### ![](media/image1.png){width="1.0208333333333333in" height="0.9895833333333334in"} UNITED STATES DEPARTMENT OF EDUCATION

##### OFFICE OF INSPECTOR GENERAL

###### THE INSPECTOR GENERAL

> **MAR 3 0 2007**

**Control Number**

**ED-OIG/A06G0002**

Raymond Simon

Deputy Secretary

U.S. Department of Education

400 Maryland Ave, SW, Room 7W310 Washington, DC 20202

Dear Mr. Simon:

This **Final Audit Report** presents the results of our audit of the
Individuals with Disabilities Education Act (IDEA), Part B requirements
at schools under the supervision of the Department of the Interior\'s
(Interior) Bureau of Indian Affairs (BIA). Our objective was to
determine whether the Department of Education\'s oversight of
Interior\'s IDEA, Part B programs was adequate to disclose potential
problems. Our review covered the period July 1, 2001, through September
30, 2003.

> **BACKGROUND**

The Department of Education (Department) provides funding for
disadvantaged and disabled students to the BIA through the Department of
the Interior. The BIA allocates these funds to elementary and secondary
schools operated or funded by the Secretary of the Interior, including
tribal-operated schools that are funded by the BIA. The BIA received
over \$111 million in IDEA, Part B ^l^ funds, which included
administrative and other non-direct service costs, for 7,474 students
with disabilities for fiscal years 2001-2002 and 2002-2003. Overall, the
Department provided over \$140 million in education funds to BIA in 2002
and \$188 million in 2003. During our two-year audit period, Interior
received over \$328^2^ million in funding from the Department.

The Department\'s Office of Special Education Programs (OSEP) provides
leadership and fiscal resources to assist State and local efforts to
educate children with disabilities to

\` Pursuant to 34 C.F.R. § 300.715(b), \"The Secretary provides amounts
to the Secretary of the Interior to meet the need for assistance for the
education of children with disabilities on reservations aged 5 to
21\.... The amount of the payment for any fiscal year is equal to 80
percent of the amount allotted\....\"

2 This figure includes \$138.9 million (\$111 million for 5-21 year olds
and \$27.8 million for 3-5 year olds) in IDEA, Part B; \$9.9 million in
IDEA, Part C; \$129.5 million in Title I; \$21.8 million in Title II;
\$16.2 million in Title IV; and \$12.1 million in various smaller
Department programs.

**400 MARYLAND AVE., S.W. WASHINGTON, D.C. 20202-1510\
*Our* mission is to *ensure* equal access to education and to promote
educational excellence throughout the Nation.**

improve results for those children and to ensure equal protection of the
law. Its programs assist public agencies to provide all infants,
toddlers, children, and youth with disabilities early intervention
services and a free appropriate public education, which emphasizes
challenging standards and access to the general curriculum to the extent
appropriate.

The Office of Indian Education Programs (OIEP),[^1] located within the
BIA in the Department of the Interior, provides technical assistance and
oversight responsibility for 185 BIA-funded elementary and secondary
schools and two post-secondary colleges. The Center for School
Improvement (CSI), a component of OIEP, is responsible for assisting
with the implementation of the policies, plans, regulations, and
guidelines of the OIEP. The CSI, located in Albuquerque, New Mexico,
carries out the OIEP's function as the State Education Agency (SEA) for
Department programs. To help manage the schools, BIA has 24 regional
agencies, called education line offices (line office) that are similar
to public school districts.

IDEA, Part B requires the Department to provide funds to the Secretary
of the Interior to assist in providing special education and related
services to children with disabilities. From the amount appropriated for
any fiscal year, the Department reserves 1.226 percent to provide
assistance to the Secretary of the Interior of which 80 percent is
allotted for serving children ages 5 through 21 with disabilities. From
the amount allotted for serving children ages 5 through 21, Interior may
use five percent of its payment for administrative costs. The Secretary
of the Interior is required to submit information to the Department that
it meets the requirements of IDEA. In addition, the Secretary of the
Interior provides several assurances, including an assurance that
Interior will cooperate with the Department in its compliance with
monitoring and oversight requirements.

AUDIT RESULTS

OSEP did not provide adequate oversight of BIA's IDEA, Part B programs
from September 2001 to September 2003. Although OIEP provided some
programmatic oversight of BIA programs in the form of comments and
feedback on the annual performance reports submitted by BIA, OSEP
officials did not perform sufficient on-site visits to BIA schools or
BIA offices in Albuquerque. As a result, the Department was unaware of
the inadequate documentation substantiating the special education and
related services provided by the schools to children with disabilities,
or the lack of accounting procedures at BIA to account for IDEA, Part B
funds. Consequently, the Department was unable to take timely corrective
action.

Subsequent to our audit period, several Department program offices,
including OSEP, required BIA to submit a corrective action plan. The
corrective action plan is a crosscutting effort by the Department to
address problems at BIA regarding the funding it receives through
various Department programs. BIA is required to submit quarterly updates
regarding its progress toward completing the milestones identified in
the corrective action plan. The corrective action plan contains steps to
address programmatic and fiduciary compliance. In addition, Department
staff conducts monthly teleconferences with BIA staff to provide
technical assistance.

We received your comments concurring with Recommendations 1.1 and 1.2,
generally concurring with Recommendation 1.3, and non-concurring with
Recommendation 1.4. The comments are summarized at the end of the
finding along with the OIG's response. The full text of your comments is
included as Attachment 2 to the report.

