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 3 C "B" LOTTERY FOR EDUCATION 5 D RECONCILIATION OF SALARIES 6 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 DEPARTMENT OF AUDITS AND ACCOUNTS 254 Washington Street, S.W~, Suite 214 w. RUSSELL HINTQ-.; STATE AL1>1TOR (404) 656-2174 Atlanta, Georgia 30334-8400 January 13, 2003 Honorable Sonny Perdue, Governor Members of the General Assembly of Georgia Members of the State Board of Education and Honorable Kathy Cox, State Superintendent of Schools Department of Education Ladies and Gentlemen- As part of our audit of the statutory basis financial statements of the State of Georgia presented in the State of Georgia Report of the State Auditor, the basic financial statements of the State of Georgia presented in the State of Georgia Comprehensive Annual Financial Report, and the issuance of a Statewide Single Audit Report pursuant to the Single Audit Act Amendments. as of and for the year ended June 30, 2002, we have performed certain audit procedures at the Department of Education. Accordingly, the financial statements and compliance actIvItIes of the Department of Education were examined to the extent necessary in order to express an opinion as to the fair presentation of the financial statements contained in the foregoing documents and to issue reports on compliance and internal controls as required by the Single Audit Act Amendments of 1996. This Management Report contains information pertinent to the financial and compliance activities of the Department of Education as of and for the year ended June 30, 2002. The particular information provided Is enumerated in the Table of Contents. This report is intended solely for the information and use of management of the State of Georgia and members of the Board and Is not intended to be and should not be used by anyone other than these specified parties Respectfully submitted, ~ ... QQ. w:41,k ~ellW Hinton State Auditor RWH:mah SECTION I SELECTED FINANCIAL INFORMATION DEPARTMENT OF EDUCATION ANALYSIS OF CHANGES IN FUND BALANCE BUDGET FUND YEAR ENDED JUNE 30, 2002 EXHIBIT"A" FUND BALANCE - JULY 1, 2001 Reserved Surplus ADDITIONS AdJustments to Pnor Year's Accounts Payable Grants Payable Close Trust Accounts Excess of Funds Available over Expenditures Exh1b1t "B" Exh1b1t "C" Increase m Reserve for lnventones Pnor Year's Checks Voided Reimbursement of Pnor Year's Expenditures Grants Other DEDUCTIONS Unreserved Fund Balance (Surplus) Returned to Office of Treasury and Fiscal Services Year Ended June 30, 2001 Refund of Pnvate Grant Reserved Fund Balance Ca med Over from Pnor Year as Funds Available FUND BALANCE - JUNE 30. 2002 "AJ DEPARTMENT OF EDUCATION s 19,313,010.26 10,692,733 57 $ "B" LOTTERY FOR EDUCATION $ 6.452.567 26 $ 30,005.743 83 S 6.452.567.26 $ TOTAL 19,313.010 26 17,145.300 83 36.458.311 09 s 1,383.192 74 88,836,720 41 S 322.82 -78,654.632 60 798,418 75 1,806 68 7,599,239 12 87.878 24 $ 20,052.946 16 $ s 884.216 96 1,383.192 74 89,720,937.37 322 82 83.607 00 -78,654.632 60 83,607.00 798,418 75 1,806 68 53,302 73 7 .652.541.85 87,878 24 s 1,021.126 69 21,074.072 85 s 10,692,733.57 $ 844 87 15.784,399 42 $ 26.477 977 86 $ 6,452.567 26 s 6.452.567.26 s 17,145.300 83 844 87 15.784.399 42 32.930.545 12 s 23,580.712 13 S s 1,021.126 69 24.601.838 82 -1- DEPARTMENT OF EDUCATION ANALYSIS OF CHANGES IN FUND BALANCE BUDGET FUND YEAR ENDED JUNE 30, 2002 EXHIBIT"A" SUMMARY OF FUND BALANCE Reserved State Funds Federal Financial Assistance lnventones Georgia Academic and Medical System (GSAMS) Trammg Technology General Obligation Funds Other Funds Georgia Partnership for Excellence m Education Next Generation Schools - Pnvate Grant Partner Donations for Technology United State Senate and Youth Program UndesIgnated Surplus Regular Tobacco Lottery for Education s 212,000 00 350,312 66 4,412,029.59 9,701 66 2.569.666 00 163.061 65 4.326 03 671,675 16 7,202.67 s 6,620,196 04 14,704,214 62 256,2g9_27 s s 212,000 00 350,312 66 4.412.029 59 9.701 66 2,569.666 00 163,061 65 4,326 03 671.675 16 7.202 67 s 6,620.196 04 1.021.126 69 14,704,214 62 256.299 27 1.021,126 69 s 23,560,712 13 S s 1.021,126 69 24.601.636 62 -2- DEPARTMENT OF EDUCATION SCHEDULE OF FUNDS AVAILABLE AND EXPENDITURES COMPARED TO BUDGET BUDGET FUND "A" DEPARTMENT OF EDUCATION YEAR ENDED JUNE 30. 2002 EXHIBIT "B'" FUNDS AVAILABLE REVENUES State Appropnat1on Federal Revenues Other Revenues Retained CARRY-OVER FROM PRIOR YEAR Transfer from Reserved Fund Balance BUDGET ACTUAL VARIANCEFAVORABLE (UNFAVORABLE) s 5.967.448,571 00 S 5.963.448.571 00 S -4.000.000 00 1,063,913,213 00 873,481.376 43 -190.431,836 57 23,977,248 00 14,599.291 97 -9.377,956 03 $ 7,055,339,032 00 S 6,851,529.239 40 S -203.809,792.60 0 00 15.784.399 42 15.784,399 42 s 7.055.339.032 00 $ 6,867,313.638 82 S -188,025.393 18 EXPENDITURES Personal Services Regular Operating Expenses Travel Motor Vehicle Purchases Equipment Computer Charges Real Estate Rentals Telecommunications Per Diem and Fees Contracts Ut1ht1es QBE Formula Grants Kindergarten/Grades 1-3 Grades 4-8 Grades 9-12 L1m1ted Enghsh-Speaking Students Program Alternative Programs Vocational Education Laboratories Special Education Gifted Remedial Education Additional Instruction Staff Development and Professional Development Media Indirect Cost Pupil Transportation Local Five Mill Share Mid-Term AdJustment Reserve Other Categoncal Grants Equahzat1on Formula Sparsity Grants Special Education Low - Incidence Grants Non-QBE Grants Next Generation School Grants Youth Apprent1cesh1p Grants $ 54,312,422 00 $ 51,487.427 63 S 8,409,660 00 5,632.658 78 1,610,696 00 1,151.354 57 90.974 00 69.568 00 166,670.00 67.462 00 11,000,798.00 8,002.942 75 1,110,295.00 1,107.823 64 2,044,538.00 719,871 73 5,112,355.00 3,277,071 83 28,673,346.00 22,826.769 94 848,101.00 712,400 58 1.579,406,847 00 1.436,852,838 00 718,186,530 00 56,210,223 00 64,877,107 00 184.281.170 00 696.752.914 00 154.147.010 00 23,850.432 00 45,433,597 00 28,707.302 00 151,364,716 00 906,213.232 00 177,551,763 00 -1.003,852,755 00 13,875,426 00 1,579.406,847 00 1.436,852.794.00 718.186.530 00 56,210.223 00 64.877.107.00 184.281.170 00 696.752,914 00 154,147.010 00 23.850,432 00 45.433.597 00 28,707.302 00 151,364,716.00 906,250,232 00 177,551,705 00 -1,003,852,755 00 13.550,262 00 255,947.743 00 6.548.910 00 852.291.00 255.947.743 00 6.548.893.00 840.889.00 875,000 00 4.340.000 00 875.000 00 4.340.000 00 2,824.994 37 2,777,001 22 459,341 43 21,406 00 99,208 00 2,997,855 25 2,471 36 1,324,666 27 1,835,283 17 5,846,576 06 135.700 42 0 00 44 00 0 00 0 00 0 00 0 00 0 00 0 00 0 00 0 00 0.00 0 00 -37,000 00 58 00 0 00 325,164 00 0 00 1700 11.402 00 0 00 0 00 -3- DEPARTMENT OF EDUCATION SCHEDULE OF FUNDS AVAILABLE AND EXPENDITURES COMPARED TO BUDGET BUDGET FUND "A" DEPARTMENT OF EDUCATION YEAR ENDED JUNE 30, 2002 EXHIBIT"B" EXPENDITURES High School Program Payment of Federal Funds to Board of Technical and Adult Education Vocational Research and Curriculum Education of Children of Low-Income Fam1hes Even Start Instructional Sel'lllces for the Handicapped Retirement (H B 272 and H.B 1321) Tuition for the Multi-Handicapped PSAT School Lunch (Federal) Joint Evening Programs Education of Homeless Children/Youth Pay for Performance Pre-School Handicapped Program Mentor Teachers Environmental Science Grants Advanced Placement Exams Serve Amenca Program Drug-Free School (Federal) School Lunch (State) Charter Schools Emergency Immigrant Education Program Title VI State and Local Education Improvement Health Insurance - Non-Cert Personnel and Retired Teachers Innovative Programs Title II Math/Science Grant (Federal) Migrant Education Regional Education Sel'lllce Agencies Severely Emotionally