MEMORANDUM FOR:    RAYMOND UHALDE
                                             Acting Assistant Secretary for
                                                 Employment and Training
 

                                                / s /
FROM:                                JOHN J. GETEK
                                              Assistant Inspector General
                                                  for Audit

SUBJECT:                         UNITED SIOUX TRIBES OF SOUTH DAKOTA
                                                 DEVELOPMENT CORPORATION
                                              Final Audit Report No. 18-98-006-03-355

The attached subject report is submitted for your resolution action. We request a response to this report within 60 days.

We are also providing United Sioux Tribes of South Dakota Development Corporation (UST) with a courtesy copy of this report.

If you have any questions regarding this report, please contact Jerry Subkow, Director, Office of Grant and Contract Audits, on 219-4886.

Attachment

Executive Summary                                                                                                                                        ii
 

Introduction and Background                                                                                                                     1
 

Objectives and Scope of Audit                                                                                                                    2

Reports

Independent Auditors' Report on the Statements of Costs Claimed,
    Accepted and Questioned                                                                                                             4
Independent Auditors' Report on the Internal Control Structure Based on an
    Audit Performed in Accordance with Government Auditing Standards                             6
Independent Auditors' Report on Compliance Based on an Audit
    Performed in Accordance with Government Auditing Standards                                        9

1. Administration Expenses Exceed 20 Percent Ceiling                                                                   11
2. JTPA was Charged with Costs Associated with UST and its Other Program                            16
3. Supportive Services Payments are Not Supported                                                                        22
4. Unallowable Payroll Costs                                                                                                                 24

A. Financial Status Report - Title IV-A PY 95                                                                                     28
B. Financial Status Report - Title IV-A PY 96                                                                                     29
C. Financial Status Report - Title II-B FY 96                                                                                       30

A. Lack of Documentation - Supportive Services Costs                                                                   31

A. United Sioux Tribes of South Dakota Development
        Corporation's Response Dated December 17, 1997                                                               32
B. DINAP's Response Dated February 20, 1998                                                                              33

Indirect Cost:              A cost that cannot be identified with a single, final cost objective but is identified with two or more final cost objectives. Such costs are combined into groupings for distribution into final cost objectives.

Questioned Cost:     A cost that is questioned because of: (a) an alleged violation of a provision of a law, regulation, contract, grant, cooperative agreement, or other agreement or document governing the expenditure of funds; or (b) at the time of the audit, such cost is not supported by adequate documentation; or (c) the expenditure of funds for the intended purpose is unnecessary or unreasonable.
 

During PYs 95 and 96, UST: (a) reported Administration costs that exceeded the 20 percent ceiling limitation on that cost category; (b) charged the JTPA grant with costs that should have been charged to the organization as a whole and to its other grant; and (c) charged the Training Assistance cost category with administrative salary costs that should, instead, have been charged to Administration. When these costs were reclassified and added to the costs UST had reported as Administration, UST exceeded the 20 percent ceiling on this cost category by $225,998, which we question. UST's Executive Director stated that UST assumed it could exceed the 20 percent limit in the current years because in the past UST had stayed under the 20 percent limit and had not collected all of its indirect costs.

In addition, we noted that the combination of Administration and Training Assistance costs were extremely high when compared to the costs spent on the participants (Classroom Training (CRT), On-the-Job Training (OJT), Work Experience (WE), Community Service Employment (CSE) and Supportive Services). In PY 95 the training and supportive services (CRT, OJT, WE, CSE and Supportive Services) provided to participants amounted to only 29.5 percent of the total costs, while in PY 96 the amount of funds spent directly for participants on these activities were further reduced to 19.75 percent. UST's budget provided for 52 percent of its funds to be spent in these categories for PY 95 and 36 percent for PY 96; therefore, a substantial portion of the costs programmed for participants was, instead, spent on operating costs.

UST disagreed with this finding saying that the Program Administrator/JTPA's duties were client job development, counseling and orientation, while the Administrative Secretary did intake, job development, orientation and counseling.

UST's response contradicts the documentation we reviewed onsite, and the discussions we had with UST staff, including the Administrative Secretary. UST did not provide any documentation to support this response and allow us to determine its validity; therefore, our recommendation remains unchanged. UST did not respond to our comment on the extremely high ratio of Administration and Training Assistance costs to Training costs.

