ELEMENTARY AND SECONDARY EDUCATION ACT (ESEA) COMPLIANCE SUPPLEMENT TABLE OF CONTENTS Page # Guidance for Audits of SEAs or LEAs i Recent Changes to ESEA vi Cross-cutting Provisions 1 Program Specific Sections Program Name Section of ESEA CFDA # Title I Grants to Local Education Agencies Title I,Part A 84.010 18 Migrant Education - Basic State Grant Program Title I,Part C 84.011 25 Eisenhower Prof. Development State Grants Title II,Part B 84.281 31 Safe and Drug-Free Schools - State Grants Title IV,Part A, Subpart 1 84.186A 35 Innovative Education Program Strategies Title VI 84.298 46 Bilingual Education Title VII 84.288S 52 84.290U 84.291R Impact Aid Title VIII 84.041 55 ----------------------------------------------------------------------------- Page i Guidance for Audits of SEAs or LEAs The attached compliance supplement for ESEA programs supersedes the program specific compliance supplements for those programs found in the 1990 Office of Management and Budget (OMB) "Compliance Supplement for Single Audits of State and Local Governments" (1990 Supplement) ." Other sections of the 1990 Supplement (e.g. the general requirements) are still applicable to audits of State education agencies (SEAs) and local education agencies (LEAs). This Compliance Supplement is intended to direct an auditor's attention to those issues that are most suited to review by an auditor. Therefore it does not deal with every significant provision of ESEA. A number of very important provisions in ESEA, such as those on standards and assessments, school improvement, parent involvement, and evaluations, are not dealt with in this document because the Department of Education (ED) believes that those provisions are better addressed through means other than annual audits. (1) Learning about recent changes. Because of recent legislation, many requirements of ESEA programs have changed. There is much greater flexibility provided to grantees. We encourage you to read the "Recent Changes to ESEA" section included with this compliance supplement. One significant change is that SEAs and LEAs may, under certain circumstances, be granted waivers from certain requirements. Another significant change is that LEAs may combine ESEA funds in a schoolwide program. These and other major changes are explained in this section. (2) Determining major programs and preparing the schedule of federal financial assistance. In some cases, SEAs and LEAs are permitted to transfer amounts between ESEA programs. In addition, SEAs and LEAs are allowed to consolidate administrative funds of ESEA programs or combine ESEA funds in a schoolwide program. To determine major programs and to prepare the schedule of federal financial assistance, the transfers and consolidations of funds should be handled as follows: ----------------------------------------------------------------------------- Page ii Fund transfers between ESEA programs. These funds should be included and reported (and audited, if major) in the program ultimately expending the funds. A footnote to the schedule of federal financial assistance should indicate by program the amount of funds transferred between ESEA programs. Consolidation of administrative funds of ESEA programs. When administrative funds of ESEA programs are consolidated, Federal expenditures of the consolidated administrative funds are not required to be tracked by the ESEA program that provided the funds. Therefore, Federal expenditures should be allocated to the ESEA programs in proportion to the funds provided by each program. Combining funds in a schoolwide program. When ESEA program funds are combined in schoolwide programs, they lose their Federal identity. Therefore, when determining whether a program that provides funding for one or more schoolwide programs is major, amounts transferred to schoolwide programs should be considered expenditures at the point in time the transfer is made. On the schedule of federal financial assistance, the amount transferred can either be shown separately or included in the total expenditures for the program. If included in the total expenditures, the amount transferred should be disclosed in a footnote. (3) Evaluating and testing internal controls under Single Audit Standards. The auditor's responsibilities for evaluating and testing internal controls are not covered in the Compliance Supplement. The auditor should refer to Circular A-128 and other applicable guidance. (4) Determining allowable costs. OMB Circular A-87 "Cost Principles for State, Local and Indian Tribal Governments," revised on May 17, 1995, is the set of cost principles that generally apply to grants and subgrants awarded to governments on or after October 1, 1995. However, because the revised Circular contains areas of flexibility not contained in the prior cost principles, ED permitted recipients for which ED has cognizance to charge direct costs that are consistent with the revised Circular for the period July 1, 1995 through the end of the 1996 fiscal year. (5) Using the Cross-cutting Provisions. Several statutory and regulatory provisions are applicable to most ESEA programs. The "Cross-cutting Provisions" section discusses those requirements. Therefore, applicable cross-cutting requirements should be included as part of the compliance testing for ESEA programs that are major programs. The applicable cross-cutting requirements have been referenced in the program specific sections. ----------------------------------------------------------------------------- Page iii As mentioned earlier, SEAs and LEAs may have been granted waivers from certain compliance requirements. Thus, in conducting an audit, first determine which, if any, waivers an SEA or LEA has been granted. (6) Auditing LEAs that have schoolwide programs. Under Title I/ Part A (Grants to local education agencies, CFDA #84.010), a certain participating schools may use Title I/ Part A funds to upgrade the entire educational program in the school. The school may also combine funds from many other Federal education programs, including the following major ESEA programs: Program Name CFDA # Migrant Education - Basic State Grant Program 84.011 Eisenhower Professional Development State Grants 84.281 Safe and Drug-Free Schools - State Grants 84.186A Innovative Education Program Strategies 84.298 Bilingual Education 84.288S, 84.290U, 84.291R When an LEA operates schoolwide programs and Title I/ Part A is a major program, some of the program specific requirements do not apply to the portion of funds used in the schoolwide programs. The requirements that apply to schoolwide programs are labeled in the Title I/ Part A program specific section. If any other ESEA programs are major, the auditor would not test the funds used in schoolwide programs for the program specific requirements for those major programs because those requirements are not applicable to schoolwides. In addition, because ESEA funds transferred to the schoolwide program lose their Federal identity, individual expenditures at the schoolwide program should not be tested for compliance with Federal laws and regulations that are normally applicable to expenditures of Federal funds. (7) Auditing SEAs and LEAs that have transferred funds from one or more programs to consolidated administrative cost funds and coordinated service projects. In planning the audit of major programs that have transferred funds to a consolidated administrative costs fund/pool or a coordinated services project, the auditor should include the consolidated administrative cost pool or coordinated services project expenditures in the universe to be tested for cost allowability/services allowed or unallowed. Any transactions selected from the consolidated administrative cost pool or coordinated services project would be tested against the compliance requirements applicable to the consolidated administrative cost pool or coordinated services project, rather than the individual program. ----------------------------------------------------------------------------- Page iv (8) Accessing information from ED. ED encourages auditors to familiarize themselves with the applicable statutory and regulatory citations for each compliance requirement. Copies of the relevant statutes, regulations, and guidance issued by ED for each program covered in the compliance supplement can be obtained via Internet or by contacting the relevant ED offices: Internet Access: þ ED's HomePage at (www.http://www.ed.gov/legislation/esea/toc.html) þ "Single Audit Bulletin Board System" (SABBA) located on the General Accounting Office's (GAO), Office of Policy Bulletin Board System.  Option (1): Use your communication software package to dial the SABBS at (202) 512-4286. Set your parity to "NONE," Date Bits to "8," and Stop Bit to "1" (N,8,1). Set your terminal emulation to "ANSI" or "VT-100."  Option (2): You can also reach the SABBS using the Internet via FedWorld's BBS. Telnet to fedworld.gov (192.239.92.201). Select the gateway option on the menu. SABBS is number 135. þ Single audit menu of the IGNet Gopher (gopher://www.sbaonline.sba.gov:70/11/ignet/single) ED Office Contacts for program related questions: þ The Office of Elementary and Secondary Education at (202) 401-0113 for:  Title I, Part A (Grants to LEAs, CFDA No. 84.010) and Part C (Migrant Education, CFDA No. 84.011)  Title II (Professional Development, CFDA No. 84.281)  Title IV (Safe and Drug-Free Schools and Communities, CFDA No. 84.186A)  Title VI (Innovative Education Strategies, CFDA No. 84.298)  Title VIII (Impact Aid programs, CFDA 84.041) þ The Office of Bilingual Education and Minority Languages Affairs at (202) 205-5451 for Title VII (Bilingual Education programs, CFDA Nos. 84.288, 84.290, and 84.291). ED OIG Contacts for audit related questions: þ Fax machine: (202) 205-8238. ----------------------------------------------------------------------------- Page v (9) Commenting on this document. OMB is scheduled to issue a new Governmentwide Compliance Supplement in December 1996. This document will be incorporated into the new Compliance Supplement. To improve this document before it is incorporated, ED invites comments from all interested parties. ED is particularly interested in comments on the audits of schoolwide programs. To be considered for the December 1996 revision, comments must be received by August 31, 1996. However, we plan to continuously improve and provide OMB with suggestions for updating the Compliance Supplement. Therefore, your comments are welcome anytime. Comments may be sent by mail or fax. Mailing address: Office of Inspector General U.S. Department of Education 600 Independence Avenue, SW Washington, DC 20202-1510 ATT: ESEA Compliance Supplement Comments Fax machine: (202) 205-8238 Please note on the document: ESEA Compliance Supplement Comments. ----------------------------------------------------------------------------- vi RECENT CHANGES TO ELEMENTARY AND SECONDARY EDUCATION ACT (ESEA) This portion of the Compliance Supplement is intended to direct the auditor's attention to recent changes to the Elementary and Secondary Education Act programs that may influence the conduct of the audit. Flexibility Provisions The reauthorized ESEA, in combination with the Goals 2000: Educate America Act and the School to Work Opportunities Act, emphasizes greater flexibility in the use of Federal funds and the number of Federal process requirements in order to improve teaching and learning. This flexibility is coupled with greater State and local accountability for educational results. New areas of flexibility that the U.S. Department of Education (ED) is working to implement include the following: Schoolwide programs. Title I, Part A of ESEA lowers the eligibility threshold for schools that want to operate schoolwide programs. (For school year 1995-96, 60 percent or more of the children enrolled in the school or residing in the school attendance area must be from low income families for the school to be a schoolwide program; for 1996-97 and beyond, the eligibility threshold is 50 percent or higher.) Eligible schools are able to use their Title I funds, as well as combine most of their Federal education funds to upgrade the entire educational program of the school and to raise academic achievement for all students. Schoolwide programs are not required to track Federal funds separately at the individual school level. Submission of a consolidated plan to receive Federal funds. ESEA allows both States and local educational agencies (LEAs) to file single, consolidated plans that include many Federal programs supporting elementary and secondary education. States have a choice in determining which programs to include in a consolidated plan. The development of a single plan eliminates the need to develop separate, often overlapping, plans for each Federal program. A consolidated plan is designed to reduce program fragmentation and improve the use of Federal funds to support State and local reform efforts. Guidance developed by ED permits States to submit a simplified plan that focuses on those efforts and omit much of the program-specific information that otherwise would be required in a plan for each of the programs included in the consolidated plan. Submission of a consolidated plan, however, does not relieve States or LEAS of the programmatic responsibilities described in the individual program statutes or regulations nor does it authorize commingling of funds. Except in the case of a schoolwide program or consolidated administrative funds, Federal program funds must be accounted for separately for each Federal program. ----------------------------------------------------------------------------- Page vii Consolidation of administrative funds. State educational agencies (SEAs) and LEAs may consolidate funds received for administration of many ESEA programs and several non-ESEA programs, thus eliminating the need to maintain separate time and effort records for SEA and LEA personnel who work on more than one of those Federal programs or otherwise account for these funds on a program- by-program basis. Availability of funds for other authorized purposes. If an LEA determines that, for any fiscal year, funds under one of several ESEA programs (not including Title I, Part A) are not needed, it may use up to five percent of the funds allocated to that program for another covered ESEA program. An LEA, an individual school, or consortium of schools (if there is no governing LEA), with the approval of the Secretary, may use up to five percent of its ESEA funds (including Title I, Part A) to implement a coordinated services project under Title XI of ESEA. Waiver of certain program requirements. Under Title XIV of ESEA, States, LEAs, and schools may request waivers from the ED of many of the statutory and regulatory requirements of programs authorized in ESEA. Similar waiver authority exists under the Goals 2000: Educate America Act and the School to Work Opportunities Act. Also under the educational flexibility (Ed-Flex) demonstration program of Goals 2000, the Secretary has delegated to some SEAs the authority to waive certain Federal statutory or regulatory requirements affecting the State and its districts and schools. In conducting an audit, auditors should ascertain from the audited SEA and LEAs whether ED (or an SEA, if an Ed-Flex State) has granted any written waivers to the State, the LEAs, and through LEAs schools. Prima Facie Under statutory amendments included in IASA, determination letters that resolve audit findings and seek the recovery of funds, must "establish a prima facie case," and include an analysis of the value of the program services actually obtained in determining harm to the Federal interest and the amount to be recovered. In other words, if--despite a violation of program conditions--a grantee uses $100,000 to deliver satisfactory program services to eligible children, these services would have to be considered in determining harm to the Federal interest. "Establishing a prima facie case" essentially means that a determination letter must contain or attach enough evidence to enable a reasonable person to draw from it the inferences sought to be established--in general, that the violation cited occurred, and that funds in the amount in question were misspent. It is not sufficient for a determination merely to state the facts and law that would support the recovery of funds. Accordingly, audit reports must provide complete and convincing information on all findings in accordance with Sections 7.51-53 and 7.60 of the Government Auditing Standards (1994 Revision). In addition, the workpapers must contain sufficient information on the evidence that supports each finding in accordance with sections 4.34 - 4.38 of the Government Auditing Standards (1994 Revision). Such audit reports also should provide any available information on the value of the program services received. ----------------------------------------------------------------------------- Page 1 CROSS-CUTTING PROVISIONS Applicable to More than One ESEA Program This section contains compliance requirements that apply to more than one of the ESEA programs included in this compliance supplement. At the beginning of each compliance requirement, the programs in this compliance supplement that the requirement applies to are listed (applicable programs). These requirements may also apply to other U.S. Department of Education (ED) programs; however, because these other programs are not included in this supplement, these programs are not listed as "applicable programs." The names of the programs in this supplement have been shortened as follows: CFDA # Program Name Listed as 84.010 Title I Grants to Local Educational Agencies Title I/ Part A 84.011 Migrant Education - Basic State Grant Program MEP 84.281 Eisenhower Professional Development State Grants Eisenhower 84.186A Safe and Drug-Free Schools- State Grants SDFSCA 84.298 Innovative Education Program Strategies Title VI 84.288S, 84.290U, 84.291R Bilingual Education Bilingual 84.041 Impact Aid Impact Aid I. ESEA OBJECTIVES The Elementary and Secondary Education Act of 1965 (ESEA), as amended by the Improving America's Schools Act (IASA), provides for a comprehensive overhaul of programs providing more than $10 billion a year of Federal support for education, and restructures how these programs provide services. Under IASA, Federal education programs authorized in ESEA are designed to work in concert with each other, rather than separately. By emphasizing program coordination, planning, and service delivery among