Recovery Act Education Programs: Funding Retained Teachers, but Education Could More Consistently Communicate Stabilization Monitoring Issues
Published: 2011-09-22T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The American Recovery and Reinvestment Act of 2009 (Recovery Act) provided $70.3 billion for three education programs--the State Fiscal Stabilization Fund (SFSF); Title I, Part A of the Elementary and Secondary Education Act (Title I); and Individuals with Disabilities Education Act (IDEA), Part B. One goal of the Recovery Act was to save and create jobs, and SFSF also requires states to report information expected to increase transparency and advance educational reform. This report responds to two ongoing GAO mandates under the Recovery Act. It examines (1) how selected states and local recipients used the funds; (2) what plans the Department of Education (Education) and selected states have to assess the impact of the funds; (3) what approaches are being used to ensure accountability of the funds; and (4) how Education and states ensure the accuracy of recipient reported data. To conduct this review, GAO gathered information from 14 states and the District of Columbia, conducted a nationally representative survey of local educational agencies (LEA), interviewed Education officials, examined recipient reports, and reviewed relevant policy documents.
section_title: What GAO Found
paragraphs: As of September 9, 2011, in the 50 states and the District of Columbia, about 4 percent of the obligated Recovery Act funds remain available for expenditure. Teacher retention was the primary use of Recovery Act education funds according to GAO's nationally representative survey of LEAs. The funds also allowed recipients to restore state budget shortfalls and maintain or increase services. However, the expiration of funds and state budget decreases may cause LEAs to decrease services, such as laying off teachers. We also found that nearly a quarter of LEAs reported lowering their local spending on special education, as allowed for under IDEA provisions that provide eligible LEAs the flexibility to reduce local spending on students with disabilities by up to half of the amount of any increase in federal IDEA funding from the prior year. However, even with this flexibility, many LEAs reported having difficulty maintaining required levels of local special education spending. In addition, two states have not been able to meet required state spending levels for IDEA or obtain a federal waiver from these requirements. States whose waivers were denied and cannot make up the shortfall in the fiscal year in question face a reduction in their IDEA funding equal to the shortfall, which may be long-lasting. Education plans to conduct two types of systematic program assessments to gauge the results of Recovery Act-funded programs that focus on educational reform: program evaluation and performance measurement. In the coming years, Education plans to produce an evaluation that will provide an in-depth examination of various Recovery Act programs' performance in addressing educational reform. In addition, for the SFSF program, Education plans to measure states' ability to collect and publicly report data on preestablished indicators and descriptors of educational reform, and it plans to provide a national view of states' progress. Education intends for this reporting to be a means for improving accountability to the public in the shorter term. Further, Education officials plan to use states' progress to determine whether a state is qualified to receive funds under other future reform-oriented grant competitions. Numerous entities help ensure accountability of Recovery Act funds through monitoring, audits, and other means, which have helped identify areas for improvement. Given the short time frame for spending these funds, Education's new SFSF monitoring approach prioritized helping states resolve monitoring issues and allowed Education to target technical assistance to some states. However, some states did not receive monitoring feedback promptly and this feedback was not communicated consistently because Education's monitoring protocol lacked internal time frames for following up with states. Education and state officials reported using a variety of methods to ensure recipient reported data are accurate. They also use recipient reported data to enhance their oversight and monitoring efforts. According to Recovery.gov, the Recovery Act funded approximately 286,000 full-time equivalents (FTE) during the eighth round of reporting, which ended June 30, 2011, for the education programs GAO reviewed. Despite the limitations associated with FTE data, Education found these data to be useful in assessing the impact of grant programs on saving and creating jobs.
section_title: What GAO Recommends
paragraphs: GAO recommends that the Secretary of Education establish mechanisms to improve the consistency of communicating SFSF monitoring feedback to states. Education agreed with our recommendation.

section_title: Letter
paragraphs: With the most severe recession in decades, states and school  governments around the country faced record budget shortfalls that  threatened to adversely affect services. In response to the economic  crisis facing the nation and the fiscal challenges facing state and local  governments, Congress enacted the American Recovery and  Reinvestment Act of 2009 (Recovery Act). Among other things, the  purposes of the Recovery Act were to preserve and create jobs, promote  national economic recovery, and provide long-term economic benefits  through infrastructure investments, including education. The Recovery  Act provided nearly $100 billion in fiscal year 2009 for elementary,  secondary, and postsecondary education programs—a major  responsibility for state and local governments—in an effort to ensure  students continue to receive quality educational services. While a key  purpose of these funds was to help address short-term fiscal challenges,  newly created education programs also promoted progress on  educational reform and the U.S. Department of Education encouraged  recipients to invest in long-term capacity. We previously reported that  school districts have used Recovery Act education funds primarily to fund  jobs, but also that they have reported progress in key reform areas and  have used funds for one-time investments in equipment and training. The  funds are available until September 30, 2011, but the impact of how those  funds were spent will not be clear for several more years. However, how  school districts used the funds to invest in sustainable reform efforts could  affect their ability to mitigate the effects of potential funding reductions.
Our review of states’ use of Recovery Act funds covers three programs  administered by the U.S. Department of Education (Education)—the State  Fiscal Stabilization Fund (SFSF) ($48.6 billion); Title I, Part A of the  Elementary and Secondary Education Act of 1965, as amended (ESEA)  ($10 billion); and the Individuals with Disabilities Education Act, as  amended (IDEA) Part B ($11.7 billion). We chose to review these  programs because, collectively, funding for these programs accounts for  approximately $70.3 billion of the $275 billion in Recovery Act funding  distributed through contracts, grants, and loans. Although all grants have  been awarded, recipients have until September 30, 2011, to obligate the  remainder of their funds. Most recipients have obligated the majority of  their funds already, but some recipients may continue to spend their  funds after September 30, 2011, as they pay off their obligations.
The Recovery Act mandates that GAO conduct bimonthly reviews of the  funds used by states and determine whether the act is achieving its  stated purposes. The Recovery Act also requires GAO to comment and  report quarterly on, among other things, estimates of job creation and  retention, counted as full-time equivalent (FTE), as reported by recipients  of Recovery Act funds. Consistent with the mandates in the Recovery  Act, we determined: (1) how selected states and local educational  agencies (LEA) are using Recovery Act SFSF, ESEA Title I, and IDEA,  Part B funds; (2) what plans Education and selected states have to  assess the effect of the Recovery Act education funds and what is known  about the resulting outcomes; (3) what approaches Education, selected  states, and LEAs are taking to ensure accountability for Recovery Act  education funds; and (4) what procedures Education and states are using  to ensure required recipient reports contain accurate FTE information for  education programs.
To obtain national-level information on how Recovery Act funds made  available by Education under SFSF; ESEA, Title I; and IDEA, Part B,  were used at the local level, we selected a stratified random sample of  LEAs—generally school districts—in all 50 states and the District of  Columbia, and administered a Web-based survey. We conducted our  survey between March and May 2011, with a 78 percent final weighted  response rate at the national level. The results of our sample have a 95  percent confidence interval, with a margin of error of plus or minus 7  percentage points or less, unless otherwise noted. We stratified the  population into strata based on size, urban status, and poverty status.  Regarding size, we identified and included the 100 largest LEAs in the  country. This report does not contain all the results from the survey. The  survey and a more complete tabulation of the results can be viewed at  GAO-11-885SP. For further information on our survey, see appendix I.  Furthermore, at the state and local level, we gathered information from 14  states and the District of Columbia to discuss how they were using,  monitoring and planning to evaluate the effect of their Recovery Act  funds. We conducted site visits to four states (California, Iowa,  Massachusetts, and Mississippi), and contacted an additional seven  states (Alaska, Arizona, Georgia, Hawaii, North Carolina, New York, and  Wyoming) and the District of Columbia to discuss how they were using,  monitoring, and planning to evaluate the effect of their Recovery Act  funds. We selected these states based on drawdown rates, economic  response to the recession, and data availability, with consideration of  geography and recent federal monitoring coverage. In addition, we  contacted officials from Florida, Kansas, and South Carolina for  information regarding IDEA, Part B waivers. We also met with program  officials at Education to discuss ongoing monitoring and evaluation efforts  for Recovery Act funds provided through SFSF; ESEA Title I; and IDEA,  Part B. We assessed recipient reports for these programs for the quarter  ending June 30, 2011, for completeness and accuracy and found them  sufficiently reliable for the purposes of this report. We also analyzed the  reported FTE jobs data from recipient reports. Lastly, we reviewed  relevant federal laws and regulations, as well as information on education  reform efforts the four states we visited submitted for their SFSF  applications.
Our oversight of programs funded by the Recovery Act has resulted in  more than 100 related products with numerous recommendations since  we began reporting on the Recovery Act. This report updates agency  actions in response to recommendations from previous bimonthly and  recipient reporting reviews that have not been fully implemented (referred  to as open recommendations) in appendix IV.
We conducted our work from October 2010 to September 2011 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.
subsections: section_title: Background
paragraphs: Of the Education programs funded in the Recovery Act, the newly created  SFSF program was the largest in terms of funding. It included  approximately $48.6 billion awarded to states by formula and up to $5  billion awarded as competitive grants. SFSF was created, in part, to  help state and local governments stabilize their budgets by minimizing  budgetary cuts in education and other essential government services,  such as public safety. SFSF funds for education distributed under the  Recovery Act were required to first be used to alleviate shortfalls in state  support for education to LEAs and public institutions of higher education  (IHE).
States were required to use SFSF education stabilization funds to restore  state funding to the greater of fiscal year 2008 or 2009 levels for state  support to LEAs and public IHEs. When distributing these funds to LEAs,  states must use their primary education funding formula, but they can  determine how to allocate funds to public IHEs. In general, LEAs maintain  broad discretion in how they can use education stabilization funds, but  states have some ability to direct IHEs in how to use these funds.
Several other programs received additional funding through the Recovery  Act. For example, the Recovery Act provided $10 billion to help LEAs  educate disadvantaged youth by making additional funds available  beyond those regularly allocated for ESEA Title I, Part A. These  additional funds are distributed through states to LEAs using existing  federal funding formulas, which target funds based on such factors as  high concentrations of students from families living in poverty.
The Recovery Act also provided $12.2 billion in supplemental funding for  programs authorized by IDEA, the major federal statute that supports the  provisions of early intervention and special education and related services  for infants, toddlers, children, and youth with disabilities. Part B of IDEA  funds programs that ensure preschool and school-aged children with  disabilities have access to a free appropriate public education and is  divided into two separate grants—Part B grants to states (for school-age  children) and Part B preschool grants.
While one purpose of the Recovery Act was to preserve and create jobs,  it also required states to report information quarterly to increase  transparency and SFSF required recipients to make assurances relating  to progress on educational reforms. To receive SFSF, states were also  required to provide several assurances, including that they will maintain  state support for education at least at fiscal year 2006 levels; and that  they would implement strategies to advance four core areas of education  reform. The four core areas of education reform, as described by  Education, are:  1.  Increase teacher effectiveness and address inequities in the  distribution of highly qualified teachers. 2.  Establish a pre-K-through-college data system to track student  progress and foster improvement. 3.  Make progress toward rigorous college- and career-ready standards  and high-quality assessments that are valid and reliable for all  students, including students with limited English proficiency and/or  disabilities. 4.  Provide targeted, intensive support, and effective interventions to turn  around schools identified for corrective action or restructuring.
