oversight

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

Published by the Department of Education, Office of Inspector General on 2004-08-24.

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 Arizona




                                 FINAL AUDIT REPORT




                                            ED-OIG/A09-D0033
                                               August 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




                                                     August 24, 2004




Tom Horne
Superintendent of Public Instruction
Arizona Department of Education
1535 West Jefferson Street
Phoenix, Arizona 85007

Dear Superintendent Horne:

Enclosed is our final audit report, Control Number ED-OIG/A09-D0033, entitled Charter
Schools’ Access to Title I and IDEA, Part B Funds in the State of Arizona. 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—

                Troy R. Justesen, Ed.D.
                Acting Deputy Assistant Secretary
                Office of Special Education and Rehabilitative Services

                Nina Rees
                Deputy Under Secretary
                Office of Innovation and Improvement

                Raymond J. Simon
                Assistant Secretary
                Office of Elementary and Secondary Education

Their mailing address is: U.S. Department of Education, 400 Maryland Avenue, S.W.,
Washington, DC 20202-7100. 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 appreciated.


          Our mission is to ensure equal access to education and to promote educational excellence throughout the Nation.
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: Vicki Salazar, Associate Superintendent of Finance, ADE
               Margaret Garcia-Dugan, Associate Superintendent of Academic Achievement,
                   ADE
               Lillie Sly, Associate Superintendent of Educational Services and Resources, ADE
                                          TABLE OF CONTENTS

                                                                                                                                Page

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

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

AUDIT RESULTS ........................................................................................................................ 4

      FINDING NO. 1 – ADE Should Enhance Information Provided to Charter
                      School LEAs About the ESEA § 5206 Requirements for
                      New or Expanding Charter School LEAs......................................... 4

                                    Recommendation................................................................................. 9

                                    ADE Comments................................................................................... 9

                                    OIG Response...................................................................................... 9

      FINDING NO. 2 – ADE Needs to Allocate the Proportionate Amount of
                      IDEA, Part B Funds to New Charter School LEAs....................... 10

                                    Recommendations ............................................................................. 12

                                    ADE Comments................................................................................. 12

                                    OIG Response.................................................................................... 12

      FINDING NO. 3 – ADE Needs to Strengthen Procedures to Ensure That
                      Charter School LEAs Receive Timely Access to Title I
                      and IDEA, Part B Funds .................................................................. 13

                                    Recommendation............................................................................... 16

                                    ADE Comments................................................................................. 16

                                    OIG Response.................................................................................... 16

OTHER MATTERS ................................................................................................................... 17

OBJECTIVES, SCOPE, AND METHODOLOGY ................................................................. 19

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

ATTACHMENT 1 – ADE COMMENTS ON THE DRAFT REPORT ................................ 23
ED-OIG/A09-D0033                                                                                Page 1 of 26




                                 EXECUTIVE SUMMARY

The Arizona Department of Education (ADE) had systems in place to allocate Elementary and
Secondary Education Act of 1965 (ESEA), Title I, Part A (Title I) and Individuals with
Disabilities Education Act (IDEA), Part B funds to eligible charter school LEAs, including new
or expanding charter school LEAs.1 However, we found that—

        ADE did not provide sufficient information to charter school LEAs on the requirement to
        provide written notification of their opening or expansion dates within 120 days and the
        definition of “significant expansion of enrollment.”

        ADE under allocated IDEA, Part B funds to three new charter school LEAs because ADE
        improperly applied the statutory funding formula.

        ADE did not have adequate procedures to ensure new or expanding charter school LEAs,
        including those LEAs that were on nontraditional calendars, had timely access to their
        Title I and IDEA, Part B funds.

We recommend that the Assistant Secretary for Special Education and Rehabilitative Services
(OSERS), in collaboration with the Assistant Secretary for Elementary and Secondary Education
(OESE) and the Deputy Under Secretary for Innovation and Improvement (OII), require ADE to
provide information to charter school LEAs on the notification requirements for a charter school
LEA that is new or has significantly expanded enrollment. We further recommend that OSERS
require ADE to determine the amount of IDEA, Part B funds that were under allocated to new
charter school LEAs and provide that amount to them; and to correct its procedures to ensure that
new charter school LEAs receive their full allocations. We also recommend that OSERS, in
collaboration with OESE, require ADE to modify its procedures to ensure new or expanding
charter school LEAs receive timely access to their Title I and IDEA, Part B funds.

The OTHERS MATTERS section of the report provides information on ADE’s procedures for
allocating IDEA, Part B funds to existing charter school LEAs. We found that ADE’s
application of the IDEA funding formula did not include a base payment in the Part B allocations
to 136 existing charter schools LEAs. In their first year of operation, these charter school LEAs
did not submit data identifying enrolled students with disabilities. OSERS has not issued
guidance that specifically addresses how the requirements for allocating Part B funds to LEAs
apply to this situation. The OTHER MATTERS section also provides information related to a
prior OIG report that concluded ADE violated Federal laws by providing Title I and IDEA,
Part B funds directly to private, for-profit charter school LEAs, which received $1,129,006

1
 For purposes of this report, an “expanding” charter school LEA 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. An “LEA” is a local educational agency. The term “charter
school LEA” as used in this report means the charter school that holds the charter. The BACKGROUND
section of the report provides additional information on the creation and responsibilities of charter school
LEAs.
ED-OIG/A09-D0033                                                                      Page 2 of 26


during the period October 1, 2000, through September 30, 2001. We found that ADE allocated
$1,218,892 in Title I and IDEA, Part B funds to private, for-profit charter school LEAs for
school year 2001-2002.

In its comments on the draft report, ADE concurred with the findings, but did not fully address
the recommendations. ADE’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-D0033                                                                                 Page 3 of 26




                                         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 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 Arizona State Legislature enacted the State charter school law in 1994. The State law
provides that the Arizona State Board of Education, the Arizona State Board for Charter Schools,
or a local school district can authorize a charter school.3 (For purposes of this report, we use
“State authorizer” to mean either Board.) Under State statute, a charter school can be structured
as a nonprofit or for-profit entity, and can operate one or more charter schools. In addition, the
charter school that holds the charter (charter holder) must have a governing board, which is
similar to a school district governing board and is statutorily authorized to make policy decisions
for the charter school. Under this requirement, a charter holder that operates multiple charter
schools would have one governing board.

