oversight

IDEA Maintenance of Effort Flexibility. X09N0006, Date Issued: 07/18/2014 PDF (299K)

Published by the Department of Education, Office of Inspector General on 2014-07-18.

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

                             UNITED STATES DEPARTMENT OF EDUCATION
                                   OFFICE OF INSPECTOR GENERAL
                                                                                    AUDIT SERVICES


                                                  July 18, 2014

                                                                                           Control Number
                                                                                          ED-OIG/X09N0006

FINAL MANAGEMENT INFORMATION REPORT


To:              Michael Yudin
                 Acting Assistant Secretary
                 Office of Special Education and Rehabilitative Services

From:            Patrick J. Howard /s/
                 Assistant Inspector General for Audit

Subject:         Management Information Report on IDEA Maintenance of Effort Flexibility
                 Control Number ED-OIG/X09N0006


This final management information report (MIR) provides Congress and the U.S. Department of
Education (Department), Office of Special Education and Rehabilitative Services (OSERS) with
results and suggestions related to our work on maintenance of effort (MOE) flexibility under
Part B of the Individuals with Disabilities Education Act (IDEA). The objectives of the MIR are
to (1) provide information on specific matters that may warrant consideration when IDEA is
reauthorized and (2) identify additional actions that the Department can take to address
implementation issues associated with MOE flexibility allowed under IDEA. Unless otherwise
stated, we refer to IDEA, Part B as IDEA throughout this report.

The MIR is primarily based on information obtained during the OIG’s audit “Local Educational
Agency Maintenance of Effort Flexibility Due to Recovery Act IDEA, Part B Funds,” Control
Number ED-OIG/A09L0011. The audit covered State educational agencies (SEAs) in California,
Illinois, Louisiana, Maine, Ohio, and Texas and selected local educational agencies (LEAs) in
these States. The audit addressed how those entities administered certain provisions of IDEA and
the Department’s implementing regulations in response to increased funding awarded under the
American Recovery and Reinvestment Act of 2009 (Recovery Act) and included entities
exercising MOE flexibility in fiscal year (FY) 2009–2010. The final audit report was issued on
July 25, 2013. 1 This MIR covers matters that may warrant nationwide attention whereas our audit
report was restricted to findings and conclusions associated with a limited number of States.


1
  The report is available on the OIG Web site at http://www2.ed.gov/about/offices/list/oig/areports2013.html under
the heading Office of Special Education and Rehabilitative Services.


        The Department of Education’s mission is to promote student achievement and preparation for global
                  competitiveness by fostering educational excellence and ensuring equal access.
Final Management Information Report
ED-OIG/X09N0006                                                                         Page 2 of 24


                                        BACKGROUND


According to IDEA §§ 613(a)(2)(A)(ii) and (iii), LEAs that receive IDEA funds must generally
use those funds to supplement, not supplant State, local, and other Federal funds. An LEA must
also not reduce the level of expenditures it made from local funds to educate children with
disabilities below the level of those expenditures for the preceding fiscal year (the LEA MOE
requirement). In addition, according to IDEA § 612(a)(17), States that receive IDEA funds must
generally use those funds to supplement, not supplant Federal, State, and local funds expended for
special education and related services provided to children with disabilities. Also, according to
IDEA § 612(a)(18), States must generally not reduce their level of financial support for special
education and related services for children with disabilities below the amount of support for the
preceding fiscal year.

Notwithstanding the above requirements, eligible LEAs (under IDEA § 613(a)(2)(C)) or SEAs
(under IDEA § 613(j)) may respectively reduce the level of local or State expenditures to educate
children with disabilities by up to 50 percent of any increase in its annual IDEA, § 611, subgrant
or grant allocation. These adjustments to effort (referred to as “flexibility” in this report) were
intended to provide LEAs and SEAs with fiscal relief from the costs of local special education
programs when they received a significant increase in Federal special education funding.

To be eligible for flexibility under IDEA § 613(a)(2)(C), an LEA must meet requirements under
IDEA § 616. Specifically, an LEA (1) must meet the targets in the State’s annual performance
plan, (2) maintain programs of free appropriate public education, and (3) not have significant
disproportionality (as defined in IDEA § 618(d)). If an SEA determines that an LEA is not
meeting requirements, it must prohibit that LEA from exercising flexibility for that fiscal year.
An eligible LEA that opts to exercise flexibility and reduce local special education expenditures
must spend local funds equal to the amount that it would have spent on special education and
related services (referred to as “freed-up funds” in this report) to carry out activities authorized
under the Elementary and Secondary Education Act of 1965 (ESEA).

To be eligible for flexibility under IDEA § 613(j), an SEA must (1) pay or reimburse all LEAs
within the State, exclusively from State revenue, 100 percent of the non-Federal share of costs of
special education programs and related services; (2) establish, maintain, and oversee a program of
free appropriate public education; and (3) meet requirements under IDEA § 616(d)(2)(A).
According to IDEA § 613(j)(5), an SEA may not exercise flexibility if any LEA in the State
would, as a result, not be able to meet the free appropriate public education requirements from the
combination of Federal and State funds received. An SEA that exercises flexibility must use
funds from State sources, equal to the amount of the reduction, to support activities authorized
under the ESEA or to support need-based higher education programs for teachers or students.
Final Management Information Report
ED-OIG/X09N0006                                                                                       Page 3 of 24

If an LEA or SEA reduces spending by exercising flexibility under IDEA §§ 613(a)(2)(C) or
613(j), it may be able to maintain this reduced level of expenditures in subsequent years. 2
However, States still must ensure that students with disabilities receive a free appropriate public
education. An LEA or SEA would be required to increase spending if it could not provide the
required educational services to children with disabilities at the reduced spending level.

In 2009, the Department awarded an additional $11.3 billion in Recovery Act IDEA funds to
SEAs, which basically doubled the amount of IDEA funding available when combined with the
$11.5 billion of regular IDEA funds that Congress had already appropriated for that year. The
unprecedented increase in IDEA funding presented an opportunity for eligible LEAs or SEAs to
exercise flexibility and substantially reduce local expenditures for the education of students with
disabilities below the level of those expenditures in the previous year. Before the Recovery Act,
LEAs and SEAs generally did not receive increases in Federal funding that would warrant using
flexibility. Even though LEAs and SEAs that exercised flexibility in FY 2009–2010 might be
able to maintain that reduced level of local spending over many years, the supplemental Recovery
Act IDEA funds were available to cover the entities’ spending reductions for only a limited time.
Recovery Act IDEA funds could be obligated through September 30, 2011.




                                 RESULTS AND SUGGESTIONS


The information presented in this MIR may be useful to Congress and the Department as they
carry out their respective policy and oversight responsibilities, particularly since IDEA
reauthorization may occur soon. The MIR includes suggestions for Congress and the Department
to consider.

Section 1 discusses two issues that may warrant Congressional consideration when IDEA is
reauthorized. Issue 1.1 discusses how LEAs may spend the freed-up State or local funds resulting
from exercising flexibility for a broad array of uses authorized under the ESEA. However,
without further clarity on what Congress considers meaningful flexibility, LEAs could be
spending these funds on activities that Congress had not intended. Issue 1.2 describes an
unintended consequence of a large, one-time IDEA funding increase in which LEAs may reduce
the amount they invest in local special education programs beyond the time frame in which the
supplemental Federal funding is available. Under this scenario, once the Federal grant allocation
returns to its normal amount 1 to 2 years after the one-time Federal increase, the total amount
invested (Federal, State, and local) in local special education programs could be significantly
reduced for many years unless LEAs voluntarily restore prior local spending levels or cannot
provide the required educational services to children with disabilities at the reduced spending
level.

2
  The Conference Report for the IDEA Improvement Act of 2004, H. Rept. 108-779, p. 197, states: “The Conferees
intend that in any fiscal year in which the local educational agency or State educational agency reduces expenditures
pursuant to section 613(a)(2)(C) or section 613(j), the reduced level of effort shall be considered the new base for
purposes of determining the required level of fiscal effort for the succeeding year.”
Final Management Information Report
ED-OIG/X09N0006                                                                       Page 4 of 24

Section 2 discusses six issues related to the Department’s administration and implementation of
the flexibility provision and related IDEA provisions. Our prior audit report discussed two of
these as pervasive compliance issues in selected States; we are addressing them in this report on a
nationwide basis. Issue 2.1 discusses the lack of oversight by SEAs in monitoring how LEAs
were using freed-up funds or ensuring that LEAs were appropriately accounting for these funds.
SEAs and LEAs each play important roles in ensuring that LEAs use freed-up funds appropriately
when LEAs exercise flexibility. Issue 2.2 discusses the importance of SEAs and LEAs fully
understanding the relationship between flexibility and voluntary coordinated early intervening
services (CEIS) so that LEAs do not improperly spend excessive IDEA funds on CEIS when also
exercising flexibility. When LEAs overspend on CEIS after exercising flexibility, the total
amount spent on special education programs and services is less than required, resulting in a
violation of IDEA’s MOE requirement.

Our prior audit helped us identify additional issues and concerns that warrant Department action.
Issue 2.3 describes our concerns with the Department’s lack of action in correcting or disclosing
deficiencies in flexibility, voluntary CEIS, and other information posted on a public Web site.
Accurate data is needed to properly inform the public and Congress about important issues such
as how extensively flexibility was used as a result of the Recovery Act or the amounts of local
special education program spending reductions that occurred in a State or across the nation.
Without full disclosure of known data limitations, interested parties are probably not aware of the
weaknesses in the data. Our report also addresses two areas where SEAs can vary the measures
used to assess LEAs, which may undermine program goals. Issue 2.4 discusses a situation where
SEAs are allowed to individually establish how they arrive at LEAs’ annual performance results,
which can lead to inequitable results for LEAs in one State versus another in the same or similar
circumstances. Issue 2.5 discusses the adverse effects that may result when an SEA does not
establish a meaningful threshold for significant disproportionality. Finally, as discussed in
Issue 2.6, LEAs were not always aware of their flexibility eligibility status or the full extent to
which they could reduce local spending.