Education required states receiving SFSF funds to report about their  collection and reporting of 34 different indicators and 3 descriptors related  to these four core areas of education reform or provide plans for making  information related to the education reforms publicly available no later  than September 30, 2011. Previously, we reported that, while states are  responsible for assuring advancement of these reform areas, LEAs were  generally given broad discretion in how to spend the SFSF funds. It is not  clear how LEA progress in advancing these four reforms would affect  states’ progress toward meeting their assurances.
Additionally, Recovery Act recipients and subrecipients are responsible  for complying with other requirements as a condition of receiving federal  funds. For example, for Recovery Act education programs we reviewed,  states and LEAs must meet applicable maintenance of effort (MOE)  requirements, which generally mandate them to maintain their previous  level of spending on these programs. Generally, this also helps to  ensure that states continue to fund education even with the influx of the  Recovery Act funds. Specifically, the newly created SFSF program  required states to maintain support for elementary and secondary  education, in fiscal years 2009, 2010, and 2011, at least at the level that  the state provided in fiscal year 2006, but did not place any MOE  requirements on subrecipients. IDEA generally prohibits states and  LEAs from reducing their financial support, or MOE, for special education  and related services for children with disabilities below the level of that  support for the preceding year. For ESEA, Title I, states and LEAs are  also required to maintain their previous level of funding with respect to the  provision of free public education. As long as states met certain criteria,  including that the states maintained MOE for SFSF funding, this funding  could be counted to meet MOE for other programs including ESEA, Title  I, and IDEA.
In addition, section 1512 of the Recovery Act requires recipients to report  certain information quarterly. Specifically, the Act requires, among other  types of information, that recipients report the total amount of Recovery  Act funds received, associated obligations and expenditures, and a  detailed list of the projects or activities for which these obligations and  expenditures were made. For each project or activity, the information  must include the name and description of the project or activity, an  evaluation of its completion status, and an estimate of the number of jobs  funded through that project or activity. The job calculations are based on  the total hours worked divided by the number of hours in a full-time  schedule, expressed in FTEs—but they do not account for the total  employment arising from the expenditure of Recovery Act funds. The  prime recipient is responsible for the reporting of all data required by  section 1512 of the Recovery Act each quarter for each of the grants it  received under the act.
section_title: LEAs Have Obligated Most of Their Funds, Primarily on Retaining Teachers, but the Funding Cliff May Reduce Educational Services
paragraphs: According to our nationally representative survey of LEAs conducted in  spring 2011, nearly all LEAs reported that they had obligated the majority  of their Recovery Act funds, primarily for retaining instructional positions,  which assisted LEAs in restoring shortfalls in state and local budgets that  LEAs have had to cope with over the past few school years. As a result of  the fiscal stress states faced during the recession, a number of state  educational agencies (SEA) and LEAs have had difficulty meeting their  required MOE requirements for IDEA. States that do not either fully meet  their MOE requirements or receive a waiver from Education may face a  reduction in future IDEA allocations. State and LEA officials we visited  stated that the actions they have taken to deal with decreased budgets  and the expiration of their Recovery Act funds—such as reducing  instructional supplies and equipment and cutting instructional positions— could have a negative impact on the educational services they provide to  students.
subsections: section_title: Most LEAs Have Obligated the Majority of Their Recovery Act Education Funds
paragraphs: According to our survey, the majority of LEAs reported they had already  obligated most of their SFSF; ESEA Title I, Part A; and IDEA, Part B  funds. Nearly all of the LEAs—99 percent for SFSF; and 97 percent for  ESEA Title I and IDEA, Part B—reported that they expected to obligate all  of their Recovery Act funds prior to September 30, 2011. However,  approximately one-quarter (23 percent) of LEAs reported that uncertainty  about allowable uses of the funds impacted their ability to expend them in  a timely and effective manner.
According to data from Education, as of September 9, 2011, about 4  percent of the states’ obligated Recovery Act funds remain available for  expenditure. See appendix II for percentages of awarded Recovery Act  funds drawn down by states. As of September 9, 2011, two states had  drawn down 100 percent of their ESEA Title I, Part A funds. Additionally,  27 states had drawn down all of their SFSF education stabilization funds,  while Wyoming, for example, had the lowest drawdown rate for SFSF— 34 percent. Drawdowns can lag behind actual expenditures for various  reasons. For example, SEA officials in Wyoming stated that funds for  certain uses, such as professional development, tended to be expended  in large amounts during the middle and end of the school year which did  not require them to draw down funds at a constant rate throughout the  school year. Additionally, SEA officials in Alaska told us their drawdown  rates appeared low because the state draws down funds on a quarterly  basis to reimburse LEAs after their allocations have been spent.
SEA officials in the states we visited told us they provided guidance on  obligating Recovery Act funds in an effort to assist LEAs in meeting the  deadline for obligation of the funds. For example, SEA officials in  Massachusetts told us that they sent four communiqués and conducted  teleconferences with LEAs with the goal of ensuring that SFSF funds  were spent appropriately and in a timely fashion. In Wyoming, SEA  officials stated they requested that districts submit Periodic Expenditure  Reports on a quarterly basis so that they could assess districts’ spending  of Recovery Act funds. They also told us that they contacted districts to  determine if they were having challenges obligating the funds by the  September 2011 deadline and sent e-mails to their districts notifying them  of the amount of funds they had remaining.
section_title: Recipients Used Most of Their Recovery Act Funds to Retain Teachers, Build Capacity, and Maintain Educational Services
paragraphs: Retaining staff was the top use cited by LEAs of SFSF; IDEA, Part B; and  ESEA Title I, Part A Recovery Act funding over the entire grant period.  According to our survey, about three-quarters of LEAs spent 51 percent  or more of their SFSF funds on job retention (see fig. 1). A smaller, but  substantial, percentage of LEAs also reported using 51 percent or more  of their ESEA Title I, Part A and IDEA, Part B Recovery Act funding—an  estimated 43 percent and 38 percent, respectively—for job retention.  Specifically, in the 2010-2011 school year, the large majority of LEAs (84  percent) used Recovery Act funds to retain instructional positions, which  typically include classroom teachers and paraprofessionals. Salaries and  benefits comprise the majority of public school’s budgets, and funds  authorized by the Recovery Act provided LEAs additional funds to pay for  the retention of education staff.
In addition to retaining instructional positions, LEAs spent Recovery Act  funds on one-time, nonrecurring purchases and sustainable items that  built capacity without creating recurring costs. According to our survey, 78  percent of LEAs reported using 1 to 25 percent of at least one of their  Recovery Act funding sources—SFSF; ESEA Title I, Part A; or IDEA, Part  B—on one-time expenditures, such as professional development for  instructional staff, computer technology, and instructional materials. For  example, LEA officials in one district in Mississippi told us that they used  Recovery Act funds to invest in technology, security equipment, and a  handicapped-accessible school bus for students with special needs. In  the New Bedford Public Schools district in Massachusetts, LEA officials  stated that Recovery Act funds were used to rehabilitate and redeploy  computers around the district, purchase iPad connections to enable  online learning, and provide professional development to teachers on  various technological efforts. See figure 2.
Other one-time purchases made with Recovery Act funds enhanced  districts’ capacity to provide services in the future, sometimes with  anticipated long-term cost savings. In Massachusetts, we visited two  LEAs—Newton Public Schools and New Bedford Public Schools—that  used IDEA, Part B Recovery Act funds to provide or expand their services  for students with special needs instead of paying more expensive schools  or facilities to provide the alternative programs and services. LEA officials  in Fairfield-Suisun Unified School District in California told us they used  IDEA, Part B Recovery Act funds to implement two initiatives they  expected to lead to significant cost savings in the future. The first initiative  involved partnering with the nearby University of the Pacific to recruit  recent speech pathology graduates. In exchange for externships and  student loan stipends paid for with Recovery Act funds, the students  committed to working in the district for 3 years upon graduation. These  newly licensed therapists would be paid salaries around $45,000 per  year, considerably less than the contracted therapists that cost the district  over $100,000 per year. Further, because of the 3-year commitment,  officials stated the graduates were more likely to continue working in the  district as permanent employees. Officials estimated that this initiative  could save them $800,000 in the 2011-2012 school year. The second  initiative used IDEA, Part B Recovery Act funds to start a public school for  emotionally disturbed students who previously attended non-public  schools at the district’s expense. According to the officials, remodeling the  old school building was both cost-effective and programmatically  effective, since non-public schools for emotionally disturbed students  could cost up to $85,000 per student, with additional costs for  occupational and speech therapy if needed. The new public school costs  from $25,000 to $35,000 per student, according to district officials.  Additionally, officials at Hinds Community College in Mississippi used  SFSF education stabilization funds to invest in energy conservation.  Specifically, the college contracted with an organization to help educate  students and staff on energy conservation efforts, such as turning off  lights and computers. The officials stated that they saved approximately  $1 million on utilities in fiscal year 2010, which offset the need to increase  tuition.
Compared to the year prior to receiving Recovery Act funds, a large  majority of LEAs reported being able to, with the use of Recovery Act  funds, maintain or increase the level of service they could provide to  students (see table 1). LEA officials in the Center Point-Urbana  Community School District in Iowa told us that Recovery Act funds  allowed the district to maintain its core curriculum, provide professional  development to instructional staff, and maintain the collection of  assessment data that helps them align the district’s curriculum with the  state’s core curriculum. LEA officials in the Water Valley School District in  Mississippi stated that SFSF funds allowed the district to maintain its  reform efforts because they allowed students greater access to teachers.  They explained that saving those teacher positions allowed them to keep  class sizes small and offer more subjects, such as foreign language, fine  arts, and business classes.
However, an estimated 13 percent of LEAs were not able to maintain the  same level of service even with Recovery Act SFSF funds. These LEAs  reported a number of factors that had an effect on their decreased level of  service, including increases in class size, reductions in instructional and  non-instructional programs, and reductions in staff development. For  example, LEA officials at the Tipton Community School District in Iowa  stated that, even with Recovery Act funding, they could not afford to  maintain their high school agriculture program and middle school vocal  music program on a full-time basis.
The fiscal condition of LEAs across the country is mixed, but many school  districts continued to face funding challenges in the 2010-2011 school  year. One sign of state fiscal stress has been mid-year budget reductions  resulting from lower revenues than those forecasted. Nationwide, in state  fiscal year 2011, one of the program areas where many states made mid- year general fund expenditure reductions was K-12 education, according  to the Fiscal Survey of States. Out of the 23 states that reported making  mid-year reductions, 18 states reduced K-12 education funding. Looking  forward to fiscal year 2012, reductions for K-12 education had been  proposed in 16 states, according to the Fiscal Survey of States. Given  that nearly half of education funding, on average, is provided by the  states, the impact of state-level reductions to education could significantly  affect LEA budgets.
Over the course of our work on the Recovery Act, our surveys of LEAs  have shown a mixed but deteriorating fiscal situation for the nation’s  LEAs. Specifically, our survey of LEAs conducted in the 2009-2010  school year indicated that an estimated one-third of LEAs reported  experiencing funding decreases in that year. Our survey conducted in the  2010-2011 school year showed that an estimated 41 percent of LEAs  reported experiencing funding decreases in that year. Moreover, nearly  three-quarters (72 percent) anticipated experiencing funding-level  decreases in school year 2011-2012 (see fig. 3). Further, LEAs  anticipated decreases of varying amounts—24 percent expected  decreases between 1 and 5 percent, 29 percent expected decreases  between 6 and 10 percent, and 19 percent expected decreases over 10  percent.
