### December 20, 2004

Ms. Nina S. Rees

Assistant Deputy Secretary

Office of Innovation and Improvement

U.S. Department of Education

Federal Building No. 6, Room 4W317

400 Maryland Avenue, SW

Washington, D.C. 20202-5900

Dear Ms. Rees:

This **Final Audit Report** (Control Number ED-OIG/A03-E0009) presents
the results of our audit of the U.S. Department of Education\'s (the
Department) pre-award activities for the unsolicited grant to the Broad
Foundation for the School Information Partnership (SIP).

# Audit Results

The original audit objective was to determine if the Department\'s grant
to the Broad Foundation was awarded in accordance with applicable
regulations and internal policies for unsolicited grant applications.
Based upon our initial audit work, the audit objective was expanded to
determine if the Department adequately verified that states\'
participation in the SIP would constitute compliance with the No Child
Left Behind (NCLB) Act\'s report card requirements. Due to a lack of
adequate documentation, we were unable to determine if the Department\'s
unsolicited grant to the Broad Foundation was awarded in accordance with
applicable regulations and internal policies. In addition, we found that
Department officials and staff did not adequately verify that the
information provided by the SIP would satisfy all of the NCLB Act\'s
report card requirements.

A draft of this report was provided to the Office of Innovation and
Improvement (OII) for review and comment. In its comments on the draft
report, OII did not disagree with our findings. However, OII disagreed
with all but one of our recommendations. We have incorporated OII's
comments, where appropriate, into the report and provide OII's full
response as an attachment to this report.

**[Finding No. 1 -- The official grant file did not include adequate
documentation of pre-award activities.]{.smallcaps}**

[Documentation of the Principal Officer's Determinations and Pre-Award
Contact with the Broad Foundation.]{.underline}

OII's official grant file for the Broad Foundation\'s grant did not
include adequate documentation of determinations, specified in
regulations and required to be made by the Principal Officer, and
pre-award contact with the applicant. Additionally, if documentation of
a determination existed, the documentation was not included or noted, if
privileged information, in the grant file. According to the Assistant
Deputy Secretary for Innovation and Improvement, the Associate Assistant
Deputy Secretary, and program officers, these determinations were made,
but not always documented. The official grant file did not contain the
documentation of the following determinations:

-   The *Handbook for the Discretionary Grant Process* (Section 5.10.2,
    Unsolicited Applications) requires the Principal Officer to
    determine whether an unsolicited application should be considered
    for funding and under which program it should be funded using the
    detailed procedures for reviewing and funding an unsolicited
    proposal contained in EDGAR § 75.222. We found that the Office of
    the General Counsel prepared a memorandum, dated February 11, 2003,
    that discussed funding options for the Broad Foundation\'s proposal
    and recommended that the proposal be considered under the Fund for
    the Improvement of Education (FIE) program. However, this document
    was not referenced or noted in the official grant file.

-   The *Handbook for the Discretionary Grant Process* (Section 5.10.2,
    Unsolicited Applications) and 34 C.F.R. § 75.222(b)(1) and (2)
    require the Principal Officer to determine whether there is a
    substantial likelihood that the application is of exceptional
    quality, its project outcomes have national significance for a
    Departmental program, and the application meets the requirements of
    all applicable statutes and regulations. No documentation pertaining
    to these determinations was found in the official grant file.

-   The *Handbook for the Discretionary Grant Process* (Section 5.10.2,
    Unsolicited Applications) and 34 C.F.R. § 75.222(b)(3) require the
    Principal Officer to determine whether the selection of the project
    will not have an adverse impact on the funds available for other
    planned awards. We found that OII included the Broad Foundation\'s
    proposal in two memoranda, dated April 9, 2003, and May 9, 2003,
    that noted the fiscal year 2003 funding available for FIE
    discretionary grants and the unsolicited proposals that were
    recommended or supported. While the two memoranda indicate that the
    funding impact was considered, these memoranda were not referenced
    or noted in the official grant file.

In performing the review, we noted pre-award contact with the Broad
Foundation that was not included in the official grant file. The
significant pre-award contact that was not documented in the grant file
included:

-   An e-mail, dated July 1, 2002, from the Broad Foundation to the
    Secretary\'s former Chief of Staff inquiring about the Department\'s
    interest in supporting an expansion of Standard & Poor\'s School
    Evaluation Services (SES)[^1] to states nationwide; and the former
    Chief of Staff\'s response, dated July 14, 2002, noting that the
    Department was supportive of the Broad Foundation\'s initiative but
    that federal support was subject to legal considerations.