We provided a draft of this report to the Office of Special Education and Rehabilitative Services
(OSERS) on April 23, 2014. OSERS provided its comments to specific issues within the draft
report on May 30, 2014. In its response, OSERS
    • proposed several wording changes and clarifications, including information related to
        SEA flexibility, in the Background section,
    • recommended revisions to our description of SEA flexibility in Issue 1.2,
    • described the actions that it or OSEP has taken or plans to take in relation to several of the
        issues and suggestions in Section 2, and
    • recommended wording changes to Issue 2.4 and Issue 2.5.

The full text of OSERS’ comments is included as an attachment to this report. In response to
OSERS’ comments, we revised or clarified the Background section where appropriate. We did
not materially modify any of our issues or suggestions as a result of OSERS’ comments. We
summarize OSERS’ comments on issues and suggestions at the end of each issue and provide our
response if warranted.
Final Management Information Report
ED-OIG/X09N0006                                                                      Page 5 of 24

Section 1 – Matters to Consider During IDEA Reauthorization

Issue 1.1 – Allowable Uses of Freed-Up Funds

Under current law and regulations, when an eligible LEA exercises flexibility to reduce local
special education spending, it must spend the resulting freed-up funds to carry out activities
authorized under the ESEA. Given the legislative history of the flexibility provision, however,
the full scope of allowable uses of freed-up funds is not clear.

OSERS Recovery Act Guidance stated that freed-up funds may be used for any activities allowed
under the ESEA, including those activities associated with the Impact Aid program. 3 Of all the
programs contained in the ESEA, Impact Aid offers the most flexibility in how LEAs can spend
funds. The Impact Aid program is intended to assist LEAs that have lost property tax revenue
due to the presence of tax-exempt Federal property, such as military bases, or that have
experienced increased expenditures due to the enrollment of federally connected children, such as
the children of military personnel. Most Impact Aid funds are considered general aid to the
recipient LEAs, which means these funds can be spent in whatever manner LEAs choose in
accordance with local and State requirements. The Impact Aid program also provides for
payments to LEAs that need assistance with construction activities, such as emergency repairs or
the modernization of school facilities. Thus, if used to support activities authorized under Impact
Aid, LEAs may use freed-up funds resulting from flexibility for costs associated with educational,
general, and construction activities.

While using freed up funds for non-educational purposes under Impact Aid is authorized given
the plain language of the flexibility provision, it is not clear whether Congress intended for
freed-up funds to be so unrestricted. The Conference Report for the 2004 IDEA reauthorization 4
stated that LEAs should have meaningful flexibility in the use of local freed-up funds that result
from a spending reduction under the flexibility provision and should not have to use these funds
for programs exclusively authorized under the ESEA. The report noted, however, that most
State and local education programs are consistent with the broad flexibility that Section 5131 of
ESEA, concerning Local Innovative Education Programs, provides. Under this section, LEAs
have broad discretion to determine how to allocate certain ESEA funds among one or more of
27 statutorily listed program areas. Unlike this flexibility under the IDEA, however, flexibility
under Section 5131 is constrained by those 27 program areas, statutory requirements to plan and
account for such expenditures, and a requirement that the LEA use such funds only to meet
educational needs within the schools the LEA serves. In addition, Section 5131 allocations must
be tied to promoting challenging academic achievement standards, used to improve student
academic achievement, and be part of an overall education reform strategy. The Conferees’
comparison of allowable uses of freed-up funds resulting from flexibility to allowable uses of
funds under Section 5131 of the ESEA, creates ambiguity as to whether Congress expected
freed-up funds resulting from flexibility to be used for non-educational purposes. Without
further clarity on what Congress considered meaningful flexibility in LEAs’ use of freed-up


3
    The Impact Aid program is authorized in Title VIII of ESEA.
4
    H. Rept. 108-779, page 197 (November 17, 2004).
Final Management Information Report
ED-OIG/X09N0006                                                                      Page 6 of 24

funds, LEAs could be spending freed-up funds resulting from the use of flexibility on activities
that Congress had not intended.

Suggestion for Reauthorization

1.1    Congress could clarify allowable uses of freed-up funds, including whether general and
construction activities under the Impact Aid program are appropriate. To the extent that Congress
intended that LEAs use freed-up funds for educational activities, not general support, Congress
could establish statutory requirements like those for Local Innovative Education Programs under
Section 5131 of the ESEA to ensure that LEAs exercise flexibility consistent with program goals.

OSERS Comments

OSERS had no comments on Issue 1.1.


Issue 1.2 – Reduced Baseline Spending

Substantial, one-time IDEA funding increases such as the Recovery Act may result in unintended
reductions in the total amount invested in special education programs. When IDEA was being
considered for reauthorization in 2003, Congress intended to alter the existing cost-sharing
arrangement for special education programs within 7 years by incrementally increasing the
amount of Federal funds appropriated each year to assist States and LEAs with the additional
costs of educating students with disabilities.5 In conjunction with these increases, SEAs and/or
LEAs could reduce their level of spending by no more than 50 percent of the increase in Federal
funding using the flexibility provision each year over the same time period. Even though SEA
and LEA spending might decline, the total investment in special education programs should
increase over time because the incremental increases in IDEA funding that Congress anticipated
would have been greater than the reduced baseline spending that SEAs or LEAs may have chosen
to sustain in the years after exercising flexibility. However, when SEAs and LEAs opt to exercise
flexibility in a year when there is a substantial, yet one-time increase in IDEA funding like that
which occurred under the Recovery Act and choose to sustain the reduced baseline in subsequent
years, the overall investment in special education program funding could instead decline.
Although data are not available to accurately quantify the reduced investment in special education
programs nationwide, it may be significant. The tables below provide hypothetical illustrations of
both scenarios.




5
    H. Rept. 108-77, page 93 (April 29, 2003).
Final Management Information Report
ED-OIG/X09N0006                                                                                       Page 7 of 24

Table 1: Hypothetical Example of One LEA’s Investment in Special Education Including
Incremental Federal IDEA Funding Increases
 Special Education           FY        FY        FY         FY        FY        FY        FY         FY         FY
 Funding by Fiscal          2003      2004      2005       2006      2007      2008      2009       2010       2011
 Year (in thousands)                 (Yr 1)    (Yr 2)     (Yr 3)    (Yr 4)    (Yr 5)    (Yr 6)     (Yr 7)    (Yr 8) (c)
 Federal IDEA Part B          150       190       230        270       310       350       390        430             430
 Grant Allocation (a)
 Federal Share of            15%       19%        22%       25%       29%       32%        35%       38%              38%
 Special Education
 Funding (Rounded)
 Local Special                850       830       810        790       770       750       730        710             710
 Education
 Expenditures (b)
 Total Investment in        1,000     1,020     1,040      1,060     1,080     1,100     1,120      1,140        1,140
 the LEA’s Special                                                                                                  (d)
 Education Program
 (a) This example assumes Federal funding increases of $40,000 annually.
 (b) This example assumes that for each year, the LEA retains base spending at the reduced level from the previous
     year and also exercises flexibility by $20,000 which is 50 percent of the $40,000 increase in Federal funding.
 (c) This example assumes no increase in IDEA funding for this year.
 (d) If Federal funding is unchanged in subsequent years, then the overall investment in the LEA’s special education
     program could remain the same as shown for FY 2010.

Table 2: Hypothetical Example of One LEA’s Investment in Special Education Including
Incremental and a Substantial, One-Time Federal IDEA Funding Increase
 Special Education          FY        FY        FY         FY        FY        FY         FY         FY        FY
 Funding by FY             2003      2004      2005       2006      2007      2008       2009       2010      2011
 (in thousands)                     (Yr 1)    (Yr 2)     (Yr 3)    (Yr 4)    (Yr 5)     (Yr 6)     (Yr 7)    (Yr 8)
 Federal IDEA Part           150       190       230        270       310       350        390        780       390
 B Grant Allocation                                                                                              (d)
 (a)
 Federal Share of           15%       19%       22%        25%       29%       32%         35%       59%       42%
 Special Education
 Funding (Rounded)
 Local Special               850       830       810        790       770       750         730       535       535
 Education                              (b)       (b)        (b)       (b)       (b)         (b)       (c)
 Expenditures
 Total Investment in       1,000     1,020     1,040      1,060     1,080     1,100      1,120      1,315       925
 the LEA’s Special                                                                                               (e)
 Education Program
 (a) This example assumes Federal funding increases of $40,000 annually in FY 2004 to FY 2009 and a
     substantial yet temporary increase of $390,000 (100 percent) in FY 2010.
 (b) This example assumes the LEA retains base spending at the reduced level from the previous year and also
     exercises flexibility by $20,000 which is 50 percent of the $40,000 increase in Federal funding for this year.
 (c) This example assumes the LEA retains base spending at the reduced level from the previous year and also
     exercises flexibility by $195,000 which is 50 percent of the $390,000 increase in Federal funding for this
     year.
 (d) This example assumes that Federal funding resumed to FY 2009 level with no increase in IDEA funding for
     this year.
 (e) If Federal funding is unchanged in subsequent years, then the overall investment in the LEA’s special
     education program could remain the same as shown for FY 2011.
Final Management Information Report
ED-OIG/X09N0006                                                                        Page 8 of 24

When comparing the two scenarios, the total investment in the LEA’s special education programs
increases by $175,000 (15 percent), from $1,140,000 as shown in Table 1 to $1,315,000 in year 7
after the 100 percent increase in Federal funding as shown in Table 2. This overall spending
increase occurs despite the LEA reducing its investment by $175,000 (25 percent) from $710,000
as shown in Table 1 to $535,000 as shown in Table 2. Furthermore, the Table 2 scenario shows
that the total program investment declines by $390,000 (30 percent) in year 8 (and potentially in
future years) if the LEA is able to maintain its lower spending level after the one-time infusion of
Federal funds is depleted. When the expected total investment in FY 2011 under the scenario of
incremental Federal funding increases (Table 1) is compared to the total investment in the same
year in Table 2, which includes a large, one-time Federal supplement, there is a decrease of
$215,000 (19 percent) from $1,140,000 (Table 1) to $925,000 (Table 2) in the total funds invested
in the program.