In both PYs 95 and 96, UST charged the JTPA grant for costs that benefited UST management as a whole, as well as its other program. Therefore, DOL paid $53,630 more than its fair share of the costs, which we question. UST's Executive Director responded that this problem occurred because: (a) funding under its U.S. Department of the Interior grant had been reduced and thus did not provide sufficient funds to pay the existing staff that worked on that program, and (b) UST desired to continue serving program participants at the same level as in the past (i.e., without a reduction in staff).

UST stated that the field offices were established to accomplish JTPA Program activities as it relates to training assistance and services. UST further stated that the JTPA field office was not set up for any cost sharing policies or expenditures.

Although these field offices may have initially been established to service only JTPA participants, during our audit period, the staff assigned to these offices were also servicing DOI program participants. Therefore, the DOI program must bear its fare share of the costs, which were charged 100 percent to JTPA. Our recommendation remains unchanged.
 

UST issued checks for supportive services directly to participants without requiring any documentation to support how the money was spent. Without supporting documentation, there are no assurances that the participants used the funds for the purposes intended. Therefore, we question supportive service payments of $13,086. The Executive Director stated that he did not believe the Federal regulations required UST to obtain receipts in support of supportive service payments.

UST did not respond in its written comments to this finding and recommendation.
 
 
 

In UST's written comments, UST stated that the Executive Director serves at the pleasure of the Board of Directors and is on 24 hour call. He is the personnel manager for the Corporation and enforces all personnel policies, which includes Board of Directors' decisions. UST stated that the accumulated leave above 240 hours for all other employees will be discontinued, and that the individual we referred to worked with the JTPA program director to develop a Job Development Bank.

We disagree that the Executive Director should be exempt from following UST's established policies and procedures, since he is an employee of UST. As to the individual cited above, we discussed this issue with the former Program Director cited above, who stated that he had no knowledge of this individual prior to seeing payroll checks prepared for her, and never saw her at the central office in Pierre. Therefore, our recommendations remain unchanged.

UST is a private nonprofit organization incorporated under the laws of the State of South Dakota in 1980. It is an Indian controlled organization with Native Americans holding a majority of seats on the Board of Directors. The Board Members are selected annually by the General Membership. The purposes of the corporation are to:

(1) provide employment services to American Indians in rural and urban areas;
(2) provide training and job placement to Indians who are economically disadvantaged, unemployed and underemployed;
(3) provide service plans to participants for training and work experience for long-term employability enhancement;
(4) coordinate with other funding resources to provide services to as many participants as possible; and (5) provide placement and training for participants that is based on employers needs, so the end result will be unsubsidized employment.

(1) classroom training was to concentrate in the areas of office and clerical, health care, building trades, food services, truck driver and computer training;
(2) on-the-job training was to concentrate in these areas for job placement; and
(3) training assistance was to provide services such as orientation, counseling, and job development which are essential in preparing the participant for a job.

The primary objectives of our financial and compliance audit were to determine whether the direct costs claimed were:

• Reasonable

 
• Allowable

 
• Allocable and chargeable under the applicable cost principles

 
• Properly allocated/charged to the benefitting programs.

• obtain an understanding of UST's internal controls relating to accounting records used in claiming costs under Federal grants to ensure that funding limitations were not exceeded; and

 
• identify and test general and specific compliance requirements that could have a material impact on the grant.

 

In planning and performing our audit of the costs claimed, we considered UST's internal control structure in order to determine our auditing procedures for the purpose of expressing our opinion on the costs and not to provide assurance on the internal control structure. We obtained an understanding of the design of relevant policies and procedures and whether they have been placed in operation for the significant internal controls, which we identified as payroll and cash disbursements. Our understanding was based on the results of questionnaires and/or system narratives. Based on this understanding, we assessed control risk related to the significant internal controls of UST.

As required by Government Auditing Standards (1994 Revision) and the AICPA's SAS Nos. 54, "Illegal Acts by Clients" and 82, "The Auditor's Responsibility to Detect and Report Errors and Irregularities," we designed the audit to provide reasonable assurance of detecting instances of abuse, potential fraud or inefficient practices that could result in increased costs to the Federal government.

Our audit was performed using the criteria we considered relevant. These criteria included those established by the Federal Government in 20 CFR Part 632, "Indian and Native American Employment and Training Programs" and 29 CFR Part 96, "Audit Requirements for Grants, Contracts and Other Agreements." To meet the aforementioned objectives, we reviewed selected transactions, records and internal controls to determine UST's compliance with applicable laws and regulations, as well as the incidence, if any, of program abuse that might warrant further review or action by the OIG.

