oversight

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)

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

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