[Audit Report on Head Start Program Grants, Department of Human
Services, Government of the Virgin Islands]
[From the U.S. Government Printing Office, www.gpo.gov]

Report No. 00-i-499

Title: Audit Report on Head Start Program Grants, Department of Human
       Services, Government of the Virgin Islands

Date:  June 14, 2000


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



AUDIT REPORT
HEAD START PROGRAM GRANTS,
DEPARTMENT OF HUMAN SERVICES,
GOVERNMENT OF THE VIRGIN ISLANDS


REPORT NO. 00-I-499

JUNE 2000



EXECUTIVE SUMMARY

Head Start Program Grants, Department of Human Services,
Government of the Virgin Islands (No. 00-i-499)


BACKGROUND

The Head Start Program was established in 1964 to deliver
comprehensive health, educational, nutritional, social, and other
services to economically disadvantaged children and their
families in order to help the children attain their full
potential.  In the Virgin Islands, the Head Start Program is
administered by the Department of Human Services.  The Program
operates 35 centers serving approximately 1,200 children.  The
Program is funded by a discretionary grant from the U.S.
Department of Health and Human Services, which requires a 20
percent local matching share.  For fiscal year 1999, the Program
received $10.2 million, of which $8.2 million was awarded by the
U.S. Department of Health and Human Services and $2 million was
the required local matching share.

OBJECTIVE

The objective of the audit was to determine whether (1) the
Department of Human Services  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 Government's financial management system; and (4) drawdowns
were made in accordance with the Cash Management Improvement Act
of 1990.

RESULTS IN BRIEF

We found that the Department of Human Services administered the
Head Start Program in accordance with grant terms and applicable
laws and regulations; charges made against the grant funds
generally were reasonable,  allowable, and allocable pursuant to
grant agreement provisions; and drawdowns were made in accordance
with the Cash Management Improvement Act of 1990 and properly
deposited.  We could not determine whether funds drawn down were
accurately accounted for in the financial management system
because the information had not been recorded in the system at
the time of our audit.  In addition, Head Start Centers were
being renovated to supply sufficient classroom space for the Head
Start Program to meet its mandated enrollment level.  However,
the administration of the Head Start Program could be further
improved by ensuring that lease agreements for administrative
offices and Head Start Centers are negotiated through the
Department of Property and Procurement, as required by the Virgin
Islands Code, to ensure that rental rates are not in excess of
recommended rates.  For example the Program paid $14.84 per
square foot for classroom space of 4,276 square feet, while the
standard maximum rate established by Property and Procurement was
$6.00.  This occurred because Human Services officials and
potential landlords agreed on key lease terms that did not offer
the most advantageous prices to the Government and because Human
Services officials did not contact Property and Procurement for
consideration and approval until after the lease terms had been
agreed upon with potential landlords.  As a result, the Head
Start Program incurred excess rental costs ranging from $73,023
to $96,929 during fiscal year 1999.

RECOMMENDATIONS

We recommended that the Department of Human Services establish
internal procedures to ensure that future lease agreements were
negotiated in accordance with Virgin Islands Code requirements
and provide the Federal grantor agency with documentation related
to the excess rental costs for determination as to allowability.
We also recommended that the Department of Property and
Procurement formally establish maximum rental rates for different
classes of leased property, inform Governmental agencies of those
maximum rates, and establish procedures to document and provide
feedback to agency heads on the status of lease negotiations.

AUDITEE COMMENTS AND OIG EVALUATION

The response from the Governor of the Virgin Islands concurred
with one recommendation but did not concur with two
recommendations.   The response, however, was not sufficient for
us to consider any of the recommendations resolved.




                                                V-IN-VIS-008-99-M
AUDIT REPORT


Honorable Charles W. Turnbull
Governor of the U.S. Virgin Islands
No. 21 Kongens Gade
Charlotte Amalie, Virgin Islands 00802


Subject: Audit Report on Head Start Program Grants, Department of
Human Services, Government of the Virgin Islands (No. 00-i-499)


Dear Governor Turnbull:

This report presents the results of our review of Head Start
Program grants administered by the Department of Human Services,
Government of the Virgin Islands.  The objective of the audit was
to determine whether (1) Human Services 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 Government's financial management system; and (4) drawdowns
were made in accordance with the Cash Management Improvement Act
of 1990.

