Investigative Report Legislative Joint Auditing Committee December 16, 2014

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Investigative Report Legislative Joint Auditing Committee December 16, 2014 Review of Selected Policies, Procedures, and Transactions Henderson State University Center for Language Proficiency

1 Investigative Report Legislative Joint Auditing Committee December 16, 2014 Review of Selected Policies, Procedures, and Transactions Henderson State University Center for Language Proficiency INTRODUCTION This report is issued in response to a request by Henderson State University (HSU) President Glen Jones, approved by the Executive Committee of the Legislative Joint Auditing Committee, for the Division of Legislative Audit (DLA) to conduct a review of selected policies, procedures, and transactions at HSU's Center for Language Proficiency (Center). Previous to this review, Dr. Jones contracted with auditing professionals (contractors) to conduct a preliminary review of the Center. Based on their findings, an indepth review of the Center by DLA was recommended. OBJECTIVES The objectives of this investigative review were to: Review selected disbursements for propriety. Physically sight selected equipment purchased with Center funds. Determine compliance with applicable state laws. Determine guidelines established by the Arkansas Department of Education (ADE) for use of grant funds. Evaluate adequacy of HSU s oversight of the Center and other internal controls. SCOPE AND METHODOLOGY This review was conducted primarily for the period July 1, 2011 through July 22, The contractors' audit report as well as pertinent HSU accounting records and policies were reviewed. In addition, DLA staff examined pertinent Arkansas laws, interviewed certain HSU and ADE personnel, assessed Center internal controls for adequacy, and observed selected equipment items purchased. The methodology used in conducting this investigative review was developed uniquely to address the stated objectives; therefore, this review was more limited in scope than an audit or attestation engagement performed in accordance with Government Auditing Standards issued by the Comptroller General of the United States. ARKANSAS DIVISION OF LEGISLATIVE AUDIT 172 State Capitol, Little Rock, AR Phone: Fax: Report ID: IRHE10013 Report Date: November 24, 2014

2 Henderson State University Center for Language Proficiency BACKGROUND During the review period, Center staff consisted of three full-time employees: Director Julia Correia, Assistant Director Christine Smart, and an Administrative Assistant. Extra help employees were also utilized by the Center as needed. The Center and its employees are under the administration of the Provost and Vice President of Academic Affairs. The Center hosted two programs, which are discussed below: English as a Second Language Graduate Academy (Academy) and Intensive English Program (IEP). Funding sources for these programs are provided in Exhibit I. English as a Second Language Graduate Academy A two-week course co-sponsored by ADE and HSU, the Academy is designed to provide participating teachers with an English as a Second Language (ESL) endorsement on their existing educator license. Participants earn 12 college credit hours upon program completion. The Academy averaged 166 participants per year for the period examined. The Academy is primarily funded by an English Language Learners (ELL) Grant from ADE as well as tuition paid by various school districts on behalf of their participating teachers. The Center is allowed to carry over unused grant funds for use in future years. In addition to the Academy, two ESL endorsement education courses were taught each semester. Intensive English Program The IEP is designed to help students with limited English skills succeed in an academic setting and in American culture through ESL classes. The IEP averaged six students per semester for the period reviewed and is funded by tuition received from students enrolled in the program. CONTRACTOR AUDIT FINDINGS As previously mentioned, contractors conducted a preliminary review of the Center prior to DLA's review. The findings of their investigation included the following: Lack of guidelines for use of grant funds received from ADE. Exhibit I Henderson State University Center for Language Proficiency Funding Sources For the Period July 1, 2011 through June 30, 2014 Fiscal Year Ended June 30, English as a Second Language Graduate Academy English Language Learners grant (Note) $ 775,000 $ 650,000 $ 650,000 Tuition 109,272 44, ,612 Total 884, , ,612 Intensive English Program Tuition 25,835 26,181 25,744 Total Funds Received $ 910,107 $ 720,713 $ 831,356 Note: Grant funds were received from the Arkansas Department of Education. Source: Henderson State University and Ark ansas Department of Education financial records (unaudited by the Division of Legislative Audit) 2