Suggestion for Reauthorization

1.2     Congress should consider taking action to prevent significant and potentially recurring
reductions in the total investment in local special education programs when such reductions result
from large, temporary Federal funding increases like the Recovery Act. Congress could limit
SEA or LEA spending reductions under the flexibility provisions at IDEA §§ 613(a)(2)(C) and
613(j) that are attributed to a large, yet temporary Federal funding increase to only the period
when the flexibility is exercised. Alternatively, Congress could prohibit any SEA or LEA
spending reduction using flexibility for those supplemental Federal funds received as the result of
a large, yet temporary funding increase. These limitations could be accomplished through
amendments to the IDEA flexibility provisions or as part of any future legislation providing a
large, yet temporary supplemental IDEA appropriation.

OSERS Comments

OSERS recommended revisions to how the OIG characterized SEA requirements related to the
flexibility provision in IDEA § 613(j). OSERS stated that the level of support required under
§ 612(a)(18)(A) concerns a State’s level of appropriations not expenditures; and, as such, SEA
flexibility under § 613(j) does not allow a State to reduce the amount made available for special
education and related services under § 612(a)(18)(A), nor does it affect the required amount of
financial support in future years. OSERS recommended that the OIG should omit references to
SEAs’ exercise of “MOE flexibility” and a “reduced MOE baseline.”

OIG Response

While we agree with OSERS’ comment that SEA flexibility under § 613(j) does not affect a
State’s required level of appropriations, our concern in Issue 1.2 was with regard to expenditures.
We believed there was ambiguity in the IDEA as to whether the level of SEA spending subject to
flexibility under § 613(j) was related to the required level of support referred to under
§ 612(a)(18)(A). After considering OSERS’ comment, we revised how we describe SEA
requirements related to flexibility. For clarity, we deleted the specific term “MOE” when
attached to “flexibility” and now reference SEA flexibility only in the context of SEA
expenditures, not with regard to an SEA’s level of fiscal support. In light of those clarifications,
we have not revised our conclusion in Issue 1.2 that SEA flexibility could affect spending in
future years. Congress intended that in any fiscal year in which an SEA or LEA reduces
Final Management Information Report
ED-OIG/X09N0006                                                                        Page 9 of 24

expenditures pursuant to the flexibility provisions in IDEA, the reduced level of effort will be
considered the new base for purposes of determining the required level of fiscal effort for the
succeeding year. 6


Section 2 – Implementation Issues for Department Consideration

Issue 2.1– Monitoring and Accounting for Freed-Up Funds

SEAs and LEAs each play important roles in ensuring that freed-up funds are used appropriately
when LEAs exercise flexibility. We identified implementation issues with SEA monitoring of
freed-up funds in all four States we reviewed in which LEAs exercised flexibility. At the time of
our audit, one SEA did not know which LEAs in the State exercised flexibility due to limitations
in its information system and the timing of the SEA’s monitoring. Another SEA did not monitor
LEAs’ actual use of freed-up funds and it did not know how LEAs in the State used their freed-up
funds, but it did provide information to LEAs about the freed-up funds requirements. Both LEAs
we reviewed in this State were able to demonstrate that freed-up funds were used for ESEA-
related activities. The SEAs in the other two States provided guidance to LEAs on the use of
freed-up funds but did not monitor how they used these funds or require LEAs to track how they
used the funds. As a result, none of the LEAs we reviewed in these States could demonstrate how
they spent the freed-up funds. Even though we reported this as a finding in our audit report, we
are covering it again in this MIR because the pervasiveness of the issue at SEAs in our review
indicates that the lack of SEA oversight over the use of freed-up funds may be a nationwide issue,
whereas the audit recommendation addressed only the four SEAs in our review where we
identified a problem.

As a condition of receiving Federal grant funds, SEAs agree to assume important oversight
responsibilities, including required monitoring of grant and subgrant activities to ensure
compliance with applicable Federal requirements and achievement of performance goals.
According to IDEA § 616(a)(1) and Department regulations, States have broad responsibility to
monitor the implementation of federally funded programs serving children with disabilities. The
Office of Special Education Programs (OSEP) has interpreted this broad responsibility to include
monitoring the use of freed-up funds under the flexibility provision. Department regulations also
require States to have policies and procedures to ensure compliance with the monitoring and
enforcement requirements. A portion of the Federal grant funds that States reserve for other
State-level activities must be used to carry out monitoring of LEA activities. Furthermore,
according to 34 C.F.R. § 80.20, States are required to spend and account for Federal grant funds
in accordance with State laws and procedures for spending and accounting for their own funds.
Lastly, a State’s fiscal control and accounting procedures should be sufficient to prepare reports
and trace funds to a level of expenditures adequate to establish that the funds were used in
accordance with applicable laws and regulations. When SEAs do not have an adequate system
for monitoring LEA expenditures, including those funds made available because of flexibility,
there is an increased risk that LEAs will make errors when administering funds, SEAs will not
detect LEA noncompliance, or LEAs will misuse funds.

6
    H. Rept. 108-779, page 197 (November 17, 2004).
Final Management Information Report
ED-OIG/X09N0006                                                                        Page 10 of 24

Despite the Department’s efforts to inform SEAs about their responsibilities for monitoring the
use of freed-up funds, the entities we reviewed did not implement appropriate processes. The
Department provided guidance on States’ monitoring responsibilities for LEAs’ use of freed-up
funds in the “Part B Local LEA MOE” guidance that OSEP presented in a webinar on June 16,
2009, and maintains on the Technical Assistance Coordination Center’s Web site. Additional
guidance, “Funds for Part B of the Individuals with Disabilities Education Act Made Available
Under The American Recovery and Reinvestment Act of 2009,” last revised on September 9,
2010, states that an LEA’s tracking of its freed-up funds for ESEA activities was necessary only
in the year that flexibility was exercised, but it does not contain specific steps for this tracking.

Suggestions: We suggest that the Acting Assistant Secretary of the Office of Special Education
and Rehabilitative Services—

2.1   Ensure that each SEA emphasize with all LEAs within its jurisdiction that tracking the use
      of freed-up funds, including completely and accurately accounting for and documenting its
      use of freed-up funds, is necessary whenever an LEA chooses to exercise flexibility.

2.2   Ensure that SEAs have established appropriate monitoring procedures for LEAs exercising
      flexibility, including timely monitoring to confirm that the LEAs properly used freed-up
      funds.

OSERS Comments

OSERS did not state whether it agreed or disagreed with our issue and suggestions. However,
OSERS stated that OSEP has established a fiscal workgroup that will provide guidance and
technical assistance to SEAs on IDEA fiscal requirements and SEA responsibilities, including the
exercise of flexibility and the use of freed-up funds.


Issue 2.2 – Relationship of Flexibility and Coordinated Early Intervening Services Provisions

Because of the complex interrelationship between flexibility and voluntary coordinated early
intervening services (CEIS), SEAs and LEAs must guard against LEAs overspending on CEIS
when also exercising flexibility. LEAs provide CEIS to students in kindergarten through grade 12
who are not currently identified as needing special education or related services, but who need
additional academic and behavioral support to succeed in a general education environment. In all
four States we reviewed in which LEAs exercised flexibility, we identified at least one LEA that
reserved and in some cases actually spent more IDEA funds on voluntary CEIS than were
available after reducing local special education spending under the flexibility provision. When
LEAs overspent IDEA funds on CEIS after also exercising flexibility, the amount that they spent
on special education programs and services was less than required. In some cases, LEAs or SEAs
did not understand the complex relationship between spending reductions allowed under the
flexibility provision and the 15 percent IDEA allowance for CEIS. We also reported that some
SEAs did not have necessary controls in place to prevent or detect the improper spending. In
response to our finding, OSERS agreed to take steps to ensure that States in our review provided
guidance to LEAs on the interrelationship between these activities. Even though we reported
these issues as findings in our audit report, we are covering them again in this MIR because the
Final Management Information Report
ED-OIG/X09N0006                                                                                      Page 11 of 24

pervasiveness of the issue at LEAs included in our review indicates that it may be a nationwide
issue and because our audit recommendations addressed only those LEAs where we identified a
problem. It is also important that all SEAs have controls to prevent or detect instances when
LEAs overspend on CEIS after exercising flexibility.

Under IDEA § 613(f), an LEA cannot use more than 15 percent of the amount that it receives
under IDEA in any fiscal year, 7 less amounts that the LEA reduces local special education
spending by using flexibility, to develop and implement voluntary CEIS. CEIS are intended to
reduce referrals for special education and related services in the future by providing services early
when relatively simple interventions can address a child’s needs. Thus, allowing schools to use a
portion of available IDEA funds for CEIS has the potential to benefit both special education and
general education programs.

OSERS clarified in regulation and guidance that LEAs that exercise flexibility and also use a
portion of their IDEA funds for voluntary CEIS in the same year must do so with caution because
the two spending decisions are interrelated. The amount of funds that an LEA uses for one
purpose affects the amount that it may use for the other purpose. Appendix D to 34 C.F.R. Part
300 provides examples that illustrate how these spending decisions affect one another. According
to OSEP officials, this statutory interrelationship may act as a safeguard to prevent excessive
reductions in the amount an LEA spends on its core special education program in any year when
it chooses to exercise flexibility and also use a portion of its IDEA allocation to fund voluntary
CEIS activities for students without disabilities. Despite these actions, we found that LEAs spent
more IDEA funds on voluntary CEIS than were available after reducing local special education
spending under the flexibility provision. Therefore, OSERS should do more to ensure that LEAs
do not overspend on CEIS and spend less than the amount required on special education programs
and services.

Suggestions: We suggest that the Acting Assistant Secretary of the Office of Special Education
and Rehabilitative Services—

2.3    Ensure that SEAs nationwide reinforce with LEAs in their respective States the relationship
       between spending for CEIS under IDEA § 613(f)(1) and the amount of local special
       education spending reductions allowed under the flexibility provision.

2.4    Ensure that each SEA has implemented appropriate controls to prevent, or at least detect,
       instances where LEAs have overallocated IDEA funds for CEIS when also exercising
       flexibility.