Instances of noncompliance and an internal control weakness are included as findings in the Findings and Recommendations section of this report.

Our entrance conference was held on August 19, 1997. Our fieldwork was performed in UST's central office in Pierre, South Dakota, during the period August 19, 1997 through October 2, 1997. An exit conference was held October 2, 1997, with the UST Executive Director to discuss our findings. The Executive Director's comments related to the findings made during the exit conference were incorporated where applicable. UST submitted its response to our tentative findings on December 17, 1997. UST's response has been incorporated in its entirety as Appendix A of this report. The Director of ETA's Division of Indian and Native American Programs (DINAP) submitted his response to our tentative findings on February 20, 1998. DINAP's response has been incorporated in its entirety as Appendix B of this report.

This report is dated October 2, 1997, which represents the last day of our audit fieldwork.

We conducted our audit in accordance with generally accepted auditing standards and Government Auditing Standards (1994 Revision) issued by the Comptroller General of the United States. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial cost reports are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the costs claimed. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall presentation of the costs claimed. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the accompanying Statement of Costs Claimed, Accepted and Questioned (Exhibits A, B and C), presents fairly, in all material respects, the acceptable costs claimed for the periods July 1, 1995 through June 30, 1997 (Title IV-A) and October 1, 1995 through September 30, 1996 (Title II-B), in accordance with the aforementioned criteria.

Our audit was conducted for the purpose of forming an opinion on the Statement of Costs Claimed, Accepted and Questioned (Exhibits A, B and C). The accompanying Attachment is

This report is intended solely for the use of the U.S. Department of Labor, UST, and other Government agencies (such as the Department of the Interior (DOI)) who contract with UST, and should not be used for any other purpose. This restriction, however, is not intended to limit the distribution of this report which, when issued, is a matter of public record.

Our entrance conference was held on August 19, 1997. Our fieldwork was performed in UST's central office in Pierre, South Dakota, during the period August 19, 1997 through October 2, 1997. An exit conference was held October 2, 1997, with the UST Executive Director, to discuss our findings. The Executive Director's comments related to the tentative findings made during the exit conference have been incorporated in the appropriate sections of this report. UST submitted its written response to our tentative findings on December 17, 1997. UST's response has been incorporated in its entirety as Appendix A of this report. DINAP submitted its response to our tentative findings on February 20, 1998. DINAP's response has been incorporated in its entirety as Appendix B of this report.

This report is dated October 2, 1997, which represents the last day of our audit fieldwork.
 
 
      / s /
JOHN J. GETEK
Assistant Inspector General
for Audit
October 2, 1997
 

We conducted our audit in accordance with generally accepted auditing standards and Government Auditing Standards (1994 Revision) issued by the Comptroller General of the United States. These standards require that we plan and perform the audit to obtain reasonable assurance that the costs claimed for reimbursement are free of material misstatement.

In planning and performing our audit of the costs claimed by UST for the periods July 1, 1995 through June 30, 1997 (Title IV-A) and October 1, 1995 through September 30, 1996 (Title
II-B), we considered its internal control structure in order to determine our auditing procedures for the purpose of expressing an opinion on the costs claimed and not to provide assurance on the internal control structure.

UST's management is responsible for establishing and maintaining an internal control structure. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of internal control structure policies and procedures. The objectives of an internal control structure are to provide management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed, in accordance with

We obtained an understanding of the design of relevant policies and procedures and whether they had been placed in operation, and we assessed control risk.

Our consideration of the internal control structure would not necessarily disclose all matters in the internal control structure that might be material weaknesses under standards established by the American Institute of Certified Public Accountants. A material weakness is a condition in which the design or operation of the specific internal control structure elements does not reduce to a relatively low level the risk that errors or irregularities in amounts that would be material to a Federal award program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our procedures were less in scope than would be necessary to render an opinion on these internal control structure policies and procedures. Accordingly, we do not express such an opinion.

We noted certain matters involving the internal control structure and its operation that we consider to be reportable conditions under the standards established by the American Institute of Certified Public Accountants. These conditions are set forth in the Findings and Recommendations section of this report. They involve significant weaknesses in internal controls which adversely affect the reliability of the costs claimed for payment under the DOL grant.

