March 3, 1998
MEMORANDUM FOR:
RAYMOND J. UHALDE
Acting Assistant Secretary for
Employment and Training
/ s /
FROM:
JOHN J. GETEK
Assistant Inspector General
for Audit
SUBJECT:
St. Louis County JTPA Special Review
Final Audit Report No. 05-98-002-03-340
The attached subject final audit report is submitted for your resolution action. This audit was performed in response to a congressional request to examine allegations concerning the misuse St. Louis County JTPA program funds. St. Louis County is a Service Delivery Area (SDA) of the State of Missouri. We request a response to this report within 60 days.
We are also providing a copy of this report to Julie Gibson, Director, Division of Job Development and Training, Missouri Department of Economic Development and to Buzz Westfall, St. Louis County Executive. This subrecipient audit should be resolved under the provisions of JTPA regulations 627.481(2).
If you have any questions regarding this report, please contact Preston Firmin, Regional Inspector General for Audit, Chicago Regional Audit Office, at (312) 353-2416.
Attachment
Page
ABBREVIATIONS/ACRONYMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
EXECUTIVE SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
FINDING ONE:
DHS Work Connections Charged Staff Salaries to the Title III
Grants Disproportionately to the Work Performed. . . . . . . . .
. . . . . . . . . 1
A. Interviews with both
current and former DHS Work Connections
staff disclosed that time records inaccurately recorded the time
they actually performed Title III services . . . . . . . .. . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Audit Criteria . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
B. Most Title III services
were subcontracted to and performed by
St. Louis Community College . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . ..4
Subcontract with St. Louis Community College . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Counselor activity reports . . . . . . . . . . .. . . . . . . . . . . .. . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . 5
Indirect costs were charged to Title III based on direct charges . . . . . . . . . . . . . . . . . . . . . .6
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Recommendations.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . 8
FINDING TWO:
Strengthened Internal Controls Are Needed to Ensure All
Grant Charges Are Properly Documented . . . . . . . . . . . . . . . . .
. . . . . . . .13
The
Budget Process . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Page
Conclusion . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
APPENDIX I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
BACKGROUND
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . 18
OBJECTIVES, SCOPE AND METHODOLOGY . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . .20
EXHIBITS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
APPENDIX II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93EXHIBIT A (Schedule of Direct Questioned Costs) . . . . . . . . . . . . . . . . . . . . . . . .22
EXHIBIT A-1 (Narrative Regarding Questioned Costs). . . . . . . . . . . . . . . . . . . . .23
EXHIBIT A-1a (Analysis of St. Louis County Questioned Costs). . . . . . . . . . . . . 32
EXHIBIT A-2 (Individual Schedule of Questioned Costs) . . . . . . . . . . . . . . . . . . . 34
EXHIBIT B (Schedule of Questioned Indirect Costs) . . . . . . . . . . . . . . . . . . . . . . .87
EXHIBIT C (Indirect Costs Rates & an Excerpt from
the Indirect Cost Agreement). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
AUDITEE'S RESPONSE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
A-12 McDonnell Douglas A-12 Aircraft
CFR Code of Federal Regulations
CY Calendar Year
DHS Department of Human Services
EDWAA Economic Dislocation and Work Adjustment Assistance Act
ETA Employment and Training Administration
GM General Motors
HHS U.S. Department of Health and Human Services
JTIS Job Training Information System
JTPA Job Training Partnership Act
NATL National Foods
OIG Office of Inspector General
OJT On the Job Training
PIC Private Industry Council
SDA Service Delivery Area
SLCC St. Louis Community College
WRP
Worker Reentry Program
JTPA provides funds to establish job training, job search and job placement
programs for eligible participants. The funded programs provide assistance
to youth, unskilled adults and other individuals facing serious barriers
to employment. In particular, under Title III of the JTPA, assistance is
provided to establish an early readjustment capacity for workers who have
been laid off and have dim prospects for employment using the skills required
for their former employment. Title III emphasizes retraining and reemployment
services.
AUDIT RESULTS
We performed an audit of Title III JTPA program expenditures for the period July 1, 1994 to March 31, 1997.
Our audit found:
We recommend that the Assistant Secretary for Employment and Training:
-- direct the State of Missouri to determine the Title III program activities performed by DHS
Work Connections staff and recover the costs questioned that cannot be substantiated as
valid and reliable Title III costs; and
-- direct the State of Missouri to require St. Louis County and the PIC for SDA 13 to establish
control and review procedures sufficient to assure that all costs charged to Title III grants are
properly supported by reliable documentation.
St. Louis County disagrees with the finding and results stated by the OIG in this audit report. It is not our position that interviews conducted with current and former employees do not raise legitimate questions about the proper allocation of grant costs. However, we believe the OIG has employed assumptions and methodology which are inconsistent with the mandatory minimum audit standards set forth by the Controller General of the United States in Government Auditing Standards (1994 Revision). We are also concerned that the OIG has presented its findings in a manner that may mislead the casual reader about the audit results.