OSERS Comments

OSERS did not state whether it agreed or disagreed with our issue and suggestions. However,
OSERS stated that it has addressed the relationship between flexibility and CEIS in past guidance

7
 Section 2, Issue 2.5 of this MIR, covering annual significant disproportionality determinations for LEA flexibility
eligibility, discusses when an LEA is required to use 15 percent of its IDEA funds on CEIS.
Final Management Information Report
ED-OIG/X09N0006                                                                                    Page 12 of 24

and Appendix D to 34 C.F.R. Part 300. OSERS agreed that it is important to continue to address
the issue and intends to include further discussion of it in its fiscal guidance.

OIG Response

In addition to OSERS continuing to address flexibility and CEIS in future fiscal guidance, we also
encourage OSEP to ensure that all States are carrying out their responsibilities, including LEA
oversight, regarding this complex issue.


Issue 2.3 – Reporting on LEA Flexibility Reductions and CEIS

Our prior audit report (issued in July 2013) identified various data errors in the flexibility and
CEIS data for 2010 (2009–2010) which was the first year that States reported that data to OSEP.
OSEP posted the State-reported data on a public Web site. However, most of the errors we
identified for States in our review and informed OSEP about for 2010 had still not been corrected
or disclosed on the public Web site as of June 2014. 8 Because nearly all of the LEA flexibility
spending reductions related to the increased IDEA funding from the Recovery Act occurred in
2010, it is imperative that the data associated with flexibility in this year be accurate, reliable, and
complete to ensure the appropriateness of future policy decisions that are based on the
2010 results.

Beginning with 2010, OSEP required all States that received IDEA Part B funds to collect and
report data on flexibility reductions and CEIS for each LEA that received a subgrant under IDEA,
Section 611 (Grants to States) or Section 619 (Preschool Grants). OSEP hired a contractor to
collect and maintain the data on its Data Accountability Center Web site. OSEP labeled this
specific data set as “Table 8 Report on IDEA Part B Maintenance of Effort Reduction (34 C.F.R.
§ 300.205(a)) and Coordinated Early Intervening Services (34 C.F.R. § 300.226)” (Table 8).

According to the Department’s Information Quality Guidelines, 9 “it is important that the
information the Department disseminates be accurate and reliable.” Educators, researchers,
policymakers, and the public use information that the Department disseminates for a variety of
purposes. The Department relies on information collected from third parties, including schools,
school districts, and States. To ensure high-quality data are available to the above entities, the
Department is responsible for accepting and using only administrative and program information
that is accurate, reliable, unbiased, and secure. At the time of our audit, OSEP had implemented
certain high-level edit checks, oversaw the contractor’s initial data review, and had other controls
for the Table 8 data collection. However, these controls did not sufficiently safeguard the
Department from receiving and using inaccurate data provided by States.


8
 Public data about children and youth with disabilities served under IDEA, including the 2010 MOE reduction and
CEIS data (Table 8), were transferred from the Data Accountability Center to the Technical Assistance Coordination
Center Web site at http://tadnet.public.tadnet.org/pages/712 under the headings Part B, and MOE and CEIS. On this
Web site, the link for SEA and LEA Table 8 data for 2010 is listed as (2009).
9
    Available on the Department’s Web site at http://www2.ed.gov/policy/gen/guid/iq/infoqualguide.pdf.
Final Management Information Report
ED-OIG/X09N0006                                                                                 Page 13 of 24

Five of the six States included in our review reported inaccurate data to OSEP for 2010. 10 The
types of reporting errors listed below occurred even though SEAs received specific reporting
instructions. For example, the instructions stated that the SEA should report the actual dollar
amount that each LEA reduced local, or State and local, expenditures under the IDEA flexibility
provision. Although States were not required to provide a certification regarding the accuracy,
reliability, and completeness of the data they submitted, they were expected to provide “data
notes” to explain any data issues or anomalies that could affect the reported data’s accuracy or
reliability. Reporting errors that we identified for 2010 included the following:

     •   One SEA reported all LEA MOE reductions in Table 8 when it should have reported only
         the MOE reductions that resulted from LEAs exercising flexibility. The SEA should have
         excluded MOE reductions related to allowable exceptions specified in IDEA
         § 613(a)(2)(B) according to OSEP’s instructions. This State’s data notes did not disclose
         the problem noted above.
     •   Two SEAs reported planned LEA flexibility reductions instead of the LEAs actual
         reductions and did not disclose the problem in their data notes.
     •   Another SEA overstated flexibility reductions for at least 10 LEAs, including the two
         LEAs in our review, by a total of more than $50 million. For the two LEAs in our review,
         the SEA reported the maximum amount that the LEAs could reduce local spending by
         instead of the actual spending reduction amounts.
     •   Another SEA reported that 25 LEAs exercised flexibility even though none had. The SEA
         also reported inaccurate data on amounts that LEAs reserved for voluntary CEIS and
         significant disproportionality determinations for 26 LEAs. This States’ flexibility
         reduction data has been corrected on the public Web site.

In addition to the public postings, OSEP also included its analysis of LEAs’ flexibility reductions,
using this incorrect data, in presentations it made to members of Congress and in OSERS’ LEA
MOE Notice of Proposed Rule-Making, which was published in September 2013. OSEP officials
told us that they were aware that some of the publicly available Table 8 information for 2010 was
inaccurate and were working with all States, including those covered by our audit, to confirm that
the data were accurate. However, they stated that they did not believe that the overall results
would be materially different despite the errors we reported in our audit report. Further, OSEP
officials told us that it typically takes 3 to 4 years for a data collection to produce consistently
high-quality data. In addition, the officials noted that publicly reported data include “data notes”
that explain many anomalies.

Eligible LEAs throughout the four States we reviewed where LEAs exercised flexibility reduced
local spending for special education programs in 2010, following the unprecedented increase in
IDEA funding under the Recovery Act. Further, according to the data reported by other States,
significantly more eligible LEAs nationwide exercised flexibility and reduced local special
education spending in 2010 when compared to the subsequent year. According to the
Department’s Table 8 data, flexibility reductions totaled almost $1.5 billion nationwide in 2010 as
compared to about $40 million nationwide in 2011 (2010–2011). Thus, the Table 8 data for 2010

10
  We identified errors only for selected LEAs where we reviewed reported data—the data may contain additional
errors for other LEAs that the SEAs reported on.
Final Management Information Report
ED-OIG/X09N0006                                                                        Page 14 of 24

would be critical for any policy analysis related to the utilization of the flexibility provision when
a large, yet temporary IDEA funding increase occurs.

Without full disclosure of data quality issues, there is a lack of transparency in the types of
reporting errors for 2010 described in this report. As of June 2014, the Table 8 data for 2010 on
the Technical Assistance Coordination Center’s Web site was last updated on October 29, 2012.
States’ data notes had also not been updated to disclose the data quality issues described above.

The Department likely cannot quantify the actual impact of all Table 8 reporting errors
nationwide such as States including (1) all LEA MOE reductions instead of only the flexibility
reductions, (2) planned instead of actual reductions, (3) the maximum amount that LEAs could
reduce local spending by instead of the actual spending reduction amounts, or (4) LEA MOE
reductions that never occurred. However, these errors impair the Department’s ability to provide
accurate, complete and reliable information to the public and Congress. Additionally, without
reliable LEA flexibility reduction data for 2010, the Department, lawmakers, other stakeholders,
and the public may not know the actual extent that the flexibility provision was used by LEAs
when they received a large, one-time infusion of Federal funding through the Recovery Act.
Accurate LEA flexibility reduction data in relation to this large Federal funding increase could be
important to stakeholders if a similar increase is provided in the future. Data deficiencies related
to the amount of voluntary CEIS used by LEAs and the incidence of significant disproportionality
also compromises the ability of interested parties to obtain an accurate understanding of those
issues. At a minimum, full disclosure of known data limitations is necessary to ensure that
interested parties are fully aware of the weaknesses in the data.

Suggestions: We suggest that the Acting Assistant Secretary of the Office of Special Education
and Rehabilitative Services—

2.5   Continue to work with States to improve the quality of the 2010 data presented in Table 8
      until OSERS can ascertain whether the extent of reporting errors could have a material
      effect on the accuracy, reliability, or completeness of the data.

2.6   Ensure that SEAs with known data issues or anomalies provide or update data notes for
      2010 fully explaining the weaknesses of the information. These notes should accompany
      the data in any form that it is presented, including public postings and reports to Congress,
      the Office of Management and Budget, or others.

2.7   Add a disclaimer to the public Web site describing limitations in the 2010 data presented in
      Table 8 data to include, at a minimum, the reporting errors listed above and retain such
      disclaimer until a comprehensive data verification process has been completed to ensure the
      data are accurate, reliable, and complete.

2.8   For all future data collections, consider whether to require States to certify to the accuracy,
      reliability, and completeness of the data.

OSERS Comments

OSERS did not state whether it agreed or disagreed with our issue and suggestions. However,
OSERS stated that OSEP has been working with States to generate data notes to address or
Final Management Information Report
ED-OIG/X09N0006                                                                       Page 15 of 24

explain data quality concerns identified in the 2010 Table 8 data. Because the Data
Accountability Center closed in September 2013, OSEP does not have access to a submission
system that would allow States to update the 2010 Table 8 data, but States can still submit data
notes with additional explanations, clarifications, or revisions to the data submitted for 2010.
OSEP intends to update the 2010 Table 8 data notes document.

OSEP is temporarily using the Technical Assistance Coordination Center Web site to maintain the
Table 8 data while OSEP transitions to another publicly available Web site. OSERS is working
with staff from Technical Assistance Coordination Center to evaluate the feasibility of including a
disclaimer about the 2010 Table 8 data. Once the Table 8 data are posted on the new Web site,
OSERS stated it will post all data notes, including updated data notes, and a notice identifying
2010 Table 8 data quality concerns.

OSERS further commented that OSEP has implemented or continues to implement a number of
actions to improve the quality of the Table 8 data, including automating edit checks in the data
submission system to provide States immediate feedback on possible data quality concerns and
providing general technical assistance to States on the reporting of Table 8 data during
presentations at national conferences and webinars. Also, beginning with FY 2012, OSEP
assigned review of the Table 8 data to staff who are experts in data, as well as staff who are
experts in fiscal monitoring under IDEA. Finally, OSEP has recently published a Notice of
Proposed Priority to fund a technical assistance center to build the States’ capacity to report high-
quality fiscal data (including Table 8 data) to the Department.

