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Auditor: DPI Errors Will Cost NC $18 Million In Money For Special Education

Taylor Wilcox

State Auditor Beth Wood says North Carolina’s Department of Public Instruction will have to repay $18 million in federal money intended for students with disabilities because of department errors. 

State Auditor Beth Wood
Credit Office of the State Auditor
State Auditor Beth Wood

The audit of DPI's handling of federal grants, released late last week, is written in accounting language, but Wood said it boils down to "DPI is really falling down on the job of making sure that when they pass the money off, that whoever gets it is using it like they’re supposed to."

Wood said North Carolina gets more than $21 billion in federal grants, and every grant comes with rules for how the money can be used. Her department’s job is to make sure those rules are followed in all the agencies that handle the money.

The new DPI report identifies seven problems, known as findings. That’s up from two the year before.

Problems With Oversight

Many had to do with oversight of money DPI passed along to school districts, charter schools and community groups serving students. Sometimes DPI didn’t lay out the rules in a timely manner or failed to check up on how the money was spent.

"You give money. You pass it down to a lower level, and then you don’t go see and follow up that they’re doing what they’re supposed to correctly, then you’ve failed in your job," Wood said.

For instance, DPI was supposed to visit 18 community sites that got 21st Century Community Learning Center grants for tutoring and other services. It actually visited six. The audit says DPI did 33 “desk reviews” of recipients and found what Wood calls "just egregious issues" at 31 of them. There were people signing their own checks, duplicate expense charges and inadequate documentation of payroll charges to the grant.

And after DPI found those problems, the audit found no record that they’d been in touch with the recipients to get things fixed. The report says this happened despite "multiple Office of the State Auditor investigative reports citing the department's inadequate monitoring of 21st CCLC subrecipients over recent years."

DPI also miscalculated North Carolina’s per-pupil spending, which the U.S. Department of Education requires. That happened partly because someone made a keying error and there was no process in place to catch it. The state’s total expenditures were off by $15 million, which Wood said could have reduced future funding.

"I just don’t understand that we’re not doing a better job on something so fundamentally elementary," Wood said.

$18.3 Million Mistake

And then there’s the problem with the special education grant, which Wood described as "really not good."

In 2016 North Carolina got a $348 million federal grant for special education. DPI had until Sept. 30, 2018, to award that money. After that it had 90 days to finish paying out money that was already committed.

But the audit found DPI used that 90 days to make new commitments -- $18.3 million worth. And Wood said that’s not allowable.

"Because they either didn’t understand or they were asleep at the wheel, or they knew it was wrong but did it anyway, they failed to get the obligations before the program date ended," she said.

In years past, Wood said, the Department of Education has sometimes overlooked things like that. But with the COVID-19 crisis placing huge demands on federal funding, she said the only real question is whether the department will demand repayment or reduce a future pool of special education grant money for North Carolina.

"It’s going to be one of those two things," Wood said. "It is not money just laying around that they’re going to get to use."

Superintendent Agrees -- Sort Of

State Superintendent Mark Johnson doesn’t dispute any of the findings. That’s partly because he and the auditors have been reviewing them privately for months.

"When we find this stuff, we sit down with them and say, 'Bring us the evidence that proves us wrong,'" Wood said. That's a backstop to ensure that any erroneous conclusions or misunderstandings don't go public.

Credit Ann Doss Helms / WFAE
Superintendent Mark Johnson in January 2017, shortly after taking office but before he had oversight of DPI.

Johnson does have a more optimistic take on the $18 million error.

He said he wrote to the Department of Education late last month arguing that the COVID-19 crisis has made the money even more essential for North Carolina. The abrupt switch to remote learning put stress on every aspect of the education system, but especially so for students with disabilities, who may not just be able to take home a laptop and jump in.

"This money has not gone back to the federal government and we have been working very closely with the federal government to make sure it can be used to support our students," Johnson said Friday.

Johnson also said the Department of Education has let North Carolina correct its per-pupil spending without penalty.

Wrangling Over DPI

To understand these errors, Johnson said you need to look at timing. The relative power of the superintendent and the state Board of Education, a body appointed by the governor, has been in flux for years. June Atkinson, a Democrat, held the post from 2004 until losing to Johnson, a Republican, in November 2016.

The very next month, the Republican-dominated General Assembly passed a law putting the superintendent in charge of DPI, which currently has more than 600 employees. The Board of Education promptly sued to maintain control.

The Board of Education remained in charge while the case worked its way through court for more than a  year.

"They hired their hand-picked chief financial officer over my objections in 2017," Johnson said.

Johnson said many of the problems -- including the flawed closeout of that special education grant -- happened under the board’s financial team. He eventually prevailed in the lawsuit and put new people in charge of finance and federal grants.

"We are still seeing some problems but we are absolutely making sure they are fixed going forward," Johnson said.

Board Of Education Will Monitor

At Thursday's meeting, the Board of Education approved a statement saying "the board is disappointed by the number of findings and the concerns raised by those findings."

The statement says the board will support DPI in moving forward and will expect progress reports on efforts to fix the flaws. While DPI has “many outstanding employees,” the statement says, "the board has been concerned for some time about the number of vacancies within the department in several key areas of department operation. This has put a genuine strain on the department."

The introduction of the statement highlighted lingering tension between Johnson and the board. About 20 minutes into the teleconference meeting, Davis told members to refresh their electronic agendas to find "some additions to our materials for this meeting."

The board and Johnson had been discussing audit findings in previous closed-session meetings. The audit went public the night before the Board of Education meeting as part of a 319-page summary of all state agencies handling federal money.

Johnson said no one had alerted him about the board's statement and called it "just another sad chapter in this ongoing, unfortunately petty back-and-forth between the state Board of Education and the hardworking staff in the Department of Public Instruction."

Another Change Coming

Come January, overseeing all those federal education grants will be someone else’s responsibility. Johnson didn’t run for reelection -- he tried for the lieutenant governor's job -- so Democrat Jen Mangrum or Republican Catherine Truitt will take over. Both have a background in higher education and will be, in Wood’s words, "brand new to the agency."

Wood and Johnson both say that no matter who wins, they plan to review this audit with the new superintendent to make sure problems like this don’t happen again.

Ann Doss Helms has covered education in the Charlotte area for over 20 years, first at The Charlotte Observer and then at WFAE. Reach her at ahelms@wfae.org or 704-926-3859.