REPORT ON SINGLE AUDIT June 30, 2011
COUNTY OF DENVER AND STATE OF COLORADO TABLE OF CONTENTS Page Independent Auditor s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 1 Independent Auditor s Report on Compliance with Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A-133 3 Schedule of Expenditures of Federal Awards 6 Notes to Schedule of Expenditures of Federal Awards 9 Schedule of Findings and Questioned Costs 10 Prior Year Findings and Questioned Costs 21
A1 Independent Auditor s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Board of Education School District No. 1 in the City and County of Denver and State of Colorado We have audited the financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of School District No. 1 in the City and County of Denver and State of Colorado (the District) as of and for the year ended June 30, 2011, and have issued our report thereon dated November 16, 2011. Our report includes a reference to other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Other auditors audited the financial statements of the discretely presented component units as described in our report on the District s financial statements. Of the discretely presented component units, only the financial statements of The Odyssey School and West Denver Preparatory Charter School were audited in accordance with Government Auditing Standards. This report does not include the results of the other auditors testing of internal control over financial reporting or compliance and other matters that are reported on separately by those auditors. Internal Control Over Financial Reporting Management of the District is responsible for establishing and maintaining effective internal control. In planning and performing our audit, we considered the District's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the entity's internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. However, we 1 h
identified a deficiency in internal control over financial reporting, described in the accompanying schedule of findings and questioned costs as 2011-01, that we consider to be a significant deficiency in internal control over financial reporting. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Compliance and Other Matters As part of obtaining reasonable assurance about whether the District's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. We noted certain matters that we reported to management of the District in a separate letter dated November 16, 2011. The District's response to the finding identified in our audit is described in the accompanying schedule of findings and questioned costs. We did not audit the District's response and, accordingly, we express no opinion on it. This report is intended solely for the information and use of management, the finance and audit committee, others within the entity, the Board of Education, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. a1 Greenwood Village, Colorado November 16, 2011 2
A1 Independent Auditor's Report on Compliance with Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A-133 Board of Education School District No. 1 in the City and County of Denver and State of Colorado Compliance We have audited the compliance of School District No. 1 in the City and County of Denver and State of Colorado (the District) with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2011. The District's major federal programs are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts, and grants applicable to each of its major federal programs is the responsibility of the District's management. Our responsibility is to express an opinion on the District's compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the District's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination of the District's compliance with those requirements. In our opinion, the District complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2011. However, the results of our auditing procedures disclosed instances of noncompliance with those requirements, which are required to be reported in accordance with OMB Circular A-133 and which are described in the accompanying schedule of findings and questioned costs as items 2011-03, 2011-04, 2011-07 and 2011-08. 3 h
Internal Control Over Compliance The management of the District is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts, and grants applicable to federal programs. In planning and performing our audit, we considered the District's internal control over compliance with the requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the entity's internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected on a timely basis. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. However, we identified certain deficiencies in internal control over compliance that we consider to be significant deficiencies as described in the accompanying schedule of findings and questioned costs as items 2011-02 through 2011-08. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Schedule of Expenditures of Federal Awards We have audited the financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the District as of and for the year ended June 30, 2011, and have issued our report thereon dated November 16, 2011. We did not audit the financial statements of the discretely presented component units. Our audit was performed for the purpose of forming our opinions on the financial statements that collectively comprise the District's basic financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by OMB Circular A-133 and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. 4