See Appendix II for Auditee's complete response.
OIG's Evaluation and Final Conclusions
In responding to our draft report, the County provided little information
or documentation that was not previously examined during our audit fieldwork.
The County's arguments have not provided the support needed to refute our
findings or conclusions that the Title III programs were disproportionately
charged, that time distributions were unreliable and inaccurate, and that
strengthened internal controls are needed.
DHS Work Connections Charged Staff Salaries to the Title III Grants Disproportionately to the Work Performed
We question $567,737.31 of direct cost charges made to the Title III program because DHS Work Connections staff routinely charged a disproportionate share of their time to the Title III grants. We question an additional $136,573.58 for indirect costs which were based on these disproportionate direct charges. These costs are also questioned because the methods used by DHS to compute indirect costs are incorrect. All questioned costs are summarized in Exhibits A and B, with detailed descriptions in Exhibits A-1 and A-2.
Our examination showed that timesheets used to distribute costs to the various JTPA grants did not accurately reflect the time DHS Work Connections staff worked on the grants. Instead, time records were based on predetermined formulas to distribute time (and thereby costs) among the various funding sources.
Initially, the time distribution formula was derived by considering each individual's position and expected, rather than actual, contribution to different programs. Each year employees were periodically given a coding sheet outlining which programs to charge, and the amount of time to charge during each pay period in the coming year. In most pay periods, we determined that between 11 and 18 members of DHS Work Connections staff were charging time to the Title III program, although they were working on other JTPA grants.
We question the personal services related to these time charges because:
A. Interviews with both current and former DHS Work Connections staff disclosed that time
records inaccurately recorded the time they actually performed Title III services.
B. Most Title III services were subcontracted to and performed by St. Louis CommunityThe cumulative effect of this evidence discredits the time and attendance reports prepared by the DHS Work Connections staff as a reliable source for reporting and charging costs to the Title III program.
College. Furthermore, counselor activity reports, which track much of the services
performed under Title III grants show that up to 98 percent of the Title III participant
services were performed by the St. Louis Community College.
A. Interviews with both current and former DHS Work Connections staff disclosed that time records inaccurately recorded the time they actually performed Title III services.We interviewed 18 DHS Work Connections current and former staff. More than 83 percent (15 of 18) indicated that the time charged to Title III did not accurately portray their efforts. Moreover, 14 of the 18 employees indicated that they did not know which programs the different codes on their timesheets represented. The employees stated that they were provided a spreadsheet identifying the codes and hours to be charged to each code.
DHS Work Connections established a list of codes to identify and capture the staff time by grant title and program activity. We were informed that initially the time distribution formula (code spreadsheet) was developed by considering each individual's position and expected contribution to different programs. However, over time, as funding decreased in some programs and increased in others, the formula began to lose that correlation. As a result of funding decreases in other programs, DHS Work Connections increased time charged to Title III without increasing its staff's responsibilities and services to that program.
We obtained a copy of one spreadsheet which contained predetermined codes and time charges for each staff. We tested whether the spreadsheet hours agreed with hours reported on the timesheets prepared by employees. In most cases, we found that the hours charged during that period were consistent with the guidance provided in the spreadsheet. However, in other cases the time charges were different because someone (employee or management) subsequently may have adjusted the time without explanation, some employees failed to follow the system, or because newly revised spreadsheet hours were provided to employees.
Since most staff stated they did not understand what activity the codes on the spreadsheets represented, workers could not reasonably match the hours they worked to the proper codes. Therefore, it is impossible for them to accurately certify that their time entries are correctly distributed to the various JTPA programs.
We concluded that the management and staff practices to distribute time
were unreliable and did not adhere to established JTPA financial system
requirements and cost principles.
The JTPA cost principles at 20 CFR Part 627.435 state that costs must be necessary, reasonable and allocable to the program to be allowable program costs. 20 CFR Part 627.435, further states:
(i) The Governor shall prescribe and implement guidelines on allowable costs for SDA, SSG and statewide programs that are consistent with the cost principles and allowable costs provisions . . . (herein) . . . that include, at a minimum, provisions that specify the extent to which . . . cost items are allowable or unallowable JTPA costs and, if allowable, guidelines on conditions or the extent of allowability, documentation requirements, and any prior approval requirements applicable to such cost items: (1) compensation for personal services of staff, including wages, salaries, supplementary compensation, and fringe benefits. . . . (Parenthetical word added.)The Missouri Department of Economic Development, Division of Job Development and Training (JDT) issued a Financial Manual which included Attachment 4-A-1, the Guide for Determining Costs Applicable to all JDT Programs (Guide). The stated purpose for issuing the Guide was: ". . . to ensure that all JDT programs bear their fair share of the costs. . . ."
Section D.18 of the Guide further states: "Costs of another federal grant, JTPA program or cost category may not be shifted to a JTPA grant, subgrant, program or cost category to overcome fund deficiencies, avoid restrictions imposed by law or grant agreements or for other reasons. . . ."