-   A memorandum, dated November 15, 2002, from the Broad Foundation to
    the former Deputy Secretary, outlining its proposal for
    philanthropic and federal support to provide incentives to states to
    adopt Standard & Poor\'s SES.

-   An e-mail, dated December 3, 2002, from the Broad Foundation to the
    Assistant Deputy Secretary for Innovation and Improvement providing
    background information on the Broad Foundation\'s initiative.

-   An e-mail, dated December 23, 2002, from the Broad Foundation to the
    former Under Secretary (the current Deputy Secretary) and Assistant
    Deputy Secretary for Innovation and Improvement transmitting the
    Broad Foundation\'s memorandum and draft plan of action (i.e.,
    proposal), which was based upon a meeting held on December 6, 2002.

-   Information on the January 29, 2003, meeting between officials from
    the Department, the Broad Foundation, Standard & Poor\'s SES, and
    Just for the Kids.[^2]

-   An e-mail, dated February 6, 2003, from the Broad Foundation to
    Department officials transmitting the Broad Foundation\'s memorandum
    of understanding.

The Assistant Deputy Secretary for Innovation and Improvement, Associate
Assistant Deputy Secretary, and program staff did not believe that the
determinations were required to be documented in the official grant
file. However, the Department\'s *Handbook for the Discretionary Grant
Process* (Section 5.12, The Official Grant File) states:

> Program staff must create and maintain an official grant file for each
> application selected for funding and awarded a grant. The file holds
> the original application, reviewer\'s comments, required forms, grant
> award notifications, annual Grant Performance Reports, correspondence,
> decisions, and any other documentation relevant to the grant
> throughout its life cycle. This includes applications, reports, or
> other documents submitted, processed, and maintained electronically.
> The content and organization of the official file is provided in
> Appendix L. Program officials must establish a secure area in their
> respective offices to store the official grant files for a program.
> Documents maintained electronically during the life of the grant must
> be printed and included in the official file when the grant is
> closed-out.

In addition, the Handbook\'s Appendix L notes that the grant file should
include documentation of all pre-award contact with the applicant,
including clarification calls prior to award of the grant.

Because the OII\'s official file for the grant to the Broad Foundation
did not include adequate documentation of the Principal Officer\'s
determinations and pre-award contact with the applicant, we were unable
to determine if OII complied with all regulations and policies in
awarding the unsolicited grant to the Broad Foundation.

**[Documentation of the Panel of Experts\' Funding
Recommendation.]{.underline}**

In reviewing the panel of experts\' Technical Review Forms for the Broad
Foundation\'s grant application, we noted that the second review panel
assigned high scores to the revised application in the areas of
*national significance* and *the project is of high quality*. However,
the review panel did not specifically state on the Technical Review
Forms that the application should be funded as an unsolicited
application. Regulations at 34 C.F.R. § 75.222(d)(2) require that a
panel of experts determines whether the application is of such
exceptional quality and national significance that it should be funded
as an unsolicited application. In addition, 34 C.F.R. § 75.222(e) states
that if the panel of experts highly rates the application and determines
that the application is of such exceptional quality and national
significance that it should be funded as an unsolicited application, the
Department may fund the application. Furthermore, the Department\'s
*Handbook for the Discretionary Grant Process* (Section 5.10.2,
Unsolicited Applications), states that the panel of experts determines
whether the application is of such exceptional quality and national
significance that it should be funded.

According to OII officials, the panel of experts\' high scores imply the
recommendation to fund the grant application. In assuming that a review
panel\'s high scores imply a recommendation to fund a grant application,
the Department may fund a grant application even though the review panel
may not recommend the application for funding.

Recommendations:

We recommend that the Assistant Deputy Secretary for Innovation and
Improvement:

1.  Ensure that pre-award contact with applicants and the required
    determinations concerning unsolicited grant applications are
    documented in the official grant files. The required determinations
    should be documented when they are made, or, at the latest, prior to
    the application being provided to the expert review panel.

2.  Conduct a review, if the Broad Foundation or any of its partners
    submit any additional applications, to determine that there is a
    substantial likelihood that the proposed project is of exceptional
    quality and its outcomes are of national significance for a
    Departmental program.

