Education IG: 'U.S. Department of Education's Awarding & Monitoring Grantees' Uses of Disaster Recovery Funds for Postsecondary Schools'

WASHINGTON, Oct. 6 -- The Education Inspector General issued the following report (No. ED-OIG/A09T0007) entitled "The U.S. Department of Education's Awarding and Monitoring Grantees' Uses of Disaster Recovery Funds for Postsecondary Schools" on Sept. 30. Here are the excerpts:

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TO: Robert L. King, Assistant Secretary, Office of Postsecondary Education

FROM: Bryon S. Gordon, Assistant Inspector General for Audit

SUBJECT: Final Audit Report, "The U.S. Department of Education's Awarding and Monitoring Grantees' Uses of Disaster Recovery Funds for Postsecondary Schools," Control Number ED-OIG/A09T0007

Attached is the subject final report on the results of our audit of the U.S. Department of Education's awarding and monitoring grantees' uses of disaster recovery funds for postsecondary schools. We received your comments agreeing with the recommendations in our draft audit report and considered them as we prepared this final report.

U.S. Department of Education policy requires that you develop a final corrective action plan within 30 days of the issuance of this report. The corrective action plan should set forth the specific action items (with targeted completion dates) necessary to address the finding and recommendations contained in this final audit report. Corrective actions that your office proposes and implements will be monitored and tracked through the U.S. Department of Education's Audit Accountability and Resolution Tracking System.

In accordance with the Inspector General Act of 1978, as amended, the Office of Inspector General is required to report to Congress twice a year on the audits that remain unresolved after 6 months from the date of issuance.

We appreciate the cooperation that Office of Postsecondary Education officials and employees showed us during this audit. If you have any questions, please contact me at (202) 245-6051 or [email protected] or Gary D. Whitman, Regional Inspector General for Audit, Chicago/Kansas City and Sacramento Audit Regions, at (312) 730-1658 or [email protected].

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Table of Contents:

Results in Brief ... 1

Introduction ... 5

Finding. The Department Designed but Did Not Always Implement Policies and

Procedures for Awarding and Monitoring Grantees' Uses of Disaster Recovery Funds ... 9

Appendix A. Scope and Methodology ... 21

Appendix B. Acronyms and Abbreviations ... 27

OPE Comments ... 28

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Results in Brief

What We Did

Public Law 115-123, the Bipartisan Budget Act of 2018 (Bipartisan Budget Act), authorized funding to help postsecondary schools meet the educational needs of individuals affected by Hurricanes Harvey, Irma, and Maria and the 2017 wildfires.

The law set aside $175 million to provide discretionary grants to postsecondary schools to help defray the unexpected expenses associated with enrolling students displaced by a covered disaster or emergency and to provide emergency assistance to schools in an area directly affected by a covered disaster or emergency.

The objective of our audit was to determine whether the U.S. Department of Education (Department) designed and implemented processes to provide reasonable assurance that it awarded and monitored grantees' uses of disaster recovery funds in accordance with the Bipartisan Budget Act; "Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards," 2 Code of Federal Regulations (C.F.R.) Part 200 (Uniform Guidance); and Department policy./1

Specifically, this audit covered the Department's processes for awarding and monitoring grantees' uses of Defraying Costs of Enrolling Displaced Students in Higher Education Program (Defraying Costs) and Emergency Assistance to Institutions of Higher Education Program (Emergency Assistance) funds authorized by the Bipartisan Budget Act. We assessed the design of the processes as of May 2019 and implementation of the relevant processes as of December 2019.

To accomplish our objective, we interviewed Office of Postsecondary Education (OPE) officials and employees responsible for awarding Defraying Costs and Emergency Assistance grants and monitoring grantees' uses of these funds. We also reviewed OPE's records for 26 judgmentally selected grantees-9 (50 percent) of the 18 recipients of Defraying Costs funds and 17 (25 percent) of the 67 recipients of Emergency Assistance funds. We looked for records demonstrating that OPE implemented certain preaward, award, and post-award processes prescribed by the Department's "Handbook for the Discretionary Grant Process," (Discretionary Grant Handbook) effective September 11, 2015, that were significant to our audit objective. In addition, we looked for records demonstrating that OPE implemented the risk mitigation strategies for the Defraying Costs and Emergency Assistance grants as outlined in the Department's "2018 Disaster Relief Initial Draft Internal Control Plan" (Internal Control Plan).

