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The Evolution of Grant Compliance at the School District of Philadelphia

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Title: The Evolution of Grant Compliance at the School District of Philadelphia


1
  • The Evolution of Grant Compliance at the School
    District of Philadelphia

From Gross Mismanagement to a Model District
to a New UGG Focus on Program Performance
2
The OIG Audit - Status
  • School District of Philadelphia 8th largest K-12
    in the nation.
  • Audit time period was July 1, 2005 to June 30,
    2006 and took two years.
  • From a total of 354m in federal funds, the audit
    covered 245m (70).
  • Audited Title I II, Reading First, FIE, IDEA,
    Gear-Up, Safe Drug Free Schools, CSR.
  • Final OIG Audit Report issued January 2010 had
    138.4m of findings largest ever.
  • 121.1m questioned costs and 17.3m of
    unallowable costs.
  • Two PDLs issued with sustained costs of almost
    10m.

3
The Five Audit Findings - 138.4 Million
  • Inadequate controls over personnel expenditures
    (123.7m/about 89).
  • Use of federal funds to supplant local funding
    (6.9m/about 5).
  • Inadequate controls over non-payroll costs
    (7.8m/about 6).
  • Inadequate or unenforced policies transferring
    costs to federal funds.
  • Lack of written policies and procedures.

4
The Five Audit Findings
Finding No. Finding Item(s)
1 Time and Effort Documentation Inadequate 123,772,665 questioned. Documentation per federal rules were either not maintained or were insufficient.
2 Supplantation of federal funds 6,979,063 of questioned costs were expensed from State and local funds then were transferred at year-end to federal grant funds
    Findings 3 through 5 contain 7,624,340 of questioned / unallowable costs
3 Inadequate Controls to Ensure Non-Payroll Expenditures Met Federal Regulations No process for reviewing expenditures for allowability, or for obtaining supporting documentation prior to making grant payments. No written accounts payable policies and procedures. Federal grant funds used for Finance charges Late fees Indemnity insurance for a nonpublic school Tips for alcoholic beverages iPods Pool tables Two 11-inch crystal vases Crystal wine bucket Newspaper subscriptions for the Title I program office Two copiers one not used, and one not used for intended purpose
5
The Five Audit Findings
Finding No. Finding Item(s)
4 Policies and Procedures Were Not Adequate and/or Enforced Journal Vouchers (expenditure transfer) Process Travel Policies and Procedures Imprest Fund Policies and Procedures Contract Provisions Inventory controls not enforced Significant technology items not tracked or controlled
5 No Written Policies and Procedures for Various Fiscal Processes Lack of effective control environment Lack of Written Policies and Procedures led to unallowable expenditures Budgets not monitored budget transfers violated federal rules Lack of Position Descriptions Ordering Excessive Amounts of Food Usage of accounting codes Lack of Supporting Documentation for Training and Professional Development
6
The Audit Resolution Process
  • Alternative documentation or statute of
    limitations applied to all but 7.2m of findings.
  • Formalized corrective actions through CAROI
    (Cooperative Audit resolution and Oversight
    Initiative) process with RMS and PDE.
  • US DE OIG sought high risk grantee designation,
    but avoided.
  • New regulatory precedent set on statute of
    limitations (date of obligation).
  • U.S. Secretary of Ed. to apply equitable offset
    based upon egregiousness of violation. A new
    standard was created.
  • Still on-going with several levels of appeal and
    other remedies sought. Currently have appealed
    3rd federal Circuit Court decision to the US
    Supreme Court.
  • PDE argument relies on equitable offset and
    statute of limitations.
  • 9 years from start - both audit resolution and
    legal process is still on-going.

7
Response and NegotiationsHow Could this Happen?
  • How did the environment contribute to the
    findings and, more importantly, how to respond?
    The following were the key SDP deficiencies, any
    one of which would create audit risk and
    potential findings but, when combined, made large
    scale audit findings inevitable.
  • Absence of written policies and procedures.
  • Lack of staff training on rules and regulations.
  • Ineffective or non-existent grant financial and
    managerial control systems.
  • Insufficient staffing for grant financial
    management and independent compliance monitoring.
  • Management approach focused on pushing as many
    dollars to schools as possible to the detriment
    of the effective administration.

