,287,316,885,00 $ 5,222,199,022,28 $ 65,117,862.72 $ -29,814,188,74 $ -29,814,188,74

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DEPARTMENT OF EDUCATION SCHEDULE OF FUNDS AVAILABLE AND EXPENDITURES
COMPARED TO BUDGET BUDGET FUND
"B" LOTTERY FOR EDUCATION YEAR ENDED JUNE 30, 1998

EXHIBIT"C"

FUNDS AVAILABLE REVENUES
Lottery Proceeds

BUDGET

ACTUAL

VARIANCEFAVORABLE (UNFAVORABLE)

$ 357.532.088.00 $ 357.532.088.00 $

...;;.0.;,...0_0

EXPENDITURES
Pre-Kindergarten for 4-year-olds Financial and Management Equipment Alternative Programs Educational Technology Centers Capital Outlay Post Secondary Options Learning Logic Sites Assistive Technology Computers in the Classroom Fort Discovery National Science

$ 210.266.960.00 $ 209.880.806.25 $

3.804.500,00

3.804,499.99

500,000,00

499.972.00

689,836.00

688,900.00

99.027,375.00 99.027.375.00

3.089.598.00

2,998.845.35

300.000.00

300,000.00

2.000,000.00

2,000.000.00

36.853.819.00 36.853,819.00

1,000.000.00

1.000.000.00

386,153.75 0.01
28.00 936.00
0.00 90,752.65
0.00 0.00 0.00 0.00

$ 357,532,088.00 $ 357,054.217.59 $

4_77.....:..8.;,..7...;;.0_.4_1

Excess of Funds Available over Expenditures

$

477.870.41 $ ===4;.;.77.;..&,~87~0=.4==1

-5-

Total per Annual Supplement
Accruals June 30, 1997 June 30, 1998

DEPARTMENT OF EDUCATION RECONCILIATION OF TRAVEL YEAR ENDED JUNE 30, 1998

EXHIBIT"D"
$ 951,862.45 -4,696.26 692.30
$ 947,858.49

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DEPARTMENT OF EDUCATION SUMMARY OF SALARIES, TRAVEL. AND PER DIEM AND FEES
YEAR ENDED JUNE 30. 1998

EXHIBIT"E"

Totals per Annual Supplement Department of Education Office of School Readiness

SALARIES

TRAVEL

PER DIEM AND FEES

$ 25,354,748.97 $ 776,875.18 $ 1,621,029.36

2,279,612.87

174,987.27

70,771.95

$ 27,634,361,84 $ 951,862,45 $ 1,691,801.31

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SECTION II AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS

DEPARTMENT OF EDUCATION AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30. 1998

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

414-96-02 414-96-03 FS-414-97-01 FS-414-97-02 FS-414-97-03

Further Action Not Warranted Further Action Not Warranted Further Action Not Warranted - See Corrective Action/Responses Partially Resolved - See Corrective Action/Responses Partially Resolved - See Corrective Action/Responses

CORRECTIVE ACTIONIRESPONSES

BUDGET PREPARATIONIEXECUTION Overexpenditure ofBudget Unit Object Classes Finding Control Number: FS-414-97-01

We concur with this recommendation. Corrective action has been taken by the department to prevent future budget overexpenditures. An explanation of each of the overexpenditures follows:

The equipment overexpenditure of$45,717.21 resulted from the state auditors transferring equipment charges for lease-purchase agreements from an inventory clearing account (185.200) to equipment purchases (643.1). We were not aware that the auditors were making the transfers, so funds were not budgeted to cover the transfer.

The overexpenditure in the other Categorical Grants: Sparsity Grants of $30,000.00 resulted from funds being transferred from this object class to other object classes in error. The transfer should have been from K-3 grant funds. When the error was caught, it was . too late in the year to correct the transfer.

The overexpenditure of$139,345.00 in Non-QBE Grants: School lunch funds resulted from incorrect meal count information being used to determine the amount to include in the FY 97 budget request. The error was caught, but it was too late to amend the amount requested.

The overexpenditure of$6,600.00 in Lottery Funds - Computers in the Classroom resulted from personnel in the Instructional Technology unit making an error in allocating funds to schools. The unit failed to requeSt an additional amount to cover the error.