The District's responses to the findings identified in our audit are described in the accompanying schedule of findings and questioned costs. We did not audit the District's responses and, accordingly, we express no opinion on them. This report is intended solely for the information and use of management, the finance and audit committee, others within the entity, the Board of Education, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. a1 Greenwood Village, Colorado December 9, 2011 (except for the Schedule of Federal Awards, as to which the date is November 16, 2011) 5
COUNTY OF DENVER AND STATE OF COLORADO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2011 Cash Catalog of Expended Federal and Domestic Commodities Grant Title Assistance Used U.S. DEPARTMENT OF EDUCATION: Direct Programs: Indian Education (4060) 84.060A 176,531 Pell Grant (5063) 84.063 746,311 Safe and Drug Free Schools (7184) 84.184E 72,320 Elementary and Secondary School Counseling Demonstration Program (5215E) 84.215E 416,446 Fund for the Improvement of Education (5215F) 84.215F 485,091 Fund for the Improvement of Education (6215L) 84.215L 279,874 Fund for the Improvement of Education (6215X) 84.215X 17,551 Foreign Languages Assistance (5293) 84.293A 222,164 Early Reading First (5359, 6359) 84.359B 808,322 Urban Principal Leadership Program (5363) 84.363A 813,500 Improving Literacy through School Libraries (5364) 84.364A 15,389 Teacher Incentive Fund (TIF) (5374) * 84.374A 2,984,368 Total Direct 7,037,867 Passed Through Colorado Department of Education: LSTA State Library Program (7310) 45.310 14,998 Education and Human Resources (8076) 47.076 12,871 Adult Education and Family Literacy Act (AEFLA) Expansion Grant (6002) 84.002A 259,090 Title I [4010 (4008, 4009, 4010,7010)] * 84.010 26,797,787 Title I - Improving Basic Programs (5010) * 84.010 219,394 Title IA - School Improvement Grant (6010) * 84.010 189,855 Title I - Part C - Migrant Education (4011) 84.011A 170,146 Title VI - IDEA B Summer School Special Education (4027) * 84.027 11,238,849 PL99-457 Pre-School (4173) * 84.173 321,250 Safe and Drug Free Schools (4186) 84.186 154,892 Education For Homeless Children and Youth (5196) * 84.196 44,999 Charter Schools (5282) 84.282 3,880,476 21st Century Community Learning Center (5287, 6287, 7287) 84.287 1,635,064 21st Century Community Learning Center (8287) 84.287C 15,756 Title II - D Enhancing Education Through Technology (4318) * 84.318 132,937 Title II - D Enhancing Education Through Technology (5318) * 84.318A 64,205 Title I-G AP for Disadvantaged (5330) 84.330 21,634 Drop Out Prevention & Student Engagement (5360) 84.360A 90,414 Title III - English Language Acquisition (4365) 84.365 2,108,683 Title III - English Language Acquisition (5365) 84.365A 18,718 Title III - English Language Acquisition (7365) 84.365 171,091 Title II - B Math and Science Partnership Program (5366) 84.366 43,311 Title II - B Math and Science Partnership Program (6366) 84.366 274,808 Title II - A Teacher and Principal Training and Recruiting Fund (4367) 84.367 5,932,467 School Improvement Grant (5377, 6377, 7377) * 84.377 1,438,431 Education Jobs Fund (4410) 84.410 15,343,706 Total Colorado Department of Education 70,595,832 District project codes in parentheses * Represents those programs that are considered to be clusters of programs (Continued) 6
COUNTY OF DENVER AND STATE OF COLORADO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2011 Cash Catalog of Expended Federal and Domestic Commodities Grant Title Assistance Used American Recovery and Reinvestment Act (ARRA): Direct Programs: (Project Code) ARRA-Teacher Incentive Fund (TIF) (5374) * 84.385 2,149,019 ARRA-Innovation Fund (4396) 84.396B 1,070,427 ARRA-Teacher Quality Partnerships (5405) * 84.405A 592,710 Total ARRA Direct 3,812,156 Passed Through Colorado Department of Education: ARRA-National School Lunch Equipment Assistance (4579) 10.579 11,839 ARRA-Title II (Formula) (4386) * 84.386 824,082 ARRA-Title II - D Ed Tech (Competitive) (5386) * 84.386 124,396 ARRA-McKinney-Vento Homeless (5387) * 84.387 34,735 ARRA-Tiered Intervention Grant (7388) * 84.388 2,823,993 ARRA-Title I Part A [4389 (4387, 4388, 4389, 8389)] * 84.389 23,908,421 ARRA-Title I - D Delinquent (7389) * 84.389 312,614 ARRA-IDEA, Part B (4391) * 84.391 8,737,765 ARRA-IDEA, Preschool (4392) * 84.392 229,001 ARRA-State Stabilization Fund (SFSF) (10.4394) * 84.394A 5,891,522 ARRA-NBPTS Certified Teacher Grant (6397) * 84.397A 9,344 Total ARRA Colorado Department of Education 42,907,712 Passed Through Office of the Governor: ARRA-Education Stabilization Fund (4394) * 84.394A 184,898 Passed Through City and County of Denver - Mayor's Office for Education and Children: ARRA-Head Start (8708) 93.708 230,089 Total U.S. American Recovery and Reinvestment Act (ARRA) 47,134,855 Passed Through Colorado Community College and Occupational Education: Perkins - Post Secondary (4048, 5048) 84.048 1,600,870 Passed Through Colorado Department of Human Services: School to Work Alliance Program (SWAP) (5126) 84.126 582,814 Passed Through Metropolitan State College of Denver: Secondary Teacher Enhancement Project (STEP) (4336) 84.336B 178,360 Passed Through Center for Civic Education: School Violence Prevention Program (5929) 84.929A 56 Total U.S. Department of Education 127,130,654 District project codes in parentheses * Represents those programs that are considered to be clusters of programs (Continued) 7