8
Response and NegotiationsHow Could this Happen?
  • More importantly, organizational churn worked
    against compliance.
  • There were clearly fundamental deficiencies in
    the organization that needed to be addressed, and
    downplaying those deficiencies and continuing
    with the status quo would be unacceptable to the
    professional staff within the SDP, as well as the
    PDE and ED.
  • A decision point was reacheddo we muddle though
    attempting to do the minimum required to keep our
    external funders at bay, or do we undertake a
    bold reform effort?
  • We decided that the OIG audit would be the
    catalyst for the design of far-reaching
    organizational change. The question that
    remained was whether such a fundamental shift
    could be implemented and sustained in the face of
    continued leadership changes, the loss of federal
    Stimulus funds, continual financial stress, and
    mass layoffs in schools and the central office.

9
Corrective Actions (Initial)
  • Key changes began in the spring and summer of
    2010 to convey we understood the gravity of the
    situation and our commitment to effective
    organizational improvement
  • Existing Title I grant compliance staff were
    removed from academic office supervision and the
    Grant Fiscal Staff were removed from Budget
    Director supervision and combined to form the
    Office of Grant Compliance and Fiscal Services.
  • The compliance role was expanded to all grants,
    with particular focus on federal grants.
  • Commitments were made to begin immediately
    working to improve time and effort documentation.
  • An outside consultant was hired to perform a risk
    assessment of management and controls to support
    the development of comprehensive policies and
    procedures.

10
Corrective Actions (Initial)
  • EDs Office of Risk Management Services also
    began to participate in the review of the plans
    and provide support in order to help ensure that
    substantive progress was being made.
  • The openness and commitment to change
    strengthened the SDPs already good relationship
    with PDEs Division of Federal Programs and
    fostered a slowly growing confidence on the part
    of ED that Philadelphia was serious about a
    transformative process and outcome.
  • Throughout 2011, SDP staff spent countless hours
    with the outside consultant regarding the risk
    assessment they had undertaken and began the
    arduous process of re-engineering business
    processes and writing detailed policies and
    procedures.

When capable people with good intentions meet
bad processes, bad processes win 9 out of 10
times Marine General Jim Mattis
11
Risk Assessment Recommendations
  • Conducting extensive staff interviews and
    gathered information about staffing levels, roles
    and responsibilities, existing policies and
    procedures (documented and undocumented) and the
    tools and technology that supported the grants
    management and compliance system.
  • Benchmarked the Districts environment against
    other comparably sized school districts
    districts specifically identified by government
    and private education experts as having
    successful grants management programs (defined as
    having few or only minor instances of
    noncompliance).
  • The goal of the best practices benchmarking was
    to identify the key aspects of grant compliance
    within these peer districts and determine how
    those districts were configured to effectively
    and efficiently meet federal compliance
    requirements.
  • Peer Districts Charlotte Macklenberg Schools
    (NC), Cincinnati Public Schools (OH), Gwinnett
    County Public Schools (GA), and Tucson Unified
    School District (AZ).

12
Risk Assessment Recommendations
  • The overall conclusion of the risk assessment and
    benchmarking analysis was that a strong and
    sustainable grants management and compliance
    system encompasses two distinct yet closely knit
    components
  • Foundational Elements that form the basis of the
    system without which the system cannot properly
    function. This component encompasses support
    from top management, cross-departmental
    collaboration and accountability, adequate
    staffing, clarity of roles and responsibilities,
    knowledge management through effective training,
    and performance accountability.
  • Business Process Elements that include the rules
    and tools to achieve the desired results. This
    area covers technology and management reports, as
    well as the policies and procedures that
    prescribe who should be doing what and in which
    order for each major business process.