Disturbed Georgia Learning Resources System Special Education at State Institutions Robert C Byrd Scholarship (Federal) Comprehensive School Reform Character Education National Teacher Cert1ficat1on Pnnc1pal Supplements Grants For School Nurses Reading Program Student Testing Internet Access School Improvement Teams Communities In Schools Post Secondary Options Class Size Reduction BUDGET ACTUAL VARIANCEFAVORABLE {UNFAVORABLE) s 62,802,250 00 $ 53,019.066 00 S 9,783.184 00 23,600.609 00 293.520 00 293,882.141 00 6.925,630 00 206,101.179 00 5,508.750 00 1,900,000 00 756,500 00 308,375,722 00 267,333 00 1,117,000 00 10,283,000 00 21,325,701.00 1,250,000.00 151,000 00 2,811.600 00 1,042,976 00 12,164.707 00 37,509.080 00 6,900,307 00 4,036.740 00 17,767.503 00 26,573.797 00 16,027.188 67 0 00 293.726.167.87 6.885,337 00 205.025,846 75 5,060,245 00 1,790.440 00 756.500 00 294,918.023 41 267,000 00 1,080.296 00 10.158.000 00 21,286,103 00 1,243,890 00 96,000 00 2,811,600 00 365,809 00 11,746,908 00 37.406.666 00 4,275.517 00 4.036.740 00 11,089.406 00 13.162,385 00 7,573.420 33 293.520 00 155,973 13 40.293 00 1,075.332 25 448.505 00 109.560 00 0 00 13,457.698 59 333 00 36,704.00 125,000 00 39,598.00 6,110 00 55.000 00 0 00 677,167 00 417,799 00 102.414 00 2,624.790 00 0 00 6,678.097 00 13.411,412 00 107 .826.070.00 1,190.215 00 10,066.425 00 274,395.00 11,660,667.00 68.097 ,687.00 5,992,566 00 4,046,930.00 1,150,500 00 7,085,865 00 350,000 00 559.847 00 6,037.009 00 30,000,000.00 58,755,737 00 10,023,360 00 1,727,148 00 9,242.307 00 1,632,839 00 4,015,000 00 46.455.269 00 107,826.070 00 0 00 9,564.931 00 274.393 00 11,601,190 00 67 .786,597 .00 5.627, 195.00 3.918.448 00 1.150,500 00 5,745,748 00 242.708 00 452.808 00 6,033.009 00 30,000.000 00 32.078,780 76 9.865.173 00 1,182,924 29 7,655,870 22 1,632.839 00 4,015.000 00 45,900.990 00 0 00 1,190,215 00 501.494 00 2 00 59.477 00 311,090 00 365.371 00 128,482 00 0 00 1,340.117 00 107,292.00 107,039 00 4.000 00 0 00 26,676.956 24 158,187 00 544,223 71 1,586.436 78 0 00 0.00 554,279.00 $ 7.055.339.032 00 S 6,945,968,271 42 $ 109,370,760 58 $ -78.654.632 60 $ -78.654.632 60 -4- DEPARTMENT OF EDUCATION SCHEDULE OF FUNDS AVAILABLE AND EXPENDITURES COMPARED TO BUDGET BUDGET FUND "B" LOTTERY FOR EDUCATION YEAR ENDED JUNE 30, 2002 EXHIBIT "C'' FUNDS AVAILABLE REVENUES State Appropriation EXPENDITURES Ass1st1ve Technology Computers in the Classroom Excess of Funds Available over Expenditures BUDGET ACTUAL VARIANCE FAVORABLE (UNFAVORABLE} s 73,280.354 00 S 73.280.354 00 $ 0.00 s s 5,000,000.00 S 5,000,000 00 68,280.354 00 68.196.747 00 $ 73,280.354 00 S 73,196,74700 S s 83.607 00 S 0 00 83 607 00 83.607 00 83,607 00 -5- DEPARTMENT OF EDUCATION RECONCILIATION OF SALARIES YEAR ENDED JUNE 30, 2002 EXHIBIT "D" Total per Annual Supplement Accruals June 30, 2002 $ 40.875,323 97 275,298 42 $ 41.150.622 39 -6- 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 JLTNE 30. 2002 PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS FS-414-00-06 FS-414-01-01 FS-414-01-02 Further Action Not Warranted Partially Resolved - See Corrective Action/Responses Partially Resolved - See Corrective Action/Responses CORRECTIVE ACTION/RESPONSES EXPENDITURES/LIABILITIES/DISBURSEMENTS Information Systems Not Accessible to Employees and Not Properly Documented Finding Control Number: FS-414-01-01 We concur with this finding. Department personnel have discussed with personnel from the Legislative Budget Office the deficiencies sited in the finding and requested funds to develop additional software programs and operator manual so department personnel can operate the QBE allotment and payment system independent of the contractors that developed the system. GENERAL FIXED ASSETS/PROPERTY MANAGEMENT Inadequacies in Operation of Property Management System Finqing Control Number: FS-414-01-02 See our corrective action/responses to finding number FA-414-01-01 in the Prior Year Federal Awards Findings and Questioned Costs. PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS FINDING CONTROL NUMBER AND STATUS F A-414-00-01 FA-414-00-04 F A-414-01-01 FA-414-01-02 FA-414-01-03 Further Action Not Warranted Further Action Not Warranted Partially Resolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses Unresolved - See Corrective Action/Responses - 1- DEPARTMENT OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30. 2002 PRIOR YE..<\R FEDERAL A\VARD FINDINGS AND QUESTIONED COSTS CORRECTIVE ACTION/RESPONSES EQUIPMENT AND REAL PROPERTY MANAGEMENT Inadequacies in Operation of Property Management System Finding Control Number: FA-414-0I-qI . 1. Reconciliation of equipment for this department is conducted by the following: All purchase orders (PO) are screened for proper accountability in PeopleSoft's Asset Management for all equipment purchases for the Department. All incorrect expense account numbers are emailed to the initiator of the PO for correction: the Agency Procurement Officer is carbon copied (cc:) on the email. A copy of the PO's lines and distribution are printed by PrintScreen on the computer. If equipment is under $1,000.00 and is not accounted for on Asset Management, a green Property Of Decal is mailed to the property manager of the unit that initiated the PO. If the equipment is $1,000.00 or greater, or if under $1,000.00 but is deemed to be accounted for, the copy will be kept until the signed PO is received in this office for generating the DE Form 0513, Receipt of Equipment form. This equipment will have the DOE barcode decal affixed. When the DE Form 0513 is received from the unit that generated the PO, it is entered into the DOE Property System with the costs that are reflected on the PO. These costs are checked against the PO's Receiving Report when received in this office prior to sending to DOE Accounting Services for payment. 2. Refer'ences #00183061, Dell Computer Corp, PO 41400-652-0000026777, showed $44,022.00 on Query OAP005 and Report AM506 indicated $48,857.75. Asset Management Report AM506 shows only the Acquired Cost: not Adjusted Cost. The twenty-nine Dell Optiplex GX400 Computers, that were originally acquired on 06/26/2001 at Sl,684.75 each, was later changed to $1,518.00 each by Dell Invoice received in this office on 07/06/2001 enroute to Accounting Services, for a total of $44,022.00 on Asset Management which agrees with Query OAP00S. No audit exception exists. Reference #00158803, Apple Computer Corp, PO 41400-053-0000026141, showed $12,204.00 on Query OAP005 and Report AM506 indicated $10,612.00. Asset Management AM506 shows only the Acquired Cost: not Adjusted Cost. There was no change in Cost within Asset Management. However, the PO Price -2 - DEPARTMENT OF EDUCATIO~ AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30. 2002 PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS CORRECTIVE ACTION/RESPONSES EQUIPMENT AND REAL PROPERTY MANAGEMENT Inadequacies in Operation of Property Management System Finding Control Number: FA-414-01-01 changed for Line Item 1-1, 2-1, and 3-1, due and Apple Invoice in this office on 04/06/2001 enroute to Accounting Services, reducing original cost from $1,368.00 to $1,169.00 at Line Item 1-1, $4,047.00 at Line Item 2-1, and $6,192.00 to $5,396.00 at line Item 3-1, for a total of $10,612.00. The audit exception exists with Accounting Services not applying the discounts to their payment to Apple Computer Corp. No audit exception exists in Asset Management. Physical Inspection: 1. Failure by unit property manager to properly account for their inventory whether the item was moved by an employee of the unit or Technology Services without a paper trail to DOE Property Control. 