3 Arkansas Division of Legislative Audit Lack of HSU oversight regarding the Center's use of grant funds. Related party transactions. Improper expenditures. Equipment that could not be located on the HSU campus. Purchases made in noncompliance with state procurement laws. DLA review resulted in similar findings, which are discussed below. RESULTS OF DLA REVIEW DLA review of selected HSU and Center policies, procedures, and transactions revealed improper disbursements; related party transactions; noncompliance with procurement laws; numerous pieces of equipment and supplies not located at the Center; excessive purchases of equipment and supplies; purchases with a questionable business purpose; and internal control deficiencies, as discussed below by topic. Improper Disbursements DLA review revealed improper disbursements totaling $34,483 as shown in Exhibit II. These disbursements consisted of the following: $28,570 in lodging for the HSU Band Camp paid from Academy grant funds. $3,937 in duplicate vendor payments. $1,261 in travel reimbursements to the Director and Assistant Director for expenses incurred before and after conference dates. $549 in duplicate reimbursements to the Director and Assistant Director. $106 in meal reimbursements to the Director and Assistant Director above the amount allowed by HSU travel policy. $60 reimbursement to the Director for personal expenses. As of report date, vendors and the HSU Band Department had reimbursed the Center $32,507 for these improper disbursements, leaving $1,976 due the Center from the Director and Assistant Director, as shown in Exhibit II. DLA staff recommend that HSU collect funds due and ensure Center disbursements are for a business purpose. Related Party Transactions Ark. Code Ann prohibits related party transactions, which occur when an entity does business with an organization in which an employee or any member of the employee's immediate family has a financial interest. DLA review revealed the following related party transactions totaling $58,806: Exhibit II Henderson State University Center for Language Proficiency Improper Disbursements, Amounts Reimbursed, and Amounts Due For the Period July 1, 2011 through July 22, 2014 Disbursed Reimbursed Due Julia Correia, Director $ 1,665 $ 1,665 Christine Smart, Assistant Director Vendors 3,937 $ (3,937) HSU Band Department 28,570 (28,570) Totals $ 34,483 $ (32,507) $ 1,976 Source: Henderson State University (HSU) financial records (unaudited by the Division of Legislative Audit) 3

4 Henderson State University Center for Language Proficiency $9,930 for music CDs given to Academy participants. The Director's son was listed as a band member on the cover of the CDs. $28,183 for e-books and DVDs given to Academy participants. The Director's husband and son are listed as editors on the vendor s website. Additionally, these materials were authored and/or produced by the Director's husband and are available for purchase on the website he maintains for his multimedia company. $17,881 in payments by the Southeast Arkansas Education Service Cooperative (SEARK) to the Director's husband for conducting presentations at the Academy and providing other technology-related support. Although ADE provided funding for the Academy presenters, it appears the Director was directly involved in the selection process. $2,812 for posters purchased from the Assistant Director's daughter and subsequently given to Academy participants. DLA staff recommend that HSU ensure employees comply with Ark. Code Ann Violations of Procurement Laws Ark. Code Ann establishes thresholds for procurement of commodities in which competitive bidding is required. Competitive bidding was required for any procurement exceeding $10,000 for the fiscal year ended June 30, 2014, and $5,000 for the fiscal years ended June 30, 2013 and The Center made payments to two vendors for audio and video equipment that fell slightly below these bid thresholds. Payments to one vendor were $9,989, $4,991, and $4,996 for the fiscal years ending June 30, 2014, 2013, and 2012, respectively. Payments to the other vendor during the same time periods were $9,995, $4,990, and $4,989, respectively. Payments made to the two vendors during fiscal year 2014 were for leasing/rental of equipment. It should be noted that the items purchased in fiscal years 2012 and 2013 were similar to the items leased in Of the 97 items purchased, 39 were equipment items; DLA staff were able to positively identify 14 on hand at HSU. The remaining 58 were lower-cost supply items. During an interview with DLA staff, one of the vendors indicated that all of the equipment was purchased from one vendor. However, the vendors, who are acquaintances, agreed to split the invoices between the two companies in an apparent attempt to circumvent state procurement laws. DLA staff recommend that HSU review purchases to ensure compliance with Ark. Code Ann Equipment and Supplies Items Not Located on HSU Campus Equipment purchased from the two vendors mentioned above, as well as other equipment and supplies, could not be located on the HSU campus by contractors during their preliminary investigation. According to the contractors, the Director indicated that most of these items, which primarily consisted of audio/video equipment, were located at an office maintained in her home, although storage facilities were available for the Center on campus. As previously noted, the Director s husband owns a multimedia company and maintains a photography website. HSU provided a list of 154 items to the Director for her to return. On July 4, 2014, the Director supposedly returned 154 pieces of media-related equipment and other items to HSU, including the following: 4

