oversight

ARC Associates' and Oakland Unified School District's Compliance With Supplemental Educational Services Provisions.

Published by the Department of Education, Office of Inspector General on 2005-10-13.

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

                                   UNITED STATES DEPARTMENT OF EDUCATION
                                          OFFICE OF INSPECTOR GENERAL
                                                   501 I STREET, SUITE 9-200
                                                SACRAMENTO, CALIFORNIA 95814
                                           PHONE (916) 930-2388 • FAX (916) 930-2390




                                                          October 13, 2005

                                                                                                               Control Number
                                                                                                               ED-OIG/A09F0009

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

Dear Superintendent O’Connell:

This Final Audit Report, entitled ARC Associates’ and Oakland Unified School District’s
Compliance With Supplemental Educational Services Provisions, presents the results of our audit.
The purpose of the audit was to determine whether, for school years 2003-2004 and 2004-2005,
(1) Oakland Unified School District (OUSD) contracts with Art, Research and Curriculum
Associates (ARC) for providing supplemental educational services (SES) contained the elements
specified in the Elementary and Secondary Education Act of 1965 (ESEA), as amended by the No
Child Left Behind Act of 2001, applicable Federal regulations, and U.S. Department of Education
(ED) guidance, (2) ARC performed the services for which it received payment under the contracts,
and that the services were provided in a manner consistent with the contract terms and Federal
requirements, and (3) ARC maintains the data that will be used by the California Department of
Education (CDE) to evaluate the quality and effectiveness of the services offered by the provider.



                                                       BACKGROUND


Title I, Part A of the ESEA requires local educational agencies (LEAs) to offer SES to students
from low-income families when the students attend a Title I school that is in the second year of
school improvement or identified for corrective action or restructuring.1 SES consists of tutoring,
remediation, and other educational interventions that are designed to increase the academic
achievement of students, and are in addition to instruction provided during the school day.
State-approved SES providers, selected by the individual student’s parent or guardian, provide the
services to eligible students under agreements with LEAs. SES providers must align their

1
  Under the No Child Left Behind Act of 2001, Title I schools that fail to make adequate yearly progress (AYP) for two
consecutive years are identified for school improvement. Title I schools are identified for corrective action if they do
not make AYP for four years, while Title I schools not making AYP for five years are identified for restructuring. The
“low-income family” determination is usually based on the student’s eligibility for free or reduced price lunch under the
National School Lunch Program.
              Our mission is to promote the efficiency, effectiveness, and integrity of the Department’s programs and operations.
Final Report
ED-OIG/A09F0009                                                                        Page 2 of 16

instructional programs with state academic achievement standards and tailor their services to the
academic needs of individual students. CDE is the state educational agency responsible for
administering the ESEA, Title I, Part A program, approving SES providers, and monitoring the
quality and effectiveness of services offered by the approved providers.

ARC is a non-profit organization based in Oakland, California that provides SES to students in the
San Francisco Bay Area and Los Angeles Area.2 ARC, which was initially approved as a SES
provider in California for school year 2002-2003, provides English-language arts and mathematics
tutoring in small-group settings with a student-to-teacher ratio of four to one. The tutoring is
provided after the regular school day at the school sites. ARC served about 280 OUSD students in
school year 2003-2004 and about 200 OUSD students in school year 2004-2005.

In school year 2003-2004, OUSD had 18 schools that were required to offer SES. For that school
year, OUSD allocated $3.37 million of Title I funds for SES and reported that over 2,800 students
received services from seven SES providers. OUSD allocated $3.92 million of Title I funds for
SES in school year 2004-2005.



                                              AUDIT RESULTS


We found that ARC’s contracts with OUSD did not include elements required by the applicable
ESEA provisions and Federal regulations. As a result, individual student plans were not developed
and the contracts did not include information needed to monitor contract performance and ensure
that Title I funds, used for contract payments, were expended for allowable costs. Based on our
review of payments for selected billing periods, we concluded that ARC provided SES to OUSD
students for which ARC received payment under the contracts. We also confirmed the SES were
provided to students after the regular school day and the content of instructional material used by
ARC for mathematics was aligned with California’s student academic achievement standards.
However, we were unable to determine if ARC provided the services in a manner consistent with
contract terms and other Federal requirements because the contracts lacked the information needed
to evaluate compliance with the requirements and did not require ARC to retain related
documentation. We also found that OUSD’s review of ARC invoices was not adequate to ensure
that amounts charged were accurate.

