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Audit faults use of grants in Philadelphia

| Friday, Jan. 22, 2010

PHILADELPHIA -- The former chief executive of the Philadelphia School District Thursday disputed an audit that challenged how the district spent $140 million in federal grants under his watch.

The audit contends the district failed to follow federal rules in spending the grants in 2005 and 2006. It calls for the district to repay about $17.7 million to the Department of Education and provide "adequate documentation" to justify an additional $121 million.

"Nowhere in the report does it suggest officials engaged in the misappropriation of federal funds during the audit period," Paul Vallas said Thursday.

Vallas, now schools superintendent in New Orleans, said the federal government had been encouraging schools "to use grant money in more flexible ways."

During his tenure, Philadelphia test scores soared, and the district had one of the greatest increases in graduation rates in the nation, he said.

"It happened because the dollars were used creatively to fund programs that were having the greatest impact," Vallas said.

During the audited period, the district received $245 million in federal aid toward its $1.9 billion budget.

The audit, among other things, alleges that the district improperly used federal aid to pay for salaries and programs that should have been covered by local and state money. It also cites the district for failing to show what work some employees performed and inadequately explaining how some of the money had been used to pay for food, training materials, equipment and class trips.

Vallas said the district had documented the spending of the federal money in ways that were often more reliable than the government required.

"This is not about the district not spending the money on the right things. These preliminary findings reflect a difference of opinion on what constitutes proper documentation," he said. "It's not about fraud."

The district has 30 days to respond to the report. The Department of Education will determine whether the district must repay any of the money, said Mary Mitchelson, the federal agency's acting inspector general.

The findings were "similar to what we have found in some other districts," she said. Officials would not say why they had chosen to audit Philadelphia, which was last audited in the late 1980s.

State Education Secretary Gerald L. Zahorchak said his department had only just begun to review the audit report.

"It seems to me that the intentions of the district were always good in directing funds towards programs and professional development that would improve student achievement," Zahorchak said.

He said the state would provide technical assistance to the district as the audit process continues.

"We think there are differences between the district and the federal government that can be worked out that will reduce the amount in question," Zahorchak said.

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