oversight

Audits of six-selected State's compliance with the funding formula requirements of the Individuals with Disabilities Education Act.

Published by the Department of Education, Office of Inspector General on 2002-12-19.

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

                             UNITED STATES                  DEPART~ENT              OF EDUCATIO:-.I

                                                OFFICE OF INSPECTOR GENERAL


                                                            DEC I 9 2002
Mr. Robert Pasternack
Assistant Secretary
Office of Special Education and Rehabilitative Services
C.S. Department of Education
330 C Street S.W., Room 3006
Washington. DC 20202

Dear :vir. Pasternack:

This Final Audit Report (Control Number ED-OIG/A06-B0029) presents the results of our
audits of six-selected State's compliance \vith the funding formula requirements orthe
Individuals with Disabilities Education Aet (IDEA). The objective of our audit was to determine
if selected States complied with thc new IDEA. Part B. § () 11 formula for distributing flow­
through funds. Our audit focused on federal fiscal years (FY) 2000 and 2001.

We provided a draft: of this report to the Office oCSpecial Education and Rehabilitative Services
(OSERS). In its response dated November 15.2002. OSERS generally concurred with the
conclusions in the draft: audit report. OSERS' comments are summarized in the section that
follows the Rccommendations. A copy of the complete response is enclosed with this report.




II 	                                             AlJDIT
                                                  ..    RESULTS
                                                        .             .   ..    .
                                                                                                                                II 

Three of the six States reviewed did not comply with the nc\\ IDEA, Part B. ~ 61 I formula for
distributing tlow-through funds. Although the six States selected for audit \vere j udgmentally
selected and the results cannot be projected to the remaining States. we believe a high probability
exists that more States have incorrectly calculated the funding formula or incorrectly distributed
the allocations. Specifically, we found that:

       • 	 Florida incorrectly calculated the base amount Cor FY 2000 and inappropriately
           distributed the base amount to the Local Education Agencies (LEAs) for FY 200 I.

       • 	 Tennessee incorrectly calculated the base amollnt for FY 2000.

       • 	 Rhode Island over funded the FY 2000 base amount and inappropriately adjusted the
           population and pov-crty allocation to compensate.

       • 	 Texas. Missouri. and Idaho correctly distributed IDEA flo\v-through funds to the
           LEAs.


                                      400 MARYLAND AVE., S.W. WASHIKGTON, D.C. 20202-15]()

            OUT   mission is to ensure equal access to education and to promote educational excellence throughout the Nation.
Control Number ED-OG/A06-B0029                                                          Page 2 of 10


Our audit identified a 50% error rate of noncompliance and the error existed within each of the
stratified categories of States reviewed (large, medium, and small). Because Florida, Tennessee,
and Rhode Island did not comply with the new IDEA funding formula, all 332 LEAs in those
States received the wrong funding. Specifically, 140 LEAs were under funded, some by as much
as $599,000, while 192 LEAs were over funded, some by as much as $838,000. Florida,
Tennessee, and Rhode Island officials stated they incorrectly calculated and distributed the base
amounts because the existing guidance was confusing and unclear. Additionally, several of the
States indicated that receiving the Grant Notification Letter in July is too late for planning
purposes and contributes to LEAs being over and under funded. The States provide the
anticipated funding to the LEAs earlier in the school year and once the Grant Notification Letters
are received, the States do not always go back and make adjustments because the LEAs have
already set their budgets for the coming year.

Florida

Florida did not comply with the IDEA, Part B, § 611 for FYs 2000 and 2001. While the total
base allocation remained the same for both years, Florida distributed the base allocation for each
LEA to correspond with the change in each year’s children with disabilities child count.
According to Enclosure A of the FY 2000 and FY 2001 Grant Notification Letters, “[L]ocal
awards, like state awards, are no longer based on [children with disabilities] child count.” In
addition, federal regulations [34 CFR § 300.712(b)(2)] allow for adjustments to the base figure
only under very specific conditions--when a new LEA is created, LEAs are combined, or the
administrative responsibility or geographic boundary of an LEA is changed.

For FY 2000, Florida applied the children with disabilities child count (356,296) that was in
effect when the allocation was received from the Department, instead of the children with
disabilities child count (345,171) that should have been used to establish the base amount.
Consequently, Florida incorrectly calculated the initial base allocation to each LEA. As a result,
38 LEAs were under funded and the remaining 34 LEAs were over funded.

For FY 2001, Florida distributed the base allocation for each LEA to correspond with the change
in the current children with disabilities child count. As a result, 31 LEAs were under funded and
41 LEAs were over funded.

Tables A-1 and A-2 represent the amounts Florida was required to allocate for FYs 2000 and
2001, according to the U. S. Department of Education’s (Department) Grant Notification Letters,
and the actual amounts that Florida allocated. The Department’s final FY 2001 Grant
Notification Letter awarded Florida $287,672,377 in minimum flow-through funds. However,
Florida allocated $289,488,126 based on an earlier estimate provided by the Department. To
fund the additional $1,815,749, Florida used part of the State’s administrative funds.