For purposes of the ESEA and IDEA, ADE considers the charter holder to be an LEA (charter
school LEA) and allocates Title I and IDEA, Part B funds to the charter school LEA rather than
to individual charter school sites.4 Like school district LEAs, charter school LEAs are
responsible for improving their students’ achievement under Title I, and for providing a free,
appropriate public education for their enrolled students with disabilities under the IDEA.

In school year 2003-2004, a total of 362 charter school LEAs were operating a total of
495 charter school sites. Over 90 percent of the charters were authorized by a State authorizer.
A total of 43 new charter school LEAs were operating in school year 2001-2002.5 For that
school year, ADE allocated a total of about $132 million in Title I funds to 507 LEAs, including
about $6 million to 206 charter school LEAs. ADE also allocated about $85 million in IDEA,
Part B funds to 501 LEAs, including about $3 million to 266 charter school LEAs.




2
    The ESEA § 5206 was originally enacted by the Charter School Expansion Act of 1998.
3
 The two State Boards merged into the Arizona State Board for Charter Schools in school year
2003-2004.
4
  For purposes of this report, a “charter school LEA” is the charter school entity that holds the charter, and
a “charter school site” is one that is operated by the charter school LEA.
5
 ADE Title I and special education program administrators told us that no charter school LEAs in
Arizona have expanded, which we address in the AUDIT RESULTS section.
ED-OIG/A09-D0033                                                                      Page 4 of 26




                                   AUDIT RESULTS

The purpose of the audit was to examine charter schools’ access to Federal funds in the State of
Arizona. Specifically, we determined whether ADE (1) provided new or expanding charter
school LEAs with timely and meaningful information about the Title I and IDEA, Part B funding
for which these LEAs might have been eligible, and (2) had management controls that ensured
charter school LEAs, including new or expanding charter school LEAs, were allocated the
proportionate amount of Title I and IDEA, Part B funds for which these LEAs were eligible.
Our review covered school year 2001-2002.

We concluded that ADE should enhance information provided to charter school LEAs about the
ESEA § 5206 requirements for new or expanding charter school LEAs; allocate the
proportionate amount of IDEA, Part B funds to new charter school LEAs; and strengthen
procedures to ensure that new or expanding charter school LEAs receive timely access to their
Title I and IDEA, Part B funds. We concluded that ADE had appropriate procedures for
allocating a proportionate share of Title I funds to charter school LEAs, including new or
expanding LEAs. However, we were unable to verify the data used in calculating allocation
amounts for new charter school LEAs. The OBJECTIVES, SCOPE, AND METHODOGY
section of the report further explains the limitation on our review.



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


ADE provided information to new and existing charter school LEAs about accessing Title I and
IDEA, Part B funds. However, ADE needs to provide additional information to charter school
LEAs on (1) the requirement that they provide written notification of their opening and
expansion dates, and (2) the definition of “significant expansion of enrollment.” While Federal
statute and regulations place the responsibility on charter school LEAs to provide written notice
of the date they are scheduled to open or significantly expand enrollment, most of the 21 charter
school LEA administrators we interviewed were unaware of ADE’s notification requirements.

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

To trigger the ESEA § 5206 requirements, a new or expanding charter school LEA 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), after
receiving a notice, to provide timely and meaningful information about Federal programs. The
regulations state—
ED-OIG/A09-D0033                                                                          Page 5 of 26


       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 . . . 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 provided 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. In that guidance, the
Department defined “meaningful information” to include the steps a charter school needs to take
to access Federal funds.

       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.

While the regulation at 34 C.F.R. § 76.789(a) does not require the SEA to provide information
until a new or expanding charter school has provided notice, the nonregulatory guidance above
addresses the need for the charter school to be able to make an informed decision about
participating in a covered Federal program. We found, however, that a charter school cannot
make such a decision without first receiving information on how and when to provide notice of
its opening or expansion, and how to recognize that expansion has occurred.

ADE Did Not Provide Sufficient
Information to Charter School LEAs

ADE did not provide sufficient information or guidance to charter school LEAs on written
notices of their opening or expansion, or on the definition of “significant expansion of
enrollment,”6 for purposes of allocating Title I and IDEA, Part B funds to charter school LEAs.




6
 According to ADE Title I and special education program administrators, ADE uses the definition of
expansion specified in 34 C.F.R. § 76.787, and has not further defined the term.
ED-OIG/A09-D0033                                                                      Page 6 of 26


According to ADE Title I and special education program administrators, several resources were
available for charter school LEAs to obtain information and assistance on ADE notification
requirements, the definition of expansion, and other steps for accessing Title I and IDEA, Part B
funds for school year 2001-2002. These resources included an ADE charter school liaison
(whose position no longer existed at the time of our review); the individual ADE program
offices; training provided at ADE-sponsored and charter school association conferences and
workshops; and the websites of ADE, charter authorizers, and a charter school association. Our
review of the ADE and Arizona State Board for Charter Schools websites found information of
only a general nature and no information on ADE notification requirements, the definition of
expansion, or the specific steps a new or expanding charter school LEA needed to take to access
Title I or IDEA, Part B funding. Our conclusions regarding the information provided by the
program offices and training provided at conferences and workshops are presented in the
following paragraphs.

The ADE Title I and special education program offices each had their own processes for charter
school LEAs to provide notice of their opening or expansion.

       Title I Program Relied on Informal Process. The Title I program relied on an informal
       process for new charter schools to provide notice of their opening, and for existing
       charter school LEAs to recognize that they had significantly expanded and provide notice
       of their expansions. Additionally, the program office did not regularly disseminate
       information to all charter school LEAs on this process. ADE Title I program
       administrators described the charter school LEA notification and Title I program
       information dissemination processes to include the following activities.