COUNTY OF DENVER AND STATE OF COLORADO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2011 Cash Catalog of Expended Federal and Domestic Commodities Grant Title Assistance Used U.S. DEPARTMENT OF AGRICULTURE: Passed Through Colorado Department of Education: Food Distribution (4550) 10.550 1,639,426 School Breakfast Program (4553) * 10.553 4,227,950 National School Lunch Program (4555) * 10.555 17,896,362 Summer Food Service Program for Children (4559) * 10.559 585,114 Federal Fresh Fruit and Vegetable Program (4582) 10.582 822,878 Total Colorado Department of Education 25,171,730 Passed Through Colorado Department of Public Health and Environment: Child/Adult Care Food Program (4558) 10.588 167,336 Total U.S. Department of Agriculture 25,339,066 U.S. DEPARTMENT OF DEFENSE: Direct Program: JROTC Career Academy (9001) 12.001 995,239 U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT: Passed Through City and County of Denver - Office of Economic Development: Community Development Entitlement Grant (8218) 14.218 4,557 NATIONAL SCIENCE FOUNDATION: Passed Through Denver Museum of Nature and Science National Science Foundation (NSF) (7076) 47.076 13,484 U.S. DEPARTMENT OF ENERGY: Passed Through Governor's Energy Office: Office of Energy Conservation (7041) 81.041 6,500 U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES: Passed Through City and County of Denver: Head Start (8600) 93.600 1,269,057 U.S. DEPARTMENT OF LABOR: CORPORATION FOR NATIONAL AND COMMUNITY SERVICE: Passed Through Colorado Department of Education: Learn and Serve America (7004) 94.004 77,500 Passed Through Colorado Governor's Commission on Community Service: AmeriCorps (7006) 94.006 467,450 Total U.S. Department of Labor 544,950 U.S. DEPARTMENT OF TRANSPORTATION: Passed Through Regional Air Quality Council: Highway Planning and Construction (7205) 20.205 24,126 TOTAL EXPENDITURES OF FEDERAL AWARDS $ 155,327,633 District project codes in parentheses * Represents those programs that are considered to be clusters of programs 8
NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS NOTE 1 - BASIS OF ACCOUNTING The schedule of expenditures of federal awards is prepared on the modified accrual basis of accounting. Expenditures are recognized when they become a demand on current available financial resources. Encumbrances are used during the year for budgetary control purposes and lapse at fiscal year end. NOTE 2 - NONCASH AWARDS The District receives food commodities from the U.S. Department of Agriculture for use in its food service program. The commodities are recognized as revenue when received. The commodities are recognized as expenditures when used by the schools. The majority of the commodities are stored at the individual schools instead of a central warehouse. As such, the District has determined that the title to the commodities passes to the District upon receipt of the commodities. Since the District has received title to the commodities, the unused commodities are not reflected as deferred revenue. The commodities are reported under the National School Lunch Program (CFDA 10.555). 9
SCHEDULE OF FINDINGS AND QUESTIONED COSTS Section I Summary of Auditor s Results Financial Statements Type of auditor s report issued: Unqualified Internal control over financial reporting: Material weakness(es) identified? yes none reported Significant deficiencies identified that are not considered to be material weaknesses? yes none reported Noncompliance material to financial statements noted? yes no Federal Awards Internal control over major programs: Material weakness(es) identified? yes none reported Significant deficiencies identified that are not considered to be material weakness(es)? yes none reported Type of auditor s report issued on compliance for major program: Unqualified Any audit findings disclosed that are required to be reported in accordance with Section 510(a) of Circular A-133? yes no 10
Identification of major programs: SCHOOL DISTRICT NO. 1 IN THE CITY AND SCHEDULE OF FINDINGS AND QUESTIONED COSTS CFDA Number(s) 84.010, 84.389 84.027, 84.173, 84.391, 84.392 84.374, 84.385 84.282 84.410 84.394, 84.397 84.367 84.377, 84.388 10.553, 10.555, 10.559 Name of Federal Program or Cluster Title I Cluster IDEA Cluster Teacher Incentive Fund Cluster (TIF) Charter Schools Education Jobs Funds ARRA Education State Fiscal Stabilization Fund cluster Title II Part A School Improvement Grant Cluster (SIG) Child Nutrition Cluster Dollar threshold used to distinguish between type A and type B programs $3,000,000 Auditee qualified as low-risk auditee? yes no 11