BACKGROUND

The Head Start Program, which was created by Title V of the
Economic Opportunity Act of 1964 (42 U.S.C. * 9801), was designed
to deliver comprehensive health, educational, nutritional,
social, and other services to economically disadvantaged children
and their families in order to help the children attain their
full potential.  In the Virgin Islands, the Head Start Program is
administered by the Department of Human Services Office of
Preschool Services, Division of Children, Youth, and Families.
The Program operates 35 centers (19 on St. Thomas/St. John and 16
on St. Croix), with a grant-mandated enrollment of 1,430
children.  During fiscal year 1999, actual enrollment was 1,197
children, or 84 percent of the grant-mandated enrollment.

The Head Start Program is funded by a discretionary grant from
the U.S. Department of Health and Human Services, which requires
that grantees contribute a 20 percent local matching share.  For
fiscal year 1999, the Program received $10.2 million, of which
$8.2 million was awarded by the U.S. Department of Health and
Human Services and $2 million was the required local matching
share.  As of August 31, 1999, $7.9 million ($6.1 million in
Federal funds and $1.8 million in local matching share funds) had
been disbursed against the grant.  An unaudited balance sheet for
the Head Start Program grant as of August 31, 1999 is in Appendix
2, and an unaudited statement of revenues and expenditures for
the Head Start Program grant for the year ended August 31, 1999
is in Appendix 3.

SCOPE OF AUDIT

The scope of the audit initially was to review grant transactions
that occurred during fiscal years 1997 and 1998.  However, at the
entrance conference, Human Services officials told us that
financial and compliance audits of the Head Start Program had
been conducted by a private accounting firm in February 1999 for
fiscal year 1997 and in May 1999 for fiscal year 1998.
Accordingly, the scope of our audit was changed to review grant
transactions that occurred during fiscal year 1999 (September
1998 through August 1999 for grant purposes).  The audit was
conducted from July through November 1999 at the Departments of
Human Services, Finance, and Property and Procurement and at Head
Start Centers on St. Thomas.

Regarding funds received through electronic transfers, the scope
of our audit was limited because the Department of Finance had
not prepared Statements of Remittance (the documents used to
record revenue information in the Government's financial
management system) for fiscal year 1999 transactions.
Accordingly, while funds received through electronic transfers
were appropriately deposited into the Government's bank account,
these funds were not accounted for as of November 30, 1999 in the
Government's financial management system.  

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 audit included an evaluation of internal controls to the
extent we considered necessary to accomplish the audit objective.
The internal control weaknesses identified related to the
procurement of leased space for administrative offices and Head
Start Centers.  The internal control weaknesses are discussed in
the Results of Audit section of this report.  Our
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 Head Start Program in the Virgin Islands.  However,
related audit reports were issued as follows:

- In May 1999, a private accounting firm issued the report
"Financial and Compliance Audit for the Year Ended August 31,
1998, Head Start Program, Department of Human Services,
Government of the Virgin Islands."  The report stated that the
financial statements presented fairly, in all material respects,
the financial position of the Head Start Program as of August 31,
1998.  However, the report noted that the Head Start Program was
not in compliance with the mandated enrollment of 1, 430 children
and that accounts payable totaling $576,195 for goods and
services incurred by the Head Start Program as of August 31, 1998
had not been paid by the Department of Finance.  The report did
not identify any material weaknesses for the 1998 grant period.

- In February 1999, a private accounting firm issued the report
"Financial and Compliance Audit for the Year Ended August 31,
1997, Head Start Program, Department of Human Services,
Government of the Virgin Islands."  The report stated that the
financial statements presented fairly, in all material respects,
the financial position of the Head Start Program as of August 31,
1997.  However, the report classified as material weaknesses the
lack of supporting documentation for fixed assets, the inaccurate
preparation of financial status reports, and the lack of
compliance with the mandated enrollment.  In addition, the report
stated that accounts payable totaling $131,412 for goods and
services incurred by the Head Start Program as of August 31, 1997
had not been paid by the Department of Finance.  Accounts payable
to vendors had increased to $817,228 as of August 31, 1999.

