Compliance Agreement, 60202-60219 [E7-20847]

Agencies

• DEPARTMENT OF EDUCATION

[Federal Register Volume 72, Number 204 (Tuesday, October 23, 2007)]
[Notices]
[Pages 60202-60219]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-20847]



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Part VI





Department of Education





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Compliance Agreement; Notice

Federal Register / Vol. 72, No. 204 / Tuesday, October 23, 2007 / 
Notices

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DEPARTMENT OF EDUCATION


Compliance Agreement

AGENCY: Department of Education.

ACTION: Notice of written findings, compliance agreement with the 
Virgin Islands, and subsequent actions.

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SUMMARY: This notice is being published in the Federal Register 
consistent with sections 457(b)(2) and (d) of the General Education 
Provisions Act (GEPA). Section 457 of GEPA authorizes the U.S. 
Department of Education (the Department) to enter into a compliance 
agreement with a recipient that is failing to comply substantially with 
Federal program requirements and for whom the Department determines 
that full compliance is not feasible until a future date. Section 
457(b)(2) requires the Department to publish written findings leading 
to a compliance agreement, with a copy of the compliance agreement, in 
the Federal Register. If a recipient fails to comply with the terms and 
conditions of a compliance agreement, the Secretary may take any action 
authorized by law with respect to the recipient.
    On September 23, 2002, the Department entered into a compliance 
agreement (Agreement) with the U.S. Virgin Islands (VI) because the 
Department determined from all available information that the VI would 
not be able to come into full compliance with applicable Federal 
regulations for the administration of Department programs until a 
future date. Notwithstanding the Agreement, and intensive and frequent 
technical assistance by the Department, when the term of the Agreement 
ended on September 23, 2005, the VI was substantially in non-compliance 
with Federal requirements. Therefore, the Department has imposed 
special conditions and has taken a number of other important measures 
in its continuing effort to bring the VI into full compliance with all 
Federal requirements pertaining to the administration of Department 
programs. Most notably, the special conditions currently in effect 
require the VI to procure, and maintain, the services of a third-party 
fiduciary agent to perform the financial management duties required 
under Federal regulations for all Department grants, which the VI 
accomplished beginning in August 2006.

FOR FURTHER INFORMATION CONTACT: Mr. Phil Maestri, U.S. Department of 
Education, Office of the Secretary, 400 Maryland Avenue, SW., room 
7E206, Washington, DC 20202-6132. Telephone: (202) 205-3511.
    If you use a telecommunications device for the deaf (TDD), you may 
call the Federal Relay Service (FRS) at 1-800-877-8339.
    Individuals with disabilities may obtain this document in an 
alternative format (e.g., Braille, large print, audiotape, or computer 
diskette) on request to the contact person listed under FOR FURTHER 
INFORMATION CONTACT.

SUPPLEMENTARY INFORMATION: The VI is an insular area that is authorized 
under 48 U.S.C. 1469a to consolidate formula grant funds allocated to 
it under various Federal education programs and use those funds for the 
purposes of one or more programs included in the consolidated grant. 
See also 34 CFR 76.125-76.137. Under that authority, the Virgin Islands 
Department of Education (VIDE) has historically consolidated formula 
grant funds allocated to it under the Elementary and Secondary 
Education Act of 1965, as amended (ESEA), the Carl D. Perkins Career 
and Technical Education Act of 2006 (CTE) (formerly the Carl D. Perkins 
Vocational and Technical Education Act), and the Adult Education and 
Family Literacy Act (Adult Education) and used those funds to implement 
three programs: Title V, Part A (formerly Title VI) of the ESEA, CTE, 
and Adult Education. The VIDE also receives additional funding under 
the authority of a number of other Department programs. Additionally, 
VIDE and the Virgin Islands Department of Health (VIDH) carry out 
programs under Parts B and C of the Individuals with Disabilities 
Education Act (IDEA); IDEA funds are not subject to the consolidation 
authority under 48 U.S.C. 1469a and 34 CFR 76.125-76.137. VIDH's IDEA 
Part C grant funds for fiscal years 2002 through 2007 are subject to 
special conditions to ensure fiscal accountability. Finally, the Virgin 
Islands Department of Human Services (VIDHS) also receives Department 
funds.
    Because of longstanding and recurring findings of fiscal and 
programmatic accountability deficiencies in the administration of 
Department programs by the VI and several of its departments (as 
discussed in detail in the following paragraphs), the Department has 
imposed special conditions, on a Department-wide basis, on all 
Department grants awarded to the VI. These Department-wide special 
conditions are different from the fiscal special conditions imposed 
separately on the IDEA Part C grant and from the programmatic special 
conditions imposed separately by various Department program offices 
upon individual grant awards. The need for these Department-wide 
special conditions stems from the VI's failure to meet the terms of the 
Agreement, which was executed on September 23, 2002, and expired on 
September 23, 2005, with the VI still in substantial non-compliance.
    The Department entered into the Agreement in 2002 because it had 
found serious and recurring fiscal and programmatic accountability 
deficiencies in the administration of Department programs by the VI, 
VIDE, and other agencies of the government of the VI dating back 
several years. Specifically, the Department had found deficiencies in 
key aspects of the VI's procurement process; program planning and 
implementation; and financial and property management, including, but 
not limited to, the VI's lack of appropriate record keeping to account 
for the use of Federal funds and its failure to obligate and draw down 
funds and liquidate obligations on a timely basis. The VI also had 
failed to submit timely and sufficient audits. As a result of these 
major problems, in September 1999, the Department designated the VI as 
a ``high-risk grantee'' under 34 CFR 80.12(a) and, consistent with that 
designation, imposed special conditions on a number of grant awards to 
the VI and its agencies. But, even after the imposition of these 
special conditions, the VI continued to have significant problems in 
administering Department grant programs, resulting in continued 
noncompliance with various programmatic and fiscal requirements 
applicable to those programs.
    In May 2001, officials from the Department met with VI officials to 
discuss the continuing deficiencies in the administration and 
implementation by the VI of the Department's programs. The parties 
reached an agreement on the wide-scale and significant corrective 
actions that the VI would have to make in order for the Department to 
continue to provide funds to VI agencies. It was at this time that the 
Department suggested that the VI and the Department enter into a 
compliance agreement, pursuant to section 454 of GEPA, to apply to all 
Department grants awarded to the VI. The purpose of the compliance 
agreement would be to bring the VI ``into full compliance with the 
applicable requirements of the law as soon as feasible and not to 
excuse or remedy past violations of such requirements.'' \1\ 20 U.S.C. 
1234f(a). In