           •   Once the Title I program received notice from a new or expanding charter school
               LEA by telephone, electronic mail, or any other written form, the program would
               send guidance to the charter school LEA on data submission requirements and the
               information needed to apply for ESEA-related funds, such as Title I.

           •   The Title I program disseminated information on how new or expanding charter
               schools may access Title I funds during sessions on Administration and Finance at
               the various ADE-sponsored and charter school association conferences. These
               conference sessions included information on the ESEA § 5206 requirements,
               including specific program notification procedures and the Federal definition of
               expansion.

           •   The Title I program provided annual funding notices and instructions to all
               existing LEAs, including charter school LEAs, on the consolidated application
               process for ESEA-related program funds.

       We reviewed the available documents on accessing Title I funds and found no
       information or written procedures on the ADE requirement for a new or expanding
       charter school LEA to notify the program office or the definition of expansion.
       Moreover, attendance at the conferences or sessions on Administration and Finance was
       not mandatory and the Title I program had no assurance that charter school LEAs
       received the presented information.
ED-OIG/A09-D0033                                                                       Page 7 of 26


       Special Education Program Had Formal Process. The special education program had a
       formal method for disseminating information to all charter school LEAs, which provided
       them the means for providing notice of their opening or expansion. However, we found
       that the information provided in an annual memorandum to charter school LEAs should
       be enhanced.

       The special education program annually distributed a Charter School Information
       memorandum to all existing, new, and prospective charter school LEAs to provide
       information to newly opening and significantly expanding charter school LEAs on data
       submission requirements and the basis for IDEA funding determinations. A new or
       existing charter school LEA should provide notice of its opening or expansion by
       responding to this memorandum and providing the requested data. The memorandum did
       not include the definition of expansion.

       Although not an ADE condition for receipt of IDEA funding, the special education
       program also required all new and prospective charter school LEAs to attend ADE
       training on preparing to deliver special education services prior to their opening. This
       training included information on the ESEA § 5206 requirements. However, not all
       charter school LEAs attended the training. Representatives from 4 of the 21 charter
       school LEAs we interviewed told us that no one from their LEAs attended the training for
       various reasons. One new charter school LEA was unaware of the training; the training
       was not offered when one charter school LEA opened in 1995; one charter school LEA
       had no special education students enrolled; and one charter school LEA received
       program-specific training from its District authorizer. Additionally, one charter school
       LEA administrator told us that the training focused more on special education reporting
       and processing requirements than on accessing funding.

       Because some charter school LEAs may not have received the ADE program-specific
       training or had received the training several years earlier, the special education program
       should include the definition of “significant expansion of enrollment” in its annual
       Charter School Information memorandum. Such a reminder will help charter school
       LEAs decide whether an expansion warranted a response to the memorandum.

While the Title I process was less formal than the special education process, neither ADE
program office provided annual information to charter school LEAs on the ADE requirements
for written notice at least 120 days prior to their opening or expansion, or the definition of
expansion.

Charter School LEAs Did Not Adhere
to ADE Notification Procedures

ADE administrators from both programs informed us that no charter school LEAs had provided
notice of an expansion for school year 2001-2002. We found that charter school LEAs, that
appeared to meet the Federal definition of expansion, did not provide appropriate notice to ADE,
and, as a result, did not have access to additional Title I or IDEA, Part B funds for which they
might have been eligible for school year 2001-2002.
ED-OIG/A09-D0033                                                                       Page 8 of 26


Our interviews with 21 charter school LEAs found that new or expanding charter school LEAs
were unfamiliar with the program offices’ procedures and did not adhere to them. For school
year 2001-2002, representatives from six charter school LEAs told us that their LEAs had met
the Federal definition of expansion. None of the six expanding charter school LEAs provided
notice of their expansion to the Title I or special education program office. Instead, the six LEAs
reported notifying their State charter authorizer, an ADE unit other than the program offices, or
both. These charter school LEAs were under the impression that they had provided sufficient
notice of their opening or expansion.

Based on our charter school LEA interviews, the following three examples illustrate the
variations in charter school LEA expansions, notification methods, and lack of familiarity with
the definition of expansion.

       One charter school LEA expanded by adding two grades and increasing enrollment by
       81 percent at its existing charter school site. The LEA provided notice through ADE’s
       former charter schools office (a part of ADE’s Grants Management Unit), which required
       the LEA to submit authorizer-approved forms when the charter was amended for the
       expansion.

       One charter school LEA expanded by adding a grade and increasing enrollment by
       57 percent at its existing site. The LEA did not notify ADE of this expansion because the
       LEA assumed that the State authorizer’s approval of the expansion provided sufficient
       notice to the applicable ADE program offices.

       One charter school LEA expanded one of its two charter school sites by adding a grade
       and increasing enrollment by 47 percent. The LEA representative told us that notice of
       the expansion was not required because the expansion was anticipated in the charter.

The ADE Associate Superintendent for Financial Services and an Education Program Specialist
at the Arizona State Board for Charter Schools told us that neither the ADE Grants Management
unit nor the State authorizer provided notice to the Title I or special education program office
when charter school LEAs were new or expanding. From our interviews with nine new charter
school LEAs, we found that most of these LEAs also were not aware of the ADE program
notification procedures. However, the two program offices somehow received notice because
these new charter school LEAs received the program memoranda on data submission
requirements and, if data were submitted, the LEAs also received Title I funds, IDEA funds, or
both.

From ADE’s perspective, no charter school LEA had expanded in school year 2001-2002, since
the two program offices had not received any notices of expansion in accordance with their
individual program procedures. Thus, ADE appropriately did not allocate additional Title I and
IDEA, Part B funds to expanding charter school LEAs that did not provide proper notice to the
respective program offices. However, from our charter school LEA interviews, we found that
charter school LEAs were not aware of the notification procedures and, thus, could not comply
with them. They had mistakenly assumed that a central State contact, such as the Grants
Management unit or State authorizer, coordinated notification to each program office.
Additionally, new charter school LEAs were also unaware of the notification procedures,
although ADE somehow became aware of these LEAs.
ED-OIG/A09-D0033                                                                       Page 9 of 26


To better ensure that new or expanding charter schools are provided access to the Title I and
IDEA, Part B funds for which they are eligible, ADE needs to provide more meaningful
information to all charter school LEAs. A new or expanding charter school LEA needs sufficient
information to know to what entity(s) and by what method(s) notice should be provided, as well
as when its expansion is considered significant.