The California State Board of Education adopted regulations in January 2005 that require
SES providers to submit annual end-of-fiscal-year reports to CDE. The first report is due on
October 1, 2006 and will cover services provided in school year 2005-2006. The state regulations
list the information to be provided, including beginning and ending scores on national, state,
district, or other assessments in English language arts and/or mathematics for the individual
students served. CDE may remove a provider from its approved list if the provider fails to
contribute to the increased academic achievement of a majority of students it has served, as
demonstrated by the assessment scores, for two consecutive years. We concluded that ARC
currently maintains the type of data that will be needed for future annual end-of-fiscal-year reports.


2
    ARC Connections is the unit within ARC that operates the SES program.
Final Report
ED-OIG/A09F0009                                                                          Page 3 of 16

CDE did not explicitly express concurrence with our findings in its comments to the draft report,
but it did describe the corrective actions taken or planned to address each of our recommendations.
CDE’s comments are summarized at the end of each finding and the full text of the comments is
included as an attachment to the report.


FINDING NO. 1 – OUSD’s Contracts With ARC Did Not Contain All Required
                Elements and Other Necessary Information

For each school year we reviewed, OUSD entered into a professional services contract with ARC to
provide SES to eligible students. The ESEA § 1116(e)(3) specifies that the LEA is responsible for
entering into an agreement with an approved provider selected by a student’s parent. Thus, OUSD
is responsible for ensuring that required elements and needed information are included in the
contracts. Our review of OUSD’s contracts with ARC for the 2003-2004 and 2004-2005 school
years found that the contracts did not include many of the elements required by the applicable
ESEA provisions and Federal regulations. As a result, individual student plans were not developed
and the contracts did not include information needed to monitor contract performance and ensure
contract payments were allowable.

ESEA § 1116(e)(3) lists the elements an LEA must address in the agreements. The elements are
reiterated in 34 C.F.R § 200.46(b)(2). The table below lists the required elements and identifies
whether each element was included in OUSD’s contracts with ARC.

                  Coverage of ESEA Elements in OUSD’s Contracts with ARC
                                                                          Element Included in Contract
               Contract Elements Required By ESEA
                                                                           2003-2004       2004-2005
                  And Relevant ESEA Citations
                                                                            Contract        Contract
 Requirement that the LEA, in consultation with parents and the
 provider, develop a statement of specific achievement goals for the
                                                                               No             No
 student, how the student’s progress will be measured, and a timetable
 for improving achievement. Sec. 1116(e)(3)(A)
 Description of how the student's parents and teacher(s) will be
                                                                              Yes             Yes
 regularly informed of the student's progress. Sec. 1116(e)(3)(B)
 Provisions for terminating the agreement if the provider fails to meet
                                                                              Yes             Yes
 the goals and timetables. Sec. 1116(e)(3)(C)
 Provisions with respect to the LEA making payments to the provider
                                                                              Yes             No
 for SES. Sec. 1116(e)(3)(D)
 Provision prohibiting the provider from disclosing to the public the
 identity of any student eligible for, or receiving, SES without the           No             No
 written permission of the student’s parents. Sec. 1116(e)(3)(E)
Final Report
ED-OIG/A09F0009                                                                                Page 4 of 16

In addition, Question G-2 of ED’s publication entitled Supplemental Educational Services
Non-Regulatory Guidance, dated August 22, 2003, states that the agreement should include
assurances that supplemental educational services will be provided consistent with applicable
health, safety, and civil rights laws as required under ESEA § 1116(e)(5)(C).3 Neither contract
included these assurances.