Procedures have been put into place to detect these type problems earlier so that corrections can be made to prevent overexpenditure of funds. Procedures have also been revised to ensure that correct information is used in requesting and allotting grant funds.

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DEPARTMENT OF EDUCATION AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 1998
PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
CORRECTIVE ACTIONIRESPONSES
CASH AND CASH EQUIVALENTS EXPENDITURESILIABILITIESIDISBURSEMENTS Agency Funds - Deficiencies in Accounting Procedures Finding Control Number: FS7414-97-02
We concur with parts of this recommendation. The deficiencies in the management of trust fund accounts involved the Vocational Education Club Accounts and the three state schools. Information was requested from vocational education and state school staff, so that Accounting Services personnel could determine the appropriate corrective action. A follow-up letter was sent to . management level personnel outlining the corrective action needed. Conversations were also held with these individuals to go over the deficiencies.
Some of the deficiencies involving the Vocational Education Club Accounts are questionable. A number of accounts were cited for expenditures that were not within the intent of the funds. All of the expenditures were reviewed and determined to be appropriate. The club accounts have a very broad range of activities that require many different types of expenditures. Some expenditures from trust accounts at the Georgia School for the Deaf did not appear to be within the intent of the funds. The school has been instructed to review the j~cations that were used in establishing the accounts. They were also, instructed to be sure that expenditures from the accounts are for the purposes the accounts were established.
Some of the accounts were also cited for inadequate supporting documentation for payment of services. The supporting documentation for services provided by speakers, photographers, and other . individuals often consisted of a single page invoice. Most of the individuals are one person companies and have simple billing and accounting procedures. They do not use multi-page preprinted invoices. Other times, cash register receipts are the only documentation received by custodians or others purchasing items for the clubs. There were however, instances where proper supporting documentation was not maintained and in these instances the custodians were requested to keep proper supporting documentation on expenditure of funds from trust accounts.
The finding involvingchecks signed by individuals other than the custodians ofthe accounts has been discussed with the Director ofthe Vocational Education section to reemphasize the requirement that only state employees may be custodians and sign checks. There were procedures in place that would have prevented the finding, but Vocational Education personnel did not follow them.
The finding concerning sales tax is also questionable. Many of the purchases made for the club account involve stores that are not used to exempting purchases from sales tax, such as restaurants, discount stores, grocery stores, etc. The fact that purchases are also made by individuals paying with
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DEPARTMENT OF EDUCATION AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 1998
PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND OUESTIONED COSTS
CORRECTIVE ACTIONIRESPONSES
CASH AND CASH EQUNALENTS EXPENDITURESILIABILITIESIDISBURSEMENTS Agency Funds - Deficiencies in Accounting Procedures Finding Control Number: FS-414-97-02
a check or cash, instead of by a field purchase order (FPO), causes difficulty getting the sales tax exemption. Since the custodians and other individuals purchasing items for the clubs encounter difficulty in getting the sales tax exemption, the procedures established to provide guidance in managing the trust fund accounts are being changed to no longer require sales tax be deducted from purchases. The procedures will only recommend that individuals making purchases for the clubs try to obtain exemption from sales tax when it is possible and practical to do so, such as hotel charges, large purchases, etc.
There were several instances ofchecks being written to custodians. There are procedures in place that state that checks should not be written to custodians. There are cases, however, when it is impractical for a custodian to have another individual purchase an item(s) so that a custodian is not writing himself or herself a check. While this practice should be discouraged and held to a minimum, we should allow custodians, with proper supporting documentation and justification, to write checks to themselves for expenditures they incurred for the trust account.
There were instances of checks being made payable to cash. There are also procedures in place that state that checks should never be made payable to cash. There is no reason a check should ever be made payable to cash. The letter going to trust fund custodians discussing the audit fmding will reemphasize that checks are not to be made payable to cash.
GENERAL FIXED ASSETSIPROPERTY MANAGEMENT Inadequacies in Operation of Property Management System Finding Control Number: FS-414-97-03
See our corrective action/response to finding number FA-414-97-01 in the Prior Year Federal Awards Findings and Questioned Costs;
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DEPARTMENT OF EDUCATION AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 1998

PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

414-96-03 414-96-04 FA-414-97-01 FA-414-97-02

Further Action Not Warranted Further Action Not Warranted Partially Resolved - See Corrective Action/Responses Partially Resolved - See Corrective Action/Responses

CORRECTIVE ACTIONIRESPONSES

EQUIPMENT AND REAL PROPERTY MANAGEMENT Inadequacies in Operation ofProperty Management System Finding Control Number: FA-414-97-01

We concur with this recommendation. The following is the FY 1997 audit findings in Equipment and Real Property Management for this department.