We brought these issues to the attention of OII officials. In response,
the Associate Assistant Deputy Secretary for Innovation and Improvement
noted that their procedures would be revised. OII provided us with a
draft memorandum to be placed in the grant file for a proposed fiscal
year 2004 FIE unsolicited grant. The draft memorandum, to be signed by
the Assistant Deputy Secretary for Innovation and Improvement, documents
the determinations made and the rational for the determinations. OII
appears to have improved the documentation of the determinations for
this fiscal year 2004 unsolicited grant application and should continue
to use such a memorandum for all future unsolicited grant applications.
The audit team did not review fiscal year 2004 unsolicited grant
application files for documentation of pre-award contact between grant
applicants and Department officials and staff. In addition, OII revised
the Technical Review Form to request that the panelist indicate if the
application is highly recommended, recommended, or not recommended for
funding. Because OII revised the Technical Review Form, we have not
included a recommendation to address this issue.

OII Comments:

OII concurred with Recommendation 1.1 and stated that they have revised
their procedures for unsolicited applications. OII has alerted senior
officers throughout the Department to inform them of any contact with a
potential FIE grantee and to send documentation of such contacts to the
FIE office for inclusion in the official grant file. In addition, OII
will include a memorandum, signed by the Assistant Deputy Secretary, in
the official grant file indicating that required determinations have
been made.

OII disagreed with Recommendation 1.2 and requested that we modify the
finding and recommendation. OII noted that before funding the
application, the Assistant Deputy Secretary for Innovation and
Improvement made a determination, though not documented, that the SIP
project was of exceptional quality and its outcomes of national
significance. In addition, a panel of experts reached the same
conclusion. OII believes that, since the funding obligation has been
completed and the original determinations of exceptional quality and
national significance were made, further review would be neither
necessary nor helpful. Furthermore, if OII received any additional
applications from the Broad Foundation or its partners, OII would make a
determination of the application's significance and quality at that
time.

**OIG Response:**

We acknowledge OII's implementation of Recommendation 1.1. If OII's
revised procedures are properly implemented, our concerns will be
addressed. Based upon OII's comments regarding Recommendation 1.2, we
have revised our recommendation to address any future applications which
may be submitted by the Broad Foundation or its partners.

**[Finding No. 2 --]{.smallcaps} The SIP May Not Provide All NCLB Act
Report Card Requirements.**

Despite various statements by members of the SIP, including the
Department, that states\' participation in the SIP will result in
compliance with the report card requirements, the SIP website may not
provide all the information required for the NCLB Act\'s state and local
educational agency (SEA and LEA) report cards. This situation occurred
because Department officials and staff did not adequately verify that
the information provided by the SIP would satisfy all of the NCLB Act\'s
report card requirements. Specifically, the SIP does not appear to
provide the following required report card information:

-   Section 1111(h)(1)(C)(i) of the Elementary and Secondary Education
    Act of 1965, as amended by the NCLB Act (the ESEA), requires
    information to be provided on student achievement at each
    proficiency level on state academic assessments. The SIP provides
    information on the *percent of students at or above proficient*,[^3]
    but does not provide information on student achievement *at each
    proficiency level* (e.g., advanced, proficient, basic, and below
    basic).

-   Section 1111(h)(1)(C)(vii) of the ESEA requires information to be
    provided on the performance of LEAs in the state regarding making
    adequate yearly progress, including the number and names of each
    school identified for improvement. The Department\'s non-regulatory
    guidance, issued September 12, 2003, clarifies this by noting that
    the number and names of each LEA and school identified for
    improvement, corrective action, and restructuring should be
    reported. The SIP does not appear to provide a statewide number or
    listing of LEAs and schools that are identified for improvement,
    corrective action, and restructuring. However, the SIP does provide
    information on the names of LEAs and schools identified for
    improvement through the SIP\'s search function or the SIP\'s webpage
    for each LEA and school.

-   Section 1111(h)(2)(B)(i)(I) of the ESEA requires each LEA to report
    the number and percentage of schools identified for improvement and
    how long the schools have been so identified. The SIP does not
    appear to provide this information. However, the SIP\'s search
    function does provide the names of schools within an LEA that are
    identified for improvement.

