Arizona Department of Education Fiscal Monitoring Activity: LEA Allocations

Visit Summary

OSEP conducted on-site fiscal monitoring of Arizona Department of Education (ADE) on 

September 13–14, 2017, as part of OSEP’s system of Differentiated Monitoring and Support

(DMS). The monitoring activities were conducted by members of OSEP’s Fiscal Accountability 

Implementation Team, in consultation with the OSEP State lead for Arizona and the OSEP 

Associate Division Director (ADD) with responsibility for the team working with Arizona. 

OSEP’s Fiscal Monitoring in 2017 examined the status of ADE’s corrections of noncompliance 

involving: 1) local educational agency (LEA) Allocations, and 2) Subrecipient Monitoring. During 

the visit, OSEP met with representatives of the State to review the State’s fiscal processes for 

LEA allocations and subrecipient monitoring. The ADE officials who participated in the 

monitoring activity related to LEA allocations included the Associate Superintendent for Highly 

Effective Schools, the Deputy Associate Superintendent for Exceptional Student Services 

(ESS), and the Director of Operations for ESS. The ADE officials who participated in the 

monitoring activity related to subrecipient monitoring included the Deputy Associate 

Superintendent for Grants Management, the Director of the Fiscal Monitoring Unit (part of the 

Grants Management office), and the ESS Program Support Monitoring staff representative. At 

the State’s invitation, staff from the Center for IDEA Fiscal Reporting (CIFR) also participated in 

the monitoring activities. 

This document addresses the status of ADE’s corrections of noncompliance involving LEA 

Allocations, based on OSEP’s May 5, 2016 fiscal monitoring letter and fiscal monitoring 

instrument (FMI). Subrecipient Monitoring is addressed in a separate FMI. 

OSEP did not make additional findings of noncompliance related to LEA allocations as a result 

of the September 2017 monitoring activity. However, the information submitted by ADE at the 

time of the monitoring visit did not resolve the findings identified in May 2016. The list at the end 

of this report reflects actions the State is required to take to resolve the findings identified in May

2016, taking into account the current status of those findings and the additional information 

submitted by ADE as part of the September 2017 monitoring activity and in the letter dated 

February 21, 2018 from the Arizona Superintendent of Public Instruction and received by OSEP 

on April 26, 2018.

Background

On May 5, 2016, OSEP issued a fiscal monitoring letter and FMI to ADE. The FMI included nine 

findings of fiscal noncompliance and 17 corrective actions to be taken by the State.

On October 19, 2016, OSEP issued Arizona a DMS document that specified engagement 

activities that OSEP would conduct with the State across five areas during FFY 2016 (2016-

2017): results, compliance, State Systemic Improvement Plan (SSIP), correctional education, 

and fiscal. For the fiscal area, OSEP assigned Arizona a designation of intensive engagement 

due to factors identified as changes in leadership, audits, and unresolved fiscal monitoring.
Arizona Department of Education (ADE), page 2 of 6

During FFY 2016, OSEP monitored States with intensive fiscal designations, including Arizona, 

in two areas: LEA allocations and subrecipient monitoring.

To address the findings identified in the May 5, 2016 FMI and ADE’s intensive designation, ADE 

staff worked actively with OSEP and OSEP-funded technical assistance centers in resolving the 

identified noncompliance. Technical assistance activities included multiple phone calls, emails, 

and a face-to-face meeting held in Denver in November 2016. In addition, ADE sought technical 

assistance from the Center for IDEA Fiscal Reporting (CIFR) and the National Center for 

Systemic Improvement (NCSI). Throughout this time, ADE submitted additional documents in 

draft and final formats to address the noncompliance, and also submitted written questions 

based on specific fiscal scenarios, for which OSEP provided written responses. In the midst of 

the work to resolve the fiscal monitoring findings, staff retirements and changes resulted in 

several key positions in ADE’s Exceptional Student Services (ESS) unit being filled by new 

personnel. ADE reported that these personnel changes contributed to delays in their correction 

of the identified noncompliance. 

Subsequently, on August 17, 2017, OSEP notified ADE that the State had provided the required 

documentation to resolve five of the nine findings identified in the May 2016 FMI. Specifically,

OSEP determined that the State had demonstrated correction of the identified noncompliance in 

the following areas: maintenance of State financial support, excess cost, LEA maintenance of 

effort, and prior approval procedures for use of IDEA funds for equipment, construction or 

alteration of facilities. ADE was unable to demonstrate correction of noncompliance for the four 

findings related to LEA allocations of IDEA section 611 and section 619 subgrants based upon 

the correct formulas as required at 34 CFR §§300.705, 300.815-300.817, 34 CFR Part 76 

Subpart H (the U.S. Department of Education (Department’s) Charter School Expansion Act 

regulations), and the Department’s December 2000 guidance titled “How Does a State or Local 

Educational Agency Allocate Funds to Charter Schools that are Opening for the First Time or 

Significantly Expanding their Enrollment?”. 