Federal programs and enhancing integration with State and local instructional programs, ESEA reinforces comprehensive State and local educational reform efforts geared toward ensuring that all children can meet challenging State standards regardless of their background or the school they attend. ----------------------------------------------------------------------------- Page 2 II. ESEA PROCEDURES PLANS Applicable programs: Title I/ Part A; MEP; Eisenhower; SDFSCA (except the Governor's Program authorized under Section 4114); Title VI A State education agency (SEA) must either (1) develop and submit separate, program-specific individual State plans to ED for approval as provided in individual program requirements outlined in ESEA or (2) submit, in accordance with section 14302 of ESEA, a consolidated plan to ED for approval. Local education agencies (LEAs) also have the choice of submitting individual program plans or a consolidated plan to the SEA to receive program funds. SEAs with approved consolidated State plans may require LEAs to submit consolidated plans. WAIVERS Applicable programs: Title I/ Part A; MEP; Eisenhower; SDFSCA (except the Governor's Program authorized under Section 4114); Title VI; Bilingual Under Title XIV of ESEA, States, LEAs, and schools through an LEA may request waivers from ED of many of the statutory and regulatory requirements of programs authorized in ESEA. The Goals 2000: Educate America Act and the School to Work Opportunities Act also provide waiver authority. In addition, under the educational flexibility (Ed-Flex) demonstration program of Goals 2000, the Secretary has delegated to some SEAs the authority to waive certain Federal statutory or regulatory requirements affecting the State and its districts and schools. In conducting an audit, auditors should ascertain from the audited SEA and LEAs whether ED (or an SEA, if an Ed-Flex State) has granted any written waivers to the State or the LEAs. III. COMPLIANCE REQUIREMENTS, AUDIT OBJECTIVES AND SUGGESTED AUDIT PROCEDURES A. Types of Services Allowed or Unallowed See specific compliance requirements for each ESEA program. Also, section C in this cross-cutting section describes options that SEAs and LEAs have for earmarking funds to be pooled for certain specified activities. B. Eligibility See specific compliance requirements for each ESEA program. ----------------------------------------------------------------------------- Page 3 C. Matching, Level of Effort, and/or Earmarking Requirements C-1 Maintenance of effort Applicable Programs: Title I/ Part A; Eisenhower; SDFSCA (except the Governor's Program authorized under Section 4114) Note: Title VI has a separate maintenance of effort requirement which is explained in the Title VI program specific section. Compliance Requirement An LEA may receive funds under an applicable program only if the SEA finds that the 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 was not less than 90 percent of the combined fiscal effort or aggregate expenditures for the second preceding year, unless specifically waived by ED. Except for Title 1/ Part A, the SEA can define the type of expenditures that can be included in the calculation. For purposes of Title I/ Part A, an LEA's expenditures from State and local funds for free public education include expenditures for administration, instruction, attendance and health services, pupil transportation services, operation and maintenance of plant, fixed charges, and net expenditures to cover deficits for food services and student body activities. They do not include the following expenditures: (1) any expenditures for community services, capital outlay, debt service and supplementary expenses as a result of a Presidentially declared disaster; and (2) any expenditures made from funds provided by the Federal Government for which the LEA is required to account to the Federal Government directly or through the SEA. If an LEA fails to maintain fiscal effort, the SEA must reduce the amount of the allocation of funds under an applicable program in any fiscal year in the exact proportion by which the LEA fails to maintain effort by falling below 90 percent of both the combined fiscal effort per student and aggregate expenditures (using the measure most favorable to the LEA). (Section 14501 of ESEA (20 USC 8891)) Audit Objective (SEA) To determine whether the SEA is properly determining whether LEAs are complying with the maintenance of effort requirements and, if not, whether the SEA is reducing the allocation of funds appropriately. Audit Objective (LEA) To determine whether the LEA's calculation or other data submitted to the SEA for SEA calculation are consistent with the requirements and supported by the books and records of the LEA. ----------------------------------------------------------------------------- Page 4 Suggested Audit Procedures (SEA where LEA does calculation)  Select a sample of LEAs and review determinations of compliance to determine whether determinations show that effort was maintained.  If SEA records show that an LEA failed to maintain fiscal effort, review allocation records to ascertain whether the SEA reduced the amount allocated to the LEA under the program in the exact proportion by which the LEA failed to maintain effort below the 90 percent threshold. Suggested Audit Procedures (SEA where SEA does calculation)  Review a sample of maintenance of effort calculations for LEAs to ensure that the SEA included only allowable categories of expenditures and that the categories were consistent in both years.  If SEA records show that an LEA failed to maintain fiscal effort, ascertain whether the SEA reduced the amount of the allocation of funds under the program in any fiscal year in the exact proportion by which the LEA failed to maintain effort below the 90 percent threshold. Suggested Audit Procedures (LEA where LEA does calculation)  Review the maintenance of effort calculations to ensure that the LEA included only allowable categories of expenditures and that the categories were consistent in both years.  Trace amounts used in the calculation to the books and records from which audited financial statements were prepared and to student enrollment records. Suggested Audit Procedure (LEA where SEA does calculation)  Trace amounts sent to the SEA to use in the calculation of maintenance of effort to the books and records from which audited financial statements were prepared and to student enrollment records. C-2 Supplement not supplant Applicable Programs: Title I/ Part A; MEP; Title VI; Bilingual Compliance Requirement An SEA and LEA may use program funds only to supplement and, to the extent practical, increase the level of funds that would, in the absence of the Federal funds, be made available from non-Federal sources for the education of participating students. In no case ----------------------------------------------------------------------------- Page 5 may an LEA use Federal program funds to supplant funds from non-Federal sources. (Title I/ Part A, Section 1120A(b) (20 USC 6322(b)); Title I, Part C Section 1304(c)(2) (20 USC 6394(c)(2)); Title VI of ESEA, Section 6401(b) (20 USC 7371(b)); and Title VII of ESEA, Section 7116(b)(4) (20 USC 7426(h)(4))) In the following instances, it is presumed that supplanting has occurred:  The SEA or LEA used funds under an applicable program (except Bilingual) to provide services that the SEA or LEA was required to make available under Federal, State, or local law.  The SEA or LEA used funds under an applicable program to provide services that the SEA or LEA provided with non-Federal funds in the prior year(s).  The SEA or LEA used Title I/ Part A or MEP funds to provide services for participating children that the SEA or LEA provided with non-federal funds for nonparticipating children. These presumptions are rebuttable if the SEA or LEA can demonstrate that it would not have provided the services in question with non-Federal funds had the Federal funds not been available. When auditing a schoolwide program: In a Title I schoolwide program, a school is not required to provide supplemental services to identified children. However, the school may only use Federal funds to supplement the amount of funds that would in the absence of the Federal funds, be made available to the school from non-Federal sources, including funds needed to provide services required by law for children with disabilities and children with limited English proficiency. (Title I/ Part A, Section 1114(a)(3) (20 USC 6314(a)(3))) When auditing Title I/ Part A or MEP: An SEA and LEA may exclude, from determinations of compliance with the supplement, not supplant requirement, supplemental State or local funds spent in any school attendance area or school for programs that meet the intent and purposes of Title I/ Part A or MEP. (Title I/ Part A of ESEA, Section 1120A(d) (20 USC 6322(d)) Additional explanation for Bilingual: This supplement not supplant requirement does not preclude an LEA from using Bilingual program funds for activities carried out under a Federal or State court order respecting services to be provided to limited English proficient (LEP) children, or to carry out a plan approved by the Secretary as adequate under Title VI of the Civil Rights Act of 1964 with respect to services to be provided to LEP children. (Title VII, Section 7116(h)(4) of ESEA (20 USC 7426(h)(4))) Audit Objective (LEA and SEA) To determine whether the SEA and its LEAs used funds of an applicable program only to supplement, and not supplant, non-Federal funds. ----------------------------------------------------------------------------- Page 6 Suggested Audit Procedures (LEA and SEA)  Determine the procedures used by the SEA or LEA to ensure that funds under an applicable program supplement and do not supplant State and/or local funding.  Identify the activities funded with funds under an applicable program during the current fiscal year. Determine whether any of the presumptions described above occurred. If so, determine whether the SEA or LEA can rebut the presumption by demonstrating that it would not have provided the services in question with non-Federal funds had the Federal funds not been available. C-3 Comparability Applicable Programs: Title I/ Part A; MEP Compliance Requirement An LEA may receive funds under Title I/ Part A and the MEP (Title I, Part C) only if State and local funds will be used in participating schools to provide services that, taken as a whole, are at least comparable to services that the LEA is providing in schools not receiving Title I/ Part A or MEP funds. An LEA is considered to have met the statutory comparability requirements if it has implemented (1) an LEA-wide salary schedule; (2) a policy to ensure equivalence among schools in teachers, administrators, and other staff; and (3) a policy to ensure equivalence among schools in the provision of curriculum materials and instructional supplies. An LEA may also use other measures to determine comparability such as comparing the average number of students per instructional staff or the average staff salary per student in each school receiving Title I/ Part A or MEP funds with those in schools that do not receive Title I/ Part A or MEP funds. If all schools are served by Title I/Part A or MEP, an LEA must use State and local funds to provide services that, taken as a whole, are substantially comparable in each school. Determinations may be made on either a district-wide or grade-span basis. An LEA may exclude schools with fewer than 100 students from its comparability determinations. The comparability requirement does not apply to an LEA that has only one school for each grade span. An LEA may exclude from determinations of compliance with this requirement State and local funds expended for (1) bilingual education for children with limited English proficiency (LEP); (2) excess costs of providing services to children with disabilities as determined by the LEA; and (3) supplemental State or local funds for programs that meet the intent and purposes of Title I/ Part A or MEP. (Title I, Section 1120A(d) (20 USC 6322(d)) Each LEA must develop procedures for complying with the comparability requirements and must maintain records that are updated biennially documenting compliance with the comparability requirements. The SEA, however, is ultimately responsible for ensuring that LEAs remain in compliance with the comparability requirement. (Title I, Section 1120A(c) of ESEA (20 USC 6322(c))) ----------------------------------------------------------------------------- Page 7 Audit Objective (SEA) To determine whether the SEA is determining whether LEA are complying with the comparability requirements. Audit Objective (LEA) To determine that the LEA has developed procedures for complying with the comparability requirements and maintained records that are updated at least biennially documenting compliance with the comparability requirements. Suggested Audit Procedure (SEA)  For a sample of LEAs, review SEA records that document SEA review of LEA compliance with the comparability requirements. Suggested Audit Procedures (LEA)  Through inquiry and review, determine if the LEA has developed procedures and measures for complying with the comparability requirements.  Review LEA comparability documentation to determine (1)whether it has been updated within two years of the end of the audit period and (2) that it shows that the LEA is providing services with State and local funds to Title 1/ Part A or MEP schools that are comparable to services provided to non-Title 1/ Part A or MEP schools.  On a test basis, trace comparability data to supporting records. C-4 Consolidation of administrative funds Applicable Programs: Title I/ Part A; MEP; Eisenhower; SDFSCA (except the Governor's Program authorized under Section 4114); Title VI Compliance Requirement An SEA may consolidate funds received for State administration under applicable programs provided the SEA can demonstrate that the majority of its operating resources comes from non-Federal sources. An SEA must use consolidated administrative funds for authorized administrative activities of the programs whose funds are consolidated and may use them for administrative activities designed to enhance the effective and coordinated use of funds under the programs included in the consolidation, such as coordination of ESEA programs with other Federal and non-Federal programs; the establishment and operation of peer review mechanisms; the dissemination of information regarding model programs and practices; and technical assistance. The amount from ----------------------------------------------------------------------------- Page 8 each applicable program set aside for consolidation may not be more than the percentage, if any, authorized for State administration under that program. An LEA may, with the approval of the SEA, also consolidate local administrative funds under applicable programs. The amount set aside under each covered program for consolidation may not be more than the percentage, if any, authorized for local administration under that program. In addition, an LEA may not use any other funds under the programs included in the consolidation for administration. Each SEA shall, in collaboration with the LEAs in the State, establish procedures for responding to requests from LEAs to consolidate administrative funds. An SEA or LEA that consolidates administrative funds is not required to keep separate records by individual programs to account for costs relating to the administration of programs included in the consolidation. (Sections 14201 and 14203 of ESEA (20 USC 8821 and 8823)) Audit Objective (SEA) To determine that the amount taken from any program for State administration does not exceed any statutory or regulatory limits and that the SEA has established procedures for responding to requests from LEAs to consolidate administrative funds. Audit Objective (LEA) To determine that the LEA received prior approval from the SEA and that amounts consolidated for local administration do not exceed any statutory or regulatory limits. Suggested Audit Procedures  Through inquiry and review, determine whether the SEA has developed and followed procedures for responding to requests from LEAs to consolidate administrative funds. (SEA only)  Determine that the LEA received prior approval from the SEA. (LEA only)  Review budgetary/accounting records to determine whether the amount transferred from the program for consolidated administration did not exceed the amount allowed by the statute or regulation. (Note: See C-5 for statutory limits pertaining to Title I/ Part A and MEP and the program specific sections for the other programs.)  