All types of LEAs have had to cope with declining budgets in the past few  school years, but LEAs with high student poverty rates were especially  hard hit. LEAs that had high student poverty rates (54 percent) more often  reported experiencing funding decreases compared to those with low  student poverty rates (38 percent). Additionally, 45 percent of suburban  LEAs reported experiencing a decrease in funding from the 2009-2010  school year to the 2010-2011 school year. Likewise, 41 percent of rural  LEAs and 33 percent of urban LEAs reported experiencing funding  decreases in the same year. In addition, 62 percent of LEAs that  experienced a decrease in funding in the 2010-2011 school year reported  that they formed or planned to form an advisory committee or hold  meetings with community stakeholders to develop budget  recommendations as a cost-saving strategy.
To address their funding decreases in school year 2010-2011, about one- quarter or more of LEAs reported taking actions such as reducing  instructional supplies and equipment and cutting instructional positions.  Moreover, about one-half of LEAs that expected a decrease in funding in  the upcoming 2011-2012 school year reported that they would likely have  to reduce instructional supplies and equipment or cut instructional and  non-instructional positions in the 2011-2012 school year to address the  budget shortfall (see fig. 4).
LEAs across the country will soon exhaust their SFSF; ESEA Title I, Part  A; and IDEA, Part B Recovery Act funds, which will place them at the  edge of a funding cliff—meaning that they will not have these funds to  help cushion budget declines in the upcoming 2011-2012 school year.  However, many LEAs planned to spend Education Jobs Fund awards,  which could mitigate some of the effects of the funding cliff. Congress  created the Education Jobs Fund in 2010, which generally provides $10  billion to states to save or create education jobs for the 2010-2011 school  year. States distribute the funds to LEAs, which may use the funds to  pay salaries and benefits, and to hire, rehire, or retain education-related  employees for the 2010-2011 school year. According to our survey, an  estimated 51 percent of LEAs spent or planned to spend 75 to 100  percent of their Education Jobs fund allocation in the 2010-2011 school  year and about 49 percent planned to spend the same amount in the  2011-2012 school year. The large majority of LEAs (72 percent) spent or  planned to spend most of the funds on retaining jobs, as opposed to  hiring new staff or rehiring former staff.
State and LEA officials we visited stated that the actions they have taken  to deal with decreased budgets and the expiration of their Recovery Act  funds could have an impact on the educational services they provide. For  example, officials at the Fairfield-Suisun Unified School District in  California told us that they tried to make cuts that had the least impact on  the classroom, but they had begun making cuts that would impact the  students. For example, they reported that they will increase class sizes,  cut administrative and student support staff, eliminate summer school  programs, and close schools because of their decreased budget. LEA  officials at the Newton Public School District in Massachusetts stated that  they cut many support services and were reviewing under-enrolled  classes to determine which programs to eliminate. They stated that they  tried to insulate cuts to mitigate the impact on student learning, but stated  that the cuts would nonetheless negatively impact the students’  educational services. In Hawaii, SEA officials told us that their state was  considering certain cost-saving scenarios to help mitigate the state’s  strained fiscal climate, including decreasing wages for all SEA  employees, increasing class size, and eliminating school bus  transportation for all students except those with special needs. Officials  noted that eliminating bus transportation could lead to increased student  absences and could be a challenge for students living in rural areas.  Additionally, officials at the Center Point-Urbana School District in Iowa  told us that they made several adjustments to save costs and be more  efficient, such as reducing custodial staff. Because it is a small, rural  district, Center Point-Urbana officials told us that any further cuts would  jeopardize the quality of education it can provide to students.
Further, a recent Center on Education Policy report found funding cuts  also hampered progress on school reform. According to their national  survey of school districts, they estimate that 66 percent of school districts  with budget shortfalls in 2010-2011 responded to the cuts by either  slowing progress on planned reform, or postponing or stopping reform  initiatives. Further, about half (54 percent) of the districts that anticipated  shortfalls in 2011-2012 expected to take the same actions next school  year.
section_title: LEAs Reduced Support for Special Education Due to Flexibility Allowed under IDEA
paragraphs: According to our survey, over a quarter of LEAs decreased their spending  on special education because of the local MOE spending flexibility  allowed under IDEA and the large influx of Recovery Act IDEA funds.  Under IDEA, LEAs must generally not reduce the level of local  expenditures for children with disabilities below the level of those  expenditures for the preceding year. The law allows LEAs the flexibility  to adjust local expenditures, however, in certain circumstances.  Specifically, in any fiscal year in which an LEA’s federal IDEA, Part B  Grants to States allocation exceeds the amount the LEA received in the  previous year, an eligible LEA may reduce local spending on students  with disabilities by up to 50 percent of the amount of the increase. If an  LEA elects to reduce local spending, those freed up funds must be used  for activities authorized under the ESEA. Because Recovery Act funds for  IDEA count as part of the LEA’s overall federal IDEA allocation, the total  increase in IDEA funding for LEAs was far larger than the increases in  previous years, which allowed many LEAs the opportunity to reduce their  local spending.
As we have previously reported, the decision by LEAs to decrease their  local spending may have implications for future spending on special  education. Because LEAs are required to assure that they will maintain  their previous year’s level of local, or state and local, spending on the  education of children with disabilities to continue to receive IDEA funds, if  an LEA lowers its spending using this flexibility, the spending level that it  must meet in the following year will be at this reduced level. If LEAs that  use the flexibility to decrease their local spending do not voluntarily  increase their spending in future years—after Recovery Act funds have  expired—the total local, or state and local, spending for the education of  students with disabilities may decrease, compared to spending before the  Recovery Act.
section_title: Many LEAs Anticipate Difficulty Meeting IDEA MOE Requirements, Which May Result in Financial Consequences
paragraphs: Many LEAs anticipate difficulty meeting the IDEA MOE requirement for  the next few years and could experience financial consequences if they  do not comply. Through our survey, we found that 10 percent of LEAs  expected to have trouble meeting their MOE for school year 2010-11 and,  in the 2011-12 school year, this percentage jumps to 24 percent of LEAs.  For example, Florida officials reported that nearly two-thirds of the LEAs  in their state may be in jeopardy of not meeting their MOE requirement.  Further, Education officials told us the LEA MOE amount can be difficult  to calculate because there are various exceptions and adjustments LEAs  can make, such as considering spending changes in the case of students  with high-cost services leaving a program, hiring lower salary staff to  replace retirees, and extensive one-time expenditures like a computer  system. Education officials reported that they provided technical  assistance to help states and LEAs understand how to include these  exceptions and adjustments in their MOE calculations.
Of LEAs that exercised the flexibility to adjust their IDEA MOE amount, 15  percent reported they anticipated having difficulty meeting MOE in 2010- 11 even though their required local spending level was reduced. And in  2011-12, 33 percent of the LEAs that took advantage of the MOE  adjustment still expected difficulty in meeting their MOE level.
According to Education’s guidance, if an LEA is found to have not  maintained its MOE, the state is required to return to Education an  amount equal to the amount by which the LEA failed to maintain effort.  Additionally, IDEA does not provide LEAs an opportunity to receive a  waiver from MOE requirements.
section_title: Several States Applied for IDEA MOE Waivers, but Two States May Receive a Long-Lasting Reduction of IDEA Funding Because Full Waivers Were Not Approved
paragraphs: As of August 2011, seven states had applied for a total of 11 waivers of  IDEA MOE requirements and other states reported they were considering  applying for a waiver because of fiscal declines in their states. In addition  to LEAs, states must also meet MOE requirements. To be eligible for Part  B funding, states must provide an assurance that they will not reduce the  amount of state financial support for special education below the amount  of that support for the preceding fiscal year, and must operate  consistent with that assurance. However, Education may waive this state  MOE requirement under certain circumstances. While Education has  granted full waivers for five instances, it has also denied or partially  granted waivers in five instances for Iowa, Kansas, Oregon, and South  Carolina (twice) and is currently reviewing an additional waiver request  from Kansas (see table 2). In their waiver requests, all seven states cited  declining fiscal resources as the reason for not being able to maintain  their spending on special education, but waiver requests varied in amount  from nearly half a million dollars in West Virginia to over $75 million in  South Carolina.
Education’s guidance states that it considers waiver requests on a case- by-case basis and seeks to ensure that reductions in the level of state  support for special education are not greater in proportion than the  reduction in state revenues. In addition, as part of its review of waiver  requests, Education seeks to ensure that states are not reducing  spending on special education programs more severely than other areas.  When Education receives a request for a waiver, officials told us they  request state budget data to better understand the state’s calculation of  MOE, and to assess whether granting a waiver would be appropriate.  According to Education officials, as well as state officials, this process can  be lengthy and may involve a lot of back-and-forth between the  department and the state to acquire the necessary information,  understand the state’s financial situation, and determine the state’s  required MOE level. Once all the data have been collected and  reviewed to determine whether the state experienced exceptional or  uncontrollable circumstances and whether granting a waiver would be  equitable due to those circumstances, Education officials inform states  that their waiver has either been approved, partially granted, or denied.
For states whose waivers are denied or are partially granted, according to  Education officials, the state must provide the amount of the MOE   shortfall for special education during the state fiscal year in question or  face a reduction in its federal IDEA grant award by the amount equal to  the MOE shortfall. Education officials told us that because a state must  maintain financial support for special education during a fiscal year, IDEA  does not permit a state to make up this shortfall after that fiscal year is  over. Education officials also told us that once a state’s funding is  reduced, the effect may be long-lasting in that the IDEA requires that  each subsequent year’s state allocation be based, in part, on the amount  the state received in the prior year. Both Kansas and South Carolina  now face reductions of IDEA awards for fiscal year 2012 of approximately  $2 million and $36 million, respectively.  Education officials reported that it  is impossible to predict with certainty the effect this may have on the  states’ future IDEA awards, but they indicated that these reductions may  have a long-lasting negative effect on future IDEA awards. South Carolina  has filed an “Appeal of Denial of Waiver Request/Reduction in Funds”  with Education’s Office of Hearings and Appeals regarding Education’s  decision to partially grant its waiver request for 2009-2010.
section_title: Education Plans to Assess Results of Recovery Act Funds
paragraphs: Education plans to conduct two common types of systematic program  assessment: program evaluation and performance measurement. In the  coming years, Education plans to produce an evaluation that will provide  an in-depth examination of various Recovery Act programs’ performance  in addressing educational reform. In addition to this overall assessment of  the programs’ results, for the SFSF program, Education plans to measure  states’ ability to collect and publicly report data on preestablished  indicators and descriptors of educational reform. Education intends for  this reporting to be a means for improving accountability to the public in  the shorter term.
subsections: section_title: Education’s Planned Evaluations Are Intended to Assess Recovery Act- Funded Outcomes
paragraphs: Education plans to conduct a national evaluation to assess the results of  Recovery Act-funded programs and initiatives addressing educational  reform. The evaluation is intended to focus on efforts to drive innovation,  improve school performance, and reduce student achievement gaps.  According to Education officials, the programs covered by the evaluation  include SFSF; IDEA, Part B; ESEA Title I, Part A; Race to the Top; the  Teacher Incentive Fund; and Ed Tech. Including these Recovery Act  education programs in one evaluation will allow for a broad view of the  results of programs focused on education reform.
As part of this integrated evaluation, Education plans to issue four reports  over the next several years that are descriptive in nature, with the final  report in 2014 including analysis of outcome data. The four planned  reports are described in table 3.
In addition, studies are planned related to measuring progress in meeting  performance goals under the Recovery Act, according to Education  officials. For example, Education’s Policy and Program Studies Service  will issue a report in 2012 that will examine teacher evaluation and other  teacher-related issues based on state reported data under SFSF and  through Education’s EDFacts database.