As a result, if a state relies solely upon the SIP to disseminate SEA
and LEA report card information, the state may not be fully compliant
with all of the report card requirements under the NCLB Act. Members of
the SIP have made various statements indicating that a state\'s
participation in the SIP will result in compliance with the report card
requirements of the NCLB Act. These statements include:

-   The SIP Frequently Asked Questions states, \"The U.S. Department of
    Education has determined that the reporting of state and district
    data through the SIP will fulfill the NCLB report card mandates, as
    long as states supply the necessary data to the SIP in a timely
    fashion.\"

-   A September 17, 2003, dear colleague letter from the Department to
    state education officials states, \"This unique public-private
    partnership is designed to assist you in meeting the letter and the
    spirit of the No Child Left Behind Act of 2001 as it relates to
    educational data reporting.\" In addition, the dear colleague letter
    states, \"Participating in this initiative will allow you and your
    districts to be compliant with the report card requirements of No
    Child Left Behind, so long as all the necessary data are provided.\"

-   In announcing the grant to the Broad Foundation, the Department\'s
    September 9, 2003, press release stated, \"The partnership provides
    all 50 states the opportunity to use - - at no cost - - a special
    package of data services to immediately assist states and schools
    with the basic data analysis and reporting requirements of NCLB.\"

-   In a January 29, 2004, press release announcing the launch of the
    SIP\'s website, the Department states, \"The site,
    www.schoolmatters.com, displays timely, relevant and comparable
    school, district and state data required to be publicly reported by
    the NCLB Act.\"

This situation occurred because Department officials and staff did not
adequately verify that the information provided by the SIP would satisfy
all of the NCLB Act\'s report card requirements. Furthermore, some
Department officials were aware that the SIP would not satisfy one of
the NCLB Act\'s report card elements. In August 2003, a review of the
NCLB Act\'s report card requirements and the information to be provided
by the SIP by representatives from the Office of Educational Technology,
Office of Elementary and Secondary Education, and Office of the General
Counsel disclosed that the SIP\'s basic services, funded in part by the
Department\'s grant to the Broad Foundation, would provide information
on the percent of students *at or above proficient*, but would not
provide information on student achievement *at each proficiency level*.
The Deputy General Counsel was informed that this information would be
available through hyperlinks from the SIP\'s website to SEAs\' websites
where such information could be found.

We noted that the SIP does provide hyperlinks to each SEA\'s website,
where report card information, such as student achievement at each
proficiency level, may be obtained if provided by the SEA. We reviewed
the websites of five SEAs for information on statewide and LEA-level
student achievement on the state academic assessments. In regards to
statewide assessment information, three of the SEAs provided assessment
results at each proficiency level (e.g., advanced, proficient, basic,
and below basic). For the other two SEAs, the statewide assessment
results were not readily available at each proficiency level; one SEA
provided achievement results at the two highest proficiency levels, and
the other SEA provided the percentage of students at or above the
proficient level. In regards to LEA-level assessment information, one
SEA provided achievement results at each proficiency level. Of the other
four SEAs, one provided LEA-level achievement results at the two highest
proficiency levels; one provided the percentage of students at or above
the proficient level; one provided composite assessment scores at the
LEA-level; and one did not appear to provide LEA-level achievement data.

We held discussions on this issue with representatives from the Broad
Foundation and Standard & Poor\'s SES. In addition, we attempted to
obtain information clarifying the data collected and reported by the
SIP. The Associate Director provided the audit team with the SIP\'s data
collection template. We noted that the data collection template requests
the information in question from SEAs, with the exception of information
on how long a school has been identified for improvement, corrective
action, or restructuring. However, if an SEA provides the information in
question to the SIP, it does not appear that it is reported on the SIP
website. Despite our requests for information from Standard & Poor\'s
SES, no information was received.

Recommendation:

We recommend that the Assistant Deputy Secretary for Innovation and
Improvement ensure that:

1.  The SIP collects and presents on its website all of the report card
    information required under § 1111(h) of the ESEA, or, alternatively,
    ensure that the SIP fully discloses all limitations regarding the
    use of the SIP to comply with the report card requirements.