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order to enter into a compliance agreement with the VI, the Department 
had to determine, in written findings, that the VI would not be able to 
comply until a future date with the applicable program requirements and 
that a compliance agreement would be a viable means for bringing about 
such compliance.
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    \1\ Section 454 of GEPA, 20 U.S.C. 1234c, sets out the remedies 
available to the Department when it determines that a recipient ``is 
failing to comply substantially with any requirement of law 
applicable'' to the Federal program funds administered by this 
agency. Specifically, the Department is authorized to--
    (1) Withhold funds;
    (2) Obtain compliance through a cease and desist order;
    (3) Enter into a compliance agreement with the recipient; or
    (4) Take any other action authorized by law.
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    In accordance with the requirements of section 457(b) of GEPA, 20 
U.S.C 1234f(b), Department officials conducted public hearings in the 
VI in February 2002. Witnesses representing VIDE, students and parents, 
and other concerned organizations and individuals testified at these 
hearings on the question of whether the Department should grant VIDE's 
request to enter into a compliance agreement. The Department reviewed 
this testimony and all other relevant materials and concluded that, 
while the Department had been working closely with VIDE and with other 
VI agencies to address the major issues that the VI had been facing in 
administering Department grant programs, it was clear that the problems 
could not be corrected by the VI immediately and that the VI would need 
more than one year to correct them. Therefore, in order to remedy that 
condition, the Department and the VI entered into the Agreement, a 
comprehensive compliance agreement with a three-year term. The purpose 
of the Agreement, which incorporated the Department's written findings, 
was to allow the VI to develop integrated and systemic solutions to 
problems in managing its Department funds and programs. Under the terms 
of the Agreement, by the end of the three-year term, the VI was 
supposed to be in full compliance with the requirements of all programs 
funded by the Department. The Agreement became effective on September 
23, 2002.
    In November 2003, officials from the Department conducted a site 
visit to provide intensive technical assistance and review the VI's 
progress during the first year of the Agreement. While VIDE had made 
significant progress in some issue areas identified in the Agreement, 
the VI had not made progress in many key areas, particularly that of 
financial management, which significantly affected its ability to 
manage Department funds and administer Department programs. The 
Department continued to monitor the VI's compliance with the terms of 
the Agreement and provided frequent, intensive technical assistance to 
the VI during the course of its three-year term. In March 2005, the 
Department notified the VI of its concerns regarding the VI's limited 
progress in meeting the goals of the Agreement. The Department required 
the VI to demonstrate why the Department should not begin to take 
immediate remedial action under the terms of the Agreement. After 
considering the VI's response, the Department concluded that the VI had 
failed to meet on a timely basis key terms and conditions of the 
Agreement that are critical to successful compliance with applicable 
requirements and that the VI would not be able to meet all of the terms 
and conditions of the Agreement by its expiration on September 23, 
2005. In particular, the Department noted that there was a significant 
lack of progress on the part of the VI in developing and implementing a 
credible central financial management system--the cornerstone of the 
VI's financial management improvements that are critical to its ability 
to manage Department funds consistent with applicable Federal 
regulations concerning fiscal accountability and funds management.
    Therefore, in accordance with section II.A. of the Agreement, and 
section 457(d) of GEPA, the Department imposed special conditions on 
grant awards to the VI, including a requirement that the VI procure, 
and maintain, the services of a third-party fiduciary agent, acceptable 
to the Department, to perform the financial management duties required 
under Federal regulations for all Department grant awards made to the 
VI. The VI subsequently published a Request for Proposal and selected a 
third-party fiduciary agent acceptable to the Department. The 
Department is currently monitoring the work of this third-party 
fiduciary agent and the VI's compliance with these special conditions 
and continues to provide technical assistance and oversight in a 
continuing effort to bring the VI into full compliance with applicable 
Federal regulations.
    As required by section 457(b)(2) of GEPA, 20 U.S.C. 1234f(b)(2), 
the Agreement (which incorporates the Department's written findings in 
the section entitled ``Overview of Issues'', and in each ``Issue 
Description'' section of the Agreement) is included as appendix A of 
this notice.

Electronic Access to This Document

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nara/.


    Authority: 20 U.S.C. 1234c, 1234f.

    Dated: October 18, 2007.
Hudson La Force III,
Senior Counselor to the Secretary of Education.

Appendix A--Compliance Agreement Between The U.S. Virgin Islands and 
the U.S. Department of Education

September 23, 2002.

U.S. Virgin Islands Compliance Agreement

I. Overview of Issues
II. Consequences for Not Meeting the Terms and Conditions of the 
Agreement
    A. Mutual Agreements and Understandings Regarding the Terms, 
Conditions and Enforcement of This Compliance Agreement
    Severability
    Additional Terms and Conditions Under 34 CFR Sec.  80.12
    Judicial Enforcement
    1. Cease and Desist Order Under 20 U.S.C. Sec. Sec.  1234c(a)(2) 
and 1234e
    2. Referral to Department of Justice for Appropriate 
Enforcement--20 U.S.C. Sec.  1416
    Withholding of Grant Funds--20 U.S.C. Sec. Sec.  1234c(a)(1), 
1234d and Sec.  1416
    Escrow Account to Fund Third-Party
    Recovery of Funds--20 U.S.C. Sec.  1234a
    B. Criteria for Determining Consequences
III. Reporting Requirements
IV. Updated Plans, Action Steps, and Timelines From December 2001 
Meeting
V. Issues
    Issue 1.0: Program Planning, Design, and Evaluation
    Issue Description
    Identification of Long-Term Goals
    Assessment of Current Status of Programs in Terms of Goals
    Identification of Educational Program Needs To Meet Goals

