K-12 Education: Internal Controls for Program Management and Oversight Can Help Ensure the Success of School Choice Programs
Published: 2015-11-04T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: School vouchers are one of many school choice programs. Vouchers provide students with public funds to attend private schools and are often featured in discussions on education reform. The District of Columbia’s (District) Opportunity Scholarship Program (OSP) has garnered national attention as the first federally-funded private school voucher program in the United States. Since the program’s inception, Congress has provided more than $180 million for OSP, which has, in turn, provided expanded school choice to low-income students by awarding more than 6,100 scholarships to low-income students in the District. GAO’s 2013 report was in response to a request from the Chairman of the Subcommittee on Financial Services and General Government, Committee on Appropriations, U.S. Senate that GAO review the extent to which OSP was meeting its stated goals and properly managing federal funds.
This statement is based on GAO’s 2013 report, and discusses the importance of ensuring effective implementation of OSP and any future similar federal school choice programs and providing sufficient accountability for public funds.
section_title: What GAO Found
paragraphs: Students in the District of Columbia (District) have many choices for K-12 schooling including charter, magnet, and traditional public schools, as well as private schools through the federally funded Opportunity Scholarship Program (OSP). Strong fiscal monitoring and oversight of the various schools that participate in choice programs is critical to ensuring that these programs have effective internal controls that help them meet the goal of providing a quality education to students. Internal control is broadly defined as a process designed to provide reasonable assurance that an organization can achieve its objectives. Five internal control standards—control environment, risk assessment, control activities, information and communication, and monitoring—should be an integral part of a system that managers use to regulate and guide an agency’s operations.
During GAO’s 2013 review of OSP, most families GAO spoke with were generally happy with their children’s participation in the program, citing increased safety and security at their children’s OSP schools and improved quality of education. However, GAO found weaknesses in three areas—access to timely and complete program and award information, effective controls to safeguard federal funds, and clearly defined and properly executed roles and responsibilities—that are the result of internal control deficiencies that may limit the effectiveness of OSP and its ability to meet its goal of providing a quality education experience for students in the District. Strong internal controls in these areas would strengthen the OSP and are critical to the success of any similar federally funded school voucher program.
section_title: What GAO Recommends
paragraphs: In 2013, GAO made 10 recommendations to Education to improve OSP. To date, one recommendation has been closed as implemented. In October 2015, Education told GAO that it had addressed some of the issues that GAO identified in the 2013 report, but GAO was unable to assess the extent to which they had implemented our recommendations in time for this statement. GAO continues to believe that the 2013 recommendations would address weaknesses previously identified in OSP, and would improve the implementation and effectiveness of OSP—and any future federally funded choice programs.

section_title: Letter
paragraphs: I am pleased to submit this statement on how lessons learned from the  District of Columbia Opportunity Scholarship Program (OSP)—the only  federally funded kindergarten-through-grade-12 private school choice  program in the United States—could strengthen this or any similar  federally funded voucher program in the future. Students and families in  the District of Columbia (District) may choose among a variety of public  and private options for their K-12 education. According to data from the  Department of Education (Education), 41 percent of the District’s  approximately 78,000 public school students attended charter schools, 5  percent attended magnet schools, and 51 percent attended traditional  public schools in the 2013-2014 school year. In addition to the District’s  public school choice options, District students may be eligible for OSP’s  annual scholarships that allow students to attend participating private  elementary or secondary schools of their choice. According to the OSP  Web site, 1,660 students attended private schools under this program in  school year 2013-2014. Since the program’s inception, Congress has  provided more than $180 million for OSP, according to Education. These  funds have, in turn, awarded over 6,100 scholarships to students who  would likely not have the resources to attend private school.
The Secretary of Education and the Mayor of the District of Columbia  have a memorandum of understanding (MOU) that delineates  responsibilities for implementing OSP. According to the MOU, Education  is responsible for working with the OSP administrator—an entity funded  by a grant from Education—to improve certain aspects of administration.  In addition, the MOU states that District agencies are directly responsible  for conducting required inspections of participating schools when notified  by the OSP administrator.
School voucher programs are gaining in popularity across the country. In  addition to DC’s federally funded OSP, 10 states currently operate state- funded school voucher programs. Further, Congress has considered  creating a national school voucher program in recent years. Given these  developments, this statement discusses the importance of proper  management and oversight of these programs to ensure they are  implemented effectively and provide accountability over public funds.