13
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14
Corrective Action Plan
  • In December, 2011 the SDP delivered a
    comprehensive Corrective Action Plan building on
    the initial corrective actions AND the Risk
    Assessment. The state and feds were so impressed
    with our efforts to date and aggressive new
    actions and timelines, we were not designated
    high risk pending continued progress. The
    following corrective actions were fully
    implemented effective 7/1/12 designed,
    developed, and implemented in little more than a
    year.
  • Tone at the Top / Cross-Departmental
    Collaboration
  • Received explicit recognition from senior
    management that compliance was essential to
    maintaining the Districts federal funding
    stream. That support has been maintained and
    demonstrated in the form of corrective decision
    making when issues of non-compliance are raised.
  • Created a grant oversight committee with members
    from senior management and relevant departments
    that provides collaboration on development and
    implementation of policies and procedures and
    coordinates and implements grant programs more
    effectively.

15
Corrective Action Plan
  • Roles and Responsibilities / Performance
    Accountability and Compliance Systems
  • Defined the roles and responsibilities of all
    personnel to include the modification of job
    descriptions.
  • Developed detailed compliance monitoring tools
    and checklists.
  • Developed instance of non-compliance thresholds
    for interventions.
  • Inserted the Grant Compliance Office as the first
    level of approval for purchasing of goods and
    services in the accounting system to ensure that
    unallowable purchases can be stopped before
    occurring.

16
Corrective Action Plan
  • Staffing
  • Increased grant fiscal and compliance monitoring
    staff by nearly 50 percent (additional sixteen
    FTEs).
  • Doubled grant accounting positions (additional
    two FTEs).
  • Hired a dedicated grant attorney.
  • The commitment to improving grant management and
    compliance is also demonstrated by the fact that
    the additional positions were filled after the
    end of the Federal Stimulus funds and after 2,700
    positions were eliminated in the summer of 2011,
    including a 50 percent cut of central office
    staff. The grant fiscal and compliance staffing
    levels have subsequently remained constant as
    financial pressures continue to mount. An
    additional 3,800 positions were eliminated in the
    summer of 2013 including further cuts to the
    central office. Overall, the SDP lost a third of
    its workforce between 2011 and 2013.

17
Corrective Action Plan
  • Policies and Procedures
  • Twenty six policies and fifty two procedures were
    codified to include fifty one forms and guidance
    documents. Many of the forms are form-fillable
    PDFs that require electronic signatures to reduce
    paper processing.
  • The policies and procedures are web based and
    source references are cross-linked internally and
    with outside sources and are continuously updated
    as experience with implementation unfolds.
  • Given that even peer best practice districts did
    not have well developed policies and procedures,
    the question arose as to whether a transformative
    culture change could occur without them. The
    conclusion was that written guidance that clearly
    delineated roles and responsibilities with
    detailed procedures and managerial and financial
    controls implemented through sign-off forms was
    the most direct path to effect change.

18
Corrective Action Plan
  • Comprehensive Training
  • Annual training for school and central office
    staff.
  • Additional training is provided at intervals
    throughout the year, targeted to specific
    position types and also available for new
    personnel.
  • Training materials include web-based videos and
    summary guidance documents for employee
    self-directed refresher training.
  • Grant Management and Reporting
  • Converted the budget development and management
    of federal funds in the accounting system from a
    multi-year to a 12 month perspective to improve
    the ability of middle and senior management to
    attain a more global picture of available funds
    from all funding sources on the SDP fiscal year
    basis. This conversion was critical for
    effective strategic planning, direction, and
    financial reporting and decision making,
    especially at a time of financial instability.

19
First Year Full Implementation
  • The first full year of implementation began in
    FY13 (July 1, 2012).
  • Many multi-million dollar grant usage decisions
    were made correctly that were not made that way
    in the past. The tone at the top has been
    successfully maintained across multiple District
    administrations.
  • The question remained whether the more
    fundamental culture of compliance involving
    hundreds of people in multiple central office
    departments and over 200 separate schools would
    take root and grow.
  • THE ANSWER IS YES!!!
  • On the whole, staff learned the new procedures
    quickly and altered their planning and practices
    accordingly.
  • You change a culture by changing how you interact
    with it and what you demand from it. You cant
    wait for the culture to change first.
  • However, the first full year of implementation
    also uncovered ongoing control weaknesses.