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    Development of Program Design and State Plans or Applications 
That Address Identified Needs
    Sub-Issue 1.1: Separation of State and Local Educational 
Agencies
    Sub-Issue Description
    Performance Measures for Issue 1.0 and 1.1
    Action Steps Required
    Issue 2.0: Financial Management
    Issue Description
    Sub-Issue 2.1: Credible Financial Management System
    Sub-Issue Description
    Performance Measures for Issue 2.0 and 2.1
    Action Steps Required
    Sub-Issue 2.2: Indirect Costs
    Sub-Issue Description
    Performance Measures for Issue 2.2
    Action Steps Required
    Sub-Issue 2.3: Obligation of Funds/Disbursement of Obligation
    Sub-Issue Description
    Performance Measures for Issue 2.3
    Action Steps Required
    Issue 3.0: Human Capital
    Issue Description
    Sub-Issue 3.1: Recruiting and Hiring
    Sub-Issue Description
    Performance Measures for Issue 3.0 and 3.1
    Action Steps Required
    Sub-Issue 3.2: Inadequate Time Accounting and Supplanting
    Sub-Issue Description
    Performance Measures for Issue 3.2
    Action Steps Required
    Issue 4.0: Property Management and Procurement
    Issue Description
    Sub-Issue 4.1: Property Management
    Sub-Issue Description
    Performance Measures for Issue 4.0 and 4.1
    Action Steps Required
    Sub-Issue 4.2: Competitive Procurement (Improved Process)
    Sub-Issue Description
    Performance Measures for Issue 4.2
    Action Steps Required

I. Overview of Issues

    As a result of serious and recurring deficiencies in the 
administration of various Federally funded programs by the government 
of the U.S. Virgin Islands (VI), the U.S. Department of Education (the 
Department) has designated VI a ``high-risk grantee'' under 34 CFR 
Sec.  80.12. The Department has been working closely with the Virgin 
Islands Department of Education (VIDE) and with other Virgin Islands 
agencies in recent months to address these major issues, but it is 
clear that the problems cannot be corrected by the Virgin Islands 
immediately, and that the Virgin Islands will need more than one year 
to correct them. Therefore, in order to remedy this condition, the 
Department has consented to enter into this comprehensive, three-year 
compliance agreement with VI.
    Through this Compliance Agreement, the VI, with assistance from the 
Department, agrees to develop integrated and systemic solutions to 
problems in managing Federal education funds and programs. The issues 
are being carefully examined and addressed from the perspective of 
every VI agency and local entity with management responsibility for 
resources or programs that have an impact on education. Solutions may 
involve re-engineering systems and processes or implementing 
technology. In addition, solutions must address communication and 
cooperation among VI Departments, and developing a culture of ``getting 
the work done right.'' Whatever the solutions the VI chooses to 
implement, they must ensure the best educational systems possible for 
the people of the Virgin Islands. It is also understood that by the end 
of the term of this Agreement, VI must be in full compliance with the 
requirements of all programs funded by the Department.
    The Compliance Agreement is also intended to ensure an effective 
planning and evaluation process throughout VI programs and initiatives. 
Planning and evaluation processes are the basis for determining program 
goals, current status, improvement needs, budgets, resources, 
effectiveness of results, and other important aspects of effective 
program management. Through this Agreement, the VI will improve its 
program planning and evaluation for education programs and use the 
plans and evaluation results to drive management and resource 
decisions.
    This Compliance Agreement addresses four areas of crosscutting 
issues: (1) Program Planning, Design and Evaluation, (2) Financial 
Management, (3) Human Capital, and (4) Property Management and 
Procurement. The issues are presented as crosscutting because of the 
impact of other VI agencies on VIDE. Thus, it is critical that these 
issues be addressed not just in VIDE but across virtually the entire 
Virgin Islands government. In addition, the issues cannot be addressed 
in a piecemeal fashion and they must encompass an effective planning 
and evaluation process.
    The Compliance Agreement lists specific action items for each 
crosscutting issue. However, the Department will not determine the VI's 
progress in meeting the terms of the Agreement only by assessing 
completion of listed action steps. Rather, the Department will judge 
progress by the systemic approaches and degree of integration that the 
VI brings in designing and implementing solutions to complex problems 
in each of the crosscutting areas, and by the demonstrated 
communication, cooperation, and organizational culture change toward 
``getting the work done right.'' These approaches should include 
effective planning and evaluation of resource and management decisions 
that are designed to produce better educational results.
    In making the critical systemic and organizational culture changes 
required to meet the terms of the Compliance Agreement, it is important 
to understand that the Agreement is not designed to benefit the 
Department, VIDE, or the Virgin Islands government. All of the 
requirements of the Compliance Agreement are directed toward one end: 
improving education for the students of the Virgin Islands. In the end, 
the Department and the VI will judge success by determining how well 
the VI has improved educational programs and met the terms of the 
Compliance Agreement.

II. Consequences for Not Meeting the Terms and Conditions of the 
Agreement

A. Mutual Agreements and Understandings Regarding the Terms, Conditions 
and Enforcement of This Compliance Agreement

Severability
    The parties agree that this Compliance Agreement includes terms and 
conditions that apply to the various Federal programs included in the 
Agreement (hereafter ``covered Federal programs'') and also terms and 
conditions that are program specific. To that end, the parties agree 
that each such term and condition for each covered Federal program may 
constitute a separate agreement between the Virgin Islands and the 
Department. For purposes of 20 U.S.C. Sec.  1234f, each such term or 
condition as to each covered Federal program shall be severable from 
each other term or condition for each of the covered Federal programs. 
Unless set out otherwise, a determination by the Department under 20 
U.S.C. Sec.  1234f(d) that the Virgin Islands is not meeting the terms 
and conditions may be specific to such term, condition or program 
without impacting the continuing obligations under the Agreement. That 
is, all other terms and conditions for all covered Federal programs or 
the specific term or condition for other covered Federal programs would 
remain in place for the duration of the Agreement or until such time as 
the Department determines failure by the Virgin Islands to meet those 
terms and conditions.
    Alternatively, the parties understand and agree that a 
determination by the Department under 20 U.S.C. Sec.  1234f(d) that the 
Virgin Islands has failed to meet any of the terms and conditions 
shall, at

