oversight

Charter Schools' Access to Title I and IDEA, Part B Funds in the State of California.

Published by the Department of Education, Office of Inspector General on 2004-03-29.

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

 Charter Schools’ Access to Title I and IDEA, Part B Funds 

                  in the State of California





                                 FINAL AUDIT REPORT 





                                            ED-OIG/A09-D0018 

                                               March 2004 




Our mission is to promote the efficiency,                        U.S. Department of Education
effectiveness, and integrity of the                              Office of Inspector General
Department’s programs and operations                             Sacramento, California
                                         Notice

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 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 under the Act.
                                  U.S. Department of Education 

                                   Office of Inspector General

                                      501 I Street, Suite 9-200 

                                   Sacramento, California 95814 

                             Phone (916) 930-2388 • Fax (916) 930-2390 





                                                  March 29, 2004




Jack T. O’Connell
State Superintendent of Public Instruction
California Department of Education
1430 N Street
Sacramento, California 95814

Dear Superintendent O’Connell:

Enclosed is our final audit report, Control Number ED-OIG/A09-D0018, entitled Charter
Schools’ Access to Title I and IDEA, Part B Funds in the State of California. This report
incorporates the comments you provided in response to the draft report. 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 Education
Department officials, who will consider them before taking final Departmental action on
this audit:

                             Nina Rees
                             Deputy Under Secretary
                             Office of Innovation and Improvement
                             U.S. Department of Education
                             Room 4W317 - Federal Building No. 6
                             400 Maryland Ave., SW
                             Washington, DC 20202

                             Raymond J. Simon
                             Assistant Secretary
                             Office of Elementary and Secondary Education
                             U.S. Department of Education
                             Room 3W315 - Federal Building No. 6
                             400 Maryland Ave., SW
                             Washington, DC 20202



       Our mission is to ensure equal access to education and to promote educational excellence throughout the Nation.
Jack T. O’Connell - Page 2


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 greatly 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/

                                              Gloria Pilotti
                                              Regional Inspector General for Audit

Enclosure

electronic cc: Roy Romer, Superintendent, Los Angeles Unified School District
               Chris Steinhauser, Superintendent, Long Beach Unified School District
               Arlene Ackerman, Superintendent, San Francisco Unified School District
               General Davie, Jr., Superintendent, San Juan Unified School District
               Anne Just, State Title I Director, CDE
               Alice Parker, State Special Education Director, CDE
               Jennifer Faukner, Special Education Division, CDE
               Eileen Cubanski, Charter Schools Division, CDE
               Deborah Herrmann, Charter Schools Division, CDE
               Bill Meyer, Fiscal Services Division, CDE
               Kevin Chan, Director, Office of Audits and Investigations Division, CDE
               Kim Sakata, Audit Response Coordinator, Office of Audits and
                   Investigations Division, CDE
                                          TABLE OF CONTENTS 



                                                                                                                                 Page


EXECUTIVE SUMMARY .......................................................................................................... 1


BACKGROUND ........................................................................................................................... 3


AUDIT RESULTS ........................................................................................................................ 5


     FINDING NO. 1 –	 CDE Should Enhance Information Provided to Charter 

                      Schools About the ESEA § 5206 Requirements for New or 

                      Expanding Charter Schools ..................................................................5


                                  Recommendations ..................................................................................8


                                  CDE Comments..................................................................................... 8 


     FINDING NO. 2 – CDE Needs to Strengthen Procedures to Ensure that Charter 

                     School LEAs Have Approved Plans and Title I Allocations 

                     Are Timely and Proportionate..............................................................9


                                  Recommendations ................................................................................11


                                  CDE Comments and OIG Response ................................................. 12 


     FINDING NO. 3 –	 CDE Needs to Take Additional Steps to Ensure 

                      Charter Schools that Are Public Schools of an LEA Receive 

                      Proportionate and Timely Access to Title I Funds ...........................13


                                  Recommendations ............................................................................... 16


                                  CDE Comments................................................................................... 17 


OTHER MATTERS ................................................................................................................... 18


OBJECTIVES, SCOPE, AND METHODOLOGY ................................................................. 20


STATEMENT ON MANAGEMENT CONTROLS................................................................ 22 


ATTACHMENT 1 – CDE Comments on the Draft Report.................................................... 23

ED-OIG/A09-D0018                                                                             Page 1 of 29
                                                    .



                               EXECUTIVE SUMMARY 


The California Department of Education (CDE) and the four local educational agencies (LEAs)
we reviewed had systems in place to allocate Elementary and Secondary Education Act of 1965
(ESEA), Title I and Individuals with Disabilities Education Act (IDEA), Part B funds to eligible
charter schools, including new or expanding charter schools.1 However, we found that—

    ƒ   CDE and three of the LEAs we reviewed did not provide sufficient information to 

        existing charter schools on the requirement to provide written notification of their 

        expansion dates within 120 days and the definition of “significant expansion of 

        enrollment.” 


    ƒ   For the 153 charter schools that were deemed to be LEAs (charter school LEAs) for
        Title I purposes, CDE could not provide evidence that 65 of the charter school LEAs,
        which received about $5.6 million in Title I funds in school year 2001-2002, had
        approved LEA plans. Additionally, CDE did not have procedures to ensure timely
        allocations to new or expanding charter school LEAs that were on nontraditional
        calendars. CDE lacked written procedures on its internal process for determining Title I
        allocations and did not retain documentation for adjustments made to the allocations after
        receipt of charter school LEAs’ applications. Moreover, CDE should enhance its
        procedures to ensure data reported by charter school LEAs, which by-pass LEA and
        County Office of Education reviews, are accurate and complete.

    ƒ   Three of the LEAs did not have procedures to use actual data to adjust Title I allocations
        for expanding charter schools that were deemed to be public schools of the LEAs. The
        remaining LEA did not determine Title I eligibility and allocations for all charter schools
        in the same manner as other public schools. Additionally, one of the LEAs did not have
        adequate procedures to ensure that new or expanding charter schools had timely access to
        Title I funds. CDE did not monitor LEA compliance with the ESEA requirements to
        ensure eligible new or expanding charter schools received their proportionate share of
        Title I funds.

We recommend that the Deputy Under Secretary for Innovation and Improvement (OII) require
CDE to provide additional guidance to LEAs and confirm that LEA policies, procedures, and
disseminated information address requirements for expanding charter schools. We further
recommend that OII, in collaboration with the Assistant Secretary for Elementary and Secondary
Education (OESE), require CDE to either submit the appropriate documentation or ensure that
eligible LEAs, which had approved LEA plans, receive their proportionate share of Title I funds
for school year 2001-2002; and to strengthen its procedures to ensure Title I allocations to
charter school LEAs are timely and proportionate.

1
 For purposes of this report, an “expanding” charter school is one that has significantly expanded
enrollment in accordance with the Federal definition at 34 C.F.R. § 76.787, which we describe in the
AUDIT RESULTS section of this report.
ED-OIG/A09-D0018                                                                     Page 2 of 29
                                               .

Where LEAs are responsible for allocating Federal funds to charter schools, we recommend that
OII, in collaboration with OESE, require CDE to ensure the LEAs have the necessary procedures
for allocating Title I funds to new or expanding charter schools of the LEAs. Additionally, we
recommend that CDE be required to ensure that public schools, which were adversely affected
by the one LEA’s improper allocation to a charter school, receive their proportionate share of
Title I funds for school year 2001-2002; and that LEAs modify their procedures, as needed, to
make certain eligible new or expanding charter schools receive their Title I funds in a timely
manner.

The OTHER MATTERS section of the report provides information on the various special
education funding and service-delivery arrangements the four LEAs we reviewed had with
charter schools. We concluded that these arrangements were consistent with State charter school
law, but the arrangements may not be consistent with the IDEA requirement that, if a charter
school is a public school of an LEA, the LEA must provide services and funding under Part B of
the IDEA for children with disabilities in the same manner as it provides services and funds
under Part B of the IDEA to its other public schools.