The Guide establishes Standards for Selected Items of Cost. Section
B.10 states that compensation for personal services ". . . are allowable
to the extent that total compensation for individual employees . . .
(1) is reasonable for the services rendered . . . and is determined
and supported" by payroll and distribution of time records. The standards
for distribution of time records require that: ". . . Salaries and wages
of employees chargeable to more than one program or other cost objective
will be supported by appropriate time distribution records. The method
used should produce an equitable daily distribution of time and effort."
However, the Guide did not fully describe the elements required to meet
its definition of "appropriate time distribution records." Therefore, we
looked to the Federal requirements in Office of Management and Budget (OMB)
Circular A-87 for a more complete description of appropriate time distribution
records. Although not specifically adopted by the Governor, the OMB Circular
A-87 description of time system documentation is relevant to the condition
we have identified.
-- reflect an after-the-fact distribution of the actual activity of each employee;
-- account for the total activity for which each employee is compensated;
-- be prepared at least monthly and must coincide with one or more pay periods; and
-- be signed by the employee.Moreover, these standards require that budget estimates or other distribution percentages determined before the services are performed do not qualify as support for charges to Federal awards unless adjusted to reflect the costs of actual circumstances.
Finally, 20 CFR, Section 627.440, states in part,
(a) Allowable costs for programs under title II and title III shall be charged (allocated) to a particular cost objective/category to the extent that benefits are received by such cost objective/category.Because timesheets were unreliable and their preparation did not adhere to established cost principles, we obtained supplemental information on staff performing JTPA activities, especially Title III. That information consisted of subcontracts for Title III services and counselor activity reports.
B. Most Title III services were subcontracted to and performed by St. LouisDHS Work Connections subcontracted most of the Title III activities and services to the St. Louis Community College (SLCC). Furthermore, our summary and analysis of counselor activity reports show that up to 98 percent of the Title III services were performed by the SLCC.
Community College.
Subcontract with St. Louis Community College
According to the contract, the college was responsible for participant enrollment, certification, counseling and supportive services, vocational and remedial basic skill training, job development and reporting.
Job Developer/Placement Specialists will . . . promote on-the-job training opportunities and . . . inform companies of outplacement and training services for dislocated workers.
1. Employers will be recruited and provided assistance in analyzing job training
needs.
DHS Work Connections retained other Title III OJT responsibilities which consisted of OJT job development, monitoring and invoicing for the OJT contracts, and 30-day review of all Title III files.2. Potential OJT contracts will be referred to the appropriate staff of the St. Louis
County of Human Services [sic].
In addition to reviewing the subcontract documents, we also discussed the scope of the contract with SLCC officials. Based on those discussions and our review of the contract with SLCC, we concluded that most services provided to Title III participants were provided by employees of the College. We further concluded that responsibilities retained by DHS Work Connections would not generally involve activities performed by case managers and others who had charged their time to Title III activities. Furthermore, counselor activity reports, which track much of the services performed under Title III grants, show that up to 98 percent of the Title III services were performed by the St. Louis Community College.
Counselor Activity Reports
To evaluate DHS Work Connections' staff involvement with participants in the different JTPA Titles, we analyzed Title II and Title III (EDWAA) counselor activity reports submitted to the State for SDA 13 covering the period from July 1, 1995 to March 31, 1997. The activity reports for Title III showed that DHS Work Connections performed less than 2 percent of the total reported activities.
We recognize the activity reports do not capture every contact with participants, and may not disclose all the counselors who provide services to an individual participant. We also understand that counselor activity reports were not designed to accumulate time for cost reporting purposes. However, we believe that if DHS Work Connections staff had provided significant services to Title III participants, a significantly greater proportion of the reported activities would have been associated with DHS staff counselors. Based on our interviews and assessment of program
Our interviews with staff and contractor officials, review of time charges, examination of the subcontract, and evaluation of activity reports have led us to conclude that the extensive Title III participant service activities which are indicated in the Title III charges reported in staff timesheets are not supported by reliable documentation. Therefore, we question $567,737.31 of direct cost charges made to the Title III program.
Indirect Costs Were Charged to Title III Based on Direct Charges
We evaluated indirect costs related to direct base Title III questioned costs. We also examined the methods used by DHS to compute its indirect charges to Title III. Based on this analysis, we question $136,573.57 of indirect Title III costs.
Total costs charged to Title III consisted of both direct costs and indirect costs. St. Louis County and the Department of Human Services charged to its various grant programs indirect costs that were an allocated percentage of total base (direct) costs. DHS Work Connections staff costs are included in the base costs used to compute these indirect charges.
Indirect costs were calculated and applied by totaling overhead charges for the Department and the County and dividing their charges by the total grant funds spent, arriving at a percentage. That percentage was multiplied by total grant funds spent for each grant to arrive at an indirect cost amount to charge each grant.
