oversight

Illinois State Board of Education's Oversight of Subrecipients.

Published by the Department of Education, Office of Inspector General on 2009-09-23.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                    UNITED STATES DEPARTMENT OF EDUCATION
                                           OFFICE OF INSPECTOR GENERAL

                                                                                                        Audit Services
                                                                               Chicago/Kansas City/Dallas Audit Region


                                                       September 23, 2009

                                                                                                 Control Number
                                                                                                 ED-OIG/A05I0016

Dr. Christopher Koch
State Superintendent
Illinois State Board of Education
100 N. 1st Street
Springfield, Illinois 62777

Dear Dr. Koch:

This Final Audit Report, entitled Illinois State Board of Education’s Oversight of
Subrecipients, presents the results of our audit. The objectives of the audit were to determine
whether the Illinois State Board of Education (ISBE) had an adequate system of internal control
over (1) reviewing and approving applications for and amendments to subgrant applications,
(2) providing technical assistance to subrecipients, (3) evaluating the performance of projects
based on program requirements, (4) ensuring resolution of Single Audits, and (5) ensuring
subrecipient compliance with statutes and regulations governing selected aspects of the Title I,
Part A, and the Individuals with Disabilities Education Act (IDEA), Part B, programs. Our audit
assessed the adequacy of ISBE’s system of internal control as of June 30, 2008.




                                                      BACKGROUND


A State educational agency (SEA) is responsible for the distribution of U.S. Department of
Education (Department) funds to subrecipients, including local educational agencies (LEA). An
SEA is required to monitor supported activities to provide reasonable assurance of each
subrecipient’s compliance with Federal requirements and the achievement of performance goals.
SEAs must have procedures for (1) reviewing and approving applications for and amendments to
subgrant applications, (2) providing technical assistance to subrecipients, (3) evaluating the
performance of projects, (4) ensuring resolution of Single Audits, and (5) performing other
administrative responsibilities that the State has determined are necessary to ensure a
subrecipient’s compliance with statutes and regulations governing such areas as comparability of
services, schoolwide programs, and maintenance of effort.

 The Department of Education's mission is to promote student achievement and preparation for global competitiveness by fostering educational
                                                   excellence and ensuring equal access.
Final Report
ED-OIG/A05I0016                                                                                 Page 2 of 34

The Education Department General Administrative Regulations (EDGAR), 34 C.F.R. Part 80, 1
contain provisions requiring States to monitor subrecipients to ensure compliance with
applicable Federal requirements. In addition to EDGAR, there are program-specific
requirements that require SEA officials to monitor formula grant subrecipients.

The Title I, Part A, program of the Elementary and Secondary Education Act of 1965 (ESEA), as
amended by Public Law 107-110, provides financial assistance through SEAs to LEAs to help
ensure that all children meet State academic standards.

The IDEA, as amended by the Individuals with Disabilities Education Improvement Act
Amendments of 2004 (Public Law 108-446), was enacted to ensure that all children with
disabilities have available to them a free and appropriate public education and to ensure that the
rights of children with disabilities and their parents are protected. IDEA, Part B, is a formula
grant program that provides assistance to States, and through them to LEAs, to assist States and
localities in their efforts to provide special education and related services to children with
disabilities.

From fiscal year 2008 appropriations, ISBE allocated approximately $560 million in Title I,
Part A, program funds to 806 LEAs. In addition, ISBE allocated approximately $423 million in
IDEA, Part B, program funds to 874 LEAs or 114 Cooperatives (Coop). 2 With the enactment of
the American Recovery and Reinvestment Act of 2009 (ARRA), Congress dramatically
increased SEA and LEA funding and expectations for transparency and accountability in how the
funding is used. 3 The State of Illinois will receive approximately $3.1 billion in additional
education-related funding under ARRA.




                                           AUDIT RESULTS


As of June 30, 2008, ISBE had an adequate system of internal control over (1) reviewing and
approving applications for and amendments to subgrant applications, (2) providing technical
assistance to subrecipients, (3) evaluating the performance of projects based on program
requirements, and (4) ensuring resolution of Single Audits. However, ISBE could strengthen its
system of internal control over ensuring subrecipient compliance with statutes and regulations
governing selected aspects of the Title I, Part A, and IDEA, Part B, programs.




1
  All C.F.R. references are to the July 1, 2004, edition unless otherwise noted.
2
  A Coop is an administrative agency that administers IDEA, Part B, funds for two or more LEAs which report to it
under a joint agreement.
3
  See http://www.ed.gov/policy/gen/leg/recovery/index.html for more information on education-related funding
included in ARRA.


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Final Report
ED-OIG/A05I0016                                                                   Page 3 of 34

We concluded that certain aspects of ISBE’s system of internal control were adequate because
ISBE had a system in place to provide reasonable assurance that:

   1. grant applications were reviewed and approved through its Electronic Grants
      Management System;
   2. on-going technical assistance was provided to grant applicants on issues related to the
      programs, and instruction and guidance were provided to subrecipients through either
      training or responding to LEAs’ questions;
   3. the performance of Title I, Part A, programs was regularly evaluated by ISBE’s External
      Assurance Division, and the performance of IDEA, Part B, programs was regularly
      evaluated by ISBE’s Special Education Division; and
   4. resolution of Single Audits included ensuring that ISBE determined corrective action
      plans resulting from the audit findings and started the recovery of questioned costs, if
      any, within a 6-month period from receipt of the A-133 Single Audit report.

We provided a draft of this report to ISBE for review and comment on May 22, 2009. We
received ISBE’s comments, along with additional documentation, on July 10, 2009. In its
comments, ISBE disagreed that there was not an effective process in place to monitor an LEA’s
compliance with Title I, Part A, Comparability of Service (comparability) requirements. ISBE
agreed that its processes could be strengthened and has taken steps to ensure compliance with
schoolwide requirements. ISBE also generally agreed that its processes to ensure compliance
with IDEA, Part B, Maintenance of Effort (MOE) requirements could be strengthened.

Based on our review of ISBE’s comments and the additional documentation provided, we
clarified our finding and changed recommendation 1.2. ISBE’s comments are summarized at the
end of the finding. The full text of ISBE’s comments is included as an Attachment to this report.

FINDING – ISBE Could Strengthen Its System of Internal Control over Ensuring
         Subrecipient Compliance with Title I, Part A, and IDEA, Part B,
         Program Requirements

ISBE could strengthen its system of internal control over ensuring subrecipient compliance with
statutes and regulations governing selected aspects of the Title I, Part A, and IDEA, Part B,
programs. During the audit period, ISBE did not always ensure that (1) Chicago Public Schools
(CPS) complied with the Title I, Part A, comparability requirements; (2) LEAs complied with the
Title I, Part A, schoolwide requirements; and (3) subrecipients complied with the IDEA, Part B,
MOE requirements. According to 34 C.F.R. § 80.40(a), grantees are responsible for managing
the day-to-day operations of grant and subgrant supported activities. Grantees must monitor
grant and subgrant supported activities to ensure compliance with applicable Federal
requirements and achievement of performance goals. Grantee monitoring must cover each
program, function, or activity.




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Final Report
ED-OIG/A05I0016                                                                        Page 4 of 34

ISBE’s Monitoring Processes Did Not Provide Reasonable Assurance of CPS’s Compliance
with the Title I, Part A, Comparability Requirements

ISBE’s monitoring process generally provided reasonable assurance that LEAs complied with
the Title I, Part A, comparability requirements. However, ISBE did not always follow its
comparability process. To test ISBE’s system of internal control over monitoring subrecipients’
compliance with Title I, Part A, comparability requirements, we selected a random sample of 9
of 783 LEAs that were required to submit comparability reports and judgmentally selected CPS
because of prior U.S. Department of Education, Office of Inspector General (OIG) audit
findings. We traced ISBE’s receipt and review of the comparability calculations. Because ISBE
did not identify any of the nine randomly selected LEAs as non-compliant, we judgmentally
selected two additional LEAs so that we could review ISBE’s entire process for monitoring
compliance with comparability requirements. We selected the Dolton and Ridgeview LEAs
because ISBE’s monitoring processes disclosed that both districts did not comply with the
Title I, Part A, comparability requirements.

Although we did not find any problems with ISBE’s monitoring of the nine randomly selected
LEAs’ compliance with the comparability requirements, we concluded that ISBE continued to
have weaknesses in its oversight of CPS’ compliance with the comparability requirements, and
ISBE did not follow its established processes after it identified the Ridgeview LEA’s non-
compliance issues.