20
On Going Control Weaknesses
  • The number and dollar value of supplemental pay
    events found to be unallowable through
    after-the-fact monitoring was unacceptably high.
  • Inventory controls, a frequent problem in large
    organizations, continued to present compliance
    risks.
  • The retention of records essential to proving
    that effort was expended on federal cost
    objectives is largely left to program offices or
    schools to maintain which presents continuing
    risk given unrelenting staff reductions and
    turnover.
  • There was no formal continuity plan to ensure
    consistency of focus and effort as changes were
    made to organizational leadership, a problem
    cited by ED as a frequent problem in other
    districts.
  • The overall conclusion from the first full year
    of implementation was that the system of periodic
    reviewing and testing for compliance after
    financial obligations had already been incurred
    was not sufficient in the current environment.

21
Additional Controls
  • Pre-Approval for All Expenditures The control
    was reversed from after-the-fact monitoring to a
    pre-expenditure approval and data entry control
    environment for supplemental pay. The Grant
    Compliance Office was given sole responsibility
    to process supplemental pay in the Payroll
    system.
  • Memorandum of Understanding The SDP and PDE
    entered into a voluntary Memorandum of
    Understanding in the spring of 2013 that requires
    PDE review and approval before any material
    change can occur to the existing SDP
    organizational structure or capacity related to
    grant compliance. This agreement in effect
    through June of 2017.
  • Inventory Controls Any school or central office
    that has not submitted their annual inventory is
    suspended from using federal dollars to purchase
    equipment until the inventory is submitted. The
    same for twice yearly random, sample checks for
    equipment. Schools and offices must demonstrate
    a credible inventory control plan.

22
Additional Controls (continued)
  • Best Practice Program Management SDP grant
    programs that consistently demonstrate high
    achievement using best practices are reviewed
    and the examples used in an internal guide
    specific to SDP systems and resources. The goal
    is to encourage a culture of grant management
    excellence through training and mentoring.
    Well-trained and effective grant program managers
    are the most important contributor to reducing
    audit risk.
  • Electronic Records Repository An electronic
    scanning and storage system of key documents
    related to grant management, administration and
    compliance has been implemented to capture
    documents in real time. Records are easily and
    quickly retrieved for internal compliance
    purposes and to fulfill audit requests. This
    system fulfills the key requirements of an
    effective record retention system in order to
    significantly reduce audit risk.

23
Lessons Learned
  • Take Advantage of Shocks to the System A
    negative external audit or program monitoring
    assessment or even a negative internal audit can
    be the triggering event to aggressively begin a
    campaign to capture the attention and focus of
    senior management in order to change the tone at
    the top, and to embark on an organizational
    transformation, whether only modest or massive
    improvements are required. In this regard, the
    external (or internal) auditor is your best
    friend. You dont need to have an adversarial
    relationship with the auditorsyou may not agree
    with them all the time, but in the end, you both
    share a common interest of well run, effective
    and compliant federal programs.
  • Honest Assessment Perform an honest assessment
    of the way your organization operates regarding
    program management and implementation, managerial
    and financial controls, compliance, etc.
    Admitting theres a problem is the required first
    step in addressing root causes.

24
Lessons Learned
  • Become a Change Agent You, along with as many
    colleagues as possible, need to be an advocate up
    and down the chain of command for thoughtful
    planning and execution regarding the use of
    federal funds and for the compliance requirements
    to which your organization already agreed by
    accepting the money. This requires a degree of
    professional risk since some in the organization
    may actively or passively resist and resent such
    efforts.
  • Plan of Action Create a concrete plan of
    action, timetable, and assemble a dedicated
    support team. There will be more people than you
    think willing to sign-on to the initiative if
    they see senior management support being backed
    by a plan with specific and detailed steps. This
    newly assembled team around the action plan must
    be dedicated to continuous improvement.

