Disadvantaged Students
Fiscal Oversight of Title I Could Be Improved Gao ID: GAO-03-377 February 28, 2003New resources for education come at a time when states are struggling to address budget shortfalls. Two provisions in Title I--maintenance of effort (MOE) and supplement not supplant (SNS)--are designed to limit the extent to which federal funds could be used to replace state and local resources. To assess the quality of oversight of these provisions, GAO determined (1) how 6 states--Arizona, California, Florida, Indiana, Louisiana, and Massachusetts--conducted oversight of the MOE and SNS provisions and what factors affected their ability to do so; (2) what efforts were made by the U.S. Department of Education to enforce MOE and SNS; and (3) in the 6 states, what changes have occurred in the federal share of education funding from school year 1999-2000 to 2000-2001.
In the states we visited, state program officials used three tools--the states' annual financial reports, the single audit process, and limited program monitoring--to oversee Title I's fiscal accountability requirements. While program officials had little difficulty in applying the MOE provision because it involves a straightforward calculation, state and local program officials and auditors we spoke with cited a number of factors that made it difficult to enforce the SNS provision under certain circumstances. One of the challenges auditors faced was determining whether a school district would have removed its own funds from a program and allocated them elsewhere even if federal funds had not been available--an action that is allowable. Another challenge was applying the SNS provision in circumstances where it is difficult to track federal dollars such as in schoolwide programs--where all funds are pooled--or in districts undergoing significant districtwide reforms--where comparisons to previous budgets are problematic. While some auditors struggled to apply the SNS provision to the particular circumstance of districts and schools, program officials relied primarily on the results of the single audits without being aware of some of these audit's limitations. For example, some officials did not understand that not all districts, programs, or transactions may be covered by the audit. While program monitoring adds a degree of depth to the efforts to oversee the SNS provision, most of the states in GAO's review conducted only limited program monitoring. We identified three key efforts Education made to guide, monitor, and enforce the fiscal accountability provisions, but each had limitations. First, Education provided guidance and technical assistance to state and local education agencies and auditors on how to interpret and apply Title I's fiscal accountability requirements. Despite the availability of this guidance, many of the auditors and program officials we spoke with expressed confusion regarding the application of these provisions to their particular circumstances, such as schoolwide programs. Second, Education conducted program monitoring of select state and local education programs each year; however, coverage was limited. Third, Education, reviewed the audit reports conducted under the Single Audit Act. However, Education's Office of Inspector General and GAO have criticized the review and audit follow up process. Few changes occurred in the federal/state/local fiscal partnership in financing education services between school year 1999-2000 and 2000-2001. It is too soon to tell how recent increases in federal funds and state and local fiscal pressures will affect funding for education and the federal share.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-03-377, Disadvantaged Students: Fiscal Oversight of Title I Could Be Improved
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Report to Congressional Requesters:
United States General Accounting Office:
GAO:
February 2003:
DISADVANTAGED STUDENTS:
Fiscal Oversight of Title I Could Be Improved:
GAO-03-377:
GAO Highlights:
Highlights of GAO-03-377, a report to Congressional Requesters.
DISADVANTAGED STUDENTS
Fiscal Oversight of Title I Could Be Improved.
Why GAO Did This Study:
New resources for education come at a time when states are struggling
to address budget shortfalls. Two provisions in Title I”maintenance of
effort (MOE) and supplement not supplant (SNS)”are designed to limit
the extent to which federal funds could be used to replace state and
local resources. To assess the quality of oversight of these
provisions,
GAO determined (1) how 6 states”Arizona, California, Florida, Indiana,
Louisiana, and Massachusetts”conducted oversight of the MOE and SNS
provisions and what factors affected their ability to do so; (2) what
efforts were made by the U.S. Department of Education to enforce MOE
and SNS; and (3) in the 6 states, what changes have occurred in the
federal share of education funding from school year 1999-2000 to
2000-2001.
What GAO Found:
In the states we visited, state program officials used three tools”the
states‘ annual financial reports, the single audit process, and limited
program monitoring”to oversee Title I‘s fiscal accountability
requirements. While program officials had little difficulty in
applying the MOE provision because it involves a straightforward
calculation, state and local program officials and auditors we spoke
with cited a number of factors that made it difficult to enforce the
SNS provision under certain circumstances. One of the challenges
auditors faced was determining whether a school district would have
removed its own funds from a program and allocated them elsewhere even
if federal funds had not been available”an action that is allowable.
Another challenge was applying the SNS provision in circumstances where
it is difficult to track federal dollars such as in schoolwide
programs”
where all funds are pooled”or in districts undergoing significant
districtwide reforms”where comparisons to previous budgets are
problematic. While some auditors struggled to apply the SNS provision
to the particular circumstance of districts and schools, program
officials relied primarily on the results of the single audits without
being aware of some of these audit‘s limitations. For example, some
officials did not understand that not all districts, programs, or
transactions may be covered by the audit. While program monitoring
adds a degree of depth to the efforts to oversee the SNS provision,
most of the states in GAO‘s review conducted only limited program
monitoring. We identified three key efforts Education made to guide,
monitor, and enforce the fiscal accountability provisions, but each had
limitations. First, Education provided guidance and technical
assistance to state and local education agencies and auditors on how
to interpret and apply Title I‘s fiscal accountability requirements.
Despite the availability of this guidance, many of the auditors and
program officials we spoke with expressed confusion regarding the
application of these provisions to their particular circumstances,
such as schoolwide programs. Second, Education conducted program
monitoring of select state and local education programs each year;
however, coverage was limited. Third, Education reviewed the audit
reports conducted under the Single Audit Act. However, Education‘s
Office of Inspector General and GAO have criticized the review and
audit follow up process. Few changes occurred in the federal/state/
local
fiscal partnership in financing education services between school year
1999-2000 and 2000-2001. It is too soon to tell how recent increases
in federal funds and state and local fiscal pressures will affect
funding for education and the federal share.
What GAO Recommends:
To more effectively focus audit resources, Congress should consider
eliminating the SNS requirement for schoolwide programs”where it is
unworkable”and increase the MOE requirement. In addition, GAO
recommends that the Secretary of Education enhance technical
assistance and training efforts to ensure better oversight of Title
I‘s fiscal requirements and more effective use of the single audit
process.
To view the full report, including the scope
and methodology, click on the link above.
For more information, contact Marnie Shaul on (202) 512-7215 or Paul
Posner on (202) 512-9573.
Contents:
Letter:
Results in Brief:
Background:
States Used Multiple Tools to Enforce the Fiscal Accountability
Provisions, but Relied Primarily on the Single Audit Process to Enforce
SNS:
Education‘s Key Efforts to Enforce Fiscal Accountability Provisions
Have Limitations:
Little Change in Federal Share from School Years 1999-2000 to 2000-
2001:
Conclusions:
Matters for Congressional Consideration:
Recommendations for Executive Action:
Agency Comments:
Appendix I: Scope and Methodology:
Appendix II: Comments from the Department of Education:
Appendix III: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Acknowledgments:
Appendix IV: Related GAO Products:
Education:
Single Audit:
Intergovernmental Relations:
Tables:
Table 1: Fiscal Accountability under Different Program Delivery
Frameworks:
Table 2: Education Spending in Six States, School Year 1999-2000:
Figures:
Figure 1: Level at Which Fiscal Requirements Are Enforced:
Figure 2: Changes in the Shares of Total Funding for Education Services
in Six States between SY 1999-2000 and 2000-2001:
Figure 3: Federal Share of SEA Operations in Six States (SY 2000-2001):
Abbreviations:
AFM Achievement Focused Monitoring
ESEA Elementary and Secondary Education Act
FTE full-time equivalent
LEA local education agency
MOE maintenance of effort
NCLB No Child Left Behind Act
OIG Office of Inspector General
OMB Office of Management and Budget
SEA state education agency
SNS supplement not supplant
SY school year
USD Unified School District:
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United States General Accounting Office:
Washington, DC 20548:
February 28, 2003:
The Honorable Edward M. Kennedy
Ranking Minority Member
Committee on Health, Education, Labor, and Pensions
United States Senate:
The Honorable George Miller
Ranking Member
Committee on Education and the Workforce
House of Representatives:
On January 8, 2002, the President signed the No Child Left Behind Act
(NCLB) of 2001 into law. NCLB amends the Elementary and Secondary
Education Act (ESEA) of 1965 and reauthorizes many federal aid programs
for elementary and secondary education. ESEA‘s Title I program is the
largest federal elementary and secondary education program, providing
about $10.4 billion to benefit 11 million low-income and disadvantaged
students in about 45,000 schools nationwide in 2002. Title I funds are
distributed by formula from the federal government to state education
agencies (SEA), which then pass through most of these funds to their
local education agencies (LEA). LEAs use these funds to operate two
types of Title I programs--targeted assistance programs, which target
funds only to qualified low-income children who meet Title I
eligibility requirements, and schoolwide programs, which pool funds to
help all students in a school improve their performance.
