Ms. Adelita Orefice Page 2 of 5 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 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. According to § 611(g)(2)(B)(ii), each State is required to distribute 85 percent of the population and poverty funds on a pro rata basis according to the LEAs’ public and private elementary and secondary school enrollment. The remaining 15 percent is distributed to each LEA on a pro rata basis according to the number of children living in poverty. Each year in July, the Department provides a Grant Notification Letter to each State that identifies the funding level for the flow-through components. Rhode Island allocates IDEA, Part B, § 611 funds to 42 LEAs. AUDIT RESULTS Rhode Island did not comply with the new IDEA, Part B, § 611 funding formula for FY 2000. Rhode Island over funded the base figure allocation by $586,084 and, in order to compensate for the over funding, inappropriately adjusted downward, by $586,094,1 the population and poverty figures. As a result, nine LEAs were under funded and the remaining 33 LEAs were over funded. For example, the Providence school district was under funded by $48,217 while the Cranston school district was over funded by $6,621. We determined that Rhode Island was in compliance for FY 2001. The Department’s FY 2000 Grant Notification Letter awarded Rhode Island $16,161,061 in flow-through funds of which Rhode Island allocated $16,161,051.1 The LEA base allocation should have been $13,181,363. However, Rhode Island computed $13,767,447 as the base allocation because Rhode Island officials used the 1999 Entitlement figures (1999 flow through amounts) without making the proper adjustments to the base figure. When the State received the Grant Notification Letter, State officials did not adjust the base amount, which resulted in over funding the base allocation. In order to meet the minimum flow-through amounts, State officials adjusted the population and poverty allocations downward. 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. 1 The $10 difference is the result of Rhode Island under allocating the minimum flow through funds. Ms. Adelita Orefice Page 3 of 5 The following table 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. Funding Component Grant Notification Letter Rhode Island Actual Required Funding Amounts Funding 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. RECOMMENDATION We recommend that the Assistant Secretary for the Office of Special Education and Rehabilitative Services require Rhode Island officials to recompute the FY 2000 flow-through funds using the correct base, population, and poverty figures and reallocate the correct funding to the LEAs. RHODE ISLAND’S COMMENTS TO THE DRAFT REPORT AND OIG’S RESPONSE Rhode Island 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 2000 allocation based on the interpretation of the regulations to mean that the base amount of 75% required by the new 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 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. Ms. Adelita Orefice Page 4 of 5 OIG’s Response. We agree that the base amount of 75% required by the new allocation method is the minimum amount that must be allocated to the LEAs and that the State may use a higher base allocation than the minimum required. However, if a State chooses to allocate more than the minimum, the additional funds must come from another source such as the State’s discretionary IDEA funds. The additional funds may not come from the population or poverty components as was the case with the FY 2000 allocation and the additional funds do not change the base allocation for subsequent years. The base allocation is a constant figure that was established in the FY 1999 IDEA grant award and did not change with the FY 2000 award. While we acknowledge that Rhode Island provided documentation that the nine LEAs did not expend all of their funds, it is possible that a greater amount of funds may have allowed those LEAs to fund services for those children with disabilities that a smaller amount of funds would not allow. Although the reallocation process will require additional administrative time, our recommendation remains unchanged. OBJECTIVE, SCOPE, AND METHODOLOGY The objective of our audit was to determine if Rhode Island complied with the new IDEA, Part B, § 611 funding requirements for FYs 2000 and 2001. To accomplish our objective, we: • Obtained Rhode Island’s formula allocation to all the LEAs, including the allocation breakdown of the base, population, and poverty amounts for FYs 2000 and 2001. • Reviewed the Rhode Island State Auditor report for 2000. • 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 all Rhode Island’s LEAs. • Performed limited data reliability tests on the data used in the allocation formula and found the data to be reliable for our purposes. Our audit of Rhode Island’s formula allocation covered FYs 2000 and 2001. We performed fieldwork from December 4 through December 6, 2001, at the State offices in Providence, Rhode Island. A pre-exit conference was held on December 6, 2001, and a final exit conference was held on April 3, 2002. Our work was performed in accordance with generally accepted government auditing standards appropriate to the scope of the audit described above. REPORT DISTRIBUTION LIST CONTROL NO. ED-OIG/A06-C0002 Auditee ED Action Official Ms. Adelita S. Orefice Dr. Robert H. Pasternack Director, Finance and Accounting Assistant Secretary State of Rhode Island Office of Special Education and Elementary and Secondary Education Rehabilitative Services 255 Westminster Street Providence, RI 02903-3400 Other ED Officials/Staff (electronic copy) Audit Liaison Officer Press Secretary Office of Special Education and Office of Public Affairs Rehabilitative Services Correspondence Control Assistant General Counsel Office of General Counsel Office of the General Counsel Assistant Secretary Deputy Secretary Office of Legislation and Office of the Deputy Secretary Congressional Affairs Assistant Secretary Chief of Staff Office of Intergovernmental Office of the Secretary and Interagency Affairs Director Under Secretary Financial Improvement and Office of the Under Secretary Post Audit Operations Office of the Chief Financial Officer Post Audit Group Supervisor Director Financial Improvement and Office of Public Affairs Post Audit Operations Office of the Chief Financial Officer Indirect Cost Group Supervisor Regional Commissioner Rehabilitation Services Financial Improvement and Administration, Region VI Post Audit Operations Office of the Chief Financial Officer
Audit of the Individuals with Disabilities Education Act, Part B, § 611, at the State of Rhode Island's Elementary and Secondary Education (Rhode Island).
Published by the Department of Education, Office of Inspector General on 2002-06-27.
Below is a raw (and likely hideous) rendition of the original report. (PDF)