25
Lessons Learned
  • Persistence and Adaptability Aggressively
    implement the plan, persistently and
    consistently. Dont continuously ask for
    permission for every action required to implement
    the plan as long as the plan explicitly provides
    for it, or the action is implicit to the plan.
    Few people, if any, will stop or reverse the
    implementation of sound business practices while
    being implemented, but theyll often delay action
    if you put it on the table for debate.
  • Seek External Legal Support from Experts in the
    Field. Legal representation with experience in
    the field of federal compliance and audit
    resolution is critical to reducing financial
    liability. When faced with the threat of
    repaying millions of dollars to your grantor, the
    comparatively minimal cost of this support is a
    bargain. In-house legal counsel are not equipped
    or experienced enough, in most cases, to
    successfully navigate the federal system.

26
Lessons Learned
  • Seek Independent Management Advice and Support.
    While not essential, an external analysis can
    lend legitimacy to the avowed need to correct
    weaknesses identified by findings or weaknesses
    you may already know exist and can provide new
    insights and comparative analysis to help form a
    plan of action and build momentum for positive
    change.
  • Be Cooperative and Fully Utilize the Support of
    Your Grantor Agency. Work cooperatively towards
    audit resolution with all parties. It will
    almost always be the case that your grantor
    agency will be ready, willing, and eager to
    support the corrective action plan in any way
    possible. Embrace that support and cultivate
    that relationship. You will need it down the
    road.

27
Lessons Learned
  • Build effective compliance through systems and
    controls. Its essential that the control
    environment be systematized and embedded into the
    regular processes of the organization so that it
    can better withstand personnel changes.
    Preferably, systems and controls should be
    documented through comprehensive policies and
    procedures to reduce the opportunity for
    misunderstanding and to make the training of new
    personnel easier. A weak culture of compliance
    can be successfully confronted and overcome by
    creating detailed policies and procedures that
    will invariably unveil the control weaknesses in
    your organization and provide the opportunity to
    discover root causes and develop solutions.

28
From Cost Principle to Programmatic Compliance
and Support
  • Direct Assistance to Schools Direct support is
    provided to schools in completing all federally
    required documentation and entering orders in the
    accounting system. This help is provided
    year-round and intensively during the summer and
    designated weeks during the school year at
    drop-in centers. Budget to actual reports are
    distributed monthly to Principals and Assistant
    Superintendents. Finally, one-on-one training is
    provided to Principals and staff on allowable
    Title I activities regarding basic instruction,
    professional development, and parental
    involvement.

29
From Cost Principle to Programmatic Compliance
and Support (continued)
  • School-Wide Planning Grant Compliance is
    working with the Academic Office to upgrade the
    school-wide Needs Assessment and School-Wide Plan
    process to respond to State monitoring criticism
    that the planning process is not robust. A new
    Principal and school community training and
    support model is being implemented, and Grant
    Compliance is providing an independent monitoring
    function to ensure that evidence of a robust
    process is occurring and that deficiencies be
    addressed quickly.

30
From Cost Principle to Programmatic Compliance
and Support (continued)
  • Parental Involvement Grant Compliance has taken
    the lead in working with the Parental Involvement
    Office to develop a model Title I parental
    involvement activity calendar throughout the
    school year, and to create a comprehensive set of
    Title I training materials and delivery plan for
    Principals and parents to include rights, roles
    and responsibilities.

31
New Focus on Programmatic Compliance Under the
UGG
  • The District is subject to federal laws and rules
    that compel it to ensure internal controls are in
    place to protect against waste, fraud and abuse.
    These requirements have been strengthened in the
    federal UGG that became effective on December 19,
    2014 (79 Federal Register 244). Several UGG
    provisions discuss fraud, waste and abuse
  • Cooperative audit resolution is based on five
    pillars, including Federal agency leadership
    sending a clear message that continued failure to
    correct conditions identified by audits which are
    likely to cause improper payments, fraud, waste
    or abuse is unacceptable and will result in
    sanctions. 2 CFR 200.25.
  • Fraud violations must be disclosed in writing to
    the federal agency. 2 CFR 200.113.

