June 9, 2005

Dr. Randy J. Dunn

Interim State Superintendent

Illinois State Board of Education

100 N. 1st Street

Springfield, IL 62777

Dear Dr. Dunn:

This final audit report, Control Number ED-OIG/A07E0029, presents the
results of our audit of the Illinois State Board of Education's (ISBE's)
administration of provisions under Title I of the Elementary and
Secondary Education Act of 1965 (ESEA) relating to consolidating funds
in schoolwide programs. The objectives of our audit were to determine
(i) if ISBE has encouraged schools to consolidate funds from federal,
state, and local sources in their schoolwide programs; (ii) if ISBE has
modified or eliminated state fiscal and accounting barriers so that
schools can easily consolidate funds from federal, state, and local
sources in their schoolwide programs; and (iii) whether schools are
consolidating funds and their reasons for doing or not doing so.

We found that (i) ISBE has not encouraged schoolwide programs to
consolidate funds from federal, state, and local sources; (ii) there
were no state fiscal or accounting barriers to consolidating funds in
schoolwide programs; and (iii) all schools we reviewed were not
consolidating funds for a variety of reasons.

We recommend that the Assistant Secretary for Elementary and Secondary
Education require ISBE to encourage local educational agencies (LEAs)
and schools to consolidate funds by providing them information that
explains the potential benefits of consolidating funds, and guidance on
how to consolidate funds. We also recommend that ISBE be required to
amend its fiscal and administrative manual to encourage consolidating
funds in schoolwide programs.

AUDIT RESULTS

ISBE has not provided information to LEAs or schools on how to
consolidate federal, state, and local funds in their schoolwide programs
or otherwise encouraged them to do so. ISBE officials stated that they
held a statewide conference at which they informed LEAs of their options
regarding schoolwide programs. The officials provided us with a copy of
the presentation related to schoolwide programs that they made at the
conference, but the document showed only the requirements to become a
schoolwide program, including the year of planning and the development
of a schoolwide plan. The presentation did not show the potential
benefits of consolidating funds or refer to it in any other way.

Also, the annual application that LEAs submitted to ISBE for federal
education funding did not facilitate consolidating funds. The budgets
for the various federal programs were kept separate, and LEAs were to
report expenditures for each fund separately as well. The only mention
of consolidating funds was in the instructions for the application, and
this was merely a statement that consolidating funds can more
effectively lift the achievement of those who are farthest behind. The
application materials did not contain any information on how to
consolidate federal, state, and local funds.

According to 34 C.F.R. 200.29(e), each state must (i) encourage schools
to consolidate funds from federal, state, and local sources in their
schoolwide programs; and (ii) modify or eliminate state fiscal and
accounting barriers so that schools can easily consolidate funds from
federal, state, and local sources in their schoolwide programs
(regulations effective January 8, 2003).

Our visits to LEAs confirmed that ISBE was not encouraging local
officials to consolidate funds in their schoolwide programs. Officials
at four of the five LEAs informed us that they had not received from
ISBE any information about consolidating funds or, at least, that they
could not remember receiving any such information. Officials at the
remaining LEA stated that ISBE had encouraged consolidating funds.
However, they could not remember a specific time when ISBE officials had
done so and they were unable to show us any information on consolidating
funds that ISBE had provided to them.

ISBE's failure to encourage consolidating funds is further demonstrated
in the manual it developed for use by LEAs. This manual, "State and
Federal Grant Administration Policy and Fiscal Requirements and
Procedures," does not give any information on how to consolidate
federal, state, and local funds in schoolwide programs, nor does it make
any reference to the consolidating funds provisions.

ISBE officials stated that their agency had been downsized in the past
few years and they were trying to keep up. They said that they were
focusing more on disseminating information about the option of
transferring funds between programs than they were on the option of
consolidating funds in schoolwide programs. ISBE officials also pointed
out that Illinois is a local control state, so they take a hands-off
approach with respect to LEAs.

