Audit 397188

2025-001 Direct Payments to Private School (Material Weakness) Federal Agency: U.S. Department of Education Pass-through Agency: New Hampshire Department of Education Cluster/Program: Title I Grants to Local Educational Agencies Assistance Listing Number: 84.010 Passed-through Identification: 20250648 Compliance Requirement: Activities Allowed/Unallowed & Allowable Costs/Cost Principles Type of Finding: Internal Control over Compliance Material Noncompliance Criteria or Specific Requirement: Pursuant to Section 1117(d)(1) of the Elementary and Secondary Education Act, the local educational agency (LEA) is required to maintain control over all Title I funds, materials, equipment, and property. Title I funds must be used to provide equitable services to eligible private school students, teachers, and families through the LEA or a third-party contractor. Under no circumstances may Title I funds be paid directly to a private school. Additionally, the U.S. Department of Education has issued Title I Equitable Services Non-Regulatory Guidance, which further clarifies these requirements. Specifically, Question C-37 states that private school officials are not authorized to obligate or receive Title I funds. This prohibition includes reimbursement arrangements, whereby a private school incurs costs and subsequently seeks reimbursement from the LEA, as this would result in the private school effectively receiving and controlling Title I funds. Condition: During our testing of vendor disbursements, we identified two instances in which payments were made directly to a private school. Based on inquiry and supporting documentation, these payments were processed as reimbursements for expenditures incurred by the private school for tutoring. This practice results in the private school receiving Title I funds directly, which is not in accordance with federal requirements. Cause: The cause of this issue appears to be a lack of adequate internal controls and oversight surrounding the administration of equitable services for private school participants. Specifically, the School District did not have sufficient procedures in place, or did not effectively implement existing procedures, to prevent reimbursement-based payment arrangements with the private school. In addition, there may be a lack of understanding among personnel regarding federal requirements prohibiting private schools from obligating or receiving Title I funds. Effect: Payments made directly to private schools, including through reimbursement arrangements, are not in compliance with Title I requirements and increase the risk that federal funds may be used for unallowable activities or purposes not aligned with program objectives. Additionally, such practices reduce the School District’s ability to demonstrate proper stewardship and control over federal funds, potentially resulting in questioned costs, repayment obligations, and increased scrutiny from oversight agencies. Questioned Costs: $11,670 Identification as Repeat Finding: This is not a repeat finding. Recommendation: We recommend that the School District strengthen internal controls over the administration of Title I equitable services to ensure compliance with federal requirements. Specifically, the School District should establish and enforce procedures to ensure that all Title I services for private school participants are provided either directly by the School District or through approved third-party vendors under the control of the School District. Reimbursement arrangements with private schools should be explicitly prohibited. Additionally, the School District should provide targeted training to program and finance personnel on Title I equitable services requirements, including the prohibition on private schools obligating or receiving funds. A formal review process should be implemented to ensure that all disbursements related to private school services are reviewed for compliance prior to payment. Ongoing monitoring procedures should also be established to ensure continued adherence to applicable federal guidance. Views of Responsible Officials: Management’s views and corrective action plan are included at the end of this report.