OSERS stated that OSEP also intends to evaluate the feasibility of implementing a State
certification for future submissions of Table 8 data with the Elementary and Secondary Division
of the National Center for Education Statistics, which maintains the new Table 8 data submission
system.

OIG Response

We appreciate that OSEP has taken or plans to take a number of steps to improve the quality of
State data submissions, update the 2010 Table 8 data notes, and include a statement about data
quality for the first year Table 8 data collection. OSERS stated that OSEP no longer has access to
a submission system that would allow States to update the 2010 Table 8 data. We encourage
OSEP to work with States to verify the data previously submitted, obtain and review corrected
2010 Table 8 data, as applicable, and explore other means to update the 2010 Table 8 data to
ensure quality data is available. This verification could include a requirement that States confirm
that the initial or corrected data they submitted do not include the types of errors we describe in
Issue 2.3. Lawmakers, other stakeholders, and the public need reliable 2010 Table 8 data to
understand the extent to which LEAs used the flexibility provision when they received a large,
one-time infusion of Federal funding through the Recovery Act. As stated earlier in this report,
because LEA flexibility spending reductions were substantially larger in 2010 following the
increased IDEA funding under the Recovery Act than in the subsequent year, it is imperative that
the data associated with flexibility in 2010 be accurate, reliable, and complete to ensure the
appropriateness of future policy decisions.
Final Management Information Report
ED-OIG/X09N0006                                                                                      Page 16 of 24

Issue 2.4 – Annual Performance Determinations for LEA Flexibility Eligibility

During our prior audit we identified a situation where LEAs’ annual performance 11 results can
vary across States, which can lead to inequitable results for LEAs in one State versus another in
the same or similar circumstances. This situation occurs because SEAs are allowed to
individually establish how they arrive at an LEA’s overall performance determination from the
separate assessments they make on specific mandatory evaluation factors. SEAs use these annual
determinations, which they must report to the Secretary, to assess whether the special education
program each LEA operates is meeting Federal program requirements. When an LEA does not
meet the Federal program requirements, an SEA must apply certain enforcement actions to the
LEA ranging from technical assistance to withholding some or all LEA funds. An LEA’s
eligibility for flexibility is also based on these annual determinations.

Each SEA must adhere to certain requirements when conducting annual LEA performance
determinations, including the use of four specific mandatory evaluation factors. The mandatory
evaluation factors are (1) performance on compliance indicators, (2) whether valid and reliable
data exist, (3) whether the LEA has corrected identified noncompliance, and (4) other data
available to the State about the LEA’s compliance with IDEA, including relevant audit findings.
Nonmandatory evaluation factors may include, among other things, an LEA’s graduation or
dropout rates or the participation rate of students with disabilities in State assessments. SEAs
individually assess the specific evaluation factors and then combine the factors to arrive at an
overall performance determination for each LEA. Overall performance determinations fall into
one of four categories: meets requirements, needs assistance, needs intervention, and needs
substantial intervention.

Even though an SEA is required to assign one of the four determination categories based on its
assessment covering the evaluation factors, there is no uniform minimum threshold identified in
law, regulations, or guidance that an LEA must attain on each factor to receive an overall
determination in one category versus another. 12 As a result, LEAs in one State may receive an
overall determination of “meets requirements” even though they were assessed as needing
substantial intervention on a specific mandatory evaluation factor while LEAs in another State
might receive an overall determination of “needs intervention” or “needs substantial intervention”
under the same scenario.

The SEAs we reviewed varied in how they correlated overall determinations to LEA performance
on the specific evaluation factors. 13 Two of the SEAs assigned an overall determination of meets




11
     Performance determinations described in this issue relate to IDEA § 616.
12
  In issuing its 2008 final regulations concerning IDEA Part B, the Department asserted that States should have
discretion in making annual determinations on the performance of their LEAs and expressly declined to regulate a
uniform process for making those determinations (73 Fed. Reg. 73021, December 1, 2008). OSERS has provided
guidance to SEAs on completing LEA annual performance determinations.
13
     We reviewed determination information that related to LEAs eligibility for flexibility in FY 2009–2010.
Final Management Information Report
ED-OIG/X09N0006                                                                               Page 17 of 24

requirements only to LEAs that met requirements on all mandatory evaluation factors. 14 Two
other SEAs included in our review allowed LEAs to score below “meets requirements” on one or
more mandatory evaluation factors and still attain an overall determination of “meets
requirements.” One of these SEAs assigned an overall determination of “meets requirements”
even when an LEA was assessed as needing intervention on two or needing substantial
intervention on one of the mandatory evaluation factors. This SEA concluded that LEAs could
perform below requirements on individual performance measures that OSEP considered to be
mandatory yet still attain a favorable overall determination.

When States are allowed to individually define thresholds for overall performance determinations,
inequities among States may result. These inequities were evident across the States in our review
as LEAs with substandard performance on mandatory evaluation factors were identified as “meets
requirements” overall in some States while LEAs in other States were assigned a lower overall
determination result even though they performed at the same level or possibly better.

Inequities can also occur across States when they have discretion in setting thresholds for the
other three performance determination categories (needs assistance, needs intervention, and needs
substantial intervention). When an SEA determines that an LEA performed at the level of one of
these other three determination categories, it must prohibit the LEA from exercising flexibility. It
must also implement appropriate enforcement mechanisms to improve the LEA’s performance,
including (1) providing technical assistance, (2) placing conditions on LEA funding, (3) requiring
a corrective action plan or improvement plan, or (4) withholding some or all LEA funds. Given
the inconsistency in thresholds that SEAs use to assign determination categories to LEAs’ actual
performance, the types and degree of enforcement actions implemented could vary across States
under identical circumstances.

Suggestion: We suggest that the Acting Assistant Secretary of the Office of Special Education
and Rehabilitative Services—

2.9   Consider regulatory action to define a minimum rating that an LEA must achieve on the
      mandatory evaluation factors to receive a rating of “meets requirements” on its overall
      performance.

OSERS Comments

OSERS did not state whether it agreed or disagreed with our issue and suggestion. However,
OSERS stated that the use of “IDEA section 616 determinations” would be a clearer term than
“performance results.” OSERS also believes that States should continue to have discretion in
making annual IDEA Section 616 determinations.



14
  Some of the mandatory evaluation factors required by OSERS may not apply to every LEA’s determination. For
example, an LEA with Federal awards expended below the audit threshold set by the Office of Management and
Budget Circular A-133 may not be assessed for audit findings.
Final Management Information Report
ED-OIG/X09N0006                                                                        Page 18 of 24

OSERS stated that it has begun implementing its Results Driven Accountability initiative, which
is designed to place an increased emphasis on outcomes for students with disabilities. As part of
this initiative, OSERS is in the process of changing how it makes annual IDEA State
determinations to provide a greater focus on results. As OSERS begins to use results data when
making annual State determinations, it expects more States will also consider using results data
when making annual LEA determinations.

OIG Response

We inserted a footnote to clarify that performance determinations described in this issue relate to
IDEA § 616. We continue to believe that defining a minimum rating that an LEA must achieve
on individual mandatory evaluation factors to receive a rating of “meets requirements” is an
important way to ensure that LEAs are operating their special education programs effectively and
in accordance with Federal requirements. As stated in this report, when States are allowed to
individually define thresholds for overall performance determinations, inequities among States
may result.


Issue 2.5 – Annual Significant Disproportionality Determinations for LEA Flexibility Eligibility

During our prior audit we learned that OSEP was concerned that the significant disproportionality
threshold that one State in our review had established was not set at a meaningful level and thus
would not identify any problems at LEAs. Significant disproportionality is a measure, defined in
IDEA § 618(d), used to determine whether specific racial and ethnic groups are significantly
overrepresented with respect to the identification of children as having a qualifying disability,
including the identification of children with particular impairments; the placement of children in
particular educational settings; and the incidence, duration and type of disciplinary actions,
including suspensions and expulsions, imposed on students with disabilities. States are required
to annually collect and examine data to determine whether significant disproportionality is
occurring in the State or at LEAs within the State. Where significant disproportionality is
occurring, the State must:

   •   provide for the review, and, if appropriate, revision of LEA policies, procedures, and
       practices used to identify, place, or discipline students with disabilities to ensure that
       LEAs comply with the requirements of IDEA;
   •   require the LEA to publicly report on the revision of its policies, procedures, and
       practices; and
   •   require the LEA to reserve 15 percent of its Part B funds to provide comprehensive CEIS
       to children in the LEA, particularly, but not exclusively, in those groups that were
       significantly overidentified.

An LEA that is found to have significant disproportionality is also not eligible for flexibility.

During development of the implementing regulations after IDEA was reauthorized in 2004,
OSERS considered the amount of discretion that States should have in defining significant
disproportionality. OSERS concluded that establishing a national standard for these annual
determinations was not appropriate because there are multiple factors to consider at the State
Final Management Information Report
ED-OIG/X09N0006                                                                                 Page 19 of 24

level, such as the population size and the size of individual LEAs. According to OSERS, States
are in the best position to evaluate those factors. OSERS provided guidance to States on
assessing disproportionality, 15 but each State has discretion in defining the term for its LEAs and
the State in general. 16

The U.S. Government Accountability Office (GAO) issued a report in February 2013 that
described how SEAs identify LEAs with significant disproportionality and acknowledged that the
Department has allowed States flexibility in defining significant disproportionality. 17 However,
GAO concluded that a standard approach to defining significant disproportionality with built-in
flexibilities to account for differences among States would provide better assurance that States are
gauging the true magnitude of the problem of overrepresentation of racial and ethnic groups in
special education programs. GAO recommended that the Department develop a standard
approach for defining significant disproportionality to be used by all States. This approach should
allow flexibility to account for State differences and specify when exceptions can be made. The
Department responded that for the upcoming reporting year it will collect States’ definitions of
significant disproportionality, including information on the identification of children with
disabilities, identification by disability category, placement, and disciplinary actions, in which a
district was identified with significant disproportionality based on race and ethnicity. According
to the Department, such information will provide greater transparency and assist in holding States
accountable for meeting the requirements regarding significant disproportionality and early
intervening services by highlighting States where further examination may be warranted. Further,
the Department said that it may provide additional guidance on the issue that might include
developing a standard approach for defining significant disproportionality.

