[Audit Report on the Administration of Federal Grants, University of the Virgin Islands]
[From the U.S. Government Printing Office, www.gpo.gov]

Report No. 00-i-216

Title: Audit Report on the Administration of Federal Grants, University
       of the Virgin Islands

Date:  February 16, 2000 


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U.S. Department of the Interior
Office of Inspector General



AUDIT REPORT
ADMINISTRATION OF FEDERAL GRANTS,
UNIVERSITY OF THE VIRGIN ISLANDS


REPORT NO. 00-I-216

FEBRUARY 2000



EXECUTIVE SUMMARY

Audit Report - Administration of Federal Grants,
University of the Virgin Islands (No. 00-i-216)

BACKGROUND

The University of the Virgin Islands is an instrumentality of the
Government of the Virgin Islands that was created in March 1962
and offers 2-year associate degrees in arts and occupational
programs; 4-year liberal arts degrees; and masters degrees in
teacher education, business administration, and public
administration.  The University has approximately 3,000 full- and
part-time students on campuses located on St. Thomas and St.
Croix and is accredited by the Commission on Institutions of
Higher Education of the Middle States Association of Colleges and
Schools. The University receives substantial financial support
from the Government of the Virgin Islands.  The Legislature of
the Virgin Islands appropriated $21 million to the University in
fiscal year 1998 and $25 million in fiscal year 1999, primarily
for salaries and operating expenditures.  In addition, as of
March 31, 1999, the University had 76 open and active projects
funded through Federal grants, totaling about $10.9 million,
primarily from the U.S. Departments of the Interior, Education,
Agriculture, and Health and Human Services.

OBJECTIVE

The objective of the audit was to determine whether (1) the
University complied with grant terms and applicable laws and
regulations; (2) charges made against grant funds were
reasonable, allowable, and allocable pursuant to grant agreement
provisions; (3) funds received through electronic transfers were
appropriately deposited to and accounted for in the University's
financial management system; and (4) drawdowns were made in
accordance with the Cash Management Improvement Act of 1990.  The
scope of the audit included a review of grant transactions that
occurred during fiscal years 1998 and 1999 (through March 31) and
other periods as appropriate.

RESULTS IN BRIEF

We found that requests for reimbursement received through
electronic transfers were appropriately deposited to and
accounted for in the University's financial management system.
However, the University did not effectively administer all of its
Federal grant programs.  Specifically, the University did not
always ensure that (1) pertinent grant award documents were
readily accessible; (2) financial status reports, particularly
final reports, were filed timely; (3) requests for reimbursement
were  prepared correctly and reimbursements were received timely;
(4) amounts requested in excess of immediate cash needs were
returned to the grantor agency; and (5) costs claimed against
grant funds were reviewed to ensure that costs were reasonable,
allowable, and allocable in accordance with contract and grant
provisions.  This occurred because personnel responsible for the
University's grants accounting function had disproportionate work
loads and did not receive appropriate training on the standards
for administration of grants or adequate supervision from the
accounting supervisor or the Controller on these duties.  As a
result, the University did not timely request reimbursements
totaling approximately $2.3 million for expenditures incurred
against grants from the U.S. Department of the Interior
($488,000), the U.S. Department of Agriculture ($1.265 million),
and the U.S. Department of Health and Human Services ($546,000).
Of that amount, $1.746 million was eventually reimbursed to the
University and $553,000 remained outstanding.  We also found that
the University requested about $1.6 million in excess of its
immediate cash needs and therefore incurred an interest liability
(to the Federal Government) of about $16,000 for U.S. Department
of Education grants.  In addition, we took exception to costs of
$53,000 related to U.S. Department of the Interior grants, and
the Virgin Islands Office of Management and Budget disallowed
claimed costs of an additional $46,000 against the same
Department of the Interior grants.

RECOMMENDATIONS

We made 11 recommendations to the President of the University to
address the deficiencies noted. These recommendations included
steps to improve the recordkeeping and the reimbursement process
related to grant awards and to provide adequate grants management
training to employees.  

AUDITEE COMMENTS AND OIG EVALUATION

The University's Vice-President for Administration and Finance,
in response to the draft report, generally concurred with the
recommendations and indicated that corrective actions had been or
would be taken.  Based on that response, we considered nine
recommendations resolved and implemented and requested additional
information for two recommendations.



AUDIT REPORT

Memorandum

     To:  President, University of the Virgin Islands

   From:  Earl Devaney
          Inspector General

Subject:  Audit Report on the Administration of Federal Grants,
          University of the Virgin Islands (No. 00-i-216)


CONTENTS
                                                  Page

EXECUTIVE SUMMARY.................................  1  

INTRODUCTION....................................... 5  

  BACKGROUND....................................... 5  
  OBJECTIVE AND SCOPE.............................. 5  
  PRIOR AUDIT COVERAGE............................. 6  

FINDINGS AND RECOMMENDATIONS....................... 8  

  A. GRANT ADMINISTRATION.......................... 8  
  B. FINANCIAL ACCOUNTABILITY......................16  

APPENDICES

  1. CLASSIFICATION OF MONETARY AMOUNTS............23  
  2. UNIVERSITY OF THE VIRGIN ISLANDS RESPONSE.....24  
  3. STATUS OF AUDIT REPORT RECOMMENDATIONS........29  





                                                V-IN-VIS-007-99-M
INTRODUCTION

BACKGROUND

The University of the Virgin Islands is an instrumentality of the
Government of the Virgin Islands that was created in March 1962
by Act No. 852 as an institution of higher education.  The
University offers 2-year associate degrees in arts and
occupational programs; 4-year liberal arts degrees; and masters
degrees in teacher education, business administration, and public
administration.  The University has approximately 3,000 full- and
part-time students on campuses located on St. Thomas and St.
Croix and is accredited by the Commission on Institutions of
Higher Education of the Middle States Association of Colleges and
Schools. 

General management and control of the affairs of the University
are vested in a 17-member Board of Trustees, which, according to
the Virgin Islands Code (17 V.I.C. *456), is responsible for (1)
determining the courses of study to be offered, (2) granting
academic degrees and honors, (3) granting sabbatical and other
kinds of leave, and (4) establishing standards for scholarships
to needy and worthy students.  The President of the University
serves as the University's Chief Executive Officer.

