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$60 Million for Chapter 1 Misallocated, Audit Finds

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Washington--An estimated $60 million in federal Chapter 1 money is misallocated among states each year because of pervasive inaccuracies in the data used in calculating the grants, an Education Department audit has concluded.

"Our review of the process used to collect state per-pupil-expenditure data at both the state and [federal] levels revealed deficiencies in every segment of the data-collection process," says the report by the inspector general's office.

"As a result of these deficiencies," it continues, "the Congress and the department do not have reasonable assurance that Chapter 1 funds, as well as those allocated for several other programs, are being correctly allocated."

The crux of the problem, the inspector general says, is that the department lacks adequate authority to ensure the comparability and accuracy of data submitted by state officials. The report includes recommendations for rectifying the situation.

Chapter 1 is the largest federal effort in precollegiate education, comprising six compensatory-education programs. The audit focused on the biggest single program, which funnels grants through states to most of the nation's school districts. Its budget is nearly $4.8 billion for the current fiscal year.

Each state receives a grant based on a count of its eligible disadvantaged children, multiplied by 40 percent of the average per-pupil expenditure in the state. The state then distributes money to districts according to each district's number of eligible children.

If a state overestimates its per-pupil expenditure, it receives too much money, thereby shortchanging other states. In addition, because the law prevents wide disparities between states by setting minimum and maximum allowable per-pupil expenditures based on a national average, miscalculations by some states can further skew allotments nationwide.

The five-state audit focused on Chapter 1, but federal allocations under other education programs, including impact aid and Indian education, are also based partially on per-pupil-expenditure data.

5 States Audited

In studying data from Louisiana, Michigan, Oklahoma, Pennsylvania, and Virginia, the auditors found that errors had resulted in those states' receiving a total of $35.4 million more in Chapter 1 aid in 1985 and 1986 than they should have. Extrapolating from that figure, the auditors arrived at their estimate of an annual misallocation of $60 million.

The probe found inaccuracies in both reported expenditures and attendance figures. Per-pupil expenditures are defined by the Chapter 1 law as total allowable expenditures divided by "average daily attendance'' in a state's schools.

The states covered by the audit--which are not individually identified in the report--claimed some expenditures twice, counted types of expenditures that are excluded by law, and could not account for some expenses included in their reports to the federal government. The auditors also found allowable expenditures that were not counted, but those were vastly outnumbered by overestimates.

In addition, the states used different methods to calculate average daily attendance, resulting in inequities. Two of the states studied used estimates rather than actual counts.

The problem, the report emphasizes, is that federal law and regulations do not specify how data are to be collected.

The Chapter 1 statute says only that average daily attendance "means attendance as determined in accordance with state law," the report notes, and also fails to define most categories of spending that are ineligible for inclusion, such as "capital expenditures."

In addition, the law does not address states' responsibility for submitting correct data or specify sanctions for inaccuracies.

Officials in the office of elementary and secondary education and the National Center for Education Statistics told the auditors that they had no authority to compel states to collect and report data in a particular way or comply with nonregulatory guidance in a department handbook.

Report's Recommendations

The report recommends that the department propose legislation and regulations to give its officials the requisite authority and to clarify ambiguities in the law. It specifically recommends that states be required to report fall enrollment counts.

A department spokesman said last week that officials were "examining" those recommendations and that "no decision has been reached" on seeking their adoption.

NCES officials told the auditors that they had already launched an effort to train state officials in submitting data and to increase the accuracy and comparability of all state-reported statistics.

Recommendations dealing with internal procedures, such as a suggestion that the NCES work more closely with the officials who run Chapter 1 and other programs, are being implemented by internal committees, said Thomas Anfinson, deputy undersecretary for management.

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