- In May 1998, the Administration for Children  and Families,
U.S. Department of Health and Human Services, issued the report
"Head Start On-Site Monitoring Review Report, Department of Human
Services, Government of the Virgin Islands."  The report stated
that the Head Start Program's strengths and exemplary practices
included a "well-written and comprehensive" Administrative
Procedures Manual, a recruitment system which ensured that
"families with the greatest need were selected for enrollment,"
and a nutrition program that presented "a diversity of foods" to
the children.  However, the report noted the following areas of
concern: (1) the enrollment level was not at the maximum
capacity, (2) all facilities were not accessible to children with
disabilities, (3) copies of current lease agreements for all
rental facilities were not available, (4) encumbered funds were
not posted onto the accounting records but were included as
obligations on the second semiannual Financial Status Report
(Form SF-269), (5) the in-kind services (non-Federal cash
outlays) were maintained separately from the accounting records,
(6) reconciliations were not conducted with Department of Finance
records on a regular basis, and (7) U.S. Department of
Agriculture reimbursements were not posted as revenue in the
accounting records on a timely basis.  Our current review showed
that Department of Human Services officials either had
implemented or were in the process of implementing corrective
actions to address these areas of concern. 

RESULTS OF AUDIT

The Department of Human Services administered the Head Start
Program in accordance with grant terms and applicable laws and
regulations.  Specifically, charges made against the grant funds
generally were reasonable, allowable, and allocable pursuant to
grant agreement provisions, and drawdowns were made in accordance
with the Cash Management Improvement Act of 1990.  In addition,
Head Start Centers were being renovated to supply sufficient
classroom space for the Head Start Program to meet its mandated
enrollment level.  However, we found that the administration of
the Head Start Program could be further improved by ensuring that
lease agreements for administrative offices and Head Start
Centers are negotiated through the Virgin Islands Department of
Property and Procurement to ensure that rental rates do not
exceed the maximum rates established by Property and Procurement.
U.S. Office of Management and Budget Circular A-87, "Cost
Principles for State, Local, and Indian Tribal Governments,"
establishes the principles for determining the allowability of
costs incurred under Federal grants, and the Virgin Islands Code
contains detailed requirements to ensure that procurement actions
are made on the basis of full competition and with the objective
of providing the best possible contract prices, terms, and
conditions for the Government.  Leases were not negotiated in
accordance with requirements because Human Services officials and
potential landlords agreed on lease terms that did not offer the
most advantageous prices to the Government and because Human
Services officials did not involve Property and Procurement or
the Office of the Governor in the negotiation process until after
the lease terms were negotiated.  As a result, the Head Start
Program incurred excess rental costs ranging from $73,023 to
$96,929 during fiscal year 1999 (see Appendix 1).

Leasing Practices

The Virgin Islands Code (31 V.I.C. * 232(3)) states that the
Commissioner of Property and Procurement is responsible for
leasing "all grounds, buildings, offices, or other space that may
be required by government departments and agencies."
Additionally, Attachment B, Section 38, of U.S. Office of
Management and Budget Circular A-87 states that "rental costs are
allowable [for grant purposes] to the extent that the rates are
reasonable in light of such factors as: rental costs of
comparable property, if any; market conditions in the area;
alternatives available; and, the type, life expectancy,
condition, and value of the property leased."  In that regard,
Property and Procurement, prior to commencing lease negotiations,
conducts surveys of comparable properties and establishes
applicable rental rates based on market conditions.  Property and
Procurement officials told us that during fiscal year 1999, the
standard maximum rental rates they used when negotiating leases
were $12 to $15 per square foot for office space and $5.50 to $6
per square foot for storage and other residential space
(including day care centers).

Despite these requirements, Human Services negotiated its own
lease agreements for administrative office space and Head Start
Centers.  Of the seven leases that we selected for review, we
found four instances, initially totaling $215,163, in which the
leases were awarded noncompetitively and without the initial
involvement of Property and Procurement in the negotiation
process.  Specifically, we found the following:

- In December 1995, the Commissioner of Human Services wrote to
the Commissioner of Property and Procurement requesting
assistance in negotiating the price of a lease to operate four
Head Start classrooms at a local religious facility.  However,
the letter stated that throughout the prior 3 weeks, Human
Services Deputy Commissioner of Planning and Evaluation and its
Acting Pre-School Coordinator had been in contact with officials
of the religious facility and had been negotiating certain items
pertinent to the proposed lease, such as the location of the
proposed site, a contact person at the site, the square footage
of the site, and the proposed monthly rental charge.  In fiscal
year 1999, the Head Start Program paid about $14.84 per square
foot for 4,276 square feet of space to operate the four Head
Start classrooms, for a total annual rental cost of  $63,450.  If
the standard maximum allowable rates of $5.50 to $6 per square
foot, as determined by Property and Procurement, had been used,
the annual rental cost would have totaled from $23,518 to
$25,656, or $37,794 to $39,932 less than the amount negotiated by
Human Services.   Accordingly, we took exception to the
differences in costs of $37,794 to $39,932.