With respect to Federal grants and contracts, the Vice President
of Business and Financial Affairs directs the activities of the
Controller's Office, which is primarily responsible for the
financial operations of the University.  The staff of the
Controller's Office consists of the Controller, the Assistant
Controller, an accounting supervisor, a grant accountant, and 10
other accounting and administrative personnel.

The University receives substantial financial support from the
Government of the Virgin Islands.  Based on information contained
in the Government's executive budgets, we found that the
Legislature of the Virgin Islands appropriated $21 million to the
University in fiscal year 1998 and $25 million in fiscal year
1999, primarily for salaries and operating expenditures.  In
addition, as of March 31, 1999, the University had 76 open and
active projects funded through Federal grants, totaling about
$10.9 million, primarily from the U.S. Departments of the
Interior, Education, Agriculture, and Health and Human Services.

OBJECTIVE AND SCOPE

The objective of the audit was to determine whether (1) the
University complied with grant terms and applicable laws and
regulations; (2) charges made against grant funds were
reasonable, allowable, and allocable pursuant to grant agreement
provisions; (3) funds received through electronic transfers were
appropriately deposited to and accounted for in the University's
financial management system; and (4) drawdowns were made in
accordance with the Cash Management Improvement Act of 1990.  The
scope of the audit included a review of grant transactions that
occurred during fiscal years 1998 and 1999 (through March 31) and
other periods as appropriate.

To accomplish our audit objective, we compiled a list of the 76
open and active projects that were funded through Federal grants.
We reviewed the summaries of expenditures, as detailed in the
University's financial management system, that were claimed
against the Federal grants; the requests for electronic fund
transfer reimbursements that were processed through the
University's restricted bank account; and the Financial Status
Reports (SF-269) that were submitted to the Federal grantor
agencies.  The audit was conducted from May through August 1999
at the University's Office of Business and Financial Affairs.

The scope of our review was limited because business office
personnel were unable to provide us with lists of the specific
expenditures associated with each drawdown for grants from the
U.S. Departments of Education, Agriculture, and Health and Human
Services.  As a result, we were not able to review specific
charges made against these grants to determine whether the
charges were reasonable, allowable, and allocable pursuant to the
grant agreement provisions.  In addition, because the University
operated on a cost-reimbursable basis, the provisions of the Cash
Management Improvement Act to minimize the time elapsing between
transferring funds from the U.S. Treasury and paying out those
funds by the University for program purposes were not applicable
except as discussed in Finding B.

Our review was made, as applicable, in accordance with the
"Government Auditing Standards," issued by the Comptroller
General of the United States.  Accordingly, we included such
tests of records and other auditing procedures that were
considered necessary under the circumstances.

Our review included an evaluation of internal controls to the
extent we considered necessary to accomplish the audit objective.
The internal control weaknesses identified were related to the
establishment of an effective grants management system within the
University to monitor the financial and compliance aspects of the
Federal grants.  The control weaknesses are discussed in the
Findings and Recommendations section of this report.  The
recommendations, if implemented, should improve the internal
controls in this area.

PRIOR AUDIT COVERAGE

During the past 5 years, neither the General Accounting Office
nor the Office of Inspector General has issued any audit reports
on the University's management of Federal grants.  However,
related audit reports were issued as follows:

-  In December 1996, an independent accounting firm issued the
single audit report on the University for the fiscal year ended
September 30, 1996.  The report stated that the financial
statements presented fairly, in all material respects, the
financial position of the University as of September 30, 1996.
Regarding the University's major Federal grant programs, the
report stated that the University complied, in all respects, with
the specific requirements applicable to major Federal grant
programs.  However, the report presented immaterial instances of
noncompliance with the requirements contained in Office of
Management and Budget Circular A-133, "Audits of States, Local
Governments, and Non-Profit Organizations," and the Compliance
Supplement for Audits of Institutions of Higher Learning and
Other Non-Profit Institutions.  Among the conditions  contained
in the report were the following: (1) Federal financial reports
were submitted late for some grants and were not submitted for
others, (2) computer equipment valued at more than $25,000 was
purchased on a sole-source basis without prior approval of the
grantor agency, and (3) expenditures as shown in the University's
project activity reports did not match the expenditures shown in
the Federal financial reports.

- In March 1996, the Office of Inspector General issued the
survey report "Accounting Controls for Disaster Assistance Funds,
University of the Virgin Islands" (No. 96-E-468).  The report
stated that the University had implemented a system of accounting
procedures and controls to ensure that disaster assistance funds
were safeguarded and accounted for in accordance with Federal
Emergency Management Agency requirements and other applicable
laws and regulations.

FINDINGS AND RECOMMENDATIONS

A.  GRANT ADMINISTRATION

The University of the Virgin Islands did not effectively
administer all Federal grants awarded by the U.S. Departments of
the Interior, Education, Agriculture, and Health and Human
Services.  Specifically, (1) pertinent grant award documents were
not always readily accessible; (2) financial status reports,
particularly final reports, were not always filed timely; and (3)
followup actions were not always taken to ensure that
reimbursements were received timely.  U.S. Office of Management
and Budget Circular A-110,[1] "Uniform Administrative
Requirements for Grants and Agreements With Institutions of
Higher Education, Hospitals and Other Non-Profit Organizations,"
provides standards for the administration of grants to and
agreements with institutions of higher education.  However,
deficiencies occurred because personnel responsible for the
University's grants accounting function had disproportionate work
loads and did not receive appropriate training or adequate
supervision from the accounting supervisor or the controller on
these duties.  As a result, the University (1) did not have an
accurate, current, and complete list of Federal grant awards; (2)
had not filed final financial status reports for at least 50
closed projects, awarded primarily by the U.S. Department of
Agriculture; and (3) had not been reimbursed for about $488,000
from the U.S. Department of the Interior for grant-related
expenditures and for about $65,000 improperly charged to inactive
U.S. Department of Agriculture grants. The amounts not reimbursed
were absorbed by the University's operating account.   (The
monetary impact of the $488,000 and the $65,000 is in 
Appendix 1.)