In its comments on the draft report, CDE stated that it is researching and assessing the finding
and recommendation regarding its providing Title I funds to charter school LEAs without
evidence of an approved LEA plan. CDE indicated that it concurred with our other findings and
recommendations. CDE also provided technical corrections, which we have incorporated into
the report where appropriate. Based on CDE’s corrections and comments, we added a
recommendation that OII, in collaboration with OESE, require CDE to either submit the
appropriate documentation or ensure that eligible LEAs, which had approved LEA plans, receive
their proportionate share of Title I funds for school year 2002-2003. CDE’s comments on the
draft report are summarized at the end of each finding and included in their entirety as
ATTACHMENT 1.
ED-OIG/A09-D0018                                                                          Page 3 of 29
                                                      .



                                         BACKGROUND 


The ESEA, Title I, Part A provides financial assistance to improve the teaching and learning of
low-achieving children in high-poverty schools. The IDEA, Part B § 611 provides grants to
states for special education and related services for children with disabilities. Section 5206 of
the ESEA, as amended by the No Child Left Behind Act of 2001 (NCLB), requires the
Department and states to take measures to ensure that every charter school receives the Federal
formula funds, including Title I and IDEA, Part B funds, for which it is eligible no later than five
months after the school first opens or expands enrollment.2

The California State Legislature enacted the State charter school law in 1992. The State law
provides that an LEA, County Office of Education, or State Board of Education can authorize a
charter school. A total of 388 charter schools were operating in school year 2001-2002,
including 71 new charter schools.3 Over 90 percent of the charter schools were authorized by
LEAs. A total of 53 charter schools were authorized by the four LEAs we reviewed—
Los Angeles Unified School District (USD), Long Beach USD, San Francisco USD, and
San Juan USD.

                   Number of Public Schools in Four LEAs, School Year 2001-2002
          LEA                          County             Total        Charter Schools
          Los Angeles USD         Los Angeles              663               39
          Long Beach USD          Los Angeles               90                6
          San Francisco USD       San Francisco            113                4
          San Juan USD            Sacramento                86                4
                 TOTAL                                                       53

California State law allows charter schools to elect to be directly funded for purposes of
receiving state and local operational funding. State law deems these direct-funded charter
schools to be LEAs (charter school LEAs) for purposes of State and Federal categorical funding
programs, such as the Title I program. At the time of our review, there were 153 charter school
LEAs. The remaining 235 charter schools were deemed to be public schools of the respective
LEAs. For school year 2001-2002, CDE allocated a total of about $1.1 billion in Title I funds to
1,034 LEAs, including about $5.5 million to 65 charter school LEAs. The individual LEAs were
responsible for determining Title I eligibility and allocations for the charter schools and other
public schools of the LEAs.

For purposes of compliance with the IDEA, California State law deems a charter school to be a
public school of the LEA that authorized the charter regardless of the charter school’s status for
Title I. However, the State law provides an exception for those charter schools that elect to be an
LEA for IDEA purposes, provided the schools meet the special education conditions required of
other LEAs. According to CDE Special Education and Charter School Division consultants,

2
    The ESEA § 5206 was originally enacted by the Charter School Expansion Act of 1998.
3
    Statewide data on the number of expanding charter schools were not available.
ED-OIG/A09-D0018                                                                                Page 4 of 29
                                                      .

about five charter schools had elected to be an LEA for special education purposes (special
education charter school LEA) for school year 2001-2002.4 CDE allocated IDEA, Part B funds
totaling about $582 million for school year 2001-2002 to 116 Special Education Local Plan
Areas (SELPAs) for distribution to their member-LEAs as determined by each SELPA’s
allocation plan.5 The LEA is responsible for ensuring that appropriate services are provided to
special education students who are enrolled in a charter school of the LEA and that the charter
school complies with the IDEA. CDE holds a special education charter school LEA responsible
for providing all services to enrolled special education students pursuant to their individualized
education programs.

For school year 2001-2002, CDE allocated about $266 million in Title I funds and about
$94 million in IDEA, Part B funds to the four LEAs we reviewed. Most of the charter schools in
these LEAs were deemed to be public schools of the LEA for Title I purposes. The charter
schools authorized by these LEAs were public schools of the LEAs for special education
purposes.

                             Charter School Status, School Year 2001-2002

                                                      Title I                IDEA, Part B
                                         Public School    Charter School     Public School
                                          of the LEA          LEA             of the LEA
              Los Angeles USD                  30                9                 39
              Long Beach USD                   4                 2                 6
              San Francisco USD                3                 1                 4
              San Juan USD                     3                 1                 4




4
    Statewide data on the number of special education charter school LEAs were not available.
5
  A SELPA is comprised of one or more LEAs. Each of the four LEAs we reviewed is a single-district
SELPA—that is, the LEA is also the SELPA. A special education charter school LEA must participate in
a SELPA and is accountable for acting under and implementing the local plan.
ED-OIG/A09-D0018                                                                     Page 5 of 29
                                                .



                                   AUDIT RESULTS 


The purpose of the audit was to examine charter schools’ access to Federal funds in the State of
California. Specifically, we determined whether CDE and four LEAs within the State
(1) provided new or expanding charter schools with timely and meaningful information about the
Title I and IDEA, Part B funding for which these schools might have been eligible, and (2) had
management controls that ensured charter schools, including new or expanding schools, were
allocated the proportionate amount of Title I and IDEA, Part B funds for which these schools
were eligible. Our review covered school year 2001-2002. We concluded that CDE should
enhance information provided to charter schools about the ESEA § 5206 requirements for new or
expanding charter schools; strengthen procedures to ensure that Title I allocations to charter
school LEAs are fully documented, timely, and proportionate; and take additional steps to ensure
charter schools that are public schools of the LEAs receive proportionate and timely access to
Title I funds. We concluded that the four LEAs had adequate management controls to ensure
that eligible charter schools of the LEAs, including new or expanding charter schools, received
the proportionate amount of IDEA, Part B funds.



FINDING NO. 1 – CDE Should Enhance Information Provided to Charter
                Schools About the ESEA § 5206 Requirements for New or
                Expanding Charter Schools


CDE and the four selected LEAs provided timely and meaningful information to new charter
schools about accessing Title I and IDEA, Part B funds. However, CDE and three of the LEAs
need to provide additional information to existing charter schools on (1) providing written
notification of their expansion dates within 120 days and (2) defining “significant expansion of
enrollment.” We concluded that the remaining LEA had provided timely and meaningful
information to both new and existing charter schools on the means for fulfilling the written
notice requirement and the definition of an expanding charter school. While Federal statute and
regulations place the responsibility on charter schools to provide written notice when they
significantly expand enrollment, most of the 20 charter schools we interviewed were unaware of
this requirement.

New or Expanding Charter Schools Must Provide
Written Notice to Trigger ESEA § 5206 Requirements

To trigger the ESEA § 5206 requirements, a new or expanding charter school must provide
written notification of its opening or expansion date. The implementing regulations at
34 C.F.R. Part 76 address the requirement for written notice, the definition of “significant
expansion of enrollment,” and the requirement for the State educational agency (SEA) or LEA,
after receiving a notice, to provide timely and meaningful information about Federal programs.
The regulations state—
ED-OIG/A09-D0018                                                                      Page 6 of 29
                                                .

       At least 120 days before the date a charter school LEA is scheduled to open or
       significantly expand its enrollment, the charter school LEA or its authorized
       public chartering agency must provide its SEA with written notification of that
       date.
       34 C.F.R. § 76.788(a)

       Significant expansion of enrollment means a substantial increase in the number of
       students attending a charter school due to a significant event that is unlikely to
       occur on a regular basis, such as the addition of one or more grades or educational
       programs in major curriculum areas. The term also includes any other expansion
       of enrollment that the SEA determines to be significant.
       34 C.F.R. § 76.787

       Upon receiving notice under § 76.788(a) of the date a charter school LEA is
       scheduled to open or significantly expand its enrollment, an SEA must provide the
       charter school LEA with timely and meaningful information about each covered
       program in which the charter school LEA may be eligible to participate . . .
       34 C.F.R. § 76.789(a)

The Department defined “meaningful information” in nonregulatory guidance entitled, How
Does a State or Local Educational Agency Allocate Funds to Charter Schools that Are Opening
for the First Time or Significantly Expanding their Enrollment, issued December 2000.