Recommendation

1.1    The Assistant Secretary for Special Education and Rehabilitative Services, in
       collaboration with the Assistant Secretary for Elementary and Secondary Education and
       the Deputy Under Secretary for Innovation and Improvement, should require ADE to
       establish or modify its written procedures for notifying ADE that a charter school LEA is
       new or has significantly expanded enrollment. The procedures should include annual
       guidance to all charter school LEAs on the manner in which notification requirements
       will be satisfied and the definition of “significant expansion of enrollment.”

ADE Comments

ADE concurred with the finding and stated that it has complied with the recommendation. ADE
stated that a new agency publication has been developed to provide guidance on the NCLB and
the Charter School Expansion Act. The publication is being provided to all charter holders in
Arizona and will be provided to all new charter holders as they come into existence. The
guidance will include reference to IDEA, Part B funding for charter schools. ADE stated that the
definition of “significant expansion of enrollment” will be provided in the Exceptional Student
Services (the unit responsible for administering the special education program) section’s annual
memorandum.

OIG Response

While providing the new publication to all existing and new charter school LEAs is a good start,
ADE needs to ensure the guidance also informs charter school LEAs about the manner in which
notification requirements are to be satisfied for the Title I, IDEA, or other Federal programs
covered by the ESEA § 5206. Additionally, charter school LEAs should receive written
guidance on the ADE notification requirements, as well as the definition of expansion, on an
annual basis. A reference to the new publication could suffice in the programs’ annual funding
notices, such as the Title I program’s notice and instructions to existing LEAs, including charter
school LEAs, on the consolidated application process, and the Exceptional Student Services
section’s annual memorandum to charter school LEAs.
ED-OIG/A09-D0033                                                                          Page 10 of 26




FINDING NO. 2 – ADE Needs to Allocate the Proportionate Amount of
                IDEA, Part B Funds to New Charter School LEAs


Under the formula provided in the IDEA for distribution of Part B funding, the State allocation
to each eligible LEA, including charter school LEAs, is the total of three amounts—the base
payment,7 the population payment, and the poverty payment. The implementing regulations at
34 C.F.R. § 300.712(b) state—

        For each fiscal year for which funds are allocated to States . . . each State shall
        allocate funds under § 300.711 [Subgrants to LEAs] as follows:

        (1) Base payments. The State first shall award each agency . . . the amount that
        agency would have received . . . for the base year . . . if the State had distributed
        75 percent of its grant for that year . . .
        (2) Base payment adjustments. For any fiscal year after the base year fiscal
        year—
            (i) If a new LEA is created, the State shall divide the base allocation . . . for
            the LEAs that would have been responsible for serving children with
            disabilities now being served by the new LEA, among the new LEA and
            affected LEAs based on the relative numbers of children with disabilities . . .
        (3) Allocation of remaining funds. The State then shall—
            (i) Allocate 85 percent of any remaining funds to those agencies on the basis
            of the relative numbers of children enrolled in public and private elementary
            and secondary schools within each agency’s jurisdiction; and
            (ii) Allocate 15 percent of those remaining funds to those agencies in
            accordance with their relative numbers of children living in poverty, as
            determined by the SEA.

We found that ADE had a system in place to apply the Part B funding formula. However, ADE
did not apply the formula correctly for the three new charter school LEAs that received IDEA,
Part B funds for school year 2001-2002.

ADE Did Not Allocate Population and Poverty
Payments to New Charter School LEAs That
Received IDEA, Part B Funds

Federal regulations implementing § 5206 of the ESEA require states to ensure that eligible new
or expanding charter school LEAs that open or expand on or before November 1 of an academic
year receive a proportionate amount of Federal funds, including Part B of the IDEA. A State
must base a new or expanding charter school LEA’s allocation on actual data. A State cannot

7
 Each LEA receives a base allocation consisting of the amount of IDEA, Part B funds that the LEA
would have received in fiscal year 1999 had the SEA distributed 75 percent of its funds to LEAs. This
amount is based on the numbers of children with disabilities receiving special education and related
services as of December 1, 1998, or, at the State’s discretion, the last Friday in October 1998.
ED-OIG/A09-D0033                                                                               Page 11 of 26


deny funding to a new charter school LEA due to the lack of prior-year data. 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 LEA is eligible under
        each covered program.
        34 C.F.R. § 76.792(a)

        . . . [A]n SEA must determine whether a charter school LEA is eligible to receive
        funds under a covered program based on actual enrollment or other eligibility data
        for the charter school LEA on or after the date the charter school LEA opens or
        significantly expands its enrollment.

        For the year the charter school LEA opens or significantly expands its enrollment,
        the eligibility determination may not be based on enrollment or eligibility data
        from a prior year, even if the SEA makes eligibility determinations for other
        LEAs under the program based on enrollment or eligibility data from a prior year.
        34 C.F.R § 76.791(a) and (b)

For school year 2001-2002, ADE allocations of IDEA, Part B funds to three new charter school
LEAs were comprised of only the base payment.8 The charter school LEAs did not receive the
population and poverty portions of the funding formula.

According to an ADE special education program director, ADE did not collect or use actual
enrollment and poverty data from new charter school LEAs because it used prior-year data to
determine the IDEA, Part B allocations for all other LEAs, including existing charter school
LEAs. Under ADE’s procedures, the new charter school LEAs would not begin to receive the
population payment and poverty payment portions of the allocation until the second year of
operation when prior-year data became available.