SCHEDULE OF FINDINGS AND QUESTIONED COSTS Section II Financial Statement Findings Finding 2011-01 Capital Asset Accounting Significant Deficiency Criteria: Generally accepted accounting principles require the District to record capital assets in the statement of net position. Current year capital asset additions are expensed as capital outlay in the governmental fund financial statements. Condition: The District maintains an operational capital asset system for project management purposes, as well as a subsidiary ledger and general ledger for accounting purposes. The project management system is used primarily by District operations staff, while the subsidiary and general ledgers are maintained by District finance staff. We noted the project management system was not properly reconciled to the subsidiary ledger or the general ledger. Cause: The District does not have a process in place to reconcile capital outlay expenditures of the governmental fund financial statements to capital asset additions reported in the statement of net position. In addition, the project management system does not have capabilities to generate period (monthly or annual) financial reports, which further complicates any potential reconciliation. Effect: During the audit, we noted several discrepancies in the capital asset schedules initially provided by District management, which required multiple subsequent versions of the schedules. As a result, we proposed several adjustments to capital assets in the statement of net position and footnotes, in addition to certain reclassifications to capital outlay in the governmental fund financial statements. Recommendation: In order to facilitate the preparation of the Comprehensive Annual Financial Report, we recommend the District periodically reconcile capital outlay expenditures reported in the governmental fund financial statements to capital asset additions in the statement of net position. In addition, we recommend District finance staff and District operations staff collaborate to review the process by which capital project costs are accumulated and reported. The goal should be to identify efficiencies, improve communication, and to develop a more consistent tracking system of capital project costs in the project management system compared to the subsidiary and general ledgers. Specifically, there should be consistency in the types of costs considered to be capital in nature between District finance staff and operations staff. Views of responsible officials and planned corrective actions: The District concurs with the recommendation that the District periodically reconcile capital outlay expenditures to capital asset additions. As there are multiple systems and departments involved in the tracking of capital asset activity, it is imperative that all stakeholders in the process communicate on a regular basis and understand the financial reporting aspects of capital asset activity. The District has started a process of enhancing this communication process and plans to implement a periodic reconciliation of capital outlay to capital asset additions. Corrective action will be completed by June 30, 2012. Responsible Official: Steve Clawson, Controller 12
SCHEDULE OF FINDINGS AND QUESTIONED COSTS Section III Federal Award Findings and Questioned Costs Finding 2011-02 CFDA: Title I ARRA, 84.389; ARRA State Fiscal Stabilization Fund 84.394A; ARRA Teacher Incentive Fund, 84.385; Education Jobs Fund, 84.410; Tiered Intervention Grant, 84.388 Reporting Significant Deficiency Criteria: The A-102 Common Rule and OMB Circular A-110 require that non-federal entities receiving Federal awards establish and maintain internal control designed to reasonably ensure compliance with Federal laws, regulations, and program compliance requirements. An instance of internal control includes review and approval of transactions by someone other than the initiator of reports required by granting agencies. Condition: There was no review of the ARRA Section 1512 report. Questioned Costs: None. Context: We noted three instances in Title I, two instances in State Fiscal Stabalization Fund, one instance in the Teacher Incentive Fund, one instance for Education Jobs Fund and 4 instances in the Tiered Intervention Grant where the ARRA Interim Expenditure reports were not reviewed before they were submitted to the granting agency. Cause: The District does not have proper segregation of duties between the initiating of ARRA Interim Expenditure Reports and the review and approval of the reports. Effect: The District violated A-102 Common Rule and OMB Circular A-110 by not implementing effective internal controls over ARRA Interim Expenditure Reports. Recommendation: We recommend that the District implement a review and approval process for reports submitted. Views of responsible officials and planned corrective actions: The District concurs with the recommendation that all ARRA Interim Expenditure Reports receive appropriate review and approval prior to submission, and a standardized process will be implemented. Corrective action will be implemented by December 31, 2011. Responsible Official: Nancy Connor, Director, Federal Programs 13