Tables B-1 and B-2 illustrate the effect that redistributing the LEAs’ base allocation had on six
of the LEAs.
Control Number ED-OG/A06-B0029                                                        Page 3 of 10


TABLE A-1
                                          FY 2000
 Funding Component               Grant Notification Letter   Florida Actual Funding
                                 Required Funding Amounts    Amounts
 Total Minimum Flow
 Through to LEAs                             $223,668,878                  *$223,668,887
 LEA Base Allocation                         $179,007,131                  *$179,007,133
 LEA Population/Poverty                      $ 44,661,747                    $ 44,661,756
 85% Population Allocation                **$ 37,962,485                     $ 37,962,485
 15% Poverty Allocation                   **$ 6,699,262                    *$ 6,699,271
* Difference due to rounding. 

** OIG calculations from the Population/Poverty figure in the Grant Notification Letter. 



TABLE A-2
                                          FY 2001
 Funding Component               Grant Notification Letter   Florida Actual Funding
                                 Required Funding Amounts    Amounts
 Total Minimum Flow
 Through to LEAs                             $287,672,377                    $289,488,126
 LEA Base Allocation                         $179,007,131                  *$179,007,133
 LEA Population/Poverty                      $108,665,246                    $110,480,993
 85% Population Allocation                **$ 92,365,459                   *$ 93,908,846
 15% Poverty Allocation                   **$ 16,299,787                   *$ 16,572,149
* Difference due to rounding. 

** OIG calculations from the Population/Poverty figure in the Grant Notification Letter. 



TABLE B-1
                         Florida Under/Over Funding Examples
                                              FY 2000
 District                     Incorrect Minimum     Correct Minimum            Difference
                                 Flow-through         Flow-through
 Duval                                $12,636,022          $13,068,360          $(432,338)
 Seminole                             $ 4,725,920          $ 5,027,374          $(301,454)
 Pinellas                             $12,594,386          $12,839,064          $(244,678)

 Broward                                $18,094,694            $17,593,633       $ 501,061
 Miami-Dade                             $27,086,346            $26,677,932       $ 408,414
 Orange                                 $14,440,510            $14,064,499       $ 376,011
Control Number ED-OG/A06-B0029                                                           Page 4 of 10

TABLE B-2
                          Florida Under/Over Funding Examples
                                               FY 2001
 District                      Incorrect Minimum     Correct Minimum               Difference
                                  Flow-through         Flow-through
 Duval                                 $15,944,983          $16,544,780             $(599,797)
 Pinellas                              $15,393,788          $15,779,671             $(385,883)
 Seminole                              $ 6,280,196          $ 6,511,722             $(231,526)

 Hillsborough                            $19,236,517              $18,398,118       $ 838,399
 Orange                                  $19,024,855              $18,194,055       $ 830,800
 Miami-Dade                              $37,435,562              $37,018,131       $ 417,431

Florida officials agreed that during the past two years, they incorrectly distributed the base
allocation for each district to correspond with each year’s change in the disabled child count.
They concurred with our recommendation to recalculate the two fiscal years, FY 2000 and FY
2001. However, they believe that this recalculation of the base amount disproportionately
allocates funds to districts with declining child counts. Florida officials believe this creates an
inequitable advantage to some of the districts; however, they are prepared to comply with the
findings of the audit. Florida has already taken steps to adjust funds for under- and over-funded
districts for both FY 2000 and FY 2001.

Tennessee

In FY 2000, Tennessee did not comply with the IDEA, Part B, § 611 funding formula.
Specifically, Tennessee incorrectly calculated the base allocation for each LEA using the 1999
children with disabilities child count instead of the 1998 count. As a result, 84 LEAs were over
funded by amounts ranging from $484 to $92,043 and 62 LEAs were under funded by amounts
ranging from $82 to $326,755. Tennessee corrected the base allocation and complied with the
IDEA, Part B, § 611 requirements for FY 2001.

Tables C-1 and C-2 represent the amounts Tennessee was required to allocate for FYs
2000 and 2001, according to the Department’s Grant Notification Letters, and the
actual amounts that Tennessee allocated. Table D illustrates the effect that
redistributing the LEAs’ base allocation had on six of the LEAs.

TABLE C-1
                                          FY 2000
 Funding Component               Grant Notification Letter      Florida Actual Funding
                                 Required Funding Amounts       Amounts
 Total Minimum Flow
 Through to LEAs                              $82,026,989                   *$82,034,232
 LEA Base Allocation                          $66,522,917                  **$66,522,957
 LEA Population/Poverty                       $15,504,072                     $15,511,275
 85% Population Allocation                ***$13,178,461                      $13,184,579
 15% Poverty Allocation                   ***$ 2,325,611                      $ 2,326,696
* Tennessee over funded the Total Minimum Flow Through funds by $7,243. 

** Tennessee over funded the FY 2000 base allocation by $40. 

*** OIG calculations from the Population/Poverty figure in the Grant Notification Letter. 

Control Number ED-OG/A06-B0029                                                          Page 5 of 10


TABLE C-2
                                          FY 2001
 Funding Component               Grant Notification Letter     Florida Actual Funding
                                 Required Funding Amounts      Amounts
 Total Minimum Flow
 Through to LEAs                             $106,503,848                  *$106,503,848
 LEA Base Allocation                         $ 66,522,917                    $ 66,522,917
 LEA Population/Poverty                      $ 39,980,931                  *$ 39,980,933
 85% Population Allocation                **$ 33,983,791                     $ 33,983,793
 15% Poverty Allocation                   **$ 5,997,140                      $ 5,997,140
* Rounding difference of $2. 

