MEMORANDUM FOR:      RAYMOND L. BRAMUCCI
                                                Assistant Secretary
                                                    for Employment and Training
 

                                                    / s /
FROM:                                 JOHN J. GETEK
                                              Assistant Inspector General
                                                    for Audit

SUBJECT:                           MIDWEST FARMWORKER EMPLOYMENT &
                                           TRAINING
                                            Final Report No. 18-99-001-03-365

Attached is the final report on our audit of the JTPA Title IV-A, Section 402 Migrant and Seasonal Farmworker Program grant administered by Midwest Farmworker Employment & Training, Inc. (MFET). The purpose of the grant was to provide job training/job placement services to income farmworkers residing in the states of Minnesota, North Dakota and South Dakota during the period July 1, 1992 through June 30, 1996.
 

We question $62,584 in travel costs claimed as direct costs under the DOL grants and identified that there were improper charges of $131,392 to the indirect cost pools. Regarding program performance, we determined that MFET met the performance objectives outlined in its grant agreements. We further determined, however, that MFET engaged in questionable personnel practices that were in violation of the grant agreements and its own personnel policies and procedures.

SUBSEQUENT EVENTS

As a result of tentative findings provided by OIG and information developed internally, ETA, in January 1997, advised MFET that the three grants administered by MFET would be competed. In June 1997, ETA disapproved MFET's application to continue to administer the JTPA Section 402 grants. As a result, MFET was replaced as the grantee for the states of Minnesota, North Dakota and South Dakota, effective December 1, 1997.

MFET appealed ETA's decision. On September 29, 1998, the assigned DOL Administrative Law Judge (ALJ) issued his Decision and Order in which he ordered that DOL, as soon as possible, recompete the 1997-1998 JTPA Section 402 grants. We understand that the Department plans to appeal the ALJ's decision to the Secretary of Labor.
 

AUDIT RESOLUTION

OASAM's Office of Cost Determination is responsible for negotiating final indirect cost rates, and issuing Initial and Final Determinations on the questioned indirect costs. Your Division of Resolution and Appeals is responsible for resolving the questioned direct costs and issuing the Initial and Final Determinations on the questioned direct costs. We believe it would be beneficial to all parties concerned if ETA and OASAM would coordinate your respective audit resolution efforts and, as is the current practice, to issue jointly-signed Initial and Final Determinations.

                                -----                         -----                             -----

We are providing MFET with a courtesy copy of this report. We would appreciate receiving copies of your Grant Officer's Initial and Final Determinations.

If your staff has any questions, they should contact Jerome Subkow, Director, Office of Grant and Contract Audits, on (202) 219-4886.

Attachment
 

                                                                                                                                          Page

ACRONYMS AND GLOSSARY  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  i

EXECUTIVE SUMMARY   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii

INTRODUCTION AND BACKGROUND  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

OBJECTIVES AND SCOPE  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

AUDITOR'S REPORT ON CLAIMED COSTS   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

AUDITOR'S REPORT ON INTERNAL CONTROL   . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

AUDITOR'S REPORT ON COMPLIANCE
    WITH LAWS AND REGULATIONS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

FINDINGS AND RECOMMENDATIONS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

        Finding 1 - Travel   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

        Finding 2 - Indirect Cost Pools    . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

        Finding 3 - Personnel Practices   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

EXHIBIT

  Exhibit A Statement of Claimed, Accepted and Questioned Costs   . . . . . . . . . . . . . . . . . . . 44

SCHEDULE

        1.     Summary of Questioned Salary and Travel Expenses
                for the Personal Travel of MFET's Executive Director  . . . . . . . . . . . . . . . . . . . . . 45

ATTACHMENTS

        1.     Listing of Payroll Withholding Contributions Donations  . . . . . . . . . . . . . . . . . . . . .50

        2.     Listing of Travel Reimbursement Donations.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53

        3.     Listing of Employee Leave Lost  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54

APPENDIX

    Appendix A MFET's Written Response to Draft Report  . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
 

CFR          Code of Federal Regulations

CFP          Committee for Farmworker Programs

CY            Calendar Year

DOL          U.S. Department of Labor

ETA          Employment and Training Administration, U.S. Department of Labor

FSR           Financial Status Report

FY             Fiscal Year

JTPA         Job Training Partnership Act

MFET        Midwest Farmworker Employment & Training, Inc.

