Report 99121 Summary - January 2000
Department of Education:
Its Monitoring Efforts Give Limited Assurance That It Properly Administers State and Federal Programs
RESULTS IN BRIEF
The Department of Education (department) oversees a variety of state and federal programs with combined expenditures of more than $26 billion. It distributes most funds from these programs to school districts and nonprofit organizations throughout California, monitors these entities through desk and on-site program reviews and audits, and provides technical assistance to ensure that the participants properly administer these programs. Its monitoring of the programs, however, is flawed.
In administering these programs, the department has begun to shift its focus from concentrating solely on strict compliance with state and federal requirements to measuring accountability by student achievement. Student achievement is important, but this philosophy emphasizes the end results without adequately considering the means used to achieve them. It thus hinders the department's ability to effectively monitor the use of state and federal funds. Moreover, the federal government requires that the department monitor entities receiving federal funds to help ensure that program goals are met. There is a greater likelihood that misuses of state and federal funds will occur when the department fails to adequately exercise its oversight responsibilities. For example, in a July 1999 audit report, we found that ineffective monitoring by the department enabled nonprofit organizations to receive funds for services that they could not substantiate.
The department's approach to monitoring entities receiving the funds is further flawed because its staff do not review fund recipients based on the risk they present for noncompliance, nor does the department routinely use performance measures to assess quality and effectiveness. Equally important, the department lacks an overall view of its monitoring activities because it has no comprehensive tracking system, and current systems kept by some divisions are inferior. These shortcomings result in poor internal communication and disjointed coordination of audit efforts. Furthermore, the department's lack of coordination prevents it from evaluating whether its monitoring activities represent the best use of resources. The department should use its resources better by focusing on high-risk programs and entities. It also should track the results of its evaluations and ensure the entities take necessary corrective actions.
The department's Audits and Investigations Division (audits division) contributes little to the department's oversight capability. This division is the primary focus of our audit. The audits division's external unit spends most of its time reviewing certified public accountant (CPA) reports of nonprofit organizations that receive funding to ensure their reimbursed costs agree with the department's figures. Although the department is required to perform these procedures, it may not be prudent for the external unit's professional staff to perform this function. Rather, the Fiscal and Administrative Services Division (FASD), which performs a similar process for school districts and community colleges, could take over this review of the nonprofit organizations. The FASD may need more resources to assume this role, but the benefit of freeing up to 4,500 audit hours of the audits division's time would far outweigh the added cost. Audit staff could provide greater value to the department if they spent time aggressively pursuing suspicious or fraudulent activities through on-site audits of program participants and shared their professional expertise with other program reviewers within the department.
In addition to the reconciliation it performs, the audits division's external unit spends 25 percent of its time ensuring that the independent CPA reports comply with federal requirements for entities receiving federal child nutrition, child development, and adult education funds. With a backlog of more than 500 reports, however, it is clear the audits division is unable to complete timely reviews of these reports. Further, the U.S. Department of Agriculture (USDA) is trying to recover $1.6 million from the department because the audits division used federal child nutrition funds to perform on-site evaluations of program compliance before staff had completed the required CPA report reviews. Federal Food and Nutrition Service regulations require the department to complete these reviews before using funds to conduct on-site evaluations. Additionally, the audits division is unable to identify instances of noncompliance until it completes its reviews, so problems that may exist can remain uncorrected for an indeterminate length of time.
The audits division cites insufficient staff and a need for extensive resources to reconcile the CPAs' reports as reasons for falling behind on these reviews. However, the State Controller's Office (SCO), which uses 8 to 12 auditors, conducts nearly 1,100 similar reviews annually for school districts, primarily because it concentrates only on reviewing critical areas of the audit reports.
Other divisions within the department also can improve their performance to ensure that school districts and nonprofit organizations are held accountable for the proper use of state and federal funds. Due to ineffective program monitoring or enforcement by various divisions, the department has paid unsubstantiated claims to some organizations. Other organizations have even been guilty of fraud. The Bureau of State Audits and the USDA have cited instances of this nature in previous audit reports.
Additional problems exist. Some divisions fall short of the number of program reviews they are required to conduct annually. For instance, despite state regulations requiring it to review nonprofit organizations every three years, the Child Development Division schedules such reviews only every four years. The divisions also do not keep adequate records of their review procedures, limiting assurance that entities receiving funds have met all regulatory requirements. Most importantly, staff do little to ensure that the organizations take corrective action or face sanctions when deficiencies are discovered. For instance, rather than making on-site visits to verify that school districts and nonprofit organizations have resolved deficiencies satisfactorily, reviewers in some divisions commonly accept written statements from these organizations stating they have corrected the problems. Furthermore, the Coordinated Compliance Review (CCR) teams do not regularly meet their own deadlines for ensuring timely corrective action. They also rarely impose sanctions on school districts that fail to correct deficiencies within the required time.
RECOMMENDATIONS
To maximize the value of its monitoring efforts, the department should:
- Modify its underlying philosophy for administering state and federal programs to reinstate the importance of monitoring entities receiving these funds.
- Prepare a department-wide monitoring plan.
- Develop a central database to track its monitoring activities and a monitoring committee to better communicate the status and results of these activities.
- Establish performance measures for itself and for the organizations receiving program funds, then use them consistently.
- Modify its regulations to transfer the responsibility for reconciling CPA reports from the audits division to the FASD.
- Require audits division staff to work a reasonable amount of overtime and continue using outside assistance from entities such as the Department of Finance to eliminate the backlog of CPA report reviews.
- Require the audits division to streamline the process for reviewing CPA reports by focusing only on critical areas, an approach similar to that used by the SCO.
- Direct program staff to adhere to audit and review cycles set forth by federal and state laws, regulations, or department policies.
- Direct program reviewers to document their monitoring procedures adequately during site visits.
- Monitor corrective action for entities receiving state and federal funds and enforce fiscal and administrative penalties as needed.
- Evaluate the effectiveness of monitoring processes and periodically report to the new monitoring committee on their success in meeting monitoring objectives.
AGENCY COMMENTS
The department agrees that it needs to improve its monitoring of state and federal programs. However, it believes that budgetary constraints will not allow it to provide genuine fiscal oversight and a meaningful accountability system. Nevertheless, the department generally concurs with our recommendations.
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