Status of the LEA Allocations Findings

To address the noncompliance regarding LEA allocations identified in OSEP’s FMI, ADE was 

required to recalculate its previous LEA allocations and to make whole any LEA that received 

less than the amount of IDEA section 611 or section 619 funds to which it was entitled in FFY 

2014, FFY 2015, and/or FFY 2016; alternatively, the State was to provide to OSEP, by August 

2016, a plan outlining how the State intended to make the required corrections during FFY 

2016. In addition, ADE was required to provide revised State policies and procedures that 

demonstrate ADE will allocate the IDEA section 611 and section 619 funds to eligible LEAs in 

accordance with IDEA requirements. During the September 2017 monitoring visit, ADE provided 

documentation that it had made the required recalculations, but had not yet made whole the 

affected LEAs. At this time, ADE also did not provide updated policies and procedures for its 

allocation process consistent with the relevant requirements. The Deputy Associate 

Superintendent for ESS and the Associate Superintendent for Highly Effective Schools indicated 

that they had researched options to make whole the affected LEAs, but that no funds were 
Arizona Department of Education (ADE), page 3 of 6

available to the State for this purpose. ADE asked OSEP to waive the requirement to make 

whole the affected LEAs, reduce the amounts the State needs to repay the LEAs, or offer other 

flexibilities to the State. In a follow-up phone call between OSEP and ADE on October 26, 2017, 

OSEP explained that it could not reduce the amount by which the State needed to make the 

affected LEAs whole or waive the requirements to ensure LEA allocations are made in 

accordance with IDEA requirements, but provided an additional option involving the timelines for 

making LEAs whole. The original corrective action had included a provision allowing the State to 

use any remaining FFY 2014, FFY 2015, and/or FFY 2016 section 611 and/or section 619 State 

set-aside funds that were still available to the State, for the purpose of making whole any LEAs 

that received less than the amount of section 611 or section 619 funds to which they were 

entitled in in FFY 2014, FFY 2015, and/or FFY 2016. To provide additional flexibility to complete 

the corrective action in response to the State’s request, OSEP informed the State that it could 

also consider the use of FFY 2017, FFY 2018, and FFY 2019 State set-aside funds for this 

purpose. 

In a letter dated February 21, 2018 and received by OSEP on April 26, 2018, Diane Douglas, 

the Arizona Superintendent of Public Instruction, requested “a five-year period to smooth out 

allocations for LEAs, from FY 2018 through FY 2022.” ADE stated that using State-level funds 

“creates a marked hardship for ADE to continue to be compliant with the State-level 

administration requirements for IDEA.” In addition, ADE stated that it would “lose[s] its 

opportunity to embark on State-led initiatives and activities related to development, 

implementation, and scale-up of evidence-based literacy and universal design professional 

development initiatives to support results-driven accountability needs around increasing 

achievement outcomes.” The State therefore proposed a plan to use a portion of its FFYs 2018, 

2019, 2020, 2021, and 2022 IDEA Part B State set-aside funds to make whole any LEA that 

received less than the amount of section 611 or section 619 funds to which it was entitled in 

FFY 2014, FFY 2015, and/or FFY 2016. As reflected in the updated corrective action list below, 

taking into account the circumstances described in the State’s February 2018 letter, OSEP has 

determined that it will allow ADE to use FFY 2018 through FFY 2022 State set-aside funds for 

this purpose. 

Unresolved Findings of Noncompliance from May 2016 FMI

At the time of the September 13-14, 2017 monitoring visit,1the following required actions from 

the May 5, 2016 fiscal monitoring letter remained unresolved:

Further Action Required: Within 90 days of the receipt of this letter [the May 5, 2016 letter], the 

State must submit to OSEP:

1. Policies and procedures that demonstrate that the SEA will ensure that each LEA has 

submitted a plan that provides assurances to the SEA that the LEA meets each of the 

conditions in 34 CFR §§300.201 through 300.213 before it determines that an LEA is 

eligible for assistance under Part B of the IDEA for a fiscal year.

 

1

For details of the original findings, see that attached May, 5, 2016 fiscal monitoring letter and FMI.
Arizona Department of Education (ADE), page 4 of 6

2. Documentation of the section 611 and section 619 allocation that each LEA was entitled 

to receive in FFY 2014, FFY 2015, and/or FFY 2016 and the amount of the section 611 

and section 619 allocation each LEA actually received in FFY 2014, FFY 2015, and/or 

FFY 2016.

3. For any LEA whose section 611 or section 619 allocation was less than the amount to 

which it was entitled in FFY 2014, FFY 2015, and/or FFY 2016, a calculation of the 

difference between the amount the LEA actually received and the amount of the 

allocation the LEA should have received. 

4. Documentation demonstrating that any LEA that received less than the amount of 

section 611 or section 619 funds to which it was entitled in FFY 2014, FFY 2015, and/or 

FFY 2016 was made whole or a plan outlining how the State will make these LEAs 

whole during FFY 2016. The State may use any remaining FFY 2014 or FFY 2015 

section 611 and/or section 619 State set-aside funds or any FFY 2016 section 611

and/or section 619 State set-aside funds that become available on July 1, 2016 for this 

purpose.