2. Failure by unit property manager to properly account for their inventory whether the item was moved by an employee of the unit or Technology Services without a paper trail to DOE Property Control. 3. A unit property manager who fails to properly inventory equipment can result in equipment being indicated as "missing". Most often, this occurs when inventories are completed quickly. SUBRECIPIENT MONITORING Approval for Improper Expenditures Finding Control Number: FA-414-01-02 We concur with this finding. We agree with the recommendation that the United States Department of Education review this matter to determine the manner in which the questioned costs should be resolved. We have been pursuing this avenue since September 2001. A letter of supporting information was sent to the United States Department of Education, dated September 4, 2001, regarding the issues raised in the audit finding. We have subsequently spoken with representatives of the United States Department of Education and are anxiously awaiting a response from this agency. -3- DEPARTMENT OF EDUCATION AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30. 2002 PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS CORRECTIVE ACTION/RESPONSES SUBRECIPIENT MONITORING Subrecipient Audit Reports Not Received Within the Required Time Period Finding Control Number: FA-414-01-03 We concur '"'ith this finding. The Department of Education is responsible for tracking and reviewing the audits of local units of administration (LUA), a term used to identify boards of education. Because LUAs receive a majority of their funding from -the state, the Georgia Department of Audits and Accounts is required by state law to audit the LUAs. Currently, the LUAs are audited after state agencies, commissions, etc., and for that reason and due to the large number ofLUAs audited, the Department of Audits and Accounts has been unable to complete the audits in the time period required by 0MB Circular A-133. The U.S. Department of Education is aware ofthis problem, and realizes that the Department of Audits and Accounts is working towards a viable resolution to the finding in the near future. Effective January 2002, the Department of Audits and Accounts reorganized in an effort to address this matter and has adopted a plan to meet 0MB Circular A-133 deadlines for fiscal year 2004 LUA audits. -4- SECTION Ill CURRENT YEAR FINDINGS AND QUESTIONED COSTS DEPARTMENT OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30. 2002 FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS BUDGET PREPARATION/EXECUTION Overexpenditure of Budget Unit Object Class Finding Control Number: FS-414-02-01 The total approved budget for the Department of Education - "A" Budget Unit provided for expenditures totaling $7,055,339,032.00. A comparison of anticipated funds available and budgeted expenditures to actual funds available and expenditures by object class indicates that the object class QBE Formula Grants, Indirect Cost was overspent in the amount of $37,000.00. The overexpenditure identified above is in violation of Section 58 of the Amended Appropriations Act of 2001-2002. Agency overexpenditures can result in direct material effects on the financial statements. The Department of Education should review its internal control procedures over budget operations, design procedures that would prohibit the expenditure of funds in excess of budget approval, and implement those procedures to strengthen the internal controls over the budget function. EXPENDITURES/LIABILITIES/DISBURSEMENTS Improper Contracting Practices Finding Control Number: FS-414-02-02 Our examination included a review of the internal accounting controls utilized by the Georgia Department of Education (GDOE) in maintaining their system of awarding contracts. We found that th_e GDOE is engaged in the practice of authorizing the contractor to begin services prior to the contract being fully executed by the State Board of Education or the State School Superintendent. These contracts have been identified in detail within the Federal Awards Findings and Questioned Costs, finding number FA-414-02-03. The GDOE failed to follow established procedures to ensure that a fully executed contract was on hand prior to the date that services were set to begin on certain contracts. Failure to have a fully executed contract on hand prior to the commencement of services could result in an unauthorized commitment or expenditure of State funds. The GDOE should review established procedures for contract processing and either modify existing internal controls or establish additional controls to ensure that a fully executed contract is on hand prior to the commencement of services. - 1- DEPARTMENT OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2002 FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Improper Grant Approval Practice Finding Control Number: FS-414-02-03 During the December 14, 2000, State Board of Education meeting, a resolution was passed stating, "that all grants, regardless of monetary amounts, must come before the board for approval". In October 2001, the Georgia Department of Education amended the Richmond County Board of Education's regular fiscal year 2002 Title I budget, \\eithout Board approval, in the amount of $1,101,500.00 to fund a reading program for underachieving students. This action appears to be in violation of State Board of Education policy. EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequacies in Information System Operations, Changes to Applications, Security and Audit Trail Maintenance Finding Control Number: FS-414-02-04 SCOPE Our examination included a review of the following information system applications of the Department of Education for control effectiveness: (1) Full-Time Equivalent Reporting System (FTE); (2) Certified Personnel Information System (CPI); (3) Quality Basic Education Application (QBE) and (4) Grants Accounting Online Reporting System (GAORS). Also, for the year under review, the GAORS was identified as an audit significant application and was selected for application control testing in addition to the review for control effectiveness. In addition, a final audit objective was to review and test the Department of Education's audit trail maintenance over selected information system operations. QBE For the QBE application, our review of control effectiveness identified the following as kno\\'n problems or limitations: (1) End users are unable to adequately access and run the application. (2) Only draft documentation of the application is available. -2- DEPARTMENT OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30. 2002 FINANCIAL STATEMENT FINDINGS AND OUES.TIONED COSTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequacies in Information System Operations, Changes to Applications, Security and Audit Trail Maintenance Finding Control Number: FS-414-02-04 These issues were also identified and reported in an audit finding in the Single Audit Report for the State of Georgia for the fiscal year ended June 30, 2001. (See Finding Control Number: FS-414-01-01). The Department of Education is aware of these issues and has requested funding to develop additional software programs and an operator manual in order to attempt to eliminate these deficiencies. GAORS Our review of the control effectiveness and application control testing for the GAORS was designed to review and test the information system controls regarding (1) changes to the application, (2) system security and (3) system operation. (1) In relation to the information system control changes to the GAORS application, weaknesses were identified for the control objectives change requests, testing of program changes, transfer of changes to the live environment, as well as, documentation and training. The significant weaknesses identified for these control objectives were as follows: (a) No formal, documented control procedures for system changes were found to exist. Formal procedures for change requests are needed to ensure that the changes being made are consistent with those being requested. The lack of formal, structured and documented control procedures for system changes to the GAORS could result in proposed system changes not being fully implemented or not being implemented as designed. The Department of Education should establish a formal policy which should be followed for all changes to be made to the GAORS application. (b) No evidence that testing of program changes occur as internal procedures call for. Testing of the program changes being made is essential to ensure the modifications perform all tasks as expected. Maintaining documentation of the testing process provides support for the testing. -3- DEPARTMENT OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30. 