On September 1, 1/996, receiving reports began being processed through the property control officer.. The adopting ofthis procedure by Property Control and Accounting Services should have eliminated the noted deficiencies above, but some FPO Receiving Reports were not routed through Property Control and thus not captured into the DOE Property System. The process of reconciling PROP to FACS (GIFS) is a problem within DOE as there is $1,070,318.40 of outstanding inventory, and $494,473.41 ofinventory that has been received and paid but not in the DOE Property System because of DE form 0513, Receipt of Equipment form not being received from the unit ordering the equipment. This, along with FPOs bypassing Property Control either initially or by the Receiving Report, can cause problems in balancing. Property Control for FY 1998 is using PROP Report 8140, Reference Numbers Paid in FACS(GIFS), to reconcile the amounts in the report to the actual reference number (FPO) in the DOE Property System. All discrepancies are corrected through Accounting Services to ensure that FACS(GIFS) and PROP show the same amount for each reference number (FPO). Any errors found will be sent by memorandum to Accounting Services, the unit who issued the field purchase order, and to Budget Services for proper accountability ofmonies.

All FPOs are examined for correct SCOAs when processed through Property Control. Those that are found with incorrect SCOAs are changed prior to being received by Accounting Services. If the Receiving Report indicates that the item has been reduced to be classified into another SCOA then a memorandum is issued to Accounting Services, the initiating unit, and Budget Services for proper accountability ofmonies. This was the case in $130,937.50 (net), where Accounting Services failed to change the SCOA in FACS. There were some FPOs that had changes after issuance which resulted in the issuing ofFPO corrections, but not changed in FACS by Accounting Services to the amount of$47,328.00 (net). The Auditor indicated an error on two FPOs that had not been added to PROP.
The equipment was added prior to the end ofFY 1997. This was the case in $20,192.00 (net). There

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DEPARTMENT OF EDUCATION AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND OUESTIONED COSTS YEAR ENDED JUNE 30, 1998
PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
CORRECTIVE ACTIONIRESPONSES
EQUIPMENT AND REAL PROPERTY MANAGEMENT Inadequacies in Operation of Property Management System Finding Control Number: FA-414-97-01
were three FPOs where equipment was not received until FY 1998, resulting in the amount of $34,115.00 (net). Professional Practices Commission had reported three computers where only two were ordered, resulting in an overage of $1,549.00. Two Receiving Reports bypassed Property Control resulting in a difference of$498.00 between PROP and FACS. All these total to $230,525.50 (net).
All entries to LeaseIPurchase or Installment Purchases were computed by the actual amount being multiplied by the number of months in the purchase. The Receiving Reports were not seen in Property Control to correct these differences on PROP.
The annual physical inventory that is conducted by this agency each year is adequate supporting documentation. This report is signed by the unit head for each unit stating that they certify this inventory listing correct as ofthe date indicated. When an item is identified on this listing as missing, it is the unit's responsibility to do an internal investigation as to when the missing equipment was last seen, and to do random inspections as necessary. A DE form 0082, Report of Lost, Damaged, Destroyed or Stolen Property must be completed by the unit reporting the equipment as missing. This procedure is identified in the agency's Personal Property Procedures, dated July, 1996 (page 5, section X.), and every unit has been sent a copy every year from FY 1994 onward. Per DOAS PROP Procedures, June, 1992, Detail ofResponsibilities: The audit trail needed in the authorization for the deletions field would be: Missing: Supporting documentation and listed as missing for two years in the system (page I-D-7, I-D-9). The supporting documentation is the agency's annual physical inventory and the historical transaction register in the DOE Property System. All procedures were followed per the agency's Personal Property Procedures and the DOAS-PROP Procedures for the equipment to be deleted from this agency's property system.
My instructions from DOAS-Surplus and Supply on surplusing Federal funded equipment with a fair market value of $5,000.00 or greater, was to indicate "DOE" in the Funding Information column of the DOAS Transfer Form and Invoice. The equipment was removed officially from the DOE Property System with the use ofthe appropriate AR numbers as assigned by DOAS-Surplus and Supply. This office does .not engage in checking to see ifDOAS processes the Transfer Form and Invoice correctly. This office assumes that DOAS processed funds from the sale of Federal equipment as regulated by the Georgia Legislature and the Governor. I called DQAS when the DOA Auditor questioned me on these funds. A memorandum from DOAS-Internal Administration, Accounts Payable, referred to
-5-