5. Revised State policies and procedures that demonstrate the SEA will allocate the IDEA 

section 611 and section 619 subgrants to eligible LEAs in accordance with 

34 CFR §§300.705(b) and 300.816. 

6. Revised State policies and procedures that demonstrate the SEA will allocate FFY 2015 

and subsequent years’ section 611 and section 619 funds that the State originally set 

aside for LEAs that do not submit an approvable application during a Federal fiscal year

in accordance with the allocation procedures under 34 CFR §§300.705(a) and 300.815 

to the LEAs that established eligibility in the initial Federal fiscal year in accordance with 

the formula used in that fiscal year, or retain those funds for use at the State level to the 

extent the State has not reserved the maximum amount it is permitted to reserve for 

State-level activities pursuant to 34 CFR §§300.704 and 300.812, and for those LEAs 

that elect not to apply for IDEA Part B funds, use the payments that would have 

otherwise been available to such an LEA to provide special education and related 

services directly to children with disabilities residing in the area served by that LEA, as 

required by 34 CFR §300.227(a)(1)(i). 
Arizona Department of Education (ADE), page 5 of 6

7. A copy of the correspondence in which the State has informed its State audit office that is 

responsible for conducting audits in accordance with the Single Audit Act and Subpart F 

of the Uniform Guidance (former OMB Circular A-133)2, of this finding of noncompliance 

and OSEP’s required corrective actions.

Within 30 days of OSEP’s notification to the State that it has approved the revisions made to the 

policies and procedures, the State must provide documentation that it has notified the LEAs of 

the revisions.

Based upon the review of additional documentation, OSEP has determined that required actions 

2, 3, and 7 have been met, and no further action is required. Because required actions 1, 4, 5, 

and 6 remain unresolved, and because OSEP considers ADE’s letter of February 21, 2018 to be 

a plan outlining how the State will make the affected LEAs whole, OSEP is requiring the 

following: 

1. Within 90 days of the date of this letter, the State must submit to OSEP documentation

of its plan to ensure that any LEA that received less than the amount of section 611 or 

section 619 funds to which it was entitled in FFYs 2014, 2015, and/or 2016 will be made 

whole. Consistent with the request made in the State’s February 21, 2018 letter, the 

State may use any available FFY 2018, FFY 2019, FFY 2020, FFY 2021, and FFY 2022

section 611 and/or section 619 State set-aside funds for this purpose.

2. Within 90 days of the date of this letter, the State must submit to OSEP revised State 

policies and procedures that describe how ADE allocates IDEA section 611 and section 

619 funds to eligible LEAs, consistent with statutory and regulatory formulas in IDEA 

sections 611(f) and section 619(g) and 34 CFR §§300.705 and 300.815. The policies 

and procedures must document how ADE fulfills its responsibilities for each of the 

following actions, consistent with statutory and regulatory requirements: a) determines 

the LEA’s eligibility to receive a subgrant based on the submission of a plan that includes 

required assurances; b) calculates base payments; c) calculates base payment 

adjustments, when required; d) calculates the allocation of remaining funds based on 

population and poverty; e) calculates subgrants to eligible charter school LEAs that open 

or significantly expand their enrollment; f) reallocates funds to eligible LEAs, including 

charter school LEAs, consistent with requirements and in the appropriate year3; and g) 

ensures that section 619 allocations are made consistent with IDEA requirements, 

 

2

Effective July 1, 2015, for IDEA Part B FFY 2015 grant awards, IDEA Part B funds are subject to the Uniform 

Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, codified in 2 CFR Part 

200 and commonly referred to as the Uniform Guidance. The Uniform Guidance provisions in 2 CFR Part 200 

replace provisions previously found in EDGAR in 34 CFR Parts 74 and 80 and prior OMB Circulars A-87 and A-133.

3

After receipt of OSEP’s May 2016 FMI, ADE submitted to OSEP questions regarding charter school LEAs that close 

mid-year after establishing eligibility to receive an IDEA subgrant, as opposed to closing mid-year but before 

establishing eligibility to receive a subgrant, as well as two questions regarding the differences between the 

reallocation provisions at 34 CFR §§300.705(c) and 300.817, and the requirements at 34 CFR §300.227. Because 

ADE personnel indicated that the responses to these questions were critical to its future actions and the 

development of its policies and procedures, OSEP expects that the reallocation policies and procedures will reflect

OSEP’s February 28, 2017 response to these specific questions.
Arizona Department of Education (ADE), page 6 of 6

including when allocations to States for section 619 grants are below the 1997 

appropriation level. In addition, the policies and procedures must include relevant 

policies and procedures of any ADE organizational units that have a role in calculating, 

issuing, or otherwise ensuring the distribution of section 611 and/or section 619 funds to 

eligible LEAs, including eligible charter school LEAs.