**OII Comments:**

OII disagreed with the recommendations in the draft report and requested
that we modify the finding and recommendations. In regards to the draft
report's recommendations, OII stated that it would be difficult, if not
impossible, to require the SIP to collect and present all of the report
card information because the Broad Foundation did not propose to do so
in its approved grant application. In addition, OII stated that the SIP
has decided to make the report card information in question available
through links to state websites instead of on the schoolmatters.com
website. While OII did not agree with the recommendation to ensure that
the SIP fully discloses all limitations regarding compliance with the
report card requirements, OII stated that they will ask the SIP to
consider amending its "Frequently Asked Questions" on the
schoolmatters.com website to clarify that, if states do not submit the
necessary information, they would not be considered as meeting all
report card requirements. OII will ask that the SIP make it clear that
the information posted on the SIP's website, especially if no other
links are provided by the state, may not meet all of the report card
requirements. OII will also ask the SIP to note that, if states make all
required information publicly available on the state's website and make
that known to the SIP, the SIP will either include it on the
schoolmatters.com site or provide a direct link to the information on
the state's site.

**OIG Response:**

In response to OII's comments, we revised the finding's three
recommendations in the draft report by consolidating the three
recommendations into one recommendation requesting that OII take
corrective actions that will either result in all report card
information being collected and made available by the SIP or having the
SIP disclose all limitations regarding compliance with the report card
requirements. We disagree with OII's comments that corrective action is
not required.

We acknowledge that OII may not be able to require the SIP to collect
and present all of the report card information because the Broad
Foundation did not propose to do so in its approved grant application.
However, the Broad Foundation may be willing to make the necessary
changes, since as we note in our finding, with one exception, the SIP's
data collection template requests the information in question from SEAs.

Unless changes are made to the SIP's information collection and
reporting, the statements about the use of the SIP to comply with the
report card requirements need to be changed. OII concurred that some may
have had the wrong impression that participation in the SIP would result
in compliance with the report card requirements. OII also stated that
their communications made it clear that compliance depended on the type
and timeliness of the data submitted by states. As we note in the
finding, the Department's September 17, 2003, dear colleague letter to
state education officials states, \"Participating in this initiative
will allow you and your districts to be compliant with the report card
requirements of No Child Left Behind, so long as all the necessary data
are provided.\" In addition, the SIP's Frequently Asked Questions
states, \"The U.S. Department of Education has determined that the
reporting of state and district data through the SIP will fulfill the
NCLB report card mandates, as long as states supply the necessary data
to the SIP in a timely fashion.\" Since the SIP does not collect all of
the required data, and does not report all of the data it collects,
these statements do not adequately warn SEAs that participation in the
SIP only is not sufficient to meet the statutory report card
requirements. As a result, to be fully compliant with all of the report
card requirements, SEAs and LEAs must disseminate, through their own
website or other means, the report card information not presented on the
SIP website.

# Background

The SIP is a public-private collaboration, funded by the Broad
Foundation and the Department. The SIP has created a website,
[http://www.schoolmatters.com](http://www.schoolmatters.com/), that
presents school, district, and state data required to be publicly
reported by the NCLB Act. The website provides analytical tools from
Just for the Kids and Standard & Poor\'s SES to enable NCLB Act data to
be used to improve education decision-making. The website and tools will
be launched throughout 2004 and the NCLB Act data for all 50 states,
Puerto Rico, and the District of Columbia will be part of
[http://www.schoolmatters.com](http://www.schoolmatters.com/).

The Broad Foundation\'s mission is to dramatically improve K-12 urban
public education through better governance, management, and labor
relations. The main goals of the SIP are (1) to empower parents,
educators, and policy makers with a set of analytical tools for use in
education decisions; (2) to further the national dialog on improving
academic progress and student results; and (3) to help all states and
districts meet the report card requirements of the NCLB Act. Uses of the
[http://www.schoolmatters.com](http://www.schoolmatters.com/) website
include (1) dissemination of SEA and LEA report card data required by
the NCLB Act; (2) educators can diagnose strengths and challenges of
their districts, set goals, and find better performing schools from
which to learn effective practices; (3) parents can obtain performance
information on their children\'s schools; and (4) state and local policy
makers can use the tools and benchmarks to monitor schools and districts
to assist in policy decisions.

The SIP is a \$9.4 million project to be funded equally by the Broad
Foundation and the Department. The Broad Foundation, as grantee, entered
into contracts with Standard & Poor\'s SES and Just for the Kids. Of the
SIP\'s \$9.4 million budget, up to \$7 million is allocated for Standard
& Poor\'s SES\' costs and up to \$2.4 million is allocated for Just for
the Kids\' costs.