MET           Motivation Education & Training, Inc.

M&IE         Meals and Incidental Expenses

OIG             Office of Inspector General, U.S. Department of Labor

OMB           Office of Management and Budget

PY               Program Year

Questioned Cost:         A cost that is questioned because of:

(a)         an alleged violation of a provision of a law, regulation, contract, grant, cooperative
              agreement, or other agreement or document governing the expenditure of funds, or

(b)         at the time of the audit, such cost is not supported by adequate documentation, or

(c)         the expenditure of funds for the intended purpose is unnecessary or unreasonable.

    We conducted a financial and performance audit of the Midwest Farmworker Employment & Training, Inc. (MFET) under its DOL grants for the 4-year period July 1, 1992 through June 30, 1996. MFET administered the Job Training Partnership Act (JTPA), Section 402, Migrant and Seasonal Farmworker Program by providing employment, educational and training opportunities to low income farmworkers residing in Minnesota, North Dakota and South Dakota who sought permanent full-time employment.
 
 

RESULTS OF AUDIT

    We question $62,584 in travel costs claimed as direct costs under the DOL grants and identified that there were improper charges of $131,392 to the indirect cost pools. Regarding program performance, we determined that MFET met the performance objectives outlined in its grant agreements. We further determined, however, that MFET engaged in questionable personnel practices that were in violation of the grant agreements and its own personnel policies and procedures.

FINDING 1 - TRAVEL - $62,584 Questioned

    MFET charged all of the Board of Directors' travel costs ($60,507) as direct costs to the DOL grants instead of being charged to MFET's overhead pool, and then allocated to all benefiting activities. MFET also charged as direct costs to the DOL grants unreasonable delivery costs ($1,053) and unnecessary rental of local hotel rooms ($1,024).
 

FINDING 2 - INDIRECT COST POOLS - $131,392 Questioned

    While we did not conduct an indirect cost audit, we identified that MFET charged improper costs totaling $131,392 to its indirect cost pools for: (1) unreasonable salary and fringe benefits paid to its Executive Director ($117,843), (2) personal travel expenses of its Executive Director ($10,659), and (3) office renovation costs for work that was not done ($2,890).

FINDING 3 - PERSONNEL PRACTICES

    We found that MFET's management engaged in questionable personnel practices designed to: (1) coerce, threaten and intimidate employees into making involuntary fund-raising contributions into the unrestricted Farmworker Fund ($10,716) to be used primarily to lobby lawmakers for legislation on behalf of farmworkers, and (2) place unnecessary restrictions over the usage of annual and sick leave earned by employees. These personnel practices were in violation of MFET's grant agreements, its own personnel policies and procedures, OMB Circular A-122 and JTPA regulations. These practices not only impacted employee wages and benefits, but also adversely affected employee morale. MFET disagreed that any questionable personnel practices had occurred and did not implement any corrective action.
 

MFET'S RESPONSE

    Our tentative findings were mailed to MFET on June 25, 1998. MFET provided their written response to the tentative findings and questioned costs on August 20, 1998. MFET disagreed with each finding. Its response to each finding is incorporated in the Findings and Recommendations section of this report. The written response is included as Appendix A, beginning on page 55. The attachments to MFET's written response are not included but will be provided to the DOL Employment and Training Administration audit resolution staff under separate cover.
 

    In addition to responding to the tentative findings and questioned costs, MFET provided an "introductory statement" which it believes makes this report more complete and correct. MFET stated: "OIG's failure to follow its own established procedures, protocol and the [Chief, Division of Seasonal Farmworker Programs] inappropriate interference deprived MFET and its Executive Director a fair opportunity to resolve the issues raised by this report. It is obvious to MFET that the [Chief, Division of Seasonal Farmworker Programs] and anonymous informants provided OIG misleading, incorrect and inaccurate information to justify the OIG's audit. After that, there was absolutely no way for MFET to change the auditor's opinions and beliefs. This became apparent when the OIG auditors made no effort to interview MFET employees that were very pleased with their employment and with their interactions with the Executive Director. Essentially, OIG arrived at MFET's office with a hammer and thus everything looked like a nail."
 