** OIG calculations from the Population/Poverty figure in the Grant Notification Letter. 



TABLE D
                        Tennessee Under/Over Funding Examples
                                              FY 2000
                            Incorrect Base        Correct Base         *Difference
 Memphis                               $6,381,862           $6,709,701   $(327,839)
 Knox                                  $3,646,553           $3,906,127   $(259,574)
 Shelby                                $3,178,333           $3,298,841   $(120,508)

 Nashville                                $5,103,180                $5,011,791        $ 91,389
 Tipton                                   $ 975,284                 $ 912,225         $ 63,059
 Rutherford                               $1,581,555                $1,524,178        $ 57,377
* The difference represents errors in calculating the base allocation for these districts and
not the total amount under or over allocated.

Tennessee agreed that allocations for FY 2000 and FY 2001 should be based on the same
children with disabilities child count, when determining the base allocation. Tennessee stated
that the base allocation should be calculated using the December 1998 children with disabilities
child count, and that the allocations for FY 2000 were incorrectly based on the December 1999
children with disabilities child count, while allocations for FY 2001 were correctly based on the
December 1998 children with disabilities child count. Regarding the recommendation to
reallocate for FY 2000, Tennessee stated, “Since this award is no longer available for use, we
propose utilizing some of Tennessee’s discretionary money from the FY 2001 award to
reallocate funds to those LEAs who did not receive their fair share.”

Rhode Island

Rhode Island over funded the FY 2000 base allocation and, in order to compensate for the over
funding, inappropriately adjusted downward the population and poverty amounts. As a result,
nine LEAs were under funded and the remaining 33 LEAs were over funded.
Control Number ED-OG/A06-B0029                                                           Page 6 of 10


The LEA base allocation should have been $13,181,363 instead of the $13,767,447 initially
computed by Rhode Island. When Rhode Island officials received the final IDEA Grant
Notification Letter in July 2000, they did not recompute and make downward adjustments to
their initial base allocations because the LEAs had already been notified of their expected
funding level (the expected funding levels are provided to the LEAs earlier in the year so the
LEAs can plan for the upcoming school year). Instead of lowering the base allocations, Rhode
Island lowered the population and poverty allocations in order to meet the minimum flow-
through amounts. Rhode Island should have allocated $2,979,698 for the population and poverty
amounts (85 percent or $2,532,743.30 based on population and 15 percent or $446,954.70 based
on poverty). Instead, Rhode Island allocated a total of $2,393,604--$2,034,563 for population
and $359,041 for poverty. Rhode Island correctly allocated IDEA flow through funds for FY
2001.

Table E represents the amounts Rhode Island was required to allocate for FY 2000, according to
the Department’s Grant Notification Letter, and the actual amounts that Rhode Island allocated.
Table F illustrates the effect that redistributing the LEAs’ base allocation had on six of the LEAs.

TABLE E
                                          FY 2000
 Funding Component               Grant Notification Letter      Florida Actual Funding
                                 Required Funding Amounts       Amounts
 Total Minimum Flow
 Through to LEAs                              $16,161,061                     $16,161,051
 LEA Base Allocation                          $13,181,363                     $13,767,447
 LEA Population/Poverty                       $ 2,979,698                     $ 2,393,604
 85% Population Allocation                 **$ 2,532,743                      $ 2,034,563
 15% Poverty Allocation                    **$ 446,955                        $ 359,041
** OIG calculations from the Population/Poverty figure in the Grant Notification Letter.


TABLE F
                       Rhode Island Under/Over Funding Examples
                                               FY 2000
                              Incorrect Minimum      Correct Minimum               Difference
                                 Flow-through          Flow-through
 Providence                             $2,355,098           $2,403,314              $(48,217)
 East Providence                        $ 662,555            $ 666,421               $ (3,866)
 Pawtucket                              $1,002,046           $1,005,769              $ (3,723)

 Cranston                                 $1,191,794               $1,185,173          $6,621
 Cumberland                               $ 531,669                $ 527,589         $ 4,080
 Warwick                                  $1,310,747               $1,306,739        $ 4,008


Rhode Island officials requested that our recommendation to reallocate FY 2000 funds be
modified. We did not change our recommendation based on Rhode Island’s response. Rhode
Island stated, “Rhode Island prepared the FFY [Federal Fiscal Year] 2000 allocation based on
the interpretation of the regulations to mean that the base amount of 75% required by the new
Control Number ED-OG/A06-B0029                                                           Page 7 of 10


allocation method was the minimum amount that could be allocated to LEAs. We believed that
if in that base year a state had allocated more than 75%, as we did in RI, it was allowable to use
that higher amount as a hold harmless for the base. In preparing the [second year’s] allocation, it
was learned that this was an incorrect premise. The base amount of 75% of FFY 2000 funds was
to be used even if the SEA had given out higher amounts than that to the LEAs in FFY 2000.
The appropriate base was used to prepare the FFY 2001 LEA allocations.”

Rhode Island further stated that, although the FY 2000 allocation was prepared based on an
invalid interpretation of the methodology, the nine LEAs that were under funded did not spend
all allocated funds. Also, even if they were given the additional monies due them, they could not
have spent it. Consequently, no harm had been done to the Federal or to the local interest. They
further stated that in view of the absence of harm, to undergo the complex administrative process
of reallocating funds would be burdensome and unproductive.