2002 . FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS EXPENDITURES/LIABILITIES/DISBURSEMEKTS Inadequacies in Information System Operations, Changes to Applications, Security and Audit Trail Maintenance Finding Control Number: FS-414-02-04 The Department of Education should perform appropriate tests to ensure that changes to the GAORS application function as intended. Further, documentation regarding these tests should be maintained. (c) Access to the directory where project code is supposedly reviewed and tested is set to allow access by individuals other than project managers and database administrators as called for by procedures. The failure to set the appropriate permissions for the directory where project code is housed allows anyone with access the ability to change code after it has been written, tested and approved. The Department of Education should review the permissions that have been established for directories housing project code and ensure that only appropriate personnel have access to these directories. (2) Our review of the GAORS, in relation to computer security, resulted in a serious matter being identified with regard to testing the database controls. Reports necessary to test database controls and database integrity were not provided to us after repeated requests. In addition, a listing of current GAORS users was unable to be obtained in order to allow for appropriate authorization determinations to be made. As a result, assertions regarding the security of the database administration, security of the application's data and verification that the database has appropriate integrity controls could not be made. Our review of the maintenance of an audit trail identified that, other than an audit of successful and unsuccessful login attempts to the operating system, auditing was not conducted at the operating system, database or application levels. Evidence did not exist that indicated any auditing was performed by the database administrator. The GAORS records the last time each user accessed the application, however, records are not maintained of prior access to the application, nor are records maintained of user activity during their session. An application's accountability is achieved through its ability to identify and determine the actions and behavior of a single individual within a system. The audit trail mechanism is the manner by which automated systems collect, maintain and report this information. -4- DEPARTMENT OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30. 2002 FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS EXPENDITURES/Ll.<\BILITIES/DISBURSEMENTS Inadequacies in Information System Operations, Changes to Applications, Security and Audit Trail Maintenance Finding Control Number: FS-414-02-04 The Department of Education should review system and application audit reporting capability and consider implementing procedures to audit user access to sensitive system directories. For GAORS, the Department of Education should maintain complete records of user access to this application and the records should be audited periodically. All of the information system weaknesses identified are considered to be reportable conditions in internal control. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operations of the internal control over financial reporting that, in our judgment, could adversely affect the Department of Education's ability to record, process, summarize and report financial data consistent with the assertions of management in the financial statements. CAPITAL ASSETS/PROPERTY MANAGEMENT Inadequacies in Operation of Property Management System Finding Control Number: FS-414-02-05 Our examination included a review of the internal accounting controls utilized by the Department of Education in maintaining their capital asset inventory and 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 Award Findings and Questioned Costs, finding control number FA414-02-01. The Department is requ'ired to maintain equipment inventories in accordance with provisions of State laws and regulations. The discrepancies identified were caused by the Department's failure to follow guidelines for maintaining equipment inventories. Failure to maintain accurate equipment inventory records causes internal reports to management to be misleading and can result in erroneous decisions by management concerning current and future equipment needs. The Department should establish the necessary internal controls to ensure that equipment inventories are maintained in accordance with State laws and regulations. -5- DEPARTMENT OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30. 2002 FEDERAL AWARD FINDINGS AND QUESTIONED COSTS EQUIPMENT AND REAL PROPERTY MANAGEMENT Inadequacies in Operation of Property Management System Finding Control Number: FA-414-02-01 Our examination included a review of the internal accounting controls utilized by the Department of Education in maintaining their capital asset inventory. This review also included testing the system for compliance \\1th Federal laws and regulations. The following conditions relating to inappropriate accounting practices were found to exist: 1. Equipment additions were not reconciled to the general ledger expenditure accounts. 2. Equipment inventory records for additions were updated incorrectly. Testing of current year additions revealed nine (9) additions that had been updated onto the equipment inventory records incorrectly by the amount of $8,012.60. In addition, one-hundred-eighty-three (183) equipment items were selected from certain locations to test the accuracy of the Department's property management records. These items contained a value of $2,537,182.14 out of a population of $15,296,340.10 and were selected for the purpose of locating the equipment as recorded in the inventory records. The following deficiencies were noted: 1. Eight (8) items totaling $53,887.50 could not be located. 2. Two (2) items were found in locations other ~an the location indicated in the equipment inventory records. Also, during the physical inspection testing, four (4) items of equipment were located in our test locations, which were not included in the equipment inventory records for the particular location. The Department is required to maintain equipment inventories in accordance with provisions of Title 34 CFR 80.32 Equipment (Office of the Secretary of Education). The discrepancies identified above were caused by the Department's failure to follow guidelines for maintaining equipment inventories. Failure to maintain accurate equipment inventory records causes internal reports to management to be misleading and can result in erroneous decisions by management concerning current and future equipment needs. -6- DEPARTMENT OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED Jl)NE 30. 