#### Finding: The Department Did Not Provide Adequate Oversight of IDEA, Part B

####  Programs

During our audit period, OSEP's limited monitoring of IDEA, Part B
programs at BIA and its associated schools was not sufficient to
identify and correct problems at BIA and its schools. For example, BIA
was unable to demonstrate that it provided the planned special education
and related services, in accordance with the Individualized Education
Programs (IEP), to 68 percent of the students in our sample at the seven
schools we audited. In addition, BIA was unable to adequately account
for the entire \$111 million of IDEA, Part B funds appropriated during
our audit period.

From 1998 to 2005, OSEP conducted two monitoring visits at various BIA
locations. The first of these monitoring visits occurred at seven
BIA-funded line offices and eight schools from September 1998 through
May 1999 (report dated April 2000); the second monitoring visit occurred
at two line offices, two schools, and the CSI offices in September 2005
(report dated January 2006). These reports contained findings regarding
BIA's compliance with IDEA, Part B requirements, including the lack of a
system-wide service coordination plan, failure to place students in the
least restrictive environment, lack of extended school year services for
all students who needed those services, and repeat deficiencies from
previous OSEP visits. However, OSEP's reports did not identify the
issues identified by the OIG regarding the lack of documentation for the
services provided by the schools or the lack of accounting procedures at
BIA (see Attachment 1 for the issues identified in the final BIA summary
report, A06F0019, dated March 28, 2007).

In addition to the monitoring visits, BIA submitted Annual Performance
Reports (APR) for OSEP's review. The APR contain numerous tables that
included, but were not limited to, personnel employed to provide special
education and related services for children with disabilities and a
report of children with disabilities exiting special education. The APR
did not contain the required financial or accounting information for the
IDEA, Part B funds.

We also identified a high level of non-direct expenditures during our
audit period. BIA is entitled to keep five percent of IDEA, Part B funds
for 5-21 year olds, for administrative purposes (34 C.F.R. §
300.262(a)). In addition, BIA used funds beyond the five percent
administrative fee for training to address identified needs for
in-service preparation and for the salaries of Special Education
Coordinators (SEC) at the area line offices. As a result, in FY
2002-2003, BIA reserved \$6 million for the Comprehensive System of
Personnel Development (CSPD) program (staff training), and over \$2.4
million for SECs' salaries in the line offices. This resulted in BIA
using approximately 19 percent of IDEA, Part B funds for non-direct
services in FY 2002-2003. Additionally, BIA used at least 10 percent of
the IDEA, Part B funds for non-direct services in 2001-2002. The exact
percentage of non-direct services could not be determined for FY
2001-2002 because of the lack of documentation at BIA. Due to BIA's high
level of non-direct expenditures, some students may not have received
required services.

######### Other Department Funds Might Be at Risk

BIA was unable to adequately account for the entire \$111 million of
IDEA, Part B funds appropriated during our audit period, and we
determined the remaining \$217 million in other Department funds might
be at risk. Several factors contributed to BIA being a potential
high-risk entity:

-   BIA was unable to provide reliable and usable information regarding
    the distribution of the IDEA, Part B funds to the schools. Funding
    data provided to the schools was incomplete and detailed expense
    reports were not always provided.

-   BIA was unable to adequately account for amounts expensed for the
    CSPD program, the SEC, and administrative costs. The amounts
    expensed for the CSPD program were available for 2002-2003 only.
    Although SEC and administrative costs were available for 2001-2002
    and 2002-2003, detailed expense reports were not available.

-   BIA did not have accounting procedures established to adequately
    account for IDEA, Part B funds expensed. For example, in 2001-2002,
    BIA could account for most IDEA, Part B funds disbursed directly to
    the tribal-operated schools. However, BIA could not account for
    IDEA, Part B funds disbursed to individual BIA-operated schools.

-   In 2002-2003, BIA budgeted \$6 million for CSPD of which \$5.3
    million was for contracts with colleges and universities (colleges)
    for various training programs. We reviewed expenditures for the four
    colleges and determined that none of the colleges expended all of
    their IDEA, Part B funds for 2002-2003. The four colleges had over
    \$1.7 million remaining in their accounts, before BIA obligated over
    \$2.2 million in IDEA, Part B funds for the next year. According to
    a BIA official, this was done to prevent the IDEA, Part B funds from
    being used for expenses incurred elsewhere within BIA. In addition,
    BIA de-obligated over \$400,000 in FY 2002-2003 IDEA, Part B funds
    from these four colleges and due to poor accounting records could
    not identify where the de-obligated funds went.

-   In July 2002, BIA in Albuquerque ran out of money, including IDEA,
    Part B funds, because it did not have a system established to track
    expenditures to the budgeted amount. Consequently, there were
    insufficient funds to cover the fourth quarter salaries that totaled
    approximately \$500,000, and BIA provided alternate BIA funds to
    cover the \$500,000 shortfall. When the BIA received the next year's
    (2002-2003) funds, \$500,000 was withheld from CSI's CSPD funds to
    reimburse BIA.

-   Interior's FY 2004 Performance and Accountability Report indicated
    that BIA needed to improve its financial management organization and
    processes. The independent auditors found that BIA financial
    management policies and procedures were not fully developed or
    consistently applied throughout BIA.

-   The Government Accountability Office's (GAO) September 2003 Report
    -- *Expenditures in Selected Schools Are Comparable to Similar
    Public Schools, But Data Are Insufficient to Judge Adequacy of
    Funding and Formulas* -- stated that most BIA school operating funds
    are provided by Interior through the standard Federal budget
    process; however, the agency has little financial data to inform its
    school budget proposals. Because BIA does not collect detailed
    expenditure data from its schools, GAO was unable to assess the
    overall adequacy of the funding.