Grant Documents

The University did not always comply with the provisions of
Circular A-110 regarding grant documentation.  Subpart C, Section
.21(2), "Standards for Financial Management Systems," of Circular
A-110 states that a recipient's financial management system must
provide for the following: "Records that identify adequately the
source and application of funds for federally-sponsored
activities.  These records shall contain information pertaining
to Federal awards, authorizations, obligations, unobligated
balances, assets, outlays, income and interest."  Subpart C,
Section .53(b), "Retention and Access Requirements for Records,"
of the Circular states, "Financial records, supporting documents,
statistical records, and all other records pertinent to an award
shall be retained for a period of three years from the date of
submission of the final expenditure report."  Further, Subpart C,
Section .53(e), of the Circular states, "The Federal awarding
agency, the Inspector General, Comptroller General of the United
States, or any of their duly authorized representatives, have the
right of timely and unrestricted access to any books, documents,
papers, or other records of recipients that are pertinent to the
awards, in order to make audits, examinations, excerpts,
transcripts and copies of such documents."

Grant Files.  We found that files for grants awarded by the U.S.
Departments of the Interior, Education, Agriculture, and Health
and Human Services were not accurate, current, or complete.
Specifically, for the files reviewed, we found that the following
documents were not always included: (1) the notification of grant
award, (2) approved project budgets, (3) liquidation records to
summarize the costs claimed against the grant, (4) source
documents to support all expenditures claimed against the grant,
(5) documentation to support requests for reimbursement, and (6)
correspondence to corroborate all activities associated with the
grants.  The incomplete documentation occurred primarily because
the University adopted the policy of placing into storage all
documents older than 3 years.  This policy was not amended to
consider the retention requirement contained in Circular A-110,
which is 3 years from the submission of the final expenditure
report.  In addition, we found, primarily for grants awarded by
the U.S. Departments of Education, Agriculture, and Health and
Human Services, that the University did not place hard copies of
expenditure documents in the grant files but instead maintained
separate accounts payable files arranged by vendor.  Moreover,
when requests for reimbursement were made, the expenditures
associated with each request were not documented to allow
verification to the source documents.  Accordingly, while the
University's financial management system maintained a summary of
the expenditures associated with each grant award, the
expenditure information was not documented in the grant files and
could not be associated with specific requests for reimbursement.

Grant Listing.  In May 1999, at the start of our audit, we
requested a list of all open and active Federal grants awarded to
the University.  Business office officials provided us with three
different lists of grant awards, with the final list  provided on
June 15, 1999.  That final list contained 160 projects funded
through Federal grants.[2]  Of that amount, we excluded 11
projects from our review because they were either memoranda of
agreement, grants awarded for Federal Emergency Management Agency
disaster assistance, or University revenue accounts.  Our
analysis of the remaining 149 projects showed that 50 projects
were classified as closed by the University but that final
financial status reports had not been filed with the grantor
agencies, 23 projects required followup actions because the grant
periods had expired, and only 76 projects appeared to be active. 

We believe that the University should (1) maintain all essential
grant-related documents in its business office until 3 years
after the final financial status report has been submitted by the
University and approved by the grantor agency; (2) place summary
expenditure information in the corresponding grant file when a
request for reimbursement is approved; and (3) maintain an
accurate, current, and complete list of its Federal grants.

Financial Status Reports

The University did not always comply with the requirements in
Subpart C, Section .51(b), "Monitoring and Reporting Program
Performance," of Circular A-110, which states that financial
status reports are to be submitted no later than 30 calendar days
after the end of each reporting period for quarterly and
semiannual reports and within 90 calendar days after the end of
each reporting period for annual and final reports.  

Quarterly, Semiannual, and Annual Reports.  Regarding U.S.
Department of the Interior grants, we found that quarterly
financial status reports were generally filed timely for 12 of
the 17 grants that were included in the University's June 15,
1999, list of Federal grants.  However, there was no evidence
that quarterly financial status reports had been filed for the
other five grants.

Financial status reports were not required for U.S. Department of
Education grants.  The Financial Reports section of the grant
award's "Special Grant Terms and Conditions for Financial and
Performance Reports" stated, "Unless the item below is checked a
Financial Status Report (SF-269) is not required for this grant."
The item requiring a financial status report was not checked.
As such, financial status reports did not have to be filed.

Regarding U.S. Department of Agriculture grants, we found that 22
financial status reports were submitted late for the period
ending September 30, 1997.  These reports were submitted in
either December 1997 or April 1998, or as many as 4 months after
the reporting deadline (January 1, 1998).  However, the
University's June 15, 1999, list of Federal grants contained 40
open and active U.S. Department of Agriculture projects.
Therefore, financial status reports may not have been filed for
as many as 18 other projects for the period ended September 30,
1997.  Moreover, there was no documentation to support that
financial status reports had been submitted for fiscal years 1998
or 1999.

Regarding U.S. Department of Health and Human Services grants, we
found that eight financial status reports were submitted for
various reporting periods during fiscal year 1998.  Of these
eight reports, one was submitted timely and seven were submitted
from 4 months to 1 year after the reporting deadline.
Additionally, there was no documentation to support  that
financial status reports had been submitted for fiscal year 1999.

Final Financial Status Reports.  The University had not filed
final financial status reports for 12 U.S. Department of
Education projects, 20 U.S. Department of Agriculture projects,
10 U.S. Department of Health and Human Services projects, and 8
U.S. Geological Survey (U.S. Department of the Interior) projects
included in the University's June 15, 1999, list of Federal
grants.  Based on information provided by the University, we
determined that these grants ended during calendar years 1995,
1996, and 1997.  Business office officials said that final
financial status reports needed to be filed for these 50
projects.

Federal Cash Transactions Reports.  Each quarter, the U.S.
Department of Agriculture sent the University a Federal cash
transactions report (SF-272).  The report contained columns for
grant award amount, cumulative net disbursements through the
prior quarter, cumulative net disbursements through the current
quarter, and Federal grant number.  The University was required
to fill in the column for the cumulative net disbursements for
the current quarter and return the report to the U.S. Department
of Agriculture.  The report for the quarter ended March 31, 1999,
contained 54 grants.  However, according to program
representatives at the University's Agricultural Experiment
Station, 37 of the 54 grants were considered inactive and closed.
These grants were awarded to the University between fiscal years
1983 and 1996 but continued to be included on each Federal cash
transactions report because the University had not filed final
financial status reports for any of the 37 grants.  Of the 37
inactive grants, 17 had unexpended balances, totaling about
$282,000 (the monetary impact of this amount is in Appendix 1).