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the Department's discretion, be grounds for finding the Agreement, as 
to such terms and conditions, no longer in effect and that the 
Department may take any and all additional actions authorized by law. 
Some examples of such actions are set out below.
Additional Terms and Conditions Under 34 CFR Sec.  80.12
    Under this provision, the Department may apply additional 
conditions to one or more of the Virgin Islands' grants, having 
determined that the Virgin Islands is a ``high risk'' grantee (because 
it has a history of unsatisfactory performance and has not conformed to 
terms and conditions of previous awards).
    Special conditions or restrictions may include, but are not limited 
to: (1) Payment on a reimbursement basis; (2) withholding authority to 
proceed to next phase until receipt of evidence of acceptable 
performance within a given funding period; (3) requiring additional, 
more detailed financial reports; (4) additional project monitoring; (5) 
requiring the Territory to obtain technical or management assistance, 
including the designation of a third-party fiduciary to administer all 
or part of the Virgin Islands' grants from the Department; or (6) 
establishing additional prior approvals. The use of a condition for one 
covered Federal program does not require or preclude its use for a 
different covered Federal program.
    Under such circumstances the Department would notify the Virgin 
Islands as early as possible, in writing, of the: (1) Nature of special 
conditions/restrictions; (2) reason(s) for imposing them; (3) 
corrective actions which must be taken before they will be removed and 
time allowed for completing corrective actions; and (4) method of 
requesting reconsideration of conditions/restrictions imposed.
Judicial Enforcement
1. Cease and Desist Order Under 20 U.S.C. Sec. Sec.  1234c(a)(2) and 
1234e
    The Department may seek injunctive relief to compel specific 
actions or to stop specific actions. Under this process, the Department 
issues a complaint to the Virgin Islands, describing the factual and 
legal basis for the Department's belief that the Virgin Islands is 
failing to comply substantially with a requirement of law including 
this agreement, and containing a notice of hearing. A hearing before an 
Administrative Law Judge (ALJ) must occur. The ALJ's report and order, 
requiring the Virgin Islands to stop specific actions or compelling 
specific actions, becomes the final agency decision. The Department may 
enforce the final order by withholding any portion of the Virgin 
Islands' grant award or certifying the facts to the Attorney General 
who may bring an appropriate action for enforcement of the order.
2. Referral to Department of Justice for Appropriate Enforcement--20 
U.S.C. Sec.  1416
    If the Department finds, after reasonable notice and opportunity 
for hearing to the Virgin Islands, that: (1) There has been a failure 
by the Virgin Islands to comply substantially with any provision of 
applicable Federal laws; or (2) there is a failure to comply with any 
condition of a Local Educational Agency's or the Virgin Islands' 
eligibility (including terms of Compliance Agreement within timelines 
specified in Agreement), the Department may, after notifying the Virgin 
Islands, refer the matter for an appropriate enforcement action, which 
may include referral to the Department of Justice.
Withholding of Grant Funds--20 U.S.C. Sec. Sec.  1234c(a)(1), 1234d and 
Sec.  1416
    If the Department finds, after reasonable notice and opportunity 
for hearing to the recipient, that there has been a failure to comply 
substantially with a requirement of law, including with this Agreement, 
the Department may withhold, in whole or in part, future payments to 
the recipient.
    If the Department finds, after reasonable notice and opportunity 
for hearing to the Virgin Islands, that: (1) there has been a failure 
by the Virgin Islands to comply substantially with any provision of 
applicable Federal laws; or (2) there is a failure to comply with any 
condition of a Local Educational Agency's or the Virgin Islands' 
eligibility (including terms of Compliance Agreement within timelines 
specified in Agreement), the Department may, after notifying the Virgin 
Islands, withhold, in whole or in part, any further payments to the 
Territory. Department may limit withholding to a particular Local 
Educational Agency or State agency.
Escrow Account To Fund Third Party
    If the Virgin Islands fails to meet a term deemed significant by 
the Department in the Compliance Agreement, the Department may place an 
appropriate amount of the Virgin Islands grants into an interest 
bearing escrow account to fund the duties of a third party fiduciary 
agent. VI may request a reconsideration of this action.
Recovery of Funds--20 U.S.C. Sec.  1234a
    Any funds improperly expended or not properly accounted for are 
subject to recovery by the Department according to 20 U.S.C. Sec.  
1234a.

B. Criteria for Determining Consequences

    The Virgin Islands will provide the Department with quarterly 
progress reports for all of the action steps and performance measures 
set forth in the Agreement. The Virgin Islands and the Department agree 
that failure to (1) provide all required reports in a timely manner, 
(2) show substantial progress in completing all action steps as 
required, (3) complete critical action steps within the timeframe 
designated in the Agreement, or (4) achieve critical performance 
measures as specified in the Agreement, will be considered a failure to 
meet the terms and conditions of the Agreement.

III. Reporting Requirements

    This Compliance Agreement requires regular progress reporting for 
all issues. VI must provide the Department (1) a description of 
activities and progress for the issue and its related sub-issues during 
the reporting period, (2) the status of each action step required to be 
taken during the reporting period, (3) documentation of action step 
completion for those steps required to be completed during the 
reporting period (including explanation of delays for all steps not 
completed that were scheduled to be completed, and expected completion 
dates for all unimplemented steps), (4) documentation of measures of 
performance and results, and (5) other data or documentation as 
specified within the action steps for each issue or related sub-issue 
in this Agreement. This information should be transmitted to the 
Department by updating (at least quarterly) an internet web site 
developed and maintained by the Virgin Islands Government. The Virgin 
Islands Office of Management and Budget (VIOMB) will be responsible for 
tracking, monitoring and reporting progress on all requirements and 
milestones in this Agreement in a manner that is fully accessible to 
the Department and the public. Information in the progress tracking web 
site should be updated continuously, but in any event, no later than 30 
days from the last day of each quarter. The first quarterly period will 
encompass the time from which all parties sign this Agreement through 
December 31, 2002.
    The VI and the Department agree that the following performance 
measures

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apply for each issue and sub-issue, in addition to other performance 
measures specified throughout this Agreement.
    1. All plans, other documents, and reports are timely, complete, 
accurate, and address the requirements set forth in this Agreement.
    2. All action steps are implemented within the timeframes set forth 
in this Agreement.
    3. Implementation of action steps demonstrates progress towards 
achieving the outcomes or performance measures set forth in this 
Agreement.