           •   ISBE did not cite CPS for not complying with the comparability requirements and did
               not determine the amount of CPS' Title I, Part A, funding that should have been
               withheld or repaid as a result of CPS not meeting comparability for fiscal year 2008. 4
               ISBE did not cite CPS for continuously having non-comparable schools or for
               including longevity in its 2008 comparability calculations. CPS had 21 non-
               comparable schools in its initial comparability calculation for fiscal year 2008. To
               make the schools comparable, CPS allocated just enough funds (totaling
               approximately $1.6 million) to each of the non-comparable schools to make them
               comparable. However, CPS expensed only approximately $955,000 of the allocated
               funds in fiscal year 2008. CPS informed ISBE that the allocated funds not expended
               in fiscal year 2008 would be carried into the 2009 fiscal year budget. Although CPS
               planned to carry over those amounts to the next fiscal year, some of the students from
               fiscal year 2008 would not receive services from those funds. Because CPS did not
               expense the amount of funding needed for comparability, 20 of the 21 schools
               remained non-comparable. The 20 non-comparable schools were $667,876 short of
               compliance with the Title I, Part A, comparability requirement.

           •   ISBE discovered that CPS included longevity for staff salary differentials for years of
               employment in its 2008 comparability calculations. ISBE officials instructed CPS to
               recalculate its comparability without longevity. However, CPS officials informed
               ISBE that its accounting system prevented the recalculation of comparability without
               longevity. ISBE did not cite CPS for reporting the inaccurate comparability data.

4
    July 1, 2007, through June 30, 2008.


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Final Report
ED-OIG/A05I0016                                                                                   Page 5 of 34

             Instead, ISBE concluded that the process for CPS to remove longevity pay from its
             salary expenditures would be difficult. 5 Though ISBE was aware of CPS’ present
             and past inabilities to meet the comparability requirements, it did not cite CPS for its
             non-compliance in either case.

        •    ISBE did not follow its established process for another LEA and incorrectly lifted a
             freeze order placed on that LEA’s Title I, Part A, funds. The Ridgeview LEA did not
             submit a comparability calculation to ISBE. In response to this issue and another
             Title I, Part A, issue, ISBE froze Ridgeview’s Title I, Part A, funds. However, ISBE
             mistakenly lifted the freeze order when the other Title I, Part A, issue was resolved
             even though the comparability issue was unresolved. This resulted in the
             reinstatement of Ridgeview’s Title I, Part A, funding when its funds should have
             remained suspended. When we informed ISBE of the mistake, it reestablished the
             freeze order on Ridgeview’s Title I, Part A, funds.

Title I, Part A, Section 1120A(c)(1)(A), of the ESEA states that an LEA “may receive funds
under this part only if state and local funds will be used in schools served under this part to
provide services that, taken as a whole, are at least comparable to services in schools that are not
receiving funds under this part.” In addition, Title I, Part A, Section 1120A(c)(2)(B), states that,
“in the determination of expenditures per pupil from state and local funds, or instructional
salaries per pupil from state and local funds, staff salary differentials for years of employment
shall not be included in such determinations.” According to ISBE's 2008 Fiscal Year Title I
Comparability Instructions, if a school is not comparable, the LEA should develop and submit to
ISBE written procedures explaining how the LEA will achieve comparability. LEAs must use
their written procedures to correct the imbalance and submit documentation to this effect. LEAs
should also revise their comparability calculations and resubmit them to ISBE. If an LEA is
found to be out of compliance with the comparability requirements, a portion of the LEA’s
Title I, Part A, funds must be withheld by ISBE or repaid by the LEA, in the amount the LEA
was found to be out of compliance.

By not adequately monitoring its LEAs’ compliance with the Title I, Part A, comparability
requirements, ISBE was not able to demonstrate whether CPS and Ridgeview used State and
local funds to provide services in Title I schools that were at least comparable to services
provided in non-Title I schools in fiscal year 2008. As a result, the children at the 20 non-
comparable schools within CPS might not have had a fair, equal, and significant opportunity to
obtain a high-quality education and reach, at a minimum, proficiency on State academic
achievement standards and State academic assessments.




5
  We first addressed CPS’ comparability problems in our June 7, 2007, audit report, entitled Illinois State Board of
Education's Compliance with the Title I, Part A, Comparability of Services Requirement (A05G0033). This report
outlined ISBE’s inadequate control environment that allowed schools within CPS that were previously identified as
non-comparable to remain non-compliant. ISBE’s inadequate control environment allowed CPS to include unfilled,
full-time equivalent employee positions in its comparability calculations.


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Final Report
ED-OIG/A05I0016                                                                                     Page 6 of 34

ISBE’s Monitoring Processes Did Not Provide Reasonable Assurance of Subrecipients’
Compliance with Title I, Part A, Schoolwide Requirements

ISBE did not have an effective process in place to provide reasonable assurance that an
individual school's comprehensive plan for its schoolwide program contained the required
components. We chose a random sample of 10 schoolwide plans to review; ISBE obtained from
the schools and provided us with only 7 of the schoolwide plans from the LEAs. 6 Five of 7
schoolwide plans did not contain all 10 of the required components, and, therefore, the plans
were not in compliance. ISBE previously had reviewed the schoolwide plans for 2 of these 5
schools, and its review resulted in no findings.

Title I, Part A, Section 1114(b)(1) states that a comprehensive needs assessment of the entire
school shall be included as a component of the schoolwide program. Title I, Part A, Section
1114(b)(2)(A) states that any eligible school that desires to operate a schoolwide program shall
first develop a comprehensive plan for reforming the total instructional program in the school.
Although not mandatory, the Department’s Non-Regulatory Guidance-Title I Fiscal Issues:
Maintenance of Effort, Comparability, Supplement Not Supplant, Carryover, Consolidating
Funds in Schoolwide Programs, Grantback Requirements (February 2008), states that, at the
SEA-level, monitoring protocols should include both a programmatic and budget review for a
school operating a schoolwide program. The programmatic monitoring should include a review
of the proposed activities, how these activities address issues identified in the needs assessment
through the required plan components, and the research base that indicates these activities will
lead to improved student achievement.

ISBE did not have assurance that schools implemented comprehensive plans for schoolwide
programs that complied with Federal requirements. This lack of assurance could have led to
inefficient use of Title I, Part A, funds and the potential for a schoolwide program to not have its
intended outcome—improving the entire school's academic level.

ISBE’s Monitoring Processes Did Not Provide Reasonable Assurance of Subrecipients’
Compliance with IDEA, Part B, Maintenance of Effort Requirements

ISBE did not have an effective monitoring process in place to review IDEA, Part B, local-level
MOE calculations. ISBE did not verify data, such as the number of special education pupils,
expenditures, and formulas, used in local-level IDEA, Part B, MOE calculations during its
monitoring review process.

We recalculated local-level MOE calculations for a random sample of 10 of 114 entities that
received IDEA, Part B, funds for fiscal year 2008. The 10 entities consisted of 4 self-reporting
LEAs and 6 Coops serving 48 LEAs. In all, we reviewed calculations for 52 LEAs that were
either self-reporting LEAs or LEAs that reported under a Coop and 6 Coops, a total of 58



6
 One school did not respond to ISBE's request to provide its schoolwide plan, one school was no longer in
existence, and one school responded to ISBE that it was participating in a targeted assistance program, not in a
schoolwide program.


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Final Report
ED-OIG/A05I0016                                                                                Page 7 of 34

entities. Thirteen of the 58 entities (22 percent) had errors in their MOE calculations. In
addition, 16 individual LEAs (31 percent) and 1 Coop did not meet the MOE requirements. 7

If an LEA did not meet MOE requirements, ISBE required each LEA (regardless of whether it is
a self-reporting LEA or an LEA reporting under a Coop) to provide rationale for why it did not
meet MOE requirements. Only 8 of the 16 LEAs (50 percent) that did not meet MOE provided
ISBE with rationale of why it did not meet MOE requirements. However, ISBE did not maintain
documentation to show that it reviewed and accepted the rationale.

According to 34 C.F.R. § 300.203(b)(1), 8 to establish the LEAs’ eligibility for the fiscal year
award—

        the SEA must determine that an LEA complies with paragraph (a) of this section
        for purposes of establishing the LEA's eligibility for an award for a fiscal year if
        the LEA budgets, for the education of children with disabilities, at least the same
        total or per capita amount from either of the following sources as the LEA spent
        for that purpose from the same source for the most recent prior year for which
        information is available.

In addition, 34 C.F.R. § 300.203(a) requires the SEA to ensure that funds provided to an LEA
under IDEA, Part B, “not be used to reduce the level of expenditures for the education of
children with disabilities made by the LEA from local funds below the level of those
expenditures for the preceding fiscal year.” According to 34 C.F.R. § 300.204, an LEA may
reduce the level of expenditures by the LEA under IDEA, Part B, below the level of those
expenditures for the preceding fiscal year if the reduction is attributable to certain allowable
exceptions as listed in the regulations. According to 34 C.F.R. § 300.205, “for any fiscal year for
which the allocation received by an LEA under Sec. 300.705 exceeds the amount the LEA
received for the previous fiscal year, the LEA may reduce the level of expenditures otherwise
required by Sec. 300.203(a) by not more than 50 percent of the amount of that excess.”