Scan general ledger or other records that accumulate other program cost classifications to determine that there are not significant (in amount or in number) administrative costs that are misclassified. (NOTE: When auditing as a major program any program for which administration was consolidated, the auditor should include the administrative cost pool in the universe to be tested for cost ----------------------------------------------------------------------------- Page 9 allowability. Any transactions selected from the administration costs pool would be tested against the compliance requirements applicable to the cost pool, rather than the individual program.) C-5 Reservation of Title I funds for State administration Applicable Programs: Title I/ Part A; MEP Compliance Requirement An SEA may reserve for the administration of Title I programs up to one percent from each of the amounts allocated to the State under Title I/ Part A (except Capital Expenses under section 1002(e) and School Improvement funds under section 1002(f)), MEP (Title I, Part C), and Title I, Part D, Subpart 1 (State Agency Neglected or Delinquent Program). The one percent reservation is a maximum. An SEA may reserve less than one percent from each of Parts A, C, and D (Subpart 1). Moreover, an SEA does not need to reserve the same percentage from each part. However, the amounts reserved from Part A Basic, Concentration, and Targeted Grants must be proportionate. If the amount reserved through this process totals less than $400,000, an SEA may reserve up to $400,000 for State administration. For any SEA reserving $400,000, the amount taken from each of Title I, Parts A, C, and D (Subpart 1) must be proportionate. An SEA is not required to use the same proportion of funds reserved from Parts A, C, and D for administrative activities related to those Parts. As explained above, under section 14201 of ESEA, an SEA may consolidate administrative funds reserved from Title I, Parts A, C, and D (Subpart 1) with State administrative funds available under other applicable programs, provided the SEA can demonstrate that the majority of its operating resources come from non-Federal sources. (Title I, Section 1603 of ESEA (20 USC 6513); 34 CFR 200.60(a) and 200.61) Audit Objective and Procedures See Audit Objective and Procedures under C-4. C-6 Use of unneeded program funds Applicable Programs: MEP; Eisenhower; SDFSCA (except the Governor's Program authorized under Section 4114); Title VI Compliance Requirement With the approval of its SEA, an LEA that determines for any fiscal year that funds under an applicable program (other than Title I/ Part A) are not needed for the purpose of that applicable program may use five percent or less of the total amount of the funds received under that applicable program for the purpose of another ----------------------------------------------------------------------------- Page 10 applicable program. This determination may be made at any time during the period of availability of the funds. This provision, however, does not extend the period for obligating unneeded program funds beyond the period of availability for the applicable program from which the funds were taken. (Section 14206(a) of ESEA (20 USC 8826(a))) Audit Objective To determine that the amount of unneeded funds transferred to another applicable program does not exceed the amount identified in the SEA-approved application. Suggested Audit Procedure (LEA)  Identify the amounts of unneeded funds actually reallocated to other applicable programs and compare to the amount authorized by the SEA. (NOTE: Unneeded funds transferred to other applicable programs should be included in the universe to be tested for allowable services and allowable costs of the program to which they are transferred.) C-7 Coordinated services projects Applicable Programs: Title I; MEP; Eisenhower; SDFSCA (including the Governor's Program authorized under Section 4114); Title VI; Bilingual, Impact Aid Compliance Requirement In addition to using funds for specific purposes outlined in each program's statute and regulations, an LEA, school, or group of schools if there is no governing LEA, upon application to and approval by ED, may use a total of not more than five percent of its funds received under ESEA (including Impact Aid funds under Title VIII) to develop, implement, or expand a coordinated services project. ED will notify an SEA of its approval of any coordinated services projects within the State. Funds reserved for a coordinated services project may be used for any activity relevant to the project, except that those funds may not be used for the direct provision of health or health-related services. Acceptable uses of funds may include, but are not limited to, hiring a coordinator, making minor renovations to existing buildings, purchasing basic operating equipment, improving communications and information-sharing among participating entities, teacher and staff training, and conducting a statutorily required needs assessment. Funds used for this purpose must be obligated within the period of availability of funds for the program from which funds were taken. (Title XI and Section 14206(b) of ESEA (20 USC 8401 et seq. and 8826(b))) Audit Objective To determine whether the amount of Federal funds used in the coordinated services project does not exceed the amount identified in the ED-approved application. ----------------------------------------------------------------------------- Page 11 Suggested Audit Procedure (LEA or school level)  Review budgetary/accounting records to determine amount of funds transferred to the coordinated services project. Compare with the amount approved by ED. (Note: When auditing a major program that transferred funds to a coordinated services project, the coordinated services project should be included in the sampling universe to be tested for allowability of costs. Any transactions selected from the coordinated services project would be tested against the compliance requirements applicable to coordinated services projects, rather than the program the funds came from.) D. Special Reporting Requirements D-1 Collection of State Per Pupil Expenditure (SPPE) data Applicable Programs: Title I/ Part A; MEP Compliance Requirement Each year, an SEA must submit its average State per pupil expenditure (SPPE) data to the National Center for Education Statistics. (These SPPE data are used by ED to make allocations under several ESEA programs, including Title I/ Part A and MEP.) SPPE data are reported on the National Public Education Finance Survey. SPPE data comprise the State's annual current expenditures for free public education, less certain designated exclusions, divided by the State's average daily attendance. Current expenditures to be included are those for free public education, including administration, instruction, attendance and health services, pupil transportation services, operation and maintenance of plant, fixed charges, and net expenditures to cover deficits for food services and student body activities. Current expenditures to be excluded are those for community services, capital outlay, debt service, and expenditures from funds received under Title I and Title VI of ESEA. (Section 14101(11) of ESEA (20 USC 8801)) Except when provided otherwise by State law, average daily attendance generally means the aggregate number of days of attendance of all students during a school year divided by the number of days school is in session during such school year. For purposes of ESEA, average daily membership (or similar data) can be used in place of average daily attendance in States that provide State aid to LEAs on the basis of average daily membership or such other data. When an LEA in which a child resides makes a tuition or other payment for the free public education of the child in a school of another LEA, the child is considered to be in attendance at the school of the LEA making the payment, and not at the school of the LEA receiving the payment. Similarly, when an LEA makes a tuition payment to a private school or to a public school of another LEA for a child with disabilities, the child is considered to be in attendance at the school of the LEA making the payment. ----------------------------------------------------------------------------- Page 12 Audit Objective To determine that the most recent annual SPPE survey was prepared properly from supporting records. Suggested Audit Procedure (SEA)  Review the most recent annual SPPE survey and trace expenditure data to LEA input to determine that it included only appropriate types of current expenditures.  Trace attendance data from a sample of LEA input to the survey to assure it was appropriately included. Suggested Audit Procedure (LEA)  Review the most recent input to the SEA for the annual SPPE survey. Trace expenditure data to audited books and records and test to ensure that only allowable expenditures are reported. Trace attendance data to supporting records. E. Special Tests and Provisions E-1 Obligation of federal funds Applicable Programs: Title I/ Part A; MEP; Eisenhower; SDFSCA (including the Governor's Program authorized under Section 4114); Title VI; Bilingual Compliance Requirement Title I/ Part A, MEP, Eisenhower, SDFSCA (including the Governor's Program authorized under Section 4114), Title VI An LEA, SEA, or any other grantee and subgrantee must obligate Federal program funds during the period for which the funds were available for obligation. (Note that the act of an SEA awarding Federal funds to an LEA or other eligible entity within a State does not constitute a final obligation.) Under the applicable programs, funds are generally available for obligation for a maximum period of 27 months, extending from July 1 through September 30 of the second following fiscal year. (This maximum period includes a 15 month period of initial availability plus a 12 month period for carryover.) For example, funds from the fiscal year (FY) 1995 appropriation initially became available on July 1, 1995 and can be obligated by the grantee and subgrantee through September 30, 1997. Funds set aside for coordinated services projects under Title XI of ESEA and unneeded program funds used for other applicable ESEA programs under section 14206(a) of ESEA are not available for obligation beyond the period described above for the applicable program from which the funds were taken. As noted in the Title I, Part A program section of this document, Title I, Part A funds are subject to a 15 percent limitation on carryover after the initial 15 months of availability. (Section 421(b) of GEPA (20 USC 1225(b) 34 CFR 76.704-76.707) ----------------------------------------------------------------------------- Page 13 Compliance Requirement - Bilingual Recipients must obligate Bilingual program funds during the period for which the funds are available for obligation as set forth in the grant award document. Recipients must maintain documentation to demonstrate that the obligation occurred during the period of availability and was charged to an appropriate year's grant funds. If obligations occur outside of the period of availability, the funds are not timely obligated and must be returned. (34 CFR  80.23, 75.251, and 75.707) Consolidated Administrative Funds and Coordinated Service Projects: Funds used in consolidated administrative funds and coordinated services projects must be obligated within the period of availability of the program that the funds came from. Because expenditures in a consolidated administrative fund or a coordinated services project are not tracked by the Federal program, an SEA or LEA may use a first-in, first-out method for determining when funds were obligated. Definition of Obligation: When an obligation occurs (is made) depends on the type of property or services that the which the obligation is for: IF AN OBLIGATION IS FOR -- THE OBLIGATION IS MADE -- (a) Acquisition of real or personal On the date on which the State property. or subgrantee makes a binding written commitment to acquire the property. (b) Personal services by an When the services are performed. employee of the State or subgrantees. (c) Personal services by a On the date on which the State contractor who is not or subgrantee makes a binding an employee of the State written commitment to obtain or subgrantees. the services. (d) Performance of work other On the date on which the State than or subgrantee makes a binding personal services. written commitment to obtain the work. (e) Public utility services. When the State or subgrantee receives the services. (f) Travel. When the travel is taken. (g) Rental of real or When the State or subgrantee personal property. uses the property. (h) A preagreement cost that On the first day of the was properly approved by subgrant period. the State under the applicable cost principles. ----------------------------------------------------------------------------- Page 14 Audit Objective (SEA, LEA, or any other grantee or subgrantee) To determine that obligations occurred during the period of availability and are charged to the appropriate year's grant funds. Suggested Audit Procedures (SEA, LEA, or any other grantee or subgrantee)  Test transactions recorded after the end of the audit period to determine if the underlying obligations were recorded in the proper period of availability.  Test transactions that were recorded during the audit period to determine if the underlying obligations were recorded in the proper period of availability.  If the grantee or subgrantee used a different accounting system in the current audit period from that of the previous audit period, review a sample of Federal expenditures during the cross-over period and trace to their source. Verify that the system was not changed improperly to avoid lapsing funds.  Review accounting records for any reallocation of Federal funds from one subgrantee to another. Trace these reallocations to their source.  Review accounting records for adjustments to the Federal funds made by the grantee or subgrantee. Trace these adjustments to their source. Verify that these adjustments were not made to Federal funds after the period of their availability to offset audit disallowances.  Review accounting records for consolidated administrative funds, coordinated service project, and unneeded funds to determine that federal funds were spent within the period of availablity. E-2 Schoolwide programs Applicable Programs: Title I/ Part A; MEP; Eisenhower; SDFSCA (except the Governor's Program authorized under Section 4114); Title VI; Bilingual Compliance Requirement A school participating under Title I/ Part A may, in consultation with its LEA, use Title I/ Part A funds to upgrade the school's entire educational program in a schoolwide program. To qualify, at least 50 percent of the children enrolled in the school or residing in the school attendance area for the initial year of the schoolwide program must be from low-income families. (For fiscal year 1995-96, the eligibility poverty threshold was 60 percent.) To operate a schoolwide program, a school must develop, in consultation with the LEA and its school support team or other technical assistance provider, a comprehensive plan to upgrade its total instructional program. ----------------------------------------------------------------------------- Page 15 Each schoolwide program must include a number of specific components that are provided in the statute and regulations. The major components include a comprehensive needs assessment of the entire school to determine the performance of its children in relation to the State's challenging content and performance standards; schoolwide reform strategies that are based on effective means of improving the achievement of children and that address the needs of all children in the school; instruction by highly qualified professional staff; professional development for teachers and other staff; and strategies to increase parental involvement. In addition to funds and services available under Title I, Part A, a schoolwide program school may use funds it receives under any Federal education program administered by the Secretary (other than programs under the Individuals with Disabilities Education Act (IDEA) and a few other programs listed in the Federal Register notice published on September 21, 1995 (60 FR 49174)) to support its schoolwide program. If funds from other Federal education programs are combined, a schoolwide program does not need to meet most of the statutory and regulatory requirements of those programs, as long as the intent and purposes of those programs are met. A schoolwide program school and its LEA, however, must still comply with requirements applicable to those programs relating to health and safety; civil rights; gender equity; parental involvement; equitable participation of private school children, teachers, and other educational personnel; maintenance of effort; and comparability. In combining funds, a schoolwide program school must also ensure that its schoolwide program addresses the needs of children who are members of the target population of any Federal program that is included in the schoolwide program. When combining funds or services received under the Title I, Part C, Migrant Education program, a schoolwide program must: (1) in consultation with parents of migratory children or organizations representing those parents, address the identified needs of migratory children that result from the effects of their migratory lifestyle or are needed to permit migratory children to participate effectively in schools and (2) document that services addressing those needs have been provided. Similarly, a schoolwide program must have the approval of the Indian parent advisory committee established in section 9114(c)(4) of ESEA before funds received under the Title IX, Part A, Subpart 1 Indian Education program can be combined. A school operating a schoolwide program does not have to (1) show that Federal funds used within the school are paying for additional services that would not otherwise be provided; (2) demonstrate that Federal funds are used only for specific target populations; or (3) separately track Federal program funds once they reached the school. Such a school, however, is required to use funds available under Title I and under any other Federal programs that are combined to support its schoolwide program to supplement the total amount of funds that would, in the absence of the Federal funds, be made available from non-Federal sources for that school, including funds needed to provide services that are required by law for children with disabilities and children with limited-English proficiency. (Title I/ Part A, Section 1114 (20 USC 6314); MEP, Section 1306(b)(3) of ESEA (20 USC 6396(b)(3)); 34 CFR 200.8; and 60 FR 49174) Audit Objective (LEA) To determine that: (1) the schools operating schoolwide programs ----------------------------------------------------------------------------- Page 16 were eligible to do so; (2) the schoolwide programs were based on a comprehensive plan that included the required elements; and (3) funds from Federal programs supplemented the total amount of funds that, in the absence of the Federal funds, would be made available from non-Federal sources for that school. Suggested Audit Procedures (LEA)  For schools operating a schoolwide program, review records and verify that the school met the poverty eligibility requirements.  Review the procedures and documentation used by the LEA to distribute State and local funded resources to each schoolwide program school. Determine whether there was any evidence that the amount of non-Federal funds allocated to schoolwide schools was reduced or was less than non-schoolwide schools, due to the receipt of Federal funds for the schoolwide program.  Review the schoolwide plan and determine the following: - Whether it was based on a comprehensive needs assessment of the entire school, - Whether it was developed in consultation with parents including, when MEP funds are combined, the parents of migratory children or organization representing those parents; and, when Title IX, Part A, Subpart 1(Indian Education) are combined, approval by the Indian parent advisory committee, - Whether it identifies schoolwide reform strategies for improving the achievement of children and addresses how the program will meet the needs of all children in the school, particularly the needs of children who are members of the target population of any program included in the schoolwide program.  