IV. Updated Plans, Action Steps, and Timelines From December 2001 
Meeting

    Action steps and timelines that the VI developed in December 2001 
are included in the issue descriptions throughout this document. The VI 
will need to assess the action steps and timelines developed in 
December and determine if (1) the action steps fully meet the 
requirements of this Agreement, (2) the action steps will move the VI 
toward achieving the required performance measures, and (3) the 
timelines need to be modified within the time boundaries set forth in 
this Agreement. Updating the December action steps and timelines into 
plans for which the VI will be accountable is a critical action step 
for each issue and sub-issue. Once the VI develops a plan for each 
issue or sub-issue, as specified in this Agreement, and the Department 
agrees to the plan, the action steps and timelines in the plan will 
become additional requirements of this Agreement and be subject to the 
reporting requirements and consequences for not meeting terms and 
conditions as set forth in this Agreement. The Department will assist 
by consulting with VI to develop reports or reporting formats that 
shall satisfy the reporting requirements as set forth in this 
Agreement. The Department will also assist, to the extent that 
resources are available, the VI with the orientation and training of 
personnel.
    The remainder of this document provides issue descriptions, action 
steps, and performance measures for (1) Program Planning, Design and 
Evaluation, (2) Financial Management, (3) Human Capital, and (4) 
Property Management and Procurement.

V. Issues

Issue 1.0: Program Planning, Design, and Evaluation

Issue Description
    Because the stated purpose of this Agreement is to improve 
education for the students of the VI, it is critical to successfully 
meeting the terms of this Agreement that the VI use the first year of 
the next three year period to develop long-term goals, assess the 
current status of each program receiving Federal assistance, and design 
coherent programs to bridge the gap between the current status of 
education in the VI and its educational goals and applicable 
requirements.
    An issue of significant importance to program planning, design, and 
evaluation is the legal and administrative impact of the organizational 
structure and legal classification of the various educational agencies 
in the Virgin Islands. This Compliance Agreement has been drafted in 
reliance upon the mutual understanding that the Virgin Islands has 
established and maintains a State educational agency (SEA) and two 
local educational agencies (LEA), as defined under Federal law. Thus, 
for purposes of administering its Federal grants, VIDE, as the SEA, 
must make steady progress towards meeting all Federal requirements that 
are related to that designation, including where specified, providing 
LEAs, the St. Thomas/St. John school district and St. Croix school 
district, the appropriate levels of Federal funding and autonomy 
required under each Federal program's requirements. Therefore, by 
entering into this Agreement, the VI acknowledges the Department's 
reliance upon this designation, agrees to comply with the specific 
Federal requirements that apply through this designation and agrees not 
to change this designation during the period of this Agreement without 
the prior approval of the Department.
    Effective planning and design includes the following elements: (1) 
program goals stated in measurable terms (outcome measures), (2) 
baseline assessments of current status (baseline measures), (3) 
comparison of current status to program goals (baseline measures to 
outcome measures), (4) a report of areas where current programs do not 
meet goals, (5) a plan to improve current programs to meet goals, (6) a 
schedule for implementing the plan, (7) measures to determine if the 
plan implementation is having the intended effect, and (8) options for 
further modification if implementing the plan is not having the 
intended effect. Any planning and design process will take into account 
Federal and State requirements for each program, as well as other 
applicable professional standards. In addition, the planning process 
should include citizen and/or customer input and feedback; input is a 
vital part of the process to set goals, and feedback is equally 
significant in assessing results. A critically important aspect of the 
planning and design process is that it is fully integrated as the 
foundation for other program-related decisions about budgets, financial 
management, personnel requirements, and other resource needs.
    In order to fully implement this process, a comprehensive, school-
based, statewide plan will be developed. The Department will provide 
model comprehensive plans, if appropriate, and referrals to successful 
jurisdictions for guidance. VI will seek the assistance of expert 
consultants and other grantees to provide hands-on guidance in 
completing the comprehensive planning process. Reasonable and necessary 
expenses for this assistance will be considered allowable costs 
chargeable to a Department grant to be awarded by September 30, 2002, 
provided an approvable application is received in a timely manner. The 
expected outcomes identified in this plan, among other federally and 
locally identified outcomes, will include:
     Schools gain greater site-based authority to determine 
needs and apply funding to those needs.
     School site-based management will be enhanced through 
greater school community involvement and increased awareness of 
accountability.
     Programs can be implemented that best fit the needs of the 
individual school population rather than one district approach for all.
     Activities conducted under this plan bring VI into 
compliance with statutory and regulatory requirements for Department 
programs.
    In general, the comprehensive statewide plan should be based on 
information derived from individual school plans. These school plans 
should include, at a minimum, the components listed below.
     A comprehensive needs assessment of the entire school, 
based on information about student academic achievement.
     Strategies that provide opportunities for all children to 
meet proficient and advanced levels of academic achievement, use 
effective methods of instruction that are based on scientific research 
and address the needs of all children in the school.
     Instruction by highly qualified teachers as defined by the 
Elementary and Secondary Education Act.
     High quality and ongoing professional development for 
teachers, principals, and other staff.
     Strategies to attract high-quality teachers in all 
schools, but with special emphasis on high-need schools.

[[Page 60207]]

     Strategies to increase parental involvement.
     Plans for assisting preschool children in the transition 
from early childhood programs to local elementary school programs.
     Measures to include teachers in decisions about academic 
assessment.
     Assistance for children who experience difficulty 
mastering the proficient or advanced levels of academic achievement 
standards.
     Coordination and integration of Federal, State and local 
services and programs.
     Annual report cards for the performance of each school as 
defined by the Elementary and Secondary Education Act.
     All expenditures are allowable under the requirements of 
each grant and applicable program.
    This comprehensive plan for reforming the total instructional 
program in the school should be developed during the first year period, 
with the involvement of staff, parents, administrators, and others. The 
plan must:
     Describe how the school will implement the components 
summarized above.
     Describe how the school will use resources to implement 
the components.
     Include a description of Federal, SEA, and LEA programs 
that will be available in the individual school.
     Describe how the school will provide parents with 
individual student academic assessment results and other information 
about the individual schools, including interpretation of the results, 
in understandable language.
Identification of Long-Term Goals
    For each Federal program it is important to identify the desired or 
required outcomes, so VI can measure improvement for that program by 
how close it is to achieving these goals as well as maintaining 
improvement on a continuous basis. Examples of this are:
     For the Title V, Part A program, the law requires states 
to aim for increased student academic achievement or improved quality 
of education for all students.
     For the Vocational Education and Adult Education programs, 
the desired outcomes are defined by the program statutes in terms of 
the core indicators of performance or additional VI-identified 
indicators that measure student performance.
Assessment of Current Status of Programs in Terms of Goals
    This sub-issue involves an assessment at the VI-wide and school 
level of each Federal program in terms of the goals identified. It also 
requires VI to identify a measurement approach (a method for measuring) 
for each goal or core indicator. Once the measurement approach is 
identified, VI must establish a baseline that reflects the current 
status for each goal or indicator. Examples of this include:
     For the Title V, Part A program, VI must identify the 
current academic levels for the students benefiting from the program, 
which is the baseline, and establish incremental targets for 
improvement to reach the goals identified in sub-issue 1.2.
     For the Vocational Education and Adult Education programs, 
the VI must establish a baseline and levels of performance (incremental 
targets) for each required core indicator and any VI-identified 
indicators for each of the subsequent years of this Agreement.
Identification of Educational Program Needs to Meet Goals
    Once the VI has identified its baselines in comparison to its 
goals, it must identify the needs that have to be met to bridge the gap 
between the baseline (current status) and the goals. The needs must be 
consistent with the purposes and allowable activities under each 
program. In developing program activities, VIDE will have as a goal 
that by the end of the three year period of this agreement, 95% of the 
Federal education funds will be spent on instructional activities and 
directly related expenditures.
Development of Program Design and State Plans or Applications That 
Address Identified Needs
    The VI must develop, prepare, and submit to the Department a State 
application in conformance with the requirements of each program for 
which funds are being expended and any other requirements set forth in 
this Agreement. These applications should be based on information 
gathered from the school-based comprehensive plans developed under this 
section.

