Required Audits of Job Corps Centers Result in Questioned Costs of 2 Percent of Expenses

The Workforce Investment Act requires the Secretary to ensure that Job Corps operators and service providers are audited at least once every three years. To this end, we conducted a series of audits of indirect costs and center expenses claimed by Job Corps contractors. For Program Year (PY) 1998, we audited six Job Corps contractors for which the Department is the cognizant agency responsible for approving indirect cost rates. For this PY, the six contractors operated 61 Job Corps Centers (Centers) and reported expenses of $461 million of which we audited $201 million. The $461 million represents 66 percent of PY 1998 expenditures for Centers operated by private contractors.

The audits were designed to provide an in-depth examination of the contractor's financial operations. We audited the indirect cost pool, cost allocation methodology, and a sample of Center direct costs to determine if indirect costs claimed and Center expenses were reasonable, allocable, and allowable in accordance with applicable cost principles. Further, for each Center audited, we performed tests of internal controls and compliance with certain laws and regulations to obtain reasonable assurance that reported expenses were free of material misstatements.

As illustrated in the following chart, we have issued 8 reports for four contractors and are close to issuing reports for two additional contractors:

The Minact and Res-Care audits are included in the chart solely to denote the scope of the OIG effort to audit Job Corps contractors. The following narrative is reflective of findings and questioned costs only for reports which have been issued as of September 30, 2001.

For each report issued, we expressed an opinion on the Consolidated Schedules of Net Center Operation Expense Categories. Overall, we found that costs charged to DOL were reasonable, allowable and allocable. We questioned indirect costs of $209,716 and Center expenses of $818,308, for a total of $1,028,024, which represents about 2 percent of contractor expenses for PY 1998.

Generally, indirect cost submissions were prepared in the proper format and in accordance with applicable cost principles. At two contractors, we took no exceptions to the submitted indirect cost rates. At the other two contractors, we questioned indirect costs of $209,716, the majority of which resulted from executive and management salaries that were either not reasonable, allocable, or allowable.

We questioned $818,308 of Center expenses, the majority of which resulted from improper site utilization fees of $632,077 at one Center. The fees were not allowable because they were not based on the value of services received, but were property taxes which the Center, as a Federal property, was exempt from paying. At the contractors bidders conference, the Office of Job Corps instructed bidders to budget for site utilization fees. We also questioned inaccurate fringe benefits allocated to two Centers, excessive severance payments of made to a Center director and deputy director, and other expenses due to inadequate documentation.

We recommended that ETA revise certain indirect cost rates, recover questioned costs of $1,028,024, and ensure contractors maintain internal controls sufficient to prevent future questioned costs.

(Audit Report Nos. 02-00-216-03-370, issued Sept. 15, 2000; 02-01-201-03-370, issued Oct. 10, 2000; 02-01-202-03-370, issued Mar. 23, 2001; .02-01-203-03-370, issued Mar. 23, 2001; 02-01-206-03-370, issued Mar. 21, 2001; 02-01-207-03-370, issued Mar. 20, 2001; 02-01-211-03-370, issued July 24, 2001; 02-01-212-03-370, issued Sept. 28, 2001)

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