On June 30, 2003, OII awarded the Broad Foundation a \$2,350,000
unsolicited grant (Award Number U215U030002) for the SIP. An additional
\$2,350,000 award was made on April 6, 2004, bringing the total amount
awarded to \$4.7 million. The grant was made under the Department\'s FIE
program, which provides authority for the Department to support
nationally significant programs to improve the quality of elementary and
secondary education at the state and local levels.

The pre-award activities leading to the unsolicited grant to the Broad
Foundation began one year before the grant was awarded on June 30, 2003.
The first contact between the Broad Foundation and the Department
occurred on July 1, 2002, when the Associate Director for the Broad
Foundation contacted the Secretary\'s former Chief of Staff to gauge the
Department\'s level of interest and support for a national roll out of
Standard & Poor\'s SES. This was followed by August 2002 discussions
between the Associate Director for the Broad Foundation and the former
Director of the Office of Educational Technology. On November 15, 2002,
the Associate Director for the Broad Foundation provided a memorandum to
the former Deputy Secretary, outlining their proposal for philanthropic
and federal support to provide incentives to states to adopt Standard &
Poor\'s SES. A meeting was held, on December 6, 2002, to discuss the
Broad Foundation\'s proposal. Representatives from the Broad Foundation,
the Department, Just for the Kids, and Standard & Poor\'s SES
participated in the meeting. The Department officials present at the
meeting included the former Under Secretary (the current Deputy
Secretary) and Assistant Deputy Secretary for Innovation and
Improvement. Following the meeting, the Broad Foundation prepared a
draft action plan (i.e., proposal), which was submitted to the
Department on December 23, 2002. An additional meeting was held on
January 29, 2003, between representatives of the Broad Foundation, the
Department, Just for the Kids, and Standard & Poor\'s SES. The Office of
the General Counsel prepared a memorandum, dated February 11, 2003, that
discussed funding options for the Broad Foundation\'s proposal. The
Broad Foundation submitted its first grant application to the Department
on April 18, 2003. The application was reviewed and, in May 2003,
received low scores from an outside review panel. On June 3, 2003, the
Broad Foundation submitted a revised grant application. The revised
application contained additional information on the initiative\'s
expected outcomes, flexibility and scalability, analytical tools and
data reporting, project management, marketing to states, budget, and
website. A second review panel assigned higher scores to the revised
application. The former Deputy Secretary approved the funding for the
unsolicited grant to the Broad Foundation on June 26, 2003.

**[Objective, Scope and Methodology]{.smallcaps}**

The original audit objective was to determine if the Department\'s grant
to the Broad Foundation was awarded in accordance with applicable
regulations and internal policies for unsolicited grant applications.
Based upon our initial audit work, the audit objective was expanded to
determine if the Department adequately verified that states\'
participation in the SIP would constitute compliance with NCLB Act\'s
report card requirements. The scope of the audit covered the
Department\'s pre-award activities leading up to the June 30, 2003,
grant award to the Broad Foundation and the Department\'s activities
concerning the determination that states\' participation in the SIP
would constitute compliance with NCLB Act report card requirements.

To accomplish the audit objective, we held discussions with officials
from OII, including the Assistant Deputy Secretary, Associate Assistant
Deputy Secretary, Director for FIE, and Program Officers; the current
and former Directors for the Office of Educational Technology; officials
from the Office of the General Counsel, including Deputies General
Counsel, an Assistant General Counsel, and a program attorney; current
and former Counselors to the Secretary; the Director for the Strategic
Accountability Service; officials from the Office of Elementary and
Secondary Education, including the Chief of Staff and Acting Group
Leader for the School Support and Technology Programs; a Special
Assistant and a Policy Advisor in the Office of the Under Secretary; the
Director for the Institute for Education Sciences; the Associate
Director for the Broad Foundation; and the Managing Director for
Standard & Poor\'s SES.

We reviewed applicable laws, regulations, and Departmental policies for
unsolicited grant applications and the FIE program. We reviewed the
OII\'s official grant file, including documentation of the Department\'s
pre-award contact with the Broad Foundation, the grant application, and
the review panel\'s Technical Review Forms. We reviewed the Office of
the General Counsel\'s memoranda and files on the Broad Foundation and
Standard & Poor\'s SES. We reviewed documentation of pre-award contact
with the Department provided by the Broad Foundation. We also compared
the NCLB Act\'s report card requirements for SEAs and LEAs to the
information available on the SIP website.