What We Found

The Department designed policies and procedures for awarding and monitoring discretionary grants through its Discretionary Grant Handbook. Additionally, the Department designed risk mitigation strategies specific to the Defraying Costs and Emergency Assistance programs through the Internal Control Plan. Together, these policies and procedures, as designed, should have provided reasonable assurance that the Department awarded and monitored grantees' uses of Defraying Costs and Emergency Assistance grants in accordance with the Bipartisan Budget Act, Uniform Guidance, and Department policy.

The Discretionary Grant Handbook states that program offices may modify or deviate from prescribed policies and procedures in certain cases. However, such decisions should only be made after consultation with the Office of the General Counsel. The Discretionary Grant Handbook also states that, when a decision to modify or deviate from established policies and procedures is reached, the program office should record the decision in the application technical review plan or some other location in the official grant files. OPE did not provide us with records showing that, after consultation with the Office of the General Counsel, it decided to modify or deviate from the Department's established policies and procedures.

We concluded that OPE did not implement all the relevant Discretionary Grant Handbook processes and Internal Control Plan risk mitigation strategies as designed.

Specifically, OPE did not

* scrutinize costs in all applications and eliminate those costs that were unallowable;

* validate grantees' self-reported data;

* prepare appropriate terms, such as a high-risk designation and associated conditions, for any awards made to grantees it designated as high risk;

* apply its Emergency Assistance program allocation formula as designed;

* conduct post-award conferences;

* complete post-award monitoring;

* support changes made through administrative action grant award notifications; and

* retain all relevant records in official Emergency Assistance grant files.

OPE officials stated that they considered the Defraying Costs and Emergency Assistance awards to be hybrid grants. Such an interpretation was contrary to the Defraying Costs and Emergency Assistance Application Notices,/2 in which the Department stated that the Defraying Costs and Emergency Assistance awards were discretionary grants.

As a result of OPE not implementing all relevant Discretionary Grant Handbook processes and Internal Control Plan risk mitigation strategies as designed, the Department improperly awarded at least $242,232 to 7 of the 26 judgmentally selected grantees whose applications we reviewed. The Department awarded Defraying Cost grants to (1) one ineligible grantee, (2) one applicant that identified itself as both the postsecondary school receiving displaced students and the postsecondary school affected by the disaster, (3) one applicant even though the applicant omitted the required displaced student data on the postsecondary school from which the student was displaced, (4) two applicants whose applications included unallowable costs, and (5) one applicant for an amount greater than the applicant requested. The Department also awarded an Emergency Assistance grant to one applicant that used an indirect cost rate that was different than the indirect cost rate established for the program. In addition, the Department did not have reasonable assurance that grantees used grant funds only for allowable, reasonable, and necessary activities and items.

What We Recommend

We recommend that the Assistant Secretary for Postsecondary Education ensure that OPE (1) takes appropriate actions to correct the seven improper awards; (2) reviews the applications that were not part of our audit and takes appropriate actions to correct any instances of unallowable, unreasonable, or unnecessary activities or items; (3) reviews its files and ensures that all post-award activities are completed and recorded in the official grant files for all Defraying Costs and Emergency Assistance grantees; (4) implements all preaward, award, and post-award processes described in the Discretionary Grant Handbook or documents the decision to modify or deviate from selected processes in the official grant files for all future special discretionary grant awards; and (5) identifies any records retained outside OPE's official grant files and ensures those records are placed in the official grant files for each Emergency Assistance grantee.