We further found that about 20 inactive U.S. Department of
Agriculture grants were included in the University's financial
management system as active grants.  Business office officials
told us that in order to "deactivate" these grants, a manual
change needed to be made to the grant account but that this
manual change had not been accomplished.  During fiscal years
1998 and 1999, the University charged expenditures totaling about
$65,000 to closed grants.  These amounts were paid from the
University's operating account and were not requested for
reimbursement through the U.S. Department of Agriculture.
Accordingly, these amounts were absorbed by the University's
operating account.

We believe that the University should (1) establish a schedule as
to when financial status reports are required to be filed so that
University grants accountants and supervisory personnel are aware
of the filing dates, (2) file final financial status reports for
its inactive grants, and (3) deactivate the related inactive
grant accounts in its financial management system.

Requests for Reimbursement

During the period of June 1991 to June 1996, the University
received eight grants, totaling $551,340, from the U.S.
Department of the Interior.   Two of the eight grants had local
matching requirements totaling $198,000 that were funded by the
Government of the Virgin Islands, and one of the eight grants had
a local matching requirement totaling $4,620 that was funded by
the University.  Therefore, the total funded amount for these
eight grants was $753,960.  Seven of the eight grants were
subawarded through the Government of the Virgin Islands, and one
grant was awarded directly by the U.S. Department of the
Interior.  For the grants subawarded through the Government of
the Virgin Islands, the University was required to submit
requests for reimbursement through the Virgin Islands Office of
Management and Budget for review and approval.  The Virgin
Islands Office of Management and Budget forwarded the requests
for reimbursement to the Department of the Interior.  

We found that because of a lack of monitoring and followup
actions associated with these grants, the University was not
reimbursed as much as $488,000 of the total grant amount.  This
occurred because the University (1) did not timely submit proper
financial status reports and requests for reimbursement to the
Virgin Islands Office of Management and Budget in order for that
office to forward the information to the U.S. Department of the
Interior for approval and processing of the reimbursement
payments, (2) did not resubmit information regarding expenditure
claims to the Office of Management and Budget after that office
classified the claims as incorrect, and (3) made expenditure
claims against grants that had been terminated by the U.S.
Department of the Interior.  In addition, we found that the
Government's local share was not paid by the Department of
Finance and that amounts approved for reimbursement by the U.S.
Department of the Interior and sent to the Government of the
Virgin Islands were not forwarded to the University.  Examples of
the lack of monitoring and of followup actions are as follows:

- In December 1992, a Federal grant was awarded for $156,500 with
a local matching requirement of $128,500.  Regarding the Federal
share, U.S. Department of the Interior officials terminated the
grant in April 1998 and deobligated the $156,500 because no
requests for reimbursement were received.  Regarding the local
share, Virgin Islands Office of Management and Budget officials
told us that although these funds may have been budgeted by the
Government of the Virgin Islands, no appropriations were made to
satisfy the funding source.  Therefore, the University was not
reimbursed for expenditures claimed against either the Federal or
local shares.  Based on information compiled by the University,
we noted that expenditures against this grant totaled $129,596,
of which $71,278 was classified as Federal funds and $58,318 was
classified as local funds.  We concluded that the University
spent $129,596 of its own funds because financial status reports
and requests for reimbursement were not properly prepared or
timely submitted to the Virgin Islands Office of Management and
Budget and because the Government of the Virgin Islands did not
appropriate funds to provide the local matching share.

- In November 1993, a Federal grant was awarded for $8,000, with
a local matching requirement of $4,620.  The grant provided for a
training program during the period of November to December 1993.
Through September 1994, the University incurred expenditures
totaling $6,141 against the Federal share.  This amount was
reimbursed to the University by a Miscellaneous Disbursement
Voucher from the Department of Finance in March 1997.  During the
period of April 1 to June 30, 1995, the University incurred
expenditures totaling $4,235 against the local share.  In
February 1996, the U.S. Department of the Interior deobligated
the unused Federal fund balance of $1,859 ($8,000 minus $6,141).
However, in September 1998, the University charged expenditures
totaling $2,349 against the Federal share, an amount that was in
excess of the available grant balance and that was incurred after
both the grant had been terminated and the funds had been
deobligated.  Therefore, these costs were not reimbursed to the
University.

We believe that the University should (1) review its accounts
receivable balances for U.S. Department of the Interior grants in
order to determine the amounts approved for reimbursement by the
grantor agency and (2) determine the amounts reimbursed by the
U.S. Department of the Interior by contacting the Department's
Office of Insular Affairs in Washington, D.C.  In addition, the
University should determine the reimbursement amounts sent to the
Government of the Virgin Islands by the grantor agency but not
forwarded to the University and make appropriate requests for
reimbursement of these amounts through the Department of Finance.

Administrative Issues

With respect to Federal grants and contracts, the University's
business office staff consisted of an accounting supervisor, a
grant accountant, and two accounting assistants.  These employees
were responsible primarily for establishing the Federal budgets
on the University's financial management system when grant
agreements were executed; posting grant expenditure information
to the appropriate grant accounts; filing pertinent grant-related
documents into project or agency folders; and preparing financial
status reports, requests for reimbursement, and other reports as
appropriate.  However, we found that the grant accountant was
assigned a disproportionate share of the work load.
Specifically, this individual was responsible for all of the
Federal grants awarded by the U.S. Departments of  Education,
Agriculture, and Health and Human Services (about 65 active
projects).  In contrast, one of the accounting assistants was
responsible for the U.S. Department of the Interior grants (about
six active projects), and the other accounting assistant was
primarily responsible for clerical functions such as checking the
financial management system for fund availability prior to
approving grant-related expenditures for payment.

