> ![](media/image1.png){width="0.9in"
> height="0.8604166666666667in"}**UNITED STATES DEPARTMENT OF
> EDUCATION**

OFFICE OF INSPECTOR GENERAL

Audit Services

Chicago/Kansas City Audit Region

September 27, 2007

> **Control Number**
>
> **ED-OIG/A05G0020**

Dr. Joseph B. Morton

State Superintendent of Education

Alabama State Department of Education

50 North Ripley Street

P.O. Box 302101

Montgomery, Alabama 36104

Dear Dr. Morton:

This **Final Audit Report** presents the results of our audit of the
Alabama State Department of Education's (ALSDE) and two selected Alabama
local educational agencies' (LEA) compliance with selected Hurricane
Education Recovery Act, Emergency Impact Aid (EIA) program requirements.
The objectives of our audit were to determine if the (1) ALSDE and two
selected Alabama LEAs established adequate systems of internal control
to provide accurate displaced student count data to the U.S. Department
of Education (Department); (2) ALSDE established an adequate system of
internal control to make accurate allocations of EIA funds; and (3) two
selected LEAs used EIA funds only for expenditures within the cost
categories allowed by the terms of the grant and applicable laws and
regulations. Our audit covered the period September 1, 2005, through
September 30, 2006.

We provided a draft of this report to ALSDE for review and comment on
March 9, 2007. In its comments, dated April 4, 2007, ALSDE disagreed
with our finding and recommendations, stating that the finding is based
on an assessment of data that it did not use to request EIA funding. The
assessment is based on data from the Software Technology Inc. (STI)
system, and ALSDE states that it did not use this data to request EIA
funding from the Department. We held a discussion with ALSDE officials
on June 26, 2007, to obtain a further understanding of their comments
and the data used to request EIA funding.

Where appropriate, we have incorporated into this report summaries of
ALSDE's comments and our responses. In response to the comments received
and our subsequent discussion with ALSDE officials, we made changes to
the report to clarify our use of ALSDE's STI data. However, we did not
change our finding or recommendations, because ALSDE did not provide
evidence demonstrating the facts presented in the finding are incorrect.
ALSDE's written comments are included in their entirety as an attachment
to this report.

BACKGROUND

In 2005, Hurricanes Katrina and Rita had a devastating and unprecedented
impact on students who attended schools in the declared disaster
areas---Louisiana, Mississippi, Alabama, and Texas. Because of the
devastating effects, a significant number of students enrolled in
schools outside the area in which they resided before the hurricanes.
Districts generally enrolled displaced students quickly under difficult
circumstances. The large number of displaced students in some districts
led to a strain on classroom space, books, teachers, school buses, bus
drivers, and counseling services. In addition, displaced students'
records often were not immediately available to their new districts. As
a result, districts often enrolled students based on information
provided by parents about grade level, disability status, and other
factors.[^1]

In response to these extraordinary conditions, Congress created a
one-time only emergency grant for the 2005-2006 school year. On December
30, 2005, the President signed into law the Hurricane Education Recovery
Act (Division B, Title IV of P.L. 109-148) (HERA). The legislation
authorized three new grant programs to help school districts and schools
to reopen quickly and meet the educational needs of displaced students.
The HERA programs included

\(1\) Immediate Aid to Restart School Operations; (2) Assistance for
Homeless Youth (Homeless Youth); and (3) EIA. The EIA program provided
funding to state educational agencies (SEAs) to cover the cost of
educating students who were displaced by Hurricanes Katrina and Rita.
Congress initially appropriated \$645 million for the EIA program. It
then added \$235 million in a supplemental spending bill approved June
15, 2006.

To receive EIA funding, eligible SEAs provided quarterly enrollment
counts of displaced students and other information to the Department.
HERA defined displaced students as those students who, on August 22,
2005, resided in, and were enrolled in a school in an area which the
federal government declared a major disaster area related to Hurricanes
Katrina or Rita and, as a result of their displacement by the storms,
were subsequently enrolled in a school other than their normal school on
specific quarterly count dates.

The Department agreed to make four quarterly payments to the SEAs of
\$1,500 per displaced student without disabilities and \$1,875 per
displaced student with disabilities. ALSDE established four specific
count dates---September 21, 2005; November 21, 2005; January 23, 2006;
and March 22, 2006. The Department obligated \$36,605,250 in EIA funds
for ALSDE. As of December 28, 2006, ALSDE had provided \$36,355,891 to
its LEAs. ALSDE allocated the EIA funds to the LEAs based on their
quarterly displaced student counts, providing \$15,706,125 to the Mobile
LEA and \$2,262,375 to the Baldwin LEA.

Mobile used its approximately \$15.7 million in EIA funds for personnel,
telephone, garbage, electricity, supplies, and transportation expenses.
Baldwin used its approximately \$2.3 million in EIA funds for portable
classrooms, materials and supplies, textbooks, transportation, and
personnel expenses.

According to Section 107(e)(1) of the HERA, the authorized uses of EIA
funds include compensation of personnel, classroom supplies, mobile
educational units, educational services, reasonable transportation
costs, health and counseling services, and education and support
services. The Department informed the SEAs and LEAs that, while
activities and services must be related to serving displaced students,
there is no requirement that they be provided only to those students. In
addition, LEAs are not required to track expenditures for displaced
students separately from their other expenditures. LEAs may make
flexible use of EIA funds and use EIA funds for pre-award costs.

AUDIT RESULTS

ALSDE established an adequate system of internal control to ensure
accurate allocations of EIA funds to eligible LEAs. In addition, the two
Alabama LEAs (Mobile and Baldwin) we audited used EIA funds only for
expenditures within the cost categories allowed by the terms of the
grant and applicable law and regulations.

However, ALSDE and the two LEAs we audited did not establish adequate
systems of internal control to provide accurate displaced student count
data to the Department by the date (April 30, 2006) final counts were
due. Due to the inadequate systems of internal control, ALSDE's
quarterly displaced student count data included students who should not
have been included in the counts and students whose documentation did
not support their classifications as students with disabilities. As a
result, ALSDE received about \$4.5 million more in EIA funds than it
should have received.