OSEP periodically reviews critical elements of a State’s IDEA program, including a State’s
definition of significant disproportionality. During a State monitoring visit in October 2009,
OSEP expressed concern that one SEA’s threshold for concluding whether significant
disproportionality existed was too high, making it unlikely that any LEA would be identified as
having a problem with overrepresentation of racial and ethnic groups in special education
programs and thus be ineligible for flexibility. However, OSEP did not require the State to
modify its threshold. OSEP officials told us that, because each State has the discretion to define
significant disproportionality, the Department does not have the authority to require a State to
change its significant disproportionality definition unless it can demonstrate that the definition is
not consistent with the requirements of Title VI of the Civil Rights Act of 1964, which prohibits
discrimination on the basis of race, color, or national origin by recipients of Federal financial
assistance.

With no standard for all States to follow in defining significant disproportionality, States set their
own definitions. The threshold that the SEA discussed above established for significant
disproportionality may have led to some LEAs being eligible for flexibility when they would not
have been if the SEA’s threshold had been more meaningful. Absent a meaningful measure for
15
  OSEP Memorandum 07-09, “Disproportionality of Racial and Ethnic Groups in Special Education,” April 24,
2007, and “Questions and Answers on Disproportionality,” June 2009.
16
     71 Fed. Reg. 46738 (August 14, 2006).
17
  GAO-13-137, “Individuals with Disabilities Education Act: Standards Needed to Improve Identification of Racial
and Ethnic Overrepresentation in Special Education,” February 2013.
Final Management Information Report
ED-OIG/X09N0006                                                                         Page 20 of 24

significant disproportionality, LEAs that should be implementing corrective actions to remedy
disproportionality will not be required to do so, and students may not receive appropriate services.

Suggestion: We suggest that the Acting Assistant Secretary of the Office of Special Education
and Rehabilitative Services—

2.10 Explore mechanisms, including proposing regulations, that would allow OSEP to ensure
     that individual States are setting meaningful thresholds for concluding whether significant
     disproportionality exists at LEAs within their State.

OSERS Comments

OSERS did not state whether it agreed or disagreed with our issue and suggestion. However,
OSERS stated that the description of “significant disproportionality” in the second sentence of
this issue should be revised to reflect the statutory requirement in IDEA § 618(d). OSERS also
suggested that we clarify our characterization of the Department’s response to the GAO report
discussed in Issue 2.5. OSERS further stated that the Department is planning to publish a Request
for Information in the Federal Register to solicit information that will assist the Department in
determining whether to propose regulations requiring States to use a standard approach to
determine which LEAs have significant disproportionality. This information will help OSERS
determine what actions the Department should take to ensure that individual States are setting
meaningful thresholds for concluding whether significant disproportionality exists in LEAs within
their States.

OIG Response

We modified the explanation of significant disproportionality to address the wording changes that
OSERS recommended. We also modified our characterization of the Department’s response to
the GAO report discussed in Issue 2.5.


Issue 2.6 – Annual Notifications for LEA Flexibility Eligibility

The flexibility provision can provide an important tool for LEAs to reduce their level of spending
for special education programs and leverage increased Federal funding, especially during difficult
economic times. However, LEAs included in our review were not always aware that they were
eligible to exercise flexibility or the full extent that they could reduce local spending by as a result
of the Recovery Act’s increased funding.

An SEA must prohibit an LEA that is not meeting applicable Federal requirements from reducing
its MOE under the flexibility provision for any fiscal year. In contrast, Federal law and
regulations do not require SEAs to notify LEAs of their eligibility for flexibility, nor has OSERS
issued any guidance requiring SEAs to provide these notifications or calculate the amounts each
eligible LEA can reduce local special education spending by. Instead, OSERS expects individual
LEAs to determine eligibility and calculate the amount it can reduce spending by. The “Part B
Local LEA MOE” guidance that OSEP presented in a webinar on June 16, 2009, and maintains on
the Technical Assistance Coordination Center’s Web site describes steps that an LEA can take to
identify whether it has met those conditions that would allow it to exercise flexibility. The
Final Management Information Report
ED-OIG/X09N0006                                                                      Page 21 of 24

guidance also provides an example of how to compute the associated MOE reduction and
reinforces that States are responsible for ensuring that LEAs meet MOE requirements.

Five of six SEAs included in our review chose to inform LEAs of their eligibility status, but took
different approaches in how they provided this information. Two of these SEAs used their
electronic grants management system to advise each LEA of the amount it could reduce local
spending by using flexibility. The three other SEAs did not formally notify each eligible LEA
that it could exercise flexibility, but they did provide sufficient information to allow an LEA to
determine on its own whether it was eligible. All three of these SEAs provided each LEA with a
letter stating its determination rating. Further, these SEAs supplemented the letters with other
information describing how an LEA would be considered eligible for flexibility. Unlike some
SEAs in our review, these SEAs did not determine the amount each eligible LEA could reduce
local special education spending by and provide the information to LEAs. We followed up with
these SEAs in April 2014 to identify any significant changes that they had made to their policies
and procedures. One SEA advised us that its application system now calculates the maximum
allowable reduction for each LEA and it has developed a process to inform LEAs of the
applicable amount. SEA notifications to LEAs regarding their eligibility for flexibility, along
with SEA calculations of each eligible LEA’s maximum allowable spending reduction, would
help ensure that only eligible LEAs exercise flexibility and that the reduction amount is
appropriate. Lastly, one SEA did not inform LEAs of their eligibility for flexibility. The two
LEAs we reviewed in this State were not aware of the flexibility provision and did not know that
they had been eligible to reduce local spending. Even though these and other LEAs in the State
were eligible, none actually reduced local special education spending under the flexibility
provision.

Suggestions: We suggest that the Acting Assistant Secretary of the Office of Special Education
and Rehabilitative Services—

2.11 Inform each SEA that it should notify LEAs as to whether they are eligible for flexibility
     and if so, the amount by which the LEA can reduce its non-Federal special education
     spending.

2.12 Update flexibility guidance to clarify the SEA’s responsibilities in Suggestion 2.11 above to
     ensure the consistency, accuracy, and sufficiency of information that LEAs consider when
     deciding whether to exercise flexibility.

OSERS Comments

OSERS agreed that this issue is important and intends to address it in its fiscal guidance.
Final Management Information Report
ED-OIG/X09N0006                                                                                 Page 22 of 24


                    OBJECTIVES, SCOPE, AND METHODOLOGY


The objectives of this MIR were to (1) provide information to the Department and Congress on
specific matters that may warrant consideration when IDEA is reauthorized and (2) identify
additional actions that the Department can take to address implementation issues associated with
IDEA’s flexibility provisions. We initiated this project based on the results of our audit “Local
Educational Agency Maintenance of Effort Flexibility Due to Recovery Act IDEA, Part B
Funds,” Control Number ED-OIG/A09L0011, which culminated in a final audit report issued on
July 25, 2013.

During the audit that forms the basis for the reporting in this MIR, we obtained information at
SEAs in California, Illinois, Louisiana, Maine, Ohio, and Texas and selected LEAs 18 about how
they administered certain provisions of IDEA and the Department’s implementing regulations in
response to increased funding provided under the Recovery Act. At the State level, we focused
our work on each SEA’s determination data and processes for FY 2006–2007 through FY 2009–
2010, policies and procedures for oversight of the LEA flexibility provision, and impacts related
to LEAs exercising flexibility. While performing the audit, we looked at data associated with
flexibility reductions and CEIS that the six SEAs reported to the Department. At selected LEAs
within these States, we reviewed determination information to support their eligibility for
flexibility, information about the use of and accounting for freed-up funds when LEAs exercised
flexibility in FY 2009–2010, and impacts from exercising flexibility. In one State, we also
reviewed information concerning the State’s eligibility for flexibility and use of and accounting
for freed-up funds when it exercised flexibility.

To achieve the specific MIR objectives, we focused on eight areas of our audit work:
(1) allowable uses of freed-up funds, (2) reduced LEA MOE baseline spending, (3) monitoring
and accounting for freed-up funds, (4) relationship of flexibility and CEIS provisions,
(5) reporting on LEA flexibility reductions and CEIS, (6) annual performance determinations for
LEA flexibility eligibility, (7) annual significant disproportionality determinations for LEA
flexibility eligibility, and (8) annual notifications for LEA flexibility eligibility. We considered
pertinent information previously obtained from the audit documentation, prior ED-OIG and GAO
reports, House Conference and Senate Committee reports related to the 2004 IDEA
reauthorization, and applicable Federal laws, regulations, and guidance. We also met with
representatives from OSEP to gain further insight about certain aspects of the issues discussed in
the MIR. Following this meeting, we reviewed additional guidance provided by OSEP and
Federal Register documentation which related to LEA flexibility eligibility and monitoring of the
use of freed-up funds. We believe that the evidence obtained provides a reasonable basis for the
results and conclusions contained in the report, based on our objectives.




18
 We selected two LEAs in each of five States and seven LEAs in Louisiana. This report does not name the specific
LEAs, but a listing is included on page 30 of the final audit report ED-OIG/A09L0011.
Final Management Information Report
ED-OIG/X09N0006                                                                     Page 23 of 24

We conducted the fieldwork for this MIR from May 2013 through April 2014. We conducted our
work in accordance with the Council of Inspectors General on Integrity and Efficiency “Quality
Standards for Inspection and Evaluation.”




                            ADMINISTRATIVE MATTERS


This management information report issued by the Office of Inspector General will be made
available to members of the press and general public to the extent information contained in the
report is not subject to exemptions in the Freedom of Information Act (5 U.S.C. § 552) or
protection under the Privacy Act (5 U.S.C. § 552a).