According to 34 C.F.R. § 300.222(a)—

        If the SEA, after reasonable notice and an opportunity for a hearing, finds that an
        LEA or state agency that has been determined to be eligible under this subpart is
        failing to comply with any requirement described in §§ 300.201 through 300.213,
        the SEA must reduce or must not provide any further payments to the LEA or
        state agency until the SEA is satisfied that the LEA or state agency is complying
        with that requirement.

ISBE developed a spreadsheet in which the LEAs and Coops entered their MOE data. Formulas
within the LEAs’ and Coops’ calculations were not protected and could be manipulated by the
entities. Because ISBE did not confirm that data entered by the entities in the local-level MOE
calculations were correct, LEAs and Coops were able to calculate incorrect amounts on their
7
  The Department currently is developing guidance on whether the regulations allow for an LEA within a Coop to be
out of compliance as long as the Coop meets the MOE requirements.
8
  The regulations used for IDEA, Part B, MOE, were revised as of August 14, 2006.


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Final Report
ED-OIG/A05I0016                                                                                 Page 8 of 34

local-level MOE calculations, and ISBE could not ensure that the entities met MOE requirements
for fiscal year 2008. If the entities did not maintain the required local-level of effort, children
with disabilities residing in Illinois might not have had available to them all the special education
and related services needed to ensure a free appropriate public education. Therefore, for every
fiscal year that ISBE did not adequately monitor MOE, ISBE might have awarded, and the LEAs
or Coops, or both, might have received, Federal funds under IDEA, Part B, for which the
subrecipients were not eligible.

Adequate Staffing Levels and Improved Procedures Needed to Improve Oversight of
Compliance and Improve Services to At-risk Children

ISBE does not have adequate staffing levels to monitor subrecipient compliance with the
Title I, Part A, comparability and schoolwide program requirements. Prior to fiscal year 2008,
ISBE’s External Assurance Division 9 did not have any full-time, on-site monitors at CPS.
Although ISBE recently hired two full-time, on-site monitors at CPS, the staffing level still
might be inadequate as the monitors are newly hired and behind schedule in their monitoring
duties.

Also, despite numerous requests to increase its budget, ISBE’s External Assurance Division’s
overall staffing level decreased from an average of 27 employees during calendar year 2006 to
an average of 20 employees during calendar year 2008. 10 As a result, the division’s planned and
completed monitoring reviews decreased from 2006 to 2008. In fiscal year 2006, the division
completed 592 of 600 (99 percent) planned monitoring reviews. In fiscal year 2008, the division
completed only 421 of 728 (58 percent) planned monitoring reviews. In addition, the External
Assurance Division was unfamiliar with the requirement that each school participating in the
schoolwide program must have a unique plan. External Assurance Division officials stated that
they might sometimes review a consolidated, comprehensive plan for schoolwide programs that
covers multiple schools in an LEA. However, Title I, Part A, Section 1114(b)(2)(A),states that
each school must have its own plan. In addition to inadequate staffing levels, ISBE’s monitoring
review procedures did not include steps to verify local-level IDEA, Part B, MOE data reported
by LEAs. Instead, ISBE relied solely on the LEAs’ independent public auditors to verify the
expenditure data during the Annual Financial Report (AFR) process.

ISBE’s inadequate system of internal control over LEA monitoring placed Department funds for
the Title I, Part A, and IDEA, Part B, programs at risk of misappropriation and might have
affected the efficiency and effectiveness of the programs. Furthermore, disadvantaged children
(either financially or developmentally) might not have received the services needed to obtain a
fair, equal, and significant opportunity for an appropriate education. With the additional funds
being provided to the State of Illinois under ARRA and expectations for transparency and
accountability in how the funding is used, it is crucial that ISBE improve its oversight of
subrecipients’ compliance.

9
  The External Assurance Division assists with the monitoring of the Title I, Part A, programs.
10
   We calculated an average staffing level because of the constant fluctuations of staffing within the External
Assurance Division. To calculate the average staffing level, we added the total staffing level for each month and
divided by 12. Staff calculations include management and support staff for data ISBE had available. We also noted
that ISBE hired seven new employees in calendar year 2008.


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Final Report
ED-OIG/A05I0016                                                                  Page 9 of 34

Recommendations

We recommend that the Assistant Secretary for Elementary and Secondary Education require
ISBE to—

1.1    Return $667,876, which represents the amount by which CPS did not comply with the
       Title I, Part A, comparability requirement during fiscal year 2008.

1.2    Ensure that CPS complies with the Title I, Part A, comparability requirements.

1.3    Amend its procedures for ensuring that (a) LEAs required to submit revised
       comparability reports because of reporting errors do so in a timely manner, and
       (b) LEAs implement corrective actions.

1.4    Cite LEAs that do not comply with the comparability requirements and determine the
       amount of Title I, Part A, funding to be withheld or repaid.

1.5    Assign a sufficient number of employees to the External Assurance Division to assist
       with the monitoring of LEAs’ compliance with the requirements of Federal programs.

1.6    Provide ISBE monitoring staff, LEAs, and schools with written guidance on the specific
       requirements for comprehensive schoolwide plans.

1.7    Develop and implement policies and procedures to ensure coordination and participation,
       if needed, between ISBE Title I, Part A, schoolwide monitoring staff and External
       Assurance Division monitoring staff when reviewing a comprehensive plan for a
       schoolwide program for compliance with the specific requirements.

We also recommend that the Assistant Secretary for Special Education and Rehabilitative
Services require ISBE to—

1.8    Develop and implement policies and procedures to:

       a. annually verify the accuracy of the local-level MOE data;
       b. provide reasonable assurance that entities report accurate and complete special
          education budget and expenditure data needed to ensure that, on a total or per capita
          basis, financial support for special education and related services for children with
          disabilities meets the IDEA, Part B, local-level MOE requirements; and
       c. determine whether the LEAs and Coops meet one or more of the exceptions to MOE
          under 34 C.F.R. §§ 300.204 and 300.205, or both, and provide them a written
          response.

1.9    Recalculate local-level MOE calculations according to IDEA, Part B, requirements for
       fiscal year 2008 and report the revised MOE levels to the Department. If any of the
       entities did not meet MOE based on its recalculation, ISBE should pay to the Department
       the amount of that entity's IDEA, Part B, grant for that fiscal year. ISBE must pay this


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Final Report
ED-OIG/A05I0016                                                                     Page 10 of 34

       amount from non-Federal funds or Federal funds for which accountability to the Federal
       government is not required.

ISBE Comments and OIG Response

ISBE partially concurred with our finding. ISBE disagreed that there was not an effective
process in place to monitor an LEA’s compliance with Title I, Part A, comparability
requirements, but agreed that processes could be strengthened and has taken steps to ensure
compliance with schoolwide requirements. ISBE also generally agreed that processes can be
strengthened to ensure compliance with IDEA, Part B, MOE requirements.

Title I, Part A, Comparability of Services Requirements

ISBE Comments: ISBE disagreed that it did not have an effective process in place to monitor
LEAs’ compliance with Title I, Part A, comparability requirements. ISBE stated that it has spent
considerable time working with CPS in developing CPS’s capacity for and reporting of Title I
comparability status annually, and for fiscal year 2008 in particular. ISBE stated that, when an
LEA demonstrates a willingness to work with ISBE and is responsive to requests or warnings, it
does not feel that it is beneficial to automatically freeze that LEA’s funds. Rather, consideration
was given to the steps being taken by the LEA to achieve compliance and its readiness to discuss
and resolve the issues. ISBE did not feel it was appropriate to sanction CPS while it was still
working with ISBE to meet comparability requirements.

ISBE agreed that teacher’s salaries used in the CPS comparability calculations included
longevity pay. ISBE stated that there is not a simple solution to calculate comparability without
longevity pay but will continue to work with CPS to determine an acceptable resolution to this
issue. ISBE noted that the inclusion of longevity pay is not detrimental to Title I schools. The
amount of longevity pay would be larger for non-Title I schools than Title I schools, thus
requiring additional local funding dollars for Title I schools to meet comparability. ISBE
continued to say that, with regard to CPS’ inclusion of longevity pay in determining
comparability, CPS provided an analysis of a group’s comparability determinations with and
without longevity pay. The analysis with longevity pay resulted in a larger required per pupil
expenditure of local funds than when longevity pay was excluded. Thus, ISBE concluded that
the exclusion of longevity pay resulted in reduced local funding levels to achieve comparability.

ISBE acknowledged that an error occurred with the release of Ridgeview’s Title I, Part A,
program funds. Since this occurred, ISBE has revised its procedures for freezing and releasing
funds to ensure that all division requests for freezing funds are honored.