Under NCLB, federal funds for elementary and secondary education have
grown substantially; for example, Title I grew 30 percent from $8
billion in 1999 to $10.4 billion in 2002. These new resources for
federal education programs come at the same time that states and school
districts face difficult funding choices as they struggle to address
budget shortfalls resulting from economic downturns and other
requirements, (i.e., homeland security.) These shortfalls heighten the
risk that state and school district officials will use federal
resources to replace their own funds. Two provisions in the act limit
the extent to which states and LEAs can do that. First, a maintenance
of effort (MOE) provision requires that an LEA maintain at least 90
percent of its aggregate state and local education expenditures or its
per student expenditures for the preceding year as a condition for
receiving any federal Title I grant funds; this provision limits the
amount of fiscal relief a grantee can achieve by substituting federal
funds for its own by requiring local education agencies to sustain
their own funding levels for education programs in the aggregate.
Second, a supplement-not-supplant (SNS) provision requires grant
recipients to use federal funds to supplement the amount of funds that
would, in the absence of such federal funds, be made available from
nonfederal sources; this provision limits substitution of federal funds
for state/local funds at the school--or program--level by preventing
LEA‘s from reallocating funds for specific activities. Some have raised
concerns about whether these provisions are adequately enforced either
by the Department of Education, which is responsible for monitoring the
SEAs, or the SEAs, which are responsible for monitoring LEAs.
Federal grant management policies require SEAs to take the
responsibility for ensuring that their LEAs comply with federal laws
and regulations. States must:
* identify to the LEAs all applicable compliance requirements,
* monitor LEA activities to provide reasonable assurance that the LEA
is in compliance with federal requirements, and:
* ensure required audits are performed and require that LEAs take
prompt corrective action on any audit findings.
Federal grant recipients that spend more than $300,000 in federal
awards in any given year must undertake a single audit as required
under the Single Audit Act (Single Audit Act), as amended. Many grant
recipients spend funds from a number of federal programs, and the
single audit focuses audit resources on a federal grant recipient‘s
internal controls which covers an entity‘s process over its operations
and financial reporting. In addressing compliance issues, the single
audit reviews only selected provisions of laws and regulations that
have a direct and material effect governing selected federal awards.
This is in contrast to the more detailed transactional auditing that
was conducted under program-specific audits.
To better assess the adequacy of oversight of the fiscal accountability
provisions, you asked us to determine (1) how selected states ensure
compliance with both the MOE and the SNS provisions and what factors
affect their ability to do so; (2) what efforts were made by Education
to enforce these provisions and what limitations, if any, did these
efforts have; and (3) in selected states what changes occurred between
school year 1999-2000 and 2000-2001 in the federal share of education
expenditures and, in 2000-2001, what share of the SEA operating
expenditures were financed with federal funds.
As agreed, we focused on six states[Footnote 1] and six local school
districts.[Footnote 2] We reviewed guidance on the fiscal
accountability provisions developed by the SEAs, and we reviewed both
SEA and LEA budgets and financial statements for school year 1999-2000
and 2000-2001. We interviewed state and local program officials, school
district administrators, and their auditors about their roles and
responsibilities for enforcing the fiscal accountability provisions and
reviewed the auditors‘ workpapers. We interviewed officials at
Education and reviewed Education‘s guidance and regulations on these
two fiscal accountability provisions. We also asked finance officers
from the six SEAs to provide us with comparable information on total
funding for education and the federal share of resources used to
finance the SEA‘s operating costs. We conducted our work between July
2002 and January 2003 in accordance with generally accepted government
auditing standards. A more detailed discussion of our scope and
methodology is included in appendix I.
Results in Brief:
In the states we visited, state program officials used three tools--the
states‘ annual financial reports, the single audit process, and program
monitoring--to oversee Title I‘s fiscal accountability requirements.
Program officials had little difficulty applying the maintenance of
effort provision because it involves a straightforward and objective
calculation from their annual financial reports data. But state and
local program officials and auditors we spoke with cited a number of
factors that made it difficult to enforce the supplement-not-supplant
provision. Enforcement of the supplement-not-supplant provision is
primarily done through the single audit process. One of the challenges
auditors faced was determining whether a local education agency would
have removed its own funds from a program and allocated them elsewhere
if federal funds had not been available. Another challenge was applying
the supplement-not-supplant provision in circumstances where it is
difficult to track federal dollars--for example, in schoolwide programs
where federal, state, and local funds are pooled or where districtwide
school reforms have been implemented and programs have changed from
year to year--making it difficult to compare funding. Some state
program officials relied on the single audit without being aware of its
limitations. For example, some state officials did not understand that
only selected school districts, programs, or transactions are covered
by the audit. Finally, while program monitoring adds a degree of depth
to the efforts to enforce the supplement-not-supplant provision, most
of the states in our review conducted only limited program monitoring,
covering only a portion of their local education agencies in any given
year.
We identified three key efforts the Department of Education made to
guide, monitor, and enforce the fiscal accountability provisions, but
each had limitations. First, Education provided guidance and technical
assistance to state education agencies, local education agencies, and
auditors on how to interpret and apply Title I‘s fiscal accountability
provisions to programs in their states. Despite the availability of
this guidance, many of the auditors and program officials we spoke with
confused the various accountability provisions, believing, for example,
that one test could be substituted for another. Second, Education
conducted program monitoring of select state and local education
programs each year; however, this coverage is limited and fiscal
accountability provisions are, by design, not the primary focus of the
monitoring activity. In fact, the department‘s guide for program
monitors does not provide any guidance on monitoring the supplement-
not-supplant provision at all. Rather, Education‘s monitoring plans
focus on progress towards raising the level of student achievement.
Third, Education reviews the audit reports conducted under the Single
Audit Act. However, Education‘s Office of Inspector General (OIG) has
reported that many of the reviewers lacked knowledge of the areas
covered under the Single Audit Act and how single audits were done; for
example, they were not aware that not every grantee, program, or
transaction was covered in an audit. As a consequence, Education could
fail to review key programs or provisions of law.
Few changes occurred in the federal/state/local fiscal partnership in
financing education services between school year 1999-2000 and
2000-2001. It is too soon to tell how recent increases in federal funds
and state and local fiscal pressures will affect funding for education
and how changes, if any, in state and local financing will affect the
federal share. No clear patterns emerged, among the states, with
respect to the share of state operating costs that states financed with
federal funds. In the six states we reviewed, the federal share of
state operating expenditures in school year 2000-2001 varied from 18
percent in Florida to 43 percent in Indiana.
Since the supplement-not-supplant is unworkable in a schoolwide context
we are suggesting that the Congress eliminate the SNS requirement for
schoolwide Title I programs. If it chooses to do so, it could also
consider increasing the MOE requirement for LEAs with schoolwide
programs. In addition, we recommend that Education amend its guidance
for grantees and oversight officers to address all of Title I‘s fiscal
requirements, including the supplement-not-supplant provision where
applicable.
Background:
Established in 1965 as part of the Elementary and Secondary Education
Act (ESEA), Title I provides grants to help schools establish and
maintain programs to improve the educational opportunities of low-
income and disadvantaged students. Most Title I funds are distributed
by formula from Education to states. The states then pass through most
of these funds to their school districts after retaining some funds--up
to 1.5 percent--for state administration and state-level school
improvement activities. The amount of Title I funds a school district
gets is determined by a formula based on the number of students from
low-income families and the state‘s per pupil expenditures.
Local Flexibility:
Once LEAs receive funds from the state, they have flexibility in how
they allocate Title I funds to individual schools and how each school
delivers Title I services. As long as priority is given to schools with
the highest concentration of children from low-income families, LEAs
are generally free to designate which schools, among those eligible,
receive funds and how much each should get. LEAs can also select the
type of framework through which they deliver Title I services. Some
districts have only targeted assistance in their Title I schools, some
only have schoolwide programs, and others have a mixture of both. When
Title I began, all schools administered targeted assistance programs.
These programs targeted funds and services--such as teachers and
materials--to specific qualified students who met Title I eligibility
requirements. In 1978, a limited number of schools were allowed to
deliver the services in the form of schoolwide programs if 75 percent
or more of their student population was poor. Schools choosing to
operate schoolwide programs can combine federal resources with other
funds to improve the school as a whole and help all students achieve.
In subsequent reauthorizations, the schoolwide option was made
available to more schools by lowering the threshold percentage of low-
income children required to operate a schoolwide program. NCLB allows
schoolwide programs in schools with a poverty rate of 40 percent or
more.
During the mid-1990s there was a trend toward providing more
flexibility to state and local recipients of federal grants so they may
operate programs that best serve the needs of their communities. This
trend towards flexibility is evident, not only in education programs
such as Title I, but in many social service programs and health
programs. In these circumstances, we have found[Footnote 3] that new
approaches to ensuring accountability need to be designed to achieve a
balance between flexibility and accountability for attaining certain
national objectives. In 2001, we reported on some of the challenges in
maintaining a federal-state fiscal partnership in welfare
reform[Footnote 4] and concluded that a broad-based maintenance of
effort requirement calling for states to maintain spending across a
wide range of relevant programs might both limit substitution of state
funds while at the same time preserve state and local flexibility
better than a traditional supplement-non-supplant requirement.