Electronic cc: Melody Musgrove, Director, Office of Special Education Programs
               Ruth Ryder, Deputy Director, Office of Special Education Programs
               Anthony White, Audit Liaison Officer, Office of Special Education Programs
               Katrina Ivatts, Audit Liaison Officer, Office of Special Education and
               Rehabilitative Services

Attachments
Final Management Information Report
ED-OIG/X09N0006                                                                   Page 24 of 24



   Attachment 1: Abbreviations, Acronyms, and Short Forms Used in this Report


 CEIS                                 Coordinated Early Intervening Services
 Department                           U.S. Department of Education
 ESEA                                 Elementary and Secondary Education Act
 FY                                   Fiscal Year
 GAO                                  U.S. Government Accountability Office
 H. Rept.                             House of Representatives Report
 IDEA                                 Individuals with Disabilities Education Act, Part B
 LEA                                  Local Educational Agency
 MIR                                  Management Information Report
 MOE                                  Maintenance of Effort
 OSEP                                 Office of Special Education Programs
 OSERS                                Office of Special Education and Rehabilitative Services
 Recovery Act                         American Recovery and Reinvestment Act of 2009
 SEA                                  State Educational Agency
 Table 8                              Report on Maintenance of Effort Reduction and
                                      Coordinated Early Intervening Services (IDEA, Part B)
                 Attachment 2: OSERS’ Comments on the Draft Report



                          UNITED STATES DEPARTMENT OF EDUCATION
                 OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES
                                            May 30, 2014


                                 OSERS COMMENTS
      Draft Management Information Report on IDEA Maintenance of Effort Flexibility:
                          Control Number ED-OIG/X09N0006

To:            Raymond Hendren
               Richard Rasa
               Office of Inspector General (OIG)

From:          Michael Yudin /s/
               Acting Assistant Secretary

Subject:       OIG Draft Management Information Report (MIR) on Individuals with
               Disabilities Education Act (IDEA) Maintenance of Effort (MOE) Flexibility
               Control Number ED-OIG/A09N0006

We appreciate the work of the OIG related to the MIR on IDEA MOE Flexibility, Control
Number ED-OIG/A09N0006. The Draft MIR includes results and suggestions related to your
work on the local educational agency (LEA) MOE provisions in Part B of the IDEA.
Specifically, you examined the provision that allows an LEA, under certain circumstances, to
reduce the level of local expenditures for educating children with disabilities by up to 50 percent
of any increase in its annual IDEA, Part B, Section 611, subgrant allocation.

Our comments and suggestions correspond to the specific sections in the Draft MIR.

Background

Excerpt from Draft MIR: The second paragraph on page 2 states:

        “States are also required to maintain financial support for educating children with
        disabilities. According to IDEA § 612(a)(18), States must not reduce their level of
        financial support below the amount of support for the preceding fiscal year unless the
        State is granted a waiver for exceptional or uncontrollable circumstances or it exercises
        the adjustment provision in IDEA § 613(j) that allows for reduced spending. For States,
        the comparison used to assess compliance is the amount of State financial support made
       available for special education and related services from one year to the next, regardless
       of the amount actually spent.”

OSERS Comment: While not a major part of the audit on which the MIR was based, we want to
clarify that it is OSERS’ position that all States must meet the requirement in IDEA § 612(a)(18)
every year, regardless of whether the State exercises the flexibility in IDEA
§ 613(j). The State educational agency (SEA) flexibility provision in § 613(j) is a separate
mechanism from the State-level MOE requirement in § 612(a)(18)(A), and does not affect
whether a State succeeds or fails in meeting § 612(a)(18)(A). SEA flexibility allows an SEA,
under certain circumstances, to reduce expenditures that otherwise would be required under the
§ 612(a)(17)(C) requirement that States use IDEA Part B funds to “supplement, not supplant”
funds that are expended for special education and related services. SEA flexibility does not allow
a State to reduce its amount made available for special education and related services under
§ 612(a)(18)(A), nor does SEA flexibility affect a State’s required amount of financial support in
future years. SEA flexibility is an exception to the § 612(a)(17)(C) “supplement, not supplant”
requirement, not an exception to the § 612(a)(18)(A) State-level MOE requirement for two
reasons. First, the § 612(a)(17)(C) “supplement, not supplant” requirement and the § 613(j) SEA
flexibility provision both involve an assessment of a State’s expenditures, whereas the
§ 612(a)(18)(A) State-level MOE requirement is based on a State’s level of appropriations, not
expenditures. Second, the § 612(a)(17)(C) “supplement, not supplant” requirement specifically
refers to § 613(j) as an exception, whereas § 612(a)(18) provides no such exception to the State-
level MOE requirement. Therefore, in order to accurately reflect the statutory requirement in
§ 612(a)(18), we recommend that “or it exercises the adjustment provision in IDEA § 613(j) that
allows for reduced spending” be deleted from the second sentence in the paragraph above.

In addition, IDEA § 612(a)(18)(C) provides that a State may be granted a waiver of the State-
level MOE requirement in § 612(a)(18)(A) if the Secretary determines that: (1) granting a waiver
would be equitable due to exceptional or uncontrollable circumstances; or (2) a State provides
clear and convincing evidence that the State makes available a free appropriate public education
to all children with disabilities in the State. Therefore, in order to accurately reflect the two
situations in which a State may qualify for a waiver of the State-level MOE requirement, we
recommend revising the second sentence in the paragraph above to read: “According to IDEA
§ 612(a)(18), States must not reduce their level of financial support below the amount of support
for the preceding fiscal year unless the State is granted a waiver either due to exceptional or
uncontrollable circumstances or because the State has provided clear and convincing evidence
that it makes available a free appropriate public education to all children with disabilities in the
State.”

Excerpt from Draft MIR: The first sentence of the first bullet on page 2 states:

       “An eligible LEA can reduce the level of local expenditures for the education of children
       with disabilities by up to 50 percent of any increase in its annual IDEA allocation.”
OSERS Comment: In order to accurately reflect the statutory requirement in IDEA
§ 613(a)(2)(C), we recommend revising the last part of the sentence to state: “An eligible LEA
can reduce the level of local expenditures … any increase in the LEA’s annual IDEA, Part B,
section 611, subgrant allocation” (emphasis added).

Excerpt from Draft MIR: The second sentence of the first bullet on page 2 states:

        “To be eligible for MOE flexibility, an LEA must meet annual performance
       requirements….”

OSERS Comment: We assume this refers to the requirements in IDEA § 616(f) and 34 C.F.R.
§ 300.608 that an SEA must prohibit an LEA that receives an annual determination of other than
“meets requirements” under IDEA § 616 from exercising the LEA MOE flexibility provision. In
order to accurately reflect the statutory requirement in IDEA § 616(f), we recommend revising the
sentence to state: “To be eligible for MOE flexibility, an LEA must “meet requirements” under
IDEA § 616.”

Excerpt from Draft MIR: The second sentence of the first bullet on page 2 states:

       “To be eligible for MOE flexibility, an LEA must…not have significant
       disproportionality, a measure of whether specific racial and ethnic groups are significantly
       overrepresented in special education programs at individual LEAs, as determined by the
       SEA.”

OSERS Comment: In order to accurately reflect the statutory requirement in IDEA § 618(d), we
recommend revising the sentence to state: “To be eligible for MOE flexibility, an LEA must …
not have significant disproportionality, a measure of whether specific racial and ethnic groups
are significantly overrepresented with respect to the identification of children as children with
disabilities, including identification by disability category, placement of children with disabilities
in particular educational settings, and disciplinary actions.”

Excerpt from Draft MIR: The first bullet on page 3 states:

       “An eligible SEA can reduce the level of expenditures from State sources for the
       education of children with disabilities by up to 50 percent of any increase in its
       annual IDEA grant amount. To be eligible for State-level MOE flexibility, the
       SEA must (1) pay or reimburse all LEAs within the State, exclusively from State
       revenue, 100 percent of the costs of special education programs and related
       services and (2) establish, maintain, and oversee a program of free appropriate
       public education and meet the requirements for implementing Federal special
       education programs. According to IDEA § 613(j)(5), an SEA may not exercise
       MOE flexibility if any LEA in the State would, as a result, not be able to meet the
       free appropriate public education requirements from the combination of Federal
       and State funds received. An SEA that exercises MOE flexibility must use funds
       from State sources, equal to the amount of the MOE reduction, to support activities
       authorized under the ESEA or to support need-based higher education programs
       for teachers or students.”
OSERS Comment: In order to accurately reflect the statutory requirement in IDEA § 613(j), we
recommend the following revisions to this paragraph:
    (1) Revise the first sentence to read: “An eligible SEA can reduce the level of expenditures
        from State sources for the education of children with disabilities by up to 50 percent of
        any increase in its annual IDEA, Part B, section 611 grant amount” (emphasis added);

      (2) Revise the second sentence to state: “An SEA that exercises the flexibility in § 613(j)
          must: (1) pay or reimburse all LEAs within the State from State revenue 100 percent of
          the non-Federal share of the costs of special education and related services” [emphasis
          added]; (2) establish, maintain, or oversee programs of free appropriate public education
          that meet IDEA Part B requirements; and (3) meet requirements under § 616(d)(2)(A).”;
          and

      (3) Refer to “SEA flexibility” rather than “State level MOE flexibility” or “MOE flexibility.”
          IDEA § 613(j) does not use the phrases “MOE flexibility” or “maintenance of effort”.
          SEA flexibility is a provision that operates independently of the State-level MOE
          requirement. In addition, we recommend referring to “reduction” rather than “MOE
          reduction” when referencing the reduction available under IDEA § 613(j).

Section 1- Matters to Consider During IDEA Authorization:

OSERS Response: OSERS has no comments on Section 1, except to note that OSERS does not
agree with the OIG’s characterization on page six under Issue 1.2 – Reduced LEA MOE Baseline
Spending – of the SEA flexibility provision in IDEA § 613(j). The OIG states that, in a year after
an SEA exercises the flexibility in IDEA § 613(j), the required level of State financial support for
special education and related services that a State must maintain is reduced. As noted in the
comments above, OSERS’ position is that all States must meet the requirement in IDEA
§ 612(a)(18) every year, regardless of whether the State exercises the flexibility in IDEA § 613(j).
SEA flexibility under § 613(j) does not allow a State to reduce its amount made available for
special education and related services under § 612(a)(18)(A), nor does SEA flexibility affect a
State’s required amount of financial support in future years. Therefore, in order to accurately
reflect the statutory requirement in IDEA § 612(a)(18), we recommend that this section be revised
to omit references to SEAs’ exercise of “MOE flexibility” and a “reduced MOE baseline.”

