U.S. Department of Labor Office of Inspector General

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Report Title:  Opportunities Industrialization Centers of America, Inc.

Report Number:  18-94-019-07-735

Issue Date:  August 19, 1994

OICA is a nonprofit organization established to provide training and job creation services to the poor and unemployed. It accomplishes this task primarily through approximately 70 affiliates, or job training centers, throughout the United States. OICA provides technical assistance and training to its affiliates through several mechanisms including workshops and classes, on-site visits, preparation and dissemination of technical "how to" manuals, and information bulletins concerning various aspects of JTPA and other job training legislation.

December 1983 through June 1989 Financial Audit

In December 1990, OIG issued a report questioning $761,599 of direct costs claimed by OICA for ETA grants ended June 1989. The costs were questioned because OICA improperly charged its management and administrative personnel directly to ETA grants, even though the personnel worked on DOL and non-DOL programs. ETA disallowed the $761,599 of questioned costs. OICA appealed the decision (Case No. 91-JTP-31 docketed July 2, 1991) to the Administrative Law Judge.

Subsequently, OICA offered unaudited Management and General (M&G) expenses and then General Funds (GF) to "offset" our questioned costs. During our initial audit, OICA stated that these expenses did not pertain to ETA's grants. We issued our agreed-upon procedures report on the M&G expenses in August 1992 and our report on the GF expenses in April 1993. These reviews reduced questioned costs on the earlier grant to $205,960 and disclosed that allowable costs exceeded paid costs by $124,272 in the then ongoing grant. This OIG audit resolution assistance enabled DOL and OICA to enter into a settlement agreement in September 1993 which required OICA to pay DOL the $205,960 and to submit required documentation for the additional allowable costs of $124,272.

Fiscal Year 1990 Financial Audit

The audit resulted in questioned direct costs of $417,039 ($333,275 of the $956,336 claimed under the ETA grant and $83,764 of the $212,760 claimed under the Women's Bureau grant). Questioned ETA costs resulted from improper charges of labor costs and fringe benefits, costs invoiced in excess of general ledger amounts, improper charges for advances to a subcontractor, and unsupported charges for other operating and travel costs. Questioned Women's Bureau costs resulted primarily from excess cash drawdowns without regard to grant matching requirements.

The questioned indirect costs, reclassification of costs to their proper cost category, and related adjustments to OICA's proposed cost allocation base resulted in $64,746 overall reduction in OICA's indirect costs.

In January 1993, ETA issued a preliminary decision tentatively disallowing all the questioned direct and indirect costs under the ETA grant.

July 1990 through September 1993 Financial Audit

The audit resulted in questioned direct costs of $192,588 and questioned indirect costs of $360,011. In addition, OICA did not remit to DOL $2,268 in interest earned as required. However, OICA billed DOL using indirect cost rates substantially lower than either the rates it had proposed or the "audit recommended" rates. As a result, if the "audit recommended" rates are accepted and the questioned direct costs are sustained, then OICA would owe DOL a net amount of $142,044.

The questioned direct costs resulted from OICA billing for costs which exceeded the amounts recorded in the general ledger and improperly charging

to the ETA grant consultant fees, communication, supportive services, and materials and supplies which should have been charged to either the indirect cost pool or other direct projects. The primary reasons for the questioned indirect costs were that OICA included in its indirect costs unallowable salaries and fringe benefits for the ex-president and staff members working for the Chairman of the Board; made improvements to the building OICA rents that were improperly expended rather than capitalized and amortized; charged investment losses that were improperly written off; and made distributions to affiliates that were improperly charged as indirect costs.

OICA disagreed with some of the questioned direct costs and stated that it would "pursue documentation" for the remaining questioned direct costs. OICA did not specifically address the various indirect cost items questioned  but disagreed with the impact of the questioned indirect cost rates.