                                  RECOMMENDATIONS

We recommend that the Assistant Secretary for Special Education and Rehabilitative Services:

1.1 Provide clearer guidance to all of the States on calculating and distributing the base,
    population, and poverty allocations.

1.2 Require the remaining 44 States, the District of Columbia, and Puerto Rico to reaffirm that
    they: (1) calculated the FY 1999 base allocation figure using the 1998 children with
    disabilities child count; (2) correctly distributed the base allocations, based on the 1998
    count, in FYs 2000 and 2001; and (3) correctly distributed the FYs 2000 and 2001
    population and poverty allocations.

1.3 Provide an accurate estimate of the final IDEA Grant to the States earlier in the year to
    allow more time for budget planning and allocations.



             DEPARTMENT’S COMMENTS and OIG’S RESPONSE

The Office of Special Education and Rehabilitative Services generally concurred with the
conclusions and Recommendation 1.2 in the report. The Department did not specifically address
Recommendation 1.1; however, OSERS did include the guidance that was provided to the States
during our audit period. Regarding Recommendation 1.2, OSERS proposed to send a
Memorandum to the other 44 States, the District of Columbia and Puerto Rico explaining that
they should examine the methodology that was used to distribute the IDEA funds in order to
ensure that each state allocates funds correctly. With respect to Recommendation 1.3, OSERS
agreed that earlier notification would be beneficial; however, it was concerned that if it provided
the States with funding figures earlier in the year, accuracy of the estimates might be
compromised. Census data on which the estimates are based have a tendency to change because
of the constant revisions of the census data.
Control Number ED-OG/A06-B0029                                                           Page 8 of 10


OIG’s Response

Based on the comments received by the Department, we are not changing our recommendations.
With regards to Recommendation 1.3, we understand that the recommendation might not be
feasible to implement at this time. However, to the extent reliable data becomes available earlier
in the process, we believe the Department should implement this recommendation.


                                       BACKGROUND

The IDEA Grants to States program provides formula grants to assist the 50 States, the District
of Columbia, Puerto Rico, and the outlying areas of the Pacific Basin and Freely Associated
States in meeting the excess costs of providing special education and related services to children
with disabilities. IDEA, Part B requires the Department to allocate funds to the States who are
required to allocate a portion of the funding to each LEA. Prior to 1997, the formula for
calculating the funds that each State and LEA would receive was based on the total number of
children with disabilities. The IDEA Amendments of 1997 changed the formula to require States
to allocate funds to the LEAs based on total student population and the number of students living
in poverty. The new formula was slated to take effect when the Grants to States program
exceeded $4.925 billion. This trigger figure was reached in FY 2000, making it the first year of
the new formula and FY 1999 the base year.

The new funding formula has several components, some of which are funds the States may use at
the State level. Although the new formula has several components, our audit focused on the
funds designated for allocation to the LEAs. These funds are known as the “minimum flow-
through funds.” The minimum flow-through funds are composed of three components--a fixed
base amount, an amount based on total student population, and an amount based on the number
of students living at poverty level. The fixed base figure for each LEA is the amount the LEA
would have received for the base year (FY 1999), if the State had distributed 75 percent of its
grant for that year. The remaining flow-through funds are distributed based on each LEA’s total
public and private elementary and secondary school population (85 percent) and the number of
children living in poverty (15 percent). Each year in July, the Department provides a Grant
Notification Letter to each State that identifies the funding level for the flow-through
components.



                  OBJECTIVE, SCOPE, AND METHODOLOGY

The objective of our audit was to determine if selected States complied with the new IDEA, Part
B, § 611 formula for distributing flow-through funds.

We selected six States for our audit by stratifying the 1998-1999 State Grant Awards into three
strata: large States with a funding level greater than $100 million; medium States with funding
levels between $20 and $100 million; and small States with a funding level under $20 million.
We selected the first two States in each stratum with the largest funding levels, except for Florida
and Rhode Island. After consulting with Department officials, we agreed not to visit California
and New York because of several recent audits in California and the events occurring in New
Control Number ED-OG/A06-B0029	                                                          Page 9 of 10

York. This resulted in the selection of Florida, the State with the fourth largest funding level.
Department officials also asked that we visit Rhode Island because of difficulties that the State
has had implementing the revised formula contained in the 1997 IDEA amendments. The six
States selected were: large – Texas and Florida; medium – Missouri and Tennessee; and small –
Idaho and Rhode Island.

Initially, our audit (Texas) covered FY 2000. The scope was expanded to included FY 2001 in
the remaining five States. To accomplish our objective, we:

   • 	 Obtained the States’ formula allocation to all the LEAs, including the allocation
       breakdown of the base, population and poverty amounts for FYs 2000 and 2001 (FY
       2000 only in Texas).

   • 	 Reviewed State Auditor reports for 2000 where available.

   • 	 Interviewed State officials regarding the data used in the allocation formula, the 

       methodology used in the formula, and other applicable procedures. 


   • 	 Recalculated the allocation for the LEAs in each of the States.

   • 	 Performed limited data reliability tests on the data used in the allocation formula and
       found the data to be reliable for our purposes.