The OUSD's legal and procurement office staff used the District’s standard template for
professional services contracts for the SES contracts. For the contract with ARC covering school
year 2003-2004, the staff included a form entitled “Amendment to Contract for Professional
Services for Title I – Supplemental Educational Service Provider” as part of the contract. The
amendment contained a verbatim list of the required elements from ESEA § 1116(e)(3), as well as
instructions for submitting invoices, the District’s timeline for processing payments, and a
requirement that the provider maintain daily records of services provided and permit District access
to these records. However, the contract (inclusive of the amendment and other attachments) did not
contain actual contract provisions for some of the ESEA requirements. OUSD did not include the
above amendment in the contract with ARC for school year 2004-2005 nor did the contract specify
actual provisions for most of the ESEA requirements.

Individual Student Plans Were Not Developed. The required element in ESEA § 1116(e)(3)(A)
places the responsibility on LEAs to “develop, in consultation with parents (and the provider chosen
by the parents), a statement of specific achievement goals for the student, how the student’s
progress will be measured, and a timetable for improving achievement that, in the case of a student
with disabilities, is consistent with the student’s individualized education program under section
614(d) of the Individuals with Disabilities Education Act….” As we noted, OUSD’s contracts with
ARC did not address how this requirement would be met. Neither OUSD nor ARC developed such
individual student plans. Officials in OUSD’s Department of Accountability stated that the district
does not have the time and resources to develop a statement of goals, description of how progress
will be measured, and a timetable for improvement for each student. Because individual plans were
not prepared, OUSD did not meet the requirements of ESEA § 1116(e)(3)(A) and there is no
assurance that the SES were tailored to the academic needs of each student, and, in the case of a
student with disabilities, consistent with the student’s IEP.

Contracts Did Not Include Information Needed to Effectively Monitor Contract Performance.
While the ESEA and related regulations do not require any specific contract terms beyond those
identified in the previous table, there is other information that should be in SES provider contracts
to ensure that the District and SES provider understand the arrangements for delivery and payment
of services. We concluded that OUSD’s contracts with ARC did not contain the needed
information.

    •   The contracts stated that ARC would deliver the SES using small group learning centers of
        four students to each tutor, the contract performance period, and that the services would be
        provided at the student’s school site. However, the contract did not include information on
        the number of hours per day, days of the week, or number of weeks that ARC planned to
        provide services to the students. Also, the contract did not identify the schools where the
        services would be provided, if requested by a parent.


3
 The same suggestion is contained in ED’s June 2005 revised Supplemental Educational Services Non-Regulatory
Guidance.
Final Report
ED-OIG/A09F0009                                                                                    Page 5 of 16

    •   The contract for school year 2003-2004 included the following requirement concerning
        records to be maintained by ARC:
                 The provider will maintain daily records using “Site Services Database”,
                 including the name of the student, the name of provider’s employee who
                 rendered the service, and the amount of time of such service. The provider
                 will permit access to and/or a copy of such records to the District upon
                 request.

        However, the contract did not contain any references to the maintenance of other documents
        such as records of progress reports provided to parents or the results of student academic
        assessments. Furthermore, the contract for school year 2004-2005 did not require ARC to
        maintain any documentation related to its SES program.

        The contracts should include requirements for the maintenance of records needed to evaluate
        the provider’s compliance with key contract terms and Federal requirements. For example,
        Section 1116(e)(3)(B) of ESEA requires that the contract describe how the student’s parents
        and teacher will be regularly informed of the student’s progress. ARC’s description of
        services, which was incorporated as part of the contract, states “[e]ach student will receive a
        periodic progress report corresponding to the school’s report card periods. A copy of the
        report will go to the student’s relevant teachers….” The documents also state that
        “[n]otification of student progress will be reported to parents at every report card period.”
        ARC staff informed us that progress reports were provided to parents about 4-6 weeks after
        the student began the program and then again at the end of the program, which is 6-8 weeks
        later. However, ARC staff could not provide copies of the reports or other documentation to
        show that the notifications were provided and provided timely. Thus, we were unable to
        confirm that ARC complied with the contract terms and ESEA § 1116(e)(5)(A) and OUSD
        complied with ESEA § 1116(e)(3)(B).4

        The contracts also should include the retention period for records to ensure that records
        maintained by contractors will be available, when needed for reviews or other purposes.
        Title 20 U.S.C. § 1232f (a) requires that an LEA maintain records for three years after
        completion of the activity for which program funds were used.

