Audit Report on Department of Education Controls over Universal Pre-Kindergarten Payments to Non-Public Schools in Regions 6 and 7

Audit Report In Brief

This audit covers Universal Pre-Kindergarten (UPK) payments to non-public schools authorized by the Regional Operation Center (ROC) in Staten Island.  This ROC provides UPK support to non-public schools in parts of Brooklyn that are in Region 6 and all non-public schools in Staten Island and the parts of Brooklyn that are in Region 7.  This audit determined whether the Department of Education (DOE) has adequate controls over UPK payments to non-public schools in Regions 6 and 7.

DOE does not have adequate internal controls over UPK payments to non-public schools in Regions 6 and 7.  This is because DOE has not developed formal fiscal review procedures for the ROCs to follow when monitoring and assessing the UPK programs in the schools.  As a result, a total of $377,621 (12 percent) of the $3.2 million in UPK payments made by DOE in Fiscal Years 2004 and 2005 to the schools in our sample represents overpayments and other inappropriate payments to the schools that should be recouped, as follows:

• DOE overpaid six schools in our sample $141,055 in UPK funds by not adhering to the method of calculating UPK payments stated in the DOE contract.

• Three schools in our sample had unspent UPK funds totaling $82,321 that should have been recouped by DOE.

• A total of $97,586 of the $305,727 Other Than Personal Service (OTPS) expenditures reviewed in our sample lacked adequate supporting documentation.

• Of the $208,141 in OTPS expenditures that had supporting documentation, $56,659 was questionable since the expenditures were either not related to the UPK program or not reasonable.

In addition there were questionable bank statement activities totaling $407,322 for five of the schools in our sample.  There were also issues regarding the use of UPK funds for: bonuses to teachers at one of the schools; building rental costs between related parties; and private sanitation service.  Moreover, at one of the schools in our sample—Children’s Playhouse—there were numerous internal control inadequacies that increase the potential for fraud.

Although DOE does not have adequate internal controls over UPK payments to non-public schools in Regions 6 and 7, we did note that the number of children did not decline by that needed for a full class for any of the schools.  DOE did not pay any of the schools twice for the same student.  The attendance information for each child contained on the attendance invoices corresponded to the attendance information contained on the Daily Attendance Cards in our sample.  The schools properly deposited all funds received for the UPK program.  In addition, at our unannounced observations class size did not exceed 20 children, and all UPK educational employees were bona fide.

Based on our findings, we make 24 recommendations, including the following. DOE officials should:

• Develop and implement written fiscal review procedures for the ROCs to follow and monitor when assessing the UPK program.  These procedures should include the steps that the ROCs will take to ensure that non-public schools comply with their contracts and the DOE Expenditure Guide.

• Recoup the UPK overpayments made during Fiscal Year 2005 to the six schools in our sample.

• Recoup the $97,586 identified in this audit as expenditures that are not supported by the records of the non-public schools we cited.

• Recoup the $56,659 identified in the audit as expenditures that were either not related to the UPK program or were not reasonable for the non-public schools we cited.

• Investigate the questionable bank activities totaling $407,322 that we cited, and if warranted, recoup the moneys.

• Investigate the conditions we cited at Children’s Playhouse and, depending on the results of the investigation, consider terminating its UPK contract.

In their response, DOE officials generally did not agree with the audit’s findings and recommendations.  Nevertheless, DOE has taken steps to correct many of the issues identified in the report and to enhance the monitoring of the fiscal activities of the UPK program.