We performed fieldwork at the six States from November to December 2001. We conducted an
exit conference with officials from each of the six States. We also conducted an exit conference
with Department officials on June 5, 2002. Our work was performed in accordance with
generally accepted government auditing standards appropriate to the scope of the audit described
above.


                 STATEMENT OF MANAGEMENT CONTROLS

As part of our review of each State, we gained an understanding of the system of
management controls, policies, procedures, and practices applicable to each State’s
compliance with the new IDEA, Part B, § 611 formula for distributing flow-through
funds.

Because of inherent limitations, a study and evaluation made for the limited purpose
described above would not necessarily disclose all material weaknesses in the
management controls. However, we identified management control weakness that
affected the allocation of flow-through funds to LEAs in Florida, Tennessee, and Rhode
Island. The weaknesses are discussed in the Audit Results section of this report and in
each of the three State audit reports.
Control r\umber ED-OG/A06-B0029                                                         Page 10 of 10




                            ADMINISTRATIVE MA TTERS 


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 Freedom of Information Act (5 "C.S.c. § 552), rep0l1s issued by the
Office of Inspector General are available, if requested, to members of the press and general
public to the extent information contained therein is not subject to exemptions in the Act.

If you have any questions or if you wish to discuss the contents of this report, please contact
Sherri L. Demmel, Regional Inspector General for Audit, Dallas, Texas, at 214-880-3031.
Please refer to the control number in all correspondence related to the report.




                                                      S]I~7~Lt~
                                                      'I~Lew
                                                      Acting Assistant Inspector General
                                                      for Audit Services

Enclosure
                                                                                                         Enclosure

                         UNITED STATES DEPARTMENT OF EDUCATION
                        OFFICE OF SPECIAL EDUCATION A.'iD REHABILITATIVE SERVICES
                                                                                             THE ASSISTANT SECRETARY


                                                  \! nv I   5 2002


TO:              Thomas A. Carter
                 Assistant Inspector General

FROM:            Robert H. Pasternack, Ph.D.

SUBJECT:         State Educational Agencies' Compliance with the Funding Formula Requirements
                 of Section 611 of Part B, the Individuals with Disabilities Education Act

This memorandum provides the Office of Inspector General (OIG) with the Office of Special
Education and Rehabilitative Services' (OSERS) advanced review comments concerning the
~iG's Draft Audit Report Control Number ED-OIG/A06-B0029 (Report). This Report presents
the results of audits of six selected States' compliance with the funding formula requirements of
the Individuals with Disabilities Education Act (IDEA). The audits' objective was to determine
if selected States complied with the new IDEA, Part B, section 611 fornlUla for distributing flow­
through funds to local educational agencies (LEAs).

OSERS reviewed the content and recommendations detailed in the above-referenced Report, and
concurs with the conclusions reached as a result of your audit sample of the six States.
Understanding the concerns raised as a result of this audit sample, OSERS would like to inforn1
OIG about the efforts that OSERS is taking to minimize the potential for State educational
agencies (SEAs) to make mistakes in the Part B funding formula distributions to LEAs. Also,
OSERS would like to note concerns with recommendation three in the Report.

Documentation accompanying each Part B of IDEA grant award includes Enclosure A (copy
attached). This enclosure provides specific details explaining the minimum flow-through amount
to LEAs, including the section 611 base allocation and popUlation/poverty allocation. Also
included in Enclosure A is a numerical chart listing the total dollar amount of the Part B, section
611 grant award for each State, as well as the total dollar minimum flow-through amount,
including the exact base allocation, along with the population/poverty allocation amounts. These
detailed data provide the States \\lith the specific amounts, in the aggregate, that must be
distributed to the LEAs.

Regarding the Report's second recommendation, OSERS proposes to send a Memorandum to all
44 States, the District of Columbia and Puerto Rico explaining that OIG found errors in several
SEAs' distribution of IDEA funds to their LEAs for FYs 2000 and 2001 and that the SEAs need




                               600 I~DEPENDENCE AVE.• S.W. WASHINGTOK. D.C. 20202-2500

        Our mission is to ensure equal access to education and to promote educational excellence throughout the Natlon.
                                                                                     Enclosure


Page 2 - Thomas A. Carter, Assistant Inspector General

to examine the methodology that was used to distribute those IDEA funds in order to ensure that
the State is allocating funds correctly (and to prevent future audit findings against the State). If,
through the reexamination of its procedures, an SEA concludes that it has incorrectly calculated
the LEAs' allocation of section 611 funds for FY s 2000 or 200 1, the SEA will be instructed to
take appropriate steps to ensure that those LEAs that were under funded receive the amount of
section 611 funds to which they were entitled in FY s 2000 and 2001.

With respect to OIG's third recommendation that addresses the provision of an accurate estimate
of the final IDEA grant to States earlier in the year to allow more time for budget planning and
allocations, OSERS has some concern that such a shift in the notification to States may present
complications not considered by OIG. The IDEA grant estimates are based on data obtained
from the U.S. Census Bureau. The Census data are not necessarily compiled at a point in the
year that would permit OSERS to move up the notification of the funding amounts and at the
same time provide accurate final estimates. Although OSERS could provide the States with
funding figures earlier in the year, accuracy of the estimates would be compromised in that the
Census data on which the estimates are based have a tendency to change as a result of the
constant revision of the Census data. Although OSERS agrees that an earlier notification to
SEAs would be beneficial, the use of earlier Census data has the likely potential of
compromising the accuracy of the figures.