At the January 27, 2000 exit conference on the preliminary draft
of this report, Human Services officials stated that Property and
Procurement officials had been involved in the early phase of
rental negotiations with the religious organization and that the
Property and Procurement officials authorized them to finalize
lease terms and conditions.  However, as of February 1, 2000, the
Human Services officials were unable to provide documentation to
support these statements, and the Property and Procurement
officials who had authorized the lease had retired.

- In November 1994, the Commissioner of Human Services wrote to
the Governor, through the Commissioner of Property and
Procurement, requesting the Governor's approval for the lease of
13,329 square feet of additional office space in a building that,
at the time, was partially occupied by Human Services.  The
letter referred to an enclosed lease and asked for the Governor's
"consideration and approval" of the lease.  In addition, the
letter outlined the major terms of the lease agreement and the
applicable renewal options.  The renewal options included a 5
percent increase for each annual renewal.  In fiscal year 1999,
Human Services paid $20 per square foot for the office space, for
a total annual rental cost of $266,580.  The Head Start Program
was responsible for paying one-half of this amount, or $133,290,
and the Food Stamp Program paid the remaining $133,290.  If the
standard maximum allowable rates of $12 to $15 per square foot,
as determined by Property and Procurement, had been applied, the
annual rental cost would have totaled from $159,948 to $199,935,
or $26,658 to $66,645 less than the amount negotiated by Human
Services.  Because the office space was shared equally by the
Head Start and the Food Stamp Programs, we took exception to
costs of $13,329 (one-half of $26,658) to $33,322 (one-half of
$66,645).

- In September 1991, the Commissioner of Human Services wrote to
the Commissioner of Property and Procurement "requesting that the
Government immediately enter into a lease for the rental of real
property" on St. John for use as a Head Start Center.  The
correspondence contained the lessor's name, the physical property
address, and the agreed-upon monthly rental rate.  In fiscal year
1999, the Head Start Program paid about $11.02 per square foot
for 1,960 square feet of space, for a total annual rental cost of
$21,600.  If the standard maximum allowable rates of $5.50 to $6,
as determined by Property and Procurement, had been applied, the
annual rental cost would have totaled from $10,780 to $11,760, or
$9,840 to $10,820 less than the amount negotiated by Human
Services.  Accordingly, we took exception to the differences in
costs of $9,840 to $10,820.  

At the January 27, 2000 exit conference on the preliminary draft
of this report, Human Services officials stated that this Head
Start Center was closed in August 1999, when a Government-owned
facility became available.

- In July 1991, the Commissioner of Human Services wrote to the
Commissioner of Property and Procurement "requesting the
immediate issuance of two leases" for Head Start Centers.  The
correspondence included the lessors' names, property addresses,
and monthly rental  rates.  With regard to the first lease, the
Head Start Program, in fiscal year 1999, paid about $13.58 per
square foot to operate a 1,590-square-foot  private residence as
a Head Start Center, for a total annual rental cost of $21,600.
If the standard maximum allowable rates of $5.50 to $6 per square
foot, as determined by Property and Procurement, had been
applied, the annual rental cost would have totaled from $8,745 to
$9,540, or $12,060 to $12,855 less than the amount negotiated by
Human Services. Accordingly, we took exception to the differences
in costs of $12,060 to $12,855.  The second lease referred to in
the Commissioner's letter was not included in our sample.

These four leases have been renewed annually since they were
first executed, and they were in effect during fiscal year 1999.
For these leases, we did not find any correspondence in the files
at either Property and Procurement or Human Services to indicate
that Property and Procurement was contacted  early enough in the
process to assume its legally mandated role of initiating and
negotiating the  leases.  Accordingly, we concluded that because
the lease agreements were negotiated directly by Human Services
and without the benefit of Property and Procurement's
involvement, there was little assurance that the Government
received the most favorable prices, terms, and conditions for
these lease agreements.  By applying the standard maximum rental
rates used by Property and Procurement, we estimated, for the
four leases, that the Head Start Program could have saved a total
of from $73,023 to $96,929 (see Appendix 1) in rental costs
during fiscal year 1999.  The total savings over the life of the
leases would have been considerably greater.  