However, before actually billing indirect costs to the JTPA grants, two primary factors were considered: the availability of grant administrative funds after direct costs were charged; and the dollar and/or percentage limitation set by the PIC. These two factors have caused reductions in the billing amounts.
The rate DHS charged the JTPA programs has been expressed as a percent
of total direct costs (base costs), including the costs of services contracted
to be performed off-site along with services performed by in-house staff.
However, the last negotiated indirect cost agreement between the Federal
Government and the County specified that the base costs were total direct
costs, excluding the costs of contracts or other flow-through funds
(i.e., services performed off-site). The methods used by the County to
charge indirect costs to Title III does not comply with its negotiated
indirect cost agreement with the U.S. Department of Health and Human Services
(HHS.)
We calculated allowable indirect costs using the definition of base costs that was specified in the CY 1992 agreement; that is, total direct charges less the costs of contracts and other flow- through funds. We also contacted HHS to ensure that their current position was consistent with that stated in the CY 1992 agreement.
Using the negotiation agreement definition of direct base costs, and adjusting for the $567,737.31 questioned costs charged to Title III, we questioned indirect costs of $136,573.58.
Conclusion
The timesheets prepared by the DHS Work Connections staff were unreliable for the purpose of supporting costs charged to Title III. Further, our review of the contracts with the St. Louis Community College and the responsibilities retained by DHS Work Connections supports our conclusion that the DHS Work Connections overcharged staff salaries to the Title III grants.
In our analysis of the interviews, contract responsibilities and counselor activity reports, we made certain judgments regarding questionable costs. As a result, we accepted Title III charges by the directors for the JTPA program. We also accepted costs for DHS Work Connections staff during periods of time when they were directly involved in OJT activities and for employees that were responsible for awarding and monitoring subcontracts.
However, we have questioned $567,737.31 of the $943,065.32 in personnel costs (including incidental travel costs) charged to the Title III program because there is no reliable documentation to support that DHS Work Connections staff performed Title III services when they charged time to Title III. We conclude that personnel costs were not supported by "appropriate time distribution records" that could be relied upon to provide an equitable daily distribution of time and effort.
Finally, we believe that the method for claiming indirect costs is inconsistent
with the HHS approved indirect cost agreement because the methods used
to compute the charges were incorrect. We also question the indirect costs
that were charged based on questioned direct personnel costs. In total,
we question $136,573.58 of indirect costs.
We recommend that the Assistant Secretary for Employment and Training direct the State of Missouri to determine the Title III program activities performed by DHS Work Connections staff and recover the costs questioned that cannot be substantiated as valid and reliable Title III costs.
Our examination showed the time charge system in place during our audit period was clearly unreliable for allocating costs to the grants. Unless suitable and reliable alternate documentation is provided to substantiate the direct and indirect charges, we recommend that questioned costs totaling $704,310.88 be disallowed and recovered.
In addition, we further recommend that any adjustments in Title III costs be accompanied by corrected Financial Status Reports for all Titles and grants affected by the adjustments. Indirect costs charged to the grants must also be adjusted to comply with program requirements.
Auditee's Response
The County disagreed with our finding, specifically, that time distribution reports prepared by DHS Work Connections staff were unreliable, and that up to 98 percent of the Title III participant services were performed by the St. Louis Community College. However, the County did agree that St. Louis Community College performs most of the Title III services. Likewise, the County concurred that statements of current and former employees may raise legitimate concerns about the reliability of some timesheets.
The County stated the limited characterization of the employee statements in the audit report does not support questioning the costs associated with the time recorded by those employees. Furthermore, the County believes that OIG's test of the timesheets failed to validate that predetermined budget formulas were used in lieu of actual hours worked.
The County also objected to OIG's reliance on the JTIS counselor activity reports as a source for measuring the St. Louis Community College involvement with JTPA Title III participants. The County contends the JTIS reports do not document any individual contacts with program case workers aside from the fact that someone had to obtain the demographic data from the participant. The County further argues that OIG failed to examine participant case files which provide a reliable and readily available alternative source for case worker activity information.
With regard to indirect costs, the County states that its formulation
of indirect costs is appropriate, given the specific circumstances of DHS
operations. The County said, ". . . we
The County's response also included a spreadsheet to show that although the rates and bases were different between their methodology and the OIG's computation method, the net result is only approximately a $3,000 difference. Finally, the County acknowledged that any questioned direct costs could also give rise to some questioned indirect costs, despite having used an appropriate methodology.
The County pointed out that our questioned costs included accrued payroll costs at the beginning of our review period which were properly prior period costs. The dollar amount of the adjustments are small, but making them when they increase questioned costs and neglecting to make them if questioned costs would be decreased is not acceptable.
See Appendix II for Auditee's complete response.
OIG's Evaluation and Final Conclusions
The County's response includes little documentation or other evidence which we had not considered during the course of our audit work. The County's arguments have not provided the support needed to refute our findings or conclusions that the Title III programs were disproportionately charged, that time distributions were unreliable and inaccurate, and that direct and associated indirect costs should be questioned.
