States Used Multiple Tools to Enforce the Fiscal Accountability Provisions, but Relied Primarily on the Single Audit Process to Enforce SNS

In the states we visited, state program officials use three tools—the states’  annual financial reports, the single audit process, and limited program  monitoring—to monitor Title I’s fiscal accountability requirements in their  LEAs. While we did not verify the quality of the data, it is the  same data used to calculate the MOE requirements. But, many state and local program officials  and auditors we spoke with cited a number of factors that made it difficult  to ensure that grantees were in fact using federal funds to supplement and  not supplant their own funds. Some Officials Rely on the Single Audit, without Understanding What Its Scope and Methodology Mean for Assessing the SNS Provision

While some auditors struggled to apply the SNS provision to the particular  circumstance of districts and schools, SEA officials were frequently  unaware of what the results of a single audit actually meant, potentially  failing to cover key programs or provisions of law, and thus adding to the  difficulty of enforcing the SNS provision. However, some of  the auditors could not document that they had followed their work plans. While program  monitoring provided a depth of coverage that cannot be achieved in single  audits, these efforts were limited. Education’s Key Efforts to Enforce Fiscal Accountability Provisions Have Limitations

We identified three key efforts the Department of Education made to help  enforce the fiscal accountability provisions but each had limitations. First,  Education developed guidance and provided technical assistance to state  and local officials and their auditors; but, these officials have expressed  confusion regarding application of the SNS provision to their particular  circumstances. Second, Education conducted limited program monitoring  of its own, but these efforts did not have fiscal accountability as a primary  focus. Finally, Education reviewed states’ single audit reports conducted  under the Single Audit Act. Little Change in Federal Share from School Years 1999- 2000 to 2000-2001

We found that few changes have occurred in the relative shares of federal,  state’ and local funding for education for school years (SY) 1999-2000 and  2000-2001 (the most recent data available) in the six states we reviewed. It is too soon to tell how recent increases in federal funds for  Title I and other federal education programs and the fiscal pressures  facing states will affect funding for education in general and how changes,  if any, in state and local financing will affect the federal share. Title I’s  two fiscal accountability provisions—the MOE and the SNS provisions— are intended to limit the extent that grantees can use federal funds to  replace their own and thereby erode the fiscal partnership. Appendix I: Scope and Methodology

To determine how select states ensure compliance with maintenance of  effort (MOE) and supplement-not-supplant (SNS), we interviewed state  program and budget officials in six states: Arizona, California, Florida,  Indiana, Louisiana, and Massachusetts. To determine what efforts the U.S. Department of Education has taken to  enforce the Title I fiscal accountability provisions and what limitations, if  any, these efforts may have, we spoke with Education officials and  reviewed Education guidance and documentation as well as recent GAO  and OIG reports.
Why GAO Did This Study

New resources for education come at a time when states are struggling to address budget shortfalls. Two provisions in Title I--maintenance of effort (MOE) and supplement not supplant (SNS)--are designed to limit the extent to which federal funds could be used to replace state and local resources. To assess the quality of oversight of these provisions, GAO determined (1) how 6 states--Arizona, California, Florida, Indiana, Louisiana, and Massachusetts--conducted oversight of the MOE and SNS provisions and what factors affected their ability to do so; (2) what efforts were made by the U.S. Department of Education to enforce MOE and SNS; and (3) in the 6 states, what changes have occurred in the federal share of education funding from school year 1999-2000 to 2000-2001.

What GAO Found

In the states we visited, state program officials used three tools--the states' annual financial reports, the single audit process, and limited program monitoring--to oversee Title I's fiscal accountability requirements. While program officials had little difficulty in applying the MOE provision because it involves a straightforward calculation, state and local program officials and auditors we spoke with cited a number of factors that made it difficult to enforce the SNS provision under certain circumstances. One of the challenges auditors faced was determining whether a school district would have removed its own funds from a program and allocated them elsewhere even if federal funds had not been available--an action that is allowable. Another challenge was applying the SNS provision in circumstances where it is difficult to track federal dollars such as in schoolwide programs--where all funds are pooled--or in districts undergoing significant districtwide reforms--where comparisons to previous budgets are problematic. While some auditors struggled to apply the SNS provision to the particular circumstance of districts and schools, program officials relied primarily on the results of the single audits without being aware of some of these audit's limitations. For example, some officials did not understand that not all districts, programs, or transactions may be covered by the audit. While program monitoring adds a degree of depth to the efforts to oversee the SNS provision, most of the states in GAO's review conducted only limited program monitoring. We identified three key efforts Education made to guide, monitor, and enforce the fiscal accountability provisions, but each had limitations. First, Education provided guidance and technical assistance to state and local education agencies and auditors on how to interpret and apply Title I's fiscal accountability requirements. Despite the availability of this guidance, many of the auditors and program officials we spoke with expressed confusion regarding the application of these provisions to their particular circumstances, such as schoolwide programs. Second, Education conducted program monitoring of select state and local education programs each year; however, coverage was limited. Third, Education, reviewed the audit reports conducted under the Single Audit Act. However, Education's Office of Inspector General and GAO have criticized the review and audit follow up process. Few changes occurred in the federal/state/local fiscal partnership in financing education services between school year 1999-2000 and 2000-2001. It is too soon to tell how recent increases in federal funds and state and local fiscal pressures will affect funding for education and the federal share.