**Finding: Stronger Controls Needed Over the Displaced Student Count
Data**

ALSDE did not report accurate quarterly displaced student counts to the
Department. ALSDE's quarterly displaced student counts (1) included
students who did not meet the definition of a displaced student, (2)
included students classified as students with disabilities without
documentation supporting such a classification, (3) included students
more than once (duplicates), and (4) were not completely supported by
ALSDE's and/or the two LEAs' records.

ALSDE used data from its STI system as a baseline for deriving each
LEA's total number of displaced students for each of its quarterly
displaced student counts. ALSDE sent the baseline numbers (total count
for the quarter, without names) to the LEAs and asked them to confirm or
correct the numbers. ALSDE queried the STI data to obtain a list of
names for each of the four quarterly displaced public student counts. We
used the STI data because a comprehensive list of names did not exist
for the quarterly displaced public school student counts. We determined
the STI data was sufficient for obtaining a list of names of the
displaced public school student counts. The STI data was sufficient
because ALSDE used the STI data as the basis for the quarterly displaced
public school student counts. The quarterly displaced non-public student
counts ALSDE provided us included names.

**Counts Included Students Who Did Not Meet the Definition of a
Displaced Student**

According to the HERA, Subtitle A, Section 107(b)(1), the term
"displaced student" means a student who enrolled in an elementary school
or secondary school (other than the school that the student was enrolled
in, or was eligible to be enrolled in, on August 22, 2005) because such
student resides or resided, on August 22, 2005, in an area for which a
major disaster had been declared. The Mobile LEA's quarterly displaced
student counts included students whose homes were destroyed, but the
students were enrolled in the same school both before and after
Hurricane Katrina.

We randomly selected 300 of the 7,480 Mobile students shown as displaced
per the STI system and the list of non-public school students ALSDE
provided for the counts taken on September 21, 2005, November 21, 2005,
and January 23, 2006.[^2] We reviewed supporting documentation,
including student files, to determine whether the displaced student
counts included only eligible students and that the Mobile LEA had
documentation to support classifying students as students with
disabilities. Of the 300 students, 96, or 32 percent, did not meet the
definition of a displaced student because they were enrolled in the same
school both before and after Hurricane Katrina (See Table 1).

**Table 1: Mobile LEA Testing of Displaced Students**[^3]

+--------+--------+---+---------+---+-------+----------+----------+----------+
|        | St     |   |         |   |       | Students |          |          |
|        | udents |   |         |   |       | With     |          |          |
|        | W      |   |         |   |       | Disa     |          |          |
|        | ithout |   |         |   |       | bilities |          |          |
|        | Disabi |   |         |   |       |          |          |          |
|        | lities |   |         |   |       |          |          |          |
+--------+--------+---+---------+---+-------+----------+----------+----------+
| Count  | Popu   |   | Errors/ |   | Error | Po       | Errors/  | Error    |
|        | lation |   |         |   | Rate  | pulation |          | Rate     |
|        |        |   | Sample  |   |       |          | Sample   |          |
|        |        |   | Size    |   |       |          | Size     |          |
+--------+--------+---+---------+---+-------+----------+----------+----------+
| 9/2    | 2,270  | 1 |         | 3 |       | 362      | 16/50    | 32%      |
| 1/2005 |        | 7 |         | 4 |       |          |          |          |
|        |        | / |         | % |       |          |          |          |
|        |        | 5 |         |   |       |          |          |          |
|        |        | 0 |         |   |       |          |          |          |
+--------+--------+---+---------+---+-------+----------+----------+----------+
| ###    | 2,126  | 1 |         | 3 |       | 386      | 17/50    | 34%      |
| # 11/2 |        | 5 |         | 0 |       |          |          |          |
| 1/2005 |        | / |         | % |       |          |          |          |
|        |        | 5 |         |   |       |          |          |          |
|        |        | 0 |         |   |       |          |          |          |
+--------+--------+---+---------+---+-------+----------+----------+----------+
| 1/2    | 1,938  | 1 |         | 2 |       | 398      | 17/50    | 34%      |
| 3/2006 |        | 4 |         | 8 |       |          |          |          |
|        |        | / |         | % |       |          |          |          |
|        |        | 5 |         |   |       |          |          |          |
|        |        | 0 |         |   |       |          |          |          |
+--------+--------+---+---------+---+-------+----------+----------+----------+
| ####   | **6    | * |         | * |       | *        | **       | **33%**  |
| TOTALS | ,334** | * |         | * |       | *1,146** | 50/150** |          |
|        |        | 4 |         | 3 |       |          |          |          |
|        |        | 6 |         | 1 |       |          |          |          |
|        |        | / |         | % |       |          |          |          |
|        |        | 1 |         | * |       |          |          |          |
|        |        | 5 |         | * |       |          |          |          |
|        |        | 0 |         |   |       |          |          |          |
|        |        | * |         |   |       |          |          |          |
|        |        | * |         |   |       |          |          |          |
+--------+--------+---+---------+---+-------+----------+----------+----------+

According to *Volume I Revised, Frequently Asked Questions, Emergency
Impact Aid for Displaced Students, February 2, 2006,* displaced students
are those students who, as a result of their displacement by the storm,
are enrolled in different schools on a date on which an enrollment count
is taken. The Baldwin LEA's quarterly displaced student counts included
one student whose enrollment date was after ALSDE's specified enrollment
count date of September 21, 2005.

We randomly selected 212 of the 1,124 Baldwin students shown as
displaced per the STI system and the list of non-public school students
ALSDE provided for the counts taken on September 21, 2005, November 21,
2005, and January 23, 2006. We reviewed supporting documentation,
including student files, to determine whether the displaced student
counts included only eligible students and that the Baldwin LEA had
documentation to support classifying students as students with
disabilities. Of the 212 students, 1 did not meet the definition of a
displaced student because the student was not enrolled in a different
school on a date on which an enrollment count was taken (See Table 2).