We conducted on-site fieldwork from February 4, 2004, through July 22,
2004, at Department offices in Washington, D.C., and at Standard &
Poor\'s offices in New York, N.Y., on May 26, 2004. An exit conference
was held on July 22, 2004. We conducted our audit in accordance with
generally accepted government audit standards appropriate to the scope
of the audit work described above.

**[Statement on Internal Controls]{.smallcaps}**

For purposes of the audit, we obtained an understanding of OII\'s
process for processing unsolicited grant applications and classified the
management controls significant to the review\'s objective into the
following areas:

-   OII\'s evaluation of the unsolicited grant proposal.

-   Expert review panel\'s evaluation of the grant application.

-   Official grant file documentation.

Because of inherent limitations, a study and evaluation made for the
limited purpose described above would not necessarily disclose all
material weaknesses in the management controls. However, our assessment
disclosed management control weaknesses that adversely affected OII\'s
ability to award the unsolicited grant to the Broad Foundation in
accordance with applicable regulations and internal policies for
unsolicited grant applications. These weaknesses include (1) a lack of
documentation in OII\'s official grant file for the unsolicited grant to
the Broad Foundation, and (2) OII did not require that the review panel
state on the Technical Review Forms that the application should be
funded as an unsolicited application. These weaknesses and their effects
are discussed in the Audit Results section of this audit report.

**[Administrative Matters]{.smallcaps}**

An electronic copy has been provided to your Audit Liaison Officer. We
received your comments non-concurring with some of the recommendations
in our draft report.

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.
Departmental 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.

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.

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.

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.

We appreciate the cooperation given us during this review. If you have
any questions, please call Bernard Tadley, Regional Inspector General
for Audit, at (215) 656-6279.

> Sincerely,
>
> /s/
>
> Helen Lew
>
> Assistant Inspector General for Audit Services

cc\. Dr. Eugene W. Hickok, Deputy Secretary

Edward R. McPherson, Under Secretary

Attachment

### November 26, 2004

Mr. Bernard Tadley

Regional Inspector General for Audit

Office of Inspector General

U.S. Department of Education

100 Penn Square East, Suite 502

Philadelphia, PA 19107

Dear Mr. Tadley:

Thank you for the opportunity to comment on the Draft Audit Report
regarding the Department's pre-award activities for the unsolicited
grant to the Broad Foundation for the School Information Partnership
(SIP) (Control Number ED-OIG/A03-E0009).

I want to thank you for your work, and the work of your associate,
Jeffrey Nekrasz. You both performed your duties in a highly professional
manner, and your suggestions have improved our own internal procedures.

We agree with some, though not all, of your recommendations, and in many
cases have already implemented them. Please allow me to discuss each of
your recommendations under the headings of your two findings.

Finding Number 1: The official grant file did not include adequate
documentation of pre-award activities.

You recommended that I:

1.  *Ensure that pre-award contact with applicants and the required
    determinations concerning unsolicited grant applications are
    documented in the official grant files. The required determinations
    should be documented when they are made, or, at the latest, prior to
    the application being provided to the expert review panel.*

As you noted, we have already agreed to revise these procedures. We have
alerted senior officers throughout the Department to let us know, to the
extent practicable, of any contact with a potential grantee under the
Fund for the Improvement of Education (FIE), and we send documentation
of such contacts to the FIE office for inclusion in the official grant
file. Also, as you have noted, we have started including a memorandum,
signed by me, in the official grant file indicating that required
determinations have been made.

I appreciate you noting, in your draft report, that I did in fact make
the required determinations for the Broad Foundation application, and
other funded FIE projects, though I did not explicitly document these
determinations in the manner that you have now recommended, consistent
with the Handbook for the Discretionary Grants Process. Again, I want to
thank you for your suggestions, already implemented, that have
strengthened our internal processes related to unsolicited applications.