       A State or LEA provides . . . meaningful information to a charter school when it
       provides the charter school with the information the charter school reasonably
       needs to know to make an informed decision about whether to apply to participate
       in a particular covered program and the steps the charter school needs to take to
       do so.

The regulations at 34 C.F.R. § 76.799 require an LEA to also follow the above regulations when
the LEA is responsible for allocating Federal funds, such as Title I and IDEA, Part B, to charter
schools.

CDE and Three LEAs Did Not Provide
Sufficient Information to Charter Schools

CDE did not provide information to charter schools, or guidance to LEAs, on written notices of
expansion or the definition of “significant expansion of enrollment” for purposes of allocating
Title I and IDEA, Part B funds to charter schools. Three of the four LEAs we reviewed also had
not provided similar information to their charter schools that were public schools of the LEAs.

Although we found that charter school LEAs and charter schools that were public schools of the
three LEAs generally did not provide written notice of expansion dates, most charter school
representatives we interviewed said their schools had provided information that would have
made CDE or the LEA aware of their expansion. Representatives from three of the seven charter
school LEAs we interviewed told us that their schools had significantly expanded enrollment,
and two of these schools had made CDE aware of their expansion through other reporting
mechanisms such as a request for facilities. Yet, according to the CDE Fiscal Services analyst
ED-OIG/A09-D0018                                                                      Page 7 of 29
                                                 .

responsible for determining Title I eligibility and allocations, no one had informed him of any
expanding charter school LEAs.

We conducted interviews with representatives of 10 charter schools that were public schools of
the LEAs we reviewed. Representatives from five charter schools stated that their schools had
expanded in school year 2001-2002. Additionally, four of the five charter schools had provided
the LEA with information that would have made the LEA aware of their expansion. An example
from each of the three LEAs illustrates the variations in the extent of charter school expansions
and type of information made available to the LEA.

   ƒ   Los Angeles USD. A charter school of the LEA had added a grade and increased
       enrollment by 178 percent. A charter school representative told us that the school had
       notified CDE of its expansion in the annual Charter School Survey, but did not notify the
       LEA responsible for allocating Federal funds. According to the LEA’s Charter Schools
       Director, Los Angeles USD did not consider this or any other charter schools’ expansion
       as significant. The LEA did not provide information to charter schools or have
       procedures that addressed how a charter school should notify the LEA of its expansion.

   ƒ   San Juan USD. An Associate Superintendent that oversees charter schools said that the
       LEA did not consider any expansion anticipated in the charter as significant, even though
       one charter school had added a new program and increased enrollment by 690 students,
       or 24 percent. According to the charter school representative, the school had indirectly
       notified the LEA of its expansion through ongoing communication and the LEA’s
       attendance tracking system. San Juan USD did not provide information to charter
       schools or have procedures that addressed how an expanding charter school should notify
       the LEA.

   ƒ   San Francisco USD. According to the Assistant Superintendent for Charter Schools,
       none of the charter schools of the LEA had expanded because they had reached full
       capacity. Yet, a representative from one charter school told us that it had added a grade
       and increased enrollment by 35 percent. Although San Francisco USD was not aware of
       the one charter school that appeared to have expanded, the Assistant Superintendent told
       us that the LEA in effect had waived the requirement for written notice because, as the
       charter authorizer, the LEA was aware of charter school expansion plans.

Regardless of the method by which the charter school informed the LEAs of their expansion, the
three LEAs did not have policies and procedures that recognized expanding charter schools. A
charter school needs sufficiently meaningful information to know when its expansion is
considered significant as well as to whom and by what method, if any, to provide written notice.

In response to our review, CDE began in school year 2003-2004 to use its annual Charter School
Survey to (1) provide information to charter schools on the definition of “significant expansion
of enrollment” and (2) request charter schools to identify whether they will be significantly
expanding enrollment for the following school year. CDE has now defined significant expansion
as a significant event such as adding a grade or a program, and at least a 10-percent increase in
enrollment.
ED-OIG/A09-D0018	                                                                     Page 8 of 29
                                                 .

Since the Charter School Survey is only provided to charter schools, CDE still needs to take
steps to ensure that LEAs have procedures that address significant expansion of enrollment and
written notice requirements for expanding charter schools that are public schools of the LEAs.
Additionally, absent CDE guidance prior to school year 2003-2004, some LEAs may have
developed policies and procedures that are inconsistent with CDE’s new definition of significant
expansion. For example, Long Beach USD had defined significant expansion as an event such
as adding a grade and an increase in enrollment of at least 20 students. CDE should ensure that
LEAs adhere to its definition of significant expansion of enrollment. Similar to San Francisco
USD, the Long Beach USD did not require expanding charter schools to provide separate written
notice because expansions would be identified in the charter petition or a charter amendment.
CDE should consider sharing data from the annual Charter School Survey with the LEAs to
minimize the reporting burden on charter schools and ensure that LEAs receive written notice of
expanding charter schools.

Recommendations

The Deputy Under Secretary for Innovation and Improvement should require CDE to—

1.1 	   Provide guidance to all LEAs on the definition of “significant expansion of enrollment”
        and, for those LEAs that allocate Federal funds to charter schools, guidance on LEA
        responsibilities regarding expanding charter schools.

1.2 	   Confirm that LEAs have developed procedures to provide timely and meaningful
        information to charter schools of the LEAs on the definition of “significant expansion of
        enrollment” and the manner in which the requirement for written notice will be satisfied.

CDE Comments

CDE indicated that it concurred with the finding and recommendations in its planned corrective
actions. For fiscal year 2004-2005, CDE stated it plans to send a letter to all charter schools,
school districts, and County Offices of Education informing them of the requirements of the
Charter School Expansion Act and CDE’s definition of “significant expansion of enrollment.”
Additionally, CDE will explore incorporating procedures into its Federal and State monitoring
process to verify that LEAs have developed required procedures.
ED-OIG/A09-D0018	                                                                           Page 9 of 29
                                                    .



FINDING NO. 2 –	 CDE Needs to Strengthen Procedures to Ensure that
                 Charter School LEAs Have Approved Plans and Title I
                 Allocations Are Timely and Proportionate


CDE used the same process for allocating Title I funds to charter school LEAs as it used for
other LEAs. CDE collected prior year enrollment and poverty data from County Offices of
Education on public schools, including charter schools. Based on the data, CDE determined
eligibility and allocation amounts and informed each LEA, including eligible charter school
LEAs, of their Title I allocations for the coming school year. To access their Title I allocations,
eligible LEAs had to submit a consolidated application and have an approved LEA plan. Upon
approval of the application, CDE disbursed the first apportionment of Title I funds to those LEAs
that elected to participate in the Title I program.