We made our determination that the County's time and cost distribution system was not reliable by obtaining the best evidence available -- we talked to the employees who actually prepared the time reports. Despite the County's assertions to the contrary, these individuals are in the best position to know whether they accurately recorded their time charges to Title III.
We interviewed current employees, former employees, supervisors and line staff. These interviews included staff who had firsthand knowledge and were responsible for developing the time distribution spreadsheet. Our interviews were also augmented by an examination of employee position descriptions to determine whether the employee's normal duties might suggest a high degree of involvement with the Title III program. This examination is described in the narrative following Exhibit A.
As previously stated in our report, more than 83 percent of the employees
interviewed stated their time charges to Title III were inaccurate. Some
employees stated they initially had no involvement with Title III for specific
time periods, yet a significant portion of their time was charged to the
program during these periods. Other employees estimated that the time charged
to
Costs were questioned for other employees because the time distribution systems were discredited, and their proper charges to the program could not reasonably be determined. (See Exhibit A-1a for additional details.)
We also interviewed a representative for the St Louis Community College with oversight responsibility for the Title III subcontract, and examined the subcontract provisions governing services and activities. Based on this information, we determined that the SLCC was responsible for the large majority of the Title III operational services and activities.
Our analysis of the JTIS activity reports provided further documentation of the Community College's involvement in serving Title III participants as they progress through the program. For example, the JTIS records participant intake information, which is the counselor's tool to establish program eligibility, training or other support services. It, therefore, documents counseling with the applicant for intake into JTPA programs. This is not merely demographics as contended by the County. Our report acknowledges the imperfections in the JTIS data, but the implications this information presents cannot and should not be ignored.
We disagree with the County's assertion that participant case files are a reliable alternative source for case worker activity information. The files contain no specific information regarding time worked on Title III by DHS staff. Certainly, the participant files contain information no more reliable than the JTIS activity reports which we thoroughly analyzed, and which the County termed seriously flawed. Although the County stated the participant case files are a reliable alternative source of information, the County submitted no data (detail or summary information from these files) supporting their contention. Without this data, the County's arguments can be viewed only as conjecture.
The burden of proof rests with the County to provide reliable documentation supporting the costs charged to the JTPA programs. In our opinion, St. Louis County has not met this burden. In fact, the cumulative effect of substantive evidence leads us to believe that Title III was overcharged.
We applied our professional judgment in identifying costs that we felt
did not meet JTPA accountability standards. After a lengthy examination,
we properly called into question the costs that failed to satisfy these
standards.
However, our review of that indirect cost methodology concluded that the 8 percent rate resulted from the requirements of the grants administrative cost ceiling and the dollar and/or percentage limitation set by the PIC. This conclusion was based on our review of information provided by responsible DHS financial management personnel and the statements included in the JTPA Program Year 1995 Operating Plan for SDA 13. Page 11 of the Plan states:
On February 14, 1991, the St Louis County Government requested and received approval from Health and Human Services for the general departments of St. Louis County's use of indirect cost rates for the periods ending 12/31/90, 12/31/91, and 6/30/92 (effective until amendment). Although the approval rate is posted as 28.2%, the agreement with Health and Human Services is "subject to any statutory or administrative limitation and apply to a given grant, contract, or other agreement only to the extent funds are available." Therefore, the Department of Human Services uses the JTPA Financial Management definition of administrative fund availability. (Emphasis supplied.)
Historically, the Department of Human Services has used an actual rate of approximately 8.0% of net direct expenditures. The indirect costs are JTPA allowable expenses and consist of salaries and fringe benefits for supportive staff (Department and Administrative Services staff), normal operating expenses, and the allocated share of the St. Louis County's central services cost (i.e. legal, accounting, budget, personnel). All JTPA unallowable costs (equipment, non-grant related expenses, etc) are reduced from the total JTPA expenditures for the year. The base is established as total expenses less indirect cost payments made throughout the year. During 1992, the St. Louis County Accounting Officer was informed by HHS that it was no longer necessary to submit the County's indirect cost allocation plan for approval. The County has been instructed to prepare the plan, use it on a yearly basis, and maintain it on file for review. In accordance with these directions, the fiscal Manager for DHS will request a copy of this document and maintain it on file. (Emphasis supplied.)The above citation acknowledges the County's historical use of the 8 percent rate, but further describes the applicability of the HHS agreement, and the requirement to develop and maintain a yearly cost allocation plan. We properly applied the indirect rate to the base described in the County's cost allocation plan for each grant year to determine the questioned costs. The approved HHS agreement for the County clearly described the approved rate for distributing
With regard to the questioned cost amounts, the County correctly pointed
out that our schedules included prior period accruals that should not have
been questioned. These costs amounted to $7,274.05 (consisting of $6,177.47
direct costs and $1,096.58 indirect costs). We have reduced our questioned
costs by $7,274.05 to remove accrued salaries and related costs of the
period immediately preceding our audit period. Exhibits A and B have been
adjusted to reflect revised questioned costs totaling $567,737.31 and $136,573.58,
respectively.