Table 2: Baldwin LEA Testing of Displaced Students[^4]

+--------+--------+---+---------+---+-------+----------+----------+----------+
|        | St     |   |         |   |       | Students |          |          |
|        | udents |   |         |   |       | With     |          |          |
|        | W      |   |         |   |       | Disa     |          |          |
|        | ithout |   |         |   |       | bilities |          |          |
|        | Disabi |   |         |   |       |          |          |          |
|        | lities |   |         |   |       |          |          |          |
+--------+--------+---+---------+---+-------+----------+----------+----------+
| Count  | Popu   |   | Errors/ |   | Error | Po       | Errors/  | Error    |
|        | lation |   |         |   | Rate  | pulation |          | Rate     |
|        |        |   | Sample  |   |       |          | Sample   |          |
|        |        |   | Size    |   |       |          | Size     |          |
+--------+--------+---+---------+---+-------+----------+----------+----------+
| 9/2    | 489    | 1 |         | 2 |       | 54       | 0/27     | 0%       |
| 1/2005 |        | / |         | % |       |          |          |          |
|        |        | 5 |         |   |       |          |          |          |
|        |        | 0 |         |   |       |          |          |          |
+--------+--------+---+---------+---+-------+----------+----------+----------+
| ###    | 284    | 0 |         | 0 |       | 39       | 0/20     | 0%       |
| # 11/2 |        | / |         | % |       |          |          |          |
| 1/2005 |        | 5 |         |   |       |          |          |          |
|        |        | 0 |         |   |       |          |          |          |
+--------+--------+---+---------+---+-------+----------+----------+----------+
| 1/2    | 228    | 0 |         | 0 |       | 30       | 0/15     | 0%       |
| 3/2006 |        | / |         | % |       |          |          |          |
|        |        | 5 |         |   |       |          |          |          |
|        |        | 0 |         |   |       |          |          |          |
+--------+--------+---+---------+---+-------+----------+----------+----------+
| ####   | **1    | * |         | * |       | **123**  | **0/62** | **0%**   |
| TOTALS | ,001** | * |         | * |       |          |          |          |
|        |        | 1 |         | 0 |       |          |          |          |
|        |        | / |         | . |       |          |          |          |
|        |        | 1 |         | 7 |       |          |          |          |
|        |        | 5 |         | % |       |          |          |          |
|        |        | 0 |         | * |       |          |          |          |
|        |        | * |         | * |       |          |          |          |
|        |        | * |         |   |       |          |          |          |
+--------+--------+---+---------+---+-------+----------+----------+----------+

Displaced Students Classified as Students with Disabilities without
Sufficient Support

The Mobile and Baldwin LEAs' quarterly displaced student counts included
students classified as students with disabilities. However, the LEAs
could not provide documentation such as Individualized Education
Programs (IEP) showing that the displaced students were appropriately
classified as students with disabilities.

According to the HERA, Subtitle A, Section 107(c)(2)(A)(i), the LEA
shall indicate the number of displaced students, including the number of
displaced students who are students with disabilities. The Department
informed SEAs and LEAs that such classifications must be supported by
records. According to *Volume I Revised, Frequently Asked Questions,
Emergency Impact Aid for Displaced Students, February 2, 2006,* LEAs
should identify students with disabilities by determining the students'
eligibility for services under the Individuals with Disabilities Act. In
addition, LEAs must keep (1) auditable records documenting the
enrollments of displaced students whom they claimed as a basis for
receiving payments and (2) evidence that the students claimed met the
definition of a displaced student. The full requirements regarding
recordkeeping are in the Department's regulations at 34 C.F.R. § 80.42.

We randomly selected 150 of the 1,146 Mobile displaced students shown as
students with disabilities per the STI system and the list of non-public
school students ALSDE provided for the counts taken on September 21,
2005, November 21, 2005, and January 23, 2006. Of the 150 students, 23,
or 15 percent, did not have IEPs to support such a classification (See
Table 3).

### Table 3: Mobile LEA Students With Disabilities

+-------------------+-----------+-----------+-----------+------------+
| Count             | P         | Sample    | Errors    | Error Rate |
|                   | opulation | Size      |           |            |
+-------------------+-----------+-----------+-----------+------------+
| 9/21/2005         | 362       | 50        | 6         | 12%        |
+-------------------+-----------+-----------+-----------+------------+
| 11/21/2005        | 386       | 50        | 6         | 12%        |
+-------------------+-----------+-----------+-----------+------------+
| ####              | 398       | 50        | 11        | 22%        |
| ### **1/23/2006** |           |           |           |            |
+-------------------+-----------+-----------+-----------+------------+
| **TOTALS**        | **1,146** | **150**   | **23**    | **15%**    |
+-------------------+-----------+-----------+-----------+------------+

We also randomly selected 62 of the 123 Baldwin displaced students shown
as students with disabilities per the STI system and the list of
non-public school students ALSDE provided for the counts taken on
September 21, 2005, November 21, 2005, and January 23, 2006. Of the 62
students, 6, or 10 percent, did not have IEPs to support such a
classification (See Table 4).

######### **Table 4: Baldwin LEA Students With Disabilities**

  --------------- ------------ ------------ ------------ ------------------
  Count           Population   Sample Size  Errors       Error Rate

  9/21/2005       54           27           3            11%

  11/21/2005      39           20           1            5%

  1/23/2006       30           15           2            13%

  **TOTALS**      **123**      **62**       **6**        **10%**
  --------------- ------------ ------------ ------------ ------------------

**Students Counted More Than Once in the Same Quarter**

ALSDE included 20 public school and 4 non-public school students more
than once in the same quarterly count data. We analyzed the list of
names, as recorded in the STI system, supporting each of ALSDE's four
quarterly displaced public school student counts. In addition, we
analyzed the list of names supporting ALSDE's first three quarterly
displaced non-public school displaced student counts for the Mobile and
Baldwin LEAs.[^5] The first quarterly count included 18 students twice.
The second, third, and fourth quarterly counts each included 2 students
twice. Of the 24 students, 18 were classified as students without
disabilities and 6 were classified as students with disabilities.