We also found that the accounting supervisor assumed this
position in November 1998; the grant accountant assumed this
position in July 1998; and the accounting assistants assumed
their positions in calendar years 1997 and 1999, respectively.
However, only the grant accountant and one accounting assistant
received any type of formal training.  Moreover, we found that
neither the grant accountant nor the two accounting assistants
were provided the University's Policies and Procedures Manual for
Financial Management, which was prepared in October 1992, and the
employees said that they were not aware that there was a manual.
The Manual has a section on grants and contracts administration,
and the Manual's Introduction section states:

The Policies and Procedures Manual (the Manual) has been
developed to document the practices of [the] University of the
Virgin Islands Controller's Office and Purchasing and Receiving
Department.  The Manual provides staff and other interested
parties with detailed information regarding the defined policies,
established procedures, and related forms required for accounting
and financial processing and reporting.  In addition, the Manual
serves as a training tool for new personnel and as an
instructional tool for current employees performing new tasks.

We believe that the University's Controller should reassess the
staffing and work load assignments of the grants and contracts
personnel to more proportionately distribute the work load.  In
addition, we believe that the grants and contracts personnel
should be provided basic grants management training to assist
them in their day-to-day administrative duties and that the
University's Policies and Procedures Manual should be made
available to all employees of the Controller's office.

Recommendations

We recommend that the President of the University require the
Vice President of Business and Financial Affairs to: 

1. Establish and maintain, in accordance with Office of
Management and Budget Circular A-110, grant program files for
each Federal grant award received.  At a minimum, the grant files
should contain documentation of grant awards and authorizations,
obligations, outlays or expenditures, unobligated balances,
income, assets, and liabilities.  In addition, expenditure
documents, in summary format from the University's financial
management system, should be attached to each request for
reimbursement to establish a documented record of the
expenditures associated with each request for reimbursement.

2. Establish and maintain an accurate, current, and complete list
of open and active Federal grant awards.  At a minimum, the list
should contain the University's fund number and program code; the
Catalog of Federal Domestic Assistance number; the grant award
number, name, effective period, and amount; and the grantor
agency's name.

3. Prepare a schedule of required financial status reports for
each Federal grant that indicates whether reports are required to
be filed quarterly, semiannually, or annually and periodically
review the schedule to ensure that the requisite reports are
filed timely.

4. Review the Federal grants list prepared as of June 15, 1999,
and the U.S. Department of Agriculture's Federal cash
transactions report and identify all grants that the University
has classified as inactive.  In addition, final financial status
reports should be prepared and submitted for all of the inactive
grants, and the related fund numbers in the University's
financial management system should be deactivated so that further
expenditures cannot be charged to these grants.

5. Review accounts receivable balances for all U.S. Department of
the Interior grants, determine the amounts reimbursed by the U.S.
Department of the Interior by contacting the Department's Office
of Insular Affairs, determine the amounts sent to the Government
of the Virgin Islands by the grantor agency but not forwarded to
the University, and request payment from the Virgin Islands
Department of Finance for reimbursed amounts not forwarded to the
University.

6. Provide the employees who process grant- and contract-related
transactions with basic grant management training and make the
University's Policies and Procedures Manual for Financial
Management available to all employees of the Controller's office.

7. Reassess the work load assignments of the three employees who
process grant and contract-related transactions to more
proportionately distribute the work load or consider reallocating
other Controller's office employees to assist in processing
grant- and contract-related transactions.


University of the Virgin Islands Response and Office of Inspector
General Reply

The January 12, 2000, response to the draft report (Appendix 2)
from the University's Vice-President for Administration and
Finance generally concurred with the recommendations and
indicated that corrective actions had been or were being taken.
Based on the response, we consider Recommendations1 through 7
resolved and implemented (see Appendix 3).

**FOOTNOTES**

[1]:Regulations outlined in U.S. Office of Management and Budget
Circular A-110 are reiterated in the Code of Federal Regulations
under the titles pertaining to each grantor agency in the
sections entitled "Uniform Administrative Requirements for Grants
and Agreements With Institutions of Higher Education, Hospitals,
and Other Non-Profit Organizations."  The applicable section of
the Code for U.S. Department of the Interior grants is Title 43,
Subtitle A, Part 12, Subpart F; for U.S. Department of Education
grants, Title 34, Subtitle A, Part 80; for U.S. Department of
Agriculture grants, Title 7, Chapter XXX, Part 3016; and for U.S.
Department of Health and Human Services grants, Title 45,
Subtitle A, Part 74. 

[2]: The University established a unique number for each project
funded through a Federal grant.  We found that a single Federal
grant could have a series of related fund numbers (or projects).
However, the University was unable to provide us with the exact
number of Federal grants associated with the fund numbers.  In
addition, we were unable to corroborate this information during
our audit review.  Accordingly, for reporting purposes, we have
referred to University fund numbers as "projects."

B.  FINANCIAL ACCOUNTABILITY

Although we found that requests for reimbursement received
through electronic transfers were appropriately deposited to and
accounted for in the University's financial management system, we
found that the University of the Virgin Islands did not always
provided adequate financial accountability over Federal grants.
Specifically, the University (1) did not return amounts requested
in excess of immediate cash needs to the grantor; (2) did not
always correctly prepare requests for reimbursement; and (3) did
not always ensure that costs claimed against grant funds were
reasonable, allowable, and allocable in accordance with contract
and grant provisions.  U.S. Office of Management and Budget
Circular A-110 provides the standards for the administration of
grants, Circular A-21 provides the cost principles for grants,
and the Code of Federal Regulations provides requirements for
implementation of the Cash Management Improvement Act.  However,
the University's grant accountants did not comply with these
standards because they had not received grant-related training or
had not been adequately supervised.  As a result, the University
requested about $1.6 million in excess of its immediate cash
needs and incurred an interest liability of about $16,000 (to the
Federal Government) for U.S. Department of Education grants.  The
University also did not request reimbursements totaling about
$900,000 in fiscal year 1998 and $300,000 in fiscal year 1999 for
expenditures incurred against U.S. Department of Agriculture
grants and about $392,000 in fiscal year 1998 and $154,000 in
fiscal year 1999 for expenditures incurred against U.S.
Department of Health and Human Services grants.  In addition, we
took exception to costs of  $53,000 related to U.S. Department of
the Interior grants, and the Virgin Islands Office of Management
and Budget disallowed additional claimed costs of $46,000 against
the same Department of the Interior grants.   (The monetary
impact of the $16,000, the $2.1 million, the $546,000, and the
$99,000 is in Appendix 1.)