    •   The contracts included the following provisions for making payments to ARC:
                 OUSD shall pay Contractor a total fee of $770,000 for school year
                 2003-2004 and $487,377 for school year 2004-2005, payable as follows:
                 “pay as billed” for school year 2003-2004 and “as billed monthly” for school
                 year 2004-2005. This sum shall be for full performance of this Agreement
                 and includes all fees, costs and expenses incurred by Contractor including but
                 not limited to labor, materials, taxes, profit, overhead, travel, insurance,
                 subcontractor costs, and other costs. Receipts for costs/expenses must
                 accompany invoice(s).




4
  ESEA § 1116(e)(5)(A) requires that a provider must provide parents and LEAs with information on the progress of the
student in increasing achievement.
Final Report
ED-OIG/A09F0009                                                                                      Page 6 of 16

        The contract for school year 2003-2004 included the following additional provision:
                 The provider will submit to the [OUSD’s] Department of Accountability
                 monthly invoices itemized by name, services provided and actual numbers of
                 hours for which services were provided, and amount owed. Such invoices
                 will be submitted within thirty (30) days of the rendering of services. The
                 District will process payments to providers within forty-five (45) days of
                 submission of such invoices.
        The contracts did not contain information on the expected number of students to receive
        instructional services for the total fee or the expected cost per student served. The ESEA
        § 1116(e)(6) establishes the amount that must be made available for instructional services
        for each student receiving SES.5 The contracts also did not include information on the
        number of session hours expected to be delivered to each student based on the provider’s
        hourly rate or District’s per pupil SES allocation, and whether the costs would include
        scheduled session hours that students do not attend due to excused absences.

ED’s publication entitled Innovations in Education: Creating Strong Supplemental Educational
Services Programs, issued May 2004, provided LEAs and SES providers with information drawn
from the experiences of implementing SES in five diverse districts from across the country. The
publication states that districts and service providers emphasized that a contract between district and
service provider that “leaves nothing to the imagination” provides a solid base for a smooth
relationship. Without the required elements and sufficient information in the contracts, OUSD and
SES providers may not have a clear understanding of the role each party has in meeting the
requirements listed in ESEA § 1116(e)(3), the nature of the provider’s instruction, the records that
need to be maintained to demonstrate compliance with contract terms and Federal requirements, and
how billing and payment will be handled. Also, OUSD may lack information it needs to monitor
contract performance and take actions to address instances of non-performance.

Recommendations

We recommend that the Assistant Secretary for Elementary and Secondary Education, in
conjunction with the Assistant Deputy Secretary for Innovation and Improvement, require CDE to
take action to―

1.1     Ensure that OUSD’s contracts with SES providers contain all elements required by the
        ESEA § 1116(e)(3) and Federal regulations.

1.2     Ensure that OUSD contracts with SES providers include information and terms that clearly
        communicate each party’s roles in meeting the requirements listed in ESEA § 1116(e)(3),
        the nature of the provider’s instruction, the records that need to be maintained to
        demonstrate compliance with contract terms and Federal requirements, and how billing and
        payment will be handled.




5
 The ESEA § 1116(e)(6) sets the per-pupil cost for SES at the lesser of a local educational agency’s per-pupil
allocation under Part A of Title I, or the actual cost of services.
Final Report
ED-OIG/A09F0009                                                                      Page 7 of 16

CDE Comments

In its comments on the draft report, CDE stated that OUSD plans to use a Memorandum of
Understanding (MOU) for SES provider agreements rather than its standard template for
professional services contracts. CDE stated that it would review the MOU for all required elements,
including retention of documents, and that CDE and OUSD will present the MOU at a meeting with
SES providers. Additionally, CDE will provide technical assistance training during workshops and
provide written communications to all LEAs on the requirements for implementing SES.


FINDING NO. 2 – OUSD Lacked Adequate Internal Controls Over the Review and
                Approval of ARC Invoices

OUSD’s reviews of ARC invoices did not detect a double billing as well as charges for services
provided to ineligible students. The regulations at 34 C.F.R. § 80.20 contain the standards for
financial management systems that apply to LEAs receiving Federal grant funds. Section
80.20(b)(3), which addresses internal control, states “[e]ffective control and accountability must be
maintained for all grant and sub grant cash, real and personal property, and other assets.” Thus,
OUSD must have internal control procedures, such as reviews of invoices prior to payment, in place
to ensure the appropriate use of Title I funds for SES.