According to Section 107(c)(2)(A)(i) of the Act, LEAs are to indicate
the number of displaced students enrolled in the elementary schools and
secondary schools served by such agency for the quarter. It is inherent
in the HERA that students are to be included only once.

**Total Number of Displaced Students Cannot Be Supported**

The number of displaced public school students ALSDE reported to the
Department was about 3 percent greater than the number of displaced
public school students ALSDE's records can support.[^6] According to
*Volume I Revised, Frequently Asked Questions, Emergency Impact Aid for
Displaced Students, February 2, 2006,* LEAs must keep (1) auditable
records documenting the enrollments of displaced students whom they
claimed as a basis for receiving payments and (2) evidence that the
students claimed met the definition of a displaced student.

We compared the total number of quarterly public school displaced
students (21,623)[^7] ALSDE reported to the Department to the number of
names identified in the STI system as displaced public school students.
For the 4 quarterly displaced public school counts of students without
disabilities, ALSDE reported a number to the Department that was 1,237
greater than the number of names identified in the STI system. For the 4
quarterly displaced public school counts of students with disabilities,
ALSDE reported a number to the Department that was 543 less than the
number of names identified in the STI system.

ALSDE could not provide us with a list of names that exactly supported
the final quarterly counts reported to the Department because the STI
system is a real-time database that is continuously updated as a
student's status changes. Neither ALSDE nor the two LEAs we visited
maintained a snapshot of the STI data as of the ALSDE's counts taken on
September 21, 2005; November 21, 2005; January 23, 2006; and March 22,
2006. ALSDE officials told us that the LEAs were responsible for
maintaining the list of names to support the counts. However, neither of
the LEAs we visited provided us with lists of names that agreed with the
counts ALSDE submitted to the Department.

**ALSDE Received About \$4.5 Million in Excess EIA Funding**

ALSDE received a projected \$3.7 million more than it should have
received for the Mobile LEA students who either (1) did not meet the
definition of a displaced student or (2) were classified as students
with disabilities without sufficient support for such a classification.
We calculated the \$3.7 million by projecting the results of our samples
of the Mobile LEA's quarterly displaced student counts across the Mobile
LEA's universe of student names from the STI system for the first three
(of four) quarterly displaced student counts.

Using statistical sampling techniques, we examined ALSDE's displaced
student count data. ALSDE provided us with data from its STI system,
which we used as the universe of student names supporting the displaced
student counts submitted to the Department. In addition, ALSDE provided
us with paper lists of names of displaced students attending non-public
schools. The Mobile LEA's combined universe of public and non-public
school student names was 7,480 for the first three quarters. From the
universe of student names for Mobile, we randomly selected 50 students
classified as not having disabilities and 50 students identified as
students with disabilities for each of the first three quarterly counts.
In total, we randomly selected 300 student names, 100 for each of the
quarterly counts. The samples included both public and non-public school
students.

The EIA funding totaled \$506,250 for these 300 students. Forty-six of
the 150 students without disabilities did not meet the definition of a
displaced student. ALSDE received \$69,000 in excess EIA funds for these
46 students. In addition, 50 of the 150 displaced students classified as
students with disabilities did not meet the definition of a displaced
student. ALSDE received \$93,750 in excess EIA funds for these 50
students. Further, 23 of the 150 displaced students classified as
students with disabilities lacked documentation to support such a
classification. ALSDE received \$8,625 in excess EIA funds for these 23
students. Based on the results of our samples (see Tables 1 and 3), we
are 95 percent confident that ALSDE received \$3,711,855 plus or minus
\$722,987 more than it should have received for the first three
quarterly counts of the Mobile LEA's displaced students.

ALSDE also received \$3,750 more than it should have received for the
Baldwin LEA: \$1,500 for 1 student who did not meet the definition of a
displaced student and \$2,250 for 6 students who were classified as
students with disabilities without sufficient support for such a
classification.[^8] In addition, ALSDE received \$38,250 for 24 students
included in the quarterly counts more than once in the same quarter.
Finally, ALSDE received \$837,375[^9] for reporting more displaced
public school students that its records could support.

**Inadequate System of Internal Control over Student Counts**

ALSDE did not have an adequate system of internal control to ensure that
the EIA displaced student counts reported to the Department were
accurate. ALSDE conducted some monitoring. However, ALSDE conducted its
monitoring activities after the final displaced student counts were
reported to the Department on April 30, 2006. In June 2006, ALSDE
conducted monitoring visits to six LEAs to verify the accuracy of the
displaced student counts. ALSDE found that four of the six LEAs had
inaccurate displaced student counts. As a result of the monitoring
visits, two of the four LEAs filed revised quarterly counts to reflect
student counts closer to the results of ALSDE's review determination.

ALSDE relied on the LEAs to verify that the displaced student counts
were complete and accurate. ALSDE provided to each LEA the displaced
public student count, as identified in the STI system, for each quarter.
Each LEA was to verify the displaced student count to its enrollment
records. ALSDE did not provide the LEAs with the students' names. The
LEAs had 10 days to verify the accuracy of the total number of displaced
students. After ALSDE received the displaced student counts from the
LEAs, it did not check for duplicate students or validate the displaced
student enrollment data.

For districts with a large number of displaced students, this procedure
was inadequate. Mobile's Assistant Superintendent, Division of Student
Services, stated it was difficult to verify the accuracy of the total
number without a list of the corresponding names. In addition, it was
difficult to verify the accuracy because the LEA did not know the date
ALSDE queried the STI system to arrive at the baseline count.