Although the Recovery Act does not require states and LEAs to conduct  evaluations of their Recovery Act-funded reform activities, officials in a  few states and LEAs we talked with said they are considering conducting  evaluations. For example, Mississippi has implemented LEA program  evaluations of some Recovery Act funded initiatives using student  achievement data. At the local level, between about 43 and 56 percent of  LEAs reported that they are neither collecting nor planning to collect data  that would allow for the evaluation of the use of SFSF; IDEA, Part B; or  ESEA Title I, Part A funds, while between about 19 and 31 percent of  LEAs indicated they were either collecting or planning to collect  information for this purpose. (See table 4.) For example, officials at one  LEA in Massachusetts said that they are evaluating their use of IDEA  Recovery Act funds to provide special education programs within the  district rather than through private schools.
In addition to the more comprehensive evaluation, Education intends to  assess each state’s progress on collecting and publicly reporting data on  all of the 37 SFSF-required indicators and descriptors of educational  reform because, according to Education officials, the public will benefit  from having access to that information. States have until September 30,  2011, to report this performance data. As part of that assessment,  Education officials said they have reviewed states’ SFSF applications and  self-reported annual progress reports on uses of funds and the results of  those funds on education reform and other areas. Coupled with reviews  of the applications and annual reports, Education requires states that  receive SFSF funds to maintain a public Web site that displays  information responsive to the 37 indicator and descriptor requirements in  the four reform areas. For example, on its Web site as of August 2011,  Iowa’s SEA reported that it includes 9 of the 12 required reporting  indicators for its statewide longitudinal data system.
These Web-based, publicly-available data are intended for use within  each state, according to Education officials, because individual states and  communities have the greatest power to hold their SEAs and LEAs  accountable for reforms. Specifically, Education intended this information  to be available to state policymakers, educators, parents, and other  stakeholders to assist in their efforts to further reforms by publicly  displaying the strengths and weaknesses in education systems. Officials  in most of the states we talked with said that the requirements to report  this information are useful. For example, some state officials pointed out  that publicly reporting such data could serve as a catalyst of reform by  pointing out areas where the state could improve.
In addition to each state publicly reporting this information, Education  plans to report states’ progress toward complying with the conditions of  the SFSF grant at the national level. Education officials said they will  summarize states’ ability to collect and report on the required indicators  and descriptors across the four reform areas. Not all states were able to  collect and report this information as of March 2011, but states have until  September 30, 2011, to do so. If a state could not report the information,  it was required to create a plan to do so as soon as possible and by the  September deadline. As part of its reporting, Education will summarize  states’ responses for certain indicators and descriptors and present it on  Education’s Web site.
For many other indicators and all three descriptors, Education officials  said that it faces challenges in presenting a national perspective on  states’ progress. For example, there are no uniform teacher performance  ratings among LEAs within states and across states, which limits  Education’s ability to present comparisons. Moreover, states are not  required to present information in a consistent manner, making it difficult  to present aggregated or comparative data for many of the indicators.  Also, Education officials said that because information addressing the  three descriptors is presented in narrative, it is difficult to provide  summary information. According to Education officials, they did not  provide specific guidance on how states are to report the other data  elements because they did not want to be too prescriptive. However,  according to Education officials, through their reviews of state Web sites  they found cases where the sites do not clearly provide the information,  and states have acted on Education’s suggested improvements to the  sites.
Additionally, Education plans to use states’ progress toward collecting  and reporting this information to inform whether states are qualified to  participate in or receive funds under future reform-oriented grant  competitions, such as they did for the Race to the Top program. GAO  has found that using applicant’s past performance to inform eligibility for  future grant competitions can be a useful performance accountability  mechanism. Education communicated its intention to use this  mechanism in the final requirements published in the Federal Register on  November 12, 2009, but Education has not yet specified how this  mechanism will be used. As a result, officials in most of the states we  spoke with said they were unaware of how Education planned to use the  indicators or how Education would assess them with regards to their  efforts to meet assurances. Education officials said they also plan to use  the information to inform future policy and technical assistance to states  and LEAs.
section_title: Education and States Help Ensure Accountability, but Education Did Not Consistently Communicate SFSF Monitoring Concerns to States
subsections: section_title: A Range of Accountability Efforts Are in Place and Identified Areas for Improvement
paragraphs: To help ensure accountability of Recovery Act funds, a wide variety of  entities oversee and audit Recovery Act programs, and Education  officials told us they routinely review monitoring and audit results from  many of these sources. Federal and state entities we spoke with  described various accountability mechanisms in place over Recovery Act  education programs, including financial reviews, program compliance  reviews, and recipient report reviews. For example, state auditors and  independent public accountants conduct single audits that include tests of  internal control over and compliance with grant requirements such as  allowable costs, maintenance of effort, and cash management  practices. The Department of Education, the Education Office of  Inspector General (OIG), and various state entities also examine internal  controls and financial management practices, as well as data provided  quarterly by grant recipients and subrecipients as required by section  1512 of the Recovery Act. Additionally, many of these entities conduct  programmatic reviews that include monitoring compliance with program  requirements, such as funding allowable activities and achieving intended  program goals.
These accountability efforts have helped identify areas for improvement  at the state and local levels, such as issues with cash management,  subrecipient monitoring, and reporting requirements. For example, since  2009 the Education OIG has recommended that several states improve  their cash management procedures after finding that states did not have  adequate processes to both minimize LEA cash balances and ensure that  LEAs were properly remitting interest earned on federal cash advances.
The Education OIG also found that several states had not developed  plans to monitor certain Recovery Act funds or had not incorporated  Recovery Act-specific requirements into their existing monitoring  protocols. With regard to recipient reporting, various recipients had  difficulty complying with enhanced reporting requirements associated with  Recovery Act grants. For example, an independent public accounting firm  contracted by the Mississippi Office of the State Auditor found 32  instances of noncompliance with reporting requirements in the 43 LEAs it  tested. Some of the findings included failure to file quarterly recipient  reports on Recovery Act funds as required and providing data in the  quarterly reports that differed from supporting documentation.
During the fiscal year 2010 single audits of the state governments we  visited, auditors identified noncompliance with certain requirements that  could have a direct and material effect on major programs, including  some education programs in California and Massachusetts. In Iowa and  Mississippi, the auditors found that the states complied in all material  respects with federal requirements applicable to each of the federal  programs selected by the auditors for compliance testing. Auditors also  identified material weaknesses and significant deficiencies in internal  control over compliance with SFSF; ESEA Title I, Part A; and IDEA, Part  B, for some SEAs and LEAs we visited. For example, auditors reported  that California’s SEA continued to have a material weakness because it  lacked an adequate process of determining the cash needs of its ESEA  Title I subrecipients. At the state level, Iowa, Massachusetts, and  Mississippi were found to have no material weaknesses in internal control  over compliance related to Recovery Act education funds, though  auditors did identify significant deficiencies in Iowa. For example, in Iowa  auditors found several instances of excess cash balances for the SFSF  grant. According to our survey of LEAs, nearly 8 percent of all LEAs  reported having Single Audit findings related to Recovery Act education  funds. For example, an auditor found that one LEA in Iowa had a material  weakness because it did not properly segregate duties for SFSF—one  employee was tasked with both preparing checks and recording  transactions in the general ledger. In Massachusetts, the auditors  identified a material weakness because an LEA was not complying with  Davis-Bacon Act requirements, such as failing to obtain certified  payrolls for vendors contracted for special education construction projects  in order to verify that employees were being paid in accordance with  prevailing wage rates. As part of the single audit process, grantees are  responsible for follow-up and corrective action on all audit findings  reported by their auditor, which includes preparing a corrective action  plan at the completion of the audit. For all the 2010 single audit findings  described above, the recipients submitted corrective action plans.
Our survey of LEAs showed that federal and state entities also have been  monitoring and auditing their Recovery Act funds through both site visits  and desk reviews. As figure 5 indicates, over a third of LEAs reported  their SEA conducted a desk review to oversee their use of Recovery Act  funds, and nearly a fifth reported their SEA conducted a site visit. States  are responsible for ensuring appropriate use of funds and compliance  with program requirements at the subrecipient level, and Education in turn  works to ensure that the states are monitoring and implementing federal  funds appropriately. Education does select some school districts for desk  reviews and site visits, as shown in figure 5.
While few LEAs reported that Education monitored their Recovery Act  funds directly, Education program offices told us that as part of their  oversight efforts, they routinely review and follow up on information from a  broad range of other entities’ monitoring and audit reports. SFSF; ESEA  Title I, Part A; and IDEA, Part B program officials told us that information  drawn from multiple sources helps to (1) inform their monitoring priorities,  (2) ensure states follow up on monitoring findings, and (3) target technical  assistance in some cases.
section_title: Education’s New SFSF Oversight Approach Helped Some States Address Findings Quickly but Communication Varied
paragraphs: Education’s approach to ensuring accountability of SFSF funds, which  was designed to take into consideration the short timeframes for  implementing this one-time stimulus program, as well as the need for  unprecedented levels of accountability, has helped some states address  issues quickly. Two of Education’s goals in monitoring these funds are to  (1) identify potential or existing problem areas or weaknesses and (2)  identify areas where additional technical assistance is warranted. SFSF  officials told us that they have prioritized providing upfront technical  assistance to help states resolve management issues before they publish  monitoring reports. This is intended to be an iterative process of  communicating with states about issues found during monitoring, helping  them develop action plans to address findings, and working with them to  ensure successful completion of any corrections needed.
Some states we spoke with told us that Education’s approach to SFSF  monitoring allowed them to resolve issues prior to Education issuing a  final monitoring report to the state, and also allowed them to correct  systemic or cross-programmatic issues beyond SFSF. For example, New  York officials told us that after their monitoring review, Education provided  a thorough explanation of the corrective actions that were required. This  allowed the state the opportunity to resolve the issues, which were  specific to individual subrecipients, prior to the issuance of Education’s  final monitoring report. North Carolina officials said Education’s  monitoring helped them to implement new cash management practices,  and reported that Education staff were proactive about communicating  with the state to enable the issue to be resolved. District of Columbia  officials also stated that Education’s SFSF monitoring raised awareness  of subgrantee cash management requirements and the need for state  policies for those requirements across programs. District of Columbia,  New York, and North Carolina officials all reported that the technical  assistance they received as part of Education’s SFSF monitoring follow  up was timely and effective.
While some states reported helpful and timely contact from Education  after their monitoring reviews were completed, we found that  communication varied during the follow-up process, which left some  states waiting for information about potential issues. According to data  provided by Education, most states that were monitored before June  2011 received contact at least once before the department issued a draft  report with monitoring results. However, several states received no  contact from Education before they received draft reports presenting  areas of concern. Education officials explained that if complete  documentation was available by the end of the state’s monitoring review,  the situation would require less follow-up communication than if the state  needed to submit additional documentation. Additionally, while the  department did contact most states after monitoring reviews, they did not  consistently communicate feedback to states regarding their reviews.  Some states that did not receive monitoring feedback promptly, either  orally or in writing, have expressed concerns about their ability to take  action on potential issues. For example, an Arizona official told us in June  2011 that the state had not been contacted about the results of its  monitoring visit in December 2010 and that follow up contact from  Education would have been helpful to make any necessary adjustments  during the final months of the SFSF program in the state. According to  Education officials, the department did communicate with Arizona on  several occasions following the monitoring visit, primarily to request  additional information or clarification on such things as the state’s method  for calculating MOE. Education officials told us in that as a result of  receiving further information and documentation from the state, they were  finalizing the state’s draft report and would share the information with the  state as soon as possible. In July 2011 California officials told us they had  not heard about the results of the monitoring review that was completed  10 months earlier in September 2010. California officials told us that  Education raised a question during its review, but the state was unsure  about the resolution and whether they would be required to take  corrective action. Education officials told us in September 2011 that they  had numerous communications with California officials, often to clarify  issues such as the state’s method for calculating MOE, and that they  were still in communication with the state as part of the process of  identifying an appropriate resolution.