This statement is based on a GAO report released in 2013, titled  District of Columbia Opportunity Scholarship Program: Actions Needed  to Address Weaknesses in Administration and Oversight. This report  responded to a request from the Chairman of the Subcommittee on  Financial Services and General Government, Committee on  Appropriations, U.S. Senate for GAO to assess the extent to which the  OSP administrator was meeting its stated goals and properly managing  federal funds. In the report, we examined (1) the extent to which the  OSP administrator provides information that enables families to make  informed school choices, (2) whether OSP’s internal controls ensure  accountability, and (3) how Education and District agencies responsible  for overseeing OSP have performed their stated roles and  responsibilities.
To address these objectives, we analyzed key documents regarding  participating schools and OSP that were available to parents. We visited  10 of the 53 participating private schools and interviewed key officials. We  selected the schools based on the highest number and concentration of  OSP students given the total enrollment at the school in the 2011-2012  school year. We also conducted two discussion groups with families of  students who received and used an OSP scholarship in the 2012-2013  school year. We analyzed OSP’s administrative database, and assessed  the reliability of enrollment data for selected years from the database. We  found the data to be sufficiently reliable for the purposes of determining  characteristics of OSP schools and students. In addition, we reviewed  relevant federal laws and regulations and internal OSP documents, and  interviewed officials representing OSP, Education, and select District  agencies. The report contains a detailed description of our scope and  methodology. The work upon which this statement is based was  conducted in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
In our 2013 review of OSP, most families we spoke with were generally  happy with their children’s participation in the program, citing increased  safety and security at their children’s OSP schools and improved quality  of education. However, we found weaknesses in three areas—access to  complete and timely program and award information, effective controls to  safeguard federal funds, and clearly defined and properly executed roles  and responsibilities—that are the result of internal control deficiencies that  may limit the effectiveness of OSP and its ability to meet its goal of  providing a quality educational experience for students in the District.  Strong internal controls in these areas would strengthen the OSP and  are, we believe, critical to the success of any similar federally funded  school voucher program.
Effective internal control is a major part of managing any organization to  achieve desired outcomes and manage risk. Internal control is broadly  defined as a process designed to provide reasonable assurance that an  organization can achieve its objectives. It includes management and  program policies, procedures, and guidance that help ensure effective  and efficient use of resources; compliance with laws and regulations;  prevention and detection of fraud, waste, and abuse; and the reliability of  financial reporting. Five internal control standards—control environment,  risk assessment, control activities, information and communication, and  monitoring—apply to all aspects of an organization’s operations and  should be an integral part of a system that managers use to regulate and  guide an organization or program’s operations.
subsections: section_title: Access to Complete and Timely Program and Award Information
paragraphs: Families of OSP scholarship award recipients, as consumers, need  complete and timely information about participating schools to make  informed decisions about what school is best for the student. Further,  federal internal control standards state that organizations must have  relevant, reliable, and timely communications, and adequate means of  communicating with external parties who may have an impact on the  organization achieving its goals. During our 2013 review, we found that  OSP provided information to prospective and current OSP families  through a variety of outreach activities. However, families lacked key  information necessary to make informed decisions about school choice  because the directory of participating schools—a key communication  tool—was not published in a timely fashion and did not contain key  information about tuition, fees, and accreditation. Additionally,  scholarships to students were awarded several months after many  schools had completed their admissions and enrollment processes,  limiting the amount of time and choice in selecting schools. To address  these issues, we recommended that Education take steps to ensure that  the OSP administrator improve the timing of key aspects of program  administration and program information for prospective and participating  families. In late October 2015, Education described to us actions that had  been taken to address these issues. For example, Education stated that  the OSP administrator published its school directory in a timely manner in  2013 and 2014. The SOAR Reauthorization Act, which recently passed  in the House and has been introduced in the Senate, includes provisions  to address accreditation of participating schools.
section_title: Effective Controls to Safeguard Federal Funds
paragraphs: Effective policies and procedures: During our 2013 review, we found  that OSP’s policies and procedures lacked detail in several areas related  to school compliance and financial accounting, which may weaken overall  accountability for program funds. Policies and procedures are a central  part of control activities and help ensure necessary actions are taken to  address risks to achievement of an organization’s objectives. The  absence of detailed policies and procedures reflect weak internal control  in the areas of risk assessment, control activities, information and  communication, and control environment. For example, we found that  OSP relied on schools’ self-reported information to ensure school  compliance and did not have a process for independently verifying  information, such as a school’s student academic performance, safety,  and maintenance of a valid certificate of occupancy. Without a  mechanism or procedures to verify the accuracy of the information  provided, OSP cannot provide reasonable assurance that participating  schools meet the criteria established for participation in the program. As a  result, there is a risk that federal dollars will be provided for students to  attend schools that do not meet the education and health and safety  standards required by the District.