Sub-Issue 1.1: Separation of State and Local Educational Agencies

Sub-Issue Description
    In a letter dated August 1, 2001, at the request of the Department 
and VIDE, the Attorney General of the Virgin Islands provided the legal 
opinion that under local law, the structure and functions of the 
various educational agencies in the Virgin Islands were divided into, 
VIDE, as the SEA, and the St. Thomas/St. John school district and the 
St. Croix school district, as the two LEAs. This has significant 
implications for the administration of Federal education programs. For 
example, under Part B of the Individuals with Disabilities Education 
Act, the SEA must ensure that eligible LEAs receive subgrants under the 
formula specified at 34 CFR Sec.  300.712. Additionally, under Title V 
of ESEA, an LEA is to have complete discretion in deciding how to 
allocate funds among the allowable Title V program areas, and must 
ensure that its Title V expenditures carry out the purposes of the 
program and are used to meet the educational needs in schools within 
the LEA. The specific terms of this Compliance Agreement contemplate 
the administrative structure of one SEA and two LEAs.
Performance Measures for Issue 1.0 and 1.1
    1. By the end of the three-year period of the Compliance Agreement, 
VI will be in full compliance with the program requirements of all 
Department grants for which VI expends funds and any other requirements 
set forth in this Agreement.
    2. VI's implementation of the action steps described below brings 
it into full compliance with the standards and assessment requirements 
of Title I, ESEA that all States were required to meet by the end of 
the 2000-2001 school year, no later than the end of the three-year 
period of the Compliance Agreement.
    3. By the end of the three-year period of the Compliance Agreement, 
VI must have developed a detailed plan for how it will comply with the 
requirements of the Elementary and Secondary Education Act, including 
Title I, Part A of the ESEA as reauthorized by the No Child Left Behind 
Act. We expect that at the end of the three-year period, VIDE will 
apply for most or all of the individual programs authorized under the 
Elementary and Secondary Education Act, the Adult Education and Family 
Literacy Act rather than consolidating them.
    4. By the end of the three-year period of the Compliance Agreement, 
VI's implementation of the action steps described below must bring its 
programs into full compliance, with respect to Federal law and with the 
obligations and responsibilities of a single SEA and two LEAs.
Action Steps Required

[[Page 60208]]



------------------------------------------------------------------------
           Year 1                    Year 2                Year 3
------------------------------------------------------------------------
1. The VI must submit to the  1. In the second      1. In the third year
 Department within 120 days    year of the           of the Compliance
 from the date of the          Compliance            Agreement, the VI
 compliance agreement, an      Agreement, the VI     will implement the
 approvable action plan that   will implement the    comprehensive,
 can demonstrate steady        comprehensive,        statewide plan and
 progress toward developing    statewide plan and    demonstrate that it
 a comprehensive statewide     demonstrate that it   is achieving the
 plan and fiscal year 2003     is achieving the      program goals that
 consolidated grant            program goals that    are required.
 application described in      are required.
 items two and three below.
2. Within the first year of   2. In the second      2. In the third year
 the Compliance Agreement      year of the           of the Compliance
 the VI must develop a         Compliance            Agreement, the VI
 comprehensive, school-        Agreement, the VI     will meet all
 based, statewide action       will demonstrate      Federal
 plan for complying with the   steady progress       requirements
 requirements of various       towards meeting all   related to the
 programs funded by the        Federal               designation of a
 Department including, but     requirements          single SEA and two
 not limited to: Title I,      related to the        LEAs and is ready
 Part A of ESEA standards      designation of a      to meet all
 and assessment                single SEA and two    requirements.
 requirements, Vocational      LEAs and is ready
 Education State Plan,         to meet all
 Occupational and Employment   requirements.
 continuation grant, Adult
 Education, and Title V-A.
 The plan must include, at a
 minimum, the following
 elements: (1) Goals stated
 in measurable terms
 (outcome measures) based on
 program requirements; (2)
 baseline assessments of the
 VI's current status
 (baseline measures); (3)
 comparison of the VI's
 current status to the goals
 including an appropriate
 needs assessment; (4) a
 report of areas where
 current programs do not
 meet goals; (5) action
 steps to improve current
 programs to meet goals; (6)
 a schedule with clear,
 reasonable completion dates
 for implementing the action
 steps; (7) measures to
 determine if the plan
 implementation is having
 the intended effect; (8)
 options for further
 modification if
 implementing the plan is
 not having the intended
 effect; (9) demonstration
 of citizen and customer
 input and feedback; and
 (10) demonstration of its
 foundation for decisions
 about budgets, personnel
 requirements, and other
 resource needs. Other
 requirements of the plan
 are included in section 1.0
 above and applicable laws
 and regulations.
3. Within the first year of   3. The VI will        3. By the end of the
 the Compliance Agreement      prepare and make      three-year period
 the VI must include in the    public annual         of the Compliance
 development of a              report cards for      Agreement, VI will
 comprehensive, school-        the performance of    have submitted a
 based, statewide action       each school as        detailed plan for
 plan such action steps that   defined by the No     how it will comply
 will show steady progress     Child Left Behind     with the
 in meeting the requirements   Act.                  requirements of the
 of Department grants with                           No Child Left
 respect to separate SEA/LEA                         Behind Act,
 issues described in sub-                            including Title I,
 issue 1.1 above.                                    Part A of the ESEA
                                                     as reauthorized by
                                                     the No Child Left
                                                     Behind Act.
4. Prepare and submit semi-   4. The VI will        4. The VI will
 annual expenditure report     prepare and submit    prepare and make
 that includes certification   semi-annual           public annual
 that all expenditures are     expenditure report    report cards for
 for allowable purposes (the   that includes         the performance of
 reports will include the      certification that    each school as
 detail required in the FY     all expenditures      defined by the No
 2000 special conditions).     are for allowable     Child Left Behind
                               purposes (the         Act.
                               reports will
                               include the detail
                               required in the FY
                               2000 special
                               conditions).
                                                    5. The VI will
                                                     prepare and submit
                                                     semi-annual
                                                     expenditure report
                                                     that includes
                                                     certification that
                                                     all expenditures
                                                     are for allowable
                                                     purposes (the
                                                     reports will
                                                     include the detail
                                                     required in the FY
                                                     2000 special
                                                     conditions).
------------------------------------------------------------------------