As a result of Education’s approach to monitoring, the length of time  between the Department’s monitoring reviews and the issuance of the  monitoring reports varied greatly—from as few as 25 business days to as  many as 265 business days (see fig. 6). The need to address issues  identified during monitoring and the subsequent frequency of  communication during monitoring follow up can affect the amount of time  it takes to issue reports with monitoring results. For example, after  Maine’s desk review in September 2010, Education contacted the state  10 times to request additional information and clarification before sending  the state a draft interim report 7 months later in April 2011. In contrast,  Rhode Island was contacted once after its site visit, and Education  provided a draft report with results about a month later. In part because of  the need for continuous collaboration with states, Education’s written  SFSF monitoring plan does not include specific internal time frames for  when it will communicate the status of monitoring issues to states after  desk reviews and site visits. In the absence of such time frames, the  length of time between Education’s monitoring reviews and issuance of  draft interim reports with monitoring feedback varied widely across states.  Education officials told us they believe states benefit more from the  iterative monitoring process that emphasizes early resolution of issues  than through the issuance of written monitoring reports.
Due to its SFSF monitoring approach, Education has provided limited  information publicly on the results of its oversight efforts, but it has plans  to provide more detailed reports on what it has found during monitoring in  the future and has taken steps to share information on common issues  found among the states. While most SFSF monitoring reviews have been  completed for the 2010-2011 cycle, Education has not communicated  information about most of these reviews to the public and the states’  governors. Of the 48 completed reviews, only three reports for site visits  and 12 reports for desk reviews have been published (see fig. 7).  Additionally, the reports that have been published are brief and present a  general description of the area of concern without detailing what the  specific issues and their severity were. For example, in Tennessee’s final  letter report, Education wrote that it found issues with LEA funding  applications, fiscal oversight, allowable activities, cash management, and  subrecipient monitoring. However, Education officials told us that they  planned to publish more detailed final reports after the 2011-2012 SFSF  monitoring cycle, at which point they would have completed both a desk  review and a site visit for each state. In the meantime, to help other states  learn from common issues found during SFSF monitoring reviews,  Education provided technical assistance to all states via a webinar in  February 2011. The webinar highlighted lessons learned during  monitoring reviews, including best practices for cash management and  separate tracking of funds.
section_title: Education and States Continue to Oversee the Quality of Recipient Reporting Data in Eighth Round of Reporting
paragraphs: To meet our mandate to comment on recipient reports, we continued to  monitor recipient-reported data, including data on jobs funded. For this  report, we focused our review on the quality of data reported by SFSF;  ESEA Title I, Part A; and IDEA Part B education grant recipients. Using  education recipient data from the eighth reporting period, which ended  June 30, 2011, we continued to check for errors or potential problems by  repeating analyses and edit checks reported in previous reports.
subsections: section_title: Education and States Continue to Review Data Quality and Use Recipient Reports for Monitoring
paragraphs: Education uses various methods to review the accuracy of recipient  reported data to help ensure data quality. Specifically, Education  compared data from the agency’s grant database and financial  management system with recipient reported data. These systems contain  internal data for every award made to states, including the award  identification number, award date, award amount, outlays, and recipient  names. Education program officials told us they verified expenditure data  in states’ quarterly reports by comparing it to data in their internal grants  management system. Education officials told us that state expenditures  can vary from outlays depending on how the state reimburses its  subrecipients, but Education officials review the figures to determine if  they are reasonable. In addition, SFSF officials told us they cross-walked  the recipient reported data with previous quarterly reports to check for  reasonableness. For example, the officials told us they compared the  number of subrecipients and vendors from quarter to quarter to see if they  increased or stayed the same, as would be expected for a cumulative  data point. Education officials stated they worked directly with states to  correct any issues found during their checks of recipient reported data.  Overall, Education officials agreed that they have made significant  progress in ensuring data quality, as compared to the early quarters when  they had to focus on helping states understand basic reporting  requirements. At this point, the program officials told us they do not  generally see significant data quality issues or mistakes when they review  recipient reports. In August 2011, the Education OIG reported that they  performed 49,150 data quality tests of recipient reported data for grant  awards and found anomalies in 4 percent of the tests. The OIG reported  that the Department’s processes to ensure the accuracy and  completeness of recipient reported data were generally effective.
In addition to Education’s efforts to ensure data quality, selected state  officials we spoke with said they examined recipient reports of individual  subrecipients. For example, Georgia officials told us they reviewed FTE  data for reasonableness, compared revenues and expenditures, and  ensured all vendors were included in vendor payment reports. The  officials stated that they followed up on any questionable items with  district staff. As we previously reported, calculating FTE data presented  initial challenges for many LEAs, and states worked to ensure the  accuracy of the data through a variety of checks and systems. For  example, the Mississippi Department of Education helped LEAs calculate  FTE data correctly by providing LEAs spreadsheets with ready-made  formulas. New York officials told us they examined the calculation of  FTEs funded and compared that data with payroll records. North Carolina  officials told us that through their review of LEA data, they identified  issues with FTE figures that were budgeted but not ultimately verified  against actual figures. To improve the accuracy of the data, the state now  compares LEA payroll records to their budgeted figures.
Education and selected states told us they used recipient reports to  obtain data on expenditures, FTEs, and other activities funded to  enhance their oversight and management efforts. For example,  Education’s special education program officials and most selected states  used recipient reported data to track the amount of Recovery Act funds  LEAs spent.
In particular, Education officials that administer the IDEA, Part B grant  told us they monitored LEA expenditures through recipient reports  because it was the only information they had on how much subrecipients  had spent. Education and several selected states also told us they  examined recipient reports as part of their monitoring efforts. For  example, SFSF program officials reviewed recipient reports, particularly  expenditure data and the subrecipient award amount, to help choose  subrecipients for monitoring. Officials from Arizona, the District of  Columbia, and North Carolina told us they used recipient reported data to  assess risk and inform their monitoring efforts. For example, the District of  Columbia tracks spending rates to ensure subrecipients meet the  deadline for using the funds. If a subrecipient has lower than expected  spending rates, they are subject to increased monitoring. Arizona uses  recipient reported data to verify that internal controls are working, for  instance by examining expenditure rates to see whether there may be  cash management issues. In addition, Iowa and New York officials said  they used recipient reported data to ensure appropriate uses of funds.
State and LEA officials we spoke with continued to report greater ease in  collecting and reporting data for recipient reports. As we previously  reported, recipients told us they have gained more experience reporting  and the reporting process was becoming routine. For example, Arizona  officials told us that their centralized reporting process now runs with very  little effort or burden on state and local recipients of Recovery Act  education funds. Alaska officials stated that the early quarters were  challenging for reporting, but the state training sessions with LEAs helped  establish a smooth process by the third quarter. At the local level, an LEA  official in Iowa told us that while recipient reporting was confusing in the  beginning, her district changed some internal procedures and automated  some calculations to make the process more efficient. One measure of  recipients’ understanding of the reporting process is the number of  noncompliant recipients. There were no non-compliers in the eighth  reporting period for recipients of SFSF, ESEA Title I, Part A or IDEA, Part  B funds.
Although the recipient reporting process has become smoother over time,  some states and LEAs noted that there continues to be a burden  associated with meeting reporting requirements, particularly due to limited  resources. For example, California officials stated it had been  burdensome to collect data from over 1,500 LEAs when there were  significant budget cuts. Officials from the Massachusetts SEA stated that  the most burdensome aspect of recipient reporting was the short time  frame for collecting data from nearly 400 LEAs when local staff were  already stretched thin. At the local level, officials at a rural Mississippi  school district stated that gathering the supporting documents for their  quarterly reports was cumbersome and took a significant amount of time.  For example, in the previous quarter one staff member had to upload  more than 70 supporting documents to the state’s centralized reporting  system. Further, Education officials noted that the improvements in the  process for recipient reporting have not eliminated the burden on LEAs.  Moreover, according to Education officials, although the primary goal of  the Recovery Act grants was not reporting, grantees were spending  significant amounts of time complying with the reporting process when the  Department already had some data elements, such as grant awards and  drawdowns, from other sources.
Two recent actions indicate that recipient reporting could be expanded to  funds beyond those from the Recovery Act. A White House Executive  Order dated June 13, 2011, established a Government Accountability and  Transparency Board (Board) to provide strategic direction for enhancing  the transparency of federal spending and advance efforts to detect and  remediate fraud, waste, and abuse in federal programs, among other  things. By December 2011, the Board is required to develop guidelines  for integrating systems that support the collection and display of  government spending data, ensuring the reliability of those data, and  broadening the deployment of fraud detection technologies. In addition,  one of the objectives of proposed legislation—the Digital Accountability  and Transparency Act of 2011 (DATA Act)—is to enhance transparency  by broadening the requirement for reporting to include recipients of non- Recovery Act funds.
section_title: While FTE Data Have Limitations, Education Found These Data to Be Useful
paragraphs: According to Recovery.gov, during the quarter beginning April 1, 2011,  and ending June 30, 2011, the Recovery Act funded approximately  286,000 FTEs using funds under the programs in our review (see fig. 8).  Further, for this eighth round of reporting, similar to what we observed in  previous rounds, education FTEs for these programs accounted for about  half of all FTEs reported for the quarter. Following OMB guidance, states  reported on FTEs directly paid for with Recovery Act funding, not the  employment impact on suppliers of materials (indirect jobs) or on the local  communities (induced jobs). According to Education officials, FTE  numbers were expected to decrease over time because fewer prime  recipients would be reporting as they exhaust all of their Recovery Act  funds.
FTE data provide an overall indication of the extent to which the Recovery  Act met one of its intended goals of saving and creating jobs in order to  help economic recovery, although some limitations with these data may  make it difficult to determine the impact the Recovery Act made in any  one particular reporting period. In May 2010, GAO identified a number of  issues that could lead to under- or over-reporting of FTEs.
Our analysis of the data on Recovery.gov showed variations in the  number of FTEs reported, which Education officials said could be  explained by states’ broad flexibility in determining what they used  Recovery Act SFSF funds on and when they allocated those funds. For  example, Illinois reported less than 1 FTE in the second reporting round  and over 40,000 in the third reporting round for the SFSF education  stabilization funds. Education officials stated that rarely would the districts  in one state hire 40,000 teachers in 1 quarter. Rather, Education officials  said the state likely made a decision to allocate those funds in that  quarter to teacher salaries. Similarly, from the fourth to fifth reporting  rounds, the number of FTEs more than doubled in Arkansas and nearly  doubled in Florida for the SFSF education stabilization funds. Education  officials explained that any significant increase or decrease in FTEs likely  reflects the state’s decision to allocate the funds in one quarter rather  than during another quarter. They noted that some states used their funds  consistently over time, whereas others used a large portion of the funds  at the beginning or end of a school year. Therefore, sharp increases or  decreases in the FTE data are not uncommon or unexpected. Delaware  reported no FTEs for SFSF government services funds in the eighth  reporting round. Education officials stated that Delaware decided to use  those funds on operating costs, not salaries.