**Recommendations**

We recommend that the Assistant Secretary for the Office of Elementary
and Secondary Education instruct ALSDE to

1.  Return to the Department approximately \$3.7 million in EIA funds it
    received for the Mobile LEA for students who were (a) not eligible
    to be classified as displaced students and (b) classified as
    displaced students with disabilities without documentation to
    support such a classification;

2.  Return to the Department \$3,750 in EIA funds it received for the
    Baldwin LEA for the one student who did not meet the definition of a
    displaced student and the six students classified as displaced
    students with disabilities without documentation to support such a
    classification;

3.  Return to the Department \$38,250 in EIA funds received for students
    who were included in the quarterly displaced student counts more
    than once in the same quarter;

4.  Provide support for or return to the Department \$837,375 for
    reporting more displaced public school students than its records
    could support; and

5.  Confirm the accuracy of its displaced student counts for all Alabama
    LEAs except Mobile and Baldwin and return to the Department any
    funds received for (a) students not eligible to be classified as
    displaced and (b) displaced students classified as students with
    disabilities without documentation supporting such a classification.

**[ALSDE's Comments]{.underline}**

**Data Used for Assessment**

ALSDE stated the draft audit report is flawed because we used data that
was unrelated to the numbers ALSDE used in requesting EIA funding.
According to ALSDE, it did not use the STI student reporting system as
the basis for identifying displaced students. ALSDE planned to use the
STI system but encountered problems, so it used an alternative reporting
system to compile displaced student counts.

On June 26, 2007, ALSDE officials explained to us the alternative
reporting system consisted of the LEAs' spreadsheets and in-house
student tracking system. They explained the LEAs did not use the STI
system to compile the student counts. ALSDE used the STI system to
derive a baseline count that it could provide to the LEAs. The LEAs
revised the baseline count extracted from the STI system through the use
of their spreadsheets and in-house tracking systems. ALSDE said the
ultimate source of the student counts was the LEAs' spreadsheets and
in-house tracking systems and not the STI system.

**LEAs Compiled Accurate Displaced Student Counts**

ALSDE stated the LEAs compiled accurate displaced student counts for
reporting to ALSDE. ALSDE requested EIA funding for displaced students
using counts verified by the LEAs. The LEAs' applications included a
signature of the superintendent under a certification that the data is
correct.

**Baldwin County**

ALSDE did not agree with the ineligible non-public student we identified
in Table 2 and the 6 errors we identified in Table 4. For Table 2, ALSDE
stated the non-public school served 41 eligible displaced students on
the first quarter count date, however the non-public school only claimed
20 students. As a result, ALSDE said this ineligible student should be
counted as 1 of the 21 students that were not claimed as displaced, and
Baldwin did not receive EIA funding for this student.

For Table 4, ALSDE said the population numbers exceeded the actual count
of Baldwin's displaced students with disabilities. The students
identified without documentation to support a classification as students
with disabilities were not included in Baldwin's counts as students with
disabilities.

**Mobile County**

ALSDE did not agree with the 96 ineligible students we identified in
Table 1 and the 23 errors we identified in Table 3. In Table 1, ALSDE
said that the errors we identified and the subsequent projection are
flawed because we used inaccurate STI data instead of the actual
displaced student counts for Mobile. First, ALSDE states that we used an
incorrect population that resulted in a sample that included students
never claimed for EIA funding. ALSDE added that the use of misidentified
errors to create an incorrect error rate for application to an
inaccurate population leads to a projection that is statistically
implausible. Second, ALSDE said we disallowed displaced students who
re-enrolled in a school after attendance at other schools. Third, ALSDE
stated we misidentified an eligible displaced student from Louisiana as
a student enrolled in their original school.

For Table 3, ALSDE said that, besides the fact we used an inaccurate
population, we included as errors many displaced students that Mobile
did not report as students with disabilities. ALSDE said our working
papers document that Mobile did not include many of these displaced
students as students with disabilities. In addition, the OIG identified
students with disabilities that did not have an IEP when Mobile does
have an IEP for the students.

**[OIG Response]{.underline}**

We have not changed our finding or recommendations based on ALSDE's
comments on the draft audit report or our subsequent discussion with
ALSDE officials. However, we made changes to the report to clarify our
use of ALSDE's STI data.

**Data Used for Assessment**

We do not consider the STI data unrelated to the numbers ALSDE used in
requesting reimbursement for displaced students. ALSDE officials
explained that they used the STI system as the baseline for deriving the
quarterly displaced student counts. They informed us that they ran a
query of the STI system using a unique identifier that the LEAs entered
into the STI system to count displaced students. Our understanding of
the process used to compile the displaced student counts is the same as
ALSDE described during our audit and on June 26, 2007. When we visited
the Mobile and Baldwin LEAs, we confirmed this process with LEA
officials. Mobile and Baldwin LEA officials explained that ALSDE
provided numbers from the STI system and asked the LEAs to verify the
accuracy of the total number of displaced students. ALSDE's comments on
the draft report are misleading, indicating that the student counts were
compiled without any use of the STI system.

Neither ALSDE nor the two LEAs we visited provided us with comprehensive
lists of names in support of the quarterly displaced student counts.
Therefore, we used the names extracted from the STI system. Based on the
process used by ALSDE to compile the displaced student count and our
discussions with officials from ALSDE and the two LEAs, we considered
the lists of names extracted from the STI system sufficient for use as
the universes for the three quarterly displaced student counts we
tested. In addition, during our testing of students from the universes
derived from the STI system, we encountered no indications that the STI
data did not provide a good universe. Both LEAs maintained documentation
that indicated all the students in our samples were identified as
displaced students.

**LEAs Compiled Accurate Displaced Student** **Counts**

The LEAs did not compile accurate displaced student counts for reporting
to ALSDE. Our testing showed that the Mobile LEA included students in
its count that did not meet the definition of displaced student. Both
the Mobile LEA and ALSDE stated the Mobile LEA included students who did
not meet the definition. In addition, both Mobile and Baldwin included
students classified as students with disabilities without sufficient
support for such a classification. Further, the ALSDE's own review
determined that four of the six LEAs visited had inaccurate displaced
student counts.

Because the counts were to be verified by the LEA, and the LEA
superintendent certified that the data is correct, does not make the
counts accurate. The process only works if applied correctly. Our audit
and ALSDE's own review demonstrate that the process was not applied
correctly.