AUDITOR'S COMMENTS

    MFET did not provide any new or compelling evidence which would change any of the tentative findings contained in our draft report. Therefore, we still question the costs. A more detailed explanation is included in the Findings and Recommendations section of this report.

    In regard to MFET's "introductory statement," OIG followed established procedures and MFET was given a fair opportunity to resolve all issues raised by this report. During the course of audit fieldwork, meetings were periodically held with MFET's management staff informing MFET of all issues as they were being developed. MFET was encouraged to provide any information and documentation to resolve the issues. Further, per its request, MFET was granted a 30-day extension to respond to the tentative findings contained in the draft report. Finally, OIG conducts its audits in an impartial and objective manner relying on evidence and facts to reach conclusions and report findings.

1. We recommend that the ETA Grant Officer disallow the questioned direct costs of $62,584 for: (1) travel costs of board members charged as direct costs totaling $60,507 instead of charged to the indirect cost pool, (2) unreasonable delivery costs of $1,053 and (3) rental of local hotel rooms costs of $1,024.
2. We recommend that the Director of DOL's Office of Cost Determination reduce/disallow MFET's overhead pools for CYs 92-96 by $131,392 for: (1) excessive and unreasonable salary and related fringe benefit costs totaling $117,843, (2) salary, related fringe benefit and travel costs totaling $10,659 for trips taken by the Executive Director that appear to be personal in nature, and (3) office renovation costs of $2,890 for work that was not done. We also recommend that MFET's overhead pools be increased by $68,752 for the Board of Director's travel inappropriately charged as direct costs to the grant ($60,507 originally questioned in finding 1 and $8,245 based on additional documentation provided by MFET).
3. We recommend that the ETA Grant Officer require MFET to reimburse its employees for: (a) the $10,716 that was involuntarily contributed ($10,415.50 in payroll withholdings and $300.17 in unreimbursed travel costs) for the purpose of lobbying for farmworker legislation, and (b) the value of the 562.25 hours of annual leave lost due to the unnecessary restrictions imposed by MFET.

    On January 13, 1997, ETA advised MFET that, in accordance with the provisions of JTPA Section 402 (c) (2), as amended by Public Law 102-367, "competition" would not be waived for the grants for the three States served by MFET. ETA subsequently advised MFET, on June 17, 1997, that its application for "designation" as a JTPA, Title IV, Section 402 grantee was disapproved for all three States. On July 11, 1997, MFET appealed ETA's disapproval of its grant applications and requested an administrative hearing before an Administrative Law Judge.

    For PYs 97 and 98 (beginning July 1, 1997 through June 30, 1999), ETA designated Motivation Education & Training, Inc. (MET) to operate the Migrant and Seasonal Farmworker Program in the States of Minnesota and North Dakota. ETA also designated Proteus, Inc., to operate the Migrant program in the State of South Dakota. However, in order to ensure a smooth transition and continuity in the service delivery for farmworkers, ETA extended MFET's grant agreement through July 31, 1997. This extension was subsequently extended through November 30, 1997, at which time MET and Proteus fully assumed operations in their designated States.

On September 29, 1998, the assigned DOL Administrative Law Judge issued his DECISION AND ORDER on MFET's appeal. The Administrative Law Judge ordered that: (1) DOL, as soon as possible, recompete the 1997-1998 JTPA Section 402 grants for Minnesota, North Dakota, and South Dakota, and (2) DOL reimburse MFET for expenses related to their 1996 grant application and for trial expenses.

    We performed a financial and compliance audit of the $11,452,858 claimed for reimbursement by the Midwest Farmworker Employment & Training, Inc. (MFET) under its DOL grants for the 4-year period July 1, 1992 through June 30, 1996. We also reviewed MFET's program performance in relation to the goals and objectives outlined in the grants.
 

MIGRANT AND SEASONAL FARMWORKER PROGRAM

    The objective of the JTPA, Title IV, Section 402 program is to provide training and other employability development services to members of economically disadvantaged families whose principal livelihood is gained in migratory and other forms of seasonal farmwork. The goal of the program is to alleviate the chronic unemployment and underemployment being experienced by farmworker families. Funding levels average approximately $70 million per year and serve approximately 45,000 migrants annually. At least 94 percent of each year's funding is allocated to States according to a population-based formula. This funding is provided to qualified public agencies and nonprofit groups in the form of competitively awarded grants. The remaining annual funding is set aside for technical assistance and other special projects to benefit seasonal farmworkers.
 