Strengthened Internal Controls Are Needed to Ensure All Grant Charges Are Properly Documented
Staff time distribution practices implemented by DHS Work Connections management and staff did not conform to policies and procedures which had been established to ensure that all Missouri Division of Job Development and Training Programs bear their fair share of incurred costs.
These nonconforming practices caused cost charges to JTPA Title III programs which were based on available funding rather than performance of Title III activities. Therefore, some staff salaries and related charges made to Title III grants were disproportionate to the work performed.
The County and the State have approved procedures for allocating staff time to various activities and programs. Those procedures require that costs charged to grant Titles and program activities are supported by appropriate time distribution records. Furthermore, the time distribution records are supposed to produce an equitable daily distribution of time and effort. Our Finding 1 details that the staff time distribution practices implemented by DHS Work Connections management and staff did not produce an equitable distribution of the costs charged to Title III grants. Since the procedures were established to assure equitable distribution and equitable distribution was not attained, it suggests that either the policies were ineffective or they were not followed.
It is expected that when policies and procedures are established, effective internal controls are implemented to test whether the practices are conforming to the policy and procedure requirements. Although specific policies and procedures were in place, none of the oversight efforts or controls in place provided early detection or prevented the inappropriate charges made to the Title III grants. For instance, a principal management control over financial accounting practices is the budget process.
The Budget Process
DHS Work Connections, as an integral part of St. Louis County, operates under the management and direction of the County. Annually, appropriate DHS Work Connections staff prepared budgets which showed how management intended to use the funds provided to operate the JTPA grants it administered. Those budgets showed Work Connection management's intention to use JTPA Title III funds, in part, to pay in-house staff costs.
This apparent imbalance between the funds made available in the budget for in-house staff salaries and work required to be done by in-house staff could have alerted the County and the PIC to potential problems with accounting for time. Such a concern could have, in turn, raised questions about time distribution practices and led to timely corrective action.
Section 103(a) of the JTPA requires that the PIC, in partnership with St. Louis County, provide policy guidance and exercise oversight for the JTPA program. The JTPA grant agreements are made between the State of Missouri and St. Louis County, and establish the County's accountability for the funds made available.
The County and the PIC have shared accountability for SDA 13's JTPA program. In response to that accountability, they should assure a system of internal controls to test whether the policies on staff time distribution are effective and conform to JTPA program requirements.
Conclusion
The JTPA regulations and the provisions of the grant documents are intended
to establish accountability and oversight which is effective to document
the proper use of funds and to establish controls to detect and prevent
errors and abuses in the use of these funds. Clearly, the controls established
by those responsible for oversight did not detect and prevent cost charges
to Title III grants which were not properly supported by reliable documentation.
Recommendations
We recommend that the Assistant Secretary for Employment and Training
direct the State of Missouri to require St. Louis County and the PIC for
SDA 13 to establish control and review procedures sufficient to ensure
that all costs charged to Title III grants, and all other JTPA programs,
are properly supported by reliable documentation. Furthermore, we recommend
that the SDA reevaluate its operating policies and procedures to ensure
that the system of cooperative oversight is fully responsive to the needs
and concerns of both members of the SDA partnership, St. Louis County and
the PIC.
St. Louis County agreed with our finding regarding the value of strong internal controls. To illustrate its internal controls, the County cited training provided in December 1996 to its staff on using appropriate timesheet codes. Their response also described timesheet controls, and pointed out that the December 1996 training provided by DHS Fiscal Services staff was given 3 months prior to the start of the audit. The training described the codes available for charging time to various JTPA programs as well as the specific subcategories within individual programs. Handouts of all available program and activity codes, including JDT manual examples of the distinctions between administration, training and support activities, were distributed to the staff.
The County expressed concern regarding the example used in the report to illustrate the value of PIC budget oversight. In general, the County felt the dollar amounts and percentages used in the comparison were inappropriate. The County stated, "OIG's figure of $598,846 in Community College costs does not include significant amounts for other SLCC contract programs. It also omits other contract amounts for OJT that are supported by the in-house components of Work Connections. If the Work Connections salary and mileage amounts are included with all external contracts, they comprise 19 percent of the these [sic] total services, rather than the 30 percent suggested by the OIG."
The County agreed that the PIC's review of the budget is both appropriate and essential to proper program operation. However, the County felt the presentation by the OIG of "worst case" scenarios is misleading and of no practical use.
The County devoted a great portion of its response discussing the significance of a letter by the ETA Regional Administrator for Region VII that was quoted in our draft Statement of Facts. The County states that the letter "suggested that potentially dire consequences would unfold as a result of the audit being undertaken." The County further asserts that the ETA Regional Administrator "should not have formed, much less expressed, an opinion about the audit at the stage he did."
See Appendix II for Auditee's complete response.