OIG Response: The SEA is ultimately responsible for ensuring that LEAs remain in compliance
with the comparability requirements. As is stated in the Department’s non-regulatory guidance
on Title I fiscal issues, “[d]emonstrating comparability is a prerequisite for receiving Title I,
Part A, funds.” In addition, according to 34 C.F.R. § 80.40(a), “[g]rantees are responsible for
managing the day-to-day operations of the grant and subgrant supported activities. Grantees
must monitor grant and subgrant supported activities to ensure compliance with applicable
Federal requirements and that the performance goals are being achieved.”


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Final Report
ED-OIG/A05I0016                                                                     Page 11 of 34

According to ISBE's 2008 Fiscal Year Title I Comparability Instructions, if an LEA is found to
be out of compliance with the comparability requirements, a portion of the LEA’s Title I, Part A,
funds must be withheld by ISBE or repaid by the LEA, in the amount the LEA was found to be
out of compliance. The Department’s non-regulatory guidance also states that an LEA must
perform the calculations necessary every year to demonstrate that all of its Title I schools are in
fact comparable and make adjustments if any are not. The comparability process must enable an
LEA to identify, and correct during the current school year, instances in which it has non-
comparable schools. An early determination of comparability would allow an LEA to make
adjustments with the least amount of disruption.

We determined that ISBE continues to have weaknesses in its oversight of CPS’ compliance with
the comparability requirements. ISBE has continuously allowed CPS to ignore Federal laws and
regulations and even ISBE’s own policies. While we understand ISBE’s reluctance to freeze an
LEA’s funds, it should not continue to grant CPS waivers from complying with Federal Title I,
Part A, comparability requirements from year-to-year.

ISBE agreed that teacher’s salaries used in the CPS comparability calculations included
longevity pay. With regard to CPS’ inclusion of longevity pay in determining comparability,
CPS provided us with an analysis of a group’s comparability determinations with and without
longevity pay. ISBE came to the conclusion that the exclusion of longevity pay results in
reduced local funding levels to achieve comparability.

We do not disagree with ISBE’s conclusion that the exclusion of longevity pay results in reduced
local funding level to achieve comparability. The longevity pay provision was first added to the
comparability provision in 1994 when Title I was reauthorized by the Improving America’s
Schools Act. There is no legislative history with respect to the longevity pay provision to
indicate why Congress added the requirement. However, the law and ISBE’s own instructions to
LEAs are clear that the comparability calculations should exclude longevity pay. Title I, Part A,
Section 1120A(c)(2)(B), states that staff salary differentials for years of employment shall not be
included in comparability determinations. In addition, ISBE’s Comparability Instructions state
that “the total amount of state and local funds spent on salaries for the staff members... less the
amount of such salaries based on length of service (longevity/salary differentials)” should be
included in calculation. If CPS cannot remove longevity pay from its salary expenditure data to
use in determining its comparability status, the LEA is not complying with the Federal Title I,
Part A, comparability requirements and is not following ISBE’s own comparability process.

Title I, Part A, Schoolwide Requirements

ISBE Comments: ISBE agreed that its processes can be strengthened and has taken steps to
ensure compliance with schoolwide requirements. ISBE has redesigned its processes related to
schoolwide programs, developed training programs, and provided technical assistance to the
field. In addition, ISBE has created an e-Bulletin to address the schoolwide compliance issue
and is creating a schoolwide webpage. The External Assurance Division has improved its No
Child Left Behind (NCLB) monitoring tool to include verification of the 10 specific components
of a schoolwide program to ensure the schoolwide plans they review are compliant.



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IDEA, Part B, Maintenance of Effort Requirements

ISBE Comments: ISBE agreed that its processes could be strengthened to ensure subrecipient
compliance with IDEA, Part B, MOE requirements. Recognizing the multiple differences in
over 800 LEAs in the State, ISBE created a tool by which each LEA could report its unique
revenue sources and expenditures. ISBE developed an Excel worksheet that could be adapted to
the needs of the LEA to report MOE to ISBE. To allow for variability, the Excel worksheet
currently in use does not utilize cell protection. To eliminate the variables inherent in this
process, ISBE is working to develop a process whereby LEA MOE data is extracted from an
LEA’s audited Annual Financial Report (AFR). Because there is significant variation in the
administration of special education at the LEA level, it is a challenge to find a process that will
accurately report these special education expenditures. ISBE is committed to develop a process
that will eliminate the occurrence of errors at the local level. It is estimated that development of
this process will be completed during fiscal year 2010. This system to extract the financial data
from the AFR and determine whether MOE has been met will resolve the issues noted by the
auditor regarding cell protection and accuracy.

While ISBE agreed that processes could be strengthened, it did not agree that it is required to
calculate MOE for LEAs that are part of a Coop. ISBE stated that, in Illinois, eligible grant
applicants consist of either LEAs that provide their own special education services or joint
agreements (Coops) that provide special education services to member districts. When an LEA
is a member of a Coop, the grant agreement is between ISBE and the Coop, not the LEA. It is
the Coop’s responsibility to determine that their member LEAs have met the MOE requirement.
Thus, ISBE has required Coops to report only the combined total MOE for all member districts.
The issues identified by the auditors related to MOE calculation or compliance were generally
part of a Coop. The system to extract the financial data from the AFR, discussed above, will
make MOE determinations for all LEAs, including those that are part of a Coop, and should
resolve the issues noted by the auditor.

OIG Response: Federal regulations [34 C.F.R. § 300.203(a)] clearly state that the LEA must
meet MOE and do not make mention of “entities,” “joint agreements,” or “Coops.” Furthermore,
if an LEA does not meet MOE requirements, ISBE requires each LEA (regardless of whether it
is a self-reporting LEA or an LEA reporting under a Coop) to provide rationale for why it did not
meet MOE requirements. Therefore, ISBE needs to ensure that all LEAs (either individually or
part of a Coop) meet MOE requirements.

Recommendation 1.1

Return $667,876, which represents the amount by which CPS did not comply with the
Title I, Part A, comparability requirement during fiscal year 2008.

ISBE Comments: ISBE stated that it is still awaiting a program determination from the
Department’s, Office of Elementary and Secondary Education, on the audit Illinois State Board
of Education's Compliance with the Title I, Part A, Comparability of Services Requirement
(A05G0033), as it relates to the appropriate corrective action to take in sanctioning CPS for not
meeting comparability requirements in previous years. ISBE indicated that it appears


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recommendation 1.1 is utilizing the approach ISBE suggested in requiring CPS to return only the
portion of Title I, Part A, funds by which the schools were non-comparable. CPS has requested
not to return the $667,876. CPS asked that it be allowed to convert the funds provided for
comparability positions that were not filled for the schools to support the instructional program.
The funds would be utilized for professional development, instructional supplies and materials,
and other instructional expenses.

OIG Response: Title I, Part A, Section 1120A(c)(1)(A), of the ESEA states that an LEA may
receive funds under this part only if state and local funds will be used in schools served under
this part to provide services that, taken as a whole, are at least comparable to services in schools
that are not receiving funds under this part. Meeting comparability requirements is the
prerequisite to receiving any Title I, Part A, funds and, therefore, the CPS schools identified as
non-comparable were not entitled to receive any of those funds. [Non-Regulatory Guidance,
Title I Fiscal Issues: Maintenance of Effort; Comparability; Supplement, not Supplant;
Carryover; Consolidating Funds in Schoolwide Programs; Grantback Requirements (May
2006)] While the ESEA and guidance indicate that an LEA should not receive Title I funds if its
schools are not comparable, we only recommended the return of funds in the amount or
percentage by which CPS failed to comply with the comparability requirement. In this instance,
we recommended ISBE return the amount of funding CPS did not expense to the 20 non-
comparable schools needed for comparability ($667,876). In addition, some of the funds that
ISBE requested CPS be allowed to convert to support the instructional program may be past the
period of availability. We did not change Recommendation 1.1.

Recommendation 1.2

Ensure that CPS complies with the Title I, Part A, comparability requirements.

ISBE Comments: ISBE stated that it is unclear on the need to reevaluate all LEAs’ fiscal year
2008 comparability determinations. ISBE stated that considerable time and effort would be
required to remove longevity pay from salary data used in calculating comparability
determinations. With regard to CPS’ inclusion of longevity pay in determining comparability,
ISBE provided an analysis of a group’s comparability determinations with and without longevity
pay, respectively. The determination with longevity pay resulted in a greater required per pupil
expenditure of local funds (salaries only) for Title I schools to be determined comparable. When
longevity pay is excluded, the per pupil expenditure amount of local funds is reduced to achieve
comparability. Thus, the exclusion of longevity pay results in reduced local funding levels to
achieve comparability.