ISBE's failure to encourage the consolidation of funds may result in
LEAs and schools not understanding the potential benefits of doing so.
As a result, LEAs and schools may not be taking advantage of an option
that could help them improve the academic achievements of all students,
particularly the lowest-achieving students. If ISBE were to encourage
the consolidation of funds in schoolwide programs, the likely outcome
may be that LEAs and schools would consider this option for flexibility
in implementing and managing their schoolwide programs.

None of the LEAs and schools covered by our audit was consolidating
funds. In addition to the 5 LEAs and 5 schools we visited, we conducted
telephone interviews with officials from 15 LEAs[^1] and 10 schools. We
asked these officials for their reasons for not consolidating funds,
since knowledge of these reasons might help ISBE determine how best to
encourage LEAs to consolidate funds.

The reasons LEA officials gave for not consolidating funds are as
follows:[^2]

-   Six LEAs stated that they were not aware of the option of
    consolidating funds in schoolwide programs.

-   Five LEAs stated that they had always kept funds separate and just
    continued to do so.

-   Four LEAs stated that they did not know how to consolidate funds.

-   Four LEAs believed that it was necessary to keep funds separate to
    be consistent with audit or state requirements, e.g., LEAs are
    required to submit expenditure reports to ISBE that separate out
    expenditures by federal program.

-   Three LEAs stated that, given what they knew about consolidating
    funds, they did not see how it would benefit them.

-   Three LEAs stated that it appeared to be easier to not consolidate
    funds.

The reasons school officials gave for not consolidating funds are as
follows:[^3]

-   Five schools stated that the LEA made the decision to keep funds
    separated.

-   Four schools stated that the LEA did not allow commingling of funds.

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-   One school stated that they had always kept funds separate and just
    continued to do so.

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-   One school stated that ISBE and the LEA did not allow consolidating
    funds.

**RECOMMENDATIONS:**

We recommend that the Assistant Secretary for Elementary and Secondary
Education require ISBE to

1.  Provide specific encouragement to LEAs and schools to consolidate
    federal, state, and local funds in schoolwide programs, including
    providing

    a.  Information about the potential advantages of consolidating
        funds through such means as conferences, written and telephone
        communications, and site visits; and

    b.  Guidance on how to consolidate funds; and

2.  Amend the ISBE "State and Federal Grant Administration Policy and
    Fiscal Requirements and Procedures" to encourage consolidating funds
    in schoolwide programs.

AUDITEE COMMENT AND OIG RESPONSE

In its response to our draft audit report (full text attached), ISBE
agreed that, at the time of our review, it had not encouraged
consolidating funds in schoolwide programs. However, ISBE stated that it
had taken some action since our review to address this issue. It stated
that it had amended the instructions for LEAs in its e-grant application
system and in its grant workshop presentations to include language that
encouraged coordinating funds to support schoolwide programs, and that
it is also in the process of reviewing its policy and procedures manual
for potential changes.

ISBE's response did not cause us to change our findings or
recommendations. While ISBE stated that it has now encouraged
[coordinating]{.underline} funds in schoolwide programs, it did not
indicate that it has taken steps, or that it intends to take steps, to
encourage [consolidating]{.underline} funds in schoolwide programs. As
stated in the second paragraph of the BACKGROUND section of this report,
a schoolwide program for which funds are consolidated does not maintain
separate accounting records that identify the funding source for each
expenditure. The coordination of funds described in ISBE's response does
not refer to the type of accounting system that was the subject of our
audit.

BACKGROUND

The Elementary and Secondary Education Act of 1965, as amended,
authorizes schoolwide programs to use funds under Title I, Part A, along
with other federal, state and local funds, to upgrade the entire
educational program in a school to improve the academic achievement of
all students, particularly the lowest-achieving students. This is in
contrast to targeted assistance programs, in which program funds may be
used only for supplementary educational services for eligible children
identified as being most at risk of not meeting state standards.