5 Arkansas Division of Legislative Audit Camcorders. Equalizers. Microphones and stands. Camera lenses. Cable reels. Digital mixers. Numerous cables and power supplies. Office chairs. A three-piece luggage set. Laptops. A complete list of items HSU requested to be returned on July 4, 2014, is included in Appendix A. Subsequently, HSU received a letter from the Director's attorney on July 18, 2014, indicating that the Director had discovered additional HSU property in her possession. Following HSU's receipt of the letter, the Director supposedly returned an additional 117 items, including the following: Nikon camera. Vizio video monitor. Dell desktop computer. Hitachi projector. Beats by Dr. Dre headphones. Six books of stamps. Two containers of olive oil. Shark portable steamer. Shark fabric steamer. Two Shark steam irons. A complete list of items supposedly returned on July 18, 2014, is included in Appendix B. According to HSU legal counsel, neither lot of equipment and supplies, totaling 271 items, that the Director returned was verified; therefore, DLA staff were unable to determine if all items on either list were returned to HSU. Unused and Excessive Items Located on HSU Campus During a tour of Center offices and storage facilities, DLA staff noted unused equipment items and excessive supplies on hand, including the following: Unopened boxes containing leather office chairs and folding tables. Unopened box containing an ipad. Laptop computers that appeared unused. A large amount of color toner and other office supplies. As a result of the tour of Center facilities, DLA staff requested that HSU conduct a complete inventory of equipment and supplies on hand at the Center. HSU provided the inventory list on September 30, HSU inventory included the following items, which appear excessive, for Center operations. 635 boxes of paper/binder clips. 470 batteries. 168 banker boxes. 308 shirts. 115 cartridges of ink or toner. 105 umbrellas. 48 pedometers. 14 electric pencil sharpeners. 5 televisions. Over 1,000 each of pens, pencils, crayons, and Post-it notes/flags. DLA staff confirmed the ink/toner cartridges were on hand, as well as verified several items on HSU's inventory list. DLA staff recommend that HSU reconcile its inventory list to the items supposedly returned by the Director and determine action to be taken regarding excessive equipment and supplies on hand at the Center. 5

6 Henderson State University Center for Language Proficiency Questionable Expenditures During review of expenditures, DLA staff noted the following questionable expenditures totaling $121,629: $990 in stamps, although Center mail is processed through the HSU campus post office. $3,071 for a new oven and dishwasher for the Center office. $39,475 for ink and toner cartridges. $30,100 for snacks. $3,023 for DVDs. $2,692 for batteries. $42,278 for other office supplies. In addition, based on the number of items provided in Appendices A and B, it appears that much more computer, audio, and video equipment was purchased than would be necessary for Center operations. The Center also purchased several items for which a business purpose could not be determined, including luggage, olive oil, fabric steamer, groceries, and cookware. DLA staff recommend that HSU ensure Center funds are used for the intended purpose and internal controls are established to prevent excessive purchases. Grant and Center Oversight ADE did not establish guidelines concerning proper use of the ELL grant funds given to HSU. In addition, it appears that neither ADE nor HSU personnel monitored use of these funds. During an interview with DLA staff on July 21, 2014, ADE personnel indicated that written documentation (e.g., grant agreement or contract) regarding the proper use of grant funds by the Center did not exist. The only written documentation related to the ELL grant funds appears to be financial statements prepared by the Director and submitted to ADE after the conclusion of each Academy. The financial statements were not approved by HSU management. DLA staff recommend that ADE establish guidelines to ensure ELL grant funds awarded are used for the intended purpose. Both ADE and HSU should ensure internal controls are established to provide fiscal oversight and monitoring to prevent waste and abuse of grant funds. HSU and ADE MANAGEMENT RESPONSES HSU and ADE management responses to the report are available in Appendices C and D, respectively. SUMMARY DLA review revealed improper disbursements totaling $34,483, related party transactions totaling $58,806, missing equipment that was returned to the HSU campus by the Director but not verified by HSU personnel, questionable expenditures totaling $121,629, excessive inventory of equipment/supplies, and noncompliance with procurement requirements and various state laws. In addition, DLA staff noted lack of fiscal oversight by ADE and HSU regarding the Center's use of grant funds. HSU did not renew Director Julia Correia's contract, making her last day as a Center employee October 3, Assistant Director Christine Smart resigned from employment effective October 20, This report has been forwarded to the Ninth Judicial District East Prosecuting Attorney, HSU, and ADE. 6