OIG Response: Title I, Part A, Section 1120A(c)(2)(B), states that, “staff salary differentials for
years of employment shall not be included in such determinations.” In addition, ISBE’s own
Comparability Instructions state that “the total amount of state and local funds spent on salaries
for the staff members... less the amount of such salaries based on length of service
(longevity/salary differentials)” should be included in the calculation. If CPS cannot remove
longevity pay from its salary expenditure data to use in determining its comparability status, the
LEA is not complying with the Federal Title I, Part A, comparability requirements and is not
following ISBE’s comparability process. In response to ISBE’s comments, we modified


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Recommendation 1.2 by recommending that ISBE ensure CPS complies with the Title I, Part A,
comparability requirements, removing the recommendation for ISBE to reevaluate all LEAs’
fiscal year 2008 comparability determinations.

Recommendation 1.3

Amend its procedures for ensuring that (a) LEAs required to submit revised comparability
reports because of reporting errors do so in a timely manner, and (b) LEAs implement corrective
actions.

ISBE Comments: ISBE amended its Title I Comparability Instructions to provide directions for
submitting revised comparability reports, with a time-frame and corrective actions.

Recommendation 1.4

Cite LEAs that do not comply with the comparability requirements and determine the amount of
Title I, Part A, funding to be withheld or repaid.

ISBE Comments: ISBE responded that it froze or withheld funding for 28 districts during fiscal
year 2009. All 28 have since complied with comparability requirements and the funds were
released. In response to our comparability finding within this report, ISBE stated that

       When a district demonstrates a willingness to work with ISBE and is responsive
       to requests or warnings, ISBE does not feel it is beneficial to automatically freeze
       that district’s funds. Rather, consideration is given to the steps being taken by the
       district to achieve compliance and their readiness to discuss and resolve the
       issues. ISBE did not feel it was appropriate to sanction CPS while the district was
       still working with ISBE to meet comparability requirements.

OIG Response: ISBE needs to implement the recommendation for all LEAs, including CPS.
ISBE should not keep granting CPS a waiver from complying with Federal Title I, Part A,
comparability requirements from year-to-year.

Recommendation 1.5

Assign a sufficient number of employees to the External Assurance Division to assist with the
monitoring of LEAs’ compliance with the requirements of Federal programs.

ISBE Comments: Seven new positions have been included in ISBE’s budget request to the
General Assembly over fiscal years 2008, 2009, and 2010. State budget constraints and the
current economic climate reduce the probability that additional staff will be forthcoming. ISBE
recognizes that External Assurance Division staffing levels have not been sufficient to provide
adequate coverage of subrecipient compliance with Federal grant requirements. Four
outstanding vacancies are being filled in August 2009; the division will then have 25 total staff.
As noted in the finding, ISBE has constantly requested increased staffing levels for the External
Assurance Division, without success. ISBE acknowledges that the monitoring plan will be


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difficult to accomplish with current staff; however, the current economic environment makes it
unlikely that additional appropriations for staff will be forthcoming. ISBE is considering
contracting externally for monitoring activities related to certain American Recovery and
Reinvestment Act funds.

OIG Response: Although ISBE has increased its current staffing levels, we believe ISBE would
benefit if it hired more staff for its External Assurance Division, especially in light of the
additional ARRA funding being made available to Illinois LEAs. Therefore, we did not change
the recommendation.

Recommendation 1.6

Provide ISBE monitoring staff, LEAs, and schools with written guidance on the specific
requirements for comprehensive schoolwide plans.

ISBE Comments: ISBE stated that it has redesigned its schoolwide process, developed training
programs, and provided technical assistance to the field to address the recommendation.

Recommendation 1.7

Develop and implement policies and procedures to ensure coordination and participation, if
needed, between ISBE Title I, Part A, schoolwide monitoring staff and External Assurance
Division monitoring staff when reviewing a comprehensive plan for a schoolwide program for
compliance with the specific requirements.

Recommendation 1.8

Develop and implement policies and procedures to (a) annually verify the accuracy of the local-
level MOE data; (b) provide reasonable assurance that entities report accurate and complete
special education budget and expenditure data needed to ensure that, on a total or per capita
basis, financial support for special education and related services for children with disabilities
meets the IDEA, Part B, local-level MOE requirements; and (c) determine whether the LEAs and
Coops meet one or more of the exceptions to MOE under 34 C.F.R. §§ 300.204 and 300.205, or
both, and provide them a written response.

ISBE Comments (1.7 and 1.8): ISBE stated that its Grants and Programs, Special Education
Services, and External Assurance Division will work together to ensure that subrecipient
monitoring processes adequately encompass qualitative programmatic review of compliance
requirements and verification of data used in LEA MOE calculations. ISBE’s review of
oversight and monitoring practices from an agency-wide perspective will include an analysis of
ways to better integrate the review of programmatic and fiscal compliance when performing
subrecipient monitoring.




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Recommendation 1.9

Recalculate local-level MOE calculations according to IDEA, Part B, requirements for fiscal
year 2008 and report the revised MOE levels to the Department. If any of the entities did not
meet MOE based on its recalculation, ISBE must pay to the Department the amount of that
entity's IDEA, Part B, grant for that fiscal year. ISBE must pay this amount from non-Federal
funds or Federal funds for which accountability to the Federal government is not required.

ISBE Comments: ISBE stated that it will recalculate local-level MOE calculations for a random
sample of LEAs that received IDEA, Part B, funds for fiscal year 2008. In addition, ISBE will
continue to remedy problems in local-level MOE calculations that were identified in the draft of
this audit report. If any of the LEAs did not meet the MOE requirements, ISBE will follow all
applicable rules and regulations.

OIG Response: Although ISBE will recalculate local-level MOE calculations for a random
sample of LEAs that received IDEA, Part B, funds for fiscal year 2008, ISBE did not indicate
whether it would expand its sample if it found a large number of LEAs that did not meet MOE.
Therefore, we recommend that ISBE recalculate all local-level MOE calculations due to the high
error rate we found during our testing.




                                     OTHER MATTERS


ISBE did not use accurate data to complete its State-level IDEA, Part B, MOE calculation. ISBE
used State funds disbursed to entities to complete the calculation. However, some entities did
not expense their entire disbursement; therefore, ISBE recovered those funds and should not
have included the recovered amounts in the State-level MOE calculation. We obtained
documentation to determine how much of the fiscal year 2006 and fiscal year 2007
disbursements that ISBE recovered from its entities and recalculated the IDEA, Part B, State-
level MOE calculation. We concluded that ISBE still met the State-level MOE requirement.
Although ISBE inadvertently met the State-level MOE requirement, it might not always meet
MOE in the future using the current process.

According to 34 C.F.R. § 300.163(a), a State must not reduce the amount of State financial
support for special education and related services for children with disabilities, or otherwise
made available because of the excess costs of educating those children, below the amount of that
support for the preceding fiscal year. According to 34 C.F.R. § 300.163(b), the Secretary may
reduce the allocation of funds for any fiscal year following the fiscal year in which the State fails
to comply with the MOE requirement. The reduction would equal the same amount by which
the State fails to meet the requirement.

ISBE's use of State funds disbursed to entities to complete its State-level MOE calculation
resulted in ISBE overstating its fiscal years 2006 and 2007 State funding in the calculation. If



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ISBE does not maintain the level of effort required, children with disabilities residing in Illinois
may not have available to them all services needed to ensure a free appropriate public education.

ISBE agreed with our conclusion and stated that it has implemented the needed changes to its
subsequent year’s State-level MOE calculation. However, we have not reviewed the revised
process to ensure accuracy and compliance with requirements.




                  OBJECTIVES, SCOPE, AND METHODOLOGY


The objectives of the audit were to determine whether ISBE had an adequate system of internal
control over (1) reviewing and approving applications for and amendments to subgrant
applications, (2) providing technical assistance to subrecipients, (3) evaluating the performance
of projects based on program requirements, (4) ensuring resolution of Single Audits, and
(5) ensuring subrecipient compliance with statutes and regulations governing selected aspects of
the Title I, Part A, and IDEA, Part B, programs. Our audit assessed the adequacy of ISBE’s
system of internal control as of June 30, 2008. To test whether ISBE took corrective actions and
other follow-up activities, we reviewed prior year’s data.

To achieve our objectives, we performed the following procedures.

