State says city schools misused federal funds

In yet another blow to a city school system trying to recover from serious financial problems, state auditors are asserting that Baltimore schools misused $18.3 million in federal funds between 2001 and this year.

State officials said yesterday that they will have to withhold millions of dollars in federal money in the fall unless the city can negotiate an agreement with the federal government.

School and city officials, describing the action as an unwarranted attack, disputed the findings of the recently completed state audit and called the action "inappropriate."

For a school system already reeling from financial difficulties and trying to close a $58 million deficit, the loss of millions of federal dollars would likely affect the quality of education for many of the city's students.

"We are certainly not out to do anything harmful to the Baltimore City public schools," said Maryland state School Superintendent Nancy S. Grasmick, but she added that she could not ignore the misuse of funds by city schools. "We have a fiduciary responsibility for federal dollars."

Bonnie S. Copeland, the school system's chief executive officer, referred all questions to her staff, who offered a spirited defense of the school system and anger toward the state.

Chief of staff Jeffery N. Grotsky said the system was surprised that the state had not continued discussions over the audit before taking action. "We would like an opportunity to negotiate at the state level," he said.

The system has proof, he said, that at least $7 million of the $18 million was spent correctly.

Baltimore City Solicitor Ralph S. Tyler, who is a former school board member, called Grasmick's actions inappropriate.

"There was no requirement to withhold or threaten the withholding of funds," he said. "She had the choice to allow the process to proceed ... then to impose a sanction if one is needed, rather than have the execution before the trial."

Tyler said the state may not have the legal authority to withhold the federal funds, and he considers its action a way to sabotage the city's efforts to help the school system regain its financial footing. Last March, the city lent the schools $43 million to avert insolvency.

Inadequate controls

The audit, completed in the past few weeks, found that Baltimore had spent its Title I funds - federal money designated for poor children - on children in schools that were not considered needy. Ninety-seven of Baltimore's 184 schools are designated Title I schools.

While the state found no evidence of fraud, Grasmick said, it was clear that city school officials did not make an effort to completely understand the rules governing the grants and that internal controls over the spending were inadequate.

Grasmick said she hoped that Copeland would soon ask for negotiations with the state and the U.S. Department of Education to resolve the issue.

Federal officials could decide to forgive misuse of funds, without requiring repayment, she said. Or they can ask the city and state to find ways to give poor students extras instead of paying back the money directly.

A school is designated for Title I money if it has a high percentage of students who are poor enough to qualify for reduced price or free school lunches. This year, Baltimore was expected to receive $23 million in federal funds under the program. The U.S. Department of Education hands out the money to state governments to administer, including monitoring of expenditures.

Violations alleged

The school system, state officials said, did not follow the regulations that govern where and how the money can be used.

For instance, the state audit found:

  • Some teachers in non-Title I schools were paid with federal funds designated for schools with needy students.

  • Some North Avenue administrative costs were improperly billed to federal funds.

  • A department that set up programs to get parents more involved in schools was paid for with the federal funds, a violation of the rules.

  • The school system used federal funds to pay for the normal staffing costs of running its schools. For instance, if a school system decides that its student teacher ratio in the first grade will be 20 to 1 in all schools, the system cannot use Title I money to maintain that ratio.

    It can, however, use the money to hire additional teachers in schools with high numbers of poor children to lower the class size. In effect, the federal money is being used to give poor children a boost beyond what others have.

    The state said it also found a small amount of money designated for special education - about $90,000 - that it believes was misspent.

    The state launched a comprehensive audit of the use of federal funds after an auditing firm, hired by the school system last fall, found evidence that money may not have been properly used.

    Grasmick said the city schools failed last January to turn in an annual accounting of how it intended to spend some of the federal money, and finally submitted it in May after many requests from the state.

    "We had very clear signals that things had gone awry," said Grasmick. "We are not helping them if we allow this kind of disregard for the rules."

    In part, Grasmick said, the problem in recent years came from a move by a former administrator to centralize the decisions about how to use the money rather than letting principals at Title I schools decide how the money could best be spent to improve education at the school.

    Some of the money was misspent, paying for academic coaches in non-Title I schools, according to the audit.

    Training sessions

    Grasmick said city school staff rarely showed up at training sessions open to all school systems to better understand the rules about federal spending, an assertion that was denied by the city's chief financial officer, Rose Piedmont, who started last fall just after school leadership began changing with the arrival of Copeland.

    "My grant staff goes to those meetings religiously," she said.

    The school board's vice chairman, Brian Morris, said that the school system has made great progress recently in trying to turn around financially and that the move by the state was a blow.

    "During a period where there is a successful financial recovery, the state is choosing the most draconian measure in front of them," he said.

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