At the January 27, 2000 exit conference on the preliminary draft
of this report, Human Services officials stated that, with regard
to the four leases discussed in this finding, Property and
Procurement had not informed them of the standard maximum
allowable rental rates or otherwise questioned the proposed
rental rates for the leased Head Start classrooms and office
space.  They further stated that they therefore were not aware
that the actual rental rates were in excess of Property and
Procurement's standard rates.

Enrollment Level

According to 45 CFR *1305.7(b), a Head Start grantee "must
maintain its funded enrollment level," which in the Virgin
Islands was 1,430 children.  However, the actual enrollment was
1,246 children during fiscal year 1997, 1,226 children during
fiscal year 1998 and 1,197 children during fiscal year 1999.  The
underenrollments occurred primarily because Head Start Centers
were damaged by Hurricane Marilyn in September 1995.  Without
adequate facilities, the Head Start Program did not have
sufficient classroom space for children to be enrolled at the
mandated level.  For the 1999-2000 school year, the Head Start
Program entered into Interim Partnership Agreements with private
day care providers and Department of Human Services day care
centers.  Per these agreements, 40 children who would have been
enrolled in the Head Start Program were instead enrolled in day
care programs.  In the case of the private day care centers, the
fees were paid by Human Services.

In July 1998, Human Services contracted with two
architectural/engineering firms to prepare plans for the
renovation and repair of existing Head Start Centers and office
buildings on St. Thomas, St. John, and St. Croix that were
damaged during Hurricane Marilyn in September 1995.  We believe
that once these projects are completed, the Head Start Program
will have sufficient classroom space to accommodate an adequate
number of children to meet the mandated enrollment level.

Recommendations

We recommend that the Governor of the Virgin Islands:

1.Direct the Commissioner of Human Services to establish internal
procedures to ensure that the Head Start Program is in compliance
with the requirements contained in the Virgin Islands Code (31
V.I.C. * 232) when entering into lease agreements for
administrative office space and Head Start Centers.
Specifically, the Division of Planning and Evaluation of the
Department of Human Services should prepare specifications for
space requirements, including proposed locations; forward the
requests to the Department of Property and Procurement for that
agency to negotiate equitable rental costs and other lease terms
and conditions; and fully document the lease process, including
maintaining records of lease negotiation meetings held.

2.Direct the Commissioner of Human Services to provide the U.S.
Department of Health and Human Services with supporting
documentation for the cost exceptions ranging from $73,023 to
$96,929 so that the grantor agency can make a final determination
as to the allowability of those costs. 

3.Direct the Commissioner of Property and Procurement to formally
establish standard maximum rental rates for different classes of
leased property, inform all Governmental agency heads of the
rates and any revisions to the rates, and establish procedures to
document and provide feedback to agency heads on the status of
lease negotiations.

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

The May 9, 2000 response (Appendix 4) to the draft report from
the Governor expressed nonconcurrence with Recommendations 1 and
2 and concurred with Recommendation 3.  Based on the response, we
consider the three recommendations unresolved (see Appendix 5).

Recommendation 1.  The response expressed nonconcurrence, stating
that the Department of Human Services "has in place procedures to
ensure compliance with the requirements for entering into lease
agreements for all types of rental spaces."  Although the
response indicated that procedures for entering into lease
agreements exist, such procedures did not exist at the time of
the audit and current procedures were not provided as part of the
response to the draft report.  Accordingly, we request that
information be provided on the procedures established by the
Department for the leasing of office and other space.

Recommendation 2.  The response expressed nonconcurrence, stating
that "the lease agreement identified in the Draft Audit Report
was performed in conformity with the procurement provisions of
the Virgin Islands Code, and under the guidance, direction and
approval of the Department of Property and Procurement."  As
stated in the audit report, we found that existing guidelines on
maximum rental rates had not been followed by the Department of
Human Services, resulting in potential excess rental costs of
$73,023 to $96,929.  Therefore, we believe that the supporting
documentation for the leases should be provided to the Federal
grantor agency, the U.S. Department of Health and Human Services,
so that the grantor agency can make the final determination as to
whether the excess rental costs are allowable as charges against
the Head Start Program grants.