1.   Obtained funding, disbursement, and expenditure data for the Title I, Part A, and IDEA,
     Part B, programs for ISBE and its LEAs for the period July 1, 2007, through June 30, 2008.
2.   Reviewed selected provisions of the laws, regulations, Department guidance, OMB
     Circular, or grant agreement, relevant to the audit objectives.
3.   Gained an understanding of issues and findings disclosed in previous audits and reviews
     conducted by the U.S. Department of Education’s Office of Elementary and Secondary
     Education and OIG, Independent Public Auditor, and the State of Illinois Auditor General
     that could impact the audit objectives and determined whether corrective actions were
     implemented.
4.   Identified key ISBE personnel responsible for (a) reviewing and approving applications for
     and amendments to subgrant applications; (b) providing technical assistance to
     subrecipients; (c) evaluating the performance of projects; (d) ensuring resolution of Single
     Audits; and (e) ensuring subrecipient compliance with statutes and regulations governing
     selected aspects of the Title I, Part A, comparability and schoolwide programs; IDEA,
     Part B, MOE; and Single Audit resolution and determined the scope of authority for each
     key staff member.
5.   Assessed ISBE's internal control policies and procedures in place as of June 30, 2008, by
     (a) interviewing key ISBE personnel; (b) inspecting written policies and procedures and
     related documents; (c) observing operations and activities; and (d) identifying key
     processes and control points for the Title I, Part A, comparability and schoolwide
     programs; IDEA, Part B, MOE; Single Audit resolution; Title I, Part A, and IDEA, Part B,
     allocations and accounting for funds (we considered ISBE’s control environment, risk



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    assessment, control activities, information and communication, and monitoring when
    making our assessment).
6.  Reviewed Single Audit reports from fiscal year 2006 and determined whether corrective
    action plans concerning monitoring of subrecipients were implemented for audit resolution
    purposes.
7.  Determined which subrecipients ISBE monitored during the audit period, what mechanisms
    ISBE used to monitor them, and whether the monitoring reports contained any findings that
    ISBE considered to have had a significant impact on the effectiveness of the programs
    reviewed.
8.  Determined ISBE’s full-time equivalent staff engaged in subrecipient monitoring during
    the audit period.
9.  Determined whether ISBE evaluated the performance of LEAs’ programs and whether
    program goals were achieved.
10. Selected various samples 11 of LEAs based on the different universes for the specific
    aspects of internal control relevant to our audit objectives.

         a. Selected a random sample of 10 from a universe of 104 entities whose A-133 Single
            Audit reports contained a Federal program-related finding for calendar year 2006.
            We used the results of the sample to assess the adequacy of ISBE’s system of internal
            control over resolution of A-133 Single Audit findings.
         b. Judgmentally selected CPS’ comparability calculation because of prior OIG audit
            findings. We also selected a random sample of 9 additional LEAs of the 783 that
            were required to submit a comparability report. Because none of the 9 randomly
            selected LEAs were identified as non-compliant by ISBE, we judgmentally selected 2
            additional LEAs so that we could follow ISBE’s entire comparability process. We
            used this sample to assess the adequacy of ISBE’s system of internal control over
            evaluating LEAs’ compliance with Title I, Part A, comparability requirements.
         c. Selected a random sample of 10 from a universe of 1,080 schools that participated in
            a schoolwide program during fiscal year 2008. We used this sample to assess the
            adequacy of ISBE’s system of internal control over approving and reviewing
            applications and monitoring for compliance with applicable schoolwide requirements.
         d. Selected a random sample of 10 from a universe of 114 entities that received an
            IDEA, Part B, allocations for fiscal year 2008. We used the sample to assess the
            adequacy of ISBE’s system of internal control over monitoring compliance with
            IDEA, Part B, MOE requirements.
         e. Selected a random sample of 10 from a universe of 114 entities that received IDEA,
            Part B, allocations for fiscal year 2008. We used the sample to assess the adequacy of
            ISBE’s system of internal control over monitoring the administration of allocations
            and accounting for IDEA, Part B, funds.
         f. Selected a random sample of 10 from a universe of 871 entities that received Title I,
            Part A, allocations for fiscal year 2008. We used the sample to assess the adequacy
            of ISBE’s system of internal control over monitoring the administration of allocations
            and accounting for Title I, Part A, funds.

11
  The sample sizes were chosen based on our consideration that we would not project the results of our tests to the
sampling universes.


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11.   Obtained and analyzed the supporting documentation that ISBE received from the selected
      subrecipients and determined whether it was sufficient for ISBE to evaluate the
      subrecipients' compliance with Federal requirements.

We also relied, in part, on computer-processed data obtained from ISBE’s Management
Information Database Accounting System (MIDAS), Financial Reimbursement Information
System (FRIS), AFR, Electronic Grant Management System (eGMS), and ISBE Web
Application Security System (IWAS). We identified the specific data from these systems that
were significant to our audit objectives. To assess the reliability of the data, we conducted logic
tests, looking for missing data, the relationship of data elements, values outside of a designated
range, and dates outside valid time frames or in an illogical progression. The data generally were
complete and accurate and had corroborating evidence on which we could rely. 12 We concluded
that the computer-processed data we were provided were sufficiently reliable for the purposes of
our audit.

Using the Committee of Sponsoring Organizations of the Treadway Commission (COSO)
framework, we identified the control objectives relevant to our audit’s objectives; obtained an
understanding of ISBE’s system of internal control over the relevant areas; and assessed the
adequacy of ISBE’s system of internal control over Title I, Part A, comparability; Title I, Part A,
schoolwide programs; IDEA, Part B, MOE; Single Audit resolution; and Title I, Part A, and
IDEA, Part B, allocations, and accounting for funds. We considered the five essential
components of an effective internal control system: control environment, risk assessment, control
activities, information and communication, and monitoring. We also gained a limited
understanding of the information systems control (general and application) 13 significant to the
audit objectives by performing tests on the Title I, Part A, comparability and schoolwide
programs; IDEA, Part B, MOE; Single Audit resolution; and Title I, Part A, and IDEA, Part B,
allocation data.

We conducted our audit from May 2008 through March 2009 at ISBE’s administrative offices in
Springfield, Illinois, and at our offices. We discussed the results of our audit with ISBE officials
on April 27, 2009.

We conducted this performance audit in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions
based on our audit objectives. We believe that the evidence obtained provides a reasonable basis
for our findings and conclusions based on our audit objectives.




12
  Corroborating evidence is evidence such as interviews, prior reports, and data in alternative systems.
13
  The general controls that we obtained a limited understanding of included security management, logical and
physical access, configuration management, segregation of duties, and contingency planning. The application
controls included controls over input, processing, output, master data, application interfaces, and data management
system interfaces.


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                            ADMINISTRATIVE MATTERS


Statements that managerial practices need improvements, as well as other conclusions and
recommendations in this report, represent the opinions of the Office of Inspector General.
Determinations of corrective action to be taken will be made by the appropriate Department of
Education officials in accordance with the General Education Provisions Act.

If you have any additional comments or information that you believe may have a bearing on the
resolution of this audit, you should send them directly to the following Department of Education
official, who will consider them before taking final Departmental action on this audit:

                                     Thelma Melendez
                                     Assistant Secretary
                                     Office of Elementary and Secondary Education
                                     U.S. Department of Education
                                     400 Maryland Ave., SW
                                     Washington D.C. 20202

It is the policy of the U.S. Department of Education to expedite the resolution of audits by
initiating timely action on the findings and recommendations contained therein. Therefore,
receipt of your comments within 30 days would be appreciated.

In accordance with the Freedom of Information Act (5 U.S.C. § 552), reports issued by the
Office of Inspector General are available to members of the press and general public to the extent
information contained therein is not subject to exemptions in the Act.



                                             Sincerely,

                                             /s/

                                             Gary D. Whitman
                                             Regional Inspector General for Audit


Attachment




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ED-OIG/A05I0016                                                         Page 21 of 34

                   Acronyms/Abbreviations Used in this Report

AFR               Annual Financial Report
ARRA              American Recovery and Reinvestment Act of 2009
C.F.R.            Code of Federal Regulations
Comparability     Title I, Part A, Comparability of Services
Coop              Cooperative
COSO              Committee of Sponsoring Organizations of the Treadway Commission
CPS               Chicago Public Schools
Department        U.S. Department of Education
EDGAR             Education Department General Administrative Regulations
eGMS              Electronic Grant Management System
ESEA              Elementary and Secondary Education Act of 1965
FRIS              Financial Reimbursement Information System
IDEA              Individuals with Disabilities Education Act
ISBE              Illinois State Board of Education
IWAS              ISBE Web Application Security System
LEA               Local Educational Agency
MIDAS             Management Information Database Accounting System
MOE               IDEA, Part B, Maintenance of Effort
NCLB              No Child Left Behind Act of 2001
OIG               U.S. Department of Education, Office of Inspector General
SEA               State Educational Agency




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                           Attachment:
                  ISBE’s Comments to Draft Report




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ED-OIG/A05I0016                                                                      Page 24 of 34

                             Illinois State Board of Education
Response to: Illinois State Board of Education’s Oversight of Subrecipients
Control Number ED-OIG/A05I0016


FINDING – Inadequate System of Internal Control over Ensuring Subrecipient
Compliance with Title I, Part A, and IDEA, Part B, Program Requirements


•      ISBE’s Monitoring Processes Did Not Provide Reasonable Assurance of
       Subrecipients’ Compliance with the Title I, Part A, Comparability Requirements

•   ISBE did not cite Chicago Public School District 299 (CPS) for not complying with the
    comparability requirements and did not determine the amount of CPS' Title I, Part A, funding
    that should have been withheld or repaid as a result of CPS not meeting comparability for
    fiscal year 2008.
•   ISBE discovered that CPS included longevity for staff salary differentials for years of
    employment in its 2008 comparability calculations.
•   ISBE did not follow its established process for another LEA and incorrectly lifted a freeze
    order placed on that LEA’s Title I, Part A, funds.