OPE Comments

OPE acknowledged that it did not always follow the policies and procedures in the Discretionary Grant Handbook when awarding grants and monitoring grant activities under the Defraying Costs and Emergency Assistance programs. It stated that awards were made only after the Department's clearance process was completed. This clearance process included reviews by the Department's Budget Office and the Office of the General Counsel.

OPE agreed with all five recommendations. Regarding the first recommendation, OPE stated that it did not approve the indirect cost rate for one Emergency Assistance grant as described in the report. For the remaining six grantees, OPE stated that it made corrections to the awards and recorded those corrections in G5. OPE stated that it will implement the other four recommendations and provided an estimated completion date of December 15, 2020, for three of them.

We summarize OPE's comments and provide our responses at the end of the finding. The full text of OPE's comments is included at the end of this report (see "OPE Comments").

Office of Inspector General Response

We did not make any changes to the finding or recommendations. During our audit, OPE's official files for the seven grantees did not include any records showing that OPE identified and resolved the discrepancies described in the finding. In response to the draft of this report, OPE did not provide any records to support the statement that the one award was proper or that it corrected the other six improper awards and notified the grantees of the revised award amounts.

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Introduction

Background

The Bipartisan Budget Act was signed into law on February 9, 2018, authorizing funds to help postsecondary schools meet the educational needs of individuals affected by Hurricanes Harvey, Irma, and Maria and the 2017 wildfires. The law set aside $75 million to help defray the unexpected expenses associated with enrolling displaced students who attended postsecondary schools disrupted by a covered disaster or emergency.

The law also set aside $100 million to help postsecondary schools and students attending postsecondary schools in an area directly affected by a covered disaster or emergency. Funds authorized by the law were to remain available through September 30, 2022.

The Department invited applications for the Defraying Costs program and preapplications and applications for the Emergency Assistance program on May 3, 2018.

The Department stated that it would allocate Defraying Costs funds during fiscal year 2018 to schools that enrolled displaced students during academic year 2017-2018.

The Department also stated that schools receiving Emergency Assistance funds had 24 months from the award date to use the funds.

Defraying Costs Program

To receive funds, postsecondary schools had to submit an application that described their activities and unexpected expenses associated with enrolling qualifying displaced students and the total amount of aid requested. The application also had to describe the steps that the applicant was taking to account for the funds and to ensure that it used the funds in compliance with statutory requirements. Additionally, the application had to include a list of the qualifying displaced students whom the applicant enrolled.

According to the Application Notice,/3 only the costs of tuition, fees, and room and board were allowable. The Department stated that it would consider the following factors in allocating Defraying Costs funds:

* total amount of tuition waived, not including any portion covered by Federal, State, or private aid, for qualifying displaced students;

* total amount of fees waived, not including any portion covered by Federal, State, or private aid, for qualifying displaced students;

* total amount of room and board costs incurred by the applicant, not including any portion covered by Federal, State, or private aid, to enroll qualifying displaced students; and

* funds already received by the applicant to help defray the unexpected costs of enrolling qualifying displaced students.

The Department established three application submission deadlines. After evaluating the information in the applications submitted by each deadline, OPE employees prepared a funding slate and an accompanying transmittal memorandum. Each funding slate included, among other things, a table showing the name of the applicants to be funded and the proposed funding amount for each applicant. Each transmittal memorandum contained background information on the grant program, a description of the application review process, special information or issues encountered during the review process, funding allocation recommendations, and risk assessment information about each applicant recommended for funding. Department employees based their funding allocation recommendations on the total amount of tuition, fees, and room and board that the applicants waived or incurred to enroll qualifying displaced students during academic year 2017-2018. The first funding slate included 10 grantees. The second funding slate included five grantees. The third funding slate included three grantees. As of April 23, 2020, the Department had awarded 18 grantees about $7 million (9 percent) of the $75 million available for the Defraying Costs program.

Emergency Assistance Program

Postsecondary schools intending to apply for funds under this program first had to submit a preapplication data information form. This form had to include information about (1) expenses incurred to remedy the effects of the disaster or emergency, (2) funds received from other sources, (3) expenses incurred to serve homeless students, and (4) percentage of operations affected by the disasters or emergencies.