7 APPENDICES Appendix A Henderson State University Center for Language Proficiency Equipment/Supplies Returned to Campus by Director on July 4, 2014 (Unverified by University Personnel) Appendix B Henderson State University Center for Language Proficiency Equipment/Supplies Returned to Campus by Director on July 18, 2014 (Unverified by University Personnel) Appendix C Henderson State University Management Response Appendix D Arkansas Department of Education Management Response

8 Appendix A Henderson State University Center for Language Proficiency Equipment/Supplies Returned to Campus by Director (Unverified by University Personnel) On July 4, 2014 Quantity Item(s) Returned Quantity Item(s) Returned 8 On-Stage Stand 2 Superflex 50' Cable 8 Ultimate Support Mic Stand 2 SuperFlex 100' Premium Speaker Cable 6 Superflex 15' Cable 1 100' IEC Power Cable 5 25' Cable xs Crossover 5 Highback Chair 1 2GB 240-Pin SD Ram 5 Superflex 5' Cable 1 30' Patch Snake 4 18" PA Subwoofer Speaker 1 50' DVI Max Video Cable 4 Asus 17.3" Laptop 1 64GB Compact Flash 4 Samsung Solid State Drive 1 8-Channel Wireless Handheld Center 4 SuperFlex 50' Premium Speaker Cable 1 AMD Desktop Computer 3 19" Flight Case 1 ASF 224 Feedback Suppressor 3 Direct Box 1 Behringer Omnidirectional Mic 3 Direct Signal Box 1 Behringer UltraCurve Pro 3 Jack Reel High Capacity Cable Reel 1 Beyerdynamic Stereo Mic 3 Microphone Floating Mount 1 Canon HF-50 Battery 3 Microphone Isolator/Splitter 1 Canon HFM50 Handheld HD Camcorder 3 QSC GX3 300 Amplifier 1 Canon Wide Converter Lens 3 Sennheiser ME-4 Lapel Microphone 1 Carvin 16-Channel Audio/Video Outboard Mixer 3 Wide-Angle Directional Microphone 1 Da-Lite 96" x 96" Picture King Screen 2 1-Space Metal Rack Shelf 1 Delay Unit 2 4-Space Deep Rack Drawer 1 Dual 31-Band Equalizer 2 15' Patch Snake 1 Duplicator Tower 2 31-Band Equalizer 1 Libec DV Series Tripod 2 ATCOMP Video Down-Converter 1 Mackie 12-Channel Mixer 2 Canon VIXIA HF S30 Flash Memory Camcorder 1 MaxCom Dual Channel Compressor 2 CE Labs Video Scaler 1 Mounted Battery Kit 2 Component Cable 1 Power Conditioner 2 Elite Core 1/4" Coupler 1 PreSonus StudioLive 1602 Digital Mixer 2 Elmo P100 Widescreen Document Camera 1 Pro Audio Mic 2 Mark 5 Bi-Directional Microphone 1 Protégé 3-Piece Luggage Set 2 Microphone Road Case 1 Prowork 7-Drawer Rack Unit 2 Phantom Power Box 1 Recordex 70" x 70" Screen 2 Phantom Power Supply 1 Sabine Feedback Suppressor 2 QSC GX5 Power Amplifier 1 Sequenced Power Supply 2 Sennheiser ME-4 Supercardioid Lapel Microphone 1 Toolset 2 Sennheiser Wireless Microphone 1 Valley Video Editing PCI Card 2 SuperFlex 25' Premium Speaker Cable Source: Henderson State University correspondence files (unaudited by the Division of Legislative Audit) A-1