U.S. Department of Education Grants

At the beginning of fiscal year 1998, the University had a
carry-forward amount of about $900,000 that was due from the U.S.
Department of Education as reimbursement for grant-related costs
that were incurred during fiscal year 1997.  During fiscal year
1998, expenditures incurred against Department of Education
grants totaled about $3.3 million.  Accordingly, grant
expenditures requiring reimbursement during fiscal year 1998
totaled about $4.2 million ($900,000 plus $3.3 million).
However, requests for reimbursement during fiscal year 1998
totaled $5.8 million, or about $1.6 million in excess of the cash
needed for Department of Education grant purposes.  This excess
reimbursement occurred because, in December 1998, the
University's grant accountant made a request for reimbursement
totaling $3.3 million from the Department of Education to cover
expenditures for the period of May 1 to September 30, 1998.
However, the grant accountant told us that she inadvertently
included expenditures of $1.6 million that had been reimbursed
for the period of October 1, 1997, to April 30, 1998.

Business office officials told us that after the $3.3 million
reimbursement was received in December 1998, they became aware of
the $1.6 million overdraw.  The officials further told us that
instead of returning the funds to the Department of Education,
the University deposited the funds into its restricted savings
account (an interest-bearing account) until sufficient
expenditures were incurred to cover the $1.6 million excess
drawdown amount.  We found that the University incurred
expenditures of about $1.6 million during the period of October
1, 1998, through April 30, 1999.  Therefore, the University held
Department of Education funds in its interest-bearing savings
account for up to 5 months during the period of December 1998 to
April 1999.

The Department of Education's Grant Administration and Payment
System provides financial management support services to grantees
such as the University.  Regarding payment adjustments, the
System provides that once a bank account contains an overdrawn
amount, the grantee may "spend the overdrawn amount on another
grant as long as it can be done within three business days of
receipt of the overdrawn payment and as long as another grant has
sufficient funds from which to draw."  Further, the System
provides that if the money cannot be spent on another award, the
grantee should return the excess cash amount to the Department of
Education by check or by the transfer of electronic funds.
Further, the System requires the grantee to specify the grant
award to which the refund is to be applied.

In addition, Subpart C, Section .22(a), of Circular A-110
requires that payment methods minimize the amount of time
elapsing between the transfer of funds from the U.S. Treasury and
the payout of those funds by the recipients.  Section .22(a)
states, "Payment methods of State agencies or instrumentalities
shall be consistent with Treasury-State [Cash Management
Improvement Act] agreements or default procedures codified at 31
[Code of Federal Regulations] part 205."  The Code (31 CFR
205.12) states, "A State will incur an interest liability to the
Federal Government if Federal funds are in a State account prior
to the day the State pays out funds for program purposes."
Accordingly, we conservatively estimated that the University
earned about $16,000 in interest during the 5-month period during
which the $1.6 million remained in the University's bank account.
To compute the interest liability, we applied a 2.5 percent
annual interest rate (the interest rate used by the University's
bank) to the $1.6 million for a 5-month period.

U.S. Department of Agriculture Grants

At the beginning of fiscal year 1998, the University had a
carry-forward amount of $385,000 that was due from the U.S.
Department of Agriculture as reimbursement for grant-related
costs during fiscal year 1997.  During fiscal year 1998,
expenditures incurred against Department of Agriculture grants
totaled about $3 million.  Of that amount, $835,000 was
transferred for payment to the University's operating account in
order to meet the local match share.  Accordingly, expenditures
requiring reimbursement during fiscal year 1998 totaled about
$2.5 million ($385,000 plus $3 million minus $835,000).  However,
requests for reimbursement during fiscal year 1998 totaled only
$1.6 million, or about $900,000 less than the University needed
for grant purposes.

Similarly, at the beginning of fiscal year 1999, the University
had a carry-forward amount of $900,000 that was due from the
Department of Agriculture as reimbursement for grant-related
costs during fiscal year 1998.  During the period of October 1,
1998, to March 31, 1999 (the first 6 months of fiscal year 1999),
the University incurred expenditures against Department of
Agriculture grants totaling about $1.2 million.  Of that amount,
about $400,000 was transferred for payment to the University's
operating account to meet the local match share.  Accordingly,
expenditures requiring reimbursement during the first 6 months of
fiscal year 1999 totaled $1.7 million ($900,000 plus $1.2 million
minus $400,000).  However, requests for reimbursement during the
first 6 months of fiscal year 1999 totaled only $1.4 million, or
about $300,000 less than the University needed for grant
purposes.

Our analysis of the reimbursement process showed that the
University did not monitor the expenditures claimed against
Department of Agriculture grants in order to request the proper
amounts for reimbursement in a timely manner.  Business office
officials told us that they generally made requests for
reimbursement every quarter to cover the expenditures incurred
during the quarter, but the records of drawdowns did not
corroborate this statement.  For example, during the period of
August through November 1998 (a period of 4 months), there were
no requests for reimbursement.

The grant accountant also showed us in-house spreadsheets that
she used to compute amounts due for reimbursement.  However, our
analysis of these spreadsheets showed that the  amounts requested
for reimbursement did not equal the sum of the carry-forward
amount for the prior period plus the amount of the current period
expenditures, which left a continuous accounts receivable balance
due for reimbursement.  For example, in December 1997, the
University requested a reimbursement amount of $150,000.
However, the in-house spreadsheet showed a carry-forward amount
of $141,000 and a current expenditure amount of $122,000, for a
total of $263,000, that should have been requested for
reimbursement.  By requesting only $150,000, an account
receivable of $113,000 remained.  Business office officials
stated that this account receivable balance resulted from
insufficient grant funds being available for reimbursement at the
time of a request for reimbursement, but the quarterly program
statements prepared by the grantor agency did not support this
statement.  For example, the quarterly program statements for the
quarter ending December 31, 1997, showed that grants had all
undrawn authorizations available for expenditures.