Our review of ARC invoices for SES provided in March 2004 and the period March 14-25, 2005
found that ARC had original student attendance records to support the tutoring hours included in the
invoices. However, we identified billing errors and weaknesses in OUSD’s internal controls during
our review of those invoices for school years 2002-2003 and 2003-2004.

   •   For school year 2003-2004, OUSD did not provide SES providers with a list of eligible
       students whose parents requested SES from the provider. Thus, ARC did not have the
       information needed to ensure that it only provided services to eligible students.

       District staff stated that to ensure that OUSD only paid ARC for eligible students, staff
       compared the students included in ARC’s first invoice for the school year with the
       individual parent SES applications. District staff stated no reviews were conducted of other
       ARC invoices paid for school year 2003-2004. Since OUSD only reviewed about
       15 percent of the total amount that ARC billed for the school year for tutoring sessions,
       OUSD cannot be certain that the District only paid for services provided to eligible students.
       Also, because OUSD did not have a list identifying the eligible students for school year
       2003-2004, we were unable to confirm that ARC invoices for SES provided in March 2004
       covered only eligible students.

   •   For school year 2004-2005, OUSD provided ARC with a list of eligible students whose
       parents requested SES from ARC, but the list was provided late. ARC began providing SES
       on January 24, 2005, but OUSD did not provide the list until March 2005.

       District staff stated SES provider invoices for school year 2004-2005 were reviewed prior to
       payment and, as part of its reviews, compared students included in the invoices with the
       District’s list of eligible students. However, our review of invoices for services provided
       during March 14-25, 2005 found that ARC had double-billed for two students and
Final Report
ED-OIG/A09F0009                                                                          Page 8 of 16

       inappropriately billed for four other students who were not on the District’s list of eligible
       students. OUSD staff had not detected the inappropriate charges and paid ARC for the full
       amount invoiced. As a result of the double billing and charges for ineligible students, ARC
       received overpayments totaling $1,860 for services provided during the period
       March 14-25, 2005.

In summary, OUSD did not have the needed internal controls in place for school years 2003-2004
and 2004-2005 to ensure that Title I funds were appropriately used to pay SES costs. As stated
above, we were unable to determine the appropriateness of payments to ARC in school year
2003-2004 because the District did not have a list of students eligible for SES in that school year.
Our review for school year 2004-2005 was limited to invoices for one of the ARC billing periods.
Since our review identified billing errors for the one billing period, there is no assurance that Title I
funds were appropriately used for amounts paid to ARC for other billing periods.

Recommendations

We recommend that the Assistant Secretary for Elementary and Secondary Education, in
conjunction with the Assistant Deputy Secretary for Innovation and Improvement, require CDE
to—

2.1    Ensure that OUSD distributes to each SES provider a list of eligible students whose parents
       have selected that provider, OUSD provides the list prior to the date the provider begins
       delivering services to students for the school year, and OUSD promptly notifies providers of
       changes to the list.

2.2    Ensure that OUSD performs a second review of ARC invoices for school year 2004-2005 to
       identify any amounts paid for ineligible students and other billing errors, and return the
       identified amounts (including the $1,860 for double billing and ineligible students identified
       in our review) to the appropriate Title I fund.

2.3    Ensure that OUSD strengthens its internal control over payment of SES provider invoices to
       provide reasonable assurance that Title I funds are used to pay for services provided to
       eligible students.


CDE Comments

In its comments on the draft report, CDE stated that OUSD will distribute a list of eligible students
to SES providers in a timely manner and establish internal controls for review of student eligibility.
CDE stated that ARC’s review of its records identified double billings of $545 and that ARC was
making arrangements to repay OUSD. CDE stated that OUSD plans to review ARC invoices to
determine whether other double billing or charges for ineligible students exist. CDE also stated
that, for school year 2005-2006, OUSD is establishing an internal screening control process to
identify billings for ineligible students, has developed a detailed invoicing template, and will
implement an internal system of double review and signature by October 2005.
Final Report
ED-OIG/A09F0009                                                                        Page 9 of 16

OIG Response

The double billings of $545 were part of the $1,860 of improper charges identified by our audit.
ARC should also return to OUSD the remaining $1,315 charged for services to students who were
not eligible for SES.