If you have any questions on this matter, please do not hesitate to contact JoLeta Reynolds at
(202) 205-5507.
                                                                                   Enclosure


                                        ENCLOSURE A 



                      SECTION 611 (PART B - GRANTS TO STATES) 

                         Total Grant Award (Column A of Table I) 


Column A includes your total grant award for FFY 2002. The amount that you have received in
the accompanying grant award, plus the additional funds that you will receive in October 2002,
will make up your total award amount.

State grants are calculated as fo11O\.,..s: States are first provided an amount equal to the amount
they received in FFY 1999. Ofthe funds in excess of the FFY 1999 level, 85% are allocated to
States on the basis of their relative populations of children aged 3 through 21, who are the same
age as children with disabilities for whom the State ensures the availability ofFAPE, and 15%
on the relative populations of children of those ages who are living in poverty. The statute also
contains a number of floors and ceilings below and above which a State's allocation may not fall.


                  Minimum Flow Through to LEAs (Column B of Table I)

Column B includes the total minimum amount that you must flow through to local educational
agencies (LEAs). This amount is in addition to any funds that the State may choose to flow
through to LEAs from its State set-aside funds or funds required for Capacity Building. Note
that local awards, like State awards, are no longer based on child count. The minimum flow
through is comprised of the base allocation and population and poverty amounts listed below.

                      Section 611 Base Allocation (Column C of Table I)

The amount shown in Column C is the portion of the LEA flow-through amount that must be
distributed to LEAs based on the amounts that the LEAs would have received from FFY 1999
funds had the State education agency (SEA) flowed through 75% of the State award to LEAs.
Note that this amount is less than the minimum amount that you were required to provide to
LEAs from FFY 1999 funds. Section 300.712(b)(1)-(2) of the Part B regulations clarifies how
base payments are made to LEAs.

                    Section 611 Population/Poverty (Column D of Table I)

The amount shown in Column D is the remaining amount that must be flowed through to LEAs.
Of this amount, 85% is distributed on a pro rata basis to LEAs according to public and private
elementary and secondary school enrollment, and 15% on a pro rata basis to LEAs according to
the number of children in LEAs living in poverty, as determined by the State.
                                                                                    Enclosure 



            Capacity a-iNn.: and f1IIpro\'rmad M.Ciritias (Column E of Table I)

Column E includes the minimum mnount that must be used for Capacity Building and
Improvement Activities. The minimum amount that a State must use for sub grants to LEAs for
capacity building and improvement activities is equal to the maximum amount that the State was
allowed to retain fOT State level activities for FFY 2001, multiplied by the difference betv.'een the
percentage increase in the State's allocation under Section 611 from FFY 2001, and the rate of
inflation. These fimds are to be used by LEAs to provide direct services and make systemic
change to improve results for children with disabilities through: (l) direct services, including
alternative programmjng for clrildrcnwho have been expelled from school, and services for
children in correctional facilities., children enrolled in State-operated or State-supported schools,
and children in charter schools; (2) addressing needs or carrying out improvement strategies
identified in the State Improvement Plan; (3) adopting promising practices, materials, and
technology, based on knowledge derived from education research and other sources; (4)
establishing, expanding or implementing interagency agreements and arrangements between
LEAs and other agencies concerning the provision of services to children with disabilities and
their families; and (5) increasing cooperative problem-solving between parents and school
personnel and promoting the use of alternative dispute resolution.

                   SectiOD. .611 State Set-aside (Columns F and G of Table I)

Column F includes the maximwn State set-aside amount (including funds for administration) and
Column G includes the maximum portion of the State set-aside amount that may be used for
administration. State set-aside amounts are limited to the maximum amount that a State could
set aside in the prior FFY~ plus an adjustment based on the lesser of the rate of inflation or the
percentage increase in the State's allocation over the preceding fiscal year. For FFY 2002, the
maximum amount that each State may use for State-level activities is the State 2001 level plus
approximately 2.13% for inflation. SEAs may use the State set-aside funds for: (1) support and
direct services, including technical assistance and personnel development and training; (2)
administrative costs of monitoring and complaint investigation, but only to the extent that those
costs exceed the costs incurred for those activities during Fiscal Year 1985; (3) establishing and
implementing the mediation process required by the Individuals with Disabilities Education Act
(IDEA) Section 615( e). including providing for the costs of mediators and support personnel; (4)
assisting LEAs in meeting personnel shortages; (5) developing a State Improvement Plan under
subpart 1 of Part D of the IDEA; (6) conducting activities at the State and local levels to meet the
performance goals established by the State; (7) supporting implementation of the State
Improvement Plan; (8) supplementing other amounts used to develop and implement a Statewide
coordinated services system designed to improve results for children and families, including
children with disabilities and their families (not to exceed 1% of the funds received under this
program); and (9) as an additional source of funding for providing subgrants 10 LEAs for
capacity building an(! improvement activities as described above. Funds that a State sets aside
may also be distributed to LEAs, at the State's discretion, in any manner determined appropriate
by the State. States may also use up to 20% of the maximum funds available for State set-aside
activities for administration (see Column G).




