November 9, 1998

CERTIFIED MAIL

The Honorable Pete Wilson
Governor of California
State Capitol
Sacramento, California 95814

Dear Governor Wilson:

We are pleased to receive a signed Settlement Agreement (Agreement) from your delegated official, Elaine D. Bush, Director of the Department of Drug and Alcohol Programs (DADP). On behalf of the U.S. Department of Education's Cooperative Audit Resolution Oversight Initiative (CAROI), I am enclosing a copy of the final Agreement which represents the final program determination on the matter of issues relating to compliance with Federal administrative cost cap requirements for the use of the Governor's funds under Section 5112 of the Drug-Free Schools and Communities Act (DFSCA) and Section 4114 of the Safe and Drug-Free Schools and Communities Act (SDFSCA), respectively.

This Agreement fully resolves the issues raised in the following audit findings: Finding #5, Audit Control Number (ACN): 09-68092, for the period July 1, 1993 to June 30, 1994; Finding #10, ACN: 09-95-68737, for the period July 1, 1994 to June 30, 1995; and Finding #5, ACN: 09-96-78886, for the period July 1, 1995 to June 30, 1996. Consistent with the terms of the Agreement, the Governor/DADP must pay $7,374.00 by January 25, 1999 and complete changes to fiscal control and accounting procedures by July 1, 1999.

We would like to take this opportunity to commend your staff for their work and cooperation that has resulted in this significant achievement.

Enclosure

cc: Elaine D. Bush
     James Kooler

U.S. DEPARTMENT OF EDUCATION

Cooperative Audit Resolution Oversight Initiative (CAROI)

Agreement

     This Agreement is entered into by the Governor of California (Governor), the California Department of Alcohol and Drug Programs (DADP) and the U.S. Department of Education (Department) as part of the Department's Cooperative Audit Resolution and Oversight Initiative (CAROI), to resolve issues relating to compliance with Federal administrative cost cap requirements for the use of the Governor's funds under Section 5112 of the Drug-Free Schools and Communities Act (DFSCA) and Section 4114 of the Safe and Drug-Free Schools and Communities Act (SDFSCA), respectively. Although the DADP is the designated administering agency for the Governor's funds, this Agreement acknowledges the Governor as the responsible entity for ensuring compliance with the requirements of the Governor's DFSCA and SDFSCA programs. This Agreement fully resolves the issues raised in the following audit findings cited by the California Bureau of State Auditors (CBSA): Finding #5, Audit Control Number (ACN): 09-68092, for the period July 1, 1993 to June 30, 1994; Finding #10, ACN: 09-95-68737, for the period July 1, 1994 to June 30, 1995; and Finding #5, ACN: 09-96-78886, for the period July 1, 1995, to June 30, 1996.

     The Department, the Governor and the DADP, hereafter referred to collectively as "the Parties," hereby agree to the following terms and conditions:

1.  
2. As of the date of this Agreement, the Department has not established an official policy on the specific issue that is the basis of the audit findings noted above with regard to the preferred methodology for allocating indirect costs for grant programs which limit charges for administration. The methodology used by the Governor/DADP allocates indirect costs across two cost objectives (program and administrative) based on the amount of time spent by DADP staff on each of the respective cost objectives. The Parties agree that the methodology used by the Governor/DADP, although different than the methodology recommended by the CBSA, is not inconsistent with the Department's current statutory or regulatory requirements regarding the allocation of indirect costs under grants which limit charges for administration.
   
   
3. The Parties agree that, using the Governor's/DADP's methodology to determine whether administrative cost caps were exceeded for each of the fiscal years subject to this Agreement, the Governor/DADP exceeded the amounts allowed for administration in fiscal year 1994 (ACN: 09-68092; Finding #5, for the period July 1, 1993 to June 30, 1994) by a total of $7,374.00, and did not exceed the administrative cost cap for fiscal years 1995 (ACN: 09-95-68737; Finding #10, for the period July 1, 1994 to June 30, 1995) and 1996 (ACN: 09-96-78886; Finding #5, for the period July 1, 1995 to June 30, 1996).
   
   
4. The Governor/DADP agrees to establish fiscal control and accounting procedures that will permit the tracing of funds on a grant by grant basis to ensure that levels of expenditures do not violate statutory and regulatory administrative cost cap requirements. Upon the establishment of official Department policy on allocating indirect costs to program and administrative cost objectives, the Governor/DADP agrees to conform to the Department's policy at that time.
   
   
5. The Governor/DADP agrees to repay a total of $7,374.00 to the U.S. Department of Education in full resolution of the audit findings listed in paragraph 2 of this Agreement.
   
   
6. The Governor/DADP agrees to make a check payable to the U.S. Department of Education for $7,374.00 and mail the check to: U.S. Department of Education, P.O. Box 952226, St. Louis, Missouri 63195-2226. The following identification data are applicable to this payment and must be placed on the check and any accompanying documents: DUNS Number: 949088447; TIN (Taxpayer Identification Number): 1-680290013-Al; Documentation Number (Audit Control Number): 09-68092.
   
   
7. The Governor/DADP agrees to make full payment of the $7,374.00 to the Department within 60 days of the date of this Agreement. This payment will be made with non-Federal funds or with Federal funds for which no accountability is required.
   
   
8. If payment is not received within 60 days, the Governor/DADP agrees that interest will accrue from the date this Agreement is signed by the Assistant Secretary for Elementary and Secondary Education and that interest will be charged at the rate of five (5) percent per annum on the unpaid principal.
   
   
9. In the event that the Governor/DADP does not make the payment described in paragraph 6 of this Agreement within ten (10) days of the due date, the Governor/DADP agrees to pay the Department the unpaid portion of the amount set forth in paragraph 6, plus a late payment fee of ten (10) percent of the payment amount set forth in that paragraph. Interest will accrue at the rate of five (5) percent per annum on the unpaid portion of the late payment fee set forth in this paragraph, as of the date the late payment fee is incurred, i.e., the seventy-first day after the Agreement is signed by the Assistant Secretary for Elementary and Secondary Education.
   
   
10. Any payment will be applied first to any accrued interest and then to the principal.
    
    
11. The provisions of this Agreement do not in any way restrict any other remedy available to the Department should the Governor/DADP not comply with the repayment terms of this Agreement.

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