Recommendation 3.  The response stated, "The Department of Human
Services concurs with recommendation number three . . . ."
However, the response did not provide any information on
corrective actions that had been or would be taken to establish
standard maximum rental rates and to establish procedures to
document and provide information to agency heads on the rates and
status of lease negotiations.  Additionally, the recommendation
pertained to the Department of Property and Procurement, not the
Department of Human Services, and we did not receive any comments
from Property and Procurement.

Please provide a response to this report by July 14, 2000.  The
response should be addressed to our Caribbean Regional Office,
Federal Building - Room 207, Charlotte Amalie, Virgin Islands
00802.  The response should provide the information requested in
Appendix 5.

Section 5(a) of the Inspector General Act (5 U.S.C. app. 3)
requires the Office of Inspector General to list this report in
its semiannual report to the U.S. Congress.  In addition, the
Office of Inspector General provides audit reports to the
Congress.

                                           Sincerely,

                                           Earl E. Devaney
                                           Inspector General



APPENDIX 1


CLASSIFICATION OF MONETARY AMOUNTS

Finding Area              Questioned Costs
                         (Cost Exceptions)

Leasing practices        $73,023 to $96,929* 


__________
*Amounts represent Federal funds.




APPENDIX  2


UNAUDITED BALANCE SHEET
AS OF AUGUST 31, 1999
FOR HEAD START PROGRAM GRANTS,
DEPARTMENT OF HUMAN SERVICES,
GOVERNMENT OF THE VIRGIN ISLANDS

Assets:

Revenues Receivable (Note 1)          $2,453,700

Total Assets                                         $2,453,700

Liabilities:

Bank Overdraft (Note 2)                 $409,844
Vouchers Payable (Note 3)                817,228
Outstanding Encumbrances (Note 4)      1,129,483
Due to Administration for Children and Families 
Regional Office (Note 5)                  97,145

Total Liabilities                                     $2,453,700

Notes to Balance Sheet:

1. Revenues Receivable
This amount represents monies that had not been drawn down from
grant proceeds.

2. Bank Overdraft
This amount represents vouchers paid by the Department of Finance
for expenditures incurred by the Head Start Program during fiscal
year 1999 but for which funds had not been drawn down by the
Department of Human Services.

3. Vouchers Payable
This amount represents vouchers or accounts payable for goods and
services obtained by the Head Start Program during fiscal year
1999 that had not been paid by the Department of Finance.

4. Outstanding Encumbrances
This amount represents funds that were obligated but not expended
during fiscal year 1999 for specific construction projects and
for the purchase of buses.

5. Due to Administration for Children and Families Regional
Office
This amount represents the funds remaining at the end of the Head
Start Program year after all of the obligations of the Program
had been met.  At the end of each Program year, any excess funds
are required to be returned to the grantor agency.  However, the
Department of Human Services may request that the funds be
reprogrammed for a specific purpose of the Head Start Program.
The reprogrammed funds, once approved, may be used only for the
specifically approved purpose.

UNAUDITED - FOR INFORMATIONAL PURPOSES ONLY




APPENDIX  3


UNAUDITED STATEMENT OF REVENUE AND EXPENDITURES
FOR THE FISCAL YEAR ENDED AUGUST 31, 1999
FOR HEAD START PROGRAM GRANTS,
DEPARTMENT OF HUMAN SERVICES,
GOVERNMENT OF THE VIRGIN ISLANDS

                                                    Actual Under 
                          Budget         Actual     (Over) Budget
                                                                 
Revenues: (Note 1)       $8,175,167     $8,175,167         0   

Expenditures and Obligations:

Personnel                  $4,100,088    $4,112,157     ($12,069)
Fringe Benefits             1,745,478     1,331,138      414,340   
Equipment                     180,889       188,774       (7,885)  
Supplies and Materials        243,466       564,542     (321,076)  
Contract & Professional Services    0       995,414     (995,414)  
Renovations                 1,110,350     1,126,251      (15,901)  
Other                         794,896       134,746      660,150   