This report is intended solely for the use of the U.S. Department of Labor, UST, and other Government agencies (such as DOI) who contract with UST, and should not be used for any other purpose. This restriction, however, is not intended to limit the distribution of this report which, when issued, is a matter of public record.

Our entrance conference was held on August 19, 1997. Our fieldwork was performed in UST's central office in Pierre, South Dakota, during the period August 19, 1997 through October 2, 1997. An exit conference was held October 2, 1997, with the UST Executive Director, to discuss our findings. The Executive Director's comments related to the tentative findings made during the exit conference have been incorporated in the appropriate sections of this report. UST submitted its written response to our tentative findings on December 17, 1997. UST's response has been incorporated in its entirety as Appendix A of this report. DINAP submitted its response to our tentative findings on February 20, 1998. DINAP's response has been incorporated in its entirety as Appendix B of this report.
 

We conducted our audit in accordance with generally accepted auditing standards and the Government Auditing Standards (1994 Revision) issued by the Comptroller General of the United States. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the costs claimed are free of material misstatement and whether the financial reports are free of material misstatement, and whether the grant activities were performed in compliance with applicable laws, regulations, and the terms of the grant.

Compliance with laws, regulations, and the terms of the grant is the responsibility of UST. As part of obtaining reasonable assurance about whether the costs claimed are free of material misstatement, we performed limited tests of UST's compliance with certain provisions of laws and regulations, particularly as related to the maintenance of proper supporting documentation. However, our objective was not to provide an opinion on overall compliance with such provisions. Accordingly, we do not express such an opinion.

Material instances of noncompliance consist of failures to follow requirements, or violations of prohibitions contained in statutes, regulations, or grants that cause us to conclude that the

We noted several instances wherein UST did not fully comply with the Federal requirements regarding the reasonableness, allowability, and allocability of costs charged to Government grants. These matters require prompt corrective action and are discussed, in detail, in the Findings and Recommendations section of this report. We consider certain of these matters to constitute material noncompliance, as defined above.

This report is intended solely for the use of the U.S. Department of Labor, UST and other Government agencies (such as DOI) who contract with UST, and should not be used for any other purpose. This restriction, however, is not intended to limit the distribution of this report which, when issued, is a matter of public record.

Our entrance conference was held on August 19, 1997. Our fieldwork was performed in UST's central office in Pierre, South Dakota, during the period August 19, 1997 through October 2, 1997. An exit conference was held October 2, 1997, with the UST Executive Director, to discuss our findings. The Executive Director's comments related to the tentative findings made during the exit conference have been incorporated in the appropriate sections of this report. UST submitted its written response to our tentative findings on December 17, 1997. UST's response has been incorporated in its entirety as Appendix A of this report. DINAP submitted its response to our tentative findings on February 20, 1998. DINAP's response has been incorporated in its entirety as Appendix B of this report.

This report is dated October 2, 1997, which represents the last day of our audit fieldwork.
 
      /s /
JOHN J. GETEK
Assistant Inspector General
for Audit
October 2, 1997

During Program Years (PYs) 95 and 96, UST: (a) reported Administration costs that exceeded the 20 percent ceiling limitation on that cost category; (b) charged the JTPA grant with costs that should have been charged to the organization as a whole and to its other grant; and (c) charged the Training Assistance cost category with salary costs for administrative work that should, instead, have been charged to Administration. When these costs were reclassified and added to the costs UST had reported as Administration, UST exceeded the 20 percent ceiling on this cost category by $225,998, which we question.

20 CFR 632.174, Administrative costs, states:

"Administrative costs for this subpart are limited to and shall not exceed 20 percent of the funds available."

The Program Administrator/JTPA's job description states that the position is to administer the JTPA program and work with the Executive Director. It further states that the position is to assist in determining policies, developing and administering the administration standards, preparing programs and budgets; be responsive to input from the Executive Director, administer corporation and contract policies, and provide technical advice to the Employment Training Specialists. All of these responsibilities are administrative. No where in the job description could we find that this position performed those duties associated with Training Assistance, as described below.

The Program Administrator/JTPA resigned his position before we began our onsite audit work; therefore, we asked the UST administrative staff if he had performed the duties described as training assistance. No one was able to provide us with any assurance that he performed work other than that associated with administrative duties.

