Audit finds state OPI should shore up internal controls, suffered from high turnover

OPI: Agency is implementing recommendations, making progress

By: - June 28, 2022 1:30 pm

OPI given 13 recommendations in Legislative Audit Division report. (Provided by Oleksandr Pidvalnyi via Pexels.com for the Daily Montanan)

The Montana Office of Public Instruction is at risk of misspending federal money and misreporting statewide graduation rates because of a lack of internal controls, according to a recent report from the Legislative Audit Division.

The report also noted a high vacancy rate at OPI, which it said makes compliance with federal regulations difficult.

The audit identified 13 findings from a review of the two fiscal years that ended June 30, 2021, and OPI agreed with all but one recommendation, the report said. (OPI argued it does not have to strengthen controls over cash management given it identified the issue the audit raised through a separate process and corrected it.)

In a written response to the audit, Superintendent of Public Instruction Elsie Arntzen said OPI already has partially implemented nine recommendations related to federal compliance, has fully implemented one, and is generally making progress.

“The Office is working and will continue to enhance internal controls for all programs,” Arntzen said in the letter about the audit. “Enhancement of internal controls includes assessment of current internal controls, documentation of program activities, and new or continued trainings for current and existing staff.”

The Legislative Audit Committee takes up the report at a meeting Wednesday.

The review noted OPI received a total of $184.2 million and $239.3 million in fiscal years 2020 and 2021, respectively, and the audit tested a portion of those awards, which include money for child nutrition, special education, learning centers, and other programs.

Among the findings, the audit identified $460,154 in questioned costs related to federal Elementary and Secondary School Emergency Relief, or ESSER funds, and it said auditors believe other questioned costs may exist. It also noted at least $1.5 million of unreported grants to schools.

However, the report also said the period auditors reviewed posed challenges for state government in general, and OPI in particular has a heavy lift. For example, it oversaw more than $1 billion in transfers to local education agencies, or school districts, in the 2020 and 2021 fiscal years.

“The audit period was a difficult one for all state agencies, OPI included,” the report said. “March 2020 started the COVID-19 pandemic, and OPI employees had to adjust their processes to work from home.”

Additionally, OPI in particular had to manage the newly created ESSER program, which provides emergency funds for schools. The audit noted ESSER regulations changed during the audit, and OPI prioritized getting money in the hands of schools.

In the same period, OPI had turnover in roughly half of its positions, which the audit said played a role in the findings. It counted 89 positions out of 183 that were vacant or experienced turnover, including 19 that were open for more than one year during the audit period.

“The superintendent stated some vacancies were intentional, but we believe having less employees makes it more difficult to comply with internal control requirements,” the report said. “During the audit, we worked with several individuals new to their positions or responsibilities.”

Hiring has posed challenges across industries. Elsewhere in state government, the Department of Corrections is addressing a 30 percent vacancy rate at the Montana State Prison and changing policies to address the staff shortages.

The review of OPI generally covered state aid and federal funding distributed to school districts and controls and compliance with state laws and federal regulations.

The report indicated the Legislative Audit Division struggled to obtain information from OPI to complete its review. In some cases, the report said staff were reluctant to answer questions because they worried about the consequences of an audit or were confused about who should respond.

“If staff did not know how to answer our questions, they would often just not respond to our requests for information, leading us to ask the same questions multiple times,” the report said. “We believe OPI needs to provide control training to their staff to explain the importance of internal controls, including risk assessment, documentation, and monitoring.”

In response, OPI noted it already has started to educate staff on the importance of internal controls, and it also said it plans to incorporate internal control training as part of its onboarding. 

Here are examples of three issues and recommendations raised in the audit:

Compliance with federal regulations

“We found material noncompliance and material weakness in internal controls in all federal programs selected for testing this audit (Title I, Child Nutrition, IDEA, and the ESSER) for fiscal years 2020 and 2021,” the audit said. “The volume of recommendations combined with difficulties we experienced getting timely information during the audit led us to consider OPI’s overall internal control structure.”

The audit recommended OPI complete internal risk assessments, document processes, and monitor internal controls.

“Having clearly documented internal controls can mitigate some of the effects of turnover and working virtually,” the report said.

OPI agreed with the finding.

“OPI will work to enhance its internal control risk assessment, which will include a more detailed assessment of risk at the revenue and expenditure level, include considerations related to non-compliance with federal regulations, and implementation of a monitoring plan to test controls throughout the fiscal year,” the department responded.

Earmarking

The report also noted the federal government grants approximately $50 million to OPI each year, and OPI is required to grant most of the funds to help schools.

OPI can spend a portion of the money on administrative activities, but the audit recommended shoring up controls.

“OPI does not monitor the amounts they spend on administration as compared to school improvement activities, so cannot demonstrate compliance with federal earmarking regulations,” the audit said. 

The review found unsupported costs, and it said additional questioned costs might exist since auditors did not review all expenditures.

“Without proper controls, OPI is at risk of spending money allocated for school improvement on administration,” the report said. 

OPI again concurred and wrote that it has implemented a new accounting structure that clearly delineates administrative activities versus other spending. It also said it has an opportunity to correct earlier errors.

Because of COVID-19, the Department of Education approved a waiver that extends the period of time the funds can be spent, OPI said.

“OPI will utilize the extended period to make applicable adjustments to program activity to ensure compliance with federal requirements,” OPI said.

Graduation rate policies and procedures

“Student graduation from high school is a meaningful way the federal government monitors a school’s success, supporting Title I’s purpose of providing all children with a quality education,” the report said.

It also said federal regulations require local education agencies, or LEAs, to report their graduation rates.

But OPI’s policy around certifying graduates and dropouts doesn’t include a requirement that school districts maintain documentation to confirm a student removal took place appropriately, the audit said. It said OPI also doesn’t monitor related compliance.

“Without the required policies and procedures, OPI is not compliant with federal regulations related to the Title I program,” the audit said. “If LEAs do not know the requirements for removing a student from a cohort, they may provide OPI with an inaccurate graduation rate, which makes the state’s overall graduation rate inaccurate.

“Parents, students, and legislators may also be interested in the state’s graduation rate.”

OPI said it will enhance its guidance to schools to ensure they are adequately informed of graduation rate policies and procedures, and it also will implement a plan to ensure compliance as needed.

The report is on the agenda 10 a.m. Wednesday, June 29, with the Legislative Audit Committee.

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Keila Szpaller
Keila Szpaller

Keila Szpaller is deputy editor of the Daily Montanan and covers education. In Montana since 1998, she loves hiking in Glacier National Park, wandering the grounds of the Archie Bray and sitting on her front porch with friends. Before joining States Newsroom Montana, she served as city editor of the Missoulian, the largest news outlet in western Montana. She worked there from 2006 to 2020. As a Missoulian reporter, she was named a co-fellow by the Education Writers Association to report on a series about economic mobility; grantee of the Society of Environmental Journalists for a project on conservation from the U.S. to Africa; and Kiplinger Fellow in Digital Media and Public Affairs Journalism. She previously worked at the Great Falls Tribune and Missoula Independent, and she earned her master’s in journalism from the University of Montana. She lives in Missoula with her husband, Brock, who is also her favorite chef, and her pup, Henry, who is her favorite adventure companion. She believes she deserves to wear the T-shirt with this saying: “World’s most mediocre runner.”

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