U.S. DEPARTMENT OF EDUCATION AND VARIOUS
AGENCIES OF THE STATE OF WASHINGTON

Agreement

This Agreement is entered into by the Washington Office of the Superintendent for Public Instruction (OSPI), the Washington Workforce Training and Education Coordinating Board (WTECB), the Washington State Board for Community and Technical Colleges (SBCTC), and the U.S. Department of Education's Office of Vocational and Adult Education and its Chief Financial Officer (the Department) as part of the Department's Cooperative Audit Resolution and Oversight Initiative (CAROI). CAROI was initiated in 1995 by the Department to foster a partnership between the Department and State and local government agencies to improve education programs and student performance through better use of audits, monitoring, and technical assistance. Washington is one of three pilot states to be involved in the testing of this initiative.

As part of the CAROI process that led to this Agreement, the parties discussed additional information helpful in resolving the findings; Washington officials were very cooperative in supplying additional information; the parties carefully reviewed the information and participated in a couple of conference calls to discuss the information, solve any problems and resolve issues jointly. Through this process the parties communicated closely, understood each other's concerns, clarified issues, and put into place a joint process that will solve problems and improve audit resolution and program performance in the future.

This Agreement resolves issues relating to the Washington Statewide Audits covering the period July 1, 1992 to June 30, 1993 (ACN: 10-43931G), and the period July 1, 1993 to June 30, 1994 (ACN: 10-53726G). It resolves the remaining outstanding findings in these audits, findings 10, 20 and 23 of the 1992-93 audit (ACN: 10-43931G), and findings 1, 5, 6, 11, 18, and 82 of the 1993-94 audit (ACN: 10-53726G). This Agreement is in place of program determination letters that would otherwise be issued to resolve these findings. The Department, the WTECB, the OSPI, and the SBCTC hereby agree to the following terms and conditions in full resolution of these findings:

The Washington Statewide Audit (ACN: 10-43931G).

1) In finding 10, the Washington State auditors (the State auditors) reported deficiencies in the procedures used by the State's Employment Security Department (SESD) (acting as the administrative entity for service delivery area XI) for processing direct payments to vendors for travel expenses. Auditors questioned $860 inc costs incurred for unnecessary travel, and found instances of agency staff incurring travel expenses without obtaining the required approval or submitting adequate documentation, and making payments in excess of authorized levels. Corrective actions taken by State officials include a refund of $860 paid by SESD, and the preparation of a conference planning guide to ensure that staff is aware of all relevant State travel policies and requirements. No further action is necessary to resolve the finding based on the relatively insignificant extent of the finding, the corrective actions taken, and the fact that the State auditors did not find a problem with the use of the refund, nor did they find a re-occurrence of the problem. Due to the nature of the finding, and the corrective action taken, there was no need for SESD to be a party to this Agreement. The Department will notify SESD of the resolution of this finding, and send SESD a signed copy of this Agreement.

2) In finding 20, the State auditors questioned $15,500 based on a finding that the SBCTC improperly transferred funds under the Carl D. Perkins Applied Technology and Vocational Education grant (the Perkins Act) from the State Leadership and Tech-Prep accounts to the State Administration account. The State auditors also expressed concern that the SBCTC did not have an adequate system in place to ensure that only allowable costs are charged to State Administration. No further action is necessary to resolve the finding based on the following:

(a) On August 25, 1996, the SBCTC submitted documentation to the Department verifying that it had re-transferred the questioned costs of $15,500 from the State Administration account back into the State Leadership account, and the costs were allowable under the State Leadership account;

(b) The SBCTC submitted a handbook to the Department describing its allocation and reporting procedures for Federal funds.

(c) During a conference call on November 6, 1996, between Department officials, Washington State auditors, and representatives from the WTECB, the SBCTC, and the OSPI, a representative of the State auditor's office indicated that the SBCTC had implemented adequate procedures to ensure that Perkins Act funds are allocated properly, and that no violations had been found in subsequent audits.