U.S. Department of Health and Human Services Grants

At the beginning of fiscal year 1998, the University had a
carry-forward amount of $161,000 that was due from the U.S.
Department of Health and Human Services as reimbursement for
grant-related costs during fiscal year 1997.  During fiscal year
1998, expenditures incurred against Department of Health and
Human Services grants totaled $782,000, and there was a minor
adjustment of an additional $1,000.  Accordingly, expenditures
requiring reimbursement during fiscal year 1998 totaled $944,000
($161,000 plus $782,000 plus $1,000).  However, requests for
reimbursement during fiscal year 1998 totaled only $552,000, or
$392,000 less than the University needed for grant purposes.

Similarly, at the beginning of fiscal year 1999, the University
had a carry-forward amount of $392,000 that was due from the
Department of Health and Human Services for grant-related costs
during fiscal year 1998.  During the period of October 1, 1998,
to February 28, 1999 (the first 5 months of fiscal year 1999),
the University incurred expenditures against Department of
Agriculture grants totaling $271,000.  Accordingly, expenditures
requiring reimbursement for the first 5 months of fiscal year
1999 totaled $663,000 ($392,000 plus $271,000).  However,
requests for reimbursement during the first 6 months of fiscal
year 1999 totaled only $509,000, or $154,000 less than the
University needed for grant purposes.

The University operated its grant programs on a cost-reimbursable
basis whereby it paid grant-related expenditures from its
operating account and then was reimbursed for those expenditures.
We therefore believe that the lack of timely and proper requests
for reimbursement to the University's operating account adversely
impacted the University's day-to-day operations and its ability
to maximize its operations-related cash flow.  We believe that
the University should reassess its methodology for preparing and
processing requests for reimbursement so as to make more timely
requests for reimbursement in amounts commensurate with the value
of grant expenditures incurred by the University.

U.S. Department of the Interior Grants

During fiscal year 1998 and the first 6 months of fiscal year
1999 (October 1998 through March 1999), the University received
17 reimbursements, totaling $1.6 million, from 11 grants funded
by the Department of the Interior.  Of the 17 reimbursements, we
reviewed 8 reimbursements, totaling $1 million, to determine
whether costs charged against the grants were reasonable,
allowable, and allocable in accordance with grant provisions.  We
took exception to costs of about $53,000 that were related
primarily to the University's new sports and fitness center.  In
addition, prior to our review, the Virgin Islands Office of
Management and Budget disallowed additional claimed costs of
$46,000 associated with the University's new sports and fitness
center before transmitting the University's requests for
reimbursement to the Department of the Interior for approval and
payment.

Office of Inspector General Review.  We took exception to costs
of $52,807 as follows:

- During the period of April 17 to August 12, 1996, an
architectural firm submitted four invoices, totaling $25,696, for
services associated with the proposed construction of a new
sports and fitness center at a site adjacent to the University's
Reichold Center for the Arts.  The University's Director of Plant
Facilities told us that the proposed site was on wetlands and
would have required significant preconstruction costs to make the
area suitable for the proposed center.  In addition, the Director
of Plant Facilities stated that the gymnasium proposed for this
site would have been no larger than a high school gymnasium.
According to the Director of Plant Facilities, the intent of the
center was to provide a facility suitable for the University to
compete in sports at the collegiate level.  Therefore, the site
and the plans were determined to be inadequate by University
officials, and an alternate site was selected and the plans were
developed by a different architect.  Accordingly, we took
exception to the $25,696 associated with the original
architectural plans that were not used by the University.
Additionally, we noted that the University paid the four invoices
during the period of May to September 1996 but was not reimbursed
by the Department of the Interior until February 18, 1999, or an
average of 32 months after the invoices were paid from the
University's operating account.

- On May 30, 1997, an engineering firm submitted an invoice
totaling $17,356 for soil investigation at the University's new
center.  Of that amount, $2,000 was arbitrarily applied by the
engineering firm to the costs related to the University's new
music suite.  However, because the invoice did not indicate that
any work was actually conducted at the music suite, we took
exception to the $2,000.  The University paid the invoice on June
24, 1997, but was not reimbursed by the Department of the
Interior until April 15, 1998, or about 10 months after the
invoice had been paid from the University's operating account.

- During the period of October 1997 to June 1998, five firms
submitted seven invoices, totaling $24,515, for the renovation of
five rooms at the University's Harvey Student Center and for
trucking services to bring equipment to the renovated rooms.  We
found that the scope of the renovations included closing off some
doors and enlarging other doors to permit access to storage carts
and to ensure a weather-tight enclosure for the installation of
heavy duty air conditioning units in order to temporarily store a
wooden gym floor, two basketball backstops, and a scoreboard at
the student center.  These items were for the University's
unbuilt sports and fitness center, and they were ordered far in
advance of when they would have been needed for permanent
installation in the sports and fitness center.  The University's
Director of Plant Facilities told us that in December 1997, the
University sponsored a basketball tournament and that the
then-athletic director wanted to present the University's
existing gymnasium as a venue to conduct athletic competitions.
Therefore, the former Athletic Director sought and obtained the
approval of the University's Board of Trustees to purchase the
new gymnasium floor, basketball backstops, and scoreboard for use
during the tournament.  After the tournament, the items were
removed from the gymnasium and stored in the renovated student
center.  However, the University neither sought nor obtained
approval from the Department of the Interior to use grant funds
to renovate the student center to temporarily store the
equipment.  Section 16 of U.S. Office of Management and Budget
Circular A-21, "Cost Principles for Educational Institutions,"
states, "Capital expenditures for general purpose equipment,
buildings, and land are unallowable as direct charges, except
where approved in advance by the sponsoring agency."
Accordingly, we took exception to costs of $24,515.  The five
firms were paid during the period of November 1997 to August
1998, but the University was not reimbursed by the Department of
the Interior until March 1999, or 7 to 17 months after the firms
were paid from the University's operating account.