ADE’s denial of population and poverty payments to the three new charter school LEAs in their
first year of operation because of the lack of prior-year data is contrary to the regulations at
34 C.F.R. § § 76.791 and 76.792(a). By providing only the base payments, ADE had under
allocated the IDEA, Part B allocations to the three new charter school LEAs.9




8
 To establish the base payments, ADE asked the new charter school LEAs to submit actual data
identifying the enrolled students with disabilities and, for purposes of making base payment adjustments,
their school district, charter school, or state of origin. ADE appropriately used these data to determine the
base payments.
9
 We could not determine the amount of additional IDEA, Part B funds the three charter school LEAs
should have received for their population and poverty payments because the ADE special education
program office had not collected the necessary enrollment and poverty data.
ED-OIG/A09-D0033                                                                           Page 12 of 26


Recommendations

The Assistant Secretary for Special Education and Rehabilitative Services should require ADE
to—

2.1     Determine the population and poverty portions of the IDEA, Part B funding formula that
        the three new charter school LEAs should have received for school year 2001-2002, and
        make those funds available to them.10 ADE should also ensure that new charter school
        LEAs that were similarly affected in subsequent years receive their population and
        poverty payments, as appropriate.

2.2     Correct its procedures to ensure that new charter school LEAs that receive IDEA, Part B
        funds are provided their full allocations, including population and poverty payments
        based on actual data.

ADE Comments

ADE agreed to ask charter schools for the actual population and poverty data that should be used
in calculating portions of new charter school LEAs’ IDEA, Part B allocations.

OIG Response

ADE’s comments did not address Recommendation 2.1. ADE needs to provide population and
poverty payments to the three new charter school LEAs that were adversely affected for school
year 2001-2002, and any similarly affected charter school LEAs that were new in school years
2002-2003, 2003-2004, and, if applicable, later school years.

In the draft report, we had included a section in the finding disclosing that ADE did not allocate
base payments to the majority of existing charter school LEAs that received IDEA, Part B funds
in school year 2001-2002. Based on comments received on the draft report, we removed the
section from the finding and reported the information related to this condition in the OTHER
MATTERS section of the report.




10
  One of the three new charter school LEAs was a private, for-profit entity. The OTHER MATTERS
section of the report presents information from a previous OIG report concerning the appropriateness of
providing Title I and IDEA, Part B funds directly to private, for-profit entities.
ED-OIG/A09-D0033                                                                    Page 13 of 26




FINDING NO. 3 – ADE Needs to Strengthen Procedures to Ensure That
                Charter School LEAs Receive Timely Access to Title I and
                IDEA, Part B Funds


For school year 2001-2002, ADE awarded Title I funds to 29 new charter school LEAs and
IDEA, Part B funds to 3 new charter school LEAs. As we noted in Finding No. 1, ADE’s
program offices did not identify any expanding charter school LEAs in that school year.

Federal regulations implementing § 5206 of the ESEA prescribe the timeframe in which states
must provide eligible new or expanding charter school LEAs with access to Federal funds. The
regulations at 34 C.F.R. § 76.793(a) 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 allocate
       funds to the charter school LEA within five months of the date the charter school
       LEA opens or significantly expands its enrollment . . .

In the preamble to the 1999 final regulations, which implemented the regulations at 34 C.F.R. § §
76.792(a) and 76.793(a), the Secretary responded to a comment on the five-month timeframe,
stating—

       [W]hen awarding subgrants under the covered programs, SEAs . . . are generally
       required only to ensure that the appropriate amount of grant funds are made
       available for draw down by the subgrant recipient—in this case, the charter school
       [LEA]. The subgrant recipient, in turn, draws down funds on an as needed basis.
       64 FR 71970

ADE Did Not Have Adequate Procedures to Ensure
New or Expanding Charter School LEAs Had
Timely Access to Title I and IDEA, Part B Funds

ADE had procedures for allocating Title I and IDEA, Part B funds to new or expanding charter
school LEAs. However, these procedures did not ensure that such charter school LEAs received
timely access to the funds. For both the Title I and IDEA, Part B programs, ADE used actual
data to compute new charter school LEAs’ allocations for school year 2001-2002. ADE Title I
and special education program administrators told us that, under their respective program
procedures, a new charter school LEA that submitted the requested data and completed its
application in a timely manner should have had access to their Title I and IDEA, Part B funds by
February 2002. As designed for a traditional year, funds disbursed in February would have
provided charter school LEAs access within five months of a September 2001 opening.
According to the program administrators, the allocation procedures would have been the same
for expanding charter school LEAs. We found that these procedures did not provide new or
expanding charter school LEAs with access to the funds in February, as illustrated in the table
below.
ED-OIG/A09-D0033                                                                        Page 14 of 26


ADE also did not modify its procedures to accommodate charter school LEAs that opened or
expanded before September. The ADE program administrators told us that most public schools,
including charter school sites, began the school year in September. However, 11 of the 15 new
or expanding charter school LEAs we interviewed reported July or August opening or expansion
dates. To receive Title I or IDEA, Part B funds within five months of their opening or
expansion, the 11 charter school LEAs should have had access to their funds in December 2001
and January 2002, respectively.

The following table outlines the dates for the two allocation processes for school year
2001-2002.

      Allocation Process Procedure                 Title I Funds         IDEA, Part B Funds
      A. ADE sent data request to new
                                                   October 2001             September 2001
         charter school LEAs

      B. Data were due from new charter            30 days after        Any time before end of
                                                   th
         school LEAs                             40 day of school            school year a

      C. ADE informed new charter school
                                               January to June 2002         February 2002b
         LEAs of allocation amounts

      D. Applications were due from new                                 Any time before end of
                                                March to May 2002
         charter school LEAs                                                 school year a

      E. New charter school LEAs                                          December 2001 to
                                               February to May 2002
         submitted applications                                            February 2002

      F. ADE approved applications and
                                               February to June 2002        February 2002 b
         disbursements

      G. New charter school LEAs had
                                                 April to June 2002           March 2002
         access to funds
      a
        IDEA, Part B data and application submissions from charter school LEAs were due at the
      same time.
      b
        ADE approved the applications and informed charter school LEAs of their IDEA, Part B
      allocation amounts at about the same time.