2002 FEDER.A.LAWARD FINDINGS AND QUESTIONED COSTS EQUIPMENT AND REAL PROPERTY MANAGEMENT Inadequacies in Operation of Property Management System Finding Control Number: FA-414-02-01 The Department should establish the necessary internal controls to ensure that equipment inventories are maintained in accordance with federal regulations. Maior Federal Program/Award Affected: U.S. Department of Education 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 EXPENDITURES/LIABILITIES/DISBURSEMENTS Improper Expenditures Title VI - Innovative Education Program Strategies (CFDA 84.298) Questioned Cost: $134,800.00 Finding Control Number: FA-414-02-02 U.S. Public Law 103-382, Title VI- Innovative Education Program Strategies, Section 6201, State Use of Funds states: "(a) Authorized Activities - A State educational agency may use funds made available for State use under this title only for (1) State administration of programs under this title including - (A) supervision of the allocation of funds to local educational agencies; (B) planning, supervision, and processing of State funds; and (C) monitoring and evaluation of programs and activities under this title; and (2) technical assistance and direct grants to local educational agencies and statewide education reform activities including effective school programs which assist local educational agencies to provide targeted assistance." "(b) Limitations and Requirements - Not more than 25 percent of funds available for State programs under this title in any fiscal year may be used for State administration under subsection (a)(l )." -7- DEPARTMENT OF EDUCATION SCHEDULE OF FINDP.\GS AND QUESTIONED COSTS YEAR ENDED JUNE 30. 200? FEDERAL AWARD FINDINGS AND QUESTIONED COSTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Improper Expenditures Title VI - Innovative Education Program Strategies (CFDA 84.298) Questioned Cost: $134,800.00 Finding Control Number: FA-414-02-02 The Georgia Department of Education (GDOE) contracts with various individuals and organizations to assist the GDOE in carrying out its responsibilities at the State level under the Title VI program. To test the GDOE contracting process for the Title VI program, we examined sixteen contracts in the amount of $552,950.00 ($492,950.00 charged to fiscal year 2002 expenditures and $60,000.00 charged to fiscal year 2001 expenditures). Our examination revealed five contracts in the amount of $134,800.00 that did not appear to meet the criteria identified above for a State educational agency eligible expenditures. The contracts are as follows: Contract Number 910682 911464 911465 920604 920744 Date of Contract 519101 9!5101 9/12101 1/18102 2/14102 Period of Services J/J/01-6/30101 5/1/0 I - 8!15101 5!1i01 - 8/1510 I 1/31/02 - 213/02 12/11/01 -6!30102 Account I lliumber Amount Purpose Coordmate, plan. implement 653200 S25.000 00 teacher of the vear oroeram Coordinate and report Tnle II 651003 S4.80000 trammg evaluation survevs j Local school board part1c1pauon 707008 653600 S6.000 00 1 m national science competition I ; Symposium for Exemplary i S49.000 00 Educators ! Local school board foreign I 707008 $50.000 00 language pro!!ram Total $134,800 00 These expenditures resulted from management's broader interpretation of Title VI laws. Improper interpretation of Title VI laws raises the risk of non-allowable costs being charged to the Title VI program and could result in refunds to the Title VI program. We recommend that the U. S. Department of Education review these contracts to determine the manner in which the S134,800.00 of questioned costs should be resolved. -8- DEPARTMENT OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30. 2002 FEDERAL AWARD FINDINGS AND QUESTIONED COSTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Improper Contracting Practices State Funds Title II - Dwight D. Eisenhower Professional Development Program (CFDA 84.281) Title VI - Innovative Education Program Strategies (CFDA 84.298) Finding Control Number: FA-414-02-03 The State Board of Education (State Board), as the governing board for the Georgia Department of Education (GDOE), has the responsibility to execute or to direct the execution of contracts for the GDOE. In addition, the State School Superintendent (Superintendent) has the statutory authority to enter into contracts incidental to the day-to-day operations of the GDOE in the amount of $50,000.00 or less without prior Board approval [Official Code of Georgia Annotated Section 20-2-24l(c) and Attorney General Opinion 96-12]. Title 34 CFR 80.36(a) (Office of the Secretary of Education) states, in part, "when procuring property and services under a grant, a State will follow the same policies and procedures it uses for procurements from its non-Federal funds." The GDOE is engaged in the practice of authorizing the contractor to begin services prior to the contract being fully executed by the State Board or Superintendent. The GDOE has procedures in place that guide the contracts through the various approval stages and through to final execution but does not have adequate internal controls in place to ensure proper State Board or Superintendent approval prior to the services commencing. To test the GDOE contracting process, we selected a sample of 215 contracts in the amount of$ 6,513,315.04 out of a total population of $29,164,051.10. Our examination of these items revealed 43 contracts whose execution date was after the date when services were to begin, and in certain instances, after the completion date of the services. These contracts are as follows: Contract Number 910661 910682 910847 910858 911464 911465 920022 920043 920061 920123 920139 Date of Contract 4!2i01 5/9/01 8!14i01 615/01 915101 9/12101 7/17/01 7131/01 8!10101 9/6101 916!01 Period of Services 1/1/01 - 12131/02 1/1/01 - 6130101 8/9/01 - 8/30/01 5/26/01 - 7/28/01 5/1/0 I - 811510 I 511101 - 8115/01 6!1101-6!2!02 7!1/01 - 6!30102 7/J/01 - 6130/02 9i1l01 - 8/1/02 9/1101 - 811/02 Date First Pavment Made 4/11/01 4120102 8/28/01 8122101 11/20/01 * 12/13/01 8116/02* 8114101 8!28/01 * 10/9/01 10/9/01 Account Number 651003 707008 I 653001 653600 I 651003 707008 653200 i 653600 653600 I 653001 653001 Amount I I Proeram S35.000.00 Title VI $25.000.00 TnleVI $88.000 00 State $24.921 50 State I S4.800.00 Title VI S6.000 00 Title VI SI00,000 00 State $70.000.00 State S2,400.000 00 State I $37.500 00 State $37.500 00 State -9- DEPARTMENT OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30. 2002 FEDERAL A\VARD FINDINGS AND QUESTIONED COSTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Improper Contracting Practices State Funds Title II-Dwight D. Eisenhower Professional Development Program (CFDA 84.281) Title VI- Innovative Education Program Strategies (CFDA 84.298) Finding Control Number: FA-414-02-03 Contract Date of l'iumber Contract 920142 9i6!01 920151 9/12/01 920164 9113101 920165 9/13101 920176 I 9/20101 920224 9/21/01 920276 10/8/01 920288 1018101 920309 10!3101 920334 10/3/01 920375 11117/01 920376 11/17101 920387 9/3/01 920411 11/1/01 920478 11/27101 920480 11/20/01 920563 12/13/01 920566 12117/01 920571 12/1810 I 920577 12/19/01 920637 117/02 920713 2/6/02 920744 2/14/02 920773 2i21/02 920866 4/22/02 920867 4/22/02 920870 4/24/02 920936 5/6102 920937 5/6102 920940 516102 921101 6/17/02 921119 6121/02 Period of Services 9!1 IQ 1 - 8!)