The objective of this audit was to determine whether Parent/Child, Incorporated (PCI) compensation packages for five key executives and teachers were reasonable and consistent with Federal requirements and guidelines for each of the 3 grant years 2000, 2001, and 2002. We found that PCI’s compensation practices for executives and teachers did not meet Federal requirements and guidelines. Specifically, PCI’s wage comparability studies for executives did not meet the requirements of section 653 of the Head Start Act. In addition, PCI did not comply with the Office of Management and Budget Circular A-122 when allocating executive compensation charges to Head Start and other programs. Finally, PCI did not use the information recommended by the Administration for Children and Families (ACF) in Region VI to increase teacher's salaries, and it did not adjust its pay scale to reflect required cost of living adjustments. We recommended that the City of San Antonio ensure executive compensation at PCI is reasonable, that future wage comparability studies meet requirements, and that a time and effort reporting system be established to ensure the wages of employees with responsibility over more than one program are properly allocated to the various programs. In addition, we recommended that the City of San Antonio consider bringing teacher wages in line with minimum amounts recommended by Region VI ACF, and ensure PCI adjusts its pay schedule for teachers to reflect past cost of living adjustments and ensure that future cost of living adjustments are also reflected in the pay scale. The City of San Antonio agreed with our findings and recommendations with one exception – bringing teacher wages in line with minimum amounts recommended by Region VI ACF.