DEPARTMENT OF EDUCATION AUDlTEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 1998
PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
CORRECTIVE ACTIONIRESPONSES
EQUIPMENT AND REAL PROPERTY MANAGEMENT Inadequacies in Operation ofProperty Management System Finding Control Number: FA-414-97-01
property sold on auction and indicated the agency was never reimbursed for their property. An E-Mail was also sent to Accounting Services referencing the reimbursement of the Federal property from DOAS to this department.
Six (6) of the forty-four (44) items missing were in the Office of School Readiness, which is not maintained by DOE Property Control. The remaining thirty-eight (38) items totaling $91,828.22 could not be located.
The following is a breakdown of the thirty-eight items that were reported missing by the Auditor:
Eight (8) were reported missing initially by units in FY 1997. Six (6) had been reported missing in a prior year by units and in FY 1997. Twenty-one (21) had not been reported missing by units in FY 1997. One (1) HP LaserJet IT Printer was located in Warehouse #4. Two (2) were stored in a holding area at GSD for destruction.
The items that were not located within the units at the Twin Towers were most likely moved by Technology Service and not communicated to Property Control. Technology Services has been instructed to identify all equipment movements to Property Control, but as ofthis date, none are being communicated.
SUBRECIPIENT MONITORING Subrecipient Audit Reports Not Received Within the Required Time Period Finding Control Number: FA-414-97-02
Department of Education's Response
We concur with this recommendation. Although the Department of Education is responsible for tracking and reviewing the audits on local units ofadministration (LUAs), the Department of Audits is required by state law to audit the LUAs, because LUAs receive the majority oftheir funding from the state. In addition to the LUA audits, the Department of Audits has the responsibility to audit all state agencies, commissions, etc. The LUAs are audited after the state agencies, commissions, etc. Because the LUAs are audited last and the large number of LUAs to be audited, the Department of Audits cannot complete the audits in the time period required by OMB Circular A-133. The U. S.
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DEPARTMENT OF EDUCATION AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND OUESTIONED COSTS
YEAR ENDED JUNE 30, 1998
PRIOR YEAR FEDERAL AWARD FINDINGS AND OUESTIONED COSTS CORRECTIVE ACTIONIRESPONSES SUBRECIPIENT MONITORING Subrecipient Audit Reports Not Received Within the Required Time Period Finding Control Number: FA-414-97-02 Department ofEducation is aware ofthe problem, and realizes there is not currently a viable solution to the fmding. The LUA audits are normally completed within a 15-18 month time period. The department has a six-month resolution period to resolve findings in the LUA audits after being received from the Department of Audits.
The Department ofAudits has proposed an alternative approach for providing federal audit coverage
of local school systems that should eliminate receiving state audits after the required time period. The one remaining school system is an FY 96 audit being performed by a private CPA fIrm. Numerous requests have been made to the local school system to have the CPA fIrm fInalize the FY 96 audit and provide a copy to the department. The 59 audits of USDA child care food program sponsors are the responsibility ofthe Office of School Readiness. A copy of this finding was sent to them to propose a response and initiate any necessary corrective action. Office of School Readiness' Response The previously reported action included obtaining an audit fIrm to perform all CACFP subrecipient audits. The 59 outstanding audits have been completed. All follow up work such as corrective action plans and follow up visits have been completed at this time. Any refunds or repayments associated with the 59 audits have been disbursed or collected.
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SECTION ill CURRENT YEAR FINDINGS AND QUESTIONED COSTS

DEPARTMENT OF EDUCATION SCHEDULE OF FINDINGS AND OUESTIONED COSTS
YEAR ENDED JUNE 30, 1998

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

BUDGET PREPARATIONIEXECUTION Overexpenditure of Budget Unit Object Classes Finding Control Number: FS-414-98-01