(3) In finding 23, the auditors noted that the SBCTC did not have a system in place to define costs as direct or indirect. This resulted in the SBCTC receiving reimbursement for $32,482 in excess indirect cost recoveries. The State auditors also found that SBCTC repaid $22,510 ($32,482 less $9,972 direct costs) to the Perkins Act program prior to the completion of the audit. No further action is necessary to resolve the finding based on the following:

(a) The auditors' workpapers contained a copy of a check from the SBCTC to the WTECB in the amount of $22,510 for reimbursement of excessive indirect cost charges during the period of availability of the funds that were in question. The auditors did not find that the reimbursed funds were misspent.

(b) The SBCTC also submitted contemporaneous documentation from 1994 to the Department verifying that the $9,972 in direct costs were proper and allowable charges to State Administration. The Washington Communications Technology Center (WCTC), a subrecipient of the SBCTC, provided documentation to the SBCTC which showed how the WCTC spent its 1993 subrecipient allocation. Such documentation, which was attached to the SBCTC's August 25, 1996 letter to the Department, consisted of a description of equipment costing $224, as well as a description of how the WCTC provided data processing services to the program in the amount of $9,747.85. Upon reviewing the documentation, the Department agreed that such costs were properly charged to State Administration.

(c) The SBCTC also provided the Department with copies of its current and previous indirect cost negotiation agreements, as well as copies of claims for reimbursement filed by the SBCTC with the WTECB. Such documentation showed that the SBCTC was claiming indirect costs at the approved rate.

(d) During the conference call on November 6, 1996, a representative of the State Auditors' Office verified that the SBCTC has implemented an adequate system to identify costs as direct or indirect, and that subsequent audits at the SBCTC have revealed no additional problems in this area.

The Washington Statewide Audit

(ACN: 10-53726G)

(4) In finding 1, the auditors questioned $2,721.85 in meals and lodging costs incurred by the Office of the Superintendent of Public Instruction (OSPI). The auditors found that the OSPI did not always follow State travel policy regarding per diem rates and the use of non-State facilities. OSPI concurs with this finding and will repay $2,721.82 within thirty days of the date of the execution of this Agreement by sending a check in this amount payable to the U.S. Department of Education, the U.S. Department of Agriculture, Administrative Collections, P.O. Box 70792, Chicago, Illinois 60673. Therefore this finding is resolved.

(5) In finding 5, the State auditors questioned $129,525 that was transferred by the OSPI under the Perkins Act from State Administration to State Leadership. The auditors also noted that the OSPI claimed $435 in travel costs against the wrong program category. This finding is resolved based on the following:

(a) The OSPI provided additional documentation to the Department as well as the State auditors to support the questioned costs of $129,525. Upon reviewing the documentation, the Department determined that the expenditures were proper State Leadership expenses. During the November 6, 1996 conference call, a representative from the State Auditor's Office concurred with the Department that the additional documentation submitted by OSPI was sufficient to resolve the finding.

(b) The OSPI also submitted documentation to the Department and State Auditors to demonstrate that it has implemented an adequate system of controls to ensure that only allowable costs are charged to the grant under the Perkins Act. During the November 6, 1996 conference call, a representative of the State Auditor's Office verified that the OSPI has implemented an adequate system to ensure that Perkins funds are allocated correctly.

(c) During the November 6, 1996 conference call, the OSPI admitted that the questioned costs of $435 may have been claimed against the wrong program category. OSPI will repay this amount by submitting a check in this amount payable to the Department within thirty days of the execution of this Agreement to the address specified in paragraph 4 of this Agreement.

(6) In finding 6, the auditors questioned $47,891 in costs due to the OSPI's failure to comply with State procurement laws in awarding three separate contracts to one of its subrecipients, the New Market Skills Center. Under the terms of the contract, the OSPI defined the scope of work to be performed, and specified the vendors with whom the New Market Skills Center was allowed to contract. No further action is necessary to resolve the finding based on the following:

(a) The OSPI submitted documentation to the Department establishing that Contract No. 13594, totaling $24,875 was awarded in accordance with State procurement laws.

(b) The OSPI also submitted documentation showing that the activities conducted under the two remaining contracts, totaling $24,875, were allowable, that the Federal program received services that are valued in that amount and that the contracts were terminated immediately after the State Auditors informed the OSPI that they were awarded in violation of State procurement laws. During the November 6, 1996, conference call, a representative of the OSPI also confirmed that the contracts were terminated.