- On August 19, 1997, a vendor submitted an invoice for $596 for
parking signs.  However, the $596 was duplicated by the
University in its listing of expenditures claimed against the
sports and fitness center.  Accordingly, we took exception to the
$596.  The University paid the vendor on May 19, 1998, but was
not reimbursed by the Department of the Interior until March 11,
1999, or about 10 months after the vendor was paid from the
University's operating account.

Office of Management and Budget Review.  For the quarterly
periods ended September 30, 1997, through December 31, 1998, the
University submitted five requests for reimbursement of costs,
totaling $733,000, for the sports and fitness center.  The
requests were submitted to the Virgin Islands Office of
Management and Budget for review and forwarding to the Department
of the Interior for approval and payment.  As early as October
1997, the Office of Management and Budget requested that the
University provide all supporting documentation for costs claimed
against the sports and fitness center grant.  However, the
University did not comply with this request until January 1999.
After Office of Management and Budget officials reviewed the
supporting documents, they required the  University to revise and
resubmit financial status reports for the quarterly periods ended
September 30, 1997, through December 31, 1998.  In March 1999,
the University resubmitted an adjusted claim for these time
periods totaling $687,000, or about $46,000 less than the
original submission of $733,000.  Office of Management and Budget
officials told us that expenditures for the sports and fitness
center could be incurred only for design, demolition, and
construction and that the disallowed costs of $46,000 represented
administrative expenditures, such as travel and advertising
costs, and other costs for which the University did not provide
sufficient supporting documentation.

We found that the University's grant accountants checked the
grant budgets on the University's financial management system to
ensure that funds were available to pay for expenditures incurred
against the grants but that the grant accountants did not review
the grant award documents to ensure that claimed costs were
allowable in accordance with the scope, terms, and conditions of
the grants.  Additionally, the University's operating account was
not reimbursed timely because Business office personnel did not
respond timely to the Office of Management and Budget's requests
for information.  We found that it took 7 to 32 months for the
University to be reimbursed for grant-related expenditures.

Recommendations

We recommend that the President of the University require the
Vice President of Business and Financial Affairs to:

1.  Remit to the U.S. Department of Education interest of $16,000
earned on excess Federal funds drawn down against grant accounts
during fiscal year 1999.

2.  Reevaluate the methodology for processing requests for
reimbursement against Federal grants and make the procedural
changes needed to allow requests to be made in a more timely
manner and in the appropriate amounts.

3.  Provide the U.S. Department of the Interior's Office of
Insular Affairs with supporting documentation for the cost
exceptions of $52,807 so that the grantor agency can make a final
determination as to the allowability of those costs.

4.  Establish procedures to ensure that amounts claimed for
reimbursement against Federal grants are allowable in accordance
with the scope, terms, and conditions of the grant award.



University of the Virgin Islands Response and Office of Inspector
General Reply

The January 12, 2000, response to the draft report (Appendix 2)
from the University's Vice-President for Administration and
Finance generally concurred with the recommendations and
indicated that corrective actions had been or were being taken.
Based on the response, we consider Recommendations 2 and 4
resolved and implemented and requested additional information for
Recommendations 1 and 3 (see Appendix 3).

APPENDIX 1

CLASSIFICATION OF MONETARY AMOUNTS

Finding Area


A.  Grant Administration
  Financial Status Reports
  Requests for Reimbursement:
  Grant-Related Expenditures
  Improperly Charged Expenditures

B.  Financial Accountability
  Department of Education Grants
  Department of Agriculture Grants
  Department of Health and Human 
   Services Grants
  Department of the Interior Grants

Total
Funds To Be Put
To Better Use  

$282,000*       
488,000*       
65,000*

16,000**     
1,200,000*       
546,000*       

$2,597,000         
Questioned Costs  
(Cost Exceptions) 

$99,000*       
$99,000         
__________
*Amount represents Federal funds or amounts paid from local funds
that should have been reimbursed with Federal funds.
**Amount represents local funds.


UNIVERSITY OF THE VIRGIN ISLANDS RESPONSE

APPENDIX 2
Page 1 of 5
APPENDIX 2
Page 2 of 5
APPENDIX 2
Page 3 of 5
APPENDIX 2
Page 4 of 5
APPENDIX 2
Page 5 of 5


APPENDIX 3

STATUS OF AUDIT REPORT RECOMMENDATIONS

----------------------------------------------------------
Finding/Recommendation                             Action
Reference                 Status                   Required 

                                           No further action is
A.1-A.7                 Implemented.                required.

B.1                     Management      Provide a target date for
                        concurs;        remitting the $16,000 of
                        additional      interest to the U.S.
                        information     Department of Education.
                        needed.         When completed, our
                                        Caribbean Office should
                                        be provided with
                                        documentation

B.2 and B.4             Implemented.showing that the remittance
                                        has been made.
B.3                     Management 
                        concurs;        No further action is
                                        additional required.
                                        information needed. 
                                        Provide a target date
                                        for submitting 
                                        supporting documentation
                                        for the questioned costs
                                        of $52,807 to the Office
                                        of Insular Affairs, U.S. 
                                        Department of the
                                        Interior.  When
                                        completed, our Caribbean
                                        Office should be
                                        provided with
                                        documentation showing
                                        that the supporting
                                        documents have been
                                        submitted.
----------------------------------------------------------




ILLEGAL OR WASTEFUL ACTIVITIES SHOULD BE REPORTED

TO THE OFFICE OF INSPECTOR GENERAL BY:

Sending written documents to:



Within the Continental United States

U.S. Department of the Interior
Office of Inspector General
1849 C Street,N.W.
Mail Stop 5341
Washington, D.C. 20240

Calling:

Our 24 hour
Telephone HOTLINE
1-800-424-5081 or
(202) 208-5300

TDD for hearing impaired
(202) 208-2420 or
1-800-354-0996



Outside the Continental United States


Caribbean Region

U.S. Department of the Interior
Office of Inspector General
Eastern Division- Investigations
1550 Wilson Boulevard
Suite 410
Arlington, Virginia 22209

Calling:
(703) 235-9221


North Pacific Region

U.S. Department of the Interior
Office of Inspector General
North Pacific Region
238 Archbishop F.C. F'lores Street
Suite 807, PDN Building
Agana, Guam 96910


Calling:
(700) 550-7428 or
COMM 9-011-671-472-7279