                                                  2
                                                                                 Enclosure

           Section 611 St.te Set-aside Percentages (Columns H and I of Table I)

Column H is the percentage of the total award that is the maximum amount that may be set aside
for State-level activities (including funds for administration) and Column I is the percentage of
the total award that may be used for 2.dministration.

                                       Funding Revisions

The sum of Columns B, E, and F equals the total award for your State in Column A. Please note
that, while no changes are expected, total grant award, capacity building, and flow-through
amounts may be revised when final awards are made in October 2002. No changes are expected
in the maximum amounts available fOT set-aside, since these amounts have been calculated for all
States based on their FFY 2001 maximum set-aside amounts and the rate of inflation.




                                                3
                                                                                                                                                                               02/1912002

TABLE I                                                                      FISCAL YEAR 2002 ALLOCA liONS
                                                                                  GRANTS TO STATES
                                                            INDIVIDUALS WITH DISABILITIES EDUCATION ACT - PART B, SECTION 611

                               C2IlImD.A       Cohlmll2       C2hmnl.C         C911HnnJ!      C2IlIInn..f      ColumllE         cmwnn..G         C9.bmm.H               CQI\!moJ
                                               Mlmlmum                       Minimum LEA      Minimum                        ortlon of Milimum Maximum State    Portion of MaxlmurII SI.le
                                             Flow-Through        LEA          Populallonl     Capacity         Ma.lmum        St.te Set-Aside    Sel-Aslde       Sel-Aslde Available for
                                Grant             to             n.. se        Poverty       Building and       Siale           Available 'or    Percent of         Administration as
                                Aw.rd           LfA1          Allo~all!!ll     AIl2rnIo.n    Iml![Q~~ment      S~             AdmIn/slrlllon    Total Awanl      Pe~ent of Mil Awanl