Education officials told us that recipient reported FTE data were useful to  them when assessing the impact of grants on jobs funded. Education  does not have any comparable data on jobs funded. Therefore, FTE data  provided them a measure of the extent to which the Recovery Act  programs, particularly SFSF, accomplished that specific goal of funding  jobs. According to Education officials, determining jobs funded was an  important, but secondary impact of the Recovery Act funding for the  ESEA Title I, Part A and IDEA, Part B grants. The purpose of ESEA Title I  is to ensure that all children have a fair, equal, and significant opportunity  to obtain a high-quality education by providing financial assistance to  LEAs and schools with high numbers or percentages of poor children.  The purpose of IDEA, Part B is to ensure that all students with disabilities  have available to them a free appropriate public education that  emphasizes special education and related services designed to meet  their unique needs. According to Education officials, some of the services  provided to students using the ESEA Title I, Part A and IDEA, Part B  Recovery Act funds led to the creation of jobs while others served the  needs of children but did not directly create jobs. Therefore, while FTE  data did provide a useful indication of jobs funded for those programs  under the Recovery Act, other measures such as student outcomes will  be more useful after the Recovery Act ends when assessing the impact of  programs with education-related goals.
section_title: Conclusions
paragraphs: A key goal of Recovery Act funding was to create and retain jobs and, for  SFSF, to advance education reforms, and our work has consistently  shown that LEAs primarily used their funding to cover the cost of retaining  jobs. Additionally, the transparency required by Recovery Act reporting  allowed the public access to data on the number of jobs funded and the  amount of funds spent, but as the deadline for obligating funds  approaches, little is currently known nationally about the advancement of  the four areas of educational reform. Education’s planned evaluation  could make an important contribution to understanding any outcomes  related to reform. This national evaluation could be especially important  considering that officials in many of our selected states have not planned  evaluations, and many LEAs reported that they are neither collecting nor  planning to collect data to evaluate the effect of SFSF on education  reform efforts. While Education will assess results through its own  evaluation, it will not be fully completed for several years. In the shorter  term, state reporting on the SFSF indicators and descriptors of reform is  the mechanism through which Education and the public track the extent  to which a state is making progress. As these final data become available  at the end of this fiscal year, Education has plans for assessing state  compliance and analyzing the results in order to present, where possible,  information to policymakers and the public. Given the accountability and  transparency required by the Recovery Act, we feel it is important for  Education to follow through with its plans to hold states accountable for  presenting performance information and in its efforts to assist the public  and policymakers in understanding the reform progress made by states.
In addition to evaluations and reporting, program accountability can be  facilitated through monitoring and taking corrective action on audit  findings. Because of the historic amount of Education funding included in  the Recovery Act, effective oversight and internal controls are of  fundamental importance in assuring the proper and effective use of  federal funds to achieve program goals. Education’s new SFSF  monitoring process took into account the one-time nature of these funds  and was designed to make states aware of monitoring and audit findings  to help them resolve any issues or make improvements to their program  prior to Education publishing a final report. However, Education’s  implementation of this process has varied, with some states waiting  months to get feedback on monitoring results. When states do not receive  timely feedback on monitoring findings, they may not have time to resolve  these issues before they have obligated their SFSF funds.
section_title: Recommendation for Executive Action
paragraphs: To ensure all states receive appropriate communication and technical  assistance for SFSF, consistent with what some states received in  response to SFSF monitoring reviews, we recommend that the Secretary  of Education establish mechanisms to improve the consistency of  communicating monitoring feedback to states, such as establishing  internal time frames for conveying information found during monitoring.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft copy of this report to Education for review and  comment. Education’s comments are reproduced in appendix III.
Education agreed with our recommendation to improve the consistency of  communicating SFSF monitoring feedback to states.  Specifically,  Education responded that their SFSF monitoring protocols should include  procedures for effectively communicating the status of monitoring  feedback to states. Additionally, Education officials reiterated that the new  SFSF monitoring approach was designed as an iterative method to take  into consideration the large amount of funding, the complexities of state  budget situations, the need to expeditiously resolve monitoring issues due  to the short time frames, and the large numbers and diverse types of  grantees.  Through this monitoring approach, Education officials noted  that the department has completed reviews of all but one state and is  currently planning the second cycle of monitoring. Education officials  reported that the feedback provided to states through this new approach  was ongoing and that not all states have required the same level of follow  up discussions.  GAO agrees that this approach is appropriate given the  one-time nature of the SFSF program and, as we point out in our report,  this approach has helped states to quickly address potential issues.   Since the amount of contact between Education and the states can be  numerous and involve multiple officials and agencies, we believe that any  actions taken by the department to improve the consistency of  communication with states will improve its monitoring process.
Education also provided some additional and updated information about  their monitoring efforts and we modified the report to reflect the data they  provided. In addition, Education provided us with several technical  comments that we incorporated, as appropriate.
We are sending copies of this report to relevant congressional  committees, the Secretary of Education, and other interested parties. In  addition, this report will be available at no charge on GAO’s Web site at  http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-7215 or scottg@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report. GAO staff who made key contributions to this report  are listed in appendix V.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: To obtain national level information on how Recovery Act funds made  available by the U.S. Department of Education (Education) under SFSF;  ESEA Title I, Part A; and IDEA, Part B were used at the local level, we  designed and administered a Web-based survey of local educational  agencies (LEA) in the 50 states and the District of Columbia. We  surveyed school district superintendents across the country to learn how  Recovery Act funding was used and what impact these funds had on  school districts. We selected a stratified random sample of 688 LEAs  from the population of 15,994 LEAs included in our sample frame of data  obtained from Education’s Common Core of Data (CCD) in 2008-09. We  conducted our survey between March and May 2011, with a 78 percent  final weighted response rate.
We took steps to minimize nonsampling errors by pretesting the survey  instrument with officials in three LEAs in January 2011 and February  2011. Because we surveyed a sample of LEAs, survey results are  estimates of a population of LEAs and thus are subject to sampling errors  that are associated with samples of this size and type. Our sample is only  one of a large number of samples that we might have drawn. As each  sample could have provided different estimates, we express our  confidence in the precision of our particular sample’s results as a 95  percent confidence interval. All estimates produced from the sample and  presented in this report are representative of the in-scope population and  have margins of error of plus or minus 7 percentage points or less for our  sample, unless otherwise noted. We excluded nine of the sampled LEAs  because they were no longer operating in the 2010-11 school year or  were not an LEA, and therefore were considered out of scope. This report  does not contain all the results from the survey. The survey and a more  complete tabulation of the results can be viewed at GAO-11-885SP.
At the state and local level, we conducted site visits to four states  (California, Iowa, Massachusetts, and Mississippi), and contacted an  additional seven states (Alaska, Arizona, Georgia, Hawaii, North Carolina,  New York, and Wyoming) and the District of Columbia to discuss how  they were using, monitoring, and planning to evaluate the effect of their  Recovery Act funds. In addition, we contacted officials from Florida,  Kansas, and South Carolina for information regarding IDEA, Part B  waivers. We selected these states in order to have an appropriate mix of  recipients that varied across certain factors, such as drawdown rates,  economic response to the recession, and data availability, with  consideration of geography and recent federal monitoring coverage.
During our site visits, we met with SFSF, ESEA Title I, and IDEA officials  at the state level as well as LEAs and an Institution of Higher Education  (IHE). For the additional seven states, we gathered information by phone  or e-mail from state education program officials on fund uses, monitoring,  and evaluation. We also met with program officials at Education to  discuss ongoing monitoring and evaluation efforts for Recovery Act funds  provided through SFSF, ESEA Title I, and IDEA. We also interviewed  officials at Education and reviewed relevant federal laws, regulations,  guidance, and communications to the states. Further, we obtained  information from Education’s Web site about the amount of funds these  states have drawn down from their accounts with Education.
The recipient reporting section of this report responds to the Recovery  Act’s mandate that we comment on the estimates of jobs created or  retained by direct recipients of Recovery Act funds. For our review of the  eighth submission of recipient reports covering the period from April 1,  2011, through June 30, 2011, we built on findings from our prior reviews  of the reports. We performed edit checks and basic analyses on the  eighth submission of recipient report data that became publicly available  at Recovery.gov on July 30, 2011. To understand how the quality of jobs  data reported by Recovery Act education grantees has changed over  time, we compared the 8 quarters of recipient reporting data that were  publicly available at Recovery.gov on July 30, 2011.
In addition, we also reviewed documentation and interviewed federal  agency officials from Education who have responsibility for ensuring a  reasonable degree of quality across their programs’ recipient reports. Due  to the limited number of recipients reviewed and the judgmental nature of  the selection, the information we gathered about state reporting and  oversight of FTEs is limited to those selected states in our review and not  generalizable to other states. GAO’s findings based on analyses of FTE  data are limited to those Recovery Act education programs and time  periods examined and are not generalizable to any other programs’ FTE  reporting.
We compared, at the aggregate and state level, funding data reported  directly by recipients on their quarterly reports against the recipient  funding data maintained by Education. The cumulative funding data  reported by the recipients aligned closely with the funding data  maintained by the Department of Education. An Education Inspector  General report included a similar analysis comparing agency data to  recipient reported data from the first quarter of 2010. Although not  directly comparable to our analysis, their assessment identified various  discrepancies between agency and recipient reported data. We also  noted some discrepancies across the education programs we reviewed  where the state recipients’ reported expenditures were either greater or  less than 10 percent of the respective outlays reported by Education. In  general, however, we consider the recipient report data to be sufficiently  reliable for the purpose of providing summary, descriptive information  about FTEs or other information submitted on grantees’ recipient reports.
To update the status of open recommendations from previous bimonthly  and recipient reporting reviews, we obtained information from agency  officials on actions taken in response to the recommendations.
We conducted this performance audit from October 2010 to September  2011 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.
section_title: Appendix II: Drawdown Rates by Program
section_title: Appendix III: Comments from the Department of Education
section_title: Appendix IV: Status of Prior Open Recommendations and Matters for Congressional Consideration
paragraphs: In this appendix, we update the status of agencies’ efforts to implement  the 16 recommendations that remain open and are not implemented, 8  newly implemented recommendations, and 1 newly closed  recommendation from our previous bimonthly and recipient reporting  reviews. Recommendations that were listed as implemented or closed in  a prior report are not repeated here. Lastly, we address the status of our  matters for congressional consideration.
subsections: section_title: Department of Energy
subsections: section_title: Open Recommendations
paragraphs: Given the concerns we have raised about whether program requirements  were being met, we recommended in May 2010 that the Department of  Energy (DOE), in conjunction with both state and local weatherization  agencies, develop and clarify weatherization program guidance that:    Clarifies the specific methodology for calculating the average cost per  home weatherized to ensure that the maximum average cost limit is  applied as intended.   Accelerates current DOE efforts to develop national standards for  weatherization training, certification, and accreditation, which is  currently expected to take 2 years to complete.   Sets time frames for development and implementation of state  monitoring programs.   Revisits the various methodologies used in determining the  weatherization work that should be performed based on the  consideration of cost-effectiveness and develops standard  methodologies that ensure that priority is given to the most cost- effective weatherization work. To validate any methodologies created,  this effort should include the development of standards for accurately  measuring the long-term energy savings resulting from weatherization  work conducted.
In addition, given that state and local agencies have felt pressure to meet  a large increase in production targets while effectively meeting program  requirements and have experienced some confusion over production  targets, funding obligations, and associated consequences for not  meeting production and funding goals, we recommended that DOE clarify  its production targets, funding deadlines, and associated consequences,  while providing a balanced emphasis on the importance of meeting  program requirements.
DOE generally concurred with these recommendations and has made  some progress in implementing them. For example, to clarify the  methodology for calculating the average cost per home, DOE has  developed draft guidance to help grantees develop consistency in their  average cost per unit calculations. The guidance further clarifies the  general cost categories that are included in the average cost per unit.  DOE had anticipated issuing this guidance in June 2011, but as of late  July 2011 this guidance has not yet been finalized.