If MEP funds are combined in the schoolwide program, review documentation that services addressing the identified needs of migratory children were provided by the schoolwide program. E-3 Participation of private school children Applicable Programs: Title I/ Part A; MEP; Eisenhower; SDFSCA (except the Governor's Program authorized under Section 4114); Title VI; Bilingual Compliance Requirement An SEA, LEA, or any other educational service agency (or consortium of such agencies) receiving financial assistance under an applicable programs must provide eligible private school children and their teachers or other educational personnel, with equitable ----------------------------------------------------------------------------- Page 17 services or other benefits under these programs. Before an agency or consortium makes any decision that affects the opportunity of eligible private school children, teachers, and other educational personnel to participate, the agency or consortium must engage in timely and meaningful consultation with private school officials. (Section 14503 of ESEA (20 USC 8893); Title I, Section 1120 of ESEA (20 USC 6321); 34 CFR 200.10-200.13; and Title VI, Section 6402 (20 USC 7372)) (See the program specific section for Title I/ Part A, Requirement B-3, in this document for information on how private school children from low-income families generate funds.) Audit Objective To determine that the LEA, SEA, or other agency receiving ESEA funds has conducted timely consultation with private school officials to determine the kind of educational services to provide to eligible private school children. Suggested Audit Procedures (LEA, SEA, or other educational agency)  Verify, by reviewing minutes of meetings and other appropriate documents, that the SEA or LEA conducted timely consultation with private school officials in making their determinations.  Review program expenditure and other records to determine whether educational services that were planned actually were provided. ----------------------------------------------------------------------------- Page 18 TITLE 1 GRANTS TO LOCAL EDUCATIONAL AGENCIES Title I, Part A of ESEA CFDA No. 84.010 I. PROGRAM OBJECTIVES Title I, Part A of ESEA, as amended, provides supplemental financial assistance to local educational agencies (LEAs) through State educational agencies (SEAs) to improve the teaching and learning of children who are at risk of not meeting challenging academic standards and who reside in areas with high concentrations of children from low-income families. II. PROGRAM PROCEDURES Department of Education (ED) provides Title I, Part A funds to each SEA through a statutory formula based primarily on the number of children ages 5 through 17 from low-income families, counted in the most recent decennial census. This number is augmented by annually collected counts of children ages 5 through 17 in foster homes, locally operated institutions for neglected or delinquent children, and families above poverty that receive assistance under the Aid to Families with Dependent Children program and adjusted to account for the cost of education in each State. To receive funds, an SEA must submit to ED for approval either (1) an individual State plan as provided in Section 1111 of the ESEA or (2) a consolidated plan that includes Part A, in accordance with Section 14302 of the ESEA. The individual or consolidated plan, after approval by ED, remains in effect for the duration of the State's participation in Title I, Part A but must be updated to reflect substantive changes. SEAs allocate funds to LEAs based on the best available data that reflect the current distribution of children from low-income families. To receive Title I funds, an LEA must have on file with the SEA an approved plan that includes descriptions of the general nature of services to be provided, how program services will be coordinated with the LEA's regular program of instruction, additional LEA assessments, if any, used to gauge program outcomes, and strategies to be used to provide professional development. An LEA may also include Part A as part of a consolidated application submitted to the SEA under Section 14304 of the ESEA. LEAs allocate Title I funds to eligible school attendance areas based on the number of children from low-income families residing within the attendance area. A school above 50 percent poverty may use its Part A funds, along with other Federal, State, and local funds, to operate a schoolwide program to upgrade the instruction program in the whole school. Otherwise, a school operates a targeted assistance program in which the school identifies students who are failing, or most at risk of failing, to meet the State's challenging performance standards and who have the greatest need. The school then designs, in consultation with parents, staff, and the LEA, an instructional program to meet the needs of those students. ----------------------------------------------------------------------------- Page 19 III. COMPLIANCE REQUIREMENTS , AUDIT OBJECTIVES AND SUGGESTED AUDIT PROCEDURES See discussion of Waivers in Cross-cutting Provisions. A. Types of Services Allowed or Unallowed Part III, Section C of the Cross-cutting Provisions describes options for transferring ESEA program funds to other ESEA programs, to coordinated services projects, and to consolidated administrative funds. A-1 Use of funds for allowable activities Compliance Requirement (Targeted assistance programs only) In a targeted assistance school, funds available under Part A may be used only for programs that are designed to help participating children meet the State's student performance standards expected of all children. Allowable activities in these schools include, but are not limited to, instructional programs, counseling, mentoring, other pupil services, college and career awareness and preparation, services to prepare students for the transition from school to work, services to assist preschool children in the transition to elementary school programs, parental involvement activities, and professional staff development. The LEA's plan will provide a description of the general nature of the services to be provided with Part A funds. However, each Title I school determines the actual program it will provide. If health, nutrition, and other social services are not otherwise available from other sources to participating children, Part A funds may be used to provide such services. (Title I, Section 1114 of ESEA (20 USC 6315)) Audit Objective (LEAs) To determine that Part A funds are used in targeted assistance programs for services designed to help participating children meet the State student performance standards. Suggested Audit Procedures (LEAs)  Review program records that describe the types of activities funded to determine if they meet the general description of services described in the plan.  Select a sample of expenditure transactions and perform tests to determine if expenditures were for allowable activities. ----------------------------------------------------------------------------- Page 20 B. Eligibility B-1 School attendance area eligibility and selection Compliance Requirement (Schoolwide programs and targeted assistance programs) An LEA must determine which school attendance areas are eligible to participate in Part A. A school attendance area is generally eligible to participate if the percentage of children from low-income families is at least as high as the percentage of children from low-income families in the LEA as a whole or above 35 percent poverty. An LEA may also designate and serve a school in an ineligible attendance area if the percentage of children from low-income families enrolled in that school is equal to or greater than the percentage of such children in a participating school attendance area. When determining eligibility, an LEA must select a poverty measure from among the following data sources: (1) the number of children ages 5-17 in poverty counted in the most recent census; (2) the number of children eligible for free and reduced priced lunches; (3) the number of children in families receiving Aid to Families with Dependent Children; (4) the number of children eligible to receive Medicaid assistance; and (5) a composite of these data sources. The LEA must use that measure consistently across the district to rank all its school attendance areas according to their percentage of poverty. An LEA must serve eligible schools or attendance areas in rank order according to their percentage of poverty. An LEA must serve those areas or schools above 75 percent poverty, including any middle or high schools, before it serves any with a poverty percentage below 75 percent. After an LEA has served all areas and schools with a poverty rate above 75 percent, the LEA may serve lower-poverty areas and schools either by continuing with the district-wide ranking or by ranking its schools below 75 percent poverty according to grade-span grouping (e.g., K-6, 7-9, 10-12). If an LEA ranks by grade span, the LEA may use the district-wide poverty average or the poverty average for the respective grade span grouping. An LEA may elect not to serve an eligible area or school that has a higher percentage of children from low-income families if: (1) the school meets the Title I comparability requirements; (2) the school is receiving supplemental State or local funds that are spent according to the requirements in sections 1114 or 1115 of Title I; and (3) the State and local funds expended in the area or school equal or exceed the amount that would be provided under Part A. An LEA with an enrollment of less than 1,000 students or with only one school per grade span is not required to rank its school attendance areas. (Title I, Section 1113(a)-(b) of ESEA (20 USC 6313(a)-(b)); 34 CFR 200.28(a) (3)) Audit Objective (LEA) To determine whether participating school attendance areas or schools were eligible and were selected in the required order using an appropriate poverty measure and methodology. ----------------------------------------------------------------------------- Page 21 Suggested Audit Procedures (LEA)  Review the LEA's poverty ranking records (district-wide and, if applicable, by grade span) to determine (1) that the rankings were based on a poverty measure from an allowable data source and (2) that the same poverty measure was used to rank all school attendance areas and schools.  From program records identify the participating schools or school attendance areas and compare to the poverty rankings to determine whether: - All schools/school attendance areas with over 75% poverty (without regard to grade span), including any middle and high schools, participated in the program before any schools under 75% participated. - The participating schools and school attendance areas are eligible and were correctly selected based upon their poverty ranking. B-2 Allocating Part A funds to eligible school attendance areas and schools Compliance Requirement (Schoolwide programs and targeted assistance programs) An LEA must allocate Part A funds to each participating school attendance area or school, in rank order, on the basis of the total number of children from low-income families residing in the area or attending the school. In calculating the total number of children from low-income families, the LEA must include children from low-income families who reside in a participating area and attend private schools, using the same poverty data, if available, as the LEA uses to count public school children. If the same data are not available, the LEA may use comparable data. If complete actual poverty data are not available on private school children, an LEA may extrapolate, from actual data on a representative sample of private school children, the number of children from low-income families who attend private schools. An LEA may also correlate sources of data. If an LEA selects a public school to participate on the basis of enrollment, rather than because it serves an eligible school attendance area, the LEA must, in consultation with private school officials, determine an equitable way to count poor private school children in order to calculate the amount of Title I funds available to serve private school children. If an LEA serves any attendance area with less than a 35 percent poverty rate, the LEA must allocate to all its participating areas an amount per poor child that equals at least 125 percent of the LEA's Part A allocation per poor child. (An LEA's allocation per poor child is the total LEA allocation under subpart 2 of Part A divided by the number of poor children in the LEA according to the poverty measure selected by the LEA to identify eligible school attendance areas. The LEA then multiplies this per-child amount by 125 percent.) If an LEA serves only areas with a poverty rate greater than 35 percent, the LEA must allocate funds, in rank order, on the basis of the total number of poor children in each ----------------------------------------------------------------------------- Page 22 area or school, but is not required to allocate a per-pupil amount of at least 125 percent. An LEA may not allocate a higher amount per child to areas or schools with lower percentages of poverty than to areas with higher percentages. If an LEA serves areas or schools below 75 percent poverty by grade span groupings, the LEA may allocate different amounts per poor child for different grade span groupings as long as those amounts do not exceed the amount per poor child allocated to any area or school above 75 percent poverty. Amounts per poor child within grade spans may also vary as long as the LEA allocates higher amounts per poor child to higher poverty areas or schools within the grade span than it allocates to lower poverty areas or schools. The LEA must reserve the amounts generated by poor private school children who reside in participating public school attendance areas to provide services to eligible private school children. (Title I, Section 1113(c) of ESEA (20 USC 6313(c)); 34 CFR 200.27-200.28) Audit Objective (LEA) To determine whether the LEA allocated Part A funds to participating school attendance areas and schools and reserved funds for private school children in accordance with program requirements. Suggested Audit Procedures (LEA)  Review LEA documentation of Title 1 funding allocations to determine whether amounts were allocated to participating schools and school attendance areas in rank order based on the number of children from low-income families who reside in each area or attend each school.  Review funding allocation records to determine whether an LEA allocated higher per pupil amounts to higher poverty areas or schools than to lower poverty areas or schools. When selections are based on grade span grouping, per pupil amounts should be compared within each grade span.  If the LEA is serving any areas or schools with a poverty rate below 35 percent, perform procedures to determine whether the LEA has allocated to each participating area and school an amount per poor child that equals at least 125 percent of the LEA's Title I, Part A allocation per poor child.  For selected schools and/or school attendance areas, review funding allocation records to determine the amount that was allocated to the school/school attendance area based on poor private school children. Review budget/accounting records to determine if amounts allocated to school attendance areas based on poor private school children were set aside to serve eligible private school children. ----------------------------------------------------------------------------- Page 23 B-3 Selection of eligible children in a targeted assisted program Compliance Requirement (Targeted assistance programs only) A school operating a targeted assistance program must use Title I funds only for programs that are designed to meet the needs of children identified by the school as failing, or most at risk of failing, to meet the State's challenging student performance standards. In general, eligible children are identified on the basis of multiple, educationally related, objective criteria established by the LEA and supplemented by the school. Children who are economically disadvantaged, children with disabilities, migrant children, and limited English proficient (LEP) children are eligible for Part A services on the same basis as other children who are selected for services. In addition, certain categories of children are considered at risk of failing to meet the State's student performance standards and are thus eligible for Title I services because of their status. Such children include: children who are homeless, children who participated in a Head Start or Even Start program at any time in the two preceding years; children who received services under a program for youth who are neglected, delinquent, or at risk of dropping out under Part D (or its predecessor authority) at any time in the two preceding years; and children who are in a local institution for neglected or delinquent children or attending a community day program. From the pool of eligible children, a targeted assistance school selects those children who have the greatest need for special assistance to receive Part A services. (Title I, Section 1115 of ESEA (20 USC 6315)) Audit Objective (LEA) To determine that Part A funds are used only for programs designed to meet the needs of eligible children. Suggested Audit Procedure (LEA)  Select a random sample of children being served by Title I programs. Verify by reviewing student files that the children being served met the eligibility requirements stated in this section. C. Matching, Level of Effort, and/or Earmarking Requirements The following compliance requirements in the Cross-cutting Provisions are applicable to this program: C-1 Maintenance of effort, C-2 Supplement not supplant, C-3 Comparability, and C-5 Reservation of Title I funds for State administration. The following compliance requirements in the Cross-cutting Provisions may be applicable to this program: C-4 Consolidation of administrative funds and C-7 Coordinated services projects. ----------------------------------------------------------------------------- Page 24 D. Special Reporting Requirements The following compliance requirements in the Cross-cutting Provisions are applicable to this program: D-1 Collection of state per pupil expenditure (SPPE) data. E. Special Tests and Provisions The following compliance requirements in the Cross-cutting Provisions are applicable to this program: E-1 Obligation of federal funds and E-3 Participation of private school children. The following compliance requirement in the Cross-cutting Provisions may be applicable to this program: E-2 Schoolwide programs. E-1 Carryover Compliance Requirement (Schoolwide programs and targeted assistance programs) An LEA may not carry over more than 15 percent of the funds awarded under Part A, Subpart 2 "Allocations" for any fiscal year. This percentage limitation does not apply to an LEA that receives less than $50,000 for any fiscal year. For purposes of this requirement, "fiscal year" is the Federal fiscal year ending on September 30. An SEA may grant a waiver of the percentage limitation once every 3 years if the SEA determines that the request is reasonable and necessary. An SEA may also grant a waiver in any fiscal year in which supplemental appropriations for Title I become available for obligation. (Title I, Section 1127 of ESEA (20 USC 6338)) Audit Objective (LEAs that receive over $50,000 in a fiscal year) To determine whether the LEA carried over not more than 15 percent of the funds awarded under Title I, Part A, Subpart 2 "Allocations" for any fiscal year. Suggested Audit Procedures (LEAs that receive over $50,000 in a fiscal year)  Review grant award document to identify the total amount of Part A, Subpart 2 funds awarded for the fiscal year audited.  