Further, at the time of our review, OSP’s policies and procedures lacked  sufficient detail to ensure each participating school in OSP has the  financial systems, controls, policies, and procedures in place to ensure  federal funds were used according to federal law. OSP’s policies and  procedures for the financial stability review of participating schools did not  identify the specific risk factors that should be considered when assessing  schools’ financial sustainability information. As a result, the OSP  administrator was unable to confirm that all schools participating in the  program were financially sustainable. In addition, OSP lacked detailed  policies and procedures for dealing with schools not in compliance with  program rules. Furthermore, policies and procedures for fiscal years 2010  through 2012 did not specify how to track administrative expenses,  including what should be included, and OSP had little documentation to  support administrative expenses incurred during these years. Therefore,  while federal law limits the administrative expenses to 3 percent of the  annual grant amount, the true cost of administering the OSP program  during these years is not known and could be higher or lower than the 3  percent allotted.
Without sufficiently detailed policies and procedures for all aspects of a  school choice program, the program administrator cannot effectively  monitor program operation and may not be able to account for all federal  or public dollars spent. To address these issues, we recommended  Education require the OSP program administrator to add additional detail  to their policies and procedures to more efficiently manage day-to-day  program operations. OSP amended its policies and procedures in August  2013 which addressed some of these issues, but OSP did not address all  of the weaknesses described and the policies and procedures had not  been fully implemented at the time of our review. In addition, in late  October 2015, Education described to us actions that they had taken to  address these issues. For example, Education stated that its Office of  Risk Management Services provided feedback on the OSP  administrator’s internal policies and procedures. The SOAR  Reauthorization Act recently passed by the House and introduced in the  Senate includes a provision to address how the program administrator will  ensure that it uses internal fiscal and quality controls for OSP.
Accurate, Up-to-Date Student Information: According to the internal  controls framework, information should be communicated to management  and within an organization in a form and time frame that enables officials  to carry out their responsibilities and determine whether they are meeting  their stated objectives. For example, in OSP—and other eligibility-based  choice programs—it is important to have accurate, up-to-date student  application information in order to meet program objectives, such as  determining eligibility and awarding program scholarships in an efficient  and timely manner. However, at the time of our 2013 review OSP’s  database containing past and current student and school information had  several weaknesses, including a lack of documentation and automated  checks, and a deficient structure, which left the database open to errors.  For example, there were many records with missing fields and data that  were partially entered, and the database did not have automated data  checks, which would reduce the risk that significant errors could occur  and remain undetected and uncorrected. We found these deficiencies  also negatively affected day-to-day program management, and impeded  efforts to communicate information about the program to families and  Education. In addition, the database’s current structure hampers OSP’s  ability to look at historical trends and use them as an effective  management tool. We also found incomplete records from past years  which will continue to be a problem for future program administrators who  need them for effective program implementation and oversight. In  addition, because a key variable in the OSP database used in the student  selection process was unreliably populated, OSP’s ability to accurately  select students based on established priorities for the program may have  been compromised. To address issues with the database, we  recommended Education have the program administrator improve the  program database to provide reasonable assurance that there is  sufficiently reliable data regarding the operation of OSP. In late October  2015, Education stated that OSP did not have the capacity or financial  resources to update the database and Education could not require them  to make the suggested updates. As noted above, the SOAR  Reauthorization Act recently passed by the House and introduced in the  Senate includes a provision intended to ensure the entity uses internal  fiscal and quality controls for OSP.