The total approved budget for the Department of Education - "A" Budget unit provided for expenditures totaling $5,287,316,885.00. A comparison ofanticipated funds available and budgeted expenditures to actual funds available and expenditures by object class indicates that the following object classes were overspent by the amounts identified below:

"A" Department of Education Computer Charges (In excess of 102% of budget authorized by the Appropriations Act.) Telecommunications (In excess of 102% of budget authorized by the Appropriations Act.) QBE Formula Grants: Indirect Cost Non-QBE Grants: Retirement (H.B. 272 and H.B. 1321) Regional Education Service Agencies Joint Evening Programs

$ 4,187,641.64

$ 28,641.78

$ 1,065.00

$ 258,733.66

$

631.00

$

300.00

The overexpenditures identified above are in violation of Section 54 of the Amended Appropriations Act of 1997-1998. These overexpenditures were caused by the Department's failure to monitor the expenditure of funds against the budgeted expenditures by object class.

The Department of Education should review its internal control procedures over budget operations, design procedures which would prohibit the expenditure of funds in excess ofbudget approval, and implement those procedures to strengthen the internal controls over the budget function.

CASH AND CASH EQUNALENTS EXPENDITURESILIABILITIESIDISBURSEMENTS Agency Funds - Deficiencies in Accounting Procedures Finding Control Number: FS-414-98-02

Our examination included a review ofthe accounting procedures utilized by the Department of Education in maintaining their agency fund cash accounts. The following are deficiencies in accounting procedures and internal control which are in need of corrective action:

1. Certain disbursements were not supported by adequate documentation. This deficiency occurred in the Georgia School for the Deaf (Athletic, Miscellaneous and Student Bank) and Professional Practice Accounts. All disbursements should be supported by adequate documentation to demonstrate proper disbursement and accounting of funds.