ISBE Response - Comparability
ISBE respectfully disagrees that there is not an effective process in place to monitor an LEA’s
compliance with Title I, Part A, Comparability of Service requirements. ISBE’s goal is to ensure
that all districts receiving Title I funding comply with Comparability requirements and that all
schools receiving Title I funds are comparable. ISBE utilizes statewide tracking and
continuously looks for means of improving the process to ensure Comparability.

•   ISBE External Assurance staff have spent considerable time working with Chicago Public
    School District 299 (CPS) in developing their capacity for and reporting of Title I
    Comparability status annually, and for FY 2008 in particular. ISBE has been providing
    technical assistance to CPS to help the district in achieving comparability for all schools.
    When a district demonstrates a willingness to work with ISBE and is responsive to requests
    or warnings, ISBE does not feel it is beneficial to automatically freeze that district’s funds.
    Rather, consideration is given to the steps being taken by the district to achieve compliance
    and their readiness to discuss and resolve the issues. ISBE did not feel it was appropriate to
    sanction CPS while the district was still working with ISBE to meet comparability
    requirements.

•   ISBE agrees that teacher’s salaries used in the CPS comparability calculations included
    longevity pay. CPS employs nearly 25,000 teachers. ISBE has discussed removing
    longevity pay from salary expenditures data to use in determining comparability status. At
    this point, there does not seem to be a simple solution to calculate comparability without
    longevity pay but ISBE will continue to work with CPS to determine an acceptable resolution
    to this issue. ISBE notes that the inclusion of longevity pay is not detrimental to Title I


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    schools. The amount of longevity pay would be larger for Non-Title I schools than Title I
    schools, thus requiring additional local funding dollars for Title I schools to meet
    comparability. See comparability analysis under ISBE Response to Recommendation 1.2.

•   ISBE acknowledges that an error occurred with the release of Ridgeview’s Title I program
    funds. Multiple divisions at ISBE can request that a district’s program funds be frozen. In
    this case, both the Grants and Programs division and External Assurance had requested that
    funds be frozen. Grants and Programs released their freeze of Ridgeview’s Title I funds. The
    division of Funding and Disbursements inadvertently released the funds based on Grants and
    Programs request without checking for other freeze requests. Since this occurred, Funding
    and Disbursements has revised their procedures for freezing and releasing funds to ensure
    that all division requests for freezing funds are honored. See Attachment A for copy of the
    revised procedures.

•      ISBE’s Monitoring Processes Did Not Provide Reasonable Assurance of
       Subrecipients’ Compliance with the Title I, Part A, Schoolwide Requirements

ISBE did not have an effective process in place to provide reasonable assurance that an
individual school's comprehensive plan for its schoolwide program contained the required
components. Not all schoolwide plans sampled by the auditors contained all 10 of the required
plan components, this included plans that had been reviewed by External Assurance but resulted
in no findings.

ISBE Response – Schoolwide Programs
ISBE agrees that processes can be strengthened and has taken steps to ensure compliance with
Schoolwide Requirements.

The Grants and Programs (GP) division has redesigned their processes related to schoolwide
programs. GP staff have developed training programs and have provided technical assistance to
the field on four dates since January of 2009. Two staff members have attended trainings and
worked with districts and schools pertaining specifically to their Title I Plan and their
Schoolwide Plans. Additionally, GP Staff have created an e-Bulletin to address the Schoolwide
compliance issue, as well as, creating a Schoolwide webpage found at
http://www.isbe.net/grants/html/title1_resources.htm.

External Assurance has improved their NCLB monitoring tool to include verification of the 10
specific components of a schoolwide program to ensure the schoolwide plans they review are
compliant. The monitoring tool can be accessed at:
http://www.isbe.state.il.us/ea/pdf/Sample_Monitoring_Instrument.pdf with Schoolwide program
requirements listed under #11 and # 12. See Attachment B for a copy of the monitoring tool
review of the ten components of a Schoolwide plan.




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ED-OIG/A05I0016                                                                     Page 26 of 34

•      ISBE’s Monitoring Processes Did Not Provide Reasonable Assurance of
       Subrecipients’ Compliance with the IDEA, Part B, Maintenance of Effort (MOE)

ISBE did not have an effective monitoring process in place to review IDEA, Part B, local-level
MOE calculations. ISBE did not verify data, such as the number of special education pupils,
expenditures, and formulas used in local-level IDEA, Part B, MOE calculations during its
monitoring review process. The auditors’ sample of MOE calculations identified errors in the
calculations and entities not in compliance with MOE requirements.

ISBE Response – IDEA Maintenance of Effort
ISBE agrees that processes can be strengthened to ensure compliance with IDEA Maintenance of
Effort (MOE) requirements. The Illinois State Board of Education (ISBE) is committed to
continuous improvement and strives to insure full compliance with all components of the
Individuals with Disabilities Act (IDEA) including Maintenance of Effort (MOE).

In 2006, ISBE convened a committee of school business officials to develop a tool for districts to
use to report special education expenditures. Recognizing the multiple differences in over 800
districts in the state, the committee created a tool by which each district could report its unique
revenue sources and expenditures. The committee developed an Excel worksheet that could be
adapted to the needs of the LEA which guided the LEA in a process to review expenditures from
the most recently audited fiscal year to ascertain if the LEA was maintaining fiscal effort. Grant
applicants then used this information to report Maintenance of Effort to ISBE. To allow for
variability, this Excel worksheet currently in use does not utilize cell protection.

To eliminate the variables inherent in this process, ISBE is currently working to develop a
process whereby LEA Maintenance of Effort data is extracted from a district’s audited Annual
Financial Report (AFR). Because there is significant variation in the administration of special
education at the LEA level, it is a challenge to find a process that will accurately report these
special education expenditures. ISBE is committed to develop a process that will eliminate the
occurrence of error at the local level. It is estimated that development of this process will be
completed during the fiscal year 2010. This system to extract the financial data from the AFR
and determine whether Maintenance of Effort has been met will resolve the issues noted by the
auditor regarding cell protection and accuracy.

In Illinois, eligible grant applicants consist of either districts which provide their own special
education services or joint agreements (cooperatives) which provide special education services to
member districts. ISBE does not agree with the auditor’s assertion that ISBE is required to
calculate Maintenance of Effort for all LEAs. When an LEA is a member of a joint agreement
(cooperative), the grant agreement is between ISBE and the joint agreement (cooperative) not the
LEA. It is the joint agreement’s (cooperative’s) responsibility to determine that their member
LEAs have met the Maintenance of Effort requirement. Thus, ISBE has required cooperatives to
report only the combined total Maintenance of Effort for all member districts. The issues
identified by the auditors related to MOE calculation or compliance were generally part of a joint
agreement (cooperative). The system to extract the financial data from the AFR, discussed
above, will make MOE determinations for all LEAs, including those that are part of a joint
agreement (cooperative) and should resolve the issues noted by the auditor.


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ED-OIG/A05I0016                                                                     Page 27 of 34

•      Adequate Staffing Levels and Improved Procedures Needed to Improve Oversight
       of Compliance and Improve Services to At-risk Children

ISBE does not have adequate staffing levels to monitor subrecipient compliance with the Title I,
Part A, comparability and schoolwide program requirements. Prior to fiscal year 2008, ISBE’s
External Assurance Division did not have any full-time, on-site monitors at CPS. Although ISBE
recently hired two full-time, on-site monitors at CPS, the staffing level still might be inadequate
as the monitors are newly hired and behind schedule in their monitoring duties.

ISBE Response – Oversight of Compliance
ISBE recognizes that External Assurance staffing levels have not been sufficient to provide
adequate coverage of subrecipient compliance with Federal grant requirements. Four staff
members have accepted positions with External Assurance beginning August 2009, filling
outstanding vacancies. External Assurance will then have 25 total staff. As noted in the finding,
ISBE has constantly requested increased staffing levels for External Assurance, without success.
ISBE acknowledges that the monitoring plan will be difficult to accomplish with current staff,
however, the current economic environment makes it unlikely that additional appropriations for
staff will be forthcoming. ISBE is considering contracting externally for monitoring activities
related to certain American Recovery and Reinvestment Act funds.

Prior to implementing the American Recovery and Reinvestment Act (ARRA), ISBE was
undertaking a project to evaluate oversight and monitoring practices from an agency-wide
perspective in order to determine more efficient and effective means to monitor subrecipients.
This would include better coordination between program staff and External Assurance to ensure
compliance requirements are met. The requirements of ARRA implementation has reduced the
time available for this evaluation, delaying when the analysis can be performed.

