Assistance Listing number and name: 84.031 Higher Education?Institutional Aid Award numbers and years: P031S150032, October 1, 2015 through September 30, 2021 P031S150098, October 1, 2015 through September 30, 2021 P031S160090, October 1, 2016 through September 30, 2023 P031S190167, October 1, 2019 through September 30, 2024 P031S200096, October 1, 2020 through September 30, 2025 P031S200281, October 1, 2020 through September 30, 2025 P031C210057, October 1, 2021 through September 30, 2026 P031C210077, October 1, 2021 through September 30, 2026 Federal agency: U.S. Department of Education Compliance requirement: Reporting and special tests and provisions Questioned costs: Unknown Condition?The District did not act in accordance with federal regulations for its 10 endowments established from 2005 through 2021 by 6 of its 10 colleges.1 These endowments were created with Higher Education?Institutional Aid (HEIA) program monies held by its Foundation that ranged in value from $64,129 to $359,019, with a combined fiscal year-end balance of $1.6 million including interest earned. Specifically, we found that the District did not submit 3 of its endowments? annual reports for federal fiscal year October 1, 2020 through September 30, 2021, to the U.S. Department of Education (ED), as required, to certify that these endowment monies were spent in accordance with federal regulations. In addition, for all 4 endowment reports tested, we found the reports did not agree to the Foundation?s records and that no one at the responsible college had reviewed or approved them for accuracy prior to submitting them to ED. Further, in reviewing the reports, we found that the District Office and colleges were not aware of each endowment?s investment performance with the Foundation or whether the Foundation?s investment policies met the federal regulations. Effect?The District?s failure to submit accurate endowment reports and the lack of monitoring over the Foundation?s administration of its endowments increases the risk that ED could terminate the endowments and require the District to reimburse ED for the original endowment balances, including interest earned, if the District spent more of the endowments? income than allowed by federal regulations. We did not note any instances of the District spending more than allowed based on the 4 reports tested. Cause?The District Office indicated that all the endowment reports submitted to ED were prepared by the Foundation and were not reviewed for accuracy before the College certified and submitted them to ED. For the 3 reports not submitted, District management reported that they were unable to submit the reports electronically and have not been successful in their attempts to receive assistance from ED to submit the late reports. In addition, the District?s colleges separately contracted with the District?s Foundation to administer the endowments, which included investing the endowment balances and disbursing a portion of the interest earned for allowable program activities. However, the District did not ensure that the Foundation was aware of the program?s requirements or have a plan for ensuring compliance. Further, the District Office did not have written policies and procedures to monitor the Foundation?s contract and the District?s endowments held with the Foundation, and had not designated anyone to centrally monitor these endowments. Criteria?Federal regulation permits the District to designate its Foundation to invest and raise monies for the program?s endowments; however, the District is ultimately responsible for ensuring its endowments are administered in accordance with all federal regulations (34 CFR ?628.3). The District is required to monitor the Foundation?s compliance with all federal requirements, including those that specify the investment types and risks allowed, require the endowments? corpuses remain unspent during the grant award period, ensure it spends no more than 50 percent of the endowments? earnings in accordance with the endowments? purpose, and verify that endowment income is properly calculated and invested in a savings account or low-risk securities (34 CFR ??628.43 through .46). Additionally, federal regulation and the District colleges? federal program award terms require the District to submit annual reports for each of its endowments certifying that the endowments comply with federal regulations (34 CFR ?628.47[f]). Finally, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms (2 CFR ?200.303). Recommendations?The District Office should develop and implement written policies and procedures to: 1. Update its endowment contracts with the Foundation to include provisions that: a. Require the Foundation to provide information on each endowment to the District for inclusion in the annual reports. b. Specify the types of investments and investment risks allowed by federal regulations. c. Require the Foundation to provide periodic reporting to the District Office and applicable colleges about the endowments? investment performance, income calculations, disbursements made from endowment interest, and compliance with federal regulations. 2. Designate an employee to centrally monitor the endowments with the Foundation to ensure the endowments are properly accounted for, spent, and invested in accordance with federal regulations. 3. Ensure that the District?s required endowment annual reports are certified and submitted to ED by the District only after the reports have been reviewed and approved for accuracy and agreement to the Foundation?s records by the responsible District employee. The District?s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. This finding is similar to prior-year finding 2021-104. 1 The endowment grant award numbers and years are as follows: P031010003, October 1, 2001 through September 30, 2006; P031S080044, October 1 2007 through September 30, 2012; P031S080118, October 1, 2008 through September 30, 2014; P031S090050, October 1, 2009 through September 30, 2014; P031A110194, October 1, 2011 through September 30, 2016 (2 endowments); P031A110200, October 1, 2011 through September 30, 2017; P031S150085, October 1, 2015 through September 30, 2020; P031S150098, October 1, 2015 through September 30, 2021; and P031S160090, October 1, 2016 through September 30, 2023.