9 Appendix B Henderson State University Center for Language Proficiency Equipment/Supplies Returned to Campus by Director (Unverified by University Personnel) On July 18, 2014 Quantity Item(s) Returned Quantity Item(s) Returned 12 Lens Wipe Packet 1 Bose Headset 10 HSU Note Pad 1 Box of CD/DVD Envelopes (50 Count) 8 Table Mic Stand 1 Canon Power Supply 6 Book of Stamps 1 Dazzle Video Kit 6 Easel Pad 1 Dell Keyboard 6 Flash Drive 1 Dell Laptop 4 25' Outlet Core Reel 1 Dell Latitude D830 Laptop 4 Box of Post-It Flags 1 Dell Power Charger 4 Bracket Dell XPX Desktop Computer w/ ACEDVio Canopus 3 Scissors 1 Elite Core Helical STP Audio Cable w/ Reel Snake 3 Table Flag Set 1 E-Source Mouse 3 Fabric Storage Container 1 Hitachi Projector 2 Bottle of Daily Chef Olive Oil 1 First Aid Kit 2 Case Logic CD/DVD Holder 1 Genfentv Scaler 2 Jack Reel 1 Ibiz World Class Everything Wax Kit 2 Mainstay 3-Arm Rack 1 Microsoft Touch Mouse 2 Manfrotto 302 IBN w/ Manfrotto 501 Fluid Head 1 Nikon CoolPix AW120 2 Might D Light 1 Power Sentry Extension Cord 2 Samsung Internak HD 1 Safeco Hand Truck 2 Shark Steam Iron 1 Sennheiser E8158 Mic 2 Sharper Image Back Support Cushion 1 Sennheiser Power Cord 2 Trash Can 1 Sennheiser True Diversity Receiver 1 3M Pro 150 Manual Projector 1 Shark Fabric Steamer 1 Beats by Dr. Dre Headphones 1 Shark Portable Steamer 1 Behringer ECM8000 Mic 1 Vizio Ezzva Video Monitor Source: Henderson State University correspondence files (unaudited by the Division of Legislative Audit) B-1

10 Appendix C Henderson State University Management Response C-1

11 C-2 Appendix C (continued)

12 C-3 Appendix C (continued)

13 C-4 Appendix C (continued)

14 C-5 Appendix C (continued)

15 Appendix D Arkansas Department of Education Management Response December 5, 2014 The Arkansas Department of Education (ADE) concurs with the Division of Legislative Audit (DLA) staff s recommendations regarding the need to establish guidelines to ensure ELL grant funds are used for the intended purposes and the need for internal controls that provide fiscal oversight and monitoring to prevent waste and abuse of grant funds. As part of the biennial Risk Assessments we prepare for the Department of Finance and Administration (DFA) over the past few years, we identified risks involved with ensuring awarded grant funds are appropriately utilized by grant recipients and sub-recipients. Under that process we have recognized that our controls are insufficient with respect to grant monitoring and have prepared Corrective Action Plans (CAP) addressing the risks of waste and abuse that might occur. Regarding our CAPs, we have considered how to best strengthen internal controls in order to effectively mitigate the risks, preferably without the need to obtain additional staff, and have implemented better interdivisional communication and approval processes with respect to certain types of grants. However, in recent months we have sought advice from both DFA and Legislative Audit staff and determined we should add a grant program coordinator position that would assist grant managers with improving internal controls in each of the various grant programs we administer. Our hope and plan is to adequately meet this need with a single position that will review grant program administration within the agency, recommend additional controls where the need is identified and help with implementation of those controls. The position would also be responsible for conducting desk audits and on-site monitoring of recipients of state and federal grant funding on a statistical sample basis. We are moving forward with reclassifying a position and hope to bring a person on board within the next two to three months. In future risk assessments we will assess whether the improved controls resulting from that one position have sufficiently mitigated the risks, keeping in mind the level of resources available and necessary to ensure internal controls are adequate. We realize that it is impossible to eliminate all risks, but we desire to strike a good balance between the cost of additional staff versus the level of acceptable risk. Mike Hernandez Deputy Commissioner Arkansas Department of Education D-1

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