As shown in the table (Procedure G), the earliest that any of the new charter school LEAs could
access their Title I funds was April 2002. Ten of the 29 charter school LEAs could not access
their Title I funds until June 2002. The IDEA, Part B funds were available in March 2002. We
found that delays in providing charter school LEAs access to the Title I and IDEA, Part B funds
were partly due to some LEAs’ untimely data submissions and applications. However, we also
found that the program procedures did not provide adequate assurance that new or expanding
charter school LEAs could gain access to the funds within five months of their opening or
expansion.
ED-OIG/A09-D0033                                                                        Page 15 of 26


       Title I Procedures Did Not Allow Timely Access. Under the Title I allocation
       procedures, ADE instructed new charter school LEAs to submit their application by
       March 2002 at the earliest (Procedure D in the table). The March due date was already
       more than five months after any opening date between July and September 2001. Since
       the procedures required the use of actual enrollment and poverty data to compute the
       allocations, for a charter school LEA that opened or expanded in September 2001, that
       data would become available in late October and due to ADE in November. As a result,
       according to Title I program administrators, the earliest that ADE could inform the new
       charter school LEAs of their allocations was in January 2002 (Procedure C in the table).
       Additionally, once the Title I program approved a disbursement in February, the charter
       school LEA did not have access to those funds until April (Procedures F and G in the
       table).

       The Title I program did not collect or maintain data on charter school LEAs’ opening or
       expansion dates. Thus, ADE could not, and did not, monitor its compliance with the
       regulatory requirement to provide new or expanding charter schools access to Title I
       funds within five months of their opening or expansion.

       Special Education Procedures Could Have Allowed Timely Access. Under the IDEA,
       Part B allocation procedures, ADE did not require new or expanding charter school LEAs
       to submit required data or applications within a specified timeframe (Procedures B and D
       in the table) to ensure that the LEAs could access their funds within five months of their
       opening or expansion. Special education program administrators told us that charter
       school LEAs could complete their submissions any time during the school year and the
       LEAs would still receive the funds. Once the disbursements were approved in February,
       the new charter school LEAs received access to the funds in the following month
       (Procedures F and G in the table).

       The special education program annually requested new or expanding charter school
       LEAs to report their opening or expansion dates. However, ADE did not use this
       information to monitor its compliance with the requirement to provide new or expanding
       charter schools timely access to their IDEA, Part B funds.

In conclusion, ADE needs to ensure that new or expanding charter school LEAs have timely
access to the Title I and IDEA, Part B funds. The allocation procedures should enable ADE to
be aware of charter school LEA opening and expansion dates, and to accommodate those new or
expanding charter school LEAs that are on non-traditional calendars. In establishing procedural
timeframes, the Title I and special education programs should also factor in the time needed for
other ADE units to process and disburse the funds.

If ADE cannot sufficiently condense its current timeframes, it could use an alternative approach
provided by the regulations implementing § 5206 of the ESEA. Instead of basing the Title I or
IDEA, Part B allocations solely on actual data, the regulations at 34 C.F.R. § § 76.796(a) and
76.797(a) permit a state to initially allocate funds based on projected data and to later adjust the
allocation when actual data become available. This approach could enable a state to more
readily provide new or expanding charter schools with timely access to the funds.
ED-OIG/A09-D0033                                                                     Page 16 of 26


Recommendation

3.1    The Assistant Secretary for Special Education and Rehabilitative Services, in
       collaboration with the Assistant Secretary for Elementary and Secondary Education,
       should require ADE to modify its procedures, as needed, to make certain that eligible
       new or expanding charter school LEAs receive access to their Title I and IDEA, Part B
       funds within five months of their opening or expansion dates, provided that the charter
       school LEAs have met ADE’s requirements for written notice at least 120 days prior to
       their opening or expansion. The procedures should also ensure that eligible new or
       expanding charter school LEAs, which are not on a traditional calendar, receive timely
       access to the Title I and IDEA, Part B funds for which they are eligible.

ADE Comments

ADE concurred with this finding. ADE stated that it has had a standard operating procedure for
allocations, called the “Cycle II” process, for notifying new charter schools of their ability to
submit information used to generate allocations and for developing funding information for
charter schools that might indicate a significant expansion. ADE advised that its Academic
Achievement Division (the unit responsible for administering the Title I program) will revise the
procedure to provide immediate funding to new charter schools and charter schools that have
been determined to have significant expansion.

OIG Response

The corrective action described addresses the recommendation regarding the Title I program.
ADE did not comment on procedures to ensure that new or expanding charter school LEAs
receive timely access to IDEA, Part B funds. During the exit briefing, ADE commented that
charter school LEAs bear the responsibility for submitting their applications timely in order to
receive funds timely. We agree that the charter school LEA bears this responsibility. However,
ADE should ensure that it informs new or expanding charter school LEAs of the dates by which
the necessary data and applications must be submitted in order to receive funds within five
months of their opening or expansion.
ED-OIG/A09-D0033                                                                         Page 17 of 26




                                   OTHER MATTERS

IDEA, Part B Allocations to Existing Charter School LEAs. Of the 263 existing charter school
LEAs that were allocated IDEA, Part B funds for school year 2001-2002, we found that ADE did
not include a base payment for 136 existing charter school LEAs. Instead, these charter school
LEAs received allocations comprised of only population and poverty payments.11 An ADE
special education program director told us that, in the first year the charter school LEAs opened,
they did not submit data identifying the students with disabilities enrolled at the charter school
LEAs or, for purposes of making base payment adjustments, data identifying the students’ school
district, charter school, or state of origin. These charter school LEAs may have either failed to
provide the requested data or had no students with disabilities enrolled at that time. The
136 charter school LEAs did not receive any IDEA, Part B allocations in their first year of
operation. In subsequent years, the ADE special education program office became aware that
students with disabilities were enrolled at the 136 charter school LEAs when they reported special
education student data, as well as enrollment and poverty data, to ADE through other reporting
mechanisms. ADE used these data to calculate the IDEA, Part B allocations, which were based
only on the population and poverty portions of the funding formula. In its comments, ADE stated
its position that the IDEA, Part B allocations for the 136 charter school LEAs were calculated
correctly.