                                       OTHER MATTER


During our review, we found that OUSD did not offer SES to all eligible students for school years
2003-2004 and 2004-2005. Under Title 34 C.F.R. § 200.45(b) and (c), students from low-income
families attending Title I schools in improvement, corrective action or restructuring status are
eligible for supplemental educational services. OUSD initially determined a students’ eligibility for
SES based on student performance on the prior year’s standardized tests. Students scoring in the
three lowest performance categories (far below basic, below basic, and basic) were identified as
eligible for SES. The District then determined if these students were also on the list of students
eligible for the Free and Reduced Price Lunch program (i.e. from low income families) before
making a final eligibility determination. As a result, the District’s list of eligible students did not
include students from low-income families who scored above the basic level. These students were
denied access to after-school tutoring services, even though the OUSD had funds available for the
services. For the 2003-2004 school year, OUSD’s accounting records showed that the District had
budgeted about $3.4 million for SES, while the District only expended about $2 million on SES
during the school year. In its comments on the draft report, CDE stated that all students at eligible
school sites are provided with information regarding the availability of SES and that low
achievement criteria will only be utilized if the number of eligible students applying for SES
exceeds the number of available tutoring slots.




                   OBJECTIVES, SCOPE, AND METHODOLOGY


The objectives of the audit were to (1) confirm that OUSD’s contracts with ARC for providing SES
contain the elements specified in ESEA § 1116(e)(3), applicable Federal regulations, and ED
guidance; (2) determine whether ARC performed the services for which it received payment under
the contracts and that the services were provided in a manner consistent with the contract terms and
Federal requirements; and (3) determine whether ARC collects and maintains the data that will be
used by the CDE to evaluate the quality and effectiveness of the services provided by ARC. Our
audit covered school years 2003-2004 and 2004-2005.

To achieve our objectives, we gained an understanding of the ESEA sections, Federal regulations,
ED guidance, and California regulations covering SES and interviewed officials and staff at ARC,
OUSD, and CDE. We obtained OUSD’s contracts with ARC for school years 2003-2004 and
Final Report
ED-OIG/A09F0009                                                                                    Page 10 of 16

2004-2005 and compared the contracts’ terms to the elements specified in ESEA § 1116(e)(3). Our
review of OUSD’s internal control was limited to the procedures used to contract for SES and
process provider invoices.

To assess whether ARC performed the services for which it received payment, we gained an
understanding of ARC’s internal control over collecting student attendance data used to prepare
invoices. ARC’s accounting records showed six invoices, totaling $661,499, were submitted for
school year 2003-2004 and seven invoices, totaling $252,826, were submitted for school year
2004-2005 (as of April 2005). We judgmentally selected the billing period for each school year that
had the largest dollar amount charged for the period – March 2004 and March 14-25, 2005 (invoices
for these periods totaled $147,926 and $58,398, respectively). For each invoice, we reviewed
student attendance data, confirmed that students were on the District’s list of eligible students (for
2004-2005 only), and recalculated the invoice amount. In addition, we identified the invoiced
amounts for program start up costs for school years 2002-2003, 2003-2004, and 2004-2005 and
reviewed supporting documentation for the $94,701 charged for 2002-2003 and 2003-2004.6

To determine if ARC’s services were provided in a manner consistent with the contract terms and
Federal requirements and to determine if ARC had data available for CDE to assess services, we
gained an understanding of ARC’s procedures for informing parents and teachers of students’
progress and collecting student assessment data. We reviewed the provider application packages
(2003, 2004, and 2005) that ARC submitted to CDE and available documentation at ARC related to
the reporting of student progress, aligning of services to State content standards, and assessing the
quality and effectiveness of services. Our review for determining whether ARC performed its
services consistent with contract terms and Federal requirements was limited to the following areas:
    • Developed a statement of specific achievement goals for each student, how the student’s
        progress will be measured, and a timetable for improving achievement.
    • Regularly informed student's parents and teacher(s) of the student's progress.
    • Provided services that were in addition to the instruction provided during the school day.
    • Used instructional materials that were aligned with State student academic achievement
        standards.7

However, we were unable to determine whether ARC complied with the contract terms for
informing parents and teachers of student progress reports because ARC could not provide copies of
the reports or other documentation to show that the student progress information was provided and
provided timely.