SCHEDULE OF FINDINGS AND QUESTIONED COSTS Finding 2011-03 CFDA: Title I ARRA, Title I Grants to Local Education Agencies 84.010, 84.389; Title II - A, 84.367 Special Tests and Provisions Significant Deficiency, Noncompliance Criteria: The District is required to establish internal controls to review and approve schoolwide plans to ensure that the District is compliant with 34 CFR Section 200.26, Core Elements of a Schoolwide Program. Condition: Of the thirteen schoolwide plans tested for controls and compliance, six schools did not reference transitional plans for assisting preschool children in the successful transition to a schoolwide plan, four schoolwide plans did not include the requirement to instruct with highly qualified professional staff, and four schoolwide plans did not document the need for Parental Involvement. All thirteen plans were not reviewed to ensure that all the necessary requirements were being met. Questioned Costs: None. Context: See condition above. Cause: The District has not established monitoring procedures to ensure that schoolwide plans include all compliance requirements. Effect: Noncompliance with schoolwide plan documentation requirements Recommendation: We recommend that the District establish monitoring procedures to review and approve schoolwide plans on an annual basis to ensure compliance with Federal requirements. Views of responsible officials and planned corrective actions: The District concurs with the recommendation that schoolwide plans be reviewed and monitored annually. As noted in the District s Internal Audit report of September 2011, the District implemented a new review and approval process during the 2011-2012 school year beginning with the plan updates made in the Fall; the new process includes checklists, signature approvals and the addition of personnel for oversight. Further, leadership review and signature approval attesting to the inclusion of required Title I Unified Improvement Plan components will be implemented for the development of the 2012-2013 plans which will be drafted in April 2012. Corrective action will be completed by June 30, 2012. Responsible Official: Nancy Connor, Director, Federal Programs 14
SCHEDULE OF FINDINGS AND QUESTIONED COSTS Finding 2011-04 CFDA 84.394 State Fiscal Stabilization Fund Period of Availability Significant Deficiency, Noncompliance Criteria: Where a funding period is specified, a recipient may charge to the grant only allowable costs resulting from obligations incurred during the funding period and any pre-award costs authorized by the Secretary. Obligations means the amounts of orders placed, contracts and subgrants awarded, goods and services received, and similar transactions during a given period that will require payment by the non-federal entity during the same or a future period. (20 U.S.C. 1221e-3, 3474; OMB Circular A-110 and OMB Circular A-102). Condition: The District charged utilities to the SFSF grant outside the period of availability of March 14, 2011 through September 30, 2011. Questioned Costs: None. Context: Out of 25 items tested, we noted four instances where utilities charged to the SFSF grant were for service periods in March prior to March 14, 2011. The period of availability for expenditures charged to the grant is based on when the obligation is made, not the period in which the expenditure is paid. A journal entry was made to remove all expenditures that were incurred outside the period of availability. The removed expenditures were replaced with eligible supply expenditures incurred during the period of availability. Cause: The District did not properly review service periods for expenditures charged to the grant to ensure the period of availability requirement was met. Effect: Expenditures outside the period of availability were charged to the grant. As noted above, such expenditures were subsequently replaced with expenditures incurred during the period of availability. Recommendation: The District should review the service period for expenditures to determine the period of availability requirement is met, prior to charging expenditures to the grant. Views of responsible officials and planned corrective actions: The District concurs with the recommendation that expenditures should be reviewed for period of availability prior to being charged to a grant. The District does have procedures in place to ensure that period of availability is reviewed appropriately. The unusual nature and awarding mechanism of this grant and the manner in which it was applied to District general fund expenditures on a large scale made it difficult to apply standard procedures. A special methodology was thus created and applied in order to assess the period of availability for expenditures charged to this particular grant. Should a grant of this nature be awarded to the District in the future, the District will implement a period of availability review process specifically tailored to the unique specifications of the grant. In the interim, Federal Programs leadership will conduct a review of training with key personnel regarding period of availability on grants. Corrective action will be completed by January 31, 2012. Responsible Official: Nancy Connor, Director, Federal Programs. 15