Timely Financial Reporting: Reliable published financial statements,  such as those required by the Single Audit Act, are needed to meet  program requirements and to ensure federal funds are being used  appropriately. The Single Audit Act requires that recipients submit their  Single Audit reports to the federal government no later than 9 months  after the end of the period being audited. However, the required audit  documents for the year ended Sept. 30, 2010 were issued by the program  administrator on Jan. 31, 2013—more than 2 years after the end of its  2010 fiscal year. As a result, until these reports were issued Education  did not have the financial reports required to properly account for the  federal funds expended for OSP. To address these issues we  recommended Education explore ways to improve monitoring and  oversight of the program administrator. In 2014, Education stated that  OSP was current with all required financial audits and provided  documentation that, OSP’s 2014 Grant Award Notification imposed a  special condition due to OSP’s history of untimely financial reporting.  Specifically, the award notification stated that Education could impose  sanctions, such as withholding a percentage of or entirely suspending  federal awards, if OSP fails to submit a timely financial audit or written  explanation.
section_title: Proper Execution of Roles and Responsibilities
paragraphs: Internal control activities help ensure that actions are taken to address  risks, and include a wide range of activities such as approvals,  authorizations, and verifications. According to the MOU between  Education and the District, the District is responsible for conducting  regulatory inspections of participating schools and providing the  administrator with the results of those inspections. However, we found  that requirements under the MOU were not being met. For example,  inspections of participating private schools were often not conducted. For  our 2013 report, OSP told us they did not receive any information from  the District as a result of any inspections, nor did the administrator follow  up with District agencies to inquire about them. Given that the program  administrator is responsible for ensuring that participating schools  continue to be eligible to receive federal dollars through OSP, notifying  the District agencies about inspections is important in ensuring  appropriate oversight of participating schools. The MOU includes a  responsibility for the program administrator to notify District agencies to  conduct these inspections, but because the program administrator is not  a signatory to the MOU, OSP officials were not fully aware of this  responsibility, they said. As a result, activities crucial to the successful  implementation of the program—such as building, zoning, health, and  safety inspections—may not be occurring for all participating schools. To  address these issues, we recommended Education work with the Mayor  of the District of Columbia to revise the MOU that governs OSP  implementation to include processes that ensure the results of OSP  school inspections are communicated to the program administrator. In  late October 2015, Education described to us actions that they had taken  to address these issues. For example, Education stated that it ensured  that the OSP administrator informed the appropriate District agency of the  names of the participating schools for the purpose of conducting required  inspections. The SOAR Reauthorization Act recently passed by the  House and introduced in the Senate includes provisions that require  Education and the District to revise their MOU to, among other things,  address some of these issues.
In conclusion, OSP has provided low-income families in the District  additional choices for educating their children and has likely made private  school accessible to some of these children who would not otherwise  have had access. However, to help ensure that OSP efficiently and  effectively uses federal funds for their intended purpose—that is, to  provide increased opportunities to low-income parents to send their  children, particularly those attending low-performing schools, to private  schools—any entity responsible for operating a school choice program  such as OSP needs a strong accountability infrastructure that  incorporates the elements of internal control discussed above. Well- designed and executed operational and financial management policies  and procedures and the underlying systems help provide reasonable  assurance that federal funds are being used for the purposes intended  and that funds are safeguarded against loss from error, abuse, and fraud.  Education stated that they had addressed some of the issues that we  identified, but we were unable to assess the extent to which they had  implemented our recommendations in time for this statement. We  continue to believe that by fully addressing our nine remaining  recommendations for the OSP program, Education would promote more  efficient and effective program implementation and accountability over  federal funds, regardless of which entity is administering the program.
Mr. Chairman Johnson, Ranking Member Carper, and Members of the  Committee, this concludes my statement for the record. If you or your  staff have any questions about this statement, please contact Jacqueline  M. Nowicki at (617) 788-0580. You may also reach me by email at  nowickij@gao.gov. Contact points for our Offices of Congressional  Relations and Public Affairs may be found on the last page of this  statement. Key contributors to this statement include Nagla’a El-Hodiri  (Assistant Director), Jamila Jones Kennedy, and Michelle Loutoo Wilson.  In addition, key support was provided by Susan Aschoff, William Colvin,  Julianne Cutts, Alexander Galuten, Gretta L. Goodwin, Sheila McCoy,  Kimberly McGatlin, Jean McSween, John Mingus, Linda Siegel, Deborah  Signer, and Jill Yost. Other contributors to the report on which the  statement is based are Hiwotte Amare, Carl Barden, Maria C. Belaval,  Edward Bodine, Melinda Cordero, David Chrisinger, Carla Craddock,  Kristy Kennedy, John Lopez, Mimi Nguyen, James Rebbe, Ramon  Rodriguez, George A. Scott, Aron Szapiro, and Helina Wong.
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