A school operating a schoolwide program is not required to identify
particular students as eligible to participate in the program, or
demonstrate that the services provided with Title I, Part A funds are
supplemental to services that would otherwise be provided. The school is
also not required to maintain separate fiscal accounting records, by
program, that identify the specific activities supported by those
particular funds, but must maintain records that demonstrate that the
schoolwide program addresses the intent and purposes of each of the
federal programs whose funds were consolidated to support the schoolwide
program. In a notice the Department published in the Federal Register on
July 2, 2004, it provided information on consolidating funds that
included guidance on ways a schoolwide program can meet the intent and
purposes of specific federal programs (Federal Register/Vol. 69, No.
127, Page 40360/Notices). This document can be viewed via the following
website:
<http://frwebgate.access.gpo.gov/cgi-bin/getpage.cgi?position=all&page=40360&dbname=2004_register>.

Congress, under the No Child Left Behind Act, effective January 8, 2002,
stated that state educational agencies must encourage schools to
consolidate funds from federal, state, and local sources in their
schoolwide programs, and must modify or eliminate state fiscal and
accounting barriers so that these funds can easily be consolidated.

OBJECTIVES, SCOPE, AND METHODOLOGY

The objectives of our audit were to determine (i) if ISBE has encouraged
schools to consolidate funds from federal, state, and local sources in
their schoolwide programs; (ii) if ISBE has modified or eliminated state
fiscal and accounting barriers so that schools can easily consolidate
funds from federal, state, and local sources in their schoolwide
programs; and (iii) whether schools are consolidating funds and their
reasons for doing or not doing so.

To accomplish our objectives, we

-   Reviewed applicable federal and state law and regulations;

-   Reviewed files relating to schoolwide projects at ISBE;

-   Interviewed ISBE, LEA, and school personnel;

-   Reviewed the most recent state single audit;

-   Obtained and analyzed documents and records related to schoolwide
    programs at ISBE and the LEAs, including organization charts and
    accounting policies and procedures;

-   Visited five LEAs and five schools; and

-   Interviewed officials from 15 LEAs and 10 schools by telephone.

We judgmentally selected 5 of the 145 LEAs that had schoolwide programs
in order to visit LEAs receiving varying amounts of Title I funds for FY
2004-05, those that consolidated funds and those that did not, and those
that were geographically located so as to minimize our travel expenses.
We selected the 15 LEAs to interview by telephone to include those
receiving varying amounts of Title I funds for FY 2004-05. In addition
to the 5 schools we visited, we randomly selected 10 schools in the
Chicago Public School district to interview by telephone. We decided on
the extra coverage of schools in Chicago since in that LEA the schools
had responsibility for their own financial accounting and could make
their own decisions about whether to consolidate funds.

We performed our audit work at ISBE's administrative offices, the
administrative offices of five LEAs and five schools, and our Kansas
City office from October 2004 through March 2005. We discussed the
results of our audit with ISBE on March 11, 2005. We performed our audit
in accordance with generally accepted government auditing standards
appropriate to the scope of the review described above.

# ADMINISTRATIVE MATTERS

Statements that managerial practices need improvements, as well as other
conclusions and recommendations in this report, represent the opinions
of the Office of Inspector General. Determinations of corrective action
to be taken will be made by the appropriate Department officials.

If you have any additional comments or information that you believe may
have a bearing on the resolution of this audit, you should send them
directly to the following Department official, who will consider them
before taking final departmental action on this audit:

> Raymond Simon
>
> Assistant Secretary
>
> Office of Elementary and Secondary Education
>
> U.S. Department of Education
>
> 400 Maryland Ave., SW
>
> Washington, DC 20202

It is the policy of the Department to expedite the resolution of audits
by initiating timely action on the findings and recommendations
contained therein. Therefore, receipt of your comments within 30 days
would be appreciated.