Total Expenditures and Obligations$8,175,167$8,453,022 ($277,855)
       Less: U.S. Department of Agriculture
       Reimbursement (Note 2)      0     (375,000)        375,000   

Net Expenditures and Obligations$8,175,167  $8,078,022    $97,145   

Excess of Revenues Over Disbursements    0      $97,145 ($97,145)  

Net Expenditures and Obligations  $8,175,167  $8,078,022  $97,145   
        Less: Obligations (Note 3)  (1,946,711)    (1,946,711)  0

Cash Disbursements        $6,228,456      $6,131,311      $97,145   


Notes to Statement of Revenues and Expenditures:

1. Revenues
For reporting purposes, revenues include the total Federal grant
award amount.  However, as shown in Appendix 2 of this audit
report, $2,453,700 of the grant amount had not been drawn down as
of August 31, 1999.

2. U.S. Department of Agriculture Reimbursement
The U.S. Department of Agriculture reimbursed the Head Start
Program for the cost of meals provided to Program participants.
Therefore, for reporting purposes, we deducted the amount
reimbursed to show the net amount of expenditures and
obligations.

3. Obligations
The Department of Human Services prepared its financial status
reports on the cash basis of accounting.  Therefore, for
reporting purposes, we deducted vouchers payable of $817,228 and
outstanding encumbrances of $1,129,483, as shown in Appendix 2,
from the total expenditures and obligations to show the actual
cash disbursements.

UNAUDITED - FOR INFORMATIONAL PURPOSES ONLY




APPENDIX 4


THE UNITED STATES VIRGIN ISLANDS
OFFICE OF THE GOVERNOR
GOVERNMENT MOUSE
Charlotte Amalie, V.1. 00802
340-774-0001

May 9, 2000



Mr. Arnold E. van Beverhoudt, Jr.
Office of the Inspector General
Caribbean Office/Federal Building - Room 207
St. Thomas, Virgin Islands 00802

Dear Mr. van Beverhoudt:

The attached information is the Department of Human Services'
response to the draft Audit Report number N-IN-VIS-008-99-M on
the Head Start Program Grants. I am aware that this response was
due by May 5, 2000. However, because of the shortened work week
there was a delay in getting the Department's response to my
office. Realizing that the response will be late, Mr. Sirnmonds
from my office spoke to Ms. Stacy Chados, Senior Auditor, and
requested an extension of the deadline to May 10, 2000.

The draft audit report made three (3) recommendations for
corrective action. The Department of Human Services concurs with
recommendation number three (3) but does not concur with
recommendations one (1) and two (2). The Department of Human
Services does not concur with recommendation number one (1)
because the Department currently has in place procedures to
ensure compliance with the requirements for entering into lease
agreements for all types of rental spaces.

The Department does not concur with recommendation number two
(2). The Department has expressed that the lease agreement
identified in the Draft Audit Report was performed in conformity
with the procurement provisions of the Virgin Islands Code, and
under the guidance, direction and approval of the Department of
Property and Procurement.

I am grateful for the assistance your office provides the
Government through the audit findings. I hope that the attached
responses are acceptable.

Sincerely,

Charles W. Turnbull
Governor




APPENDIX 5


STATUS OF AUDIT REPORT RECOMMENDATIONS


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

            1              Unresolved.        Provide a copy of
                                      procedures established by
                                        the Department of Human
                                         Services regarding the
                                     leasing of office and other
                                       space.  A target date and
                                           title of the official
                                                 responsible for
                                      implementation should also
                                                    be provided.

              2            Unresolved.     Provide documentation
                                      supporting that the leases
                                       and questioned costs have
                                            been referred to the
                                        grantor agency for final
                                         determination as to the
                                          allowability of excess
                                         rental costs.  A target
                                           date and title of the
                                        official responsible for
                                      implementation should also
                                                    be provided.

              3           Unresolved.  Provide a plan indicating
                                       the actions the Department
                                      of Property and Procurement
                                          will take to establish
                                          standard maximum rental
                                          rates and to establish
                                       procedures to document and
                                          provide information to
                                        agency heads on the rates
                                              and status of lease
                                          negotiations.  A target
                                            date and title of the
                                         official responsible for
                                       implementation should also
                                                     be provided.
-----------------------------------------------------------




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SHOULD BE REPORTED TO
THE OFFICE OF INSPECTOR GENERAL 

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