Specifically, we found that, once accountability shifts to the broad
purposes of the grant, federal fiscal oversight needed to shift as well
and focus not only on the specifics of welfare funding but also on how
states used multiple funding streams--federal, state, and local--to
accomplish the program‘s broad goals. These findings could apply to the
Title I program because schoolwide program goals are broader than the
goals of a targeted assistance program and schoolwide programs combine
funding streams.
Title I Fiscal Accountability Requirements:
Title I contains three fiscal requirements that grantees must comply
with in order to continue to receive Title I funds from one year to the
next. If an SEA or LEA fails to comply with MOE, SNS, or Comparability
provisions, it is required by law to return the amount of misused funds
to Education.
* Maintenance of effort (MOE). An LEA may receive funds if the SEA
finds that the LEA‘s combined fiscal effort per student or the
aggregate expenditures of the LEA from state and local funds for free
public education for the preceding year is not less than 90 percent of
the combined fiscal effort or aggregate expenditures for the second
preceding year.
* Supplement-not-supplant (SNS). State and local education agencies
must use federal funds to supplement, and not supplant, the amount of
funds that would, in the absence of federal funds, be made available
from nonfederal sources for the education of Title I students.
* Comparability. State and local funds must be used to provide services
in Title I schools that are ’at least comparable“ to services provided
by state and local funds in non-Title I schools within the same LEA.
Each fiscal requirement is enforced at a different level. For example,
the MOE requirement applies only to the LEA not to individual Title I
schools. The Comparability requirement is evaluated at the school level
because it seeks to weigh the services provided in Title I schools with
those provided in non-Title I schools. In contrast, the SNS provision
is applied differently depending on how Title I services are applied.
It is applied to the program or the student in targeted assistance
programs to ensure that those targeted programs are providing more
services for a Title I student than non-Title I students receive, or it
is applied to the school if it operates a schoolwide program. (See fig.
1.):
Figure 1: Level at Which Fiscal Requirements Are Enforced:
[See PDF for image]
[End of figure]
Monitoring Process:
There are a variety of approaches that officials at the federal, state,
and local levels take to oversee state and local education agency
compliance with the fiscal accountability provisions associated with
Title I, including formal monitoring systems, such as the use of the
single audit, and more informal monitoring systems, such as monitoring
provided by interest groups.
Formal Monitoring Systems:
Education distributes Title I funds to the individual states and has
primary responsibility for overseeing federal education programs and
providing guidance and technical assistance to SEAs. Monitoring efforts
focus on state compliance with both programmatic and fiscal
requirements. Any issues of noncompliance reported at the state level
are to be communicated to Education and are typically resolved through
the development of an SEA corrective action plan, the implementation of
which will be monitored by federal agency officials.
States are considered the primary recipient, or grantee, of federal
awards like Title I and are responsible for ensuring that their
subrecipients comply with all federal laws and regulations governing
the grant. Since SEAs pass through most of the federal funds to the
LEAs, states must have the appropriate subrecipient monitoring systems
in place to track Title I spending. Program monitoring systems
typically include a review of funding applications, local budgets,
self-assessment documents, scheduled on-site visits to schools, and
technical assistance.
Single Audits:
The Single Audit Act replaced multiple audits of separate grant awards
with one organizationwide audit. A single audit includes an audit of
the federal grant recipient‘s financial statements as well as an
examination of its internal controls and its compliance with laws and
regulations governing federal awards. It does not, however, cover every
federal grant received by the organization. The objectives of the
Single Audit Act are as follows:
* Promote sound financial management, including effective internal
controls, with respect to federal awards administered by nonfederal
entities.
* Establish uniform requirements for audits of federal awards
administered by nonfederal entities.
* Promote the efficient and effective use of audit resources.
* Reduce burdens on state and local governments, Indian tribes, and
nonprofit organizations.
* Ensure that federal departments and agencies rely on and use audit
work done pursuant to the act.
In 1994, we reported that state and local officials had reported that
the single audit process had contributed to improving state and local
government financial management practices.[Footnote 5]
Guidance for conducting a single audit is found in the Office of
Management and Budget‘s (OMB) Circular A-133[Footnote 6] and the
accompanying compliance supplement. The guidance states that the scope
of the audit shall include an examination of:
* financial statements--to determine if they are presented fairly in
all material respects in conformity with generally accepted accounting
principles and whether the schedule of expenditures of federal awards
is presented fairly;
* internal controls--to obtain an understanding of internal control
over federal programs sufficient to plan the audit to support a low
assessed level of control risk;
* compliance--to determine whether the auditee has complied with laws,
regulations, and the provisions of contracts or grant agreements that
may have a direct and material effect on the federal program on each of
its major programs; and:
* prior audit findings--to perform procedures to assess the
reasonableness of the summary schedule of prior audit findings.
Any single audit report should discuss the auditor‘s analysis of these
areas and include a section that specifically focuses on federal
awards, including a schedule of findings and questioned costs. State
and local governments and nonprofit organizations that spend $300,000
or more in federal awards in a fiscal year must undertake a single
audit.[Footnote 7]
Informal Monitoring Systems:
In addition to formal monitoring systems, fiscal accountability is also
monitored informally by interest groups, parents groups, individuals,
and the media. The public nature and easy accessibility of school
district budgets, financial reports, and other fiscal information
promotes budget transparency and information sharing among people
outside the school system. This informal system may promote grantee
compliance with applicable laws and regulations and raise red flags for
the attention of the formal monitoring system.
States Used Multiple Tools to Enforce the Fiscal Accountability
Provisions, but Relied Primarily on the Single Audit Process to Enforce
SNS:
In the states we visited, state program officials use three tools--the
states‘ annual financial reports, the single audit process, and limited
program monitoring--to monitor Title I‘s fiscal accountability
requirements in their LEAs. In these states, enforcing the MOE
provision is straightforward and objective. However, a number of
factors made it difficult to ensure compliance with SNS.
Monitoring Compliance with MOE Presents Few Challenges:
In the states we visited, verifying compliance with Title I‘s MOE
requirement was a straightforward mathematical exercise and relied on
LEAs‘ data gathered through statewide financial accounting systems. In
part, monitoring and enforcing compliance with the MOE provision might
have presented few challenges because until recently state and local
revenues were increasing, and few grantees struggled to meet the MOE
requirement.[Footnote 8] Many state and LEA officials told us that the
robust economy and sound fiscal situation they experienced in the late
1990s allowed them to increase spending on education.
Each of the six states we visited has strong vested interests in the
integrity of its LEAs‘ financial reports because each has a large stake
in education finance in their states; all of these states mandate the
level of effort the local education agencies must provide each year in
order to receive state funds and impose their own financial reporting
requirements on local education agencies. While we did not verify the
quality of the data, it is the same data used to calculate the MOE
requirements.
Five of the six SEAs we visited use their annual financial reports to
verify LEA compliance with the MOE requirements. In the sixth, Florida,
the SEA relied on LEAs to submit a separate form verifying that they
were in compliance with MOE requirements. A program official verified
the form submitted against the previous year‘s submission and other
grant award documentation but did not independently check against the
state‘s accounting records. However, this check is done by auditors in
separate compliance reviews. State officials in Florida said that they
were considering changing their MOE verification process. They said
that audited data were available from their annual financial reporting
system, and they were considering streamlining the verification process
to eliminate the separate reporting requirement.
Two of the states we visited, Arizona and California, do not verify LEA
compliance with MOE requirements until after the current year‘s grant
has been awarded. This practice is due to routine delays in year-end
account reconciliation and timing of audits. The Arizona Office of the
Auditor General cited the state‘s department of education for failing
to enforce the MOE provisions before the current year‘s grant was
awarded. State program officials acknowledged that they complete the
grant award process before the audited financial data are available to
verify compliance with MOE; however, they said that verification is
finished well before the funds have been disbursed. Similarly, in
California the audited data are not available until 9 months after the
grant has been awarded. State program officials said that, despite
these delays, there were few risks that they would be unable to collect
the penalties against an LEA that was out of compliance with its MOE
requirements.[Footnote 9]
Many Factors Contribute to Difficulties Enforcing SNS Provision:
While verifying Title I‘s MOE requirement was straightforward and
objective, verifying compliance with the SNS provision was more
challenging. SEA officials relied primarily on the single audit process
to enforce the SNS provisions. But, many state and local program
officials and auditors we spoke with cited a number of factors that
made it difficult to ensure that grantees were in fact using federal
funds to supplement and not supplant their own funds. These factors
include difficulties applying the SNS provision to unique circumstances
in their school districts, reliance on the single audit to ensure
compliance without understanding its scope and methodology, and limited
state and local program oversight of the fiscal accountability
provisions.
The SNS Provision Is Difficult to Apply in Many Circumstances:
It can be difficult for auditors to establish a finding of
supplantation. One of the challenges auditors face in evaluating
compliance with the SNS requirement is determining the basis for the
states‘ and LEAs‘ funding decisions. The SNS requirement generally
prohibits replacing state funds with federal funds where the displaced
state funds could continue to be available for their original purpose.