The Department’s Office of Special Education and Rehabilitative Services has not issued
guidance on whether a state is required to make a Part B subgrant to a charter school LEA in its
first year of operation that has no students with disabilities enrolled at the time the subgrant is
made, or whether such an LEA is entitled to a base payment in the subsequent years if it does
enroll students with disabilities. Additionally, neither § 611(g)(1) and (2) of the IDEA and its
implementing regulations at 34 C.F.R. § § 300.711 and 300.712, nor the regulations and
nonregulatory guidance implementing the ESEA § 5206, address this situation.

Allocation of Title I and IDEA, Part B Funds to Private, For-Profit Charter School LEAs.
The OIG audit report issued November 6, 2003, entitled Audit of 20 Arizona Charter Schools'
Uses of U.S. Department of Education Funds for the Period October 1, 2000, through
September 30, 2001 (Control Number ED-OIG/A05-D0008), reported that ADE violated Federal
laws when it provided $1,129,006 in Title I and IDEA, Part B funds directly to private, for-profit
charter school LEAs during the period October 1, 2000, to September 30, 2001. Under Arizona
State law, charter school LEAs may be private or public entities. However, under applicable
Federal laws and regulations, only public entities may receive Title I and IDEA funds. ADE’s
response, in which it disagreed with the audit conclusion, was included in the report.




11
  The IDEA funding formula for distributing Part B funds requires states to allocate to each eligible
LEA, including charter school LEAs, the total of three amounts—a base payment, a population payment,
and a poverty payment—as described in the AUDIT RESULTS section of the report.
ED-OIG/A09-D0033                                                                     Page 18 of 26


In the prior report, the OIG recommended that the Assistant Secretary for Elementary and
Secondary Education and the Assistant Secretary for Special Education and Rehabilitative
Services instruct ADE to determine the total amount of Title I and IDEA funds that it provided to
private, for-profit charter school LEAs during the period October 1, 2001, through
June 30, 2003, and refund that amount to the U.S. Department of Education. Our audit found
that ADE had allocated the following amounts to private, for-profit charter school LEAs for
school year 2001-2002, which would have been available for disbursement during the period
October 1, 2001, through September 30, 2002.

                                                      Number of For-Profit Charter
                       Program         Amount           School LEAs That Were
                                                        Allocated Federal Funds
             Title I                     $ 789,695                 22

             IDEA, Part B                  429,197                 34

             Total                       $1,218,892



We encourage the Assistant Secretaries and ADE to consider these amounts when resolving the
recommendations in the prior audit report.
ED-OIG/A09-D0033                                                                    Page 19 of 26




             OBJECTIVES, SCOPE, AND METHODOLOGY

Our audit objectives were to determine whether ADE (1) provided new or expanding charter
school LEAs with timely and meaningful information about the ESEA Title I program and
IDEA, Part B funding for which these LEAs might have been eligible and (2) had management
controls that ensured charter school LEAs, including new or expanding LEAs, were allocated the
proportionate amount of Title I and IDEA, Part B funds for which these LEAs were eligible. Our
review covered the Title I and IDEA, Part B allocations for school year 2001-2002.

To address these objectives, we interviewed ADE officials and staff responsible for
implementing the Title I and IDEA, Part B programs in Arizona. We also interviewed ADE
officials from the Grants Management Unit and staff from the Arizona State Board for Charter
Schools. We evaluated the information that ADE provided to charter school LEAs about
accessing Title I and IDEA, Part B funds to determine whether the information was timely and
meaningful. In addition, we assessed ADE’s procedures to determine whether management
controls ensured that charter school LEAs received the proportionate amount of Title I and
IDEA, Part B funds for which these LEAs were eligible.

We interviewed administrators from a total of 21 charter school LEAs about their experiences in
accessing Title I and IDEA, Part B funds, including the timeliness and meaningfulness of
provided information. From the universe of 214 non-profit charter school LEAs, we
judgmentally selected 21 charter school LEAs that met the criteria shown in the following table.
ED-OIG/A09-D0033                                                                          Page 20 of 26



                                 Charter School LEA Sample Selection

                                                        Number of Charter School LEAs
               Selection Criteria
                                                 Met Selection Criteriaa   Selected for Interview

   State-Authorized and Operating a Single Charter School Site (153)
   New LEA – Received both Title I and
                                                           2                         2
   IDEA, Part B funds
   New LEA – Received a Title I allocation,
                                                           15                        2b
   but not an IDEA, Part B allocation
   New LEA – Did not receive a Title I or
                                                           14                        2b
   IDEA, Part B allocation
   Expanding LEA – Increased grade span
                                                           7                         2b
   and enrollment by at least 30 percent
   State-Authorized and Operating Multiple Charter School Sites (41)
   New LEA – Opened more than one
                                                           2                         2
   charter school site
   Expanding LEA – Added at least one new
                                                           5                         5
   charter school site
   Expanding LEA – Increased grade span
                                                           2                         2
   and enrollment by at least 30 percent
   District-Authorized (20)
   Did not receive a Title I allocation, IDEA,
                                                           4                         4
   Part B allocation, or both
                   Total (214)                             51                        21
   a
     The number of charter school LEAs that met each selection criteria was based on available ADE
   data. During the interviews with charter school LEA representatives, we determined the LEAs’
   actual status.
   b
     We randomly selected the two charter school LEAs.



We assessed the reliability of computer-generated data at ADE and concluded that the data were
sufficiently reliable to use in meeting our audit objective. Specifically, for school year
2001-2002 allocations—

       Title I. We assessed the two databases that ADE used to determine eligibility and
       allocations for existing LEAs and newly created LEAs, respectively, both of which
       included charter school LEAs. We reviewed the formulas used in both databases. For
       the database that ADE used for newly created LEAs, we also verified the reporting and
       payment of allocations to new charter school LEAs. However, we were unable to verify
       that all data were entered in the database accurately because ADE staff had misplaced the
       source documents. For two new charter school LEAs, ADE staff had previously
       provided us with copies of source documents and we verified that the data were
       accurately entered in the database for the two LEAs. However, due to our limited testing,
ED-OIG/A09-D0033                                                                   Page 21 of 26


       we have no assurance that the data for other new charter school LEAs were accurately
       entered in the database.