(c) During the November 6, 1996 conference call, a representative of the OSPI also stated that the OSPI now provides mandatory training on State procurement laws for all OSPI staff. A representative of the State Auditor's Office also confirmed during the conference call that the OSPI is now adhering to the requirements of State procurement laws.

(d) Based on the documentation that has been submitted, and the value of the services received, the Department has no evidence of harm to the Federal interest as a result of these violations.

(7) In finding 11, the auditors questioned $6,895 because the WTECB's Council on Vocational Education (COVE) failed to report program income earned by the Washington Vocational Education Foundation (WVEF) on the COVES's Financial State Report submitted to the Department. The auditors also stated that the COVE improperly authorized the WVEF to charge $850 for refreshments and a plaque against program income. This finding is resolved based on the following:

(a) During the conference call on November 6, 1996, a representative of the WTECB verified that two separate checks totaling $6,895 were returned by the WVEF to the COVE, and that the $6,895 was then liquidated by the COVE for proper program expenses. The auditors made no findings of improper expenditures of these returned funds, and a representative of the auditors' office verified during the conference call that the outstanding issues in this part of the finding had been resolved during the subsequent years of audit-follow up.

(b) The COVE or an appropriate State agency, will submit an amended Financial State Report showing the earned program income of $6,895.

(c) The WTECB agreed to repay $850 for charges made for refreshments and the plaque. They will repay this amount by submitting a check in this amount payable to the Department within thirty days of the execution of this Agreement to the address specified in paragraph 4 of this Agreement.

(8) In finding 18, the auditors noted that the OSPI did not follow proper allocation procedures for Perkins Act funds to subrecipients as required in 34 C.F.R. 403.112(b)(1) of the Perkins regulations. The auditors stated that the OSPI used a ratio based on the number of students eligible for Chapter 1 funding, rather than the relative amounts of Chapter 1 dollars allocated, resulting in incorrect amounts being distributed to school districts. Also, the auditors confirmed that the allocation was consistent with Federal requirements. This matter is considered resolved based on the following:

(a) The OSPI issued a policy statement clarifying that it correctly distributes vocational education funds based on Title I dollar amounts allocated rather than Title I eligible students.

(b) During the November 6, 1996, conference call, a representative of the Washington State Auditors Office verified that Washington was now properly allocating Perkins Act funds to its subrecipients in compliance with the law.

(c) During a review of the applicable Washington's State Plan for Fiscal Years 1992-1994 included the correct allocation formula for distribution of Perkins funds.

(d) The OSPI will submit to the Department procedures which show how it allocates Perkins funds to subrecipients within thirty days of the execution of this Agreement.

(e) The State auditors indicated that they will verify that OSPI is now allocating Perkins funds to its subrecipients using the correct allocation formula.

(f) The audit report and workpapers did not provide sufficient information to determine the extent of the possible over allocations and under allocations necessary to establish a prima facie case for the recovery of funds.

(9) In finding 82, State auditors reported that a University of Washington (UW) employee, paid with ED grants, had misappropriated at least $2,007 by engaging in personal consulting work on the job. The two grants in question were (a) a flow-through Special Education - Grants to State grant from OSPI (CFDA 84.027), and (b) a discretionary Secondary Education and Transitional Services for Youth with Disabilities grant (CFDA 84.158) awarded directly by ED. No further action is necessary to resolve the finding based on the following:

(a) UW concurs with this finding, and has provided documentation establishing that it has reimbursed the questioned amount to the ED grants by recovering funds from the employee within the period of availability of the funds, and the deducting his leave balance. There was no finding by the auditors that these recovered funds were misspent. In addition, UW stated that it has strengthened controls on time and leave reporting and payroll processing for professionals and has reiterated these policies in writing.

(b) OSPI agrees to monitor its subgrantees to ensure subrecipient compliance with grant requirements and to verify that UW has reimbursed misappropriated funds from the flow-through grant. Due to the nature of the finding, and the corrective actions taken, there was no need for UW to be a party to this Agreement. The Department will notify UW of the resolution of this finding, and send UW a signed copy of this Agreement.

Based on the terms of this agreement, all items in these two audits are considered resolved.

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