oversight

Audit of the Individuals with Disabilities Education Act (IDEA), Part B, § 611, at the Tennessee Department of Education (Tennessee).

Published by the Department of Education, Office of Inspector General on 2002-06-25.

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

Mr. Joseph Fisher                                                              Page 2 of 6


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 making FY 1999
the base.

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. Tennessee allocated IDEA, Part B,
§ 611 funds to 146 LEAs in FY 2000. Because of a school closure, the state allocated funds to
145 LEAs in FY 2001.


                                     AUDIT RESULTS
We determined that Tennessee did not comply with the new IDEA, Part B, § 611 funding
formula for FY 2000. Specifically, Tennessee incorrectly calculated the base allocation for each
LEA using the 1999 children with disabilities child count instead of using the 1998 children with
disabilities child count. The 1998 children with disabilities child count was the number used by
the Department to establish the base allocation for Tennessee. The base allocation was a fixed
number and was not supposed to change from year to year once the new funding formula took
effect.

According to Enclosure A of the FY 2000 Grant Notification Letter, “[L]ocal awards, like state
awards, are no longer based on [children with disabilities] child count.” In addition, federal
regulations [34 C.F.R. § 300.712(b)(2)] allow for adjustments to the base figure under very
specific conditions--a new LEA is created, LEAs are combined, or the administrative
responsibility or geographic boundaries of an LEA is changed. Tennessee’s miscalculation of
the base to its LEAs in FY 2000 did not meet any of these conditions. As a result of incorrectly
calculating the base figure, 84 LEAs were over funded by amounts ranging from $484 to
$92,043 while 62 LEAs were under funded by amounts ranging from $82 to $326,755. We
determined that Tennessee was in compliance for FY 2001.
Mr. Joseph Fisher                                                                Page 3 of 6


Tables A-1 and A-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 B illustrates the effect that incorrectly calculating the LEAs’ base
allocation had on six of the LEAs.


TABLE A-1 FY 2000
 Funding Component               Grant Notification Letter       Tennessee’s
                                 Required Funding Amounts        Actual Funding 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.

TABLE A-2 FY 2001
 Funding Component               Grant Notification Letter       Tennessee’s
                                 Required Funding Amounts        Actual Funding 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 B
                    TENNESSEE OVER/UNDER 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
Mr. Joseph Fisher                                                               Page 4 of 6



                                  RECOMMENDATION
We recommend that the Assistant Secretary for the Office of Special Education and
Rehabilitative Services require Tennessee officials to recompute the FY 2000 flow-through
funds using the correct base, population, and poverty figures and to reallocate the correct funding
to the LEAs.


            TENNESSEE’S COMMENTS TO THE DRAFT REPORT

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. Tennessee also stated 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.”


                                     OIG’S RESPONSE
Based on documents provided, we agree with Tennessee’s position that the FY 2000 allocations
should have used the December 1998 children with disabilities child count as the base.
Accordingly, we have changed our finding and recommendation.

Tennessee’s proposal to utilize State discretionary funds from FY 2001 to reallocate funds to
those LEAs who did not receive their fair share in FY 2000 should be addressed by the
Department’s action official responsible for resolution of this audit.


                    OBJECTIVE, SCOPE, AND METHODOLOGY
The objective of our audit was to determine if Tennessee complied with the new IDEA, Part B, §
611 funding requirements for FY 2000 and 2001. To accomplish our objective, we:

   •   Obtained Tennessee’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 Tennessee 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 policies and procedures.
Mr. Joseph Fisher                                                               Page 5 of 6



   •   Recalculated the allocation for all Tennessee 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 Tennessee’s formula allocation covered FYs 2000 and 2001. We performed
fieldwork from December 10 through December 13, 2001, at the State offices in Nashville,
Tennessee. A pre-exit conference was held on December 13, 2001 and a final exit conference
was held on March 22, 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, we assessed the management control system of policies, procedures, and
practices applicable to Tennessee’s compliance with IDEA, Part B, § 611. Our assessment was
performed to determine the level of control risk for determining the nature, extent, and timing of
our substantive tests to accomplish the audit objective.

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, our assessment disclosed a management control weakness that affected the allocation
of FY 2000 flow-through funds to Tennessee’s LEAs. That weakness is discussed in the Audit
Results section of this report.


                            ADMINISTRATIVE MATTERS
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 U.S. Department of
Education official, who will consider them before taking final Departmental action on the audit:

               Dr. Robert H. Pasternack, Assistant Secretary
               U.S. Department of Education
               Office of Special Education & Rehabilitative Services
               330 C Street, SW
               Room 3006, MES Building
               Washington, DC 20202-2500

Office of Management and Budget Circular A-50 directs Federal agencies to expedite the
resolution of audits by initiating timely action on the findings and recommendations contained
therein. Therefore, we request receipt of your comments within 30 days.
                          REPORT DISTRIBUTION LIST
                         CONTROL NO. ED-OIG/A06-C0005

Auditee                                             ED Action Official

Mr. Joseph Fisher                                   Dr. Robert H. Pasternack
Assistant Commissioner                              Assistant Secretary
Tennessee Department of Education                   Office of Special Education and
710 James Robertson Parkway                          Rehabilitative Services
Nashville, TN 37243-0380

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