The Department used the information in the preapplication data information forms to calculate each postsecondary school's equitable share of the $100 million available for the Emergency Assistance program.

In the Application Notice, the Department stated that, to the extent possible, it would prioritize postsecondary schools incurring costs to serve students who were homeless or at risk of being homeless as a result of displacement and postsecondary schools sustaining extensive damage from a covered disaster or emergency. It also established the following criteria for determining each postsecondary school's equitable share allocation:

* expenses incurred to remedy the effects of the covered disaster or emergency, including expenses for construction and reconstruction associated with physical damage caused by the covered disaster or emergency;

* amount of any insurance settlement or other funds received from any source, including a Federal or other relief agency, related to remedying the effects of covered disaster or emergency; and

* the need for the proposed project, including the magnitude and severity of the problem to be addressed by the proposed project.

After the Department calculated each postsecondary school's equitable share and notified it of the expected allocation, the postsecondary school had until August 1, 2018, to submit an application. The application had to include fiscal, transparency, and reporting assurances; the applicant's plans for using the funds; and four other assurances and certifications stating that the applicant would comply with Federal requirements.

The Department established two rounds of funding based on when it received each applicant's preapplication data information form. For each round of funding, Department employees prepared a funding slate and an accompanying transmittal memorandum. The first funding slate included 47 grantees. The second funding slate included 23 grantees. Department employees derived their funding allocation recommendations by applying a flat rate of 25 percent to the applicant's total reported disaster recovery expenses. As of April 23, 2020, the Department had awarded about $96 million (96 percent) of the $100 million available for the Emergency Assistance program.

Grantees could use Emergency Assistance funds for any purpose authorized under the Higher Education Act of 1965, as amended, provided they used the funds for activities directly related to mitigating the effects of a covered disaster or emergency. Emergency Assistance funds could also be used for student financial assistance, faculty and staff salaries, equipment, and student supplies and instruments.

Administering Discretionary Grant Programs

OPE's role within the Department is to promote reform, innovation, and improvement in postsecondary education and to promote and expand access to postsecondary education. Within OPE, the Higher Education Programs division is responsible for administering discretionary grants. The Higher Education Programs, Student Service unit administered the Defraying Costs program, and the Institutional Service unit administered the Emergency Assistance program.

Uniform Guidance covers the requirements agencies must follow when awarding and monitoring Federal grants. It addresses preaward and award processes, such as application review, risk determinations, and specific conditions on grantees. Uniform Guidance also covers post-award requirements, such as monitoring the use of Federal grant funds, collecting financial data from Federal grant recipients, and measuring recipient performance against goals and milestones.

The Discretionary Grant Handbook prescribes the preaward, award, and post-award processes that Department offices are to follow when administering discretionary grants. The Internal Control Plan prescribed strategies that Department offices were to implement to mitigate the risks specific to disaster relief funds authorized by the Bipartisan Budget Act.

Department policy requires each component to conduct a risk assessment before awarding a discretionary grant. OPE's risk assessment involves screening all active grantees before the start of the fiscal-year grant-making cycle. OPE designates as high risk any applicant that met one or more of the following five risk factors:

* the Department's entity risk review flagged the grantee as having significant potential risk;

* an Office of Management and Budget Circular A-133 audit was missing;

* the Department's high-risk report included the grantee;

* the Department's Grants Management System (G5) flagged the grantee as red, signifying noncompliance with program requirements or indications of risk based on the knowledge and experience of OPE program specialists responsible for managing grants; or

* an adverse actions report, which captured information about changes in accreditation status, showed the grantee as no longer accredited, or showed the grantee with serious issues.

Funding slate transmittal memoranda noted any applicants that OPE identified as high risk.

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REPORT and FOOTNOTES: https://www2.ed.gov/about/offices/list/oig/auditreports/fy2020/a09t0007.pdf