Because BIA did not adequately account for the IDEA, Part B funds and it
functioned as the SEA for all other Department programs, we determined
that all Education funds administered by Interior, totaling over \$328
million during our audit period, might be at risk. Subsequently, the
Department has worked with BIA to develop a corrective action plan to
address a variety of issues at BIA. The corrective action plan contains
steps to address programmatic and fiduciary compliance including, but
not limited to, improving administrative, organizational, and management
capability and program and financial accountability. In addition, the
Department has imposed certain conditions on BIA's continuing
eligibility for IDEA, Part B funding.

**Recommendations**

We recommend that the Deputy Secretary---

1.  Continue with the implementation of the current corrective action
    plan; but if BIA deviates from the plan, or fails to successfully
    complete the plan, the Department's Management Improvement Team
    should evaluate whether to identify BIA as a high-risk entity.

2.  Instruct the applicable principal offices to coordinate with
    Interior to ensure BIA properly accounts for all Education funding
    received.

We also recommend that the Deputy Secretary instruct the Office of
Special Education and Rehabilitative Services to---

3.  Ensure that BIA monitoring teams include financial personnel, as
    well as programmatic personnel, to evaluate financial matters and
    check for compliance with financial requirements.

4.  Ensure that BIA complies with the limit for administrative
    expenditures contained in the IDEA Improvement Act of 2004 by
    disallowing any request from BIA for non-direct expenditures that
    would exceed the five percent administrative limit.

#### []{.mark}

#### [Auditee's Comments]{.underline}

The Deputy Secretary stated the Department believes that OSEP's
monitoring activities provided the needed oversight and identified the
substantive issues identified by the OIG. OSEP has implemented a
multi-faceted monitoring process that includes both off-site and on-site
oversight activities. Given the expense and complexity of on-site
monitoring along with the availability of communication technology, OSEP
has developed numerous methods for off-site monitoring. These activities
include, desk audits of BIA's general supervision, assessment and data
collection systems, and receiving and responding to self-assessments,
improvement plans, and Annual Performance Reports.

[]{.mark}

In addition, while conducting on-site monitoring, OSEP reviewed student
records and collected interview data from teachers, related services
providers and administrators regarding the provision of required special
education and related services as specified in children's IEPs. However,
no findings of noncompliance were made with regards to the provision of
special education and related services.

The Department concurred with Recommendations 1.1 and 1.2 and said it
has already taken steps to address the recommendations. Regarding
Recommendation 1.3, the Department stated that staff would be trained to
conduct monitoring of financial matters. However, it did not agree that
it is essential to have financial personnel on every monitoring visit
but rather financial personnel could be consulted prior to a visit or
requested to participate in visits to States that are at high risk for
financial mismanagement. The Department did not concur with
Recommendation 1.4 because it believes that it does not have legal
authority to instruct BIA to limit the amount of IDEA funds spent on
non-direct services. However, the Department said changes made by the
IDEA Improvement Act of 2004, enacted December 3, 2004, now require BIA
to allocate all Part B funds for the education of children with
disabilities aged 5 through 21, except for the five percent set-side for
administration, to BIA-funded schools. Therefore, BIA no longer has the
discretion to use IDEA funds for non-direct services.

######### OIG's Response

While we acknowledge that OSEP has provided both on and off-site
monitoring, as well as placing BIA on a corrective action plan, these
measures did not identify the significant financial issues presented in
this report. We do not agree that consulting with financial personnel
prior to a visit substitutes for having a financial person on site
reviewing documentation. Our audit work determined that BIA could not
adequately account for the entire \$111 million of IDEA, Part B funds
appropriated during our audit period and is at high risk for financial
mismanagement. Additionally, Interior's FY 2004 Performance and
Accountability Report indicated that BIA needed to improve its financial
management processes, and the independent auditors found that BIA
financial management policies and procedures were not fully developed or
consistently applied throughout BIA. Lastly, the GAO's September 2003
audit report determined that because BIA does not collect detailed
expenditure data from its schools, GAO was unable to assess the overall
adequacy of funding to the schools. Even with all this information at
hand, the Department did not identify that BIA had financial problems
and place them on a corrective action plan prior to our audit work.
Therefore, it is our opinion that off-site monitoring with programmatic
personnel and consultation with financial personnel before an actual
on-site monitoring visit will not identify future financial issues.
Therefore, we did not change Recommendation 1.3.

[]{.mark}

Regarding Recommendation 1.4, we identified a high level of non-direct
expenditures during our audit period. In July 2001, in response to a BIA
inquiry, OSEP officials agreed to BIA's request to use additional funds
beyond the five percent administrative fee. BIA used the funds for
training to address identified needs for in-service preparation and for
the salaries of the Special Education Coordinators at the area line
offices. The Department agreed to the expenditures, which resulted in at
least 10 percent of IDEA, Part B funds being used for non-direct
services in FY 2001- 2002 and 19 percent being used in FY 2002-2003. The
Department states that changes made in the IDEA Improvement Act of 2004,
20 U.S.C § 1411(h)(1)(A), limits BIA's discretion in the use of IDEA
funds for non-direct services. As a result, we have changed
Recommendation 1.4 to require the Department to ensure BIA complies with
the limit for administrative expenditures contained in the IDEA
Improvement Act of 2004 by disallowing any request from BIA for
non-direct expenditures that would exceed the five percent
administrative limit.