Review year end accounting adjustments to determine amount carried over to the next year and determine whether the amount was more than 15 percent of the amount awarded.  Scan subsequent year transactions to determine whether there were budget increase adjustments that constitute additional carryover from initial year funds. ----------------------------------------------------------------------------- Page 25 MIGRANT EDUCATION - Basic State Grant Program Title I, Part C of ESEA CFDA No. 84.011 I. PROGRAM OBJECTIVES The objectives of the Migrant Education - Basic State Grant Program (Migrant Education Program or MEP) are to (1) support high-quality and comprehensive educational programs for migratory children to help reduce the educational disruptions and other problems that result from repeated moves; (2) provide appropriate educational services (including support services) that address the special needs of migratory children in a coordinated and efficient manner; (3) ensure that migratory children have the opportunity to meet the same challenging State content standards and challenging State student performance standards that all children are expected to meet; (4) design programs to help migratory children overcome educational disruption, cultural and language barriers, social isolation, various health-related problems, and other factors which inhibit the ability of migrant children to do well in school, and to prepare such children to make a successful transition to postsecondary education or employment; and (5) ensure that migratory children benefit from State and local systemic reforms. II. PROGRAM PROCEDURES MEP funds are allocated to a State education agency (SEA), under either an approved consolidated program plan or an approved individual program application, in order for the SEA to provide MEP services and activities either (1) directly, or (2) through subgrants to local operating agencies (LOAs). LOAs can be either local education agencies (LEAs) or other public or nonprofit private agencies. Because an SEA may choose to provide MEP services directly or through an LOA, some of the suggested audit procedures will apply for an SEA or LOA, depending on which agency provides the services and where the records are maintained. III. COMPLIANCE REQUIREMENTS, AUDIT OBJECTIVES AND SUGGESTED AUDIT PROCEDURES See discussion of Waivers in Cross-cutting Provisions. A. Types of Services Allowed or Unallowed Part III, Section C of the Cross-cutting Provisions describes options for transferring ESEA program funds to other ESEA programs, to coordinated services projects, and to consolidated administrative funds. ----------------------------------------------------------------------------- Page 26 A-1 Allowable uses of program funds Compliance Requirement In general, funds available under the MEP may be used only to (1) identify eligible migratory children and their needs; and (2) provide educational and support services (including, but not limited to, preschool services, professional development, advocacy and outreach, parental involvement activities and the acquisition of equipment) that address the identified needs of the eligible children. An SEA may also use MEP funds to carry out administrative activities that are unique to the program. These activities might include, but are not limited to, statewide identification and recruitment of migratory children, interstate and intrastate program coordination, transfer of student records, collecting and using information to make subgrants, and direct supervision of instructional or support staff. (Title I, Part C, Sections 1301, 1304(c) and 1306(b) of ESEA (20 USC 6392, 6394(c) and 6396(b)) and 34 CFR 200.41) Audit Objective (SEA and LOAs) To determine whether MEP funds were used only for allowable purposes. Suggested Audit Procedures (SEAs and LOAs)  Select a sample of expenditure transactions and perform tests to determine if expenditures were for allowable activities. B. Eligibility The auditor is not expected to test for compliance with MEP eligibility requirements. C. Matching, Level of Effort, and/or Earmarking Requirements The following compliance requirements in the Cross-cutting Provisions are applicable to this program: C-2 Supplement not supplant and C-3 Comparability. The following compliance requirements in the Cross-cutting Provisions may be applicable to this program: C-4 Consolidation of administrative funds, C-5 Reservation of Title I funds for State administration, C-6 Use of unneeded program funds, and C-7 Coordinated services projects. ----------------------------------------------------------------------------- Page 27 D. Special Reporting Requirements The following compliance requirement in the Cross-cutting Provisions is applicable to this program: D-1 Collection of State per pupil expenditure (SPPE) data. D-1 Reporting the number of eligible children Compliance Requirement The SEA is required to assist the U.S. Department of Education (ED) in determining the number of eligible migratory children for allocation purposes, using such procedures as ED requires. Each SEA annually provides an unduplicated count of eligible migratory children in each of two categories: (1) children ages 3 through 21 who resided in the State for one or more days during the preceding September 1 - August 31; and (2) such children who were served one or more days in a migrant funded project conducted during either the summer term or an intersession period (i.e., when a year-round school is not in session). The SEA and LOAs must implement procedures, based on the eligibility documentation that it and its subgrantees collect and maintain, to count eligible children in these two categories. (Title I, Part C, Section 1304(c)(7) of ESEA (20 USC 6394(c)(7))) Audit Objective (SEAs and LOAs) To determine whether the SEA's or LOA's count of the number of migratory children in each category is supported and materially correct. Suggested Audit Procedures (SEAs when not providing direct services)  Trace the child counts in each category to summary records and LOA submissions of child counts.  Review the SEA's process to ensure that it had a way of identifying children who were reported by more than one LOA and that appropriate adjustments were made to obtain the two unduplicated counts. Suggested Audit Procedures (LOAs and SEAs direct services programs)  Review the LOA's or SEA's process for counting children for conformity with the SEA established procedure.  Trace child counts in each category to supporting documentation. ----------------------------------------------------------------------------- Page 28 E. Special Tests and Provisions The following compliance requirements in the Cross-cutting Provisions are applicable to this program: E- 1 Obligation of federal funds and E-3 Participation of private school children. The following compliance requirement in the Cross-cutting Provisions may be applicable to this program: E-2 Schoolwide programs. E-1 Priority for services Compliance Requirement SEAs and LOAs must give priority for MEP services to migratory children who are failing, or most at risk of failing, to meet the State's challenging content and performance standards, and whose education has been disrupted in the school year. (Title I, Part C, Section 1304(d) of ESEA (20 USC 6394(d))) Audit Objective (SEAs) To determine that the SEA has developed and communicated to LOAs a policy regarding the need to identify and give priority for MEP services to migratory children who are failing, or most at risk of failing, to meet the State's challenging content and performance standards, and whose education has been disrupted in the school year. Audit Objective (SEAs providing services directly and LOAs) To determine if the SEA or LOA gave priority in the provision of MEP services to those migratory children identified as failing, or most at risk of failing, to meet the State's challenging content and performance standards, and whose education has been disrupted in the school year (priority children). [Note: The auditor is not expected to evaluate the adequacy of the process, i.e, whether the identification of priority children is correct.] Suggested Audit Procedure (SEAs)  Review documentation to verify that the SEA has established and communicated to the LOAs a policy regarding the priority for MEP services. Suggested Audit Procedures (SEAs providing services directly and LOAs)  Review the SEA or LOA's process for selecting children to receive MEP services to determine whether it includes an identification of priority children. ----------------------------------------------------------------------------- Page 29  Select a sample of migratory children who were identified as priority children. Review program records to determine if these children were provided MEP services. [Note: The auditor should be aware that because of the time of year in which the MEP program may operate (e.g. in the summer), an SEA or LOA may not have any priority children.] E-2 Targeting funds Compliance Requirement SEAs may provide MEP services either directly, or through subgrants to LOAs, including LEAs. In either case, in order to target program funds appropriately, the SEA is required to take into account the needs of the State's identified population of migratory children, and the degree to which those needs are not being met through other programs. In targeting MEP funds, SEAs must take into account the needs of migratory children that result from the migratory lifestyle, such as educational disruption, failure or risk of failure to meet State content and performance standards, cultural or language barriers, social isolation, health-related problems, or other factors that stem from the migratory lifestyle or are needed to permit migratory children to participate effectively in school, as well as, the availability of other programs to address these needs. (Title I, Part C, Sections 1301, 1304(b)(1), 1304(b)(6) and 1306(a) of ESEA (20 USC 6391, 6394(b)(6), 6396(a))) Audit Objective (SEAs) To determine if the SEA's process to target MEP funds (whether or not through subgrants) takes into account up-to-date information on the needs of the identified population of eligible migratory children throughout the State and the locality, and the degree to which those needs are not being met through other programs. Suggested Audit Procedure (SEAs)  Review the SEA's process to target MEP funds to determine whether it takes into account up-to-date information on the needs of the identified population of eligible migratory children throughout the State and the locality, and the degree to which those needs are not being met through other programs. E-3 Maintaining records on eligibility of children Compliance Requirement SEAs and LOAs must develop and maintain records that document the eligibility of each child identified for purposes of MEP funding in accordance with SEA-established procedures. (Title I, Part C, Section 1309(b) of ESEA (20 USC 6399(b)) and 34 CFR 76.730 and 76.731) ----------------------------------------------------------------------------- Page 30 Audit Objective (SEAs) To determine that the SEA has established a procedure to collect and maintain documentation regarding the eligibility of the identified migratory children. [Note: The auditor should not attempt to test for eligibility of individual children.] Audit Objective (SEAs direct services program and LOAs) To determine that the SEA or LOA uses the established SEA procedure to collect and maintain documentation regarding the eligibility of the identified migratory children. [Note: The auditor should not attempt to test for eligibility of individual children.] Suggested Audit Procedure (SEA)  Review documentation to verify that the SEA has established and communicated to the LOAs a procedure to collect and maintain documentation on the eligibility of every identified migratory child. Suggested Audit Procedure (SEAs direct services programs and LOAs)  Review a sample of eligibility files to determine that they contain the documentation required by the SEA-established procedure. ----------------------------------------------------------------------------- Page 31 EISENHOWER PROFESSIONAL DEVELOPMENT STATE GRANTS Title II, Part B of ESEA CFDA No. 84.281 I. PROGRAM OBJECTIVES The main objective of Eisenhower Professional Development State Grants (Eisenhower Program), Title II of the Elementary and Secondary Education Act (ESEA) of 1965, as amended by the Improving America's Schools Act of 1994, is to provide funds to State educational agencies (SEAs), local educational agencies (LEAs), State agencies for higher education (SAHEs), institutions of higher education (IHEs), and qualified non-profit organizations (NPOs) to support sustained and intensive high-quality professional development for educators in the core academic subjects. II. PROGRAM PROCEDURES Eisenhower Program funds are obtained by a State on the basis of the Department's approval of either (1) an individual State plan as provided in Section 2205 of the ESEA, or (2) a consolidated plan that includes Eisenhower Program, in accordance with Section 14302 of the ESEA. Separate grants are provided to SEAs and SAHEs. LEAs apply to the SEAs for program funds. The SEAs allocate funds to LEAs based on the relative enrollment in public and private nonprofit elementary and secondary schools and the relative amounts the LEAs received under Part A of Title I for the previous year or, for fiscal year 1995, the relative amounts the LEAs received under Title I, Part A's predecessor program. Any LEA receiving a grant of less than $10,000 must form a consortium with another LEA or an educational service agency serving another LEA to be eligible to receive Eisenhower Program funds. SEAs may waive the consortium requirement for LEAs that can demonstrate that the amount of their allocation is sufficient to provide a program of sufficient size, scope, and quality to be effective. The SAHE makes grants to, or enters into contracts or cooperative agreements with, IHEs and NPOs of demonstrated effectiveness in order to provide professional development activities that contribute to the State plan. ----------------------------------------------------------------------------- Page 32 III. COMPLIANCE REQUIREMENTS, AUDIT OBJECTIVES AND SUGGESTED AUDIT PROCEDURES See discussion of Waivers in Cross-cutting Provisions. A. Types of Services Allowed or Unallowed Part III, Section C of the Cross-cutting Provisions describe options for transferring ESEA program funds to other ESEA programs, to coordinated services projects, and to consolidated administrative funds. A-1 Allowable activities Compliance Requirement Title II funds are used for the improvement of teaching and learning through sustained and intensive high quality professional activities in the core academic subjects. (20 USC 6641 et seg.) Audit Objective (SEA, LEA, and SAHE) To determine whether Title II funds were used for allowable purposes. Suggested Audit Procedure  Select a sample of expenditures and determine whether they were (1) for allowable activities and (2) were properly classified. B. Eligibility The auditor is not expected to test for compliance with eligibility requirements. C. Matching, Level of Effort, and/or Earmarking Requirements The following compliance requirement in the Cross-cutting Provisions is applicable to this program: C-1 Maintenance of effort. The following compliance requirements in the Cross-cutting Provisions may be applicable to this program: C-4 Consolidation of administrative funds, C-6 Use of unneeded program funds, and C-7 Coordinated services projects. ----------------------------------------------------------------------------- Page 33 C-1 Within-State allocations Compliance Requirement Of the total State allocation, the SEA receives 84 percent and the SAHE 16 percent. The SEA distributes, by a formula similar to the initial Federal allocation, at least 90 percent of its allocation to the LEAs within the State. The SAHE distributes at least 95 percent of its allocation in the form of competitive subgrants to IHEs and NPOs of demonstrated effectiveness. Both the SEA and SAHE may reserve up to 5 percent of their allocations for administration. The SEA may reserve up to an additional 5 percent of its allocation to carry out State-level professional development activities in support of the State's professional development plan (which would not need to be formally prepared if the State includes the Eisenhower Program in a consolidated plan submitted under section 14302 of the ESEA). (Title II, Part B, Sections 2203, 2205, 2207 and 2211 of ESEA (20 U.S.C. 6643, 6645, 6647 and 6651)) Audit Objective (SEA and SAHE) To determine if the appropriate percentages have been allocated to the educational agencies as stated in the compliance requirement. Suggested Audit Procedure (SEA and SAHE)  Review general ledger or other records that accumulated activity costs for administration and State-level programs to determine (1) required percentages were allocated to LEAs, IHEs, or other NPOs and (2) whether the amounts recorded for State level activities did not exceed maximum allowable amounts. Test other program accounts to assure that administrative and State-level program costs were not misclassified. C-2 Local cost-sharing Compliance Requirement Each LEA shall provide not less than 33 percent of the cost of the activities assisted under Eisenhower Program, excluding the cost of services provided to private school teachers. In other words, each participating LEA must match every two dollars in Federal funding with one dollar of its own resources, which can come from other Federal programs, such as Title I of the ESEA, or from non-Federal sources. (Title II, Part B, Section 2209 of ESEA (20 U.S.C. 6649)) ----------------------------------------------------------------------------- Page 34 Audit Objective (LEA) To determine that LEAs have met the required match of 33 percent of the cost of activities assisted under the Eisenhower Program. Suggested Audit Procedures (LEA)  Compute the amount of match required and determine if the amount of matching provided was sufficient to meet the requirements.  