US TOTAL                     57,528,533,000 $6.400,559,589 $3,158,941\.901 53,241,610,688    $141,807,5OR     $853,500,980       5173,401,408
Alabama                         119,960,334    103,058,512     51,763,442      51,295,070       2,451,393       14,450,429          2,890,086          12,0%                         2,4%
Alaska                           22,199,605     19,136,095       9,185,518      9,950,577         461,773        2,601,737            549,814          11.7%                         25%
Arizona                         111,045,656     97,227,559     45,947,295      51.280.264       2,082,846       11,735,251          2,347,050          106%                          2.1%
Ar1canSI$                        71,962,298     62,304,868     30,654,695      31,650,173       1.455,695        8,201.735          1,640,347          11.4%                         2.3%
Callfomla                       781.662,507    679,958,560    ~~3,42e,031     356,530,529      15,330,161       86,373,786         17,274,757          11.1%                         2,2%
Colorado     ..­                 94,048.771     81,604,212     38,914.504      42,689,708       1,875.808       10,568,751          2,113,750          11.2%                         2.2%
Connecticut                      89,245,788     76,261,973     3\1,795,094     36.466,879       1.674.964       11,308,851          2,261,770          12.7%                         2.5%
Delaware                         20,345.877     17,615,171       8,418,502      9,196,669         411,608        2.319,098            549,814          11.4%                         2.7%
Florida                         405,878,306    350,785,138    179,007,131     171,778,007       7,349,058       47,744,110          9,548,822          11.8%                         24%
Georgia                         195,216,655    170,639,615     80,774,679      89,864,936       3,704,576       20,872,464          4,174,493          10.7%                         21%
HawaII                           25,660,148     21,711,406     10,617,384      12,094,022         444,473        2,504.269            549,814           98%                          2.1%
Idaho                            34,533,972     30,145.863     14,289,101      15,856,762         661.434        3,726,675            745,335          10.8%                         2.2%
illinois                        336,446,325    290,916,158    145.798.830     145,117,378       G.409,163       39,121,004          7,824,201          11.6%                         23%
Indiana                         170,853,119    147,315,778     7fl,006,114     71,309,664       3,Ofl4,32~      20,453.016          4,090,603          12.0%                         2.4%
Iowa                             82,526,911     70,975,591     36,799,117      34,176.474       1,490,IE7       10,061,153          2,012,231          12.2%                         :/4%
Kan•••                           70,893,325     61,448,458     30,299.450      31.149,008       1,258.071        8,186,796          1,fl37,359         11.5%                         2.3%
Kentucky                        104,503.321     89,967,110     45,623,108      44,343,942       1,958,955       12.577,256          2,515.451          12.0%                         24%
Louisiana                       119,376,775    103,220,337     49,394.457      53.825,880       2,435,312       13,721,126          2,7~4,225          115%                          2.3%
Maine                            36,989,288     31,460,019     16,493,686      14,966,331         713,2D8        4,815.971            963,194          13.0%                         2.6%
Mlryland                        131,443,233    113,558,662     57,921,866      5~,636,796       2.409,628       15,474,943          3,094,989          11.8%                         74%
Masslchusetts                   191,890,947    164,887,660     85,565,027      79,322.633       3.483.533       23,519,754          4,703,951          12.3%.                        2.5%
Michigan                        260,135.764    226,498,694    107,9n,fll0     118,575,064       5,010.570       28,626,500          5,725,300          11.0%                         2.2%
Mlnnesotl                       128,321,623    111.133,036     55,057.097      W,075,939        2,217,397       14,971,190          2,994,238          117%                          2.3%
Mississippi                      77,199,160     65,800,526     32,007,733      33.7:)2,/93      1,718.153        9,680.481          1,936,096          125%                          25%
Missouri                        153,553,541    132,219,616     ()8,230,162     63,989,454       2,752,162       18,581,763          3,716,353          121%                          2.4%
Montanl                          23,559,507     20,320,275       9.748.203     10,572.072         488,260        2,750,972            550.H14          11.7%                         2.3%
Nebraska                         50,475,888     43,704,138     22,507.423      21,196,715         673,563        5,898,167          1,179,633          11.7%                         2.3%
Nevada                           41.760,879     36,541,193     17,279,374      19,261,619         786,780        4.432,906            886,581          10.6%                         :7.1%
New Hampshire                    32,080,256     27,593,943     14,262,653      13,331,290         578,752        3,907,561            781,512          122%                          24%
New Jeruy                       244,340,509    209,972,164    108,952,520     101.019.644       4.433,655       29,934,690          5,986,938          123%                          2.5%
New Mexico                       61.594,953     53,253,334     :/7,026,021     26,227,313       1.07f1.107.      7,265,517          1,453,103          11.8%                         2.4%
NewYor1c                        509,305,853    438.449,982    224,090,730     214,351,252       9,808,308       61,047,563         12,209.513          120%                          2.4%
North Carolln.                  202,724,229    170,103,858     85,734,091      90.369,767       3,897,510       72,722,861          4,544,572          11.2%                         22%
North Dlkota                     15.520,608     14.~O7,13~       6,835,722      7,471,413         333,644        1.879.829            549,814          11.4%                         33%
Ohio                            288,468,284    249,117.401    119,359,351     129.758,050       5,931.484       33.419,399          6,683,880          116%                          2.3%
Oklahoml                         98,502,970     85,654,029     41.636.213      44,015,816       I,03().l62      10,912,179          2,182,436          11.1%                         22%
Oregon                           86,394,113     75,362,307     36,24?,655      39,119,652       1.603,671        9.428,135          1,885,627          10.9%                         2.2%
Pennsylvillnl.                  281,508,625    244,176,527    117.400,583     126,775,944       5,466,996       31,865,102          6,373,020          11.3%                         23%
Rhode Island                     29,560,959     25,294,038     13,181,363      12,112,675         550.450        3.716.471            7~3,294          12.6%                         25%
South Carolina                  115.429,949     99,984,508     51,358,930      48.625.578       2,021,745       13,423,696          2,684,739          11.6%                         2.3%
South Dakola                     19,680,342     17,059,180       8,143,124      8,916,056         395,096        2,226,066            549,814          11.3%                         2.8%
Tennessee                       154,805,179    132,972.777     66,522,917      66.449,860       3,290,868       18,541,534          3,708,307          120%                          2.4%
Tex.&                           608,102,898    527,719,235    252.423,854     275,295.381      12,116.487       68,267,176         13,653,435          112%                          2.2%
Utlh                             68,595,427     59,212,808     28,382,690      30,830,118       1.414,272        7,968,347          1,593,660          11.6%                         2.3%
Verlllont                        15,029,020     13,879,599       6,590,041      7,288,658         308,916        1.740,505            549,814          10.9%                         3.b%
Vlrglnll                        181,253,563    156,606,894     79,717,764      ~6,889,130       3,261,136       21,38~,533          4,277,107          11,8%                         24%
Washington                      142,673.221    123,985,987     59,195,558      64,790,429       2.809,250       15.827,984          3,165,597          11.1%                         ,. 2°10
West Vlrglnll                    51.337,699     43,636,253     22,891,709      20,744,544         993,517        6.707,029          1,341,586          13.1%                         26%
Wisconsin                       140,599,055    121.407,379     60,304,853      61,102,526       2,863,341       16,328,335          3,265,667          11.6%                         23%
Wyoming                          16,711,120     14.468,913       6,914,550      7,554,363         337,975        1,904,232            549,814          11.4%                         3.3%
District of Columbia             10,229,967      9,066,805       4,232,848      4,833,957         175,327          987,835            549.814           9.7%                         5.4%
PUerto Rico                      67,879,755     59,858.310     28.086,566      31,771,744       1,209,098        6,812,347          1.362.469          10.0%                         2.0%
Dep"rtment 01 the Inlerlor       79,377,301
                                                                                                                                                                                               m
                                                                                                                                                                                               :::l
                                                                                                                                                                                               (')
AmerlCln Samoa                   5,705,650                        NOTES:     Column A - B ... E + F                                   285,283                                        50%
Guam                            12,629,887                                   ColumI'lA-C+D+ E+F                                       631,494                                        50%       0
Northem Marianas                 4,372,921                                   Column H - 20% of Column G except for Outly              216,646                                        5.0%      en
Virgin ISlands
Pacific easln Compelltlon
                                 7,999,858
                                 6.579,300
                                                                             Column B-C'" D
                                                                             Amounls lor Outlying Areas are not based
                                                                                                                                      399,993                                        5.0%
                                                                                                                                                                                               ..,s:::::
                                                                             on MaximUm SI~t. Set-Aside amounts                                                                                <D
Evaluation                      16,000,000
                               REPORT DISTRIBUTION LIST
                              CONTROL NO. ED-OIG/A06-B0029

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