OBJECTIVE, SCOPE, AND METHODOLOGY

Our objective was to determine whether the Department of Education's
oversight of Interior's IDEA, Part B programs is adequate to disclose
potential problems.

To accomplish our objective, we---

-   Audited seven BIA schools (resulting in five audit reports), this
    work also included audit work at three line offices and the BIA
    office in Albuquerque, New Mexico.

-   Reviewed detailed expense reports and payroll information for IDEA,
    Part B expenditures for BIA and compared the information to budget
    information.

-   Reviewed Federal Distribution Documents (FDD) and other financial
    information at BIA.

-   Reviewed Department monitoring reports.

-   Interviewed various Department of Interior BIA officials in
    Albuquerque, New Mexico, and Washington, DC, line office officials,
    and school administrators.

-   Interviewed Department of Education officials.

BIA officials provided a document generated from the FDD system with
school IDEA, Part B funding levels. We determined this information to be
unusable because, although the FDD documents identified the total
funding amount, they did not break down the funding amounts to the
individual schools or to the line offices. Additionally, the FDD
information at BIA was incomplete and other financial data provided was
unreliable.

As part of our audit, we conducted an assessment of internal controls,
policies, procedures, and practices applicable to the Department's
oversight of BIA's administration of IDEA, Part B funds. Our testing
identified weaknesses in the Department of Education's oversight for
IDEA, Part B funds. These weaknesses are discussed in the AUDIT RESULTS
section of this report.

We conducted our fieldwork at BIA between September 2003 and June 2004.
We conducted our fieldwork at the Department during September 2003 and
January 2006, and we held an exit conference with Department officials
on August 2, 2006.

Our audit was performed in accordance with generally accepted government
auditing standards appropriate to the scope of the review described
above.

ADMINISTRATIVE MATTERS

Corrective actions proposed (resolution phase) and implemented (closure
phase) by your office will be monitored and tracked through the
Department's Audit Accountability and Resolution Tracking System
(AARTS). Department policy requires that you develop a final corrective
action plan (CAP) for our review in the automated system within 30 days
of the issuance of this report. The CAP should set forth the specific
action items, and targeted completion dates, necessary to implement
final corrective actions on the findings and recommendations contained
in this final audit report. An electronic copy of this report has been
provided to your Audit Liaison Officer.

In accordance with the Inspector General Act of 1978, as amended, the
Office of Inspector General is required to report to Congress twice a
year on the audits that remain unresolved after six months from the date
of issuance.

[]{.mark}

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.

If you have any questions, please call Sherri Demmel, Regional Inspector
General for Audit, at (214) 661-9526.

> Sincerely,
>
> /s/
>
> John P. Higgins, Jr.

Attachments

[]{.mark}

**Summary of Findings and Recommendations for the BIA Summary Report**

**(ACN A06F0019, dated March 28, 2007)**

The seven BIA schools reviewed did not administer IDEA, Part B funds in
accordance with applicable requirements, laws, and regulations and were
unable to demonstrate that 68 percent of the students in our sample
received the planned special education and related services in
accordance with their IEPs. In addition, because the CSI was unable to
adequately account for the entire \$111 million of IDEA, Part B funds
appropriated during our audit period, we determined that other
Department of Education funds also administered by Interior and valued
at over \$217[^2] million, might be at risk during the two-year audit
period.

#### Finding 1: IDEA, Part B, Special Education Services May Not Have Been Provided

####  to 5 through 21 Year Old Children With Disabilities

BIA was unable to demonstrate that the seven schools audited provided
the planned special education and related services in accordance with
their IEP to 68 percent of the students in our sample. Of the 194
students with disabilities we reviewed, 131 either did not receive the
services as described in their IEP, or we could not determine if they
were provided.

We concluded that these conditions occurred because school officials did
not have procedures in place to both ensure and document that special
education and related services were provided in accordance with the
student's IEP. Based on the high error rate found at the seven schools,
IDEA, Part B funds disbursed for these students may not have been
properly spent and students may not have received services they were
required to receive. In addition, because we found similar issues at all
seven schools, we believe the problems identified might be systemic
throughout BIA schools.

#### Recommendations

We recommended the Assistant Secretary for Special Education and
Rehabilitative Services---

1.  Obtain an assurance from BIA officials that the \$111 million of
    IDEA, Part B funds was used to deliver educational assistance to the
    children with disabilities at all of the BIA funded schools and
    return any funds not used for those purposes to the Department, to
    the extent authorized by law.

2.  Verify that BIA instructed all BIA funded schools to document all
    special education and related services provided to each current
    student with disabilities.

3.  Ensure the problems identified in our individual school audits are
    corrected at all BIA funded schools.

[]{.mark}

[]{.mark}

#### Finding 2: Other Department Funds Administered by the Department of the

##  Interior Might Be at Risk

In addition to the over \$111 million of IDEA, Part B funds received by
Interior during our audit period, Interior also received over \$217
million of additional funding from the Department of Education in other
program areas. Because CSI functioned as the SEA for all Department
programs and was unable to adequately account for the entire \$111
million of IDEA, Part B funds appropriated during our audit period, and
BIA did not use IDEA, Part B funds in accordance with applicable
requirements nor in a way that provided the most benefit to the 5-21
year olds for which those funds were appropriated, the additional \$217
million might be at risk.

#### [Inadequate Accounting of IDEA, Part B Funds]{.underline}

The data provided by the CSI was often unreliable and unusable. For
example, IDEA, Part B funding to schools was incomplete and detailed
expense reports were not always provided. The amounts expensed for the
CSPD program were available for 2002-2003 only. SEC and administrative
costs were available for 2001-2002 and 2002-2003, but detailed expense
reports were not available. In addition, the CSI did not have accounting
procedures established to adequately account for IDEA, Part B expended
funds.