However, under certain circumstances, where state funding is
discontinued, grantees may be able to replace these eliminated funds
with Title I dollars. For example, if an SEA or LEA discontinued its
own support for a particular program in response to a potential budget
deficit, the use of Title I funds may be permissible.[Footnote 10] The
challenge for auditors in deciding if an LEA has improperly supplanted,
is determining what the LEA would have done in the absence of federal
funds. For example, where a state reduces its own financial support for
a program and uses federal funds instead, an auditor may presume
supplanting has occurred; but, a grantee could rebut that presumption
by presenting evidence that fiscal stress required state budget cuts
that might not have otherwise been considered. The statute also permits
states to use Title I funds to replace state or local funds that had
been expended for a program meeting a Title I purpose by allowing such
supplemental state funds to be excluded from the SNS compliance
determination.[Footnote 11] In other words, an LEA is allowed to shift
funds from one state or locally funded program targeted to low-income
children, substitute federal funds for that program, and move its own
funds to other priorities for disadvantaged children.
Even if auditors could determine what a grantee would have done if it
had not received federal funds, the way that Title I services are
delivered can also make it difficult to apply the SNS provisions. Table
1 summarizes the relationships between the different ways programs are
delivered--targeted assistance, schoolwide programs, and districtwide
reforms and the application of the fiscal accountability provisions.
Table 1: Fiscal Accountability under Different Program Delivery
Frameworks:
Program delivery framework: Targeted assistance; Are funding sources
for specific services comparable from one year to the next?: Yes; Can
funding for specific services be separated by federal, state, and local
sources?: Yes; Are MOE tests workable?: Yes; Are SNS tests workable?:
Yes.
Program delivery framework: Schoolwide programs; Are funding sources
for specific services comparable from one year to the next?: No; Can
funding for specific services be separated by federal, state, and local
sources?: No; Are MOE tests workable?: Yes; Are SNS tests workable?:
No.
Program delivery framework: Districtwide reform efforts; Are funding
sources for specific services comparable from one year to the next?:
No; Can funding for specific services be separated by federal, state,
and local sources?: No; Are MOE tests workable?: Yes; Are SNS tests
workable?: No.
[End of table]
Source: GAO analysis.
For schoolwide programs the distinction between state/local funds and
federal funds--and hence the notion of supplantation--becomes unclear.
In general, when services are delivered through schoolwide programs,
federal, state, and local funds are pooled, making it impossible to
distinguish among funding streams in an audit because a schoolwide
school does not have to (1) show that Title I funds are paying for
additional services, (2) demonstrate that Title I funds are used only
for specific target populations, or (3) separately track federal
program funds once they reach the school. While one can identify the
separate funding sources going into a school one cannot identify what
services they funded. Therefore, for schoolwide programs a test for SNS
compliance could include either (1) a comparison from one year to the
next of total--federal, state, and local--funds allocated to a Title I
school or (2) a comparison of state and local funds spent in Title I
schools and non-Title I schools.[Footnote 12]
However, there are problems applying either test to schoolwide
programs. For example, in the Glendale (Arizona) Elementary School
District, every school is a Title I school and all schools operate
schoolwide programs. District officials argued that because the
district met its MOE requirement (in 2000-2001 it exceeded 100 percent
of its preceding years expenditures), it did not need a separate
internal control procedure to test for SNS. However, auditors cited the
district for not having such a procedure. Our analysis shows that, for
districts such as Glendale, in order to avoid supplanting funds, the
district would have to maintain the same state and local funding from
year to year. In other words, in districts where every school is a
Title I school and all schools operate a schoolwide program, they would
have to maintain a much higher MOE requirement,
100 percent, than districts that are not in this circumstance in order
to avoid supplanting funds unless they otherwise would not have spent
those funds.
Moreover, comparing expenditures from one year to the next in school
districts where there are both targeted assistance and schoolwide
schools presents challenges. Since schoolwide program administrators
can reallocate funds among programs in their schools, they can engage
in budgetary practices that are not allowed in a targeted assistance
school in the same district. Theoretically, the SNS provision imposes a
higher expectation on schools operating schoolwide programs than it
does on their targeted assistance counterparts because a year-to-year
funding comparison essentially requires a schoolwide school to maintain
100 percent of its previous effort in order to comply with the SNS
provision.
Furthermore, comparing the allocation of state/local funds among
schools in the same year also presents challenges. For example, in
Duval County (Florida) all 72 of the district‘s Title I schools operate
schoolwide programs but not all schools were Title I schools. Duval‘s
auditors assessed compliance with SNS by comparing the per pupil
expenditure of state and local funds in Title I schools to the
allocation in non-Title I schools within the same year. They found that
in 2001, 5 of the district‘s
72 Title I schools received significantly less state and local funding
per pupil than the average school received, resulting in questioned
costs of $2.5 million. The auditors suspected that the district may
have used federal Title I funds in place of state and local funds in
these schools, but district officials claimed that many mitigating
factors, such as higher teacher salaries for more experienced teachers,
could explain variations in the per pupil expenditures among schools in
the same district. The SEA determined that the information presented in
the audit report was not sufficient to determine that supplanting
occurred. SEA officials told us that auditors would need to have
programmatic expertise to interpret the results of the per pupil cost
comparisons in order to prove that supplantation had occurred. The
auditors agreed that many factors could have contributed to the
observed disparity in funding among the 5 Title I schools, but they
said there were limitations to what could be expected of a single audit
and pointed out that ultimately the SEA should use the audit findings
as a basis for determining whether the LEA is in compliance or not.
Finally, when a district engages in comprehensive districtwide reform
resulting in programmatic changes, it can be difficult to make the
types of comparisons necessary to determine compliance with SNS,
particularly in the first year of reforms. For example, in 2000, San
Diego City (California) Unified School District (USD) began school
reform that entailed financing new initiatives. As these reforms were
implemented, the district and its programs were restructured in such a
way that there were no longer points of comparison for determining
whether the district was in compliance with the SNS provision. In other
words, funding for programs in the current school year could not be
compared with funding for those in the previous year, because the
programs had not previously existed. The Superintendent of the San
Diego City USD told us that the reform plan could not have been
implemented without the flexibility to reallocate resources within and
among schools.
Some Officials Rely on the Single Audit, without Understanding What Its
Scope and Methodology Mean for Assessing the SNS Provision:
While some auditors struggled to apply the SNS provision to the
particular circumstance of districts and schools, SEA officials were
frequently unaware of what the results of a single audit actually
meant, potentially failing to cover key programs or provisions of law,
and thus adding to the difficulty of enforcing the SNS provision. For
example, numerous state and local program officials told us that they
assumed that the single audit covered every LEA and every program, even
though this is not what single audits are designed to do. As a result,
these officials may not engage in other oversight activities that are
warranted. Because only those grant recipients that spend more than
$300,000 in federal awards in any given year must undertake a single
audit,[Footnote 13] not all LEAs that receive Title I funds are
required to undergo one. Furthermore, even if an LEA is audited, the
Title I program may not be covered in the audit. The 1996 amendments to
the Single Audit Act give auditors more freedom to determine which
federal programs to include in their audit plan each year, allowing
them to exclude some programs based on risk-based criteria and on
expenditure-based criteria.[Footnote 14] Many of the auditors we spoke
with assessed risk by determining whether or not there had been
findings of noncompliance in recent audits. For example, if an LEA had
a clean audit with respect to the Title I program for the last few
years, an auditor might legitimately view the inherent risk of this
program as low and exclude it from the audit in the next year. Auditors
for both San Diego City (California) USD and Jefferson Parish
(Louisiana) Public Schools told us that Title I probably would not be
covered in the districts‘ 2002 single audit since there have been no
recent findings on the program.
In addition, some officials thought that the single audit examined
every transaction, even though it does not. As a result, officials may
think that by fixing the instances reported they are solving all the
problems, when in fact those problems may be more widespread. Generally
accepted government auditing standards allow statistical sampling
methods and auditors often use audit sampling to evaluate compliance
with applicable requirements. This involves testing less than 100
percent of the items within a group of transactions for the purpose of
evaluating compliance with applicable laws and regulations.
Transactions could be randomly selected from all of the auditee‘s
financial transactions for the year under review.[Footnote 15] While
this technique allows auditors to test the population of transactions
for evidence of noncompliance and internal control weaknesses, it will
not identify every specific instance of noncompliance.[Footnote 16]
When auditors of Douglas (Arizona) USD identified significant internal
control weaknesses based on analysis of a sample of the district‘s
financial they reported that their review of the district‘s internal
controls would not necessarily disclose all instances of non-
compliance. However, the SEA resolved the issue by requiring the
auditee to reimburse the Title I program for the amount of the
transaction under question only and did not further investigate if
there were other erroneous payments made.
While there were problems with program officials understanding what
single audits are and what results from the single audit meant, in
general the auditors‘ work plans we reviewed followed the guidance
recommended by Education and OMB for single audits. However, some of
the auditors could not document that they had followed their work
plans. For example, audit workpapers for San Diego City (California)
USD show that auditors held a discussion with a district budget
official who told the auditors that they were in compliance with the
SNS provision, but the workpapers did not indicate independent
verification of these claims.
In five of the six states we reviewed, the SEA had a procedure in place
to resolve audit findings reported through the single audit process.
However, in 2001 the Louisiana Legislative Auditor reported in its
statewide single audit that the SEA did not have adequate internal
controls to monitor subrecipients for compliance with many federal
education programs, including Title I. The SEA concurred with the
auditor‘s finding and has implemented policies to address the
deficiencies.