Issue 2.0: Financial Management

Issue Description
    It is critical to successfully meeting the terms of this Agreement 
that the VI use the next three years to develop a credible central 
financial management system (FMS). In brief, such a system would 
provide the correct amount of funds, in the correct accounts, in a 
timely manner, all the time. Credible financial management includes 
systems, policies, and procedures that (1) provide access to accurate 
information when needed, (2) account appropriately for funds, (3) 
ensure timely deposits or draw down of funds, (4) ensure timely and 
accurate payments, and (5) otherwise enable and support generally 
accepted government financial management and accounting standards and 
requirements. In addition, VIDE, VIDF and other VI Departments must 
demonstrate improved communication and cooperation to develop an FMS 
that meets needs across the VI.
    Through the terms of this Agreement, financial management systems 
will be integrated with one another (i.e., across departments) and with 
other management systems (including budget, human resource management, 
property and procurement, and planning and

[[Page 60209]]

evaluation). One example of the integration required includes 
connecting financial management policies and systems with time and 
attendance systems to ensure appropriate payment and accounting for 
staff time. It is especially important for the purposes of this 
Agreement that the VI financial management system is effectively 
integrated with all management systems and procedures in VIDE.
    All of the action steps to address the financial management issue 
are important, but it is a critical factor for success that the VI 
improve its cash management function immediately. The cash management 
function must be able to provide timely and accurate information about 
each draw down of funds from the Department. Inability to track drawn 
down funds will be considered a failure to meet the terms and 
conditions of this Agreement.
    In addition to the overall requirement to develop a credible 
central FMS, this Compliance Agreement also addresses issues related to 
(1) indirect costs, and (2) obligation of funds and disbursement of 
obligations. Both issues are closely tied to a credible FMS and the 
Department will assess progress in meeting the terms of this Agreement 
by the systemic approaches and degree of integration that the VI brings 
in designing and implementing solutions to all of its longstanding 
problems in the financial management area.

Sub-Issue 2.1: Credible Financial Management System

Issue Description
    This sub-issue involves many areas that must be systemically 
addressed. In December 2001, VI staff identified a series of action 
items related to addressing the FMS issues, including information flow, 
adjustments, system improvements, training, payroll, reporting systems, 
draw downs, and other areas. Department staff have further supplemented 
VI's list. One example of the FMS issue was illustrated in the 2000 
single audit findings: the auditors are still using different 
Department (e.g., VIDE) accounting records to compare with Department 
of Finance records. Invariably, the cash accounts show shortages in 
terms of amounts drawn from Federal agencies as compared to VI 
Departments' records.
    To satisfy the requirements of this Agreement, the VI will develop 
a credible central FMS in which records account for all draws and 
expenditures of Federal education funds. VI agencies and single 
auditors will be able to rely on the central FMS as an accurate system 
of record. In the short term, any differences between the Department of 
Finance and VIDE will be reconciled concurrently, but at the end of 
three years, VI agencies should no longer need separate accounting 
systems.
Performance Measures for Issue 2.0 and 2.1
    1. Within one month of the inception of this Agreement, appropriate 
VIDE, VIDH, VIOMB and VIDF staff members will be provided with access 
to the Department's GAPS system to monitor draw downs.
    2. By December 31, 2002, the VIDF will complete a vision document 
for the implementation of a credible central FMS.
    3. By March 31, 2003, the VIDF will complete a plan for developing 
and implementing a credible central FMS.
    4. From the inception of this Compliance Agreement, all 
transactions for draws and disbursements, as well as any required 
adjustments for Federal education programs' funds will be timely and 
accurately recorded in the VIDF accounting system as they occur 
according to generally accepted accounting standards. Inability to 
track drawn down funds will be considered a failure to meet the terms 
and conditions of this Agreement.
    5. By the conclusion of the third year of the Compliance Agreement, 
VI will conduct monthly reconciliation of draws and expenditures, 
resolve any differences, and record appropriate adjustments.
    6. By the conclusion of the second year of the Compliance 
Agreement, the VI will institute an independent internal audit function 
within VIDE that will abide by the standards for internal audit 
prescribed by the Institute of Internal Auditors (IIA).
    7. By the conclusion of the Compliance Agreement, VI agencies will 
no longer need separate accounting systems.
    8. By the conclusion of the Compliance Agreement, single auditors 
will be able to rely on the FMS as the accurate system of record for 
the financial statement audit.
Action Steps Required

------------------------------------------------------------------------
           Year 1                    Year 2                Year 3
------------------------------------------------------------------------
1. Within one month of the    1. Twice during the   1. VI will conduct
 inception of this             2003-2004 school      quarterly
 Agreement, appropriate VIDE   year, the VI will     reconciliation
 and VIDF staff members will   publicize the U.S.    between GAPS, VIDE,
 be provided access to the     Department of         and VIDF draws and
 Department's GAPS system to   Education Office of   expenditures,
 monitor draw downs.           Inspector General     resolve any
                               Hotline telephone     differences, and
                               number 1-800-         record appropriate
                               MISUSED and the       adjustments within
                               Department of         30 days.
                               Interior OIG
                               Hotline (1-800-424-
                               5081) to all
                               schools, teachers,
                               parents of students
                               in schools,
                               participants in
                               adult education and
                               vocational
                               education programs,
                               VIDE employees, and
                               the public and
                               encourage anyone
                               with any knowledge
                               of misuse of
                               Federal education
                               program dollars to
                               call the Hotlines.