We performed our fieldwork at ARC’s corporate office and the administrative offices of OUSD in
Oakland, California and CDE in Sacramento, California. An exit conference was held with officials
from ARC and OUSD on July 11, 2005. An exit conference was held with CDE officials on August
10, 2005. We performed our audit in accordance with generally accepted government auditing
standards appropriate to the scope of the review described above.


6
 We did not review support for the invoiced amount of $65,395 for school year 2004-2005 because OUSD had denied
payment of program start up costs for that school year.
7
 ESEA § 1116(e)(5)(B) states that a provider must ensure that instruction provided and content used by the provider are
consistent with the instruction provided and content used by the LEA and State, and are aligned with State student
academic achievement standards. Our review was limited to confirming that ARC’s instructional materials were
aligned with State standards.
Final Report
ED-OIG/A09F0009                                                                       Page 11 of 16




                              ADMINISTRATIVE MATTERS


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 actions to be taken will be made by the appropriate Department
officials.

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.

                              Henry Johnson
                              Assistant Secretary
                              Office of Elementary and Secondary Education
                              U.S. Department of Education
                              FB6, Room 3W315
                              400 Maryland Avenue, SW
                              Washington, DC 20202

                              Nina Rees
                              Assistant Deputy Secretary
                              Office of Innovation and Improvement
                              U.S. Department of Education
                              FB6, Room 4W317
                              400 Maryland Avenue, SW
                              Washington, DC 20202

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 under the Act.


                                              Sincerely,

                                              /s/
                                              Gloria Pilotti
                                              Regional Inspector General for Audit
Final Report
ED-OIG/A09F0009                                                              Page 12 of 16

                                                                          ATTACHMENT




                         CDE Comments on the Draft Report

                                         OIG Note

Recommendation 2.3 was deleted in the final report and the subsequent recommendation was
renumbered. Thus, CDE’s comments on Recommendation 2.3 are not germane to the final report
and its comments on Recommendation 2.4 related to Recommendation 2.3 in the final report.
                                    September 26, 2005




Gloria Pilotti, Regional Inspector General for Audit
United States Department of Education
Office of Inspector General
501 I Street, Suite 9-200
Sacramento, CA 95814

Dear Ms. Pilotti:

This is the California Department of Education’s (CDE) response to the United States
Department of Education (ED) Office of Inspector General’s (OIG) draft audit report
entitled, “ARC Associates’ and Oakland Unified School District’s Compliance With
Supplemental Educational Services Provisions.” This response incorporates information
from the CDE, Oakland Unified School District (OUSD), and ARC Associates (ARC).
State Superintendent of Public Instruction Jack O’Connell has asked me to respond on
his behalf.

Finding No. 1 – OUSD’s Contract With ARC Did Not Contain All Required
Elements and Other Necessary Information

Recommendation 1.1:

Ensure that OUSD’s contracts with SES providers contain all elements required by the
Elementary and Secondary Education Act of 1965 (ESEA) § 1116(e)(3), Federal
regulations, and ED guidance.

       Corrective Action Plan:

       By October 2005, OUSD plans to use a detailed Memorandum of Understanding
       (MOU) agreement, rather than the OUSD standard template, for professional
       services contracts. The CDE will review a copy of the MOU to ensure all the
       required elements are included, before it is submitted to the local school board
       for approval.

Recommendation 1.2:

Ensure that OUSD contracts with SES providers include information and terms that
clearly communicate each party’s roles in meeting the requirements listed in ESEA
Gloria Pilotti, Regional Inspector General for Audit
September 26, 2005
Page 2


§ 1116(e)(3), the nature of the providers’ instruction, the records that need to be
maintained to demonstrate compliance with contract terms and Federal requirements,
and how billing and payment will be handled.