Selected States Conduct Limited Program Monitoring:
All of the states we visited supplemented their reviews of LEAs‘ single
audit reports with additional monitoring activities. While program
monitoring provided a depth of coverage that cannot be achieved in
single audits, these efforts were limited. Furthermore, in all of the
states we visited, the primary focus of any additional monitoring
activities has now centered on addressing efforts to raise the level of
student achievement with considerably less focus given to fiscal
accountability requirements. Informal monitoring by individuals and
groups augmented the formal monitoring process.
Limited program monitoring also took place during the application
review process. In all of the states we visited, the annual application
process for Title I funding contains questions on historic and proposed
program budget information that can be used by program officials in the
SEA to oversee compliance with SNS and MOE. In addition, some states
require LEAs to complete a self-assessment document in which they are
asked to assess themselves on their compliance with federal program
requirements. SEAs use these self-assessment documents for various
purposes. For example, in Florida, annual self-assessments were used as
a self-monitoring tool, but only one-quarter of the LEAs were required
to actually send in the completed guide for review in any given year.
In Arizona, the tool was also required annually and is designed to
provide guidance in program development and to identify areas in which
technical assistance may be needed. In California, LEAs must complete
self-assessments once every 4 years, at which time SEA officials
evaluate the self-assessment documents and use them to target their on-
site monitoring activities to those LEAs that pose the highest risks.
While four of the six states we visited followed up LEAs‘ self-
assessments with on-site visits, the extent to which they conducted
such visits varied and, in some cases, was limited. Massachusetts and
Arizona have scheduled on-site monitoring visits in the LEAs at least
once every 6 years. In Louisiana, state officials said that each LEA is
visited once every
3 years. In California, while each LEA must go through the review cycle
every 4 years. In addition, in 2001 two of the six states we visited,
Florida and Indiana, did not follow up on the self-assessments with
periodic on-site program monitoring.[Footnote 17]
Several state officials highlighted the importance of informal
monitoring networks, such as parents groups, in raising issues of
noncompliance. These watchdog groups play an informal role in
questioning inappropriate spending and submitting complaints to the
school boards and, if they feel their concerns are not addressed at
this level, elevating the issues to the SEA. SEA officials in both
Indiana and California discussed recent inquiries that were brought to
their attention, not through single audit reports or even program
monitoring efforts, but rather by informal watchdog groups. In Indiana,
the issues raised dealt with unallowable costs and high administrative
charges to federal programs in one school; the SEA is investigating
and, according to state officials, the matter is still unresolved. In
California, a parents group in San Diego filed a complaint with the
California Department of Education citing issues relating to, among
other things, the reallocation of state and federal funding, including
Title I funds, by the San Diego City (California) USD to fund its
districtwide school reform strategy which, the watchdog group claimed,
no longer provides a comparable level of service to all students with
state and local funding. The SEA concurred and ordered the district to
develop a plan to allocate the state and local supplemental funds that
complies with all the federal comparability provisions. However,
Education granted the district a waiver in August 2002 which will allow
the district to proceed with the reform strategy under its current
budget plan for 1 year.
Education‘s Key Efforts to Enforce Fiscal Accountability Provisions
Have Limitations:
We identified three key efforts the Department of Education made to
help enforce the fiscal accountability provisions but each had
limitations. First, Education developed guidance and provided technical
assistance to state and local officials and their auditors; but, these
officials have expressed confusion regarding application of the SNS
provision to their particular circumstances. Second, Education
conducted limited program monitoring of its own, but these efforts did
not have fiscal accountability as a primary focus. Finally, Education
reviewed states‘ single audit reports conducted under the Single Audit
Act. But, the Inspector General of Education found that many reviewers
in the department lacked knowledge about the single audit process and
compliance issues. As a consequence, Education‘s monitors could fail to
review key programs or provisions of law. In addition, we recently
reported that Education could not demonstrate it consistently worked to
resolve audit findings.[Footnote 18]
Officials and Auditors Confused about Application of Fiscal
Accountability Provisions to Their Particular Circumstances:
Education developed guidance for its programs which appeared in the
compliance supplement to OMB‘s Circular A-133. This guidance was the
basis for the audit plans for all the districts we visited. Education‘s
guidance itemizes the SNS, MOE, and the comparability requirements as
separate statutory requirements. However, many state and local
officials and auditors we spoke with thought the three requirements
were related to each other and that, by meeting one or two of the
requirements, they would automatically be in compliance with the
others.
Some auditors and program officials confuse the comparability
requirement with the SNS provision.[Footnote 19] While comparability is
primarily used to ensure that services--not funding--is comparable
across schools in the LEA, the two issues are closely related and
frequently confused. For example, guidance issued by the SEA in Arizona
on the comparability requirement states that comparability is used to
ensure that schools within an LEA do not supplant state and local funds
with federal program funds. Operating under the same misconception,
Indianapolis Public Schools incorrectly used the comparability test as
the internal control to ensure compliance with SNS. Moreover, the
district‘s auditors failed to question the appropriateness of this test
to ensure compliance with SNS. A similar confusion was evident when
officials in the Duval County Public Schools told auditors that they
could not understand how they failed to comply with the prohibition on
supplantation, given that they had not cut back on their own overall
spending thereby meeting their MOE requirements and had documented
meeting their comparability requirement.
Education recognizes that there is some confusion about the application
of the provisions. Education officials acknowledge the challenges of
writing guidance that can be understood and applied in every
circumstance. Many federal program officials said that they frequently
field questions from district officials and some auditors seeking
technical assistance applying the provisions in local circumstances. In
December 2002, Education issued new regulations that reorganized its
guidance on schoolwide programs in a manner that might help address
some of the confusion.
State and local education agencies and their auditors told us that they
also rely on nongovernmental sources of guidance, such as workshops and
materials provided by consulting firms. For example, auditors in
Arizona provided us with excerpts from handbooks and other guidance on
the Title I program.[Footnote 20] School officials and auditors in
other districts we visited also told us they supplement federal
guidance with similar nongovernmental sources of guidance.
Fiscal Accountability Is Not the Primary Focus of Education‘s Program
Monitoring:
The fiscal accountability provisions have not been the focus of
Education‘s own monitoring efforts. From 1995-2001, Education used an
approach to program monitoring called an integrated review approach.
Its primary focus was to see how all federal grant programs, working
together, supported state and local reform efforts. The Title I program
was included in these reviews. However, only 1 of the 9 indicators
Education‘s monitors used in integrated reviews focused on fiscal
issues; the rest focused on program performance, such as whether the
state supported and promoted high standards for all children, and
whether states used education research findings to inform decision
making. Education‘s Inspector General criticized this approach to
program reviews in 2001 because the integrated approach allotted
insufficient time to monitor specific programs for compliance with
federal laws and regulations. The Inspector General also found that the
various teams of reviewers lacked knowledge of the single audit
process, thereby taking inconsistent approaches to doing the
reviews.[Footnote 21]
In 2002 Education drafted guidelines for its monitors to use in a new
approach to program monitoring, but we found that the new approach
gives fiscal accountability requirements little emphasis and it does
not even mention SNS. In 2002, Education developed a new monitoring
strategy which it has named: Achievement Focused Monitoring (AFM). As
its name implies, the AFM approach seeks to realign oversight and
technical assistance for Title I to concentrate on student achievement.
Education officials acknowledged that their program monitoring guide
does not mention SNS and said they would provide additional guidance to
their monitors on the provision for use in the future. Education‘s AFM
plan includes visits to 15 states--and at least one district in each
state--in 2002 and 2003. By October 2002 Education had completed visits
to four states.
Education‘s Review of State Single Audit Reports Has Weaknesses:
Education has responsibility for reviewing the audit reports of state
education agencies. In 2002, we reported actions were needed to ensure
that grantees correct findings identified in state single audit
reports. Each state must undertake a single audit each year. Each year
their auditors determine which federal programs to include in their
audit plan and audit those programs for compliance with the federal
laws and regulations covering those grant programs. Although Education
had procedures for obtaining states‘ single audit reports, distributing
audit findings to appropriate audit offices, and assessing the
seriousness of the findings, we found that reviewers did not
demonstrate they consistently worked to resolve audit findings.
Specifically, reviewers did not consistently follow-up with written
management decisions on final audit resolution and did not communicate
findings to senior department management.[Footnote 22]
Little Change in Federal Share from School Years 1999-2000 to 2000-
2001:
We found that few changes have occurred in the relative shares of
federal, state‘ and local funding for education for school years (SY)
1999-2000 and 2000-2001 (the most recent data available) in the six
states we reviewed. (See fig. 2.) It is too soon to tell how recent
increases in federal funds for Title I and other federal education
programs and the fiscal pressures facing states will affect funding for
education in general and how changes, if any, in state and local
financing will affect the federal share. However, this information does
provide a baseline against which we can compare the impact of increases
in federal funds and state and local fiscal pressures in the future.
Figure 2: Changes in the Shares of Total Funding for Education Services
in Six States between SY 1999-2000 and 2000-2001:
[See PDF for image]
[End of figure]
Note: Percentages do not add due to rounding.