MIDWEST FARMWORKER EMPLOYMENT AND TRAINING, INC.

    MFET is incorporated as a not-for-profit corporation to provide services and to advocate for disadvantaged migrant and seasonal farmworkers. During the audit period, MFET operated offices throughout Minnesota, North Dakota, and South Dakota in order to provide employment, educational and training opportunities to low income farmworkers who sought permanent full-time employment.

During the period July 1, 1992 through June 30, 1996, MFET claimed costs totaling $11,452,858 as follows.

Program Year & State            Grant Number                        Costs Claimed

1992

Minnesota                                 99-1-0309-56-305-02             $1,550,060
North Dakota                            99-1-3345-56-314-02                  556,838
South Dakota                            99-1-3288-56-323-02                 810,636
    Subtotal                                                                                $2,917,534

1993

Minnesota                                 99-1-0309-56-305-02             $1,594,852
North Dakota                            99-1-3345-56-314-02                  532,844
South Dakota                            99-1-3288-56-323-02                 723,441
    Subtotal                                                                                  2,851,137

1994

Minnesota                                 99-1-0309-56-305-02             $1,652,190
North Dakota                            99-1-3345-56-314-02                  645,420
South Dakota                            99-1-3288-56-323-02                 986,501
    Subtotal                                                                                  3,284,111

1995

(All 3 states)                             C-5454-5-00-81-55                2,400,076

Total                                                                                      $11,452,858

    
     We performed a financial and compliance audit of the direct costs claimed by MFET under grant numbers 99-1-0309-56-305-02, 99-1-3345-56-314-02, 99-1-3288-56-323-02 and C-5454-5-00-81-55 for the period July 1, 1992 through June 30, 1996. We also reviewed MFET's program performance in relation to the goals and objectives outlined in the grants.
 

FINANCIAL AND COMPLIANCE AUDIT

    The primary objectives of our financial and compliance audit were to determine whether the direct costs claimed by MFET during the period July 1, 1992 through June 30, 1996, were reasonable, allocable and otherwise allowable under the applicable Federal cost principles.

    Because MFET is responsible for compliance with applicable laws and regulations related to its grants, the secondary objectives of our financial audit were to: (1) obtain an understanding of internal controls related to accounting records used in claiming costs to ensure that funding limitations were not exceeded, and (2) identify and test general and specific compliance requirements that could have a material financial impact on the grants being audited.

    Our audit was performed in accordance with generally accepted auditing standards and the Government Auditing Standards, issued by the Comptroller General of the United States. Our audit included such tests of accounting records and other auditing procedures as we considered necessary. Statistical sampling was not used since the audit universe (number of transactions and/or records) related to individual accounts or cost elements rendered its use impractical. In lieu thereof, we used a combination of random and judgmental sampling to test individual account transactions and balances.

    Our audit was performed using the criteria we considered relevant. These criteria included those established in 20 CFR 633 (Migrant and Seasonal Farmworker Programs) and OMB Circulars A-110 (Grants and Agreements with Institutions of Higher Education, Hospitals, and Other Nonprofit Organizations) and A-122 (Cost Principles for Nonprofit Organizations). To meet aforementioned objectives, we reviewed selected transactions, records and internal controls to determine MFET's compliance with applicable laws and regulations, as well as the incidence, if any, of program abuse that might warrant further review or action.
 

PROGRAM PERFORMANCE REVIEW

    The overall objective of our performance review was to evaluate MFET's program performance in relation to the goals and objectives outlined in the grant. The grant agreements specified two overall performance standards: (1) entered employment rate, and (2) average wage at placement. Our review determined that MFET met these two performance standards and, thus, program performance results are not included in the Findings and Recommendations section of this report.
 

ENTRANCE/EXIT CONFERENCES

    We held an entrance conference with MFET officials on October 28, 1996. Our fieldwork was performed at MFET's central offices in Sauk Rapids, Minnesota, during the period October 28, 1996 through March 26, 1997. We held a preliminary exit conference on March 26, 1997, with MFET officials to discuss our findings. During the exit conference, MFET disagreed with our findings. MFET continued to provide additional information through February 2, 1998. On March 6, 1998, we held a final exit conference with MFET (by telephone). This report incorporates all information received to date.

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