Although BIA could account for some of the IDEA Part B funds disbursed
directly to the tribal-operated schools in 2001-2002, BIA could not
account for IDEA, Part B funds disbursed to individual BIA-operated
schools. They could not account for the funds because those funds were
distributed through the line office responsible for the school and
accounted for at the line office level. When IDEA, Part B funds were
distributed through the line offices, the Federal Distribution Documents
(FDD) did not always include the individual funding amounts to the
schools. The line offices visited could not always identify the amount
of IDEA, Part B funds to the schools. Additionally, the amount of IDEA,
Part B funds expensed for CSPD, SEC, and administrative costs could not
be determined because of inadequate documentation. Further, in July
2002, CSI had used all of its funds, including IDEA, Part B funds,
because it did not have a system established to track expenditures to
the budget amount. Consequently, there were not enough funds to cover
the fourth quarter salaries that totaled approximately \$500,000 and BIA
provided alternate BIA funds to be used to cover the \$500,000
shortfall. When the BIA received the next year's (2002-2003) IDEA, Part
B funds, \$500,000 was withheld from CSI's CSPD funds to reimburse BIA.

In 2002-2003, BIA changed the way funds were disbursed to the
BIA-operated schools; however, the funding information was still
unreliable. Some IDEA, Part B funds were directly disbursed to
BIA-operated and tribal-operated schools. But in other cases, IDEA, Part
B funds for the individual schools were disbursed to the line offices.

#### [Use of IDEA, Part B Funds]{.underline}

BIA did not use IDEA, Part B funds in a way that provided the most
benefit to the 5-21 year olds for which those funds were appropriated.
BIA is allowed to use five percent of IDEA, Part B funds, for 5-21 year
olds, for administrative purposes (34 C.F.R. § 300.262(a)). BIA used
more than five percent of the funds for training to address identified
needs for in-service preparation and for the salaries of SECs at the
area line offices. In FY 2002-2003, BIA reserved \$6 million for the
CSPD program and over \$2.4 million for SECs' salaries in the line
offices. As a result, BIA used about 19 percent of the IDEA, Part B
funds for non-direct services in FY 2002-2003. Additionally, BIA used at
least 10 percent of the IDEA, Part B funds for non-direct services in
2001-2002. The exact percentage of non-direct services could not be
determined for FY 2001-2002 because of the lack of documentation at BIA.
Due to BIA's high level of non-direct expenditures, some 5-21 year olds
may not have received the most benefit from the IDEA, Part B funds.

In 2002-2003, BIA budgeted \$6 million for CSPD of which \$5.3 million
was for contracts with colleges and universities (colleges) for various
training programs. We reviewed expenditures for four colleges and
determined that none of the colleges expended all of their IDEA, Part B
funds for 2002-2003. The four colleges had over \$1.7 million remaining
in their accounts, before BIA obligated over \$2.2 million in IDEA, Part
B funds for the next year. According to a BIA official, this was done to
prevent the IDEA, Part B funds from being used for expenses incurred
elsewhere within OIEP/CSI. In addition, BIA de-obligated over \$400,000
in FY 2002-2003 IDEA, Part B funds from these four colleges and due to
poor accounting records could not identify where the de-obligated funds
went.

We determined that these problems occurred because CSI had not
established accounting policies and procedures to account for
disbursements and expenditures. This resulted in inconsistencies in how
IDEA, Part B funds were requested and disbursed. Because BIA was unable
to demonstrate that planned special education and related services were
provided to 68 percent of the students in our sample and did not
properly account for the IDEA, Part B funds, we determined that all
Education funds administered by Interior, totaling over \$328 million,
might be at risk.

####### Recommendations

We recommended the Deputy Secretary---

1.  Coordinate with Interior to require BIA to account for the remaining
    \$217 million in other Department funds it received during the audit
    period or return those funds to the Department to the extent
    authorized by law.

[]{.mark}

We also recommended the Assistant Secretary for Special Education and
Rehabilitative Services instruct the BIA to---

2.  Establish written accounting policies and procedures to properly
    account for IDEA, Part B funds and all Department funds.

3.  Limit the amount of funds reserved for non-direct purposes.

The results of the seven BIA schools audited are located in the
following reports:

Fond du Lac: (A06E0001, dated August 30, 2004)

Circle of Nations: (A06E0002, dated December 9, 2004)

Eastern Navajo: (A06E0005, dated December 9, 2004)

Turtle Mountain High School: (A06E0010, dated December 13, 2004)

Turtle Mountain Elementary and Middle Schools: (A06E0011, dated December
13, 2004)

UNITED STATES DEPARTMENT OF EDUCATION\
OFFICE OF THE DEPUTY
SECRETARY![](media/image2.png){width="0.9034722222222222in"
height="0.8298611111111112in"}

September 25, 2006

Mr. John P. Higgins, Jr. Inspector General

Office of the Inspector General

U.S. Department of Education

400 Maryland Ave, SW Washington, DC 20202

Dear Mr. Higgins:

Thank you for the opportunity to comment on the Office of Inspector
General\'s (OIG) Draft Audit Report, \"Department of Education\'s
Oversight of Department of Interior\'s (Interior) IDEA, Part B
Programs,\" (ED-OIG/A06G0002) dated August 25, 2006. The objective of
this review was to determine whether the Department of Education\'s
(Department) oversight of Interior\'s Individuals with Disabilities
Education Act (IDEA), Part B programs was adequate to disclose potential
problems. The fieldwork was conducted between November 2003 and June
2004 and audited funds for July 1, 2001 through September 30, 2003.