In addition to the concern about the fiscal balance in education
funding overall, questions have been raised about the federal share of
operating SEAs. SEA operations include the administration of programs-
-primarily oversight, technical assistance, and training--related to
specific federal programs operated at the local level. SEAs may also
operate state-level programs, such as vocational rehabilitation. As we
noted in a previous report, the level of federal support for SEA
operations varied widely among states depending on the number and types
of federal and state programs the SEA operates, ranging in fiscal year
1993 from about 10 to about 80 percent, with the average level of
support being 41 percent.[Footnote 23] To update this information, we
looked at the federal share of SEA funding in the six states we visited
for school year 1999-2000. As in the past, we found the federal share
varied, from 18 percent in Florida to 43 percent in Indiana. (See the
shaded bars in fig. 3.):
Figure 3: Federal Share of SEA Operations in Six States (SY 2000-2001):
[See PDF for image]
[End of figure]
Another way to look at the federal share of SEA operating costs is
through the number of full-time equivalent positions (FTEs) that are
funded by federal funds. Some states operate federal programs at the
state level, such as vocational rehabilitation and disability
determination. These may require many more SEA FTEs than programs
operated at the local level. For example, in 2000-2001, the Florida SEA
assumed responsibility for the federal vocational rehabilitation
programs that were previously housed in another state department,
adding more than 1,000 positions to the SEA and raising its percent of
federally funded FTEs from 43 percent to
63 percent.
Finally, table 2 provides some additional context when making
comparisons and contrasts among the states we visited. Per pupil
expenditure calculations serve as a proxy reflecting the cost
differences among states in providing education.
Table 2: Education Spending in Six States, School Year 1999-2000:
Arizona; Total education spending
(in billions): $4.6; Per pupil
expenditure: $5,656; Federal share of education spending: 10%.
California; Total education spending
(in billions): $45.1; Per pupil
expenditure: $7,571; Federal share of education spending: 9%.
Florida; Total education spending
(in billions): $17.3; Per pupil
expenditure: $7,269; Federal share of education spending: 8%.
Indiana; Total education spending
(in billions): $7.7; Per pupil
expenditure: $7,813; Federal share of education spending: 5%.
Louisiana; Total education spending
(in billions): $4.8; Per pupil
expenditure: $6,473; Federal share of education spending: 12%.
Massachusetts; Total education spending
(in billions): $8.7; Per pupil
expenditure: $9,108; Federal share of education spending: 5%.
[End of table]
Source: GAO analysis.
Conclusions:
Single audits are a valuable oversight tool but they cannot be regarded
as the sole tool to use in enforcing the compliance requirements.
Additional oversight is always necessary to ensure that grantees are in
compliance with the laws and regulations governing specific programs
and grant management in general. Single audits should inform, not
substitute for program monitoring. However, as we have noted, many
state officials told us that they relied primarily on the single audits
to oversee compliance with federal laws and regulations. Because of
this reliance, state program officials responsible for overseeing this
program must have a better understanding of the scope and limitations
of these audits and supplement the audits with more effective and
frequent oversight activities. Instances of noncompliance found in the
course of a single audit should trigger a broader search to determine
whether the error is systemic.
While NCLB emphasizes achieving higher student achievement levels,
enforcing fiscal accountability is and will remain a critically
important oversight activity. Resources for audit and evaluation
activities will remain limited, and, as a result, these resources must
be targeted where they will have the greatest impact. As we have noted,
ensuring compliance with an MOE provision presents few challenges and
requires few additional audit resources, whereas monitoring the SNS
provision is very challenging and requires significant audit resources.
Maintaining the intergovernmental fiscal partnership in the education
of disadvantaged and low-income students presents many challenges.
Title I‘s two fiscal accountability provisions--the MOE and the SNS
provisions--are intended to limit the extent that grantees can use
federal funds to replace their own and thereby erode the fiscal
partnership. But each provision helps to maintain the fiscal balance in
very different ways and at different levels--schools versus districts.
The primary effect of a nonsupplant provision is to prevent the
reallocation of state and local resources within a Title I school;
essentially, that means that expenditures paid for with state and local
resources in a Title I school in one year cannot be paid for with
federal funds the next year. On the other hand, the MOE provision‘s
primary effect is to limit the extent to which states and LEAs can use
federal funds for general fiscal relief; that is, substituting federal
funds for state and local funds generally, not just in Title I schools.
As noted, in schoolwide programs grantees are not required to show that
Title I funds are paying for additional services or are targeted to
specific students, nor are they required to separately track federal
program funds with other funds once they reach the school, thus
’limiting the reallocation of resources“ becomes unworkable in a
schoolwide setting.
An inherent tension exists between fostering a flexible grant
environment and ensuring fiscal accountability. For broader purpose
grants, such as schoolwide programs, the SNS provision can work to
constrain local flexibility in the use of federal funds by preventing
districts from reallocating the use of federal, state, and local funds.
Moreover, the provision is difficult to apply and can be very
challenging to monitor and enforce, primarily because it is not
workable in those environments. As we have previously reported, in
flexible grant environments a strong MOE provision may prove more
useful than an SNS provision in limiting the degree to which grantees
can use federal funds to simply reduce their overall fiscal
commitments.
That different parties would have different views of the value of the
nonsupplant provisions is to be expected. Some argue that allowing
supplantation of any kind increases the likelihood that states could
weaken their commitment to educating disadvantaged children and
diminish the fiscal impact of the federal grant. Potentially,
supplantation allows the SEAs and LEAs to convert the federal Title I
grant into a kind of revenue sharing program with very little
incremental impact on education spending. Others would point to
periodic changes to the Title I program allowing more schools to
participate as schoolwide programs, suggesting that the Congress may be
trying to encourage more flexible use of Title I funds to improve the
quality of education for disadvantaged students and raise student
achievement levels for all students, including low-income students.
Furthermore, in times of fiscal stress and greater needs in educating
the disadvantaged, the reallocation of resources within and among
schools may be the only way to finance comprehensive districtwide
reform efforts. A nonsupplant provision could stymie those districts
that need more flexibility to attempt such reforms.
Matters for Congressional Consideration:
To better align its expectations for accountability with Title I
schoolwide program goals, the Congress should consider eliminating the
SNS requirement for schoolwide programs. If Congress eliminates SNS in
the context of schoolwide programs, Congress may want to consider
strengthening the other fiscal accountability requirement, MOE.
Currently, LEAs must maintain only 90 percent of their previous years‘
expenditures in order to participate in the Title I program. For
example, if this requirement were increased, it would impose a higher
expectation on those districts to maintain the fiscal balance and it
could represent a reasonable tradeoff for those districts that want to
begin more comprehensive reform efforts.
Recommendations for Executive Action:
We recommend that the U.S. Department of Education enhance its
technical assistance and training efforts to ensure that SEAs and
Education program staff have a clearer understanding of the strengths
and weaknesses of the single audit process and the role the audits can
play in required oversight activities and encourage them to heighten
the level of attention they give the fiscal requirements in their own
monitoring efforts. In addition, we recommend that Education amend its
guidance for grantees and oversight officers to address all of Title
I‘s fiscal requirements, including the SNS provision.
Agency Comments:
We received comments from Education on a draft of this report, which
are reprinted in Appendix II. Education generally agreed with our
recommendations for executive action to enhance its technical
assistance and training efforts on the single audit process and to
amend its own guidance to address all of Title I‘s fiscal
accountability provisions.
On the policy issue of whether to eliminate the SNS requirement for
schoolwide programs, Education is not ready to take a position.
However, Education questioned the basis for the matter for
congressional consideration that we propose. Education acknowledges the
difficulties enforcing the SNS provision in schoolwide programs and we
found that none of the districts we visited were able to develop a test
for SNS that could be applied in a schoolwide setting. Education cited
recent supplanting violations found by Title I monitoring staff to show
that it was possible to assess supplantation in a schoolwide setting.
However, according to an Education official, these findings were not
for schoolwide programs.
Education says that the loss of the SNS requirement would not be
completely offset by an enhanced MOE requirement because it would shift
responsibility for fiscal accountability from the school to the
district level. However, our review shows that the current requirement
is unworkable in a schoolwide setting. As we said, while one can
identify the separate funding sources going into a school, one cannot
identify what services they funded in a schoolwide setting because
federal, state, and local funds are pooled. In contrast, an MOE
requirement is easier to measure, identify, and track, and therefore
better promotes fiscal accountability in these settings. If Congress
considers eliminating the SNS provision, we believe that enhancing the
MOE requirement is a reasonable tradeoff. With regard to Education‘s
regulation governing the SNS requirement that Education said we did not
discuss, we did discuss this on page 13. We have added a footnote to
make the report more clear on that point.
Education said that it did not agree that the level or scope of
monitoring is inadequate. However, we found that Education‘s efforts to
enforce the fiscal provisions have some limitations. By design,
Education‘s current monitoring effort is directed at the provisions on
accountability for academic results, but we found that the fiscal
requirements were given little attention, and the materials developed
by Education to guide monitoring efforts did not even mention SNS.