CDE Provided Title I Funds to Charter School
LEAs Without Evidence of an Approved LEA Plan

To receive Title I funds, the ESEA requires an LEA to have on file with the SEA an approved
LEA plan. Under Title I of the ESEA, § 1112(a)(1) states—

        A local educational agency may receive a subgrant under this part for any fiscal
        year only if such agency has on file with the State educational agency a plan,
        approved by the State educational agency, that is coordinated with other programs
        under this Act, the Goals 2000: Educate America Act, and other Acts, as
        appropriate . . . 6

CDE could not provide evidence that the 65 charter school LEAs, which received about
$5.6 million in Title I funds in school year 2001-2002, had approved LEA plans on file with
CDE.7 Due to management and staff turnover, as well as weaknesses in CDE procedures for
retaining supporting documentation, the State Title I Director could not provide documentation
that the charter school LEAs had submitted plans or that CDE had approved them for school year
2001-2002. Administrative regulations at 34 C.F.R. § 80.42(b) require that programmatic
documentation be retained for three years. Since CDE could not provide evidence of approved
plans on file, there was no assurance that the charter school LEAs had met the ESEA §
1112(a)(1) condition for receipt of Title I funds. As a result, eligible LEAs, which had approved
plans, may not have received their proportionate share of Title I funds. Also, there is no


6
  This citation is from the Improving America’s Schools Act of 1994, which was the applicable statute in
effect for our audit period. The NCLB also incorporated the requirement for an approved LEA plan, but
changed the programs with which the LEA plan must be coordinated to “other programs under this Act,
the [IDEA], Carl D. Perkins Vocational and Technical Education Act of 1998, the McKinney-Vento
Homeless Assistance Act, and other Acts, as appropriate.” [ESEA § 1112(a)(1), as amended by the
NCLB]
7
 In its comments on the draft report, CDE noted that LEA plans were called “local improvement plans
(LIP)” in school year 2001-2002.
ED-OIG/A09-D0018                                                                     Page 10 of 29
                                                 .

assurance that the charter school LEAs that received the $5.6 million of Title I funds had
acceptable plans for using the funds.

Our interviews with representatives from seven charter school LEAs confirmed that some charter
school LEAs, which received Title I funds, may not have completed an LEA plan. The
representatives from four of the charter school LEAs confirmed that the LEAs had applied for
and received Title I funds for school year 2001-2002. One of the representatives informed us
that the charter school had not completed an LEA plan. Since the ESEA § 1112(a)(1) required
CDE to have approved plans on file, we did not take steps to obtain the plans or evidence of state
approval from the charter school LEAs.

According to the State Title I Director, CDE has taken steps to improve its procedures for
ensuring LEAs have approved plans and retaining supporting documentation. For school year
2003-2004, CDE required LEAs, including charter school LEAs, to submit new LEA plans.
Additionally, CDE required charter school LEAs to have an approved LEA plan as a condition of
receipt of Title I funds for that school year.

CDE Did Not Have Adequate Procedures to
Ensure Title I Allocations to Charter School
LEAs Were Timely and Proportionate

The regulations at 34 C.F.R. § § 76.792(a) and 76.793(a) require states and LEAs to ensure that
eligible new or expanding charter schools that open or expand on or before November 1 of an
academic year receive a proportionate amount of Federal funds, and that these charter schools
have access to the funds within five months of their opening or expansion. When the SEA is
responsible for allocating Federal funds to charter school LEAs, the regulations state—

       For each eligible charter school LEA that opens or significantly expands its
       enrollment on or before November 1 of an academic year, the SEA must
       implement procedures that ensure that the charter school LEA receives the
       proportionate amount of funds for which the charter school is eligible under each
       covered program.
       34 C.F.R. § 76.792(a)

       For each eligible charter school LEA that opens or significantly expands its
       enrollment on or before November 1 of an academic year, the SEA must allocate
       funds to the charter school LEA within five months of the date the charter school
       LEA opens or significantly expands its enrollment . . .
       34 C.F.R. § 76.793(a)

Untimely Allocations to New Charter Schools with Nontraditional Calendars. CDE did not have
procedures to ensure timely access to Title I funds for new or expanding charter schools that
began the school year earlier than August or September. For school year 2001-2002, CDE
disbursed Title I funds to eligible charter school LEAs and other eligible LEAs in January 2002.
The four new charter school LEAs that had opening dates in July 2001 received Title I funds at
the same time as other LEAs, which was more than five months after the schools’ July 2001
opening dates.
ED-OIG/A09-D0018	                                                                     Page 11 of 29
                                                 .

Lack of Written Procedures for Eligibility Determinations, Allocation Calculations, and
Document Retention. CDE did not have written procedures on its internal process for
determining Title I eligibility and allocation amounts for LEAs, including charter school LEAs.
Only one staff person was familiar with the allocation database and the process. As a result of
staff turnover in the year preceding our audit period, the CDE staff person who performed the
eligibility and allocation calculations for school year 2001-2002 could not verify or document
the adjustments made to some charter schools’ allocations after their applications were submitted
to CDE. While we did not identify any allocation errors, the absence of written procedures
provided no assurance that CDE’s allocation process will be consistent from year to year and that
future LEA Title I allocations will be proportionate. In response to our review, CDE began to
develop written procedures for creating and updating the database used to determine LEA
eligibility and allocations for Title I, as well as to retain documentation supporting allocation
changes made after receipt of LEA applications.

Reliability of Charter School-Reported Data Not Assured. CDE should enhance procedures to
ensure that eligibility data reported by charter school LEAs are accurate and complete. CDE
annually collects poverty data for all public schools for Title I allocation and other purposes.
County Offices of Education (COEs) collect the poverty data for LEAs within the county, work
with the LEAs to perform checks of the data’s accuracy, and forward the data to CDE with a
signed certification that the data were verified. According to a CDE Fiscal Services supervisor
and analyst responsible for calculating Title I eligibility and allocations, CDE relies on the COEs
to verify the data before submission to CDE.

Los Angeles USD and Long Beach USD submitted poverty data to the Los Angeles COE for
public schools of the LEAs and some charter school LEAs. The other charter school LEAs (four
of the eight charter school LEAs in Los Angeles and the two charter school LEAs in Long
Beach) reported the poverty data directly to the COE. According to the current COE staff
responsible for submitting the data to CDE, insufficient information was available at the County
to verify the data directly submitted by the charter school LEAs and CDE had given permission
to the COE to allow charter school LEAs, which submit poverty data directly to the COE, to
by-pass the verification process.

We did not verify the accuracy of the poverty data for charter schools in Los Angeles USD and
Long Beach USD as part of our audit. However, the potential exists for charter school LEAs,
which by-pass the LEA and COE processes, to be at-risk for inaccurate student counts due to
double counting, intentional inflation of counts, or erroneous reporting of too few students.
Without accurate and complete data, there is no assurance that the Title I allocations to those
charter school LEAs were proportionate.

Recommendations

The Deputy Under Secretary for Innovation and Improvement, in collaboration with the
Assistant Secretary for Elementary and Secondary Education, should require CDE to—

2.1 	   Submit documentation of approved LEA plans for the 65 charter school LEAs, which
        received about $5.6 million in Title I funds for school year 2001-2002. Ensure that LEAs
        that did not receive their proportionate share of Title I funds for school year 2001-2002,
        as a result of providing funds to charter school LEAs without approved LEA plans, are
ED-OIG/A09-D0018	                                                                         Page 12 of 29
                                                   .

        provided their proportionate share. These actions will provide a level of assurance that
        the $5.6 million of Title I funds has been or will be used efficiently since the charter
        school LEAs and other LEAs receiving the funds would have had acceptable plans for
        using the funds.

2.2 	   Develop written procedures for ensuring eligible new or expanding charter school LEAs,
        which are not on a traditional calendar, receive access to their Title I allocations within
        five months of their opening or expansion dates, provided that charter school LEAs have
        met CDE’s requirements for written notice at least 120 days prior to their opening or
        expansion.

2.3 	   Complete and implement written procedures for creating and updating the database used
        to determine LEAs’ eligibility and allocations for Title I, as well as procedures for
        documenting adjustments made to allocations after receipt of LEA applications.

2.4 	   Develop additional written procedures for ensuring the accuracy and completeness of
        Title I poverty data submitted by charter school LEAs that by-pass local LEA and COE
        reviews.

2.5 	   Submit documentation of approved LEA plans for those charter school LEAs that
        received Title I funds for school year 2002-2003. Ensure that LEAs that did not receive
        their proportionate share of Title I funds for 2002-2003, as a result of providing funds to
        charter schools without approved LEA plans, are provided their proportionate share.8

CDE Comments and OIG Response

CDE indicated that it concurred with the finding and recommendations, except it is researching
and assessing the finding and recommendation regarding its providing Title I funds to charter
school LEAs without evidence of an approved LEA plan. CDE stated that it enhanced
procedures in school year 2003-2004 to ensure LEAs, including charter school LEAs, have
approved LEA plans. CDE will also ensure that only LEAs with approved LEA plans receive
appropriate Title I apportionments.

CDE stated that it is developing written procedures to ensure eligible new or expanding charter
school LEAs receive their Title I allocation within five months of their opening or expansion
dates. Additionally, CDE began developing written procedures for creating and updating the
database used to determine LEAs’ Title I eligibility and allocations. CDE created a filing system
to maintain documentation of changes or adjustments to LEA data, and will explore
incorporating a procedure to ensure the accuracy and completeness of Title I data submitted by
charter school LEAs.

In its comments, CDE advised that it required charter school LEAs to have an approved LEA
plan as a condition of receipt of Title I funds for school year 2003-2004. In the draft report, we
stated in the sub-section “CDE Provided Title I Funds to Charter School LEAs Without Evidence

8
  Since our audit covered school year 2001-2002, we did not have the information necessary to estimate
the Title I funds for school year 2002-2003 that may have been used more efficiently by the
implementation of Recommendation 2.5.
ED-OIG/A09-D0018	                                                                     Page 13 of 29
                                                 .

of an Approved Plan” that CDE had implemented the requirement for school year 2002-2003.
We made the correction in the final report. Although our review covered school year 2001-2002,
CDE’s comments have raised the question of whether charter school LEAs that received Title I
funds in the intervening year (school year 2002-2003) had approved LEA plans. To address the
concern, we have added Recommendation 2.5.



FINDING NO. 3 –	 CDE Needs to Take Additional Steps to Ensure
                 Charter Schools that Are Public Schools of an LEA
                 Receive Proportionate and Timely Access to Title I Funds


The four LEAs we reviewed had systems in place to allocate Title I funds to charter schools that
were public schools of the LEAs. However, the LEAs did not have adequate procedures in place
to ensure that eligible charter schools received proportionate and timely access to those funds.

When an LEA is responsible for allocating Federal funds, including Title I, to charter schools
that are public schools of the LEA, the regulations at 34 C.F.R. § 76.799 require the LEA to
comply with the ESEA § 5206 requirements on the same basis as is required of the SEA, which
allocates Federal funds to charter school LEAs. Thus, under the regulations at 34 C.F.R. § §
76.792(a) and 76.793(a), an LEA must ensure that eligible new or expanding charter schools
receive a proportionate amount of Federal funds and that these charter schools have access to the
funds within five months of their opening or expansion, if that date occurs before November 1.

Three LEAs Did Not Have Procedures to
Use Actual Data to Adjust Title I
Allocations for Expanding Charter Schools

Federal regulations at 34 C.F.R. § § 76.789(b), 76.796, and 76.797(a) allow an LEA to use
enrollment or eligibility data from a prior year to estimate a new or expanding charter school’s
projected enrollment and to make an initial allocation of Federal funds based on this data. If the
LEA provides funds to a new or expanding charter school based on projected data, the LEA must
later use actual data to adjust the allocation, if appropriate, after the school opens or expands.
The regulations state—

       [An LEA] may allocate funds to, or reserve funds for, an eligible [charter school]
       based on reasonable estimates of projected enrollment at the [charter school].
       34 C.F.R. § 76.789(b)(2)

       An [LEA] that allocates more or fewer funds to a [charter school] than the amount
       for which the [charter school] is eligible, based on actual enrollment or eligibility
       data when the [charter school] opens or significantly expands its enrollment, must
       make appropriate adjustments to the amount of funds allocated to the [charter
       school] as well as to other [public schools] under the applicable program.
ED-OIG/A09-D0018                                                                       Page 14 of 29
                                                 .

       Any adjustments to allocations to [charter schools] under this subpart must be 

       based on actual enrollment or other eligibility data for the [charter school] on or 

       after the date the [charter school] first opens or significantly expands enrollment, 

       even if allocations or adjustments to allocations to other [public schools] in the 

       [LEA] are based on enrollment or eligibility data from a prior year. 

       34 C.F.R. § 76.796(a) and (b) 


       The [LEA] must make any necessary adjustments to allocations under a covered 

       program on or before the date the [LEA] allocates funds to [public schools] under 

       the program for the succeeding academic year. 

       34 C.F.R § 76.797(a) 


We found that three of the four LEAs we reviewed did not have procedures to use actual data to
adjust Title I allocations for charter schools that significantly expand enrollment. Los Angeles
USD, San Francisco USD, and San Juan USD each determined Title I eligibility and allocations
for public schools of the LEA, including charter schools, using prior-year enrollment and poverty
data. LEA staff responsible for performing eligibility determinations and allocation calculations
were not instructed to adjust their calculations and were not informed that any charter schools
had significantly expanded. In Los Angeles USD, the lack of procedures may have affected one
charter school that had expanded by adding a grade and increasing enrollment by 178 percent.
Had its allocation been adjusted, the charter school might have received an additional $40,604
(182 percent increase) in its Title I allocation.

Long Beach USD Did Not Determine Title I
Eligibility and Allocations for Charter Schools in
the Same Manner as Other Public Schools

The Department informed states and LEAs that charter schools of the LEAs are to be treated the
same as other public schools of the LEAs in nonregulatory guidance entitled, Allocations to
Public Charter Schools Under Title I, Part A of the Elementary and Secondary Education Act,
issued March 1998.

       [W]hen allocating Title I, Part A funds, . . . LEAs must treat public charter
       schools in a manner consistent with the Title I statute and regulations and take all
       reasonable steps to ensure that public charter schools receive their full allocations.
       . . . If a State considers public charter schools to be public schools within an LEA,
       an LEA must treat its public charter schools like other public schools in
       determining eligibility and within-district allocations.

Under Title I regulations at 34 C.F.R. § 200.28(c), an LEA need not allocate the same per-pupil
amount to each school of the LEA, but cannot allocate a higher amount per child to schools with
lower poverty rates than to schools with higher poverty rates. The regulations state—

       An LEA is not required to allocate the same per-pupil amount to each
       participating school attendance area or school provided the LEA allocates higher
       per-pupil amounts to areas or schools with higher concentrations of poverty than
       to areas or schools with lower concentrations of poverty.
ED-OIG/A09-D0018                                                                            Page 15 of 29
                                                    .

Allocations to Private School Students and a Public Charter School. Long Beach USD
improperly allocated Title I funds for eligible private school students and one charter school.
The LEA used a sliding scale to determine per-pupil funding levels corresponding to varying
poverty levels. For school year 2001-2002, the LEA used the highest per-pupil amount for
private school students and the charter school even though their attendance areas had lower
poverty levels than other public schools of the LEA. As a result of this improper practice,
Long Beach USD improperly allocated an excess of $4,815 in Title I funds to one charter
school.9

The OIG previously informed Long Beach USD of its improper allocations for private school
students in a letter, dated November 17, 1999. On August 11, 2003, we issued an Interim Audit
Letter advising CDE that Long Beach USD had not taken the necessary corrective action. In its
response to the Interim Audit Letter, CDE stated that, beginning in fiscal year 2003-2004,
Long Beach USD has revised its Title I allocation practice for charter schools and private
schools. Under the LEA’s revised procedures, eligible charter schools will receive the same per
pupil amount as the other public schools of the LEA and eligible private school students will
receive the same per pupil amount as the public school students residing in the same attendance
areas.

Use of Appropriate Year’s Data. Long Beach USD used actual data to determine Title I
eligibility and allocations for three charter schools,10 when prior-year data were used for other
public schools. The use of actual data was appropriate for the two new charter schools, but the
remaining charter school was not new and had not expanded. Thus, the LEA did not treat the
charter school like other public schools of the LEA. Had the LEA properly used prior-year data
for this school, the school would not have been eligible for, or received, any of the $48,685
Title I allocation that was based on actual data. As a result of the LEA’s improper allocation to
the one charter school, other public schools of the LEA, including the two new charter schools,
were adversely affected and received less than their proportionate share of Title I funds for
school year 2001-2002. Long Beach USD did not have procedures to ensure the proper year’s
data were used for determining Title I eligibility and allocations for charter schools, based on
their new, expanded, or no-change status.

San Francisco USD Did Not Have Adequate
Procedures to Ensure New or Expanding Charter
Schools Had Timely Access to Title I Funds

Under its existing procedures, San Francisco USD distributed categorical State and Federal
funds, including Title I, in one lump sum to eligible charter schools. The three charter schools of
the LEA were not eligible for Title I or other ESEA funds for school year 2001-2002. However,
due to staff turnover, the three charter schools did not receive their State categorical funds for
school years 2001-2002 and 2002-2003 until April 2003, or more than five months after that
school year began in September 2002. Had a new or expanding charter school been found

9
 Our current review addressed allocations to charter schools. Therefore, we did not determine the
amount of excessive Title I funds allocated for private school students for school year 2001-2002.
10
  By not submitting the necessary data to the LEA, the other charter school of the LEA had opted not to
participate in the Title I program.
ED-OIG/A09-D0018	                                                                      Page 16 of 29
                                                  .

eligible, it would have received its Title I funds more than five months after its opening or
expansion dates. The LEA needs to have procedures to ensure timely access to Title I and other
Federal funds should there be an eligible new or expanding charter school in the future.

The other three LEAs we reviewed did not need additional procedures regarding the 5-month
requirement for new or expanding charter schools. Existing procedures at the three LEAs would
have distributed Title I funds to any eligible charter school within five months of the first day of
school.

CDE Did Not Monitor LEA Compliance
with ESEA § 5206 Requirements

The State is responsible for ensuring LEAs comply with the ESEA § 5206 requirements. In the
preamble to the 1999 final implementing regulations, the Secretary responded to a comment on
the need for expanded regulations to address LEA-specific circumstances, stating—

        States are directly responsible for ensuring that LEAs meet the requirements
        of section [5206] of the Act and these final regulations. Accordingly, the
        Department expects that some SEAs may also provide guidance to LEAs on
        these matters.
        64 FR 71972

CDE had a system in place to provide technical assistance on, and monitor, LEA compliance
with Title I, but this system did not address charter schools’ access to Title I funds when the
LEA was responsible for allocating those funds to charter schools of the LEA. Additionally,
CDE guidance to LEAs was limited to a March 2000 memo, which CDE’s Special Education
Division provided to SELPAs, LEAs, and charter schools, clarifying the responsibility of LEAs
and SELPAs regarding the IDEA and charter schools, and summarizing the Federal regulations
implementing the ESEA § 5206.

Based on our reviews at four LEAs, neither CDE’s guidance nor its monitoring procedures
ensured that LEAs had procedures in place to use actual data to adjust Title I allocations for
expanding charter schools; determine Title I eligibility and allocations for charter schools in the
same manner as other public schools; and provide new or expanding charter schools with timely
access to Title I funds.

Recommendations

The Deputy Under Secretary for Innovation and Improvement, in collaboration with the
Assistant Secretary for Elementary and Secondary Education, should require CDE to—

3.1 	   Ensure that LEAs have written procedures addressing LEA and charter school
        responsibilities when charter schools experience a significant expansion in enrollment, so
        that LEAs have the information necessary to comply with allocation requirements of the
        ESEA § 5206 and Title I program. The procedures should address CDE’s definition of
        “significant expansion of enrollment” and the manner for satisfying the requirement for
        120-day written notice prior to expansion.
ED-OIG/A09-D0018	                                                                      Page 17 of 29
                                                  .

3.2 	   Ensure that, when allocations for other public schools of the LEA are based on prior-year
        data, the LEAs modify their procedures, as needed, to use actual enrollment or eligibility
        data to adjust Title I allocations for charter schools that significantly expand enrollment.

3.3 	   Ensure that the public schools, including the two new charter schools, whose allocations
        were adversely affected by Long Beach USD’s improper Title I allocation of $48,685 to
        the one charter school, receive their proportionate share of Title I funds for school year
        2001-2002.

3.4 	   Ensure LEAs modify their procedures, as needed, so that eligible charter schools that
        open or expand by November 1 are allocated Title I and other ESEA formula funds
        within five months of their opening or expansion dates, provided that the charter schools
        have met the LEA’s requirements for written notice at least 120 days prior to their
        opening or expansion.

3.5 	   Include in its technical assistance and monitoring reviews LEAs’ adherence to written
        procedures related to proportionate and timely allocations of Title I funds to charter
        schools, including new or expanding charter schools.

CDE Comments

CDE indicated that it concurred with the finding and recommendations. CDE stated that, for
fiscal year 2004-2005, it will explore incorporating procedures into its Federal and State
monitoring process to confirm that LEAs (1) developed required procedures, (2) used
appropriate data to adjust Title I allocations for charter schools that experience significant
expansion of enrollment, (3) developed required procedures to notify CDE of new or expanding
charter schools that will facilitate payment of Title I funds within five months, and (4) adhered to
written procedures related to proportionate and timely allocations of Title I funds to charter
schools, including new or expanding charter schools.
   ED-OIG/A09-D0018                                                                      Page 18 of 29
                                                    .



                                     OTHER MATTERS 


   The State of California’s charter school law requires LEAs to treat charter schools the same as
   other public schools, but also allows charter schools and LEAs to negotiate alternative funding
   and service delivery arrangements. [California Education Code § 47646] These alternative
   arrangements may not be consistent with the IDEA, Part B regulations at 34 C.F.R. § §
   300.312(c) and 300.241, which state that, if a charter school is considered a school of an LEA,
   the LEA must (1) serve children with disabilities attending charter schools in the same manner as
   it serves children with disabilities in its other schools, and (2) provide funds under IDEA, Part B
   to its charter schools in the same manner as it provides Part B funds to its other schools.

   Los Angeles USD, San Francisco USD, and San Juan USD each provided all special education
   services for other public schools, but had a variety of alternative arrangements with some of their
   charter schools. Long Beach USD provided special education services for all public schools,
   including charter schools.

                         Special Education Funding and Service Delivery Arrangements
                                        for Charter Schools of Four LEAs
                                                                  Number of Charter Schools
                                                   Los Angeles     Long Beach San Francisco    San Juan
                                                       USD            USD           USD          USD
Funding Arrangement
LEA determined a special education allocation
for charter school in the same or similar               39             6              3            3
manner as other public schools
   Charter school received monthly
                                                        13              -             -            -
   apportionments
   LEA paid third-party service providers on
                                                         -              -             -            2
   behalf of the charter school
   LEA reimbursed charter school for services
                                                         -              -             1            -
   rendered
   LEA did not flow funds to charter school
                                                        26             6              2            1
   (LEA provided all services)
LEA did not determine an allocation, but
                                                         -              -             1            1
reimbursed charter school for services rendered
Service-Delivery Arrangement
LEA provided all services                               26             6              2            1
Charter school provided all services                    13              -             1            2
Both charter school and LEA provided services            -              -             1            1
Total charter schools of the LEA                        39             6              4            4


   CDE Special Education Division and Charter School Division managers informed us that the
   alternative arrangements the three LEAs had with some charter schools were permissible under
   State charter school law. Moreover, they stated that CDE defines “treated in the same manner”
   as the LEAs (1) not discriminating against the charter schools or special education students,
ED-OIG/A09-D0018                                                                      Page 19 of 29
                                                 .

(2) ensuring the special education services available to other public schools of the LEA are
available to charter schools, and (3) ensuring the students received a free and appropriate public
education.

Our audit addressed the allocation of IDEA, Part B funds only. We had no reportable findings
for the LEAs we reviewed regarding the proportionate allocation of IDEA, Part B funds to
charter schools. We concluded that the four LEAs’ special education funding and service
delivery arrangements with charter schools were consistent with State charter school law. We
did not evaluate whether CDE was correct in its interpretation of, or in compliance with,
34 C.F.R. § 300.241. The Department plans to seek clarification from CDE regarding State law
and the treatment of charter school students with disabilities.
ED-OIG/A09-D0018                                                                           Page 20 of 29
                                                    .



              OBJECTIVES, SCOPE, AND METHODOLOGY 


Our audit objectives were to determine whether CDE and selected LEAs within the State of
California (1) provided new or expanding charter schools with timely and meaningful
information about the ESEA Title I program and IDEA, Part B funding for which these schools
might have been eligible and (2) had management controls that ensured charter schools,
including new or expanding schools, were allocated the proportionate amount of Title I and
IDEA, Part B funds for which these schools were eligible. Our review covered the Title I and
IDEA, Part B allocations for school year 2001-2002.11

To address these objectives, we interviewed CDE officials and staff responsible for
implementing the Title I, IDEA, Part B, and charter schools programs in California. We
evaluated the information that CDE provided to charter schools about accessing Title I and
IDEA, Part B funds to determine whether the information was timely and meaningful. In
addition, we assessed CDE’s procedures to determine whether management controls ensured that
charter schools received the proportionate amount of Title I and special education funds for
which these schools were eligible.

To evaluate LEA procedures, we selected the four LEAs (Los Angeles USD, Long Beach USD,
San Francisco USD, and San Juan USD) that met each of the following criteria: (1) district-wide
enrollment was greater than 10,000, with multiple charter schools operating in school year
2001-2002; (2) at least two of the charter schools were new or appeared to have significantly
expanded enrollment based on grade span and enrollment; (3) at least two charter schools were
deemed to be a public school of the LEA for Title I purposes; and (4) one or more charter
schools within the LEA had special education enrollments.

At each LEA, we reviewed procedures and interviewed managers and staff responsible for
providing information and allocating Title I and IDEA, Part B funds to charter schools. We
reviewed the information the LEA provided to charter schools to assess the information’s
timeliness and meaningfulness. To determine the accuracy and timeliness of charter school
allocations, we reviewed the LEA’s Title I and special education allocation processes and
decisions.




11
  Our review did not cover the charter schools that were chartered by a County Office of Education (20
charter schools), chartered by the State Board of Education (3 charter schools), or were deemed LEAs for
purposes of the IDEA (5 charter schools).
ED-OIG/A09-D0018                                                                            Page 21 of 29
                                                      .

We also interviewed administrators from a total of 20 charter schools (seven of Los Angeles
USD’s 39 charter schools,12 five of Long Beach USD’s six charter schools,13 the four charter
schools in San Francisco USD, and the four charter schools in San Juan USD). We interviewed
the administrators about their experiences in accessing Title I and IDEA, Part B funds, including
the timeliness and meaningfulness of provided information.

We assessed the reliability of computer-generated data at CDE and the four LEAs and concluded
that the data were sufficiently reliable to use in meeting our audit objective. Specifically, we
assessed the database that CDE used to determine LEAs’ Title I eligibility and allocations for
school year 2001-2002 by verifying data entry to source documents, checking formulas, and
verifying reporting of allocations to charter schools. At each LEA, we assessed the reliability of
the database used to determine Title I eligibility and allocations for public schools, including
charter schools of the LEA, by verifying data to source documents where available, checking
formulas, and verifying reporting of allocations to eligible charter schools. At San Francisco
USD and San Juan USD, we also assessed the reliability of the computerized information system
the LEA used to determine special education staffing or resource allocations by verifying special
education enrollment and, where data were available, re-computing or checking the
reasonableness of the allocations.

We performed our fieldwork at CDE and LEA offices in Sacramento, Los Angeles, Long Beach,
San Francisco, and Carmichael, California, from March to October 2003. We held an exit
briefing with CDE officials on November 5, 2003. Our audit was performed in accordance with
generally accepted government auditing standards appropriate to the scope of the review
described.




12
  To ensure a mix of charter school LEAs and charter schools of the LEA from Los Angeles USD, we
selected the one charter school LEA that received no Title I funds, and randomly selected two of the
remaining eight charter school LEAs, two of the four charter schools of the LEA for which the LEA could
flow Title I and special education funds, and two of the nine charter schools of the LEA for which the
LEA provided all Title I and special education services and flowed no related funds.
13
     One of the charter schools in Long Beach USD was no longer operating at the time of our review.
ED-OIG/A09-D0018                                                                       Page 22 of 29
                                                 .



            STATEMENT ON MANAGEMENT CONTROLS 


We assessed the system of management controls, policies, procedures, and practices applicable
to CDE’s and the four selected LEAs’ processes for allocating Title I funds to charter schools.
We performed our assessment to determine whether the processes used by CDE and the four
LEAs provided a reasonable level of assurance that charter schools received needed information
and were allocated the proportionate amount of Title I funds for which these schools were
eligible.

For the purpose of this report, we assessed and classified significant controls into the following
categories—

   ƒ   Dissemination of information
   ƒ   Allocation of Title I and IDEA, Part B, 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 CDE and LEA management control weaknesses that adversely affected
charter schools’ receipt of information and Federal funds. CDE’s weaknesses included the lack
of information on the definition of “significant expansion of enrollment” and written notice
requirements, failure to retain supporting documentation, untimely access to Title I funds, lack of
written procedures on internal processes, and insufficient monitoring of LEAs. LEA weaknesses
included the lack of information and procedures related to expanding charter schools, improper
procedures for allocating Title I funds to charter schools, and inadequate procedures to ensure
timely access to Title I funds.
ED-OIG/A09-D0018                               Page 23 of 29
                           .




                    ATTACHMENT 1



           CDE COMMENTS ON THE DRAFT REPORT

                                                                            JACK O'CONNELL 

                                                                              Stote Superintendent of 

                                                                                 Public Instruction 

                                                                             PHONE: (916) 319-0800

  CALIFORNIA
DEPARTMENT OF
  EDUCA TlON


 1430 N STREET
SACRAMENTO, CA
  95814-5901


  March 5, 2004



  Gloria PiloUi 

  Regional Inspector General for Audit 

  United States Department of Education
  Office of Inspector General
  501 I Street, Suite 9-200
  Sacramento, California 95814

  Dear Ms_ Pilotti:

  This is the California Department of Education's (CD E) response to the United States
  Department of Education (USDE) Office of Inspector General's (DIG) draft report
  entitled, "Charter Schools' Access to Title I and IDEA, Part B Funds in the State of
  California. "

  General Comments

  CDE would like to clarify a point in your report. In the background section of your report,
  it states that, "CDE deems these direct-funded charter schools to be LEAs [local
  education agencies] (charter school LEAs) for purposes of State and Federal
  categorical programs, such as the Title I program." However, it is state law (Education
  Code § 47641) that deems direct-funded charter schools as LEAs, not CDE.

  In addition, CDE would like to clarify terminology and correct two quotes attributed to
  the State Title I Director regarding Finding No.2. CDE did not begin using the term LEA
  plans until No Child Left Behind was implemented. For the fiscal year 2001/2002, CDE
  used the term local improvement plans (LIP) and conveyed this terminology to the
  LEAs. Also, the statement, "According to the State Title I Director, CDE required charter
  school LEAs to have an approved LEA plan as a condition of receipt of Title I funds for
  school year 2001-2002." This statement should state, ".. .for school year 2003/2004
  under No Child Left Behind." This also applies to the last sentence in this same finding
  subsection.
Gloria Pilotti
March 5, 2004
Page 2


Finding No. 1 - CDE Should Enhance Information Provided to Charter Schools
About the Elementary and Secondary Education Act of 1965 (ESEA) § 5206
Requirements for New or Expanding Charter Schools

Recommendation No. 1.1

Provide guidance to all LEAs on the definition of "significant expansion of enrollment"
and, for those LEAs that allocate Federal funds to charter schools, guidance on LEA
responsibilities regarding expanding charter schools.

       CDE's Planned Corrective Action

       As stated in the report, CDE defined "significant expansion of enrollment," and
       incorporated the definition in the annual Charter Schools Information Sheet and
       Funding Survey (Funding Survey). In April 2003, CDE sent all charter schools the
       2003/2004 Funding Survey to circulate the definition, and gather information from
       charter schools on whether they will be "significantly expanding." CDE plans to
       continue to use the annual Funding Survey to disseminate and collect
       information on significant expansions.

       In addition, prior to mailing the 2004/2005 Funding Survey in April 2004, CDE
       plans to send a separate letter to all charter schools, school districts, and County
       Offices of Education (COEs) informing them of the requirements of the Charter
       Schools Expansion Act (CSEA) and CDE's definition of "significant expansion of
       enrollment."

Recommendation No. 1.2

Confirm that LEAs have developed procedures to provide timely and meaningful
information to charter schools of the LEAs on the definition of "significant expansion of
enrollment" and the manner in which the requirement for written notice will be satisfied.

       CDE's Planned Corrective Action

       For LEAs with federal and state programs, CDE reviews and ensures compliance
       through its federal and state monitoring process. For the 2004/2005 fiscal year,
       CDE will explore incorporating procedures into its federal and state monitoring
       process to verify that LEAs have developed required CSEA procedures.
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Gloria Pilotti
March 5, 2004
Page 3


Finding No.2 - CDE Needs to Strengthen Procedures to Ensure that Charter
School LEAs Have Approved Plans and Title I Allocations Are Timely and
Proportionate

Recommendation No. 2.1

Submit documentation of approved LEA plans for the 65 charter school LEAs, which
received about $5.6 million in Title I funds for school year 2001/2002. Ensure that LEAs
that did not receive their proportionate share of Title I funds for school year 2001/2002,
as a result of providing funds to charter school LEAs without approved LEA plans, are
provided their proportionate share.

       CDE's Planned Corrective Action

       CDE is currently researching and assessing this finding and recommendation.
       However, for fiscal year 2001/2002, direct-funded charter schools submitted
       2001/2002 Consolidated Applications (ConApps) to designate eligibility and to
       elect to receive Title I funding. The CDE State Board of Education approved the
       ConApps; and CDE used them as the basis for allocating Title I funds to the 65
       direct-funded charter schools.

       In the 2003/2004 school year, CDE enhanced procedures to ensure LEAs have
       approved LEA plans, as required by No Child Left Behind. CDE identified the
       charter school LEAs that were required to submit LEA plans; obtained their
       plans; and received approval of these plans by the State Board of Education.
       CDE's Title I and fiscal office will ensure that only LEAs with approved LEA plans
       receive appropriate Title I apportionments.

Recommendation No. 2.2

Develop written procedures for ensuring eligible new or expanding charter school LEAs,
which are not on a traditional calendar, receive access to their Title I allocations within
five months of their opening or expansion dates, provided that charter school LEAs
have met CDE's requirements for written notice at least 120 days prior to their opening
or expansion.

       CDE's Planned Corrective Action

       CDE is developing written procedures to ensure eligible new or expanding
       charter school LEAs receive their Title I allocation within five months of their
       opening or expansion dates. For funding purposes, CDE identifies new or
       expanding charter school LEAs through the Funding Survey, monthly updates of
       all charter schools as provided by CDE's Charter School Division, or through
       direct contact from new charter schools. CDE is developing a suspense
Gloria Pilotti
March 5, 2004
Page 4


       file/process to monitor all new and expanding charter schools and ensure charter
       school LEAs receive their allocation within five months of the opening or
       expansion date.

Recommendation No. 2.3

Complete and implement written procedures for creating and updating the database
used to determine LEAs' eligibility and allocations for Title I, as well as procedures for
documenting adjustments made to allocations after receipt of LEA applications.

       CDE's Planned Corrective Action

       As stated in the report, CDE began developing written procedures for creating
       and updating the database used to determine LEA eligibility and allocation for
       Title I. For any changes or adjustments to LEA data, CDE requires the LEAs to
       submit revised forms with the appropriate approvals. In addition, CDE created a
       filing system to maintain these forms.

Recommendation No. 2.4

Develop additional written procedures for ensuring the accuracy and completeness of
Title I data submitted by charter school LEAs that by-pass local LEA and COE reviews.

       CDE's Planned Corrective Action

      CDE will explore incorporating a procedure to ensure the accuracy and
      completeness of Title I data submitted by charter school LEAs into the ConApp.
      All LEAs seeking to receive state and federal categorical funds are required to
      submit the ConApps annually.

Finding No.3 - CDE needs to Take Additional Steps to Ensure Charter Schools
that Are Public Schools of an LEA Receive Proportionate and Timely Access to
Title I Funds

Recommendation No. 3.1

Ensure that LEAs have written procedures addressing LEA and charter school
responsibilities when charter schools experience a significant expansion in enrollment,
so that LEAs have the information necessary to comply with allocation requirements of
ESEA § 5206 and Title I program. The procedures should address the definition of
"significant expansion of enrollment," particularly if it is determined that the LEA's
definition can be different from CDE's definition, and the manner for satisfying the
requirement for 120-day written notice prior to expansion.
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Gloria Pilotti
March 5, 2004
Page 5


       CDE's Planned Corrective Action

       For the 2004/2005 fiscal year, CDE will explore incorporating procedures into its
       federal and state monitoring process to verify that LEAs have developed required
       CSEA procedures.

Recommendation No. 3.2

Ensure that, when allocations for other public schools of the LEA are based on prior­
year data, the LEAs modify their procedures, as needed, to use actual enrollment or
eligibility data to adjust Title I allocations for charter schools that significantly expand
enrollment.

       CDE's Planned Corrective Action

       For the 2004/2005 fiscal year, CDE will explore incorporating procedures into its
       federal and state monitoring process to verify that LEAs use appropriate data to
       adjust Title I allocations for charter schools that experience significant expansion
       of enrollment.

Recommendation No. 3.3

Ensure that the public schools, including the two new charter schools, whose allocations
were adversely affected by Long Beach Unified School District's (USD) improper Title I
allocation of $48,685 to the one charter school, receive their proportionate share of
Title I funds for school year 2001/2002.

       CDE's Planned Corrective Action

       Long Beach USD modified its procedures so that actual data is used to
       determine Title I eligibility for all schools, including charter schools. All schools
       that were adversely affected by the improper 2001/2002 Title I allocation of
       $48,685 will receive their proportionate share of these funds this current fiscal
       year.

Recommendation No. 3.4

Ensure LEAs modify their procedures, as needed, so that eligible new or expanding
charter schools are allocated Title I and other ESEA funds within five months of their
opening or expansion dates, provided that the charter schools have met the LEA's
requirements for written notice at least 120 days prior to their opening or expansion.
Gloria Pilotti
March 5, 2004
Page 6


        CDE's Planned Corrective Action

        For the 2004/2005 fiscal year, CDE will explore incorporating procedures into its
        federal and state monitoring process to verify that LEAs have developed required
        CSEA procedures notifying CDE of new or expanding charter schools, facilitating
        payment of Title I funds within five months.

Recommendation No. 3.5

Include in its technical assistance and monitoring reviews LEAs' adherence to written
procedures related to proportionate and timely allocations of Title I funds to charter
schools, including new or expanding charter schools.

        CDE's Planned Corrective Action

        For the 2004/2005 fiscal year, CDE will explore incorporating procedures into its
        federal and state monitoring process to determine LEAs' adherence to written
        procedures related to proportionate and timely allocations of Title I funds to
        charter schools.

We appreciate the opportunity to comment on your report. If you have any questions,
please contact Kim Sakata, Audit Response Coordinator, at (916) 323-2560.




          puty Superintendent of Public Instruction

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