SCHEDULE OF FINDINGS AND QUESTIONED COSTS Finding 2011-05 CFDA 84.282 Charter School Grant Matching, Level of Effort, Earmarking Significant Deficiency Criteria: Grantees that receive awards for replication and expansion of high-quality charter schools may not expend more than 15 percent of grant funds for initial operational costs associated with the expansion or improvement of the eligible entity s oversight or management of its schools (Program Announcement issued May 24, 2010, Federal Register (75 FR 28789-28795)). Condition: The District does not have controls in place to monitor this requirement. Questioned Costs: None. Context: As part of gaining an understanding of internal controls over compliance requirements, we noted there are no controls in place to monitor this requirement. Cause: The District has not developed policies and procedures to ensure the requirement is being met. Effect: Charter schools could expend more than the allowable 15% of the grant funds towards initial operational costs associated with the expansion or improvement of the school. Recommendation: We recommend that the District implement procedures and controls to monitor this requirement. Views of responsible officials and planned corrective actions: The District concurs with the recommendation that procedures and controls be implemented in order to monitor grants for the 15 percent limit requirement as defined in the Program Announcement issued May 24, 2010, Federal Register (75 FR 28789-28795). The District has begun a review and approval process, on an ongoing basis, of all new charter school start up grants, both their approved budgets and expenditures, to ensure compliance with the 15 percent limit. As a matter of note, the above referenced notice of this requirement was provided by the U.S. Department of Education upon distribution of the FY12 Request for Proposal, and therefore was not in place during budget development of the FY11 grant. Additionally, the District has maintained compliance with the 15 percent limitation. Corrective action will be implemented by February 15, 2012. Responsible Official: Nancy Connor, Director, Federal Programs 16
SCHEDULE OF FINDINGS AND QUESTIONED COSTS Finding 2011-06 CFDA 84.367 Title II-A; 84.282 Charter School Grant Suspension and Debarment Significant Deficiency Criteria: Per OMB Circular A-133 requirements, when a non-federal entity enters into a covered transaction with an entity at a lower tier, the non-federal entity must verify that the entity is not suspended or debarred or otherwise excluded. This verification may be accomplished by checking the Excluded Parties List System (EPLS) maintained by the General Services Administration (GSA), collecting a certification from the entity, or adding a clause or condition to the covered transaction with that entity (2 CFR section 180.300). Condition: Documentation did not exist to show that the potential vendors had been compared to the Excluded Parties List System (EPLS). Questioned Costs: None. Context: In Title II-A, we noted one instance where the wrong form was used by management to establish a new vendor. As a result, the check list to review the EPLS site was not included. There was no evidence that charter school disbursements had been compared to the EPLS site. Cause: During the current year, the District developed enhanced policies and procedures to ensure that federally funded purchases are not made from vendors that that have been suspended or debarred by the federal government. However, such procedures were implemented for the primary government only and have not been fully implemented as they relate specifically to charter schools. In addition, there is not an adequate monitoring procedure in place to ensure that all vendors charged to federal grants have been properly verified against the EPLS (for either the primary government or the charter schools). Effect: Purchases of goods or services from suspended or debarred vendors may occur and subsequently be disallowed for federal reimbursement. Recommendation: We recommend that the District provide additional training to buyers to ensure they fully understand District requirements and procedures related to suspension and debarment, and implement additional monitoring procedures to ensure that vendors have been verified against the EPLS as required. In addition, we recommend that management implement its enhanced policies and procedures over suspension and debarment for charter school purchases. Views of responsible officials and planned corrective actions: The District concurs with the recommendation that additional training be provided to buyers to ensure that established District policies and procedures regarding compliance with suspension and debarment requirements are being followed. The District has established a monthly review process checking for suspension and debarment compliance, and that practice will continue. 17