Test amounts used for matching to determine that they were eligible to be claimed as matching, i.e. used for the Eisenhower program in accordance with cost principles, etc. D. Special Reporting Requirements The auditor is not expected to test for compliance with special reporting requirements. E. Special Tests and Provisions The following compliance requirements in the Cross-cutting Provisions are applicable to this program: E- 1 Obligation of federal funds and E-3 Participation of private school children. The following compliance requirement in the Cross-cutting Provisions may be applicable to this program: E-2 Schoolwide programs. E-1 Competitive basis Compliance Requirement In providing Eisenhower program funds to institutions of higher education or nonprofit organizations of demonstrated effectiveness, the SAHE must award its grant, contract or cooperative agreement on a competitive basis. The SAHE follows state law and procedures in administering the competition and in making the awards. (23 CFR Section 80.37 (a)) Audit Objective (SAHE) To determine whether the SAHE awarded funds in accordance with requirements. Audit Procedure (SAHE)  Review documents on the award process to determine if it was conducted on a competitive basis in accordance with State law and procedures. ----------------------------------------------------------------------------- Page 35 SAFE AND DRUG-FREE SCHOOLS - State Grants Title IV, Part A, Subpart 1 of ESEA (also known as State Grants for Drug and Violence Prevention Programs) CFDA No. 84.186A I. PROGRAM OBJECTIVES The purpose of the Safe and Drug-free School - State Grants authorized by the Safe and Drug-Free Schools and Communities Act (SDFSCA), contained in Title IV of ESEA, is to support programs to meet the seventh National Education Goal by preventing violence in and around schools and by strengthening programs that prevent the illegal use of alcohol, tobacco, and drugs, involve parents, and are coordinated with related Federal, State, and community efforts and resources. Subpart 1 of the SDFSCA provides Federal assistance to States for: 1. Grants to local education agencies (LEAs) and educational service agencies and consortia to establish, operate and improve local programs of drug and violence prevention, early intervention, rehabilitation referral, and education in elementary and secondary schools (including intermediate and junior high schools); 2. Grants to, and contracts with, community-based organizations and other public and private nonprofit agencies and organizations for programs of drug and violence prevention, early intervention, rehabilitation referral, and education; and 3. Development, training, technical assistance and coordination activities. II. PROGRAM PROCEDURES In general, SDFSCA funds are allocated to States based on their relative share of school-aged population and Title I funds. Of each State's annual allocation amount, 80 percent is awarded to the SEA for programs described in Section 4113 of the SDFSCA and 20 percent is awarded to the Governor for programs described in Section 4114 of the SDFSCA. State education agencies (SEAs) may use a portion of the funds they receive for administrative activities and to carry out State-level program activities. The majority of the funds received by an SEA must be distributed to LEAs for drug and violence prevention activities. Governors also may use a portion of the funds they receive for administration. Excluding the percentage of funds reserved for administration, Governors must make grants to, or enter into contracts with eligible entities for drug and violence prevention activities. In addition, a portion of the Governor's funds must be used for law enforcement education partnerships. Governors may have another state agency, including an SEA, administer the program ----------------------------------------------------------------------------- Page 36 on their behalf. No matter who administers the program, the program remains the responsibility of the Governor's office. (Sections 4113 and 4114 of SDFSCA) III. COMPLIANCE REQUIREMENTS, AUDIT OBJECTIVES AND SUGGESTED AUDIT PROCEDURES See discussion of Waivers in Cross-cutting Provisions. A. Types of Services Allowed or Unallowed Part III, Section C of the Cross-cutting Provisions describes options for transferring ESEA program funds to other ESEA programs, to coordinated services projects, and to consolidated administrative funds. A-1 Uses of funds for State-level programs Compliance Requirement An SEA may use the funds reserved for State-level programs for activities including providing training and technical assistance, conducting demonstration projects, making available cost-effective prevention programs to LEAs, providing financial assistance to enhance resources in some areas, and meeting other special needs consistent with the purposes of SDFSCA. The list (see below) of authorized State-level Program activities found in Section 4113(b)(1) of the SDFSCA does not exclude other activities that may be carried out by the SEA, consistent with the purposes of SDFSCA. An SEA may carry out activities in Section 4113(b)(1) directly, or through grant or contracts. An important change in the SDFSCA is that SEA evaluation costs are specifically authorized as program costs. Previously, under the SDFSCA, costs for program evaluations generally were considered to be administrative and had to be supported with funds reserved for program administration. (Section 4113(b)(1) of SDFSCA (20 USC 7113(b)(1)) An SEA may not use SDFSCA funds for construction, or to provide medical services, drug treatment, or rehabilitation. As stated in Section 4133 of the SDFSCA, pupil services or referral to treatment for students who are victims of or witnesses to crime or who use alcohol, tobacco, or drugs are not included in the prohibition. (Section 4133 of the SDFSCA (20 USC 7143)) List of authorized State Level Program activities found in 4113(b): (1) training and technical assistance concerning drug and violence prevention for LEAs and educational service agencies, including teachers, administrators, coaches and athletic directors, other staff, parents, students, community leaders, health service providers, local law enforcement officials, and judicial officials; ----------------------------------------------------------------------------- Page 37 (2) the development, identification, dissemination, and evaluation of the most readily available, accurate, and up-to-date curriculum materials (including videotapes, software, and other technology-based learning resources), for consideration by LEAs; (3) making available to LEAs cost-effective programs for youth violence and drug abuse prevention; (4) demonstration projects in drug and violence prevention; (5) training, technical assistance, and demonstration projects to address violence associated with prejudice and intolerance; (6) financial assistance to enhance resources available for drug and violence prevention in areas serving large numbers of economically disadvantaged children or sparsely populated areas, or to meet other special needs consistent with the purposes of this Subpart; and (7) the evaluation of activities carried out within the State under this part. Audit Objective (SEA) To determine if SDFSCA funds were used for authorized SEA activities. Suggest Audit Procedure (SEA)  Select a sample of expenditures and determine whether they were (1) for allowable activities and (2) were properly classified. A-2 Uses of funds by LEAs Compliance Requirement An LEA may use SDFSCA funds to carry out a broad range of drug and violence prevention programs. SDFSCA provides a general framework for LEA prevention efforts by requiring that SDFSCA funds be used to support comprehensive drug and violence prevention programs that: (1) are designed for all students and employees to prevent the use, possession, and distribution of tobacco, alcohol, and illegal drugs by students; prevent the illegal use, possession, and distribution of tobacco, alcohol, and illegal drugs by employees; prevent violence and promote school safety; create a disciplined environment conducive to learning; and (2) include activities to promote the involvement of parents and coordination with community groups and agencies. The list (see below) of authorized activities found in Section 4116(b) of the SDFSCA is broad and does not exclude other activities that may be carried out by the LEA, consistent with the purposes of SDFSCA. Such activities specifically include mentoring, before- and after-school instructional, recreational, ----------------------------------------------------------------------------- Page 38 cultural, and artistic programs. Note that comprehensive school health education activities may be implemented only to the extent that such activities are part of an LEA's comprehensive drug and violence prevention program. (Section 4116(b) of the SDFSCA (20 USC 7116(b)) An LEA may not use SDFSCA funds for construction, or to provide medical services, drug treatment, or rehabilitation. As stated in Section 4133 of the SDFSCA, pupil services or referral to treatment for students who are victims of or witnesses to crime or who use alcohol, tobacco, or drugs are not included in the prohibition. (Section 4133 of the SDFSCA (20 USC 7133)) List of authorized activities found in Section 4116(b): (1) age-appropriate, developmentally based drug prevention and education programs for all students, from the pre-school level through grade 12, that address the legal, social, personal and health consequences of the use of illegal drugs, promote a sense of individual responsibility, and provide information about effective techniques for resisting peer pressure to use illegal drugs; (2) programs of drug prevention, comprehensive health education, early intervention, pupil services, mentoring, or rehabilitation referral, which emphasize students' sense of individual responsibility and which may include (2a) the dissemination of information about drug prevention; (2b) the professional development of school personnel, parents, students, law enforcement officials, judicial officials, health service providers and community leaders in prevention, education, early intervention, pupil services or rehabilitation referral; (2c) the implementation of strategies, including strategies to integrate the delivery of services from a variety of providers, to combat illegal alcohol, tobacco and drug use, such as family counseling; early intervention activities that prevent family dysfunction, enhance school performance, and boost attachment to school and family; and activities, such as community service and service-learning projects, that are designed to increase students' sense of community; (3) age-appropriate, developmentally based violence prevention and education programs for all students, from the pre-school level through grade 12, that address the legal, health, personal, and social consequences of violent and disruptive behavior, including sexual harassment and abuse, and victimization, associated with prejudice and intolerance, and that include activities designed to help students develop a sense of individual responsibility and respect for the rights of others, and to resolve conflicts without violence; (4) violence prevention programs for school-aged youth, which emphasize students' sense of individual responsibility and may include: (4a) the dissemination of information about school safety and discipline; (4b) the professional development of school personnel, parents, students, law enforcement officials, judicial officials, and community leaders in designing and implementing strategies to prevent school violence; (4c) the implementation of strategies, such as conflict resolution and peer mediation, student outreach efforts against violence, anti-crime youth councils (which work with school and community-based organizations to discuss and develop crime prevention strategies), and the use of mentoring programs, to combat school ----------------------------------------------------------------------------- Page 39 violence and other forms of disruptive behavior, such as sexual harassment and abuse; (4d) the development and implementation of character education programs, as a component of a comprehensive drug or violence prevention program, that are tailored by communities, parents and schools; and (4e) comprehensive, community-wide strategies to prevent or reduce illegal gang activities; (5) supporting "safe zones of passage" for students between home and school through such measures as Drug- and Weapon-Free School Zones, enhanced law enforcement, and neighborhood patrols; (6) acquiring and installing metal detectors and hiring security personnel; (7) professional development for teachers and other staff and curricula that promote the awareness of and sensitivity to alternatives to violence through courses of study that include related issues of intolerance and hatred in history; (8) the promotion of before- and after-school recreational, instructional, cultural, and artistic programs in supervised community settings; (9) drug abuse resistance education programs, designed to teach students to recognize and resist pressures to use alcohol and other drugs, which may include activities such as classroom instruction by uniformed law enforcement officers, resistance techniques, resistance to peer pressure and gang pressure, and provision for parental involvement; and (10) the evaluation of any of the activities authorized for LEAs. Audit Objective (LEA) To determine if SDFSCA funds were used for authorized LEA activities. Suggested Audit Procedure (LEA)  Select a sample of expenditures and determine whether they were (1) for allowable activities and (2) were properly classified. A-3 Uses of funds by Governor's program Compliance Requirement A Governor may use SDFSCA funds for a broad range of drug and violence prevention programs that may be carried out by parent groups, community action and job training agencies, community-based organizations, and other public and private nonprofit entities and organizations. The list (see below) of authorized activities found in Section 4114(c) does not exclude other activities that may be ----------------------------------------------------------------------------- Page 40 carried out by such organizations, consistent with the purposes of Subpart 1. Specifically included are mentoring, before- and after-school instructional, recreational, cultural, and artistic programs. (Section 4114(c) of the SDFSCA (20 USC 7114(c)) A Governor's grantee or contractor may not use SDFSCA funds for construction, or to provide medical services, drug treatment, or rehabilitation. As stated in Section 4133 of the SDFSCA, pupil services or referral to treatment for students who are victims of or witnesses to crime or who use alcohol, tobacco, or drugs are not included in the prohibition. (Section 4133 of SDFSCA (20 USC 7133)) List of authorized activities found in Section 4114 (c): (1) disseminating information about drug and violence prevention; (2) training parents, law enforcement officials, judicial officials, social service providers, health service providers and community leaders about drug and violence prevention, comprehensive health education, early intervention, pupil services or rehabilitation referral; (3) developing and implementing comprehensive, community-based drug and violence prevention programs that link community resources with schools and integrate services involving education, vocational and job skills training and placement, law enforcement, health, mental health, community service, mentoring, and other appropriate services; (4) planning and implementing drug and violence prevention activities that coordinate the efforts of State agencies with efforts of the State educational agency and its local educational agencies; (5) activities to protect students traveling to and from school; (6) before-and-after school recreational, instructional, cultural, and artistic programs that encourage drug- and violence- free lifestyles; (7) activities that promote the awareness of and sensitivity to alternatives to violence through courses of study that include related issues of intolerance and hatred in history; (8) developing and implementing activities to prevent and reduce violence associated with prejudice and intolerance; (9) coordinating and conducting community-wide violence and safety assessments and surveys; (10) service-learning projects that encourage drug- and violence-free lifestyles; and (11) evaluating programs and activities assisted under Section 4114. ----------------------------------------------------------------------------- Page 41 Audit Objective (Governor's Program) To determine if SDFSCA funds were used for authorized Governor's activities. Suggested Audit Procedure (Governor's Program)  Select a sample of expenditures and determine whether they were (1) for allowable activities and (2) were properly classified. B. Eligibility B-1 Allocation of greatest need funds Compliance Requirement In determining LEAs with the greatest need for additional funds for drug and violence prevention programs, an SEA must have selected objective criteria to assess which LEAs in their State have the greatest need for additional funding. An SEA may distribute the "greatest need" funds to no more than 10 percent of its LEAs (or five LEAs, whichever is greater). Where appropriate and consistent with a State's needs assessment, not less than one-quarter of the "greatest need" funds must be distributed to LEAs in rural and urban areas. Although an SEA may award funds to individual LEAs, consortia of LEAs or educational service agencies, each LEA that receives funds or services from the "greatest need" pool of funds must be counted against the cap on the number of LEAs receiving funds from that pool. For example, if an SEA makes an award of "greatest need" funds to a consortium that will provide services to seven LEAs from the "greatest need" funds received, that award would count against the cap on the number of LEAs receiving funds as seven, not one. If "greatest need" funds are awarded to a consortium or education service agency, only those LEAs in the consortium or served by the education service agency that meet the objective criteria selected by the SEA for receipt of "greatest need" funds may receive services supported with these funds. (Section 4113(d) of SDFSCA (20 USC 7113(d))) Audit Objective (SEA) To determine if the SEA distributed "greatest need" funds to not more than 10% of its LEAs or 5 LEAs, whichever is greater in accordance with its established criteria. Suggested Audit Procedures (SEA)  Calculate the maximum number of LEAs that can receive "greatest need" awards. Review records of grant awards to determine actual number of "greatest need" awards made and compare that number to the established maximum number.  