In accordance with the Freedom of Information Act (5 U.S.C. § 552),
reports issued by the Office of Inspector General are available to
members of the press and general public to the extent information
contained therein is not subject to exemptions in the Act.

> Sincerely,
>
> /s/
>
> Richard J. Dowd
>
> Regional Inspector General
>
> for Audit

Attachment

\[Illinois State Board of Education Letterhead\]

May 4, 2005

Ms. Janice D. Keeney

Assistant Regional Inspector General for Audit

Office of Inspector General

U.S. Department of Education

8930 Ward Parkway, Suite 2401

Kansas City, Mo 64114-3302

Dear Assistant Regional Inspector General Keeney:

The Illinois State Board of Education (ISBE) received the draft audit
report on the state's administration of provisions under Title I
regarding consolidating funds in schoolwide

programs. The draft findings are similar to those on the Finding Point
Sheet received earlier in the review cycle.

Basically, the audit found that ISBE is not providing specific
information to districts or schools on how to consolidate federal,
state, and local funds in their Title I, Part A schoolwide programs or
encouraged them to do so. The information appears to be accurate. While
there have been discussions of this issue at earlier grant workshops,
there has not been a formal plan or written documentation of such
dialogue.

The recommendations offered in the draft audit were to:

-   Provide specific encouragement to districts and schools to
    consolidate federal, state and local funds in schoolwide
    programming:

    -   Information about the potential advantages of consolidating
        funds through such means as conferences, written and telephone
        communications, and site visits; and

    -   Guidance on how to consolidate funds.

-   Amend ISBE's "*State and Federal Grant Administration Policy and
    Fiscal Requirements and Procedures"* to encourage consolidating
    funds in schoolwide programs.

Since the initial visit and Finding Point Sheet, Illinois has taken some
action. Staff has:

-   Amended the instructions for the e-grant system for the Consolidated
    Application for NCLB Funds. The following language is from the FY05
    instructions for the NCLB plan page in our e-grant application
    system. *"Planning should begin with a comprehensive needs
    assessment which should include a thorough review of school-level
    improvement plans and an assessment of students' progress in meeting
    academic*

Ms. Janice D. Keeney

May 5, 2005

Page 2

> a*chievement standards, a review of district and school progress in
> closing the achievement gap, and the determination of district
> progress in ensuring that all teachers are highly qualified. Once
> district and school needs have been identified and prioritized, grant
> resources should be targeted, as appropriate, to meet needs and
> priorities. As a part of the planning process, LEAs are encouraged to
> coordinate federal, state and local programs, funds, and services with
> the goal of improving instruction and student achievement and
> supporting educational reform. Plans should be updated annually and be
> available for review upon request. Grant expenditures should relate to
> needs identified in the district's NCLB and/or school improvement
> plan(s). **Please note** that if all required components are
> addressed, a school improvement plan may serve as the schoolwide or
> targeted assistance plan for the Title I program."* In FY06 a similar
> statement is being added to the Title I, Step 4 Targeting
> instructions.

-   Recent grant workshop instructions were amended to include specific
    mention of encouraging grant writers to review all eligible programs
    to find additional funds to support the Title I Schoolwide Programs.
    These workshops were conducted during the last two weeks of April
    2005.

-   We are reviewing the "*State and Federal Grant Administration Policy
    and Fiscal Requirements and Procedures"* for potential changes. It
    has not been amended in the last year.

Thank you for the opportunity to comment on the draft audit findings.

> Sincerely,
>
> /s/
>
> Randy J. Dunn
>
> State Superintendent of Education (Interim)

[^1]: Out of Illinois' 882 LEAs, 145 ran schoolwide programs in school
    year 2004-05.

[^2]: Because some LEAs gave more than one reason for not consolidating
    funds in their schoolwide programs, the total number of reasons
    listed does not equal the total number of LEAs we reviewed.

[^3]: Four schools we reviewed are not represented on this list because
    their LEAs handled their financial accounting and would have been
    the ones to make decisions about whether to consolidate funds.