**Baldwin County**

ALSDE did not provide documentation to support its assertion that
Baldwin and the non-public school did not receive EIA funding for the
student we identified in Table 2. In addition, ALSDE did not provide
documentation to support that Baldwin did not receive EIA funding at the
students with disabilities reimbursement rate for the students we
identified in Table 4.

**Mobile County**

ALSDE did not address the main problem described in the Finding and in
Table 1. We identified 96 displaced students who did not meet the
definition of an eligible displaced student. The displaced students
attended the same school and were not enrolled in a different school
because of the hurricane. Documentation provided by Mobile during our
audit showed all 96 students were attending the same school. ALSDE did
not provide support to refute that these students were not included in
Mobile's quarterly counts, did not attend the same school, or that the
student from Louisiana was not enrolled in the same school.

Also, ALSDE's comments contain incorrect numbers. Under the heading
*Table 1 Errors,* for the column labeled *Actual reimbursement,* the
numbers ALSDE cites do not include non-public school displaced student
counts. The totals we used in Table 1 contain non-public school
students. If you add the non-public school displaced student counts to
the numbers ALSDE cites, ALSDE's final count is 132 students more than
the STI total we used in our testing:

  ------------------ -------------- ---------------- ---------------------
  Quarter            OIG Total      ALSDE Total      Difference

  1                  2,270          2,218            52

  2                  2,126          2,137            -11

  3                  1,938          2,111            -173

  **TOTALS**         **6,334**      **6,466**        **-132**
  ------------------ -------------- ---------------- ---------------------

In response to the 5 students who re-enrolled in their original school,
these students were not eligible displaced students for the 2^nd^ and
3^rd^ quarters. The 5 students initially were enrolled in Turner
elementary in August 15, 2005, and withdrew on October 17, 2005, to
enroll in Saraland. The student withdrew from Saraland on October 17,
2005, and re-enrolled in Turner on November 9, 2005. The 2^nd^ and 3^rd^
quarterly counts dates were November 21, 2005, and January 23, 2006. On
these dates, the 5 students were enrolled in their original school.

For Table 3, our documentation does not show that Mobile did not
classify these students as students with disabilities. Our documentation
shows that ALSDE's STI data classified the student as a student with
disabilities, but Mobile's STI data and supporting documentation did not
classify the students as students with disabilities. In addition, ALSDE
did not provide us with documentation to support the assertion that
Mobile has IEPs for the students we identified as not having IEPs.

OBJECTIVES, SCOPE, AND METHODOLOGY

The objectives of our audit were to determine if the (1) ALSDE and two
selected Alabama LEAs established adequate systems of internal control
to provide accurate displaced student count data; (2) ALSDE established
an adequate system of internal control to make accurate allocations of
EIA funds; and (3) two selected LEAs used EIA funds only for
expenditures within the cost categories allowed by the terms of the
grant and applicable laws and regulations. Initially, we had an
objective to determine whether ALSDE and Alabama LEAs had systems of
internal control over the Homeless Youth program. However, ALSDE has not
drawn down any Homeless Youth funds so we did not conduct any work
related to the Homeless Youth program. Our audit covered the period
September 1, 2005, through September 30, 2006.

The two LEAs we selected were Mobile and Baldwin. We selected these two
LEAs because their displaced student counts represented about 48 percent
of the total displaced students for the State of Alabama.

To accomplish our objectives, we

-   Obtained from the Department the amount of EIA funding allocated to
    ALSDE;

-   Obtained and reviewed ALSDE's organization chart;

-   Obtained and reviewed portions of the HERA, regulations, and
    guidance relevant to the audit objectives;

-   Reviewed ALSDE's, Mobile's, and Baldwin's EIA written policies and
    procedures;

-   Interviewed various ALSDE, Mobile, and Baldwin officials to obtain
    an understanding of their systems of internal control over the EIA
    program;

-   Obtained and reviewed ALSDE's EIA application and ALSDE's selected
    quarterly count data for the counts taken on September 21, 2005,
    November 21, 2005, and January 23, 2006;

-   Compared the displaced public student count totals ALSDE submitted
    to the Department with the total number of public school student
    names extracted from ALSDE's STI system;

-   Reviewed ALSDE's list of displaced public school students to
    identify any students counted more than once in the same quarter;

-   Reviewed supporting documentation, including student files, for a
    randomly selected sample of 300 Mobile LEA displaced students, from
    a universe of 7,480 displaced students included in ALSDE's STI
    system and non-public school student lists, to determine whether the
    Mobile LEA had documentation to support classifying students as
    displaced students and that the Mobile LEA had documentation to
    support classifying students as students with disabilities;

-   Reviewed supporting documentation, including student files, for a
    randomly selected sample of 212 Baldwin LEA displaced students, from
    a universe of 1,124 displaced students included in ALSDE's STI
    system and non-public school student lists, to determine whether the
    Baldwin LEA had documentation to support classifying students as
    displaced students and that the Baldwin LEA had documentation to
    support classifying students as students with disabilities; and

-   Obtained and reviewed a list of EIA expenditures and EIA drawdown
    information for the Mobile and Baldwin LEAs to determine whether the
    LEAs charged expenditures only to the cost categories allowed by the
    terms of the grant and applicable laws and regulations. (We did not
    review documentation such as purchase orders, invoices, and canceled
    checks for individual transactions.)

We relied, in part, on displaced public school students' data maintained
in ALSDE's STI system and provided to us by ALSDE. To ensure the
reliability of the data, we compared the total number of displaced
public school student names provided by ALSDE to the total number of
displaced public school students ALSDE reported to the Department. In
addition, for each student shown as displaced in the STI system, we
verified information was entered in all the data fields. We determined
the number of student names from the STI system did not fully agree with
the number of displaced students ALSDE reported to the Department.
However, for the student names included, the data was complete and,
therefore, sufficiently reliable for the purposes of our audit.

We conducted our work at ALSDE's office in Montgomery, Alabama; the
Mobile LEA in Mobile, Alabama; the Baldwin LEA in Bay Minette, Alabama;
and our offices in Chicago, Illinois, and Kansas City, Missouri, from
April 2006 through December 2006. We discussed the results of our audit
with ALSDE officials on February 7, 2007.