SCHEDULE OF FINDINGS AND QUESTIONED COSTS Finding 2011-06 CFDA 84.367 Title II-A; 84.282 Charter School Grant (Continued) Additionally, a review of policies and procedures regarding suspension and debarment will be conducted with all purchasing staff. Corrective action will be completed by January 31, 2012. Responsible Official: Michael Thomas, Director, Purchasing. The District will evaluate the manner in which it monitors the procurement policies and procedures for charter school purchases. Corrective action will be completed by June 30, 2012. Responsible Official: Steve Clawson, Controller Finding 2011-07 CFDA 84.282 Charter School Grant; 84.388 ARRA-Tiered Intervention Grant Allowable Costs Significant Deficiency, Noncompliance Criteria: Per OMB Circular A-133 requirements, the District is required to implement internal controls over compliance to ensure that costs charged to a grant are for allowable activities and allowed costs under OMB Circular A-87, Costs Principles for State, Local and Indian Tribal Governments. Condition: The request for reimbursements from the charter schools did not provided sufficient documentation to be able to determine the cost was allowable. For both grants, sales tax was paid on certain invoices. Questioned Costs: Charter School Grant - $1,010.08 Tiered Intervention - $10.34 Context: We tested 25 transactions for allowable costs and activities for Charter School Grant. We noted that three invoices selected did not have proper support for the expenditure and two invoices included sales tax. We tested 25 transactions for allowable costs and activities within the Tiered Intervention Grant. We noted that three invoices had sales tax paid and charged to the grant. Cause: The District has not established monitoring procedures to ensure that documentation submitted by the individual schools is sufficient documentation to meet the compliance requirements described above and to ensure improper costs are not being paid. Effect: Noncompliance with allowable cost documentation requirements. Recommendation: We recommend that the District establish monitoring procedures to review supporting documentation submitted by the charter schools prior to reimbursement of expenditures. In addition, all invoices should be carefully reviewed to ensure improper costs are not being charged to grants. 18
SCHEDULE OF FINDINGS AND QUESTIONED COSTS Finding 2011-07 CFDA 84.282 Charter School Grant; 84.388 ARRA-Tiered Intervention Grant (Continued) Views of responsible officials and planned corrective actions: The District concurs with the recommendation that monitoring procedures to review supporting documentation for allowability prior to reimbursement of expenditures be established. To that end, in the first quarter of FY12, the District established and formally documented a protocol for a monthly review of all federal grants. Initial training was conducted in September 2011; in light of this finding, retraining will be conducted. Corrective action will be implemented by January 31, 2012. Responsible Official: Nancy Connor, Director, Federal Programs Finding 2011-08 CFDA Title I ARRA, Title I Grants to Local Education Agencies 84.010, 84.389; Title II - A, 84.367 Allowable Costs Significant Deficiency, Noncompliance Criteria: OMB Circular A-87 requires that when employees work on multiple activities or cost objectives, a distribution of their salaries or wages will be supported by personnel activity reports, or equivalent documentation. Such reports must reflect an after-the-fact distribution of the actual activity of each employee, must account for the total activity for which each employee is compensated, must be prepared at least monthly, must coincide with one or more pay periods, and must be signed by the employee. Condition: Certain salary and wages charged to the Title I and Title I ARRA grants and Title II A were not supported by time and effort reporting. Questioned Costs: Title I - $2,431.20 Title II - $96,731.00 Context: We tested 25 payroll transactions for Title II, noting two transactions that were not supported by time and effort reports. Payroll costs for these two transactions totaled $4,721.12 which is $96,731.00 annualized, as reported above. We tested 35 payroll transactions (25 by Clifton Gunderson and 10 by the District s Internal Audit staff) for Title I, noting two transactions that were not supported by time and effort reports. Cause: DPS has implemented procedures to require time and effort reporting through an email system and monitors completion with follow-up emails. However, the monitoring process does not include verification that all salary and wages charged to the grants are supported by time and effort reports as required by OMB Circular A-87. Effect: Salary and wage costs were not fully supported by documentation in accordance with OMB Circular A-87. 19
SCHEDULE OF FINDINGS AND QUESTIONED COSTS Finding 2011-08 CFDA Title I ARRA, Title I Grants to Local Education Agencies 84.010, 84.389; Title II - A, 84.367 (Continued) Recommendation: We recommend the District implement additional monitoring procedures to ensure that all employees charged to the grant have completed time and effort reporting, that any variances identified by the employee during the process are resolved and documented, and that journal entries are supported by time and effort records signed by the individual employees. Views of responsible officials and planned corrective actions: The District concurs and continues to monitor the effectiveness of the system used to gather initial certifications as well as the policy and procedure improvements which were implemented regarding the process of moving salary expenses into or out of grants by journal entry. The District will conduct a retraining of federal programs personnel to ensure that journal entry policies and procedures are followed with regard to time and effort certification documentation. Corrective action will be completed by January 31, 2012. Responsible Official: Nancy Connor, Director, Federal Programs 20