/02 811101 - 6130!02 911101 - 811102 9!1101 - 8il/02 911/01 - 8i]/02 7/1/01 - 6!30102 911101 - 8!1i02 911/01 - 8/1/02 7!1101-6!30!02 711101 - 6!30/02 7!1/0l -6i30i02 11/1/01 - I lil!02 9/1/01 - 811/02 7/1/01 -12131/01 9/1/01 - 811/02 9/24101 - 9!25/02 I 7/1/01 - 6130102 9/27101 - 9/29/01 7il!0l - 6/30/02 7/1/01 - 6130/02 12/14/01 - 6/30/02 711/01 - 6130/02 12/11101 - 6130/02 1/1/02-6/30!02 3/1/02 - 6130/02 411102- 12131/02 4/li02 - 6130!02 I 1/1/02 - 12/31/02 2/28/02 - 6!30102 i 411/02 - 10!31/02 6/3/02 - 9!30i02 511/02 - 8/1 /02 Date First Pavment Made 1019i01 12118101 10/9/01 10/9/01 1019101 10 123101 I0lli0I 10111/01 5/23102 12/13/01 3114/02 2120102 11/27/01 ll/20i01 12/11/01 4/25/02* 11128/01 * 1/4/02* 1130/02 3/27/02 5f29i02* 10/2/01 8/19102 3!14/02 4111/02 3/29/02* 7/25/02 No oavment to date 5!30i02* 5110102 No oavment to date 7/9102 I Account Number 653001 I 653600 I 653001 653001 653001 653600 653600 653001 I 707008 707008 653001 653600 653001 707009 653001 654001 653600 653200 653200 653200 653200 707008 I 707008 651003 707008 707008 I 707010 ! 707008 653200 i I 654001 654001 653600 Amount Proe:ram $37.500 00 State $6,000 00 i State $37.500 00 State ! $37.500 00 State i S37.500.00 i State I S800.00 State i $37.500 oo I State $37.500 00 I State $48.500 00 Title VI $49.950 00 Title VI $47.000 00 State $27,840 00 Title II S208.208 00 State $15,000 00 T1tleVI $26.651 00 State $26.488 oo I State $25.000 00 I T1tle II $25,000 00 Title II $25.000 00 State $25.000.00 State I $43.000.00 State $50.000.00 i Title VI $50.000 00 Title VI $20.000 00 T1tleVI $50.000 00 Title VI ' $50,000 00 Title VI $30.000 00 i Title VI $48.700 00 Title VI ! S49.000 00 ! Title II S47.14500 State I $43.776 00 , State i $11.300 00 i State ! * Contract paid in full on this date. The GDOE failed to follow established procedures to ensure that a fully executed contract was on hand prior to the date that services were set to begin on certain contracts. - IO - DEPARTMENT OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30. 2002 FEDERAL AWARD FINDINGS AND QUESTIONED COSTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Improper Contracting Practices State Funds Title II - Dwight D. Eisenhower Professional Development Program (CFDA 84.281) Title VI - Innovative Education Program Strategies (CFDA 84.298) Finding Control Number: FA-414-02-03 Failure to have a fully executed contract on hand prior to the commencement of services could result in an unauthorized commitment or expenditure of State and Federal funds and could result in refunds to the respective Federal program. The GDOE should review established procedures for contract processing and either modify existing internal controls or establish additional controls to ensure that a fully executed contract is on hand prior to the commencement of services. EXPENDITURES/LIABILITIES/DISBURSEMENTS Improper Contracting Practices Vocational Educational -Basic Grants to States (CFDA 84.048) Title II - Dwight D. Eisenhower Professional Development Program (CFDA 84.281) Title VI - Innovative Education Program Strategies (CFDA 84.298) Questioned Cost: FY 2002 - $ 82,493.50 Questioned Cost: FY 2003 - $ 581,394.00 Finding Control Number: FA-414-02-04 APPLICABLE LA\VS AND REGULATIONS The State School Superintendent has the statutory authority to enter into contracts incidental to the day-to-day operations of the Georgia Department of Education (GDOE) in the amount of $50,000.00 or less without prior State Board of Education (State Board) approval [Official Code of Georgia Annotated (OCGA) Section 20-2-24l(c) and Attorney General Opinion 9612]. All State agencies are required to contract through the Georgia Technology Authority (GTA) for any technology resource purchase exceeding $100,000.00 and no agency shall divide purchases so as to avoid the $100,000.00 threshold [OCGA Section 50-25-7.2 and Attorney General Opinion 2001-8]. No official of the State of Georgia shall have the power to grant any donation or gratuity or to forgive any debt or obligation O\\'ing to the public [Constitution of the State of Georgia; Article III; Section VI; Paragraph VI, Gratuities]. - 11 - DEPARTMENT OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30. 2002 FEDERAL AWARD FINDINGS AND QUESTIONED COSTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Improper Contracting Practices Vocational Educational - Basic Grants to States (CFDA 84.048) Title II-Dwight D. Eisenhower Professional Development Program (CFDA 84.281) Title VI - Innovative Education Program Strategies (CFDA 84.298) Questioned Cost: FY 2002 - $ 82,493.50 Questioned Cost: FY 2003 - $ 581,394.00 Finding Control Number: FA-414-02-04 GDOE contracts, with the exception of construction contracts, must be procured in accordance with the "Department of Education C<;mtract Manual" as revised August 22, 2000. Title 34 CFR 80.36(a) (Office of the Secretary of Education) states, in part, "when procuring property and services under a grant, a State will follow the same policies and procedures it uses for procurements from its non-Federal funds." 0MB Circular A-87 Cost Principles for State, Local and Indian Tribal Governments governs whether expenditures charged to a federal program are allowable. IT NEEDS ASSESSMENT - GOVERNOR'S HONORS PROGRAM During the year under review, payment was made by a hand-drawn check to the Computer Consulting Services Corporation (CCSC) for a Governor's Honors Program (GHP) information technology needs assessment. The contract provided to our Department states "The needs assessment will identify needed areas of improvement in the technology functions of the Governor's Honor Program, and will include prioritization of needed areas of improvement and recommendations made as to the technology function-specific assessments(s)." Furthermore, it is stated, "The assessment team will gather information and evaluate the following technology functions, software applications, data management, networking, infrastructure, desktop support, security, human resources and best practices." On the same day another hand-drav.n check was issued to the same vendor for 650 PowerResearcher software licenses for the GHP. We were unable to ascertain why the software was purchased prior to the needs assessment being completed. In addition, three needs assessment contract extensions were issued by GDOE, the final of which was granted through December 31, 2002. On July 24, 2002, two additional information technology related disbursements totaling $99,498, (see Table 2 below) were made on behalf of the GHP. - 12 - DEPARTMENT OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JlJNE 30. 2002 FEDERAL AWARD FINDINGS AND QUESTIONED COSTS EXPENDITURES/LIABILITIES/DISBURSEMENTS, Improper Contracting Practices Vocational Educational-Basic Grants to States (CFDA 84.048) Title II-Dwight D. Eisenhower Professional Development Program (CFDA 84.281) Title VI - Innovative Education Program Strategies (CFDA 84.298) Questioned Cost: FY 2002 - $ 82,493.50 Questioned Cost: FY 2003 - $ 581,394.00 Finding Control Number: FA-414-02-04 In a written response to a question asking the former State School Superintendent why a contract was entered into v.i.th CCSC for a GHP technology needs assessment on the same day that the contract period began for the purchase of the PowerReseacher software for the GHP, the State School Superintendent replied, "The term needs assessment is somewhat misleading. The intent was to evaluate the software, it usefulness and application v.,jthin the GHP environment and determine if further adjustments in training and usage by GHP staff, students and parents would be necessary to the effectiveness and user friendly application we sought. The company was to keep and evaluate records and data, and conduct surveys and interviews to determine the extent of the use and satisfaction with the product by students and staff. The DOE would determine if