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DEPARTMENT OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 1998
FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
CASH AND CASH EQUIVALENTS EXPENDITURESILIABILITIESIDISBURSEMENTS Agency Funds - Deficiencies in Accounting Procedures Finding Control Number: FS-414-98-02
2. Certain disbursements did not appear to be in compliance with the intent of the fund. This deficiency occurred in the Georgia School for the Deaf Athletic and Miscellaneous Accounts. Steps should be taken to ensure that records of a fund include documentation stating specific disbursements which are allowable for the fund. Custodians should ensure that disbursements are made in accordance with the documentation concerning the intent ofthe fund.
3. Checks issued from the Georgia School for the Deaf, Athletic, Miscellaneous, and Student Bank Accounts were made payable to cash. This practice is not in accordance with the Department's policy and procedures for agency funds. Measures should be taken to prevent this practice.
4. Certain disbursements were not signed by the custodian ofthe account. This deficiency occurred in the Georgia FFA Association Account. Measures should be taken to ensure that all checks are signed by authorized signers.
5. Certain disbursements included payments for sales tax. This deficiency occurred in the Georgia School for the DeafAthletic Account and the Georgia FFA Association Account. According to the Department's policy and procedures for agency funds, which was in effect through June 30, 1998, sales tax should not be paid on an invoice total. Custodians should ensure that sales tax is paid in accordance with Departmental policy.
Although the accounting department has sent instructions to the custodians of the agency funds, deficiencies continue to exist. The Department should continue efforts to ensure that proper accounting procedures are utilized in maintaining agency funds.
EXPENDITURESILIABILITIESIDISBURSEMENTS Failure to Comply With the Fair and Open Grants Act Finding Control Number: FS-414-98-03
As part ofour examination, we reviewed the Office ofSchool Readiness' compliance with the "Fair and Open Grants Act of 1993". The following instances of nonc?mpliance were found:
1. The Office failed to submit a description of grant programs with the Secretary of State prior to granting funds as required by the Official Code of Georgia Annotated Section 28-5-122. OCGA 28-5-122 states, in part, as follows:
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DEPARTMENT OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 1998
FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
EXPENDITURESILIABILITIESIDISBURSEMENTS Failure to Comply With the Fair and Open Grants Act Finding Control Number: FS-414-98-03
"Before any state agency may make any grant ofpublic funds or offunds otherwise within its power ofdisposition, the state agency must publish a description of the grant program in the Official Compilation ofthe Rules and Regulations ofthe State of Georgia ..."
2. The Office failed to compile and file with the Secretary of State a list of grants awarded and disbursed in fiscal year 1997 as required by the Official Code of Georgia Annotated Section 28-5124. OCGA 28-5-124 states, in part, as follows:
"Before December 31 of each calendar year, each state agency shall compile and file with the Secretary of State a list of grants awarded and disbursed in the prior fiscal year, ..."
These instances of noncompliance occurred because the Office of School Readiness failed to submit information to the Secretary of State as required by the Official Code of Georgia. The Office should take appropriate action to ensure that the Office complies with the "Fair and Open Grants Act of 1993".
GENERAL FIXED ASSETSIPROPERTY MANAGEMENT Inadequacies in Operation ofProperty Management System Finding Control Number: FS-414-98-04
Our examination included a review of the internal accounting controls utilized by the Department of Education in maintaining their State Property System. This review also included testing the system for compliance with State laws and regulations. A number of conditions relating to inappropriate accounting practices were found to exist and have been identified in detail within the Federal Awards Findings and Questioned Costs, finding control number FA-414-98-01.
The Department is required to maintain equipment inventories inaccordance with provisions of the State Property Management System Manual. The discrepancies identified were caused by the Department's failure to follow guidelines for maintaining equipment inventories.
The Department should establish the necessary internal controls to ensure that equipment inventories are maintained in accordance with the State Property Management System Manual.
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DEPARTMENT OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 1998
FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
EQUIPMENT AND REAL PROPERTY MANAGEMENT Inadequacies in Operation of Property Management System Finding Control Number: FA-414-98-01
Our examination included a review of the internal accounting controls utilized by the Department of Education in maintaining their property management system. This review also included testing the system for compliance with Federal laws and regulations. The following conditions relating to inappropriate accounting practices were found to exist:
I. The Department is required by State property management policies to reconcile current year additions as reflected in the equipment inventory records to the general ledger equipment expenditure accounts. This reconciliation was performed, however, the reconciliation reflected an unexplained difference of $3 14,980.00 at June 30, 1998.
2. Three (3) additions for current year equipment purchases were updated incorrectly onto the equipment inventory records by an amount of$I,508.00 (net).
3. Equipment inventory items were deleted from the inventory system without adequate supporting documentation or proper authorization. After two years of appearing on an agency's equipment inventory records as missing, the State's property management policies allow missing items to be deleted from agency equipment inventory records given that proper documentation and authorization for deleting the missing item is on hand at the agency. As part of this deletion process at the Department ofEducation, Departmental policy requires DE form 0082 Report of Lost, Damaged, Destroyed or Stolen Property to be completed by personnel reporting the equipment as missing. Based on the State's two year deletion rule, twenty-eight (28) items totaling $73,721.74 were deleted from the inventory records without completing DE form 0082 or providing other documentation. (See point number 3 below.)
4.. Five (5) equipment items acquired through installment purchases were included on the equipment inventory records at an incorrect amount. The difference in the acquisition cost and the amount recorded on the inventory records amounted to $3,294.72 (net). These same equipment items were reported in the prior year Management Report as being recorded incorrectly.
In addition, five-hundred-thirty-eight (538) equipment items were selected from certain locations to test the accuracy ofthe Department's property management records. These items contained a value of$I,881,435.35 out ofa population of$17,052,823.63 at the tested locations and were selected for the purpose oflocating the equipment as recorded in the inventory records. Total general fixed assets of the Department amounted to $44,563,725.09. The following deficiencies were noted:
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DEPARTMENT OF EDUCATION SCHEDULE OF FINDINGS AND OUESTIONED COSTS
YEAR ENDED JUNE 30, 1998

FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

EQUIPMENT AND REAL PROPERTY MANAGEMENT Inadequacies in Operation of Property Management System Finding Control Number: FA-414-98-01

1. Sixty-three (63) items totaling $250,274.22 could not be located. Four (4) inventory unitsllocations out of the seventeen (17) inventory unitsllocations included in the sample accounted for fifty-one (51) ofthe missing items. These inventory unitsllocations were Location E14-100 Policy and Communications (4 missing items out of 6 items sampled for this location), Location E22-200 Curriculum (17 missing items out of 39 items sampled for this location), Location E65-700 Instructional Technology (21 missing items out of 54 items sampled for this location), and Location E65-800 Research, Development, and Accountability (9 missing items out of 24 items sampled for this location).