Review records of grant awards to determine whether grantees meet established criteria. ----------------------------------------------------------------------------- Page 42 C. Matching, Level of Effort, and/or Earmarking Requirements The following compliance requirement in the Cross-cutting Provisions is applicable to this program: C-1 Maintenance of effort. Maintenance of effort is not applicable to the Governor's Program. The following compliance requirements in the Cross-cutting Provisions may be applicable to this program: C-4 Consolidation of administrative funds, C-6 Use of unneeded program funds, and C-7 Coordinated services projects. Consolidation of administration funds and use of unneeded program funds are not applicable to the Governor's Program. Coordinated service projects are applicable to the Governor's Program. C-1 State-level programs, administrative costs, initial allocations to LEAs Compliance Requirement An SEA may reserve not more than five percent of its total allocation for State level programs, to be carried out directly, or through grants and contracts. Not more than four percent of an SEA's total allocation may be used for administrative costs. Funds not used for administration or State-level programs must flow to LEAs. (Sections 4113(b)(1) and (c) of SDFSCA) At least 91 percent of an SEA's total allocation must be distributed to its LEAs. Of the 91 percent available for distribution to LEAs, an SEA must distribute 70 percent to LEAs based on their relative share of enrolled students in public and private nonprofit elementary and secondary schools. The remaining 30 percent of funds must be awarded to LEAs with greatest need, as determined by the SEA. Audit Objective (SEA) To determine that the SEA has allocated and distributed SDFSCA funds in accordance with the above requirements. Suggested Audit Procedures (SEA)  Review LEA grant award documents (or other documentation developed by the SEA) to determine if required (91%) total amount was awarded to LEAs, with 70% of the total awarded based on enrollment and 30% based on "greatest need".  Review general ledger or other records that accumulate activity costs for administration and State-level programs to determine whether the amounts recorded did not exceed maximum allowable amounts. Test other program accounts to assure that administrative and State-level program costs were not misclassified. ----------------------------------------------------------------------------- Page 43 C-2 Reallocation of funds to LEAs Compliance Requirement If any LEA does not apply for SDFSCA funds, or if the SEA disapproves an LEA's application for funds, the SEA must reallocate that LEA's funds to one or more of the LEAs that received "greatest need" funds. (Section 4113(e) of SDFSCA (20 USC 7113(e))) Audit Objective (SEA) To determine that SDFSCA funds available for reallocation were reallocated to one or more of the LEAs that received "greatest need" funds. Suggested Audit Procedure (SEA)  Ascertain which LEAs did not apply for SDFSCA funds and which LEA applications for SDFSCA funding were disapproved by the SEA.  Review SEA allocation tables (or other SEA documents) to obtain amounts of funding originally allocated to those LEAs.  Review SEA grant award documents (or other SEA records) and test whether funds originally allocated to LEAs that did not apply for funding or were denied funding were awarded to one or more LEAs that received "greatest need" funds. C-3 Cap on security devices and security personnel Compliance Requirement An LEA may acquire and install metal detectors and hire security personnel as authorized activities under SDFSCA. However, (1) LEAs may not use more than 20 percent of their SDFSCA funds to acquire or install metal detectors, to hire security personnel, or to support "safe zones of passage" for students between home and school; and (2) LEAs may use funding for these purposes only if funding for such activities is not received from other Federal agencies. (Section 4116(c) of SDFSCA (20 USC 7116(c))) Audit Objective (LEA) To determine that the LEA has used SDFSCA funds in accordance with above requirements. Suggested Audit Procedures (LEA)  Review general ledger or other records that accumulate activity costs for the grant to determine whether the amounts recorded did not exceed maximum allowable amounts. ----------------------------------------------------------------------------- Page 44 C-4 Administrative costs and law enforcement education partnerships Compliance Requirement A Governor may use no more than five percent of the total allocation for administrative activities. At least 10 percent of the Governor's funds must be awarded for law enforcement education partnerships. (Section 4114(a)(2) and (3) of SDFSCA (20 USC 7114(a)(2) and (3))) Audit Objectives (Governor's Program) To determine that the Governor has not used more than 5% of the Governor's total allocation for administrative activities and has used at least 10% of the Governor's total allocation for law enforcement education partnerships. Suggested Audit Procedures (Governor's Program)  Examine grant award documents (or other records) and calculate whether amounts awarded for law enforcement-education partnerships total at least 10% of Governor's total allocation.  Review general ledger or other records that accumulate activity costs for the grant to determine whether the amounts recorded did not exceed maximum allowable amounts. D. Special Reporting Requirements The auditor is not expected to test for compliance with special reporting requirements. E. Special Tests and Provisions The following compliance requirements in the Cross-cutting Provisions are applicable to this program: E- 1 Obligation of federal funds and E-3 Participation of private school children. Obligation of federal funds is applicable to the Governor's Program. Participation of private school children is not applicable to the Governor's Program. The following compliance requirement in the Cross-cutting Provisions may be applicable to this program: E-2 Schoolwide programs. Schoolwide programs are not applicable to the Governor's Program. E-1 Carryover of funds by LEAs Compliance Requirement An LEA may retain up to 25% of its fiscal year allocation for obligation in the next Federal fiscal year. If an LEA wishes to retain an amount greater than 25% of its fiscal year allocation for ----------------------------------------------------------------------------- Page 45 use in a succeeding year, it must demonstrate good cause for such a carryover to its SEA, and the SEA must approve the request for additional carryover. (Section 4113(f) of SDFSCA (20 USC 7113(f))) Audit Objective (SEA) To determine if LEA requests include a justification of "good cause." Audit Objective (LEA) To determine that the LEA carried over no more than 25% of its fiscal year allocation unless approved by the SEA. Suggested Audit Procedures (SEA)  Review a sample of approved requests for carryovers in excess of 25% to determine whether the LEA provided a good cause justification. Suggested Audit Procedures (LEA)  Review expenditure records for a sample of LEAs and test whether no more than 25% of the previous fiscal year's allocation amounts were retained for obligation in the succeeding fiscal year, unless the LEA received SEA approval. ----------------------------------------------------------------------------- Page 46 INNOVATIVE EDUCATION PROGRAM STRATEGIES Title VI of ESEA CFDA No. 84.298 I. PROGRAM OBJECTIVES The objectives of Title VI of the Elementary and Secondary Education Act (ESEA) of 1965, as amended by the Improving America's Schools Act of 1994, are to (1) assist local educational reform efforts which are consistent with and support statewide reform efforts under Goals 2000: Educate America Act; (2) support State and local efforts to accomplish the National Education Goals; (3) provide funding to enable State education agencies (SEAs) and local education agencies (LEAs) to implement promising educational reform programs; (4) provide a continuing source of innovation, and educational improvement, including support for library services and instructional and media materials; and (5) meet the special educational needs of at-risk and high cost students. (Title VI, section 6001(b) of ESEA (20 USC 7301(b))) II. PROGRAM PROCEDURES Title VI funds are obtained by a State following submission of an application or consolidated plan to the Secretary of Education that satisfies the application requirements as stipulated in the statute. The SEA distributes at least 85 percent of the funds to its LEAs that have filed an application that meets certain requirements. These funds are distributed to LEAs according to the relative enrollments in public and private, nonprofit schools within the school districts of the LEAs, adjusted to provide higher per pupil allocations to those LEAs with children whose education imposes a higher than average cost per child. The criteria for making these adjustments must be approved by the Secretary of Education. LEAs have complete discretion, subject only to legal requirements, in determining the allocation of expenditures of Title VI funds among the allowable program activities. (Title VI, Sections 6102 and 6303(c) of ESEA (20 USC 7312 and 7353(c))) III. COMPLIANCE REQUIREMENTS, AUDIT OBJECTIVES AND SUGGESTED AUDIT PROCEDURES See discussion of Waivers in Cross-cutting Provisions. A. Types of Services Allowed or Unallowed Part III, Section C of the Cross-cutting Provisions describes options for transferring ESEA program funds to other ESEA programs, to coordinated services projects, and to consolidated administrative funds. ----------------------------------------------------------------------------- Page 47 A-l LEA applications Unless an LEA has a consolidated plan, in order to receive Title VI funds, an LEA must submit an application to the SEA that includes the following information: (1) the amount of funds it intends to allocate among the various Title VI innovative assistance programs, along with a description of the programs, projects and activities it will carry out and its reasons for selecting these programs, projects and activities. (2) the allocation of funds required to provide equitable services to participating private school children. (3) a description of how assistance under Title VI will contribute to meeting the National Education Goals and improving student achievement or improving the quality of education for students. (4) an agreement that the LEA will keep such records and provide such information to the SEA as reasonably may be required for fiscal audit and program evaluation, consistent with the SEA's responsibilities under Title VI. (5) provision, in the allocation of funds, for the systematic consultation with parents of children attending schools within the LEA, with teachers and administrative personnel, and with other groups involved in implementation of Title VI as the LEA considers appropriate. (Title VI, Section 6303(a) of ESEA (20 USC 7353(a)) Audit Objective (SEA) To determine that the SEA distributed funds only to LEAs that submitted applications that included the information and provisions outlined above. Suggested Audit Procedure (SEA)  Review a sample of applications from funded LEAs to determine whether they included the required information and provisions. A-2 Use of funds for innovative assistance programs LEAs must use Title VI funds only for one or more of the innovative assistance program areas described in Section 6301(b). The innovative assistance program areas are: (1) technology related to the implementation of school-based reform programs, including professional development to assist teachers and other school officials regarding how to use effectively such equipment and software; ----------------------------------------------------------------------------- Page 48 (2) programs for the acquisition and use of instructional and educational materials, including library services and materials (including media materials), assessments, reference materials, computer software and hardware for instructional use, and other curricular materials which are tied to high academic standards and which will be used to improve student achievement and which are part of an overall education reform program; (3) promising education reform projects, including effective schools and magnet schools; (4) programs to improve the higher order thinking skills of disadvantaged elementary and secondary school students and to prevent students from dropping out of school; (5) programs to combat illiteracy in the student and adult population, including parent illiteracy; (6) programs to provide for the educational needs of gifted and talented children; (7) school reform activities that are consistent with the Goals 2000: Educate America Act; and (8) school improvement programs or activities under sections 1116 and 1117 of the ESEA. (Title VI, Section 6301(b) of ESEA (20 USC 7351(b))) Audit Objective (LEA) To determine whether program funds were used only for purposes included in the approved application. Suggested Audit Procedure (LEA)  Test on a sample basis expenditure and related records to determine whether LEA used Title VI funds only for purposes included in the approved application. A-3 State uses of funds SEAs may only reserve for State use not more than 15 percent of the Title VI funds allocated to the state and may use these funds as follows: Funds may be used for assistance to LEAs in the form of direct grants, statewide education reform activities, or technical assistance to provide targeted assistance programs. (Title VI, Section 6201(a)(2) of ESEA (20 USC 7331(a)(2))) Not more than 25 percent of the Title VI funds reserved for the State's use in any fiscal year may be used for State administration of Title VI programs. (Title VI, Section 6201(b) of ESEA (20 USC 7331(b))) ----------------------------------------------------------------------------- Page 49 Audit Objective (SEA) To determine that the amount taken for State uses were used for authorized purposes. Suggested Audit Procedures (SEA)  Review and test expenditure records to determine if expenditures were made only for allowable services. B. Eligibility The auditor is not expected to test for compliance with eligibility requirements. C. Matching, Level of Effort, and/or Earmarking Requirements The following compliance requirement in the Cross-cutting Provisions is applicable to this program: C-2 Supplement not supplant. The following compliance requirements in the Cross-cutting Provisions may be applicable to this program: C-4 Consolidation of administrative funds, C-6 Use of unneeded program funds, and C-7 Coordinated services projects. C-1 Maintenance of effort The combined fiscal effort per child or the aggregate expenditures within the State for free public education for the preceding fiscal year must be at least 90 percent of the combined fiscal effort per child or aggregate expenditures for the second preceding fiscal year, unless specifically waived by the Secretary of Education for one fiscal year only. Expenditures to be considered are State and local expenditures for free public education. These expenditures include expenditures for administration, instruction, attendance, health services, pupil transportation, plant operation and maintenance, fixed charges, and net expenditures to cover deficits for food services and student activities. Expenditures not to be considered are any expenditures for community services, capital outlay, or debt service, and any expenditures of Federal funds. (Title VI, Section 6401(a) of ESEA (20 USC 7371(a))) Audit Objective (SEA) To determine whether the SEA's calculation or other data are in accordance with the requirements and supported by the books and records of the SEA. ----------------------------------------------------------------------------- Page 50 Suggested Audit Procedures (SEA)  Review the maintenance of effort calculation to ensure that it (1) showed the required effort was maintained, (2) included only allowable categories of expenditure and (3) the categories were consistent in both years. If the calculation performed by the SEA included unallowable expenditures or was performed improperly, recalculate maintenance of effort.  Trace amounts used in the calculation to the books and records from which audited financial statements were prepared. C-2 Distribution of funds An SEA shall distribute at least 85 percent of the funds to its LEAs, in accordance with the relative enrollments in public and private nonprofit schools which desire that their children participate in Title VI programs within the school districts of LEAs, adjusted by criteria approved by the Secretary of Education to provide higher per-child allocations only to those LEAs having the greatest number or percentage of children whose education imposes a higher than average cost per child. 