next year's GHP would use it again, and what adaptations should be made. Thus the needs assessment was both an evaluation and needs assessment for next year. That has now been delivered to DOE and will be used as a planning tool in this spring's GHP staff retreat." It should be noted that the Superintendent's response does not coincide with the requirements of the contract and that included in the $99,498 in additional disbursements made on July 24, 2002, is a disbursement of $49,900 for the purchase of 500 additional PowerResearcher licenses for the GHP. SOFTWARE LICENSES - GOVERNOR'S HONORS PROGRAM GDOE personnel responsible for administration of the GHP indicated that only 50 of the initial 650 PowerResearcher licenses were utilized through installation of the software on GHP personal computers. Per the contract with CCSC, the software was available for download by both the students and faculty of the GHP. We were unable to determine through interviews with GDOE personnel, however, if any additional PowerResearcher software was downloaded. Table 1 Check Number 1004 1005 Date Issued 6/26/2002 6/26/2002 Pavee Computer Consultmg Services Corporation Computer Consultmg Services Corporation Amount $50,000.00 $32,493.50 Description Needs assessment of the GHP to identify areas needmg technologvimorovement 650 PowerReseacher software licenses for the GHP Total $82.493.50 - 13 - DEPARTMENT OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2002 FEDERAL AWARD FINDINGS AND QUESTIONED COSTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Improper Contracting Practices Vocational Educational-Basic Grants to States (CFDA 84.048) Title II - Dwight D. Eisenhower Professional Development Program (CFDA 84.281) Title VI - Innovative Education Program Strategies (CFDA 84.298) Questioned Cost: FY 2002 - $ 82,493.50 Questioned Cost: FY 2003 - $581,394.00 Finding Control Number: FA-414-02-04 FISCAL YEAR 2003 TRANSACTIONS Subsequent to June 30, 2002, we became aware of additional payments made to vendors by hand-drawn checks for technology resource purchases in the amount of $581,394.00. Documentation (contract, vendor invoice and receiving report) to substantiate the issuance of these checks was not available upon request (see bullet number two below). These payments are as follows: Check Date Number Issued I 1007 7i24!2002 1008 7/24/2002 1009 7/24/2002 1010 7/24/2002 1011 1013 1014 1015 1016 7/24/2002 7/24/2002 7/24/2002 7/24/2002 7/24/2002 1018 7/24/2002 1019 7/24/2002 1020 7/24/2002 Table 2 Pavee Calling Post Communications Inc Computer Consulting Services Corporat10n Computer Consulting Services Corporation Computer Consulting Services Corporation Ma,estix LLC Amount $49.500 00 $49.900.00 $48,850 00 $48,850 00 S49.900 00 Description Automated communications service for Georgia Academ\ for the Blind 500 PowerResearcher software licenses GHP 320 PowerResearcher software licenses for the Atlanta School for the Deaf - (ASFD) 320 PowerResearcher software licenses for the Georgia School for the Deaf- (GSFD) Web cast courses for the GDOE and affiliated school svstems Maverix Corporation $47.500 00 MvCommumtv Server - ASFD Maverix Corporation Proactive Research LLC $47.500 00 MvCommumtv Server - GSFD ! $45.000.00 180 Maestro Pro Software Licenses - ASFD !Proactive Research LLC !Uniting Networks !Incorporated IUnmng Networks Incorporated I Uniting Networks Incorporated $45.000.00 $49.598.00 $49.898.00 $49.898 00 180 Maestro Pro Software Licenses - GSFD D1str1but1on, management and maintenance of software - GHP D1str1but1on, management and maintenance of software - ASFD D1stribut1on, management and maintenance of software - GSFD Total I $581,394 00 - 14 - DEPARTMENT OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JlJNE 30. 2002 FEDERAL A\VARD FINDINGS AND QUESTIONED COSTS EXPENDITURES/LIABILITIES/DISBURSEMENTS Improper Contracting Practices Vocational Educational - Basic Grants to States (CFDA 84.048) Title II - Dwight D. Eisenhower Professional Development Program (CFDA 84.281) Title VI - Innovative Education Program Strategies (CFDA 84.298) Questioned Cost: FY 2002 - $ 82,493.50 Questioned Cost: FY 2003 - $ 581,394.00 Finding Control Number: FA-414-02-04 Further investigation of these payments disclosed the follo~ing: Through interviews with GDOE personnel we determined that the twelve handdrawn checks were issued on July 24, 2002, on the instructions of the State School Superintendent (Superintendent) and prior to the initiation of GDOE's contract approval process and prior to any goods or services being delivered. On August 21, 2002 and again on August 23, 2002, we verbally requested documentation (contract, vendor invoice and receiving report) to substantiate the issuance of these checks. When GDOE failed to respond to these requests, we formally requested the documentation on August 26, 2002, and were informed that the documentation was not available. Documentation, in the form of contracts and vendor invoices, was provided on September 10, 2002, with two of the contracts signed and dated June 24, 2002, and the remainder signed and dated July 24, 2002. However, documentation to support receipt of the goods and services was not provided as requested. Subsequent interviews with GDOE personnel confirmed that the contracts were not in existence on those dates. The contracts were approved only by the Superintendent and did not proceed through the GDOE normal contract approval process. Interviews with GDOE personnel responsible for the programs for which the purchases were made revealed that they were not aware of the contracts and had not been consulted concerning their technology resource needs prior to the contracts being signed. It was also revealed that these GDOE program personnel had not received the goods and services nor had they been contacted about future delivery of the goods and services. One contract (check number 1007) for a school messaging service at the Georgia Academy for the Blind expired on December 31, 2002. Interviews with GDOE program personnel for the State schools confirmed that the service was never supplied to the Georgia Academy for the Blind. - 15 - DEPARTMENT OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2002 FEDERAL AWARD FINDINGS AND QUESTIONED COSTS EXPENDITURES/LIABILITIES/DISBURSEMENTS. Improper Contracting Practices Vocational Educational - Basic Grants to States (CFDA 84.048) Title II - Dwight D. Eisenhower Professional Development Program (CFDA 84.281) Title VI - Innovative Education Program Strategies (CFDA 84.298) Questioned Cost: FY 2002 - $ 82,493.50 Questioned Cost: FY 2003 - $ 581,394.00 Finding Control Number: FA-414-02-04 The contract period for two contracts (check numbers 1013 and 1014) is more than half complete \.vith no discemable goods or services having been provided. These contracts were executed to purchase software licenses with license periods running twelve months from the date of execution of the contracts (June 24, 2002). The individual PowerResearcher software licenses, depending on the contract, varied in cost from $49.99 to $152.66 per license (see Tables 1 and 2). On January 13, 2003, an e-mail was issued indicating that GDOE personnel could now register for webcast courses (check number 1011). GDOE management personnel rescinded this e-mail subsequent to the Superintendent leaving office later that day. NONCOMPLIANCE WITH LAWS AND REGULATIONS These contracts appear to be in violation of the following laws and regulations: The contracts appear to be structured in such a manner as to be in violation of OCGA 20-2-241(c) authorizing the Superintendent to contract for goods and services at $50,000.00 or less. All but two of the contracts (check numbers 