You also recommended that I:

2.  *Conduct a review to determine if the SIP is a project of
    exceptional quality and its outcomes are of national significance
    for a Departmental program; and based upon the results of the
    review, make an appropriate decision on the Department's future
    involvement in the SIP.*

I disagree with this recommendation. As mentioned above, I had made a
determination, before funding the application, that the SIP project was
of exceptional quality and its outcomes of national significance. In
addition, a review panel of experts, in accordance with 34 CFR 75.222,
also reached the same conclusion (though I did not explicitly document
those determinations in the manner you have now recommended). Therefore,
further review would be neither necessary nor helpful, since the funding
obligation has been completed and the original determinations of
exceptional quality and national significance were made. As for the
Department's future involvement in the project, we have not received any
additional applications from Broad or their partners. If we did receive
an additional application, we would make a determination of its
significance and quality at that time.

In light of this information, we request that you consider making
appropriate modifications to your findings and recommendations in your
final report.

Finding Number 2: The SIP may not provide all NCLB Act Report Card
Requirements.

You recommended that I ensure that:

*2.1 The SIP collect all of the report card information required under §
1111(h) of the \[the Elementary and Secondary Education Act\] ESEA.*

I disagree with this recommendation. It would be difficult, if not
impossible, to require the SIP to collect all of this information
because it did not propose to do so in its approved grant application.
Additionally, in our communications to states on this project, we
indicated the report card requirements would be met, "as long as states
supply the necessary data to SIP in a timely fashion." (See the
Secretary's letter to Chief State School Officer's on this matter dated
September 17, 2003.) While we concur that some may have had the wrong
impression that participation in the SIP would automatically result in
compliance with the report card requirements of the NCLB, our
communications made it clear that it depended on the type and timeliness
of the data submitted by states. Because of this, it is appropriate that
we can only hold the Broad Foundation accountable for the terms in its
application. However, as we discuss below, we will take action to ensure
that there is a clear understanding of the relationship between State
participation in the SIP and compliance with the report card
requirements of NCLB.

In light of this information, we request that you consider making
appropriate modifications to your findings and recommendations in your
final report.

You recommended that I ensure that:

*2.2 When the required information is provided by a state to the SIP,
the information is presented or made available on the SIP webpage for
that \[State Educational Agency\] SEA or \[Local Educational Agency\]
LEA.*

Again, we disagree with this recommendation. We cannot require the SIP
to take this action, for the reasons mentioned above, and the
partnership has decided, for legitimate reasons, to make this
information available through links to state websites instead of on the
schoolmatters.com site itself. So, while much of the report card
information is available in a "dynamic manner" directly on the SIP site,
other data, such as the lists of schools in need of improvement, is
provided conveniently but "statically" through a link to State sites. We
believe this is a reasonable approach, and is certainly consistent with
the SIP's grant application.

In light of this information, we request that you consider making
appropriate modifications to your findings and recommendations in your
final report.

You recommended that I ensure that:

*2.3 The SIP fully discloses all limitations regarding compliance with
the report card requirements, in the event that the SIP is unable to
provide all the report card information required under § 1111(h) of the
ESEA.*

In light of the information provided above, we do not agree that this
recommendation is necessary; however, we will ask the SIP to consider
amending its "Frequently Asked Questions" page (at
<http://www.schoolmatters.com/>) to clarify that, if states do not
submit the necessary information, they would not be considered as
meeting all report card requirements. We will ask that SIP make it
clearer that the information posted on SIP, especially if no other links
are provided by the state, may not meet all of the report card
requirements listed in Section 1111(h) of NCLB. We will also ask them to
note that, if states make all required information publicly available on
the state's website and make that known to SIP, SIP will either include
it on the schoolmatters.com site or provide a direct link to the
information on the state's site.

# [Conclusion]{.underline}

Thank you once again for your work on this important issue. Please let
me know if there is any way I can be of additional assistance.

Sincerely,

/s/

Nina S. Rees

[^1]: Standard & Poor's SES analyzes academic, financial, and
    demographic indicators and trends; provides comparative benchmarks;
    and presents impartial findings on school performance for parents,
    taxpayers, educators, and policy makers to assist in improving
    student achievement and school management.

[^2]: Just for the Kids is a non-profit organization that was founded in
    1995 to raise academic standards and improve public education. Just
    for the Kids develops data-driven school reports that analyze
    student achievement data, studies high-performing schools to
    determine the causes of their success, and provides training to help
    educators replicate best practices.

[^3]: The percent of students at or above proficient is the aggregate of
    the percent of students at the proficient and advanced levels.