       Corrective Action Plan:

       Although ARC provided two achievement reports to the parents, and a final report
       to the student’s teacher, copies were not maintained at ARC since it was not
       required in the contract. However, copies of the reports for 2004-05 are available
       in the ARC Oakland office.

       When OUSD develops the MOU agreements for use with SES providers, it will
       clearly outline information and terms of compliance issues as listed in ESEA
       § 1116(e)(3), including the retention of documents. OUSD and CDE will present
       the MOU agreement to the SES providers in a meeting. Additionally, the CDE will
       provide regional technical assistance training via workshops that will address all
       aspects of providing SES, and provide written communications to all local
       educational agencies on the requirements for implementing SES.

Finding No. 2 – OUSD’s Review of ARC Invoices Did Not Ensure That Amounts
Charged Were Allowable and Supported by Required Documentation

Recommendation 2.1:

Ensure that OUSD distributes a list of eligible students to SES providers prior to the
date the provider begins delivering services to student for the school year, and that
OUSD promptly notifies providers of changes to the list.

       Corrective Action Plan:

       OUSD will distribute a list of eligible students to SES providers in a timely
       manner. Additionally, OUSD will establish internal controls for review of student
       eligibility by October 2005.

Recommendation 2.2:

Ensure that OUSD performs a second review of ARC invoices for school year 2004-05
to identify any amounts paid for ineligible students and other billing errors, and return
the identified amounts (including the $1,860 for double billing and ineligible students
identified in our review) to the appropriate Title I fund.
Gloria Pilotti, Regional Inspector General for Audit
September 26, 2005
Page 3


Corrective Action Plan:

       ARC reviewed their records, identified $544.50 in double billed students, and is
       making arrangements to repay OUSD. Additionally, OUSD plans to review ARC
       invoices to determine whether other double billing, or charges for ineligible
       students exist. However, OUSD moved the SES program from the Accountability
       office to the Extended Day office, and all records have not been retrieved.

       For the 2005-06 school year, OUSD is establishing an internal screening control
       process to identify billings for ineligible students. The Oakland Activities for Kids
       attendance tracking system will be maximized to assist with attendance billing
       discrepancies.

Recommendation 2.3:

Ensure that OUSD obtains and reviews ARC’s supporting documentation for program
start up costs for school year 2003-04, and return any amounts to the appropriate Title I
fund that the District determines are unallowable or unsupported.

       Corrective Action Plan:

       If ARC documentation is available, OUSD will review and determine the
       appropriateness of the start up cost expenditures for school year 2003-04, and
       ensure any unallowable or unsupported amounts are returned to the appropriate
       Title I fund. The CDE will also provide technical assistance to OUSD to ensure
       the MOU agreement contains a retention schedule for fiscal records of not
       shorter than the term of the agreement.

Recommendation 2.4:

Ensure that OUSD strengthens its internal control over payment of SES provider
invoices to provide reasonable assurance that SES costs paid with Title I funds are
necessary, reasonable, and adequately documented.

       Corrective Action Plan:

       OUSD developed a detailed invoicing template, and will implement an internal
       system of double review and signature by October 2005. The CDE will ensure
       OUSD’s billing process is accurate and meets auditing standards.
Gloria Pilotti, Regional Inspector General for Audit
September 26, 2005
Page 4


Other Matters:

OUSD did not offer SES to all eligible students for school years 2003-04 and 2004-05.

        Corrective Action Plan:

        All students at eligible school sites are provided with information regarding SES
        program availability. Requests will be accepted from all low income students
        attending those schools, based on Free or Reduced lunch status. Low
        achievement criteria will only be utilized if the number of eligible applicants
        exceeds the number of available tutoring slots. This policy was articulated in the
        Parent Letters sent home during the first week of school.

If you have any questions regarding CDE’s response, please contact Kim Sakata, Audit
Response Coordinator, Audits and Investigations Division, at (916) 323-2560 or by
email at .

Sincerely,


/s/
GAVIN PAYNE
Chief Deputy Superintendent of Public Instruction

GP:ks