1007 and 1011) were for multiple contracts (exceeding $50,000.00 in the aggregate) with the same vendor for the same goods or services. The primary purpose in structuring these contracts in this manner appears to be the exclusion of the State Board from the contract approval process. Six of the contracts (check numbers 1008 through 1010 for $147,600.00 and 1018 through 1020 for $149,394.00) appear to be in violation of OCGA section 50-25-7.2 which states that an agency cannot divide purchases in order to avoid the $100,000.00 threshold for contracting through the GTA for any technology resource purchase. OCGA Section 50-25-7.8 states that purchases made contrary to OCGA Section 5025-7.2 shall be void and of no effect. One contract (check number 1007) appears to be in violation of the Constitution of the State of Georgia; Article III; Section VI; Paragraph VI, Gratuities. The contract expired on December 31, 2002, without goods or services being delivered and with no contract extension executed. - 16 - DEPARTMENT OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2002 FEDERAL AWARD FINDINGS AND QUESTIONED COSTS EXPENDITURES/LIABILITIES/DISBURSEMENTS. Improper Contracting Practices Vocational Educational - Basic Grants to States (CFDA 84.048) Title II- Dwight D. Eisenhower Professional Development Program (CFDA 84.281) Title VI - Innovative Education Program Strategies (CFDA 84.298) Questioned Cost: FY 2002 - $ 82,493.50 Questioned Cost: FY 2003 - $ 581,394.00 Finding Control Number: FA-414-02-04 All the contracts listed in Table 2 appear to be in violation of regulations listed in the "Department of Education Contract Manual." The contracts appear to be in violation of Title 34 CFR 80.36(a) relative to procurement in that the contracts were initiated and finalized in direct conflict with standard GDOE contract procurement processes. In addition, the contracts appear to be in conflict with 0MB Circular A-87's general principles for determining allowable costs as follows: 1) Necessary and Reasonable - The variance in cost of the PowerResearcher licenses and interviews with GDOE program personnel called into question whether the costs, listed in the above tables, were necessary or reasonable. The interviews revealed that the GDOE program personnel believed the purchases to be unnecessary and would not benefit their respective programs. 2) Adequately Documented - Documentation was not available to support the goods and services being delivered. Interviews with GDOE program personnel confirmed that the affected programs had not received the goods and services. 3) Significant Deviations from Established Practice - As noted above, the contracts were initiated and finalized in direct conflict with established GDOE policies for contract procurement. 4) Allocable Costs -A cost is allocable to a particular cost objective if the goods or services involved are chargeable or assignable to such cost objective in accordance with relative benefits received. Interviews with GDOE program personnel raise questions as to whether any benefit to a federal program has been received. 5) Sound Business Practices - As previously noted, the twelve hand-dra\\en checks were issued prior to the initiation of GDOE's contract approval process and prior to any goods or services being delivered. The GDOE, primarily the State School Superintendent, failed to follow established procedures to ensure that a fully executed contract was on hand prior to the date that services were set to begin or payment being made to the vendor. Failure to have a fully executed contract on hand prior to the commencement of services could result in an unauthorized commitment or expenditure of Federal funds and could result in refunds to the respective - 17 - DEPARTMENT OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2002 FEDERAL AWARD FINDINGS AND QUESTIONED COSTS EXPENDITURES/LIABILITIES/DISBURSEMENTS, Improper Contracting Practices Vocational Educational - Basic Grants to States (CFDA 84.048) Title II-Dwight D. Eisenhower Professional Development Program (CFDA 84.281) Title VI - Innovative Education Program Strategies (CFDA 84.298) Questioned Cost: FY 2002 - $82,493.50 Questioned Cost: FY 2003 - $581,394.00 Finding Control Nl,lIIlber: FA-414-02-04 Federal program. In addition, failure to ensure that goods or services are received prior to payment being made could result in a violation of the gratuities section of the State Constitution. RECOMMENDATIONS We recommend that the U. S. Department of Education (USDOE) review these contracts to determine the manner in which the $663,887.50 of questioned costs should be resolved. We further recommend that GDOE management, in consultation with the Attorney General of the State of Georgia, seek restitution of the funds for which services have not been rendered. Copies of this report will be provided to the Attorney General and the USDOE. SUBRECIPIENT MONITORING Inappropriate Issuance of Management Decision Vocational Education- Basic Grants to States (CFDA 84.048) Finding Control Number: FA-414-02-05 As provided in 0MB Circular a-133, section .400d(5), pass-through entities are responsible for making the management decision for audit findings that relate to Federal awards it makes to subrecipients. The Georgia Department of Education (GDOE), a pass-through entity with regard to Federal awards sub-granted to the Georgia Department of Technical and Adult Education (GDTAE), did not consider all available evidence in making the management decision regarding Perkins III audit findings disclosed at four Technical Colleges. These findings are as follows: Technical Colle~e Augusta Technical Institute DeKalb Technical Institute Savannah Technical Institute Okenfenokee Technical College Findin2No. FA-824-98-01 F A-830-98-01 FA-841-98-0 I FA-818-01-01 Questioned Cost $48,930.95 $31,480.04 $21,277.55 $102,129.32 - 18 - DEPARTMENT OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30. 2002 FEDER.AL AWARD FINDINGS AND QUESTIONED COSTS SUBRECIPIENT MONITORING Inappropriate Issuance of Management Decision Vocational Education - Basic Grants to States (CFDA 84.048) Finding Control Number: FA-414-02-05 The findings questioned the use of Perkins III funds in support of Student Financial Aid (SFA) office activities and whether the use of Perkins funds in this manner violated the supplement versus supplant requirements. GDOE resolved these findings based on guidance provided in a letter to the U.S. Department of Education (USDE) dated October 16, 2000. USDE stated that if a technical college serves only vocational education students from economically disadvantaged families and the position has always been funded with Federal vocational education funds, then supplanting did not occur. USDE also stated that since a SFA Director provided counseling services, the associated costs were not subject to the 5 % limit on administrative costs in section 135(d) of Perkins III. USDE advised that if similar circumstances prevailed at other institutions, then the letter's stated guidance might be applied at other technical colleges in resolving the Perkins III findings. We have concerns about the resolution of this matter as noted below: The October 16, 2000 letter did not address all the requirements that the audit findings disclosed as being necessary to comply with supplanting requirements as listed in the 0MB A-133 Compliance Supplement and cited Federal regulations. Records do not support that the technical colleges and the SFA offices serve only students who are from economically disadvantaged families. The audit findings disclosed that a large percentage of the SFA Director's salary at three of the four technical colleges were for a \\