Established in 1965 as part of the Elementary and Secondary Education Act (ESEA), Title I provides grants to help schools establish and maintain programs to improve the educational opportunities of low-income and disadvantaged students. Most Title I funds are distributed by formula from Education to states. The states then pass through most of these funds to their school districts after retaining some funds—up to 1.5 percent—for state administration and state-level school improvement activities. The amount of Title I funds a school district gets is determined by a formula based on the number of students from low-income families and the state’s per pupil expenditures. Once LEAs receive funds from the state, they have flexibility in how they allocate Title I funds to individual schools and how each school delivers Title I services. As long as priority is given to schools with the highest concentration of children from low-income families, LEAs are generally free to designate which schools, among those eligible, receive funds and how much each should get. LEAs can also select the type of framework through which they deliver Title I services. Some districts have only targeted assistance in their Title I schools, some only have schoolwide programs, and others have a mixture of both. When Title I began, all schools administered targeted assistance programs. These programs targeted funds and services—such as teachers and materials—to specific qualified students who met Title I eligibility requirements. In 1978, a limited number of schools were allowed to deliver the services in the form of schoolwide programs if 75 percent or more of their student population was poor. Schools choosing to operate schoolwide programs can combine federal resources with other funds to improve the school as a whole and help all students achieve. In subsequent reauthorizations, the schoolwide option was made available to more schools by lowering the threshold percentage of low-income children required to operate a schoolwide program. NCLB allows schoolwide programs in schools with a poverty rate of 40 percent or more. During the mid-1990s there was a trend toward providing more flexibility to state and local recipients of federal grants so they may operate programs that best serve the needs of their communities. This trend towards flexibility is evident, not only in education programs such as Title I, but in many social service programs and health programs. In these circumstances, we have found that new approaches to ensuring accountability need to be designed to achieve a balance between flexibility and accountability for attaining certain national objectives. In 2001, we reported on some of the challenges in maintaining a federal-state fiscal partnership in welfare reform and concluded that a broad-based maintenance of effort requirement calling for states to maintain spending across a wide range of relevant programs might both limit substitution of state funds while at the same time preserve state and local flexibility better than a traditional supplement-non-supplant requirement. Specifically, we found that, once accountability shifts to the broad purposes of the grant, federal fiscal oversight needed to shift as well and focus not only on the specifics of welfare funding but also on how states used multiple funding streams—federal, state, and local—to accomplish the program’s broad goals. These findings could apply to the Title I program because schoolwide program goals are broader than the goals of a targeted assistance program and schoolwide programs combine funding streams. Title I contains three fiscal requirements that grantees must comply with in order to continue to receive Title I funds from one year to the next. If an SEA or LEA fails to comply with MOE, SNS, or Comparability provisions, it is required by law to return the amount of misused funds to Education. Maintenance of effort (MOE). An LEA may receive funds if the SEA finds that the LEA’s combined fiscal effort per student or the aggregate expenditures of the LEA from state and local funds for free public education for the preceding year is not less than 90 percent of the combined fiscal effort or aggregate expenditures for the second preceding year. Supplement-not-supplant (SNS). State and local education agencies must use federal funds to supplement, and not supplant, the amount of funds that would, in the absence of federal funds, be made available from nonfederal sources for the education of Title I students. Comparability. State and local funds must be used to provide services in Title I schools that are “at least comparable” to services provided by state and local funds in non-Title I schools within the same LEA. Each fiscal requirement is enforced at a different level. For example, the MOE requirement applies only to the LEA not to individual Title I schools. The Comparability requirement is evaluated at the school level because it seeks to weigh the services provided in Title I schools with those provided in non-Title I schools. In contrast, the SNS provision is applied differently depending on how Title I services are applied. It is applied to the program or the student in targeted assistance programs to ensure that those targeted programs are providing more services for a Title I student than non-Title I students receive, or it is applied to the school if it operates a schoolwide program. (See