Section 2- Implementation Issues for U.S. Department of Education (Department)
Consideration

Issue 2.1-Monitoring and Accounting for Freed-Up Funds

OIG Suggestions:

2.1      Ensure that each SEA emphasize with all LEAs within its jurisdiction that tracking the use
         of freed-up funds, including completely and accurately accounting for and documenting
         its use of freed-up funds, is necessary whenever an LEA chooses to exercise MOE
         flexibility.
2.2    Ensure that SEAs have established appropriate monitoring procedures for LEAs
       exercising MOE flexibility, including timely monitoring to confirm that the LEAs
       properly used freed-up funds.

OSERS Response: The Office of Special Education Programs (OSEP) has established a Fiscal
Workgroup to coordinate fiscal work. One of the Fiscal Workgroup’s main tasks moving forward
will be to provide guidance and technical assistance to SEAs on IDEA fiscal requirements and
SEA responsibilities, including the exercise of flexibility and the use of freed-up funds.

Issue 2.2 Relationship of MOE Flexibility and Coordinated Early Intervening Services (CEIS)

OIG Suggestions:

2.3    Ensure that SEAs nationwide reinforce with LEAs in their respective States the
       relationship between spending for CEIS under IDEA § 613(f)(1) and the amount of local
       special education spending reductions allowed under MOE flexibility provision.

2.4    Ensure that each SEA has implemented appropriate controls to prevent, or at least detect,
       instances where LEAs have overallocated IDEA funds for CEIS when also exercising
       MOE flexibility.

OSERS Response: The issue of the relationship between MOE flexibility and CEIS is
particularly complicated. While OSERS has provided guidance on this issue in the past and it is
addressed in Appendix D to 34 C.F.R. Part 300, OSERS agrees that it is important to continue to
address this issue. Therefore, OSERS intends to include further discussion of it in its fiscal
guidance.

Issue 2.3-Reporting on LEA MOE Flexibility Reductions and CEIS

OIG Suggestions:

2.5    Continue to work with States to improve the quality of the 2010 data presented in Table 8
       until OSERS can ascertain whether the extent of reporting errors could have a material
       effect on the accuracy, reliability, or completeness of the data.

2.6    Ensure that SEAs with known data issues or anomalies provide or update data notes for
       2010 fully explaining the weaknesses of the information. These notes should accompany
       the data in any form that it is presented, including public postings and reports to Congress,
       the Office of Management and Budget, or others.

2.7    Add a disclaimer to the public Web site describing limitations in the 2010 data presented
       in Table 8 data to include, at a minimum, the reporting errors listed above and retain such
       disclaimer until a comprehensive data verification process has been completed to ensure
       the data are accurate, reliable, and complete.
2.8    For all future data collections, consider whether to require States to certify to the accuracy,
       reliability, and completeness of the data.
OSERS Response: OSEP staff has been working with States to generate data notes to address or
explain data quality concerns identified in the 2010 (i.e., Federal fiscal year (FFY) 2009 and
school year (SY) 2009-2010) Table 8 data. Prior to September 2013, the 2010 Table 8 data,
including data notes, were displayed on DAC’s website with a disclaimer noting that these were
the first year of this data collection. Because the Data Accountability Center (DAC) closed in
September 2013, OSEP no longer has access to a submission system that would allow States to
update the 2010 Table 8 data. However, States can submit data notes with additional
explanations, clarifications, or revisions to the data submitted for 2010. OSEP intends to update
the 2010 Table 8 data notes document.

At the expiration of the cooperative agreement between OSERS and the DAC, all IDEA Section
618 data (including the Table 8 data and data notes) were moved from DAC’s website to the
Technical Assistance Coordination Center’s (TACC’s) website. OSEP intends this website to
temporarily host the data while OSEP transitions to another publicly available platform for
hosting the IDEA Section 618 data (including Table 8 data).- OSERS is working with staff from
TACC about the feasibility of providing the disclaimer about the 2010 Table 8 data on the TACC
website while it hosts the Section 618 data files. Once the Table 8 data are posted on the new
website, we will post data notes previously posted on the DAC website, including updated data
notes, and a notice identifying data quality concerns with the 2010 Table 8 data. These data notes
will be included in the updated 2010 Table 8 data notes document, as appropriate.

OSEP is in the process of implementing a number of actions to improve the quality of the Table 8
data. OSEP has implemented a number of automated edit checks into the Table 8 data submission
system to provide states immediate feedback on possible data quality concerns. Additionally,
OSEP has provided general technical assistance to states on the reporting of Table 8 data via
presentations at national conferences and webinars. Furthermore, OSEP is implementing a
process, beginning with the review of the FFY 2012 (SY 2012-2013) data that includes a review
of the Table 8 data by OSEP staff that are experts in data, as well as OSEP staff that are experts in
fiscal monitoring under IDEA. Finally, OSEP has recently published a Notice of Proposed
Priority to fund a technical assistance center to build the states’ capacity to report high-quality
fiscal data (including Table 8 data) to the U.S. Department of Education.

Beginning with the FFY 2011/SY 2011-2012 data submission, OSERS began collecting a number
of the IDEA Section 618 data collections, including the Table 8 data collection, via the EDFacts
Metadata and Process System (EMAPS). This system allows states to upload data files, including
the required Table 8 data, and runs a series of calculations and edit checks to provide the state
almost immediate feedback on possible data quality concerns. OSEP intends to discuss the
feasibility and cost of implementing a State certification for future submissions of Table 8 data
with the Elementary and Secondary Division of the National Center for Education Statistics,
which maintains the new Table 8 data submission system.


Issue 2.4-Annual Performance Determinations for LEA MOE Flexibility Eligibility

Throughout this section OSERS believes it would be clearer to use the term “IDEA section 616
determinations” rather than “performance results.”
OIG Suggestions:

2.9    Consider regulatory action to define a minimum rating that an LEA must achieve on the
       mandatory evaluation factors to receive a rating of “meets requirements” on its overall
       performance.

OSERS Response: As the Draft MIR notes, OSERS has previously stated that when making
annual IDEA section 616 determinations on the performance of their LEAs, a State must consider
the following factors: (1) performance on compliance indicators; (2) valid and reliable data; (3)
correction of identified noncompliance; and (4) other data available to the State about the LEA’s
compliance with the IDEA, including relevant audit findings. These are what the OIG refers to as
the mandatory evaluation factors. While States are required to use the four mandatory factors
when making determinations, OSERS has not regulated to define a minimum rating that an LEA
must achieve on the mandatory evaluation factors to receive a rating of “meets requirements” on
its overall performance. We have considered whether to regulate previously and in light of this
report. At this time, OSERS continues to believe that States should have discretion in making
annual IDEA section 616 determinations on the performance of their LEAs.

In addition to the four mandatory evaluation factors, OSERS notes that States may consider
results on performance indicators and other information when making annual IDEA LEA
determinations. OSERS has begun implementing its Results Driven Accountability (RDA)
initiative, which is designed to place an increased emphasis on outcomes for students with
disabilities. As part of RDA, OSERS is in the process of changing how it makes annual IDEA
State determinations to provide a greater focus on results. As OSERS begins to use results data
when making annual State determinations, it expects more States will also consider using results
data when making annual LEA determinations.

Issue 2.5- Annual Significant Disproportionality Determinations for LEA MOE Flexibility
Eligibility

Excerpt from Draft MIR: The second sentence of the first paragraph of Issue 2.5 states:

       “Significant disproportionality is a measure used to determine whether specific racial and
       ethnic groups are significantly overrepresented in special education programs.”

OSERS Comment: In order to accurately reflect the statutory requirement in IDEA § 618(d), we
recommend revising the sentence to read “Significant disproportionality is a measure used to
determine whether significant disproportionality based on race or ethnicity is occurring with
respect to the identification of children as children with disabilities, including identification as
children with particular impairments; the placement of children in particular educational settings;
and the incidence, duration, and type of disciplinary actions, including suspensions and
expulsions.”

Excerpt from Draft MIR: The fourth sentence of the first paragraph on page 16 states:

       “The Department responded that for the upcoming reporting year it will collect States’
       definitions of significant disproportionality and information by disability categories in
       which a district was identified with significant disproportionality” (emphasis added).
OSERS Comment: The bolded and underlined information is not correct. In order to accurately
describe the information collection requirement, we suggest revising the sentence to read: “…and
information on each category (i.e., identification, identification by disability category, placement,
and disciplinary actions) in which a district was identified with significant disproportionality
based on race and ethnicity.”

OIG Suggestions:

2.10       Explore mechanisms, including proposing regulations, that would allow OSEP to ensure
           that individual States are setting meaningful thresholds for concluding whether significant
           disproportionality exists at LEAs within their States.

OSERS Response: The Department has most recently addressed this issue in response to the
U.S. Government Accountability Office’s (GAO’s) report dated February 2013, entitled
“INDIVIDUALS WITH DISABILITIES EDUCATION ACT: Standards Needed to Improve
Identification of Racial and Ethnic Overrepresentation in Special Education” (GAO-13-137). 1

The Department is planning to publish a Request for Information (RFI) in the Federal Register.
The purpose of the RFI is to solicit information that will assist the Department in determining
whether to issue proposed regulations requiring States to use a standard approach to determine
which LEAs have significant disproportionality. Information gathered from the RFI will help us
determine what actions the Department should take to ensure that individual States are setting
meaningful thresholds for concluding whether significant disproportionality exists in LEAs within
their States.

Issue 2.6-Annual Notifications for LEA MOE Flexibility Eligibility

OIG Suggestions:

2.11       Inform each SEA that it should notify LEAs as to whether they are eligible for MOE
           flexibility and if so, the amount by which the LEA can reduce its non-Federal special
           education spending.


2.12       Update MOE flexibility guidance to clarify the SEA’s responsibilities in Suggestion 2.11
           above to ensure the consistency, accuracy and sufficiency of information that LEAs
           consider when deciding whether to exercise MOE flexibility.

OSERS Response: We agree that these issues are important and intend to address these issues in
our fiscal guidance.

Thank you for the opportunity to review and comment on the Draft MIR. Please let us know if
you have questions or want to discuss any of our comments.


1
    For the report and OSERS’ response, see http://www.gao.gov/assets/660/652437.pdf.