The draft report summarizes the results of the audit and finds the
Office of Special Education Programs (OSEP) did not provide adequate
oversight of the Bureau of Indian Affairs\' (BIA)^1^ IDEA, Part B
programs from September 2001 to September 2003. The report contends that
OSEP\'s monitoring of BIA was limited and, as a result, did not uncover
problems at BIA and its schools that needed to be identified and
corrected. Additionally, since BIA was unable to adequately account for
the entire \$111 million in IDEA, Part B funds appropriated during the
audit period, the OIG determined the remaining \$217 million in other
Department funds provided to BIA during the two-year audit period were
at risk.

It is important to provide clarification regarding Department monitoring
activities during the audit period since we believe that OSEP\'s
monitoring activities in fact provided the needed oversight and
identified the substantive issues identified by the 01G. OSEP has
implemented a multi-faceted monitoring process that includes off-site
and on-site oversight activities. During the period of the audit OSEP
completed desk audits of BIA\'s general supervision, assessment and data
collection systems. In addition, OSEP received and responded to a
self-assessment, improvement plan and Annual Performance Report. OSEP
also reviewed data reported by the BIA under section 618 of the IDEA to
determine areas of poor performance. BIA was required

^1^ Interior recently reorganized its Office of Indian Education
Programs (OIEP) creating a Bureau of Indian Education (BIE). The BIE
will be a co-equal bureau with the Bureau of Indian Affairs and will
report directly to the Assistant Secretary of Indian Affairs. The Center
for School Improvement (CSI) that serves as the State Education Agency
(SEA) is now the Division of Compliance, Monitoring and Accountability
(DCMA). For purposes of this response, all references will be to the
entities as structured during the audit period.

***Our mission is to ensure equal access to education and to promote
educational excellence throughout the Nation.***

to complete corrective actions related to placement in the least
restrictive environment, extended school year services, Statewide
assessment, secondary transition, dispute resolution, and failure to
correct noncompliance. Given the expense and complexity of on-site
monitoring along with the availability of communication technology, OSEP
has developed numerous methods for off-site monitoring. These methods
allow OSEP to maintain more frequent oversight of State performance
rather than waiting for a State to come up in the cycle. Other Offices
in the Department are employing similar off-site methods, e.g., desk
audits, data review, and annual performance reports, to monitor
performance and compliance. In addition, OSEP had several meetings with
BIA staff who are located here in DC to discuss BIA\'s IDEA Eligibility
Document and its Improvement Plan, which was developed to address
noncompliance.

Related to the issue of BIA schools ensuring the provision of needed
special education and related services, OSEP has monitored this issue
and required corrective action. Specifically, as a part of OSEP\'s
1998-99 monitoring visits to BIA-funded schools in three States (New
Mexico, North Dakota, South Dakota), OSEP collected extensive data,
including parent input, regarding BIA\'s compliance with IDEA
requirements. OSEP reviewed student records and collected interview data
from teachers, related services providers and administrators regarding
the provision of required special education and related services as
specified in children\'s individualized education programs. OSEP
determined that BIA did not ensure that children with disabilities who
needed extended school year services received such services. However, no
other findings of noncompliance were made with regard to the provision
of special education and related services. Because IDEA does not require
that schools maintain logs demonstrating that special education and
related services were provided, OSEP supplemented its record review with
extensive interviews. In no case did the respondents indicate that
children with disabilities were not provided needed services.

The Department would like to respond directly to the specific
recommendations in this report:

**Recommendation 1.1:**

**Continue with the implementation of the current corrective action
plan, but if BIA deviates from the plan, or fails to successfully
complete the plan, consider identifying BIA as a high-risk entity.**

> The Department concurs with this recommendation. In April 2005, the
> Undersecretary of the Department met with the Acting Deputy Secretary
> of Interior and the Acting Assistant Secretary of Indian Affairs to
> convey that the Department considered its funds at risk and required
> Interior to submit a corrective action plan. With technical assistance
> provided by the Department, in August 2005, Interior submitted a
> cross-cutting comprehensive
>
> corrective action plan (CAP) that contains steps to address
> programmatic and fiduciary compliance including, but not limited to,
> improving administrative, organizational, and management capability
> and program and financial accountability. BIA submits quarterly
> reports to the Department on its progress in implementing the CAP. The
> Department monitors the implementation of the plan through both the
> review of the quarterly reports and monthly teleconferences with BIA
> staff to provide technical assistance. The Department plans on
> continuing this activity until the successful completion of the plan.
> If the Department concludes that BIA is not successfully executing its
> plan, it will consider taking further action that could include
> identifying BIA as a high-risk entity and imposing special conditions
> on BIA\'s receipt of grant funds.

***Our mission is to ensure equal access to education and to promote
educational excellence throughout the Nation.***

**Recommendation 1.2:**

**Instruct the applicable principal offices to coordinate with Interior
to ensure BIA properly accounts for all Education funding.**

> The Department concurs with this recommendation and has undertaken
> several oversight and technical assistance activities to coordinate
> with Interior to ensure BIA properly accounts for Education funding.
> For example, on August 17, 2006 Department Program Offices (including
> offices which administer the Title I, Part A; Title II, Part A; Title
> IV; and IDEA programs) participated in a teleconference with the
> Center for School Improvement (CSI) and the BIA education line
> officers to discuss accountability provisions of both IDEA and the
> Elementary and Secondary Education Act (ESEA), as amended. The BIA
> convenes quarterly meetings with its education line officers. The
> Department has committed to participate in these meetings to provide
> technical assistance and to coordinate with Interior as it implements
> program improvement and accountability. Attachment A provides a
> chronology of additional oversight and technical assistance activities
> undertaken by the Department in coordination with Interior from March
> 2005 to the present.

