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A shortfall of nearly half a million dollars in the Vermont Department of Education's budget stemmed from mismanagement of funds over the past four fiscal years, not illegal activity, an independent audit has concluded.

The report, ordered by the state finance commissioner in March, revealed $476,511 in unaccounted-for funds. For example, the audit found that the department overspent by $235,000 the amount granted by the federal goverment. The department also underrequested reimbursement under the federal Job Training Partnership Act program by $190,000.

Finance Commissioner Douglas Wacek blamed the losses on poor accounting, including inadequate recordkeeping and double-charging different programs for the same administrative costs. He also noted a breakdown in communication between the accounting department and the jobs-program managers as a factor in the losses.

Among the recommendations of the audit were stronger budgetary controls to avoid overspending, formalization of grant processing, improved staff training and supervision, and maintenance of better records.

In a statement released this month, Commissioner of Education Richard P. Mills noted that an internal personnel investigation linked to the missing funds, which was halted during the audit, would be completed early next month.

The Georgia Board of Education has endorsed a major revamping of its "no pass, no play'' rule to allow students with poor grades to participate in after-school activities other than competitive ones.

Under the new rule, students in grades 6 to 12 who do not pass five courses in the most recent grading period can belong to school clubs and other activities that do not include interschool competition.

Students who fail to meet the standard will still be barred from interscholastic athletics.

Critics of the old policy said it was punitive, and state legislators responded this year with a bill that would have repealed the policy except for competitive events. Gov. Zell Miller vetoed that bill, saying the matter should be decided by the state board.

It is unclear where debate-club meets and school-band competitions fall under the policy.

A New York State parent has won a victory in a federal lawsuit filed to challenge state rules governing the selection of hearing officers to settle special-education disputes between school districts and parents.

In his lawsuit against the state education department, Edward Heldman, whose son is disabled, contends that the state's system is illegal because it allows local school boards to choose the officers. He said the officers, who usually are lawyers, may be biased in their deliberations because they may have a financial interest in doing business with the school district.

Mr. Heldman's lawsuit had been thrown out by a federal district judge earlier this year, in part because the judge said the boy's father had not first exhausted the state's administrative system for resolving special-education disputes.

But the U.S. Court of Appeals for the Second Circuit last month ruled that Mr. Heldman could bypass that system because it would be "futile'' for him to continue. The court noted that the state's administrative-level hearing process was bound by the same rules Mr. Heldman was challenging.

The appeals court sent the case back to the district court for further consideration.

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