When attempting to locate missing items, interviews with employees responsible for the equipment items revealed that items are often moved between inventory unitsllocations and employees without any transfer forms or other means of documentation (for example; a log for employee checkout oflaptop computers within the inventory unit/location) being completed and filed with appropriate property management personnel. The Technology Division is responsible. for documenting the movement ofequipment items between inventory unitsllocations and also into surplus.

2. Two (2) items remained on inventory although proper documentation was on hand indicating that the items should have been deleted. One item in the amount of $10,872.00 was surplused. The other item in the amount of $2,843.00 was reported as stolen.

3. Eight (8) items totaling $24,216.50 were located, however, these items were recorded as missing on the equipment inventory records. These items were located in the same inventory unit/location which reported the items missing for purposes of removal from inventory records in accordance with the State's two year deletion rule. The inventory unitsllocations were Location E31-500 Federal Projects (3 items) and Location E65-700 Instructional Technology (5 items).

4. Four (4) items were found in locations other than the location indicated in the equipment inventory records.

Also, during the physical inspection testing, three (3) items of equipment were located which were not

included in the equipment inventory records.

.'

The Department is required to maintain equipment inventories in accordance with provisions ofparagraph 32, ofOMB's Uniform Administrative Requirements for Grants and Cooperative Agreements to State and Local Governments (Common Rule). The discrepancies identified above were caused by the Department's failure to follow guidelines for maintaining equipment inventories.

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DEPARTMENT OF EDUCATION SCHEDULE OF FINDINGS AND OUESTIONED COSTS
YEAR ENDED JUNE 30, 1998
FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
EQUIPMENT AND REAL PROPERTY MANAGEMENT Inadequacies in Operation ofProperty Management System Finding Control Number: FA-414-98-01
The Department should establish the necessary internal controls to ensure that equipment inventories are maintained in accordance with provisions of OMB's Common Rule.
Major Federal Programs/Awards Affected:
U. S. Department ofEducation Title I Grants to Local Educational Agencies - CFDA No. 84.010 Special Education Cluster Special Education - Grants to States - CFDA No. 84.027 Special Education - Preschool Grants - CFDA No. 84.173 Vocational Education - Basic Grants to States - CFDA No. 84.048
Federal Agencies With Other Affected Programs:
U. S. Department of Agriculture U. S. Department of Education
SUBRECIPIENT MONITORING Subrecipient Audit Reports Not Received Within the Required Time Period Finding Control Number: FA-414-98-02
As part ofour examination, we reviewed tracking documents used by the Department ofEducation and Office of School Readiness to determine the status of subrecipient audit reports for the year ended June 30, 1997. Qfthe 474 subrecipients identified on the tracking documents, 66 had not submitted their audits within the thirteen month period as required by OMB Circular A-l33. This noncompliance is due to subrecipient audits not being performed in a timely manner.
A subsequent review ofthe status ofthe 66 audits not submitted by the due date, indicated that all had been submitted by January 11, 1999. It was noted during our examination that the Department of Education utilized a program review staff for interim compliance reviews of all subrecipients in accordance with the provisions ofOMB Circular A-133.
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DEPARTMENT OF EDUCATION SCHEDULE OF FINDINGS AND OUESTIONED COSTS
YEAR ENDED JUNE 30. 1998
FEDERAL AWARD FINDINGS AND OUESTIONED COSTS SUBRECIPIENT MONITORING Subrecipient Audit Reports Not Received Within the Required Time Period Finding Control Number: FA-414-98-02
Major Federal Programs/Awards Affected:
U. S. Department ofEducation Title I Grants to Local Educational Agencies - CFDA No. 84.010 Special Education Cluster Special Education - Grants to States - CFDA No.. 84.027 Special Education - Preschool Grants - CFDA No. 84.173 Vocational Education - Basic Grants to States - CFDA No. 84.048 Goals 2000 - State and Local Education Systemic Improvement - CFDA No. 84.276 Innovative Education Program Strategies - CFDA No. 84.298
Federal Agencies With Other Affected Programs:
U. S. Department ofAgriculture Corporation for National and Community Service U. S. Department ofDefense U. S. Department ofEducation U. S. Department of Health and Human Services
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