Our audit was performed in accordance with generally accepted government
auditing standards appropriate to the scope of the audit 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 of Education
officials.

This report incorporates the comments you provided in response to the
draft report. 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 Education Department
official, who will consider them before taking final Departmental action
on this audit.

> Kerri L. Briggs, Assistant Secretary
>
> Office of Elementary and Secondary Education
>
> U.S. Department of Education
>
> 400 Maryland Avenue, SW
>
> Washington, D.C. 20202

It is the policy of the U.S. Department of Education 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/

> Gary D. Whitman

Acting Regional Inspector General

> for Audit

Attachment

**Attachment: Alabama State Department of Education's Comments to Draft
Report**

April 4, 2007

**Control Number**

**ED-OIG/A05G0020**

Mr. Richard J. Dowd

Regional Inspector General for Audit

United States Department of Education

Office of Inspector General

500 West Madison Street, Suite 1414

Chicago, IL 60661

Dear Mr. Dowd:

We have reviewed the **Draft Audit Report**, dated March 9, 2007, that
was issued by the Office of Inspector General (OIG) as a result of an
audit of the Alabama State Department of Education's compliance with
selected Hurricane Education Recovery Act, Emergency Impact Aid program
requirements.

We do not concur with the finding that Alabama State Department of
Education (ASDE) did not report accurate quarterly displaced student
count data to the U. S. Department of Education (USDE) due to inadequate
systems of internal control. The OIG audit finding is based on erroneous
conclusions derived from the assessment of student count data that was
not used by the ASDE for obtaining funding under the Emergency Impact
Aid (EIA) program. We do not concur with the OIG recommendations that
are also based on the incorrect assessment of the data upon which the
ASDE requested EIA funding.

The **Draft Audit Report** is flawed by OIG's use of data that is
unrelated to the numbers the ASDE used in requesting reimbursement for
displaced students. The OIG's erroneous use of irrelevant data provides
a defective document in regard to both the conclusions and the
calculations contained in the **Draft Audit Report**.

Initially, the ASDE planned to use the automated STI student reporting
system as the basis for identifying students displaced by Hurricanes
Katrina and Rita. (The ASDE collects student information from schools
via the STI software that is used by school districts throughout the
U.S.). Tracking these students was to be done by creating a unique
number that would identify the student as displaced, the state of
origin, and the school district receiving the student. The ASDE provided
to each LEA the displaced student count, as identified in the STI
student reporting system, for each quarter in order for the LEA to
verify the displaced student count to the LEA enrollment records.

The LEA verification of the displaced students submitted via the STI
student reporting system revealed that an alternative reporting system
was needed to provide accurate data for reimbursement requests. LEA's
used spreadsheets and in-house student tracking systems to compile
accurate displaced student counts for reporting to the ASDE. ASDE
requested EIA funding for displaced students using student counts
verified by the LEA's, not the student counts from the STI data
collected by the ASDE because of the aforementioned problems encountered
with the use of STI data.

The number of displaced students was submitted by the LEA on an
application designed by the USDE which included the signature of the
superintendent under a certification that the data is correct. Student
level information to support the displaced counts submitted by the LEA
on the application was not required to be sent to the ASDE. This level
of data was to be maintained at the LEA. It is the contention of the
ASDE that submission of this student level data through a non-secure
means would have conflicted with HIPPA and/or FERPA regulations.
Further, Section 107 of the Hurricane Education Recovery Act does not
require the ASDE to maintain a listing of displaced students to support
the quarterly enrollment counts.

The STI student reporting system was [not]{.underline} used for
requesting reimbursement from the USDE for displaced students. However,
the **Draft Audit Report** uses the displaced student count generated by
the STI student reporting system in the OIG's calculations.

**[Baldwin County]{.underline}**

**Table 2: Baldwin LEA Testing of Displaced Students** identifies one
error in the count of displaced students for the first quarter. That one
student was identified by OIG as a non-public school student at Christ
the King Catholic School. Christ the King Catholic School provided the
required parent application forms for the displaced students enrolled at
the school. Although Christ the King Catholic School served 41 eligible
displaced students on the first quarter enrollment date, reimbursement
was claimed (and subsequently paid) for only 20 students. The one
ineligible student identified by OIG should be counted as one of the 21
students for which no reimbursement was received. Baldwin County Schools
did not receive reimbursement for the one ineligible student identified.

**Table 4: Baldwin LEA Students With Disabilities** identifies 6 errors
(3 students) for the first, second, and third quarters. (The Population
numbers in the table exceed the actual count used for reimbursement
because OIG used the names of the students identified in the STI student
reporting system instead of the actual count submitted for
reimbursement.) The three students, identified as ineligible for special
education displaced student funding by OIG, were not included in the
special education count for reimbursement. Baldwin County Schools did
not receive reimbursement at the special education amount for the 3
students (6 errors) as reported in the **Draft Audit Report**.

**[Mobile County]{.underline}**

**Table 1: Mobile LEA Testing of Displaced Students** identifies 96
errors in the count of displaced students for the first, second, and
third quarters. The errors identified by OIG, as well as the subsequent
projection of OIG's identified errors to the population, are flawed in
several ways. First, OIG erroneously used the inaccurate data collected
by the STI student reporting system instead of the displaced student
count actually used for EIA reimbursement. The incorrect displaced
student population used by OIG resulted in the selection of a sample for
testing that included students that were never claimed for
reimbursement. **The use of misidentified errors to create an incorrect
error rate for application to an inaccurate population leads to a
projection that is statistically implausible.** Second, OIG disallowed
displaced students who reenrolled in a school after attendance at other
schools. Third, OIG misidentified an eligible displaced student from
Louisiana as a student enrolled in their original school.

