This is the accessible text file for GAO report number GAO-10-746R 
entitled 'GAO Review of LEA Controls over and Uses of Recovery Act 
Education Funds (Avery County Schools)' which was released on July 9, 

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United States Government Accountability Office: 
Washington, DC 20548: 

July 9, 2010: 

June St. Clair Atkinson, Ed.D.
State Superintendent:
North Carolina Department of Public Instruction: 

Subject: GAO Review of LEA Controls over and Uses of Recovery Act 
Education Funds (Avery County Schools): 

Dear Dr. Atkinson: 

The American Recovery and Reinvestment Act of 2009 (Recovery Act) 
[Footnote 1] mandates GAO to review states' and localities' use of 
funds made available under the act.[Footnote 2] Since April 2009, GAO 
has published bimonthly reports on our findings related to federal, 
state, and local implementation of the Recovery Act.[Footnote 3] 
Currently, we are examining the efforts of selected states and local 
educational agencies (LEA) to ensure appropriate uses of Recovery Act 
funds. In North Carolina, we have been reviewing efforts undertaken by 
the North Carolina Department of Public Instruction (DPI) and selected 
LEAs to administer and oversee the use of Recovery Act funds under the 
State Fiscal Stabilization Fund (SFSF) education stabilization funds; 
Title I of the Elementary and Secondary Education Act of 1965 (ESEA 
Title I), as amended; and Part B of the Individuals with Disabilities 
Education Act (IDEA); as amended. As part of this effort, we met with 
various DPI staff and, from February 1 through 3, 2010, we visited 
Avery County Schools (ACS) to review and test the adequacy of controls 
and procedures in place pertaining to Recovery Act funds for these 
three federal programs. During our visit, we interviewed finance and 
program officials regarding internal controls, procurement procedures, 
and use of Recovery Act education funds. We also reviewed a 
nonstatistical sample of 13[Footnote 4] expenditures of Recovery Act 
funds for goods and services under these three programs. As of January 
27, 2010, ACS spent about $755,000 in Recovery Act funds. We primarily 
focused our work on two expenditures in our sample that ACS officials 
reported as their largest Recovery Act nonsalary expenditures. These 
two expenditures totaled nearly $105,000. We conducted our work from 
February 1, 2010, to April 20, 2010, in accordance with generally 
accepted government auditing standards. The purpose of this report is 
to bring to your attention our findings related to ACS. 

Internal control helps managers better achieve an entity's mission and 
accountability for results through more effective stewardship of 
public resources. Internal control includes management and program 
policies, procedures, and guidance that help ensure effective and 
efficient use of resources; compliance with laws and regulations; 
prevention and detection of fraud, waste, and abuse; and the 
reliability of financial reporting. According to the Office of 
Management and Budget (OMB) Circular No. A-133, nonfederal entities 
expending federal awards are required to maintain "internal control 
over federal programs that provides reasonable assurance that the 
auditee is managing federal awards in compliance with laws, 
regulations, and the provisions of contracts or grant agreements that 
could have a material effect on each of its federal programs." 
[Footnote 5] U.S. Department of Education (Education) regulations also 
require grantees and subgrantees (other than states) to maintain 
effective internal control over "all grant and subgrant cash, real and 
personal property, and other assets,"[Footnote 6] in addition to other 
controls.[Footnote 7] 

Education's regulations state that grantees and subgrantees will use 
their own procurement procedures that reflect applicable state and 
local laws and regulations, provided that the procurements conform to 
applicable federal law and the standards identified in 34 C.F.R. § 
80.36.[Footnote 8] In May 2009, according to state officials, North 
Carolina's Office of Economic Recovery & Investment (OERI) issued 
management directives regarding the use of Recovery Act funds for 
procurements of goods and services.[Footnote 9] According to state 
officials, OERI directives require recipients of Recovery Act funds to 
advertise contracts for $5,000 or more and obtain multiple bids or 
price quotes for Recovery Act procurements, among other things. 