**Recommendation 13:**

**Ensure that monitoring teams include financial personnel, as well as
programmatic personnel, to evaluate financial matters and check for
compliance with financial requirements.**

> The Department generally concurs with this recommendation.
> Specifically, we agree with the need to check for compliance with
> financial requirements and OSEP has developed extensive procedures for
> monitoring financial matters, both on- and off-site. The procedures
> are being piloted with four States this fall and will be revised, as
> needed, based on the pilots. Full implementation of the procedures
> will occur in 2007. In addition, staff will be trained to conduct
> monitoring of financial matters. We do not agree that it is essential
> to have financial personnel on every monitoring visit but rather
> financial personnel could be consulted prior to a visit or requested
> to participate in visits to States that are at high risk for financial
> mismanagement.

**Recommendation 1.4:**

**Limit the amount of funds BIA reserves for non-direct purposes.**

> We cannot concur with the recommendation that OSERS instruct the BIA
> to limit the amount of funds reserved for non-direct purposes. The
> Department does not have the legal authority to instruct the BIA to
> limit the amount of IDEA funds spent on non-direct services because
> there is no requirement in IDEA that States or the BIA limit the
> amount of funds reserved for non-direct services. During the audit
> period, it was permissible for the BIA to use Part B funds not
> set-aside for administration for training to address identified needs
> for in-service personnel preparation and to pay the salaries of
> Special Education Coordinators to the extent they were carrying out
> activities on behalf of the schools. (20 U.S.C. §§1412(a)14) and
> 1413(a)(2)(A) and 34 CFR §§300.230(a), 300.260, 300.267 and
> 300.380)^\"^ Furthermore, without any knowledge of the amount other
> States spend on non-direct services, there is no basis for concluding
> that the amount the BIA spent on non-direct services during the audit
> period was too high.

^2^ These citations are to provisions of IDEA and regulations in effect
during the audit period. The IDEA Improvement Act of 2004, enacted on
December 3, 2004, reauthorized and made significant changes to IDEA. On
August 14, 2006, final regulations implementing the IDEA Improvement Act
of 2004 were published.

***Our mission is to ensure equal access to education and to promote
educational excellence throughout the Nation.***

> More importantly, changes made by IDEA 2004 now require the BIA to
> allocate all Part B funds for the education of children with
> disabilities aged 5 through 21, except for the 5% set-aside for
> administration, to BIA-funded\[ schools. See 20 U.S.C. §1411(h)(1)(A).
> Therefore, BIA no longer has the discretion to use IDEA funds for
> non-direct services.

We hope that this response will further your efforts to support the
Department goals of improving the management of Federal resources and
strengthening overall accountability.

> Sincerely,
>
> /s/
>
> Raymond Simon

Enclosure

> ***Our mission is to ensure equal access to education and to promote
> educational excellence throughout the Nation.***

**Attachment A**

Chronology\
Department of Education (ED)\
Oversight and Technical Assistance Activities with the\
Department of Interior\'s Bureau of Indian Affairs\'\
Office of Indian Education Programs (DOI/BIA/OIEP)

**3/16/05---As** a result of the Operating Effectiveness meetings
initiated by Undersecretary Edward R. McPherson, an initial internal
planning meeting is convened to develop a plan to address, in a
department-wide fashion, Program Office issues/concerns with
DOI/BIA/OIEP\'s administration of Education funds.

**4/21/05**---Undersecretary McPherson convenes a meeting with Lynn
Scarlett, Acting Deputy Secretary of DOI to present ED\'s concerns
regarding DOI/BIA/OIEP\'s administration of ED funds and outlines ED\'s
plans to work with DOI/BIA/OIEP to improve educational outcomes for
Indian children. Undersecretary McPherson conveys to Deputy Secretary
Scarlett that ED considers federal ED dollars at risk. At this meeting
Deputy Secretary Scarlett reports Jim Cason, Associate Deputy Secretary,
DOI, has assumed the responsibilities of the Assistant Secretary of
Indian Affairs and will be addressing management issues at the BIA.

**5/3/05**---Meeting between Undersecretary McPherson and Associate
Deputy Secretary Cason to discuss plan of action to address
DOI/BIA/OIEP\'s administration of ED funds. Mr. McPherson conveys that
ED considers BIA to be in a high-risk situation and he requires DOI to
submit a corrective action plan (CAP) to ED within 30 days. Mr. Cason
requests assistance in developing the CAP.

**5/20/05---In** response to Mr. Cason\'s request for assistance in
developing DOI\'s CAP, a half-day session is held with ED staff and
DOI/BIA/OIEP staff to provide technical assistance in the development of
the CAP.

**5/27/05**---ED provides additional technical assistance to
DOI/BIA/OIEP via email as follow-up to the 5/20/05 meeting.

**6/03/05---DOI** submits its first draft of a corrective action plan to
ED. The initial draft of the CAP needs revision and ED Program offices
are tasked by Undersecretary McPherson to provide feedback to
DOI/BIA/OIEP.

**6/17/05**---ED internal discussion regarding whether to impose special
conditions on receipt of ED funds. Undersecretary McPherson tasks the
Program offices with drafting special conditions to share with the
Office of General Counsel (OGC).