**[Table 1 Errors]{.underline}**

*Students Without Disabilities: [Population per Table 1]{.underline}
[Actual reimbursement]{.underline}*

Quarter 1 2270 2064

Quarter 2 2126 1982

Quarter 3 1938 1980

*Students With Disabilities:*

Quarter 1 362 374

Quarter 2 386 379

Quarter 3 398 377

*Students Reenrolled in Turner Elementary after attending Saraland
Elementary:*

Quarter 2 Student 830-49-0781 left Saraland on 10/17/05; enrolled in
Turner 11/9/05

Student 830-49-0783 left Saraland on 10/17/05; enrolled in Turner
11/9/05

Quarter 3 Student 830-49-0779 left Saraland on 11/08/05; enrolled in
Turner 11/9/05

Student 830-49-0781 left Saraland on 10/17/05; enrolled in Turner
11/9/05

Student 830-49-0782 left Saraland on 11/08/05; enrolled in Turner
11/9/05

*Eligible Student from Louisiana:*

Quarter 1 Student 840-49-0261

**Table 3: Mobile LEA Students With Disabilities** identifies 23 errors
for the first, second, and third quarters. In addition to the inaccurate
population used in selecting the sample for testing, OIG included as
errors many displaced students that Mobile County did not report for
special education funding. The OIG working papers document that Mobile
County did not include many of these students in the displaced student
count for EIA reimbursement at the special education rate. Also, OIG
misidentified special education students as not having an IEP when
Mobile County does have an IEP for the eligible displaced students.

**[Table 3 Errors]{.underline}**

*Students Not Claimed for Special Education Reimbursement:*

[Quarter 1]{.underline} [Quarter 2]{.underline} [Quarter 3]{.underline}

830-49-0770 840-49-0531 830-49-0644

830-49-1713 830-49-0801 830-49-1134

830-49-0333 830-49-1234 830-49-0879

830-49-1771 830-49-0853 830-49-0989

830-49-0410 830-49-1134 830-49-1649

830-49-0259 840-49-0444 830-49-1664

830-49-0977 830-49-0342 830-49-0856

850-49-0060 830-49-1230 830-49-0977

830-49-1582 830-49-0540 830-49-1906

830-49-0856 830-49-0738 830-49-1747

850-49-0026 830-49-1290

830-49-1139 830-49-0231

830-49-0246 830-49-1126

850-49-0070

830-49-0655

830-49-1549

*Students With IEPs on File:*

[Quarter 2]{.underline} [Quarter 3]{.underline}

830-49-1489 830-49-1311

The OIG's determination that the ASDE included 24 students more than
once in the same quarterly count data is irrelevant to the reimbursement
of EIA funds. ASDE requested EIA funding for displaced students using
student counts verified by the LEAs, not the student counts from the STI
data collected by the ASDE.

The OIG again used the student counts from the STI data collected by the
ASDE to incorrectly determine that the ASDE reported more students than
the ASDE could support. As previously stated, the ASDE used the student
counts verified and reported by the LEAs for EIA reimbursement requests.

The **Draft Audit Report** determined that the ASDE did not have an
adequate system of internal control to ensure that the EIA displaced
student counts reported for reimbursement were accurate. The OIG
concluded that on-site monitoring visits were essential to an adequate
system of internal control. This conclusion is not supported by Section
107 of the Hurricane Education Recovery Act or the OMB A-133 Compliance
Supplement. State Departments of Education were instructed not to
monitor any LEAs that the OIG would be monitoring. The ASDE was
specifically instructed not to monitor the Mobile school system. The six
LEAs monitored by the ASDE along with OIG review of Mobile provided
coverage of over half of the displaced students in Alabama. In light of
the tight time lines for EIA reporting, the ASDE's scheduling of
monitoring reviews could not have occurred prior to the quarterly
reporting to the USDE. With no guidance from the USDE or OIG, the
internal control system used by the ASDE for verifying the accuracy of
displaced student counts cannot be considered inadequate.

The Hurricane Education Recovery Act, Emergency Impact Aid program
provided a one-time only emergency grant for the 2005-2006 school year
tailored to the needs and particular circumstances of students displaced
by Hurricane Katrina. The Alabama State Department of Education chose to
pass-through all of the much-needed funds to the school districts
serving the displaced students, although EIA program regulations allowed
the use of a portion of these funds for administrative costs. Timing
issues and the temporary purpose of these funds prevented the
implementation of procedures and employment of additional personnel to
conduct extensive monitoring efforts.

We appreciate your assistance in resolving this matter. If you have any
questions, please contact Craig Pouncey, Assistant State Superintendent,
at telephone number (334) 242-9755.

Sincerely,

Joseph B. Morton

State Superintendent of Education

JBM:DWH

[^1]: GAO-06-680R, Educating and Protecting Children: *L**essons Learned
    for Protecting and Educating Children after the Gulf Coast
    Hurricanes*.

[^2]: We did not audit the count taken as of March 22, 2006.

[^3]: The numbers in the table include both public and non-public school
    students.

[^4]: The numbers in the table include both public and non-public school
    students.

[^5]: The Mobile and Baldwin LEAs' counts of non-public school displaced
    students accounted for 48 percent of the total number of non-public
    school displaced students ALSDE reported to the Department.

[^6]: The analysis did not include non-public school students because
    the non-public school displaced student counts were supported by
    lists of names submitted outside ALSDE's STI system.

[^7]: This total is based on ALSDE's four quarterly displaced student
    counts (6,466; 5,634; 4,883; 4,640) for all Alabama LEAs except
    Birmingham. The comparison did not include the Birmingham LEA
    because Birmingham did not use ALSDE's STI system. We compared the
    Birmingham LEA's public school displaced student count (783 public
    students) with ALSDE's final displaced public school student total
    reported to the Department (737 public school students). ALSDE
    reported 46 fewer public school students than the Birmingham LEA
    could support.

[^8]: We did not project the Baldwin LEA results.

[^9]: ALSDE reported to the Department 1,237 displaced public school
    students who were not identified in ALSDE's system as displaced
    public school students. We multiplied 1,237 by \$1,500
    (\$1,855,500). We then reduced that amount by \$1,018,125: 543
    displaced public school students who were students identified with
    disabilities but not reported to the Department multiplied by
    \$1,875.