In the course of our work, we observed that ACS has an internal 
control system in place for processing purchasing documents and 
payments of invoices. However, we found a weakness in the procurement 
processes related to the Recovery Act expenditures that we reviewed. 
Specifically, we found the following: 

* For its two largest Recovery Act purchases, ACS staff could not 
provide documentation to show that the district obtained multiple bids 
or price quotes for contracts for goods and services. ACS's two 
largest purchases with Recovery Act funds were for student assessment 
software and handheld computer devices entitled "Wireless Generation" 
that were purchased with ESEA Title I and IDEA Part B Recovery Act 
funds for $91,058.98 and a teacher planning software and professional 
development package entitled "Rubicon" for which the district used 
$13,680.00 of its ESEA Title I Recovery Act funds. Regarding both 
purchases, ACS officials acknowledged that their procurement processes 
were not in compliance with state management directives for Recovery 
Act funds or with ACS's purchasing policy, at the time, to solicit 
bids or obtain price quotes for purchases costing $10,000 or more. 
[Footnote 10] For these two contracts, ACS officials did not maintain 
documentation of multiple bids or price quotes for contracts purchased 
with Recovery Act funds.[Footnote 11] ACS officials provided what 
appeared to be two conflicting justifications for electing not to 
follow the above-referenced state management directives. Officials 
said that one reason they did not obtain multiple price bids or quotes 
was that they considered aspects of the contracts to be "purchased 
services" (i.e., software subscriptions), which are not required to be 
competed under the LEA's purchasing policy. However, ACS officials 
also said that the district did not obtain multiple price quotes for 
the equipment associated with the "Wireless Generation" purchase 
because they believed that only one vendor could provide the service 
and equipment. 

For your information, we have presented our preliminary findings to 
ACS. In response, district officials said that they have implemented 
additional controls to ensure additional supervisory approval of 
purchases, required additional documentation of purchase receipt, and 
held training sessions with school business staff regarding purchasing 

Federal regulations state that grantees are responsible for managing 
the operations of grant and subgrant supported activities and must 
monitor grant and subgrant supported activities to ensure compliance 
with applicable federal requirements and achievement of performance 
goals.[Footnote 12] Therefore, we are referring our findings to your 
agency for follow-up. We are also sending copies of this report to the 
Superintendent of Avery County Schools, the North Carolina Office of 
the State Auditor, the U.S. Department of Education, and the U.S. 
Department of Education's Office of the Inspector General. In 
addition, this report will be available at no charge on GAO's Web site 
at [hyperlink,]. We included the issues raised in 
this report, and any actions that DPI or ACS has taken to resolve 
them, in our report issued on May 26, 2010, and will follow up with 
you on the resolution of these issues. 

If you or your staff have any questions about this report, please 
contact me at (202) 512-8403 or Contact points for our 
Offices of Congressional Relations and Public Affairs may be found on 
the last page of this report. Key contributors to this report include 
Bryon Gordon, Assistant Director; Laura Acosta; Bonnie Derby; Brian 
Egger; Tahra Nichols; and Kathleen Peyman. 

Sincerely yours, 

Signed by: 

Cornelia M. Ashby:
Director, Education, Workforce, and Income Security Issues: 

[End of section] 


[1] Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009). 

[2] Recovery Act, div. A, title IX, § 901. 

[3] For GAO bimonthly reports providing a national overview and 
selected state reviews of Recovery Act spending, see [hyperlink,]. 

[4] We reviewed 13 of ACS's 15 expenditures of Recovery Act funds for 
equipment, services, and supplies. 

[5] OMB Circular No. A-133 §___.300(b). 34 C.F.R. § 80.26 requires 
Education's state and local government grantees and subgrantees to 
obtain audits in accordance with OMB Circular No. A-133. 

[6] 34 C.F.R. § 80.20(b)(3). 

[7] See e.g., 34 C.F.R. §§ 80.26 (audit) and 80.40 (monitoring). 

[8] 34 C.F.R. § 80.36(b)(1).  

[9] North Carolina Office of Economic Recovery & Investment Directives 
3 and 3(b) (May 2009 and January 2010), "Contract Provisions for the 
Procurement of Goods, Services, and Construction Projects Including 
Design Services and Internal Procurement Directives." 

[10] ACS officials reported to us that, at the time of our visit, the 
LEA policy to obtain quotes for purchases of $10,000 or more exceeded 
the state threshold. These officials later reported to us that as of 
April 2010, the school board modified the purchasing policy so that it 
is consistent with state purchasing requirements. 

[11] Since our initial visit, ACS officials reported to us that they 
require school officials to maintain documentation of having obtained 
multiple price quotes related to purchase requests. 

[12] 34 C.F.R. § 80.40(a). 

[End of section] 

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