In response to our recommendation that it develop and clarify guidance  that develops a best practice guide for key internal controls, DOE  distributed a memorandum dated May 13, 2011, to grantees reminding  them of their responsibilities to ensure compliance with internal controls  and the consequences of failing to do so. DOE officials stated that they  rely on existing federal, state, and local guidance; their role is to monitor  states to ensure they enforce the rules. DOE officials felt that there were  sufficient documents in place to require internal controls, such as the  grant terms and conditions and a training module. Because all of the  guidance is located in one place, the WAPTAC Web site, DOE officials  commented that a best practice guide would be redundant. Therefore,  DOE officials stated that they do not intend to fully implement GAO’s  recommendation.
To better ensure that Energy Efficiency and Conservation Block Grant  (EECBG) funds are used to meet Recovery Act and program goals, we  recommended that DOE explore a means to capture information on the  monitoring processes of all recipients to make certain that recipients have  effective monitoring practices.
DOE generally concurred with this recommendation, stating that  “implementing the report’s recommendations will help ensure that the  Program continues to be well managed and executed.” DOE also  provided additional information on changes it has implemented. DOE  added additional questions to the on-site monitoring checklists related to  subrecipient monitoring to help ensure that subrecipients are in  compliance with the terms and conditions of the award. These changes  will help improve DOE’s oversight of recipients, especially larger  recipients, which are more likely to be visited by DOE project officers.  However, not all recipients receive on-site visits. As noted previously, we  believe that the program could be more effectively monitored if DOE  captured information on the monitoring practices of all recipients.
To better ensure that Energy EECBG funds are used to meet Recovery  Act and program goals, we recommended that DOE solicit information  from recipients regarding the methodology they used to calculate their  energy-related impact metrics and verify that recipients who use DOE’s  estimation tool use the most recent version when calculating these  metrics.
In our report, we concluded that DOE needed more information regarding  the recipients’ estimating methods in order to assess the reasonableness  of energy-related estimates and thus determine the extent to which the  EECBG program is meeting Recovery Act and program goals for energy- related outcomes. DOE officials noted that they have made changes to  the way they collect impact metrics in order to apply one unified  methodology to the calculation of impact metrics. DOE issued guidance  effective June 23, 2011, that eliminates the requirement for grant  recipients to calculate and report estimated energy savings. DOE officials  said the calculation of estimated impact metrics will now be performed  centrally by DOE by applying known national standards to existing  grantee-reported performance metrics. Based on DOE’s action, we  concluded that DOE has addressed the intent of this recommendation.
section_title: Department of Health and Human Services
subsections: section_title: Open Recommendation
paragraphs: To help ensure that grantees report consistent enrollment figures, we  recommended that the Director of the Department of Health and Human  Services’ (HHS) Office of Head Start (OHS) should better communicate a  consistent definition of “enrollment” to grantees for monthly and yearly  reporting and begin verifying grantees’ definition of “enrollment” during  triennial reviews.
OHS issued informal guidance on its Web site clarifying monthly reporting  requirements to make them more consistent with annual enrollment  reporting. This guidance directs grantees to include in enrollment counts  all children and pregnant mothers who are enrolled and have received a  specified minimum of services (emphasis added). According to officials,  OHS is considering further regulatory clarification.
To oversee the extent to which grantees are meeting the program goal of  providing services to children and families and to better track the initiation  of services under the Recovery Act, we recommended that the Director of  OHS should collect data on the extent to which children and pregnant  women actually receive services from Head Start and Early Head Start  grantees.
OHS has reported that, in order to collect information on services  provided to children and families, it plans to require grantees to report  average daily attendance, beginning in the 2011-2012 school year.
To provide grantees consistent information on how and when they will be  expected to obligate and expend federal funds, we recommended that the  Director of OHS should clearly communicate its policy to grantees for  carrying over or extending the use of Recovery Act funds from one fiscal  year into the next.
Following our recommendation, HHS indicated that OHS would issue  guidance to grantees on obligation and expenditure requirements, as well  as improve efforts to effectively communicate the mechanisms in place  for grantees to meet the requirements for obligation and expenditure of  funds. HHS has subsequently reported that grantees have been reminded  that the timely use of unobligated balances requires recipients to use the  “first in/first out” principle for recognizing and recording obligations and  expenditures of those funds.
To better consider known risks in scoping and staffing required reviews of  Recovery Act grantees, we recommended that the Director of OHS  should direct OHS regional offices to consistently perform and document  Risk Management Meetings and incorporate known risks, including  financial management risks, into the process for staffing and conducting  reviews.
HHS reported OHS was reviewing the Risk Management process to  ensure it is consistently performed and documented in its centralized data  system and that it had taken related steps, such as requiring the grant  officer to identify known or suspected risks prior to an on-site review.  More recently, HHS has indicated that the results and action plans from  the Risk Management Meetings are documented in the Head Start  Enterprise System and used by reviewers to highlight areas where  special attention is needed during monitoring reviews. HHS also notes  that the Division of Payment Management (DPM) sends OHS monthly  reports on grantees to assist OHS in performing ongoing oversight,  monitoring grantee spending, and assessing associated risks and that it  has incorporated a new fiscal information form as a pre-review  requirement to ensure that fiscal information and concerns known to the  regional office staff are shared with on-site reviewers.
section_title: Department of Housing and Urban Development
subsections: section_title: Open Recommendation
paragraphs: Because the absence of third-party investors reduces the amount of  overall scrutiny Tax Credit Assistance Program (TCAP) projects would  receive and the Department of Housing and Urban Development (HUD) is  currently not aware of how many projects lacked third-party investors, we  recommended that HUD should develop a risk-based plan for its role in  overseeing TCAP projects that recognizes the level of oversight provided  by others.
HUD responded to our recommendation by saying it must wait for final  reports from housing finance agencies on TCAP project financing sources  in order to identify those projects that are in need of additional monitoring.  When the final reports are received, HUD said it will develop a plan for  monitoring those projects. HUD said it will begin identifying projects that  may need additional monitoring at the end of September 2011 when  sufficient information should be available to determine which projects  have little Low-Income Housing Tax Credit investment and no other  leveraged federal funds.
section_title: Department of Labor
subsections: section_title: Newly Implemented Recommendations
paragraphs: To enhance the Department of Labor’s (Labor) ability to manage its  Recovery Act and regular Workforce Investment Act (WIA) formula grants  and to build on its efforts to improve the accuracy and consistency of  financial reporting, we recommended that the Secretary of Labor take the  following actions:    To determine the extent and nature of reporting inconsistencies  across the states and better target technical assistance, conduct a  one-time assessment of financial reports that examines whether each  state’s reported data on obligations meet Labor’s requirements.   To enhance state accountability and to facilitate their progress in  making reporting improvements, routinely review states’ reporting on  obligations during regular state comprehensive reviews.
Labor reported that it has taken actions to implement our  recommendations. To determine the extent of reporting inconsistencies,  Labor awarded a contract in September 2010 and completed the  assessment of state financial reports in June 2011. Labor is currently  analyzing the findings and expects to have a final report and  recommendations in the fall of 2011. To enhance states’ accountability  and facilitate their progress in making improvements in reporting, Labor  issued guidance on federal financial management and reporting  definitions on May 27, 2011, and conducted training on its financial  reporting form and key financial reporting terms such as obligations and  accruals. Labor also reported that it routinely monitors states’ reporting on  obligations as part of its oversight process and comprehensive on-site  reviews.
Our September 2009 bimonthly report identified a need for additional  federal guidance in defining green jobs and we made the following  recommendation to the Secretary of Labor:    To better support state and local efforts to provide youth with  employment and training in green jobs, provide additional guidance  about the nature of these jobs and the strategies that could be used to  prepare youth for careers in green industries.
Labor agreed with our recommendation and has taken several actions to  implement it. Labor’s Bureau of Labor Statistics (BLS) has developed a  definition of green jobs, which was finalized and published in the Federal  Register on September 21, 2010. In addition, Labor continues to host a  Green Jobs Community of Practice, an online virtual community available  to all interested parties. The department also hosted a symposium on  April 28 and 29, 2011, with the green jobs state Labor Market Information  Improvement grantees. Symposium participants shared recent research  findings, including efforts to measure green jobs, occupations, and  training in their states. In addition, the department released a new career  exploration tool called “mynextmove” (www.mynextmove.gov) in February  2011 that includes the Occupational Information Network (O*NET) green  leaf symbol to highlight green occupations. Additional green references  have recently been added and are noted in the latest update, The  Greening of the World of Work: O*NET Project’s Book of References.  Furthermore, Labor is planning to release a Training and Employment  Notice this fall that will provide a summary of research and resources that  have been completed by BLS and others on green jobs definitions, labor  market information and tools, and the status of key Labor initiatives  focused on green jobs.
section_title: Executive Office of the President: Office of Management and Budget
subsections: section_title: Open Recommendations
paragraphs: To leverage Single Audits as an effective oversight tool for Recovery Act  programs, we recommended that the Director of the Office of  Management and Budget (OMB)  1.  take additional efforts to provide more timely reporting on internal  controls for Recovery Act programs for 2010 and beyond;  2.  evaluate options for providing relief related to audit requirements for  low-risk programs to balance new audit responsibilities associated  with the Recovery Act; 3.  issue Single Audit guidance in a timely manner so that auditors can  efficiently plan their audit work; 4.  issue the OMB Circular No. A-133 Compliance Supplement no later  than March 31 of each year; 5.  explore alternatives to help ensure that federal awarding agencies  provide their management decisions on the corrective action plans in  a timely manner; and 6.  shorten the time frames required for issuing management decisions  by federal agencies to grant recipients.
GAO’s recommendations to OMB are aimed toward improving the Single  Audit’s effectiveness as an accountability mechanism for federally  awarded grants from Recovery Act funding. We previously reported that  OMB has taken a number of actions to implement our recommendations  since our first Recovery Act report in April 2009. We also reported that  OMB had undertaken initiatives to examine opportunities for improving  key areas of the single audit process over federal grant funds  administered by state and local governments and nonprofit organizations  based upon the directives in Executive Order 13520, Reducing Improper  Payments and Eliminating Waste in Federal Programs issued in  November 2009. Two sections of the executive order related to federal  grantees, including state and local governments, and required OMB to  establish working groups to make recommendations to improve (1) the  effectiveness of single audits of state and local governments and non- profit organizations that are expending federal funds and (2) the  incentives and accountability of state and local governments for reducing  improper payments.