32
New Focus on Programmatic Compliance Under the
UGG (continued)
  • Non-federal entities are required to sign
    certifications with each draw down and financial
    report stating I am aware that any false,
    fictitious, or fraudulent information, or the
    omission of any material fact, may subject me to
    criminal, civil or administrative penalties for
    fraud, false statements, false claims or
    otherwise. 2 CFR 200.415.
  • The UGG mandates self-assessment by non-federal
    entities. The non-federal entity must monitor
    its activities under Federal awards to assure
    compliance with applicable federal requirements
    and performance expectations are being achieved.
    Monitoring by the non-federal entity must cover
    each program, function or activity. 2 CFR
    200.328(a) (emphasis added).

33
New Focus on Programmatic Compliance Under the
UGG (continued)
  • Similarly, the section on internal controls
    states The non-federal entity must take
    prompt action when instances of noncompliance are
    identified including noncompliance identified in
    audit findings. 2 CFR 200.303(d) (emphasis
    added).
  • The UGG, and predecessor federal OMB Circular
    A-87, requires the SDP to ensure that all federal
    grant costs are necessary to the operation of
    the program, be reasonable, in that the cost
    does not exceed what a prudent person would deem
    reasonable under the circumstances, and
    allocable, the cost is chargeable to the grant
    in accordance with the benefit received. 2 CFR
    200.403, 404, and 405.

34
  • 2 Code of Federal Regulations 200.301
    Performance measurement.
  • The Federal awarding agency must require the
    recipient to use OMB-approved standard
    information collections when providing financial
    and performance information. As appropriate and
    in accordance with above mentioned information
    collections, the Federal awarding agency must
    require the recipient to relate financial data to
    performance accomplishments of the Federal award.
    Also, in accordance with above mentioned
    standard information collections, and when
    applicable, recipients must also provide cost
    information to demonstrate cost effective
    practices (e.g., through unit cost data). The
    recipient's performance should be measured in a
    way that will help the Federal awarding agency
    and other non-Federal entities to improve program
    outcomes, share lessons learned, and spread the
    adoption of promising practices. The Federal
    awarding agency should provide recipients with
    clear performance goals, indicators, and
    milestones as described in 200.210 Information
    contained in a Federal award.

35
Program Monitoring Initiative
  • Independent Performance Monitoring and Reporting
  • A separate unit within the Grant Compliance
    Office is being staffed to, among other things,
    provide analysis and support to the UGG
    programmatic compliance effort
  • Quarterly Assessment of Competitive Federal
    Awards and Select Federal Formula Award
    Activities.
  • For competitive awards, the quarterly report to
    the federal program officer provides an
    opportunity for an independent review of cost
    principle compliance, rate of spend, and
    achievement of program goals to generate a risk
    assessment (high / medium / low) of the ability
    of the grant to achieve its objectives. Also
    includes recommendations to senior management so
    that corrective action may be taken in time to
    impact grant outcomes.
  • For formula grants, such reviews will be
    conducted for discrete activities, probably on an
    annual program performance basis.

36
Program Monitoring Initiative
  • Independent Performance Monitoring and Reporting
  • Program Reviews
  • When requested by senior management or as the
    result of allegations of waste, fraud and abuse,
    a full program review of a function will be
    undertaken to assess operational efficiency and
    effectiveness to include several or all of the
    following elements
  • Employee self-declaration of tasks and subsequent
    interviews
  • Interview of relevant stakeholder personnel
    (grantor and other)
  • A survey of relevant program laws, rules, and
    guidance.
  • District Office of Research and Evaluation
    reports for program performance assessments
  • Financial operations, to include inputs and
    outputs to assess unit cost and efficiency
  • Unannounced site visits

37
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