OIG's Evaluation and Final Conclusions
We agree that the County's staff training in December 1996 is appropriate
to strengthening internal controls, but it had no effect on the time charges
preceding the training. The bulk of our questioned costs relate to timesheets
predating December 1996. Also, the timesheet procedures described as integral
to the County's internal controls have been discredited by statements made
by those employees who made the timesheet entries.
We continue to believe that whether the ratio of funding devoted to DHS Work Connections staff is 30 percent of total Title III funding, or 19 percent, as proposed by the County's reply, is not the issue. Rather, any budgeted Title III funding for DHS staff without readily identifiable and proportionate Title III work responsibilities is a "flag" demanding attention by those approving the budget. The PIC plays a vital role in this budget approval process. Our overall conclusion is that the impaired level of cooperation between the PIC and local government was an important contributing factor to the questioned costs finding, and the breakdown of internal controls which are necessary to properly account for JTPA funds.
Several times in their response, the County raised objections to a letter quoted in the Statement of Facts we previously issued to the County for comment. We made no references to the letter in our draft audit report. However, the County remains concerned and feels the letter was prejudicial.
We disagree with the County's interpretation of the letter. Contrary to the County's assertions, the ETA Regional Administrator who authored the letter expresses no opinion regarding the audit, and forecasts no dire consequences as contended by the County. The letter was quoted in our previous document simply to show that ETA program managers depend on the PIC to help assure accountability for funds and to provide policy and operating guidance to program operators.
Our recommendations remain unchanged from our draft report.
The Job Training Partnership Act (JTPA) is administrated in Service Delivery Area (SDA) 13 in the State of Missouri, by the St. Louis County Department of Human Services (DHS), Office of Work Connections. SDA 13 encompasses all of St. Louis County, except the City of St. Louis. Within that geographical area, DHS Work Connections is responsible for providing employment and training opportunities to eligible participants.
Total Department of Labor (DOL) funding provided to SDA 13 during our review period, July 1, 1994 to March 31, 1997, was about $14 million, of which Title III funds were approximately $5.8 million.
Funding for the program is administered by the DOL, Employment and Training Administration (ETA). ETA provided these funds through the Missouri Department of Economic Development, Division of Job Development and Training to the SDA's throughout the State. SDA 13 is one of 15 SDA's in the State of Missouri. Each SDA serves as a primary subreceipient of Federal funds.
The JTPA was enacted October 13, 1982, and amended in 1992; it is intended to :
establish programs to prepare youth and adults facing serious barriers to employment for participation in the labor force by providing job training and other services that will result in increased employment and earnings, increased educational and occupational skills, and decreased welfare dependency, thereby improving the quality of the work force and enhancing the productivity and competitiveness of the Nation.Under the provisions of Section 103(a) of the Act, the private industry council, in partnership with the St. Louis County, provides policy guidance and exercises oversight with respect to the job training plan for SDA 13. In accordance with the job training plan, DHS Work Connections provides services under Title II, Title III and Title IV of the Act. A summary of those services is as follows:
Title II-A, the Adult Training Program, is designed to prepare adults for participation in the labor force by increasing their occupational and educational skills, resulting in improved long-term employability, increased employment and earnings, and reduced welfare dependency.
Title II-C, the Youth Training Program, is targeted to improve the long-term employability of youth; enhance the educational, occupational and citizenship skills of youth; encourage school completion or enrollment in alternative school programs; increase employment and earnings of youth; reduce welfare dependency; and assist youth in addressing problems that impair the ability of youth to make successful transitions from school-to-work, apprenticeship, the military, or postsecondary education and training.
Title III, the Employment and Training Assistance for Dislocated Workers Program, seeks to establish an early readjustment capacity for workers and emphasizes retraining and reemployment services.
Title IV provides requirements for veterans programs.
Until September 1996, DHS Work Connections operated the Title II program in-house using its own staff and subcontracted for most of the Title III activities. Presently, DHS Work Connections subcontracts for both Title II and Title III activities. St. Louis Community College (SLCC) is the largest subcontractor. During the review period, programs operated by the SLCC included the Worker Reentry Program (WRP) (DHS Work Connections' name for EDWAA) and several programs supported by discretionary funding such as retraining efforts for employees from McDonnell Douglass (A-12 aircraft), National Foods and General Motors.
In-house JTPA costs claimed by DHS Work Connections were to a large
extent incurred when in-house staff recorded and were recompensed for time
devoted to providing authorized Title II and Title III activities. Our
audit focused on the reasonableness and allowability of claimed Title III
costs.
Objectives
The main objective of our review was to determine whether staff charging time and mileage to the JTPA programs were actually working on those programs charged. Subobjectives included making evaluations to determine:
o whether expenses reported for JTPA were reasonable and applicable to the programs;
o the validity of the budgeted line items; and
o whether the Private Industry Council (PIC) provided proper oversight of JTPA activities.Scope and Methodology
To accomplish our objectives, we examined DHS Work Connections timesheets and financial records; interviewed all current staff members and some former staff members, the PIC chair, and an official at St. Louis Community College; and met with State and ETA officials. Our review focused on DHS Work Connections activities during the period between July 1, 1994 and March 31, 1997.
Specifically, we reviewed 100 percent of the timesheets submitted by DHS Work Connections' staff between July 1, 1995 and December 31, 1996, job descriptions for staff positions and financial records for the 33-month period from July 1, 1994 to March 31, 1997. We also collected and analyzed staff performance data (counselor activity reports) provided by Missouri Division of Job Development and Training.
Our fieldwork was performed during the period March 12, 1997 to October 20, 1997. Our work was accomplished in St. Louis County, Missouri.
The audit was conducted in accordance with Government Auditing Standards
(1994 Revision) issued by the Comptroller General of the United States.
EXHIBIT A - SCHEDULE OF DIRECT QUESTIONED COSTS
EXHIBIT A-1 - NARRATIVE REGARDING QUESTIONED COSTS
EXHIBIT A-1a - ANALYSIS OF ST. LOUIS COUNTY QUESTIONED COSTS
EXHIBIT A-2 - INDIVIDUAL SCHEDULE OF QUESTIONED COSTS
EXHIBIT B - SCHEDULE OF QUESTIONED INDIRECT COSTS
EXHIBIT C-
INDIRECT COSTS RATES AND AN EXCERPT FROM THE
INDIRECT COST AGREEMENT
| SCHEDULE OF QUESTIONED COSTS EXHIBIT A | |
|
|
TOTAL |
| ASSN | AMOUNT |
| # | QUESTIONED |
| 1 | $ 5,821.91 |
| 2 | 29,911.48 |
| 3 | 60,317.44 |
| 4 | 53,773.87 |
| 5 | 34,117.63 |
| 6 | 10,431.00 |
| 7 | 43,323.84 |
| 8 | 33,407.75 |
| 9 | 14,029.92 |
| 10 | 39,215.81 |
| 11 | 11,521.30 |
| 12 | 19,179.28 |
| 13 | 13,543.69 |
| 14 | 10,308.31 |
| 15 | 18,015.73 |
| 16 | 47,071.61 |
| 17 | 20,845.52 |
| 18 | 16,691.03 |
| 19 | 4,577.60 |
| 20 | 43,190.08 |
| 21 | 12,049.00 |
| 22 | 21, 506.99 |
| 23 | 4,886.52 |
| TOTAL | $ 567,737.31 |
a layoff. Personnel records indicate that during the review period Employee held two positions: Employment Training Specialist III and Workforce Development Education Specialist. During the interview, Employee indicated that most of her work focused on upgrading participants' educational qualifications. Time charged to the Title III program for Employee ranged from 33% to 70%. Employee provided Annual Reports which had been prepared by her contemporaneously. The reports breakdown the participants served and the time spent with participants in the different Titles. According to that breakdown, Employee spent approximately 4.5% of her time working with Title III participants in PY 94, 2.9% in PY 95 and 25.7% in PY 96. We accepted those proportions of Title III time and related costs.
determining client eligibility, developing and monitoring client service strategies, mentoring and goal setting in collaboration with clients. Also as a Workforce development Specialist, Employees had Title II responsibilities. DHS Work Connections had case management responsibilities for Title II and SLCC had those responsibilities for Title III. During the period from July 1994 to March 1997, Employee charged time to Title III programs. During the interview, Employee acknowledged that her contact with WRP participants was very limited. However, up to 40% of her time was charged to Title III. Further, there is no reliable documentation to show that Employee was engaged in Title III activities.
ANALYSIS OF ST. LOUIS COUNTY QUESTIONED COSTS
DIRECT COSTS QUESTIONED FOR INADEQUATE TIME DISTRIBUTION SUPPORT
Employees Performed No Title III Services for Specified Periods
Employee #6 $10,431.00
Employee #17 $20,845.52
Employee #18 $16,691.03
Employee #22 $21,506.99
Subtotal $69,474.54 12.24%
Employees We Were Unable To Interview - Questioned Costs Based On
Discredited Time
Distribution System
Employee #1 $ 5,821.91
Employee #8 $33,407.75
Employee #9 $14,029.92
Employee #12 $19,179.28
Employee #14 $10,308.31
Employee #19 $ 4,577.60
Employee #20 $43,190.08
Employee #21 $12,049.00
Employee #23 $ 4,886.52
Subtotal $147,450.37 25.97%
Employees Stated More Time Was Charged To Title III Than Actual
Employee #2 $29,911.48
Employee #3 $60,317.44
Employee #4 $53,773.87
Employee #5 $34,117.63
Employee #7 $43,323.84
Employee #10 $39,215.81
Employee #11 $11,521.30
Employee #13 $13,543.69
Employee #15 $18,015.73
Employee #16 $47,071.61
Subtotal $350,812.40 61.79%
Total Direct Questioned Costs
$567,737.31
100.00%
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