15% may be reserved for State use. Of the 15% reserved for State use, 25% may be used for State administration of Title VI or transferred to a Consolidated Administration pool. (Title VI, Section 6102(a) of ESEA (20 USC 7312(a))) Audit Objective (SEA) To determine that the above allocation requirements were met. Suggested Audit Procedures (SEA)  Review allocation and disbursement records to determine that at least 85% of the State's award was distributed to LEAs.  Review the allocation of funds to LEAs to determine they were made based on the above criteria.  If the SEA did not transfer funds to a consolidated administration pool, review general ledger or other records where administrative costs are accumulated to assure the total does not exceed the allowable amount.  Scan ledger accounts or other records where other program activity costs are entered to assure that there are not significant (in number or amount) transactions that appear to be for administrative costs that are misclassified. ----------------------------------------------------------------------------- Page 51 D. Special Reporting Requirements The auditor is not expected to test for compliance with special reporting requirements E. Special Tests and Provisions The following compliance requirements in the Cross-cutting Provisions are applicable to this program: E- 1 Obligation of federal funds and E-3 Participation of private school children. The following compliance requirement in the Cross-cutting Provisions may be applicable to this program: E-2 Schoolwide programs. ---------------------------------------------------------------------------- Page 52 BILINGUAL EDUCATION Title VII of ESEA CFDA Nos. 84.288S, 84.290U, and 84.291R I. PROGRAM OBJECTIVES The objectives for the Program Development and Implementation Grants, Comprehensive School Grants, and System wide Improvement Grant programs are as follows: Program Development and Implementation Grants (CFDA # 84.288S) Develop and implement new comprehensive, coherent, and successful bilingual education or special alternative instructional programs for limited English proficient (LEP) students, including programs of early childhood education, kindergarten through twelfth grade education, gifted and talented education, and vocational and applied technology education. (Title VII, Section 7112 of ESEA (20 USC 7422)) Comprehensive School Grants (CFDA # 84.290U) Implement school wide bilingual education programs or special alternative instruction programs for reforming, restructuring, and upgrading all relevant programs and operations, within an individual school, that serve all (or virtually all) children and youth of limited English proficiency in schools with significant concentrations of such children and youth. (Title VII, Section 7114 of ESEA (20 USC 7424)) System wide Improvement Grants (CFDA # 84.291R) Implement district wide bilingual education programs or special alternative instruction programs to improve, reform, and upgrade relevant programs and operations, within an entire local educational agency (LEA), that serve a significant number of children and youth of limited English proficiency in local educational agencies with significant concentrations of such children and youth. (Title VII, Section 7115 of ESEA (20 USC 7425)) II. PROGRAM PROCEDURES Following approval of applications, the Secretary of Education awards grants to the following eligible entities: one or more LEAs; one or more LEAs in collaboration with an institution of higher education, community-based organization, or State educational agency (SEA); and, in some circumstances, a community-based organization that has received approval from an LEA. ----------------------------------------------------------------------------- Page 53 III. COMPLIANCE REQUIREMENTS, AUDIT OBJECTIVES, AND SUGGESTED AUDIT PROCEDURES. See discussion of Waivers in Cross-cutting Provisions. A. Test of Services Allowed or Unallowed Part III, Section C of the Cross-cutting Provisions describes options for transferring ESEA program funds to other ESEA programs, to coordinated services projects, and to consolidated administrative funds. A-1 Program requirements Compliance Requirement A grantee under these programs must do the following in carrying out a grant award in order to provide allowable services: (1) implement the project described in its approved application; and (2) expend the funds in accordance with the terms of the approved budget. (34 CFR 75.234 and 80.22) Audit Objective To determine whether activities and expenditures charged to the grant award meet the terms of the approved application and the approved budget and are supported by appropriate documentation. Suggested Audit Procedures  Review the approved application, grant award and budget to identify the allowable services this discretionary program has received approval to provide.  Perform procedures to determine whether the activities charged to the program were allowable. Such procedures could include inquiry of grantee officials and review of program documentation such as program plans and budgets, course curricula, class schedules and rosters, etc.  Review the general ledger or other records where activity costs are accumulated and, and on a sample basis, perform tests to determine whether specific expenditures were for authorized activities and were properly classified and accumulated into the activity total. B. Eligibility The auditor is not expected to test for compliance with eligibility requirements. ----------------------------------------------------------------------------- Page 54 C. Matching, Level of Effort, and/or Earmarking Requirements The following compliance requirement in the Cross-cutting Provisions is applicable to this program: C-2 Supplement not supplant. Note the additional explanation of the Supplement not supplant requirement for Bilingual in the Cross-cutting Provisions. The following compliance requirement in the Cross-cutting Provisions may be applicable to this program: C-7 Coordinated services projects. D. Special Reporting Requirements The auditor is not expected to test for compliance with special reporting requirements. E. Special Tests and Provisions The following compliance requirements in the Cross-cutting Provisions are applicable to this program: E- 1 Obligation of federal funds and E-3 Participation of private school children. The following compliance requirement in the Cross-cutting Provisions may be applicable to this program: E-2 School wide programs. ----------------------------------------------------------------------------- Page 55 IMPACT AID Title VIII of ESEA CFDA 84.041 I. PROGRAM OBJECTIVES The objective of the Impact Aid Program (IAP) under Title VIII of the Elementary and Secondary Education Act (ESEA) as amended by the Improving America's Schools Act (IASA) is to provide financial assistance to LEAs whose local revenues or enrollments are adversely affected by Federal activities. These activities include the Federal acquisition of real property or children residing on tax-exempt Federal property or residing with a parent employed on tax-exempt Federal property ("federally connected" children). II. PROGRAM PROCEDURES Funds are provided on the basis of statutory criteria and data supplied by LEAs in applications submitted to the Department of Education (ED). ED requests the applicant to forward a complete copy of the application to the SEA at the same time it mails the application to ED. Generally, payments under Section 8003 of the ESEA are based on membership and attendance counts of federally connected children, with additional funds provided for certain federally connected children with disabilities and children residing on Indian lands. Most funds provided under Section 8003 are considered general aid and have no restrictions on their expenditure. Any funds that are provided under Section 8007 to certain LEAs that received Section 8003 payments must be used for construction, as defined in the statute. ED, under the provisions of Section 7 of the predecessor version of the Impact Aid law (Public Law 81-874) 20 U.S.C. 241-1(a) and (b)), and Section 16 of Public law 81-815, received applications for financial assistance submitted by school districts that were located in areas that had been declared disaster areas by the President. In 1991, the program administered under the provisions of Section 7(b) and Section l6 was transferred to the Federal Emergency Management Agency. In 1994, Section 7 and Section l6 were repealed by the Improving America's Schools Act. In 1991, the Impact Aid Program stopped accepting new applications for assistance that had been provided under Section 7(b) or l6 and, effective in 1994, the program no longer accepted new applications for financial assistance under Section 7(a). The program, however, continues to administer any applications for assistance under the provisions of Section 7(a) if the applications were funded prior to 1994, as well as applications for assistance under Section 7(b) or l6 that were funded prior to 1991. ----------------------------------------------------------------------------- Page 56 III. COMPLIANCE REQUIREMENTS, AUDIT OBJECTIVES AND SUGGESTED AUDIT PROCEDURES A. Types of Services Allowed or Unallowed A-1 Allowable costs - Federally connected children with disabilities Compliance Requirement LEAs shall use the payments provided under Section 8003(d) to conduct programs or projects for the free appropriate public education of the Federally connected children with disabilities who generated those funds. Section 8003(d) funds may not be paid to an LEA whose general State aid or specific State aid for federally connected children with disabilities would be reduced as a result of the receipt of these funds. Allowable costs include expenditures reasonably related to the conduct of programs or projects for the free appropriate public education of children with disabilities, including program planning and evaluation and acquisition costs of equipment, except when the title to that equipment would not be held by the LEA. Costs for school construction are not allowable. (Section 8003 and 34 CFR 222.53(c)) Audit Objective (LEA) To determine whether the services or programs provided with Section 8003(d) funds were allowable activities. Suggested Audit Procedures (LEA)  Select a sample of expenditures and determine whether they were (1) for allowable activities and (2) were properly classified. A-2 Allowable costs - Construction Compliance Requirement LEAs that receive payments under Section 8003 and that meet certain other statutory criteria may receive assistance under Section 8007 of the ESEA in any fiscal year that the Congress appropriates funds under that Section. LEAs shall use the payments provided under Section 8007 for construction, as defined in Section 8013(3). Under Section 8013(3), construction means: (1) the preparation of drawings and specifications for school facilities; (2) erecting, building, acquiring, altering, remodeling, repairing, or extending school facilities; (3) inspecting and supervising the construction of school facilities; and (4) debt service for such activities. (Sections 8007 and 8013(3)) ----------------------------------------------------------------------------- Page 57 Audit Objective (LEA) To determine whether the activities funded with Section 8007 funds were allowable. Suggested Audit Procedures (LEA)  Select a sample of expenditures and determine whether they were (1) for allowable activities and (2) were properly classified.  Review the general ledger and other expenditure records to determine if costs were properly included in totals for program expenditures. A-3 Allowable costs -Disaster assistance program Compliance Requirement Assistance under Section 7(a) of the Impact Aid law (20 U.S.C. 241-1(a)(1994) is authorized to enable an LEA located in a Presidentially-declared disaster area to provide a free public education equivalent to that provided prior to the disaster through payments for increased operating expenses and replacement of lost revenues. Such assistance, however, may not be used to provide a level of instruction that exceeds the level provided before the disaster, and may not be used to eliminate from the LEA's budget a deficit balance preceding the disaster nor create for the LEA's budget a carryover balance following the disaster. Assistance under Section 7(a) may be provided for a maximum period of five fiscal years beginning with the Federal fiscal year in which the disaster was declared. ED considers other resources available to the LEA in determining the amount of funding provided, and is authorized to provide only a reasonable amount of financial assistance to cover the eligible costs for damages directly related to the disaster. (20 U.S.C. 241-1(a)(1994)(See 34 CFR 219.41 and 42.)) Audit Objectives To determine whether the financial assistance provided under Section 7(a) was spent on allowable costs. Suggested Audit Procedures  Perform tests on a sample of the expenditures to determine if they were reasonable and necessary to carry out the purposes of Section 7(a) of the program. B. Eligibility The auditor is not expected to test for compliance with eligibility requirements. ----------------------------------------------------------------------------- Page 58 C. Matching, Level of Effort, and / or Earmarking Requirements The following compliance requirement in the Cross-cutting Provisions may be applicable to this program: C-7 Coordinated services projects. C-1 Earmarking Compliance Requirement For each fiscal year, the total amount of expenditures for programs or projects serving federally connected children with disabilities must be at least equal to the amount of Section 8003(d) funds received or credited for that fiscal year. (Section 8003(d) and 34 CFR  222.53(d)) Audit Objective To determine if the amount spent for programs or projects serving federally connected children with disabilities met the minimum statutory requirement. Suggested Audit Procedures  Review the general ledger or other records where activity costs are accumulated to determine whether the total exceeded the minimum required amount.  Perform tests to determine whether specific expenditures were properly classified and accumulated into the activity total. C-2 Supplement not supplant Compliance Requirement Funds provided under Section 8003(d) may not reduce either general State aid or specific State aid for federally connected children with disabilities. Section 8003(d) funds may not supplant any State funds (either general or special education State aid) that were or would have been available to the LEA for the free appropriate public education of children counted under Section 8003(d). A reduction in the per-pupil amount of State aid for children with disabilities, including children counted under Section 8003(d), from that received in the previous year raises a presumption that supplanting has occurred. An LEA can rebut this presumption by demonstrating that the reduction was unrelated to the receipt of Section 8003(d) funds. (Section 8003(d) and 34 CFR  222.54) ----------------------------------------------------------------------------- Page 59 Audit Objective To determine whether the use of the funds for services awarded under Section 8003(d) was supplementary to the services provided with state and local funds. Suggested Audit Procedures  Compare LEA's prior year general State aid per pupil and State aid per pupil for children with disabilities with its current year State aid per pupil in those categories to determine if supplanting occurred.  Review procedures and records as necessary to ensure that the Federal program did not supplant non-Federal funds and that non-Federal spending levels meet or exceed the Federal program requirements. D. Special Reporting Requirements D-1 Section 8003 payments Compliance Requirement To be eligible for funds under Section 8003 (Basic Support program), an LEA's federally connected children counted on a specified survey date must equal at least 400 in average daily attendance (ADA) or three percent of the total number of children in ADA in the LEA. In addition, to be eligible for funds for children described in Sections 8003(a)(1)(F) or (G), an LEA's federally connected children under those Sections (children of civilian parents residing on Federal property or of parents employed on Federal property) must equal or exceed 2,000 and 15 percent of the total number of students in ADA in the LEA. Each applicant LEA submits data on its membership of federally connected children in its annual application. Each child claimed under Section 8003(a)(1)(A) - (C) must, while in attendance in the schools of the LEA, either (1) reside on Federal property and have a parent employed on Federal property within the boundaries of the LEA or have a parent who is a foreign military officer or on active duty in the uniformed services of the U.S. or (2) reside on Indian lands (as defined in Section 8013(7)). Each child claimed under Section 8003(a)(1)(D) - (G) must, while in attendance in the schools of the LEA, (1) have a parent who is on active duty in the uniformed services or who is a foreign military officer, but not reside on Federal property, (2) reside on Federal property, including low-rent housing, and (3) reside with a parent employed on Federal property situated in the same State as the LEA. Only children described in Sections 8003(a)(1)(A)(ii), (a)(1)(B), (a)(1)(C), and (a)(1)(D) (a child with parent who is on active duty in the uniformed services of the U.S. or who is a foreign military officer, or a child residing on Indian lands) who are eligible for services under the Individuals with Disabilities ----------------------------------------------------------------------------- Page 60 Education Act may be counted for the purpose of computing a amount of the payment under Section 8003(d). Additionally, each child must be enrolled in a program that conforms to State standards for children with disabilities and the LEA must have in effect on the survey date a written individualized education program (IEP) for each child who was counted by the LEA for Section 8003(d) payment purposes. Audit Objective (LEA) To determine whether the membership counts for each category included in the LEA's application were supported and materially correct. Suggested Audit Procedures (LEA)  Test documentation supporting the membership counts included in the application and determine whether children claimed as being federally connected met the requirements of the category for which they were claimed. E. Special Tests and Provisions The auditor is not expected to test for compliance with special tests and provisions.