**6/20/05---ED** revises the OIEP corrective action plan for transmittal
to DOI.

**6/28/05---In** consultation with General Counsel, Undersecretary
McPherson decides not to put DOI/BIA/OIEP on high risk and impose
special conditions at this time. Rather, a decision is made to allow
DOI/BIA/OIEP to submit its corrective action plan in final form and for
ED to document compliance issues via the joint department-wide
monitoring visit planned for 9/05. As a result of this determination,
Mr. McPherson sends a letter to Mr. Cason outlining ED\'s

***Our mission is to ensure equal access to education and to promote
educational excellence throughout the Nation.***

expectations, including that the final corrective action plan is due to
ED, that we will be requiring quarterly progress reports and if ED
concludes that BIA is not successfully executing its plan, that we will
consider taking further action that could include the establishment of
special conditions on BIA\'s receipt of grant funds.

**7/28/05---ED** meets with DOl/BIA/OIEP staff to discuss/explain the
revisions ED made to DOI\'s corrective action plan.

**8/08/05---Lynn** Scarlett, Deputy Secretary, DOI submits DOI\'s final
corrective action plan to ED (referred to as a \"Program Improvement and
Accountability Plan\" (PIAP)).

**8/29/05-8/31/05---ED** participates in DOI/BIA/OIEP\'s tribal
consultation meetings concerning OESE\'s Transfer of funds Memorandum of
Agreement with OIEP.

**7/05-9/05---ED** plans and executes a joint monitoring visit of
BIA/OIEP federal ED programs as part of ED\'s overall action plan to
document compliance/non-compliance with ED programs. Three ED offices
(Office of Elementary and Secondary Education (OESE), Office of Special
Education and Rehabilitative Services (OSERS), Office of the Chief
Financial Officer (OCFO)) and several ED programs (Title I, Part A;
Title II, Part A; Homeless Education; and IDEA, Part B) participate in
the review and issue monitoring reports.

**10/31/05---First** Quarterly Progress Report of the Corrective Action
Plan is submitted to ED.

**11/05\--** As a result of the monitoring visit and the corrective
action plan objectives regarding improved communication, monthly
teleconferences are established with BIA/OIEP and Department of
Education staff in order to provide timely technical assistance and
oversight.

**12/12/05**---ED meets with DOI staff (Abe Haspel, Assistant Deputy
Secretary, DOI) to discuss implementation of the corrective action plan
and the status of BIA\'s restructuring efforts.

**1/06**\-- Informal monthly meetings are initiated between ED and DOI
legal staff to discuss and work through some of the more difficult
issues presented by the conflicts between DOI and ED statutes.

**1/14/06---Second** Quarterly Progress Report of the Corrective Action
Plan is submitted to ED.

**2/06-4/06\--** Planning is initiated for a major technical assistance
conference to be jointly sponsored by BIA/OIEP and ED. It is anticipated
that approximately 1000 participants, including BIA/OIEP staff, tribally
controlled school staff, parents, and board members will attend. The
conference was scheduled for August 1, 2, and 3, but was postponed due
to the restructuring of OIEP and the arrival of new leadership. It is
now anticipated that the TA conference will occur after October 1 once
the restructuring at BIA is complete and new staff members are on-board.
This Department-wide crosscutting effort will include participation from
OESE, Office of English Language Acquisition (OELA), OSERS, Office of
Safe and Drug-Free Schools (OSDFS), and OCFO.

**5/18/06\--** Third Quarterly Progress Report of the Corrective Action
Plan is submitted to **ED.**

**6/11/06---DOI** hires a permanent Director for its newly established
Bureau of Indian Education. The OIEP has been elevated to a bureau
called the Bureau of Indian Education (BIE) that is co-equal to the
Bureau of Indian Affairs and reports directly to the Assistant Secretary
of Indian

***Our mission is to ensure equal access to education and to promote
educational excellence throughout the Nation.***

Affairs. BIE is in the process of hiring several new SES level executive
staff to increase accountability. The new structure and new staff should
be fully in place by Oct. 1.

**6/27/06**---Several senior level ED staff members meet with the new
director of the BIE, Mr. Thomas Dowd. He discusses the corrective action
plan and affirms his commitment to its implementation.

**8/11/06**---Final Quarterly Report of the Corrective Action Plan for
2005-2006 is submitted to **ED.**

**8/17/06**\--Department Program Offices (including offices which
administer the Title I, Part A; Title II, Part A; Title IV; and IDEA
programs) participate in a teleconference with OIEP and the education
line officers to discuss accountability provisions of both IDEA and the
Elementary and Secondary Education Act (ESEA), as amended, to assist
BIA/OIEP as it implements program improvement and accountability.

***Our mission is to ensure equal access to education and to promote
educational excellence throughout the Nation.***

[^1]: Interior recently reorganized OIEP creating a Bureau of Indian
    Education (BIE). The BIE will be a co-equal bureau with the Bureau
    of Indian Affairs and will report directly to the Assistant
    Secretary of Indian Affairs. The Center for School Improvement (CSI)
    that serves as the State Education Agency (SEA) is now the Division
    of Compliance, Monitoring, and Accountability (DCMA). For purposes
    of this report, all references will be to the entities as structured
    during the audit period.

[^2]: This figure includes \$27.8 million for 3-5 year olds in IDEA,
    Part B; \$9.9 million in IDEA, Part C; \$129.5 million in Title I;
    \$21.8 million in Title II; \$16.2 million in Title IV; and \$12.1
    million in various smaller Department programs.