fig. 1.) There are a variety of approaches that officials at the federal, state, and local levels take to oversee state and local education agency compliance with the fiscal accountability provisions associated with Title I, including formal monitoring systems, such as the use of the single audit, and more informal monitoring systems, such as monitoring provided by interest groups. Education distributes Title I funds to the individual states and has primary responsibility for overseeing federal education programs and providing guidance and technical assistance to SEAs. Monitoring efforts focus on state compliance with both programmatic and fiscal requirements. Any issues of noncompliance reported at the state level are to be communicated to Education and are typically resolved through the development of an SEA corrective action plan, the implementation of which will be monitored by federal agency officials. States are considered the primary recipient, or grantee, of federal awards like Title I and are responsible for ensuring that their subrecipients comply with all federal laws and regulations governing the grant. Since SEAs pass through most of the federal funds to the LEAs, states must have the appropriate subrecipient monitoring systems in place to track Title I spending. Program monitoring systems typically include a review of funding applications, local budgets, self-assessment documents, scheduled on-site visits to schools, and technical assistance. The Single Audit Act replaced multiple audits of separate grant awards with one organizationwide audit. A single audit includes an audit of the federal grant recipient’s financial statements as well as an examination of its internal controls and its compliance with laws and regulations governing federal awards. It does not, however, cover every federal grant received by the organization. The objectives of the Single Audit Act are as follows: Promote sound financial management, including effective internal controls, with respect to federal awards administered by nonfederal entities. Establish uniform requirements for audits of federal awards administered by nonfederal entities. Promote the efficient and effective use of audit resources. Reduce burdens on state and local governments, Indian tribes, and nonprofit organizations. Ensure that federal departments and agencies rely on and use audit work done pursuant to the act. In 1994, we reported that state and local officials had reported that the single audit process had contributed to improving state and local government financial management practices. Guidance for conducting a single audit is found in the Office of Management and Budget’s (OMB) Circular A-133 and the accompanying compliance supplement. The guidance states that the scope of the audit shall include an examination of financial statements—to determine if they are presented fairly in all material respects in conformity with generally accepted accounting principles and whether the schedule of expenditures of federal awards is presented fairly; internal controls—to obtain an understanding of internal control over federal programs sufficient to plan the audit to support a low assessed level of control risk; compliance—to determine whether the auditee has complied with laws, regulations, and the provisions of contracts or grant agreements that may have a direct and material effect on the federal program on each of its major programs; and prior audit findings—to perform procedures to assess the reasonableness of the summary schedule of prior audit findings. Any single audit report should discuss the auditor’s analysis of these areas and include a section that specifically focuses on federal awards, including a schedule of findings and questioned costs. State and local governments and nonprofit organizations that spend $300,000 or more in federal awards in a fiscal year must undertake a single audit. In addition to formal monitoring systems, fiscal accountability is also monitored informally by interest groups, parents groups, individuals, and the media. The public nature and easy accessibility of school district budgets, financial reports, and other fiscal information promotes budget transparency and information sharing among people outside the school system. This informal system may promote grantee compliance with applicable laws and regulations and raise red flags for the attention of the formal monitoring system. In the states we visited, state program officials use three tools—the states’ annual financial reports, the single audit process, and limited program monitoring—to monitor Title I’s fiscal accountability requirements in their LEAs. In these states, enforcing the MOE provision is straightforward and objective. However, a number of factors made it difficult to ensure compliance with SNS. In the states we visited, verifying compliance with Title I’s MOE requirement was a straightforward mathematical exercise and relied on LEAs’ data gathered through statewide financial accounting systems. In part, monitoring and enforcing compliance with the MOE provision might have presented few challenges because until recently state and local revenues were increasing, and few grantees struggled to meet the MOE requirement. Many state and LEA officials told us that the robust economy and sound fiscal situation they experienced in the late 1990s allowed them to increase spending on education.