       IDEA, Part B. We assessed the database that ADE used to compute IDEA, Part B
       allocations for existing LEAs, including charter school LEAs, by reviewing the formulas.
       For new charter school LEAs, we assessed the reasonableness of the allocation amounts
       and verified the reporting and payment of the allocations to the charter school LEAs.

We performed our fieldwork at ADE offices in Phoenix, Arizona, from September 2003 to
May 2004. We held an exit briefing with ADE officials on May 11, 2004. Our audit was
performed in accordance with generally accepted government auditing standards appropriate to
the scope of the review described.
ED-OIG/A09-D0033                                                                       Page 22 of 26




            STATEMENT ON MANAGEMENT CONTROLS

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

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

       Dissemination of information
       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 ADE management control weaknesses that adversely affected charter
school LEAs’ receipt of information and Federal funds. ADE’s weaknesses included the lack of
information on the definition of “significant expansion of enrollment” and written notice
requirements; incorrect procedures for allocating IDEA, Part B funds to new charter school
LEAs; and inadequate procedures to ensure timely access to Title I and IDEA, Part B funds.
These weaknesses and their effects are fully discussed in the AUDIT RESULTS section of this
report.
ED-OIG/A09-D0033                                  Page 23 of 26




                        ATTACHMENT 1


               ADE COMMENTS ON THE DRAFT REPORT
                                            State of Arizona
                                   Department of Education

Tom Horne
Superintendent of
Public Instruction



July 6, 2004


Gloria Pilotti
Regional Inspector General for Audit
U.S. Department of Education
Office of the Inspector General
501 I Street, Suite 9-200
Sacramento, California 95814

Dear Inspector Pilotti:

This letter is in response to your draft audit report, Control Number ED-OIG/A09-D0033, requesting
comments to your recent audit of charter schools’ access to Title I and IDEA, Part B funds in the State
of Arizona.


FINDING NO. 1 - ADE Should Enhance Information
Provided to Charter School LEAs About the ESEA § 5206
Requirements for New or Expanding Charter School LEAs

The Arizona Department of Education concurs with this finding.

The Arizona Department of Education has developed a new publication called Federal No Child Left
Behind Act Information for Arizona Charter Schools.

This publication, which provides specific guidance to Charter Schools about the Charter School
Expansion Act as Amended by the No Child Left Behind Act of 2001, is being provided to all charter
holders in Arizona and will be provided to all new charter holders as they come into existence. In
addition to providing information about the Charter School Expansion Act, the publication provides a
phone number for charter schools to call if they have questions concerning applicability.

In addition to providing a definition of “significant expansion of enrollment” in the ESS annual
memorandum, reference to IDEA, Part B funding for Charter Schools will be added to the ADE’s new
publication, Federal No child Left Behind Act Information for Arizona Charter Schools.

By providing the publication noted above the ADE has complied with recommendation 1.1 of the audit
report.

               1535 West Jefferson, Phoenix, Arizona 85007 • 602-542-4361 • www.ade.az.gov
FINDING NO. 2 - ADE Needs to Allocate the
Proportionate Amount of IDEA, Part B Funds to Charter
School LEAs
[ED-OIG Note: The first three paragraphs of this section relate to a condition that was moved to the
OTHER MATTERS section of the report.]
The Arizona Department of Education/Exceptional Student Service section (ADE/ESS) disagrees with
this finding based upon a review of the “final regulations”, the Nonregulatory Guidance, 34 CFR Part
76, Subpart H, How does a State or local education agency allocate funds to Charter Schools that are
opening for the first time or significantly expanding their enrollment and 34 CFR 300.712. The
ADE/ESS section was unable to find any requirement that would lead us to believe that we incorrectly
calculated the IDEA, Part B allocation amounts for 136 Charter School LEA’s by omitting the base
payment.

In accordance with the Nonregulatory Guidance document, question number 5, “the final regulations
apply only to eligible Charter Schools that open for the first time or significantly expand their
enrollment during the academic year for which funds are allocated. During years in which an eligible
Charter School is neither opening for the first time nor significantly expanding its enrollment, the SEA
is under no obligation to follow the final regulations when allocating funds and should provide funds to
the Charter School on the same basis as it provides funds to other eligible LEA’s, 34CFR 76.786(c).
Questions 74 through 85 also provides information supporting our position.

The final regulations give States “unfettered” discretion to determine expansion of enrollment in a
Charter School to be “significant” within the meaning of the final regulations. This authority does not
extend to LEA’s. The expansion of a Charter School’s special education enrollment does not, by itself,
justify a significant expansion of enrollment.

Charter Schools will be asked for actual enrollment and poverty (low income) numbers. The poverty
numbers are based on family information not just student information.


FINDING NO. 3 - ADE Needs to Strengthen Procedures
to Ensure That Charter School LEAs Receive Timely
Access to Title I and IDEA, Part B Funds

The Arizona Department of Education concurs with this finding.

The ADE has had in place as part of its standard operating procedure for allocations a
process for notifying new charter schools of their ability to submit information used to generate
allocations. Additionally, this process called “Cycle II” was used to develop funding information for
Charter schools that might indicate a significant expansion.

Recognizing that the audit finding is asking for a more aggressive approach to funding “new charter”
schools and the “significant expansion” of existing schools, the ADE, Academic Achievement Division
is developing a revised procedure that calls for immediate funding of new charter schools and charter
schools that have been determined to have significant expansion.

Once the procedure has been finalized it will be forwarded to the GAO for review and comment.

           1535 West Jefferson, Phoenix, Arizona 85007 • 602-542-4361 • www.ade.az.gov
If you have any questions, please call Vicki Salazar, Associate Superintendent of Finance at (602) 364-
0132.

Sincerely,

/s/

Tom Horne
Superintendent of Public Instruction
Arizona Department of Education
1535 West Jefferson Street
Phoenix, Arizona 85007



c: Vicki Salazar
Margaret Garcia-Dugan
Lillie Sly




             1535 West Jefferson, Phoenix, Arizona 85007 • 602-542-4361 • www.ade.az.gov