The Administrative Secretary's job description states "secretaries are an important part of every business. They are expected to handle a wide scope of clerical duties. One duty almost every secretary performs is typing. This includes correspondence, envelopes, reports, bills, speeches, meeting minutes, and lists. . . . Secretaries file photocopy documents, collate reports, sort mail, answer phones, and send faxes. . . . Writing responsibilities include preparing reports, bulletins, or calendar of events."

As in the case of the Program Administrator/JTPA, the Administrative Secretary's duties benefit the administration of the JTPA program and are not directly associated with training participants. We discussed this issue with the Administrative Secretary who agreed with our conclusion.

The criteria used in determining what costs should be classified as Administration are found at 20 CFR 632.38(d), Administrative costs, which states:

"Administrative costs consist of all direct and indirect costs associated with the management of the grantee's program. These costs include but are not limited to the salaries and fringe benefits of personnel engaged in executive . . . staff training. Also included are salaries and fringe benefits of direct program administrative positions such as . . . project directors. Additionally, all costs of clerical personnel . . . which are identifiable with these program administration positions are charged to administration."
 

"Such assistance includes:
(1) Orientation to the world of work;
(2) Counseling . . .;
(3) Job Development;
(4) Job search assistance . . .;
(5) Job referral and placement; and
(6) Vocational Exploration Program (VEP). . . ."

In addition, we noted that the Administration costs and the Training Assistance costs were extremely high when compared to the costs spent on the participants (CRT, OJT, WE, CSE and Supportive Services). In PY 95, the Training and Supportive Services (CRT, OJT, WE, CSE and Supportive Services) provided to participants amounted to only 29.5 percent of the total costs, while in PY 96 the amount of funds spent directly for participants on these activities were further reduced to 19.75 percent. Thus, UST was spending most of the grant on Administrative Salaries and other Administrative costs rather than on training and supportive services to participants. UST's budget provided for 52 percent of its funds to be spent in these categories for PY 95 and 36 percent for PY 96; therefore, a substantial portion of the costs programmed for participants was, instead, spent on operating costs. UST cannot serve the number of participants expected for the amount of JTPA funding received unless they begin to decrease their overhead costs. Although some staff have resigned, UST should evaluate its management of this program and determine what other reductions can be made to reduce administrative costs so that more funds can be utilized to directly serve participants.

In its response dated December 17, 1997, UST stated: "The job duties of the Program Administrator are client job development, counseling and orientation before placing individuals with the Host Agency. Administrative Secretary kept pace with the training needs and the type of orientation the client received. The individual did intake on clients . . . went out at different times to do job development for potential clients and further did job orientation including counseling with incoming clients. . . . The purpose of having the Program Administrator and Administrative Secretary under Training Assistance is that they were accomplishing job development, counseling, client intake, job search assistance, job referral and placement to meet the exploration needs of the client."
 

DINAP's Resonse

In its response dated February 20, 1998, DINAP commented on UST exceeding the 20 percent ceiling by stating that "in accordance with Section 401 regulations, INA grantees may expend no more than 20 percent of all available funds each program year for administrative costs." As to our comment on UST's extremely high Administration and Training Assistance costs, DINAP stated that "although there is no limit on the amount of funds that can be spent under the training assistance category, UST should explain how it justifies its high training assistance costs relative to the benefits received by program participants."

Auditors' Comments

UST, in its response, did not provide any documentation to support its position that the two staff in question performed duties described in the regulations as chargeable to training assistance. The job descriptions we obtained from UST clearly indicated that the Program Administrator and the Administrative Secretary were not required to perform training assistance functions. We also interviewed two UST staff who stated that the Program Administrator and the Administrative Secretary did not perform client intake, job development, job orientation, counseling, and other duties as described in UST's response. In addition, our audit of the time sheets disclosed that staff merely indicated the number of hours worked, they did not disclose what functions they were charging time to. Since we were not provided any documentation to support UST's response, and our audit disclosed information different than that provided in UST's response, our recommendations remain unchanged.

In PYs 95 and 96, UST charged the JTPA grant for costs that benefited UST management as a whole, as well as its other Federal grant program and its corporate activities as well. Therefore, DOL paid more ($53,630) than its fair share of the costs, which we question. UST's Executive Director responded that this problem occurred because: (a) funding under its U.S. Department of the Interior grant had been reduced and thus did not provide sufficient funds to pay the existing staff that worked on that program, and (b) UST desired to continue serving program participants at the same level as in the past (i.e., without a reduction in staff). We also noted that UST failed to implement a policy for ensuring that costs are charged to all activities in proportion to the benefits received. The questioned costs consist of: (1) $18,464 in Salaries and Fringe Benefits, and $4,907 in Office Space Costs under the Administration cost category, and (2) $26,324 in Salaries and Fringe Benefits, and $3,935 in Office Space Costs under the Training Assistance cost category.

OMB Circular A-122, Attachment A, A. 4. Allocable Costs, (b) states:

"Any cost allocable to a particular award or other cost objective under these principles may not be shifted to other Federal awards to overcome funding deficiencies, or to avoid restrictions imposed by law or by the terms of the award."

The indirect cost rate is used to recover the Executive Director's salary and fringe benefits and other costs, primarily office space.

UST charges indirect costs, in many instances, when there is a cash shortage instead of applying the indirect cost rate to monthly direct costs, as stipulated in the Indirect Cost Agreement. Although UST did not charge for more indirect costs than allowed in the program year, indirect costs are not always being properly expensed or recorded. UST should expense its indirect costs on a monthly basis by applying its agreed-upon indirect cost rate to the direct costs, by program. This should allow for UST to properly allocate the indirect costs to JTPA and EA.

"Indirect costs are those that have been incurred for common or joint objectives and cannot be readily identified with a particular final cost objective . . . typical examples of indirect costs for many nonprofit organizations may include depreciation or use allowances on buildings and equipment, the costs of operating and maintaining facilities, and general administration and general expenses, such as the salaries and expenses of executive officers, personnel administration, and accounting . . . where an organization has several major functions which benefit from its indirect costs in varying degrees, allocation of indirect costs may require the accumulation of such costs into separate cost groupings which then are allocated individually to benefitting functions by means of a base which best measures the relative degree of benefit."

"a) A cost is allocable to a particular cost objective, such as a grant/contract, project, service, or other activity, in accordance with the relative benefits received. A cost is allocable to a Government award if it is treated consistently with other costs incurred for the same purpose in like circumstances and if it:
(1) Is incurred specifically for the award.

(2) Benefits both the award and other work and can be distributed in reasonable proportion to the benefits received, or

(3) Is necessary to the overall operation of the organization, although a direct relationship to any particular cost objective cannot be shown.

The Executive Director stated that there were no EA funds to pay employees. This was because the Bureau of Indian Affairs (DOI) stopped funding employee salaries and fringe benefits in 1980. We did find during this 2-year audit period that the DOI EA grant was charged for the salaries and fringe benefits of the EA Director and his Administrative Assistant. However, the employees in the field offices that were being paid entirely from the DOL JTPA funds were providing services to EA participants. We have questioned certain charges to the JTPA grant as described below. Salaries and Fringes - Administration Costs ($18,464) For PYs 95 and 96, the salary and fringe benefits paid to the Bookkeeper were funded entirely by the JTPA grant. A review of her job description disclosed that her duties and responsibi-lities benefited not only JTPA, but UST's other Federal grant program (DOI's EA grant) and its corporate activities as well. As a basis for determining how much of the salaries and fringe benefits charged to the JTPA grant should have been charged to the DOI EA grant and UST's corporate activities, we used the last OMB Circular A-133 single audit report. This report covering the period October 1, 1993 through September 30, 1994, showed that the DOL funds represented 70 percent of all the funds (Federal and non-Federal) UST received that year. Therefore, we are questioning 30 percent of the Bookkeeper's salary and fringe benefits, the percent of funds represented by UST's other funding sources. These questioned costs have been removed from the Administration costs shown in Finding 1, to avoid duplicating questioned costs.

As discussed above, and based on our review of job descriptions of the Job Developers and Employment Training Specialists located in the field offices, these individuals worked with participants from both the JTPA program and the EA program. Therefore, their salaries and fringe benefits should have been allocated, accordingly, rather than been charged exclusively
 

We computed the salaries and fringe benefits of these individuals and used UST's last OMB Circular A-133 single audit report (covering the period October 1, 1993 through
September 30, 1994) to determine what percent of the salaries and fringe benefits charged to the DOL JTPA grant should, instead, have been charged to the DOI EA grant. This report showed that UST received 85 percent of its Federal funding from DOL; the other 15 percent was provided by DOI for the EA services. Therefore, we question 15 percent of the Job Developers and Employment Training Specialists salaries and fringe benefits, the percent of Federal funds provided by EA.

During PY 96, UST charged the JTPA grant's Administration cost category 100 percent of the cost for office space at the central office. UST incurred costs for its other programs and its corporate activities out of this office, yet office space costs were not prorated to the corporate activities or its other programs. Therefore, charges to the JTPA program were not reasonable.
 

This situation did not occur in PY 95 as UST was not charged rent for its central office. We are using the same basis for questioning central office space costs as we did for questioning the salaries and fringe benefits - administration charged to the JTPA grant. These questioned costs have been removed from the Administration costs shown in Finding 1, to avoid duplicating questioned costs.
 

Office Space - Training Assistance ($3,935)
 

UST charged the JTPA grant - Training Assistance cost category, Rent and Utilities for its field offices, $13,981 in PY 95 and $12,251 in PY 96. Our review of the vouchers and invoices supporting $10,662 of the charges for PY 95 and $11,710 for PY 96 disclosed that all of the costs were charged to the JTPA grant. As discussed earlier, the costs incurred in the field offices are for services provided to JTPA and EA participants, and these two programs should absorb their fair share of the costs at those locations. Although we did not review 100 percent of the costs posted for rent and utilities, we noted that the remaining amounts were utilities and other small expenses that were also charged 100 percent to the JTPA grant, rather than being shared with the EA grant based on the relative benefits received.

Therefore, using the 15 percent rate described above, we question $2,097 of the Rent and Utilities charged to JTPA in PY 95 and $1,838 in PY 96, a combined questioned cost of $3,935.

In our opinion, UST charged the JTPA grant more than its fair share of the costs discussed in this finding, resulting in questioned costs of $53,630.

Auditee's Response
 

In its response dated December 17, 1997, UST stated: "The field offices were established to accomplish JTPA Program activities as it all relates to training assistance and services . . . Furthermore, the JTPA field office was not set-up for any cost sharing policies or expenditures. All activities of the JTPA field offices was primarily the functions of the program and any other functions offered by the state or BIA program were determined based on eligibility by our staff for referrals."
 

Auditors' Comments
Although UST claims that the field offices were not set up to share expenses, the fact remains that there were costs involved in servicing both JTPA (DOL) participants and EA (DOI) participants. Therefore, these costs must be allocated accordingly. UST did not address our recommendation to develop a cost allocation plan to distribute these costs. Therefore, our recommendations remain unchanged.

Our audit disclosed that UST routinely issues checks for supportive services directly to participants without requiring any documentation, such as receipts or invoices to support the expenditure. Without supporting documentation, there are no assurances that the participants used the funds for the purposes intended. Therefore, we question supportive service payments of $6,426 in PY 95 and $6,660 in PY 96 (see Attachment A).
 

Our review of finance vouchers UST maintained as documentation showed checks were made out to participants. The vouchers also contained the types of supportive services the money was to be used for, such as: rent, automobile repair, tires, food, work clothes, tuition and books, gasoline, and eye glasses. This type of support is consistent with that provided in the JTPA regulations.
 

20 CFR 632.80(b) Supportive Services states:

"Supportive services are those which are necessary to enable an individual eligible under this part, but who cannot pay for such services, participate in the program."

20 CFR 632.32(c) Financial management systems, which states:
 

"To be acceptable for audit under this subpart, a Financial Status Report shall be: . . .
(3) Traceable to source documentation of the unit transaction."

"To be allowable under an award costs must meet the following general criteria: . . .
g) Be adequately documented."

Auditee's Response and Auditors' Comments
 

UST did not respond to this finding. Therefore, our recommendations remain unchanged.

DINAP's Comments
 

With regard to lack of documentation for supportive service payments, DINAP stated "The fact that past audits conducted by independent auditors failed to recognize that supporting documentation did not exist for supportive services provided by UST provokes concern. Are UST's post independent audits reliable?"

DINAP is questioning UST's OMB Circular A-133 audit (grantee procured single audit), which historically does not include the in-depth review performed by OIG auditors.
 

During our review of employee earnings records, we discovered a payment to the Executive Director that greatly exceeded his biweekly salary. Further review disclosed that the Executive Director had been paid for unused annual leave, over and above that authorized to be carried over. We also discovered other employees had annual leave balances in excess of the allowable carryover amount, and an individual who was paid for work that was not performed. We question $10,901, as provided below.

Payment For Accrued Annual Leave
 

Our review of UST employee earnings records disclosed that during the month of April 1996, the Executive Director had been credited with $6,054 more in earnings than a normal two pay period month allowed. We traced the payment to the cash disbursements journal of the general fund and discovered the entry had been recorded on April 12 as an indirect cost and charged 100 percent to the JTPA program. The payroll voucher disclosed that the payment (check number 14257) was for 220 hours of accrued annual leave. It was approved by the Chairman of the Board of Directors in a letter also signed by the Executive Director. It states that the "Executive Director has had no vacation nor time off because the Board of Directors has required that he remain available to the Indian people . . . has accrued a total of 609 hours of annual leave. As the Director serves the wishes of the Board of Directors and remains to operate the corporation, utilization of accrued leave is not possible."

UST's Operations Manual policy on Annual Leave states:

"Thirty (30) days or 240 hours will be the maximum amount of accrued annual leave which an employee can carry forward from one year to the next."

UST's Operations Manual policy on Annual Leave further states:

"Employees are encouraged to take one lengthy vacation a year."

We discussed this issue with the Executive Director who stated that he serves at the pleasure of the Board of Directors who require that he be available 24 hours a day and, therefore, he cannot take leave. He stated that it was the Board's decision to pay him for the unused leave. He further stated that he is the head of the organization and views himself as an official, not an employee and, therefore, is not subject to the policies and procedures adopted by UST.

Annual Leave Balances Over 240 Hours
 

As of December 31, 1996, several other employees had annual leave balances in excess of 240 hours, which were carried forward to January 1997. A summary of these leave balances at December 31, 1996 follows:
 
 

Salary Payments - Questionable Employee
 
 

An individual was hired as a JTPA program analyst from December 7, 1995 through
January 12, 1996. However, it appears that she was maintaining her residence in Lincoln, Nebraska, and never relocated to Pierre, South Dakota. She received payments for services, although we could not determine what services, if any, were performed. We talked to several employees at the central office who confirmed they had never met or seen this individual.

The following are some inconsistencies noted on her payroll voucher time sheets:

• She was paid for 80 hours of work during the 2 week period November 26, 1995 through December 9, 1995, yet her application and all other documentation indicate she was not hired until December 7, 1995.

• The time sheets for payroll periods #25, #01, and #02 were not signed by the employee.

 
• The employee's signature on the time sheet for payroll period #26 differed from the signature on the W-4 and other forms in the employee's personnel folder.

 

• Someone wrote on the time sheet for payroll period #01: "Please sign and return vouchers #01 and #02 as soon as possible."
•  Someone wrote on the time sheet for payroll period #26: "Please return white and yellow copy back to UST quickly and for payroll period #25 also."

 

When we talked to the Executive Director about this person's employment, he stated that he could not account for the employees' time and attendance as he was not the immediate supervisor. He stated he was sympathetic to the person's needs for a job, the person was highly qualified, and there was a personnel file available for this person.

We question $10,901 based on the following:

• Lump sum payments for a portion of annual leave hours over 240 hours violates UST annual leave policies - $6,054.

 

• Salary payments to persons who are not valid employees are unallowable - $4,847.

 

Auditee's Response
In its response dated December 17, 1997, UST stated: "As previously stated, the Executive Director serves at the pleasure of the Board of Directors at which time, he is on twenty-four hour call. . . . Since, the Board of Directors hires and fires the Executive Director directly, he must take Corporate actions either before the Board or the President of the Corporation for their approval. The accumulated leave above the 240 hours for all other employees will be discontinued and they will be placed on Use or Lose leave procedures." As to the questionable employee UST stated "the individual . . . was hired to collect and develop a job development bank and also collect data to be analyzed for increasing the JTPA program development. . . . Her office was secured by the JTPA program administrator, who worked with this lady developing the Job Development Bank and what data he wanted collected."
 
 

Auditors' Comments
 

We understand that the Executive Director serves at the pleasure of the Board of Directors, however, we disagree that this entitles him to carry over more annual leave hours than is provided for in UST's Operations Manual, or exempts him from the policies and procedures established by UST to safeguard its operations. We are pleased with UST's response that it will not allow its employees to carry over more than 240 hours of annual leave from one year to the next, and recommend that the Executive Director be required to follow this same procedure. As to the questionable employee who UST claimed worked with the program administrator to develop a Job Development Bank, we talked with the former Program Administrator He stated that he had not been the immediate supervisor of this individual, did not know she was an employee until he saw payroll checks prepared for her, and never saw her at the central office in Pierre. Therefore, our recommendations remain unchanged.