PRIOR YEAR FINDINGS AND QUESTIONED COSTS Section II Financial Statement Findings Finding 2010-01 Account Reconciliation Summary: There were several balance sheet accounts that were not reconciled and reviewed on a regular basis including grants receivable and property and equipment (capital outlay). In addition, procedures have not been established to ensure that accounts that have been reconciled have been reviewed by a supervisor on a timely basis. Status: Partially implemented. See 2011-01. Section III Federal Award Findings and Questioned Costs Finding 2010-02 Title I, ARRA Title I, Grants to Local Education Agencies; CFDA 84.010, 84.389 Allowable Costs Significant Deficiency, Noncompliance Summary: Salary and wages charged to the Title I and Title I ARRA grants were not supported by time and effort reporting. In addition, procedures have not been established to verify that all salary and wage charges to the grants are supported by time and effort reports as required by OMB Circular A-87. Status: The finding has been repeated as 2011-08. Finding 2010-03 Title I, ARRA Title I, Grants to Local Education Agencies; CFDA 84.010, 84.389; Title IID, Title IID ARRA, Enhancing Education through Technology; CFDA 84.318, 84.386 Suspension and Debarment Significant Deficiency Summary: Documentation did not exist to show that the potential vendors had been compared to the Excluded Parties List System (EPLS). The District did not have adequate monitoring procedures in place to ensure that all vendors charged to federal grants have been properly verified against the EPLS. Status: The finding has been revised and repeated as 2011-06. 21
PRIOR YEAR FINDINGS AND QUESTIONED COSTS Finding 2010-04 Title IID, Title IID ARRA, Enhancing Education through Technology, CFDA 84.318, 84.386 Cash Management Significant Deficiency, Noncompliance Summary: Subsequent to drawing funds on the grant, it was determined that costs were incorrectly charged to the grant and were reclassified with a journal entry resulting in a negative cash request. Policies and procedures have not been established to evaluate the impact of reclassification journal entries on cash management requirements. Status: Implemented Finding 2010-05 Title IID, Title IID ARRA, Enhancing Education Through Technology, CFDA 84.318, 84.386 Allowable Costs Significant Deficiency, Noncompliance Summary: The District utilizes Title IID funding to pay for substitute teachers while the regular teachers attend professional development training. The documentation for payment for the substitutes did not support that they substituted for a teacher who was attending allowable professional development training. The District has not established monitoring procedures to ensure that documentation for substitute teachers are being charged for teachers who are attending an authorized training. Status: The District is still in process of implementing the recommended policies and procedures. Finding 2010-06 Head Start, ARRA Head Start; CFDA 93.600, 93.708 Eligibility Significant Deficiency, Noncompliance Summary: The District documents eligibility determinations by completing an eligibility form. However, the form is not always completed correctly or does not meet the minimum documentation requirements. The District has not established monitoring procedures to ensure that Head Start eligibility forms are properly completed and provide complete documentation of eligibility requirements met. Status: Implemented 22
PRIOR YEAR FINDINGS AND QUESTIONED COSTS Finding 2010-07 Teacher Incentive Fund, ARRA Teacher Incentive Fund, 84.374, 84.385 Allowable Costs/Cost Principles Significant Deficiency, Noncompliance Summary: District policy requires approval of payroll for each payroll reporting unit by the manager or principal. Payroll transactions for the grant were not approved in accordance with District policy. Policies and procedures have not been established to monitor that all payroll transactions are approved in accordance with District policy. Status: Implemented Finding 2010-08 Title I, ARRA Title I, Grants to Local Education Agencies; CFDA 84.010, 84.389 Special Tests and Provisions Significant Deficiency, Noncompliance Summary: During testing of the schoolwide plans for the District, it was noted that several schools were missing required items of the report, primarily the discussions of the transitional plans for assisting preschool children in the successful transition to a schoolwide plan, to instruct with highly qualified professional staff, and document a comprehensive needs assessment or an evaluation of the results of the needs assessment and reform strategies based on that needs assessment. In addition, procedures were not in place to monitor the plans to ensure that all the required components were included in each of the plans. Status: The finding has been repeated as 2011-03. 23