Finally, with regard to Education‘s review of single audit reports,
this finding was published previously in our June 2002 report and
specifically assessed the Title I program. The department concurred
with our findings at that time and has provided us with a corrective
action plan. Secretary Paige‘s August 26, 2002, letter to GAO indicated
that it planned to address these findings by February 28, 2003.
In addition, we provided segments of this draft report to the states
and school districts we visited. We have incorporated their comments in
the report as appropriate.
We are sending copies of this report to the Secretary of Education,
appropriate congressional committees, and other interested parties. In
addition, the report will be available at no charge on GAO‘s Web site
at http://www.gao.gov.
If you or your staff have any questions or wish to discuss this
material further, please call Paul L. Posner at (202) 512-9573 or
Marnie S. Shaul at (202) 512-7215. Other GAO contacts and staff
acknowledgments are listed in appendix III.
Paul L. Posner
Managing Director, Intergovernmental Relations
and Federal Budget Issues:
Signed by Paul L. Posner:
Marnie S. Shaul
Director, Education, Workforce,
and Income Security Issues:
Signed by Marnie S. Shaul:
[End of section]
Appendix I: Scope and Methodology:
To determine how select states ensure compliance with maintenance of
effort (MOE) and supplement-not-supplant (SNS), we interviewed state
program and budget officials in six states: Arizona, California,
Florida, Indiana, Louisiana, and Massachusetts. We also reviewed
budgets and financial statements for school years 1999-2000 and 2000-
2001, as well as state guidance on fiscal accountability requirements.
We also spoke with state auditors and reviewed their audit plans and
other relevant workpapers. In addition to meeting with state officials,
we spoke with local program and budget officials and school district
administrators in six local education agencies including Douglas
Unified School District and Glendale Elementary School District in
Arizona, San Diego City Unified School District in California, Duval
County Public Schools in Florida, Indianapolis Public Schools in
Indiana, and Jefferson Parish Public Schools in Louisiana. Again, we
reviewed budgets and financial statements for school years 1999-2000
and 2000-2001 and local auditors‘ audit plans and relevant workpapers.
We selected two of the states and three local school districts based on
our search of the Federal Audit Clearinghouse,[Footnote 24] which is a
Web-based database that we searched to identify states and school
districts found out of compliance with one or more of the Title I
fiscal accountability requirements in 2001. Two of the six states we
selected were out of compliance with one of the fiscal accountability
requirements, while the other four were not. Likewise, three of the
school districts we visited were found to be out of compliance with the
SNS provisions; the other three were not. Those states and local school
districts without audit findings were selected to ensure variation in
enrollment size, ethnic composition, economic condition, and geographic
location.
To determine what efforts the U.S. Department of Education has taken to
enforce the Title I fiscal accountability provisions and what
limitations, if any, these efforts may have, we spoke with Education
officials and reviewed Education guidance and documentation as well as
recent GAO and OIG reports.
To assess what changes occurred between school years 1999-2000 and
2000-01 in the federal share of education expenditures and to what
extent federal funds were used to support state education agencies‘
operating expenditures, we gathered information from state program and
budget officials on federal, state, and local funding streams as well
as full time equivalent (FTE) and operating expenditure data. We
analyzed and summarized this information and presented it in a way that
provides context and comparison across the six states. Due to the
limited number of states and districts selected, our findings cannot be
generalized to school districts nationwide.
[End of section]
Appendix II: Comments from the Department of Education:
UNITED STATES DEPARTMENT OF EDUCATION:
THE UNDER SECRETARY:
February 24, 2003:
Ms. Marnie S. Shaul Director:
Education, Workforce,
and Income Security Issues:
United States General Accounting Office Washington, D.C. 20548:
Dear Ms. Shaul:
This is in response to the draft report, ’Disadvantaged Students:
Fiscal Oversight of Title I Could Be Improved (GAO 03 377)“ developed
by GAO subsequent to its review of the implementation of the Title I
fiscal requirements in six States, and of the Department of Education‘s
efforts to enforce these requirements. Although GAO makes two
recommendations for ’Executive Action“ with which we generally agree,
there are a number of statements in the report that are factually
incorrect.
GAO recommends under ’Matter for Congressional Consideration“ (on page
26 of the report) that Congress consider eliminating the ’supplement,
not supplant (SNS)“ requirements for schoolwide programs, and
’strengthen“ the maintenance of effort (MOE) requirement. While we are
not yet ready to take a position on the proposed legislative change in
light of the short time given to comment, we are commenting on GAO‘s
basis for suggesting such a change.
In support of this recommendation, GAO cites the difficulty in
determining compliance with the SNS requirement (’ensuring compliance
with an MOE provision presents few challenges and requires few
additional audit resources, whereas monitoring the SNS provision is
very challenging and requires significant audit resources“). Though
compliance with the SNS provision of the Title I legislation might be
challenging in some instances, the provision is important in ensuring
that Title I funds are supplementary in a schoolwide context and we do
not believe that the recommendation to eliminate the provision is well
supported. The SNS requirement provision helps to maintain the
integrity of the program and to ensure that Title I funds are used to
supplement State and local education funds.
The SNS requirement is very important in meeting the longstanding
Congressional intent of the Title I program, which the authorizing
statute makes clear is to supplement State and local education
resources for the purpose of providing the additional instruction that
low-achieving students in high-poverty schools need to meet State
academic standards. For example, section I 114(a)(2)(B) of the ESEA
states that schoolwide programs must use Title I funds ’only to
supplement the amount of funds that would, in the absence of funds
under this part, be made available from non-Federal sources for the
school. Similarly, schoolwide reform strategies must ’increase the
amount and
quality of learning time“ [1114(b)(1)(B)(ii)(II)] and targeted
assistance programs must ’give primary consideration to providing
extended learning time“ [I I15(c)(1)(C)(i)]. In this context, the SNS
requirement is central to the fiscal integrity of the program and to
the successful achievement of the goals that Congress and President
Bush set for Title I in the No Child Left Behind Act.
The SNS provision has meaning within the context of a schoolwide
program and merely raising the MOE level for a local educational agency
(LEA) would not ensure that a particular school or its students receive
a fair share of State and local resources. Under the Department‘s
regulation governing the SNS requirement in the context of schoolwide
programs (in 34 CFR 200.25(d)), which the GAO draft report does not
discuss, a school operating a schoolwide program must use its Title I
and other Federal funds only to supplement ’the total amount of funds
that would, in the absence of the Federal funds, be made available from
non-Federal sources for that school, including funds needed to provide
services that are required by law for children with disabilities and
children with limited English proficiency.“ (See also the guidance in
the compliance supplement.) The MOE provision does not serve to ensure
that a particular school operating a schoolwide program receives
supplemental services from the Federal funds.
We also do not agree that the level or scope of monitoring is
inadequate. While we continue to make improvements to the monitoring
process, we believe that our current monitoring is appropriately
directed at the provisions on accountability for academic results and
other requirements, including the fiscal requirements. Recently
Department Title I monitoring staff found supplanting violations in
providing Title I services in the use of Title I equipment at private
schools, the funding of pre-school programs, and Title I-paid salaries
of administrators at the LEA level. We are continuing to work with the
States involved to resolve these matters. While we agree that there is
no simple numeric formula that can be applied to SNS, as can be done
for comparability and maintenance of effort, this does not make the
prohibition any less important or valuable for ensuring that the Title
I program is truly supplementary and has the full opportunity to have a
positive impact on the students it serves. Determining if SNS is being
met may require a comparison of Title I schools to non-Title I schools,
looking at school, LEA and State education agency budgets to determine
if resources have been cut in the anticipation of the receipt of the
Federal funds, and asking questions of school personnel, LEA personnel,
and SEA personnel. Further, strengthening the MOE provisions to require
LEAs to maintain 95 percent of their previous year‘s expenditures (an
increase from 90 percent) would not ’offset“ a diminished role of SNS.
GAO concludes (on page 24 of the report) that ’the primary effect of a
nonsupplant provision is to prevent the reallocation of State and local
resources within a Title I school.“ This is only partially correct -
while it would not be permissible for an LEA to pay for goods and
services with State and local funds one year, and then use Title I
funds for those same goods and services the next, the SNS provision
prohibits LEAs from using Title I funds for activities that would
otherwise be funded with State and local funds. Department Title I
monitoring staff have found instances of noncompliance with the SNS:
requirement in the immediate (current) school year when monitoring was
conducted. What we have found (in the instances noted above) is that,
in some cases, LEAs use Title I funds to pay for services or activities
in Title I schools, and use State or local funds to pay for these same
services or activities in non-Title I schools. This is a clear
violation of the SNS requirement.
Lastly, we disagree with the ’finding“ on pages 21-22 of the report
that, ’although Education had procedures for obtaining States‘ single
audit reports, distributing audit findings to appropriate audit offices
and assessing the seriousness of the findings, we found that reviewers
did not demonstrate they consistently worked to resolve audit findings.