[[Page 60210]]

 
2. By December 31, 2002 the   2. By the conclusion  2. Twice during the
 VIDF will create a vision     of the second year    2004-2005 school
 document of a credible        of the Compliance     year, the VI will
 central FMS. The vision       Agreement, the VI     publicize the
 document will specifically    will institute an     Federal Education
 describe how the system       independent           Office of Inspector
 would (1) provide access to   internal audit        General Hotline
 accurate information when     function within       telephone number 1-
 needed, (2) account           VIDE that will        800-MISUSED and the
 appropriately for funds,      abide by the          Department of
 (3) ensure timely deposits    standards for         Interior OIG
 or draw down of funds, (4)    internal audit        Hotline (1-800-424-
 ensure timely and accurate    prescribed by the     5081) to all
 payments, (5) ensure, prior   Institute of          schools, teachers,
 to archiving any financial    Internal Auditors     parents of students
 data, the capacity to         (IIA). In this        in schools,
 retrieve that data in the     regard, VIDE will     participants in
 future, and (6) otherwise     create an             adult education and
 enable and support            independent Audit     vocational
 generally accepted            Committee that will   education programs,
 government financial          make all audit        VIDE employees, and
 management and accounting     resolution            the public and
 standards and requirements.   decisions for the     encourage anyone
 The vision document will      VIDE and to whom      with any knowledge
 also describe how the         the internal          of misuse of
 central FMS would serve as    auditor will report.  Federal education
 an accurate system of                               program dollars to
 record that would no longer                         call the Hotlines.
 require separate accounting
 systems in different
 agencies. The document will
 also provide a detailed
 diagram of each function of
 the system and how it would
 integrate with other
 related systems or
 processes, (including, but
 not limited to, program
 planning, grant
 administration, budget,
 property and procurement
 management, time and
 attendance, human resource
 management, and payroll).
 The vision document and
 plan (see 3 below)
 will be based on an
 independent party
 performing a needs
 assessment for the
 financial management system.
3. By March 31, 2003, the     3. VI will conduct
 VIDF will create a plan for   quarterly
 how it will develop and       reconciliation
 implement the credible        between GAPS, VIDE,
 central FMS described in      and VIDF draws and
 the vision document. The      expenditures,
 plan will also include        resolve any
 resource requirements for     differences, and
 implementing the plan, with   record appropriate
 action steps and timelines,   adjustments within
 and identify how the          30 days.
 resources will be obtained.
 The vision document (see
 2 above) and plan
 will be based on an
 independent party
 performing a needs
 assessment for the
 financial management system.
4. During the first year of
 the compliance agreement,
 VI will conduct semi-annual
 reconciliation between
 GAPS, VIDE, and VIDF draws
 and expenditures, resolve
 any differences, and record
 appropriate adjustments
 within 30 days. These
 reconciliations will be
 provided on a semi-annual
 basis to the Department for
 review with evidence that
 all adjustments have been
 made.
5. Twice during the 2002-
 2003 school year, the VI
 will publicize the Federal
 education Office of
 Inspector General (OIG)
 Hotline telephone number 1-
 800-MISUSED, and the
 Department of Interior OIG
 Hotline (1-800-424-5081) to
 all schools, teachers,
 parents of students in
 schools, participants in
 adult education and
 vocational education
 programs, VIDE employees,
 and the public and
 encourage anyone with any
 knowledge of misuse of
 Federal education program
 dollars to call the Hotline.
------------------------------------------------------------------------

Sub-Issue 2.2: Indirect Costs

Sub-Issue Description
    The indirect cost issue relates to the manner in which the indirect 
costs associated with Federal funds are distributed within VI. OMB 
Circular A-87 specifies indirect cost requirements. In December 2001, 
officials from ED, VI and other Federal agencies developed and agreed 
on a three-phase process to address the indirect cost issue. Phase I of 
the process outlines steps for indirect cost determination and 
distribution; Phase II outlines steps for making rate application 
corrections, and Phase III outlines steps for preparing a new rate 
proposal. The VI will implement the agreed upon steps of the process in 
a timely manner and report progress to ED.
Performance Measures for Issue 2.2
    1. As described below, steps to determine indirect costs and 
distribute indirect cost reimbursement between the VIDE and the VI will 
be fully

[[Page 60211]]

implemented by OCTOBER 1, 2002 in accordance with VIOMB's new policy. 
The new OMB policy will provide for a pro rata allocation that 
segregates central service indirect costs from agency level or 
departmental indirect costs.
    2. By the beginning of Fiscal Year (FY) 2003, the VI and the 
Department must have agreed on an indirect cost rate to use for FY 
2003.
    3. Starting April 1, 2003, unused leave for separating employees 
will not be charged directly to Federal programs, but allocated only as 
indirect costs.
    4. All of the underlying problems having to do with indirect costs 
will be eliminated by FY 2004, so that audits and other monitoring 
procedures will have minimal findings related to indirect rates in FY 
2003, and no findings related to indirect rates in FY 2004 and 2005.
    5. By the conclusion of the Compliance Agreement, there will be 100 
percent application of the correct, current indirect cost rate in 
education programs.
Action Steps Required
    Officials from VI, the Department and other Federal agencies agreed 
in December 2001 about three phases of action steps to address the 
indirect cost issue. The phases, related steps, and agreed upon time 
lines are listed in the table below. (Steps listed in bold were added 
by the Department staff members after the December 2001 meeting.)

----------------------------------------------------------------------------------------------------------------
                        Year 1                                    Year 2                        Year 3
----------------------------------------------------------------------------------------------------------------
1. If the steps or timelines listed in this table are
 no longer valid, the VI will ask the Department to
 consider a revised plan of action steps and timeline
 by October 1, 2002.
2. In addition to other requirements set forth in the
 Reporting Requirements section of this document, the
 quarterly reports for this sub-issue will include a
 copy of the products developed for each step of the
 process.
Phase I: Indirect Cost Determination and Distribution
     DOI IG will submit letter to the
     Legislature and Governor outlining the indirect
     cost fund sharing issue.
     Develop cost policy statement regarding
     Indirect Cost Fund Sharing.