Recommendation 1.1
Return $667,876, which represents the amount by which CPS did not comply with the
Title I, Part A, comparability requirement during fiscal year 2008.

ISBE Response
ISBE is still awaiting a program determination from the U.S. Department of Education (ED),
Office of Elementary & Secondary Education on the audit Illinois State Board of Education's
Compliance with the Title I, Part A, Comparability of Services Requirement (A05G0033), as
relates to the appropriate corrective action to take in sanctioning CPS for not meeting
comparability requirements in previous years. It appears that Recommendation 1.1 is utilizing
the approach ISBE suggested in requiring CPS to return only the portion of Title I, Part A funds
by which the schools were non-comparable.

CPS requests that they be allowed to convert the funds provided for comparability positions that
were not filled for the schools to support the instructional program. The funds would be utilized
for professional development, instructional supplies and materials and other instructional
expenses. CPS has requested not to return the $,667,876.




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ED-OIG/A05I0016                                                                            Page 28 of 34

Recommendation 1.2
Reevaluate all LEAs’ fiscal year 2008 comparability determinations, determine whether the
determinations exclude longevity, and return that portion of Title I, Part A funds received by
schools that ISBE determines to be non-comparable.

ISBE Response
ISBE is unclear on the need to reevaluate all LEAs’ Fiscal Year 2008 comparability
determinations. As noted in the finding, “Although we did not find any problems with ISBE’s
monitoring of the nine randomly selected LEAs’ compliance with the comparability
requirements, we determined that ISBE continues to have weaknesses in its oversight of CPS’
compliance with the comparability requirements…” ISBE’s Title I Comparability Instructions
(http://www.isbe.state.il.us/ea/pdf/comparability_instructions.pdf) direct LEAs to exclude
longevity in their comparability calculations.

For example:
Column 5     Salaries - Enter the total amount of state and local funds spent on salaries for the staff
              members included in Column 4 less the amount of such salaries based on length of service
              (longevity/salary differentials). Include state and local funds budgeted for curriculum
              materials and instructional supplies for the 2008-2009 school year. Enter the data to the
              nearest dollar. Do not include salaries paid from federal funds.

Given staffing and time constraints, it appears other efforts to ensure LEA compliance with
Federal requirements would be more beneficial.

With regard to CPS’ inclusion of longevity pay in determining comparability, Attachments C and
D provide an analysis of a group’s comparability determinations with and without longevity pay,
respectively. Attachment C, with longevity pay, results in a required per pupil expenditure of
local funds (salaries only) of $8,940.88 for Title I schools to be determined comparable. When
longevity pay is excluded, as shown in Attachment D, the per pupil expenditure amount of local
funds is reduced to $4,887.20 to achieve comparability. Thus, the exclusion of longevity pay
results in reduced local funding levels to achieve comparability.

In addition, considerable time and effort would be required to remove longevity pay from salary
data for use in calculating comparability determinations.

Recommendation 1.3
Amend its procedures for ensuring that (a) LEAs required to submit revised comparability
reports because of reporting errors do so in a timely manner, and (b) LEAs implement corrective
actions.

ISBE Response
ISBE’s Title I Comparability Instructions provide the following directions for submitting revised
comparability reports, with a time-frame:

                                  NON-COMPARABLE SCHOOLS
If an LEA is not comparable, the district must use its written procedures to correct the imbalance, and
must submit documentation to this effect by December 30, 2008. If an LEA is found to be out of


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ED-OIG/A05I0016                                                                         Page 29 of 34

compliance with the comparability requirements, a portion of the LEA’s Title I funds must be withheld by
ISBE or repaid by the LEA, in the amount of percentage by which the LEA was found to be out of
compliance.

Recommendation 1.4
Cite LEAs that do not comply with the comparability requirements and determine the amount of
Title I, Part A, funding to be withheld or repaid.

ISBE Response
As noted in ISBE’s Title I Comparability Instructions:
If an LEA is found to be out of compliance with the comparability requirements, a portion of the LEA’s
Title I funds must be withheld by ISBE or repaid by the LEA, in the amount of percentage by which the
LEA was found to be out of compliance.

ISBE froze or withheld funding for 28 districts during FY 2009. All 28 have since complied
with comparability requirements and the funds were released.

Recommendation 1.5
Assign a sufficient number of employees to the External Assurance Division to assist with the
monitoring of LEAs’ compliance with the requirements of Federal programs.

ISBE Response
Seven (7) new positions have been included in ISBE’s budget request to the General Assembly
over fiscal years 2008, 2009, and 2010. State budget constraints and the current economic
climate reduce the probability that additional staff will be forthcoming.

Recommendation 1.6
Provide ISBE monitoring staff, LEAs, and schools with written guidance on the specific
requirements for comprehensive schoolwide plans.

ISBE Response
As noted in our response to the comparability portion of the finding, ISBE Grants and Programs
(GP) staff has redesigned our schoolwide process. GP staff have developed training programs
and have provided technical assistance to the field on four dates since the January of 2009. Two
staff members have attended trainings and worked with districts and schools pertaining
specifically to their Title I Plan and their Schoolwide Plans. Additionally, GP Staff have created
an e-Bulletin to address the Schoolwide compliance issue, as well as, creating a Schoolwide
webpage found at http://www.isbe.net/grants/html/title1_resources.htm.

External Assurance has improved their NCLB monitoring tool to include verification of the 10
specific components of a schoolwide program to ensure the schoolwide plans they review are
compliant. The monitoring tool can be accessed at:
http://www.isbe.state.il.us/ea/pdf/Sample_Monitoring_Instrument.pdf with Schoolwide program
requirements listed under #11 and # 12. See Attachment B for a copy of the monitoring tool
review of the ten components of a Schoolwide plan.




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ED-OIG/A05I0016                                                                    Page 30 of 34

Recommendation 1.7
Develop and implement policies and procedures to:
a. ensure coordination and participation, if needed, between ISBE Title I, Part A, schoolwide
monitoring staff and External Assurance Division monitoring staff when reviewing a
comprehensive plan for a schoolwide program for compliance with the specific requirements;
b. verify local-level MOE data; and
c. provide reasonable assurance that entities report accurate and complete special education
budget and expenditure data needed to ensure that, on a total or per capita basis, financial
support for special education and related services for children with disabilities meets the IDEA,
Part B, local-level MOE requirements.

ISBE Response
ISBE’s Divisions of Grants and Programs, Special Education Services, and External Assurance
will work together to ensure that subrecipient monitoring processes adequately encompass
qualitative programmatic review of NCLB compliance requirements and verification of data
used in LEA MOE calculations. ISBE’s review of oversight and monitoring practices from an
agency-wide perspective, as discussed under ISBE Response – Oversight of Compliance, will
include an analysis of ways to better integrate the review of programmatic and fiscal compliance
when performing subrecipient monitoring.

Recommendation 1.8
Recalculate local-level MOE calculations according to IDEA, Part B, requirements for fiscal
year 2008 and report the revised MOE levels to the Department. If any of the entities did not
meet MOE based on its recalculation, ISBE should return any required IDEA, Part B, funds to
the Department.

ISBE Response
ISBE will recalculate local-level MOE calculations for a random sample of districts that received
IDEA Part B funds for fiscal year 2008. In addition, ISBE will continue to remedy problems in
local Maintenance of Effort reports that were identified in the Office of the Inspector General’s
draft audit report. If any of the districts are found to not meet the Maintenance of Effort
requirements, ISBE will follow all applicable rules and regulations.

ISBE Response to “Other Matters”
Under Other Matters, it is stated: “ISBE did not use accurate data to complete its State-level
IDEA, Part B, MOE calculation.” ISBE will perform the calculation of State-level MOE in
whatever manner is deemed appropriate. However, the U.S. Department of Education has not
provided definitive guidance on determining the amount of “State financial support” (34 C.F.R. §
300.163(a)) for calculating State-level MOE. If guidance was available directing use of the net
amount of State funds distributed and recovered in determining State-level MOE, ISBE would
have been following that guidance.




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ED-OIG/A05I0016                                                                           Page 31 of 34

                                                                                           Attachment A

Illinois State Board of Education
Division of Funding and Disbursements


Procedures for Freezing and Releasing funds

    •   Insert notes or e-mails in FRIS specifying who requested the freeze and the reason for the
        freeze.
    •   Prior to the payment release, notes should be reviewed to ensure that the district is in compliance
        with every division that requested funds to be held.

Note: Requests for federal and state grant payment freezes are received from several divisions, as well
as, from several staff within a division for different purposes. All payment freeze requests must honored
until all conditions are satisfied.




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                      Attachment C




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                      Attachment D




                  .