Specifically, reviewers did not consistently follow-up with written
management decisions on final audit resolution and did not communicate
findings to senior department management.“ Since the report deals
specifically with the Title I (Part A) program, we must assume that the
…reviewers‘ referenced in the report are those in the Department
responsible for the Title I audit resolution process. These staff have
consistently followed Department policy and procedures in reviewing and
resolving audits, conducting thorough analyses of State audit reports
(including audit work papers) in a timely manner. These staff fully
understand the fiscal provisions discussed in the report and are very
capable of reviewing findings involving these provisions. Final
Department responses to all Title I-related audits are prepared by
experienced staff, and reviewed by other Department offices with
expertise in implementing and understanding these requirements
(including, in some cases, the Office of Inspector General) and are
ultimately issued by the Assistant Secretary after a careful review
process.
We have no problems with improving technical assistance as recommended
by the draft GAO report. However, we believe that the draft GAO report
does not fully recognize the strength of regulations and guidance that
the Department has already issued, the success of its monitoring
efforts, and the knowledge and understanding of the fiscal requirements
by those involved in the audit resolution process. Therefore, we
believe that the draft report has some serious weaknesses. We would be
glad to work with GAO to supply further information to improve the
report.
Sincerely,
Eugene W. Hickok:
Signed by Eugene W. Hickok:
[End of section]
Appendix III: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Tom James, (202) 512-2996, jamest@gao.gov
Eleanor Johnson, (202) 512-7209, johnsone@gao.gov
Acknowledgments:
In addition to those named above Bill Keller, Jennifer Ashford, and
Leah Nash made key contributions to this report. Patrick DiBattista
provided exceptional editorial assistance on the content and message of
the report. Behn Miller and Richard P. Burkard supplied legal advice on
several complex aspects of our work. Thomas Broderick and Jacquelyn
Hamilton provided technical assistance on the Single Audit Act.
[End of section]
Appendix IV: Related GAO Products:
Education:
Education School Finance: Per-Pupil Spending Differences between
Selected Inner City and Suburban Schools Varied by Metropolitan Area.
GAO-03-234. Washington, D.C.: December 9, 2002.
Title I: Education Needs to Monitor States‘ Scoring of Assessments.
GAO-02-393. Washington, D.C.: April 1, 2002.
Title I Funding: Poor Children Benefit Though Funding Per Poor Child
Differs. GAO-02-242. Washington, D.C.: January 31, 2002.
Title I Preschool Education: More Children Served, but Gauging Effect
on School Readiness Difficult. GAO/HEHS-00-171. Washington, D.C.:
September 20, 2000.
Title I Program: Stronger Accountability Needed for Performance of
Disadvantaged Students. GAO/HEHS-00-89. Washington, D.C.: June 1, 2000.
Education Finance: Extent of Federal Funding in State Education
Agencies. GAO/HEHS-95-3. Washington, D.C.: October 14, 1994.
Single Audit:
Single Audit: Single Audit Act Effectiveness Issues.
GAO-02-877T. Washington, D.C.: June 26, 2002.
Single Audit: Actions Needed to Ensure That Findings Are Corrected.
GAO-02-705. Washington, D.C.: June 26, 2002.
Single Audit: Survey of CFO Act Agencies. GAO-02-376. Washington, D.C.:
March 15, 2002.
Single Audit: Update on the Implementation of the Single Audit Act
Amendments of 1996. GAO/AIMD-00-293. Washington, D.C.:
September 29, 2000.
Single Audit: Refinements Can Improve Usefulness. GAO/AIMD-94-133.
Washington, D.C.: June 21, 1994.
Intergovernmental Relations:
Welfare Reform: Challenges in Maintaining a Federal/State Fiscal
Partnership. GAO-01-828. Washington, D.C.: August 10, 2001.
Welfare Reform: Challenges in Saving for a Rainy Day. GAO-01-674T.
Washington, D.C.: April 26, 2001.
Welfare Reform: Early Fiscal Effects of the TANF Block Grant. GAO/AIMD-
98-137. Washington, D.C.: August 18, 1998.
Federal Grants: Design Improvements Could Help Federal Resources Go
Further. GAO/AIMD-97-7. Washington, D.C.: December 18, 1996.
Block Grants: Issues in Designing Accountability Provisions.
GAO/AIMD-95-226. Washington, D.C.: September 1, 1995.
Block Grants: Characteristics, Experience, and Lessons Learned. GAO/
HEHS-95-74. Washington, D.C.: February 9, 1995.
Proposed Changes in Federal Matching and Maintenance of Effort
Requirements. GAO/GGD-81-7. Washington, D.C.: December 23, 1980.
GAO‘s Mission:
The General Accounting Office, the audit, evaluation and investigative
arm of Congress, exists to support Congress in meeting its
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FOOTNOTES
[1] Arizona, California, Florida, Indiana, Louisiana, and
Massachusetts.
[2] Douglas Unified School District and Glendale Elementary School
District in Arizona,
San Diego City Unified School District in California, Duval County
Public Schools in Florida, Indianapolis Public Schools in Indiana, and
Jefferson Parish Public Schools in Louisiana.
[3] U.S. General Accounting Office, Welfare Reform: Challenges in
Maintaining a Federal-State Fiscal Partnership, GAO-01-828
(Washington, D.C.: Aug. 10, 2001).
[4] U.S. General Accounting Office, Single Audit: Refinements Can
Improve Usefulness, GAO/AIMD-94-133 (Washington, D.C., June 21, 1994).
[5] Audits of States, Local Governments, and Non-Profit Organizations.
[6] Each nonfederal entity that expends awards under only one federal
program and is not subject to laws, regulations, or federal award
agreements that require a financial statement audit, may elect to have
a program-specific audit instead of a single audit. 31 U.S.C. 7502
(a)(1)(C).
[7] ESEA allows grantees to request a waiver from the MOE requirement
if they are unable to meet the requirement in any given year; but few
LEAs have requested such a waiver. Only 25 LEAs have requested waivers
since 1995, and Education has approved 7 requests.
[8] California plans to begin verifying LEA compliance with the MOE
requirement before the grant is awarded in 2003.
[9] However, if there were evidence that other state funds could be
made available, or that state law mandated state funding despite the
budget deficit, the use of Title I funds could violate the SNS
requirement. See State of New York v. Education, 903 F.2d 930
(2d Cir. 1990).
[10] 20 U.S.C. § 6321(d). The implementing regulations, 34 C.F.R. §
200.79 generally provide that a program meets the intent and purposes
of Title I if the program is either
(1) implemented in a school in which the percentage of children from
low-income families is at least 40 percent or (2) serves children who
are failing, or at most risk of failing to meet the state‘s challenging
academic achievement standards.
[11] See 34 CFR 200.25d (2003).
[12] This threshold is appropriate as recommended in our previous work.
(See U.S. General Accounting Office, Single Audit: Refinements Can
Improve Usefulness, GAO/AIMD-94-133 (Washington D.C., June 21, 1994).
Single Audits are intended to help focus audit resources where the
Congress originally intended they be focused, that is, on recipients
expending the largest amounts of federal financial assistance.
[13] The use of risk-based criteria is appropriate as recommended in
our previous work. Single Audit: Refinements Can Improve Usefulness,
GAO/AIMD-94-133 (Washington D.C., June 21, 1994). When considering
program risk, auditors are required to consider such items as the
recipient‘s current and prior audit experience with federal programs;
the results of recent oversight visits by federal, state, and local
agencies; and the inherent risk of the program.
[14] In some cases, a random sample as small as 45 transactions could
be used to test the effectiveness of the internal control environment.
A single error in this sample is evidence that the control environment
is not highly effective, i.e., material errors may occur.
[15] To identify every occurrence of noncompliance, one would have to
audit every transaction in the population.
[16] Florida plans to begin on-site monitoring of LEAs this year.
[17] U.S. General Accounting Office, Single Audit: Actions Needed to
Ensure That Findings Are Corrected, GAO-02-705 (Washington D.C., June
26, 2002).
[18] An LEA is considered to have met the statutory comparability
requirements if it has implemented (1) an LEA-wide salary schedule; (2)
a policy to ensure equivalence among schools in teachers,
administrators, and other staff; and (3) a policy to ensure equivalence
among schools in the provision of curriculum materials and
instructional supplies. In most of the states we visited, the SEA
requires LEAs to submit certifications that they have implemented these
policies, which the auditors can then verify during their annual
audits.
[19] Kristen Tosh Cowan, Esq. and Leigh M. Manasevit, Esq., Brustein &
Manasevit, The New Title I: Balancing Flexibility with Accountability:
Charles J. Edwards and Cheryl L. Sattler, Ph. D., contributing editors
(Washington, D.C.: Thompson Publishing Group, Inc., 2002).
[20] Review of the Office of Elementary & Secondary Education‘s
Monitoring of Formula Grants: Final Audit Report, Office of Inspector
General, United States Department of Education, November 2001.
[21] U.S. General Accounting Office, Single Audit: Actions Needed to
Ensure That Findings Are Corrected, GAO-02-705 (Washington D.C., June
26, 2002).
[22] U. S. General Accounting Office, Education Finance: Extent of
Federal Funding in State Education Agencies, GAO/HEHS-95-3 (Washington,
D.C.: Oct. 14, 1994).
[23] The Federal Audit Clearinghouse single audit database was
established as a result of the Single Audit Act Amendments of 1996 and
contains summary information on the auditor, the recipient and its
federal programs, and the audit results.
[24]
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