OMB formed several working groups as a result of the executive order,  including two separate working groups on issues related to single audits.  These two working groups developed recommendations and reported  them to OMB in May and June of 2010. OMB formed a “supergroup” to  review these recommendations for improving single audits and to provide  a plan for OMB to further consider or implement them. The “supergroup”  finalized its report in August 2011. OMB also formed a Single Audit  Metrics Workgroup as a result of one of the recommendations made in  June 2010 to improve the effectiveness of single audits. In addition, the  President issued a memorandum entitled “Administrative Flexibility,  Lower Costs, and Better Results for State, Local, and Tribal  Governments” (M-11-21) in February 2011 that directed OMB to, among  other things, lead an interagency workgroup to review OMB circular  policies to enable state and local recipients to most effectively use  resources to improve performance and efficiency. Agencies reported their  actions and recommendations to OMB on August 29, 2011. Among the  recommendations included in the report were recommendations aimed  toward improving single audits. Since most Recovery Act funds will be  expended by 2013, some of the recommendations that OMB acts upon  may not be implemented in time to affect single audits of grant programs  funded under the Recovery Act. However, OMB’s efforts to enhance  single audits could, if properly implemented, significantly improve the  effectiveness of the single audit as an accountability mechanism. OMB  officials stated that they plan to review the “supergroup’s” August 2011  report and develop a course of action for enhancing the single audit  process, but have not yet developed a time frame for doing so. We will  continue to monitor OMB’s efforts in this area.  (1) To address our recommendation to encourage timelier reporting on  internal controls for Recovery Act programs for 2010 and beyond, we  previously reported that OMB had commenced a second voluntary Single  Audit Internal Control Project (project) in August 2010 for states that  received Recovery Act funds in fiscal year 2010. The project has been  completed and the results have been compiled as of July 6, 2011. One of  the goals of these projects was to achieve more timely communication of  internal control deficiencies for higher-risk Recovery Act programs so that  corrective action could be taken more quickly. The project encouraged  participating auditors to identify and communicate deficiencies in internal  control to program management 3 months sooner than the 9-month time  frame required under statute. The projects also required that program  management provide a corrective action plan aimed at correcting any  deficiencies 2 months earlier than required under statute to the federal  awarding agency. Upon receiving the corrective action plan, the federal  awarding agency had 90 days to provide a written decision to the  cognizant federal agency for audit detailing any concerns it may have with  the plan.
Fourteen states volunteered to participate in OMB’s second project,  submitted interim internal control reports by December 31, 2010, and  developed auditee corrective action plans on audit findings by January  31, 2011. However, although the federal awarding agencies were to have  provided their interim management decisions to the cognizant agency for  audit by April 30, 2011, only 2 of the 11 federal awarding agencies had  completed the submission of all of their management decisions,  according to an official from the Department of Health and Human  Services, the cognizant agency for audit. In our review of the 2009  project, we had noted similar concerns that federal awarding agencies’  management decisions on proposed corrective actions were untimely,  and our related recommendations are discussed later in this report.
Overall, we found that the results for both projects were helpful in  communicating internal control deficiencies earlier than required under  statute. The projects’ dependence on voluntary participation, however,  limited their scope and coverage. This voluntary participation may also  bias the projects’ results by excluding from analysis states or auditors  with practices that cannot accommodate the project’s requirement for  early reporting of internal control deficiencies. Even though the projects’  coverage could have been more comprehensive, the results provided  meaningful information to OMB for better oversight of Recovery Act  programs and for making future improvements to the single audit process.  In August 2011, OMB initiated a third Single Audit Internal Control Project  with similar requirements as the second OMB Single Audit Internal  Control Project. The goal of this project is also to identify material  weaknesses and significant deficiencies for selected Recovery Act  programs 3 months sooner than the 9-month time frame currently  required under statute so that the findings could be addressed by the  auditee in a timely manner. This project also seeks to provide some audit  relief for the auditors that participate in the project as risk assessments for  certain programs are not required. We will continue to monitor the status  of OMB’s efforts to implement this recommendation and believe that OMB  needs to continue taking steps to encourage timelier reporting on internal  controls through Single Audits for Recovery Act programs.  (2) We previously recommended that OMB evaluate options for providing  relief related to audit requirements for low-risk programs to balance new  audit responsibilities associated with the Recovery Act. OMB officials  have stated that they are aware of the increase in workload for state  auditors who perform Single Audits due to the additional funding to  Recovery Act programs subject to audit requirements. OMB officials also  stated that they solicited suggestions from state auditors to gain further  insights to develop measures for providing audit relief. For state auditors  that participated in the second and third OMB Single Audit Internal  Control Projects, OMB provided some audit relief by modifying the  requirements under Circular No. A-133 to reduce the number of low-risk  programs to be included in some project participants’ risk assessment  requirements. However, OMB has not yet put in place a viable alternative  that would provide relief to all state auditors that conduct Single Audits.  (3) (4) With regard to issuing Single Audit guidance, such as the OMB  Circular No. A-133 Compliance Supplement, in a timely manner, OMB  has not yet achieved timeliness in its issuance of Single Audit guidance.  We previously reported that OMB officials intended to issue the 2011  Compliance Supplement by March 31, 2011, but instead issued it in June.  OMB officials stated that the delay of this important guidance to auditors  was due to the refocusing of its efforts to avert a governmentwide  shutdown. OMB officials stated that although they had prepared to issue  the 2011 Compliance Supplement by the end of March by taking steps  such as starting the process earlier in 2010 and giving agencies strict  deadlines for program submissions, they were not able to issue it until  June 1, 2011. OMB officials developed a timeline for issuing the 2012  Compliance Supplement by March 31, 2012.  In August 2011, they began  the process of working with the federal agencies and others involved in  issuing the Compliance Supplement. We will continue to monitor OMB’s  efforts in this area.  (5) (6) Regarding the need for agencies to provide timely management  decisions, OMB officials identified alternatives for helping to ensure that  federal awarding agencies provided their management decisions on the  corrective action plans in a timely manner, including possibly shortening  the time frames required for federal agencies to provide their  management decisions to grant recipients. OMB officials acknowledged  that this issue continues to be a challenge. They told us they met  individually with several federal awarding agencies that were late in  providing their management decisions in the 2009 project to discuss the  measures that the agencies could take to improve the timeliness of their  management decisions. However, as mentioned earlier in this report,  most of the federal awarding agencies had not submitted all of their  management decisions on the corrective actions by the April 30, 2011,  due date in the second project (and still had not done so by July 6, 2011,  when the results of the completed project were compiled). OMB officials  have yet to decide on the course of action that they will pursue to  implement this recommendation.
OMB formed a Single Audit Metrics Workgroup to develop an  implementation strategy for developing a baseline, metrics, and targets to  track the effectiveness of single audits over time and increase the  effectiveness and timeliness of federal awarding agencies’ actions to  resolve single audit findings. This workgroup reported its  recommendations to OMB on June 21, 2011, proposing metrics that could  be applied at the agency level, by program, to allow for analysis of single  audit findings. OMB officials stated that they plan to initiate a pilot to  implement the recommendations of this workgroup starting with fiscal  year 2011 single audit reports.
We recommended that the Director of OMB provide more direct focus on  Recovery Act programs through the Single Audit to help ensure that  smaller programs with higher risk have audit coverage in the area of  internal controls and compliance;  Based on OMB’s actions, we have concluded that OMB has addressed  the intent of this recommendation. To provide direct focus on Recovery  Act programs through the Single Audit to help ensure that smaller  programs with higher risk have audit coverage in the area of internal  controls and compliance, the OMB Circular No. A-133, Audits of States,  Local Governments, and Non-Profit Organizations Compliance  Supplement (Compliance Supplement) for fiscal years 2009 through 2011  required all federal programs with expenditures of Recovery Act awards  to be considered as programs with higher risk when performing standard  risk-based tests for selecting programs to be audited. The auditors’  determinations of the programs to be audited are based upon their  evaluation of the risks of noncompliance occurring that could be material  to an individual major program. The Compliance Supplement has been  the primary mechanism that OMB has used to provide Recovery Act  requirements and guidance to auditors. One presumption underlying the  guidance is that smaller programs with Recovery Act expenditures could  be audited as major programs when using a risk-based audit approach.  The most significant risks are associated with newer programs that may  not yet have the internal controls and accounting systems in place to help  ensure that Recovery Act funds are distributed and used in accordance  with program regulations and objectives.
Since Recovery Act spending is projected to continue through 2016, we  believe that it is essential that OMB provide direction in Single Audit  guidance to help to ensure that smaller programs with higher risk are not  automatically excluded from receiving audit coverage based on their size  and standard Single Audit Act requirements. We spoke with OMB officials  and reemphasized our concern that future Single Audit guidance provide  instruction that helps to ensure that smaller programs with higher risk  have audit coverage in the area of internal controls and compliance. OMB  officials agreed and stated that such guidance will continue to be included  in future Recovery Act guidance. We also performed an analysis of  Recovery Act program selection for single audits of 10 states for fiscal  year 2010. In general, we found that the auditors selected a relatively  greater number of smaller programs with higher risks with Recovery Act  funding when compared to the previous period. Therefore, this appears to  have resulted in a relative increase in the number of smaller Recovery Act  programs being selected for audit for 7 of the 10 states we reviewed.
section_title: Department of Transportation
subsections: section_title: Open Recommendations
paragraphs: To ensure that Congress and the public have accurate information on the  extent to which the goals of the Recovery Act are being met, we  recommended that the Secretary of Transportation direct the Department  of Transportations’ (DOT) Federal Highway Administration (FHWA) to  take the following two actions:    Develop additional rules and data checks in the Recovery Act Data  System, so that these data will accurately identify contract milestones  such as award dates and amounts, and provide guidance to states to  revise existing contract data.   Make publicly available—within 60 days after the September 30,  2010, obligation deadline—an accurate accounting and analysis of the  extent to which states directed funds to economically distressed  areas, including corrections to the data initially provided to Congress  in December 2009.
In its response, DOT stated that it implemented measures to further  improve data quality in the Recovery Act Data System, including  additional data quality checks, as well as providing states with additional  training and guidance to improve the quality of data entered into the  system. DOT also stated that as part of its efforts to respond to our draft  September 2010 report in which we made this recommendation on  economically distressed areas, it completed a comprehensive review of  projects in these areas, which it provided to GAO for that report. DOT  recently posted an accounting of the extent to which states directed  Recovery Act transportation funds to projects located in economically  distressed areas on its Web site, and we are in the process of assessing  these data.
To better understand the impact of Recovery Act investments in  transportation, we believe that the Secretary of Transportation should  ensure that the results of these projects are assessed and a  determination made about whether these investments produced long- term benefits. Specifically, in the near term, we recommended that the  Secretary direct FHWA and FTA to determine the types of data and  performance measures they would need to assess the impact of the  Recovery Act and the specific authority they may need to collect data and  report on these measures.
In its response, DOT noted that it expected to be able to report on  Recovery Act outputs, such as the miles of road paved, bridges repaired,  and transit vehicles purchased, but not on outcomes, such as reductions  in travel time, nor did it commit to assessing whether transportation  investments produced long-term benefits. DOT further explained that  limitations in its data systems, coupled with the magnitude of Recovery  Act funds relative to overall annual federal investment in transportation,  would make assessing the benefits of Recovery Act funds difficult. DOT  indicated that, with these limitations in mind, it is examining its existing  data availability and, as necessary, would seek additional data collection  authority from Congress if it became apparent that such authority was  needed. DOT plans to take some steps to assess its data needs, but it  has not committed to assessing the long-term benefits of Recovery Act  investments in transportation infrastructure. We are therefore keeping our  recommendation on this matter open.
section_title: Matters for Congressional Consideration
subsections: section_title: Matter
paragraphs: To the extent that appropriate adjustments to the Single Audit process are  not accomplished under the current Single Audit structure, Congress  should consider amending the Single Audit Act or enacting new  legislation that provides for more timely internal control reporting, as well  as audit coverage for smaller Recovery Act programs with high risk.
We continue to believe that Congress should consider changes related to  the Single Audit process.
To the extent that additional coverage is needed to achieve accountability  over Recovery Act programs, Congress should consider mechanisms to  provide additional resources to support those charged with carrying out  the Single Audit Act and related audits.
We continue to believe that Congress should consider changes related to  the Single Audit process.
To provide housing finance agencies (HFA) with greater tools for  enforcing program compliance, in the event the Section 1602 Program is  extended for another year, Congress may want to consider directing the  Department of the Treasury to permit HFAs the flexibility to disburse  Section 1602 Program funds as interest-bearing loans that allow for  repayment.
We have closed this Matter for Congressional Consideration because the  Section 1602 Program has not been extended.
section_title: Appendix V: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments