Background IDEA was enacted to ensure that all children with disabilities have access to a free appropriate public education (FAPE); to protect the rights of those children and their parents; and to assist states, localities, educational service agencies, and federal agencies in educating those children. Part C of IDEA provides grants to states for Early Intervention services for infants and toddlers (birth through 2 years) with developmental delays or diagnosed conditions that have a high likelihood of developmental delay. Part B of IDEA provides grants to states to assist them in providing special education and related services to eligible children with disabilities beginning at age 3 and possibly lasting to the student’s 22nd birthday, depending on state law or practice. Special Education Administration and Funding In fiscal year 2019, the total appropriation for IDEA Parts B and C was approximately $13.2 billion ($12.8 billion for Part B and $470 million for Part C). These funds are awarded through formula grants to state agencies which, in turn, provide these funds to eligible entities (school districts under Part B and early intervention service providers under Part C) to carry out applicable IDEA requirements. (See table 1.) Part C (Early Intervention for Infants and Toddlers, Birth to 2 Years) Each state has a designated lead agency—called a Part C Lead Agency—that is responsible for administering, supervising, and monitoring Part C. Part C requires each state to have a continuous process of public awareness activities and evaluations designed to identify and refer as early as possible all young children with disabilities and their families who are in need of Early Intervention services. By law, public awareness efforts should include disseminating information to parents and those likely to make referrals, especially hospitals and physicians. States have disseminated this information in different ways, including through television ads, pamphlets, and posters describing Part C and how parents can obtain services for their child. Under Part C of IDEA, states must also provide services to any child under 3 years of age who is developmentally delayed. These delays must be measured by appropriate diagnostic instruments and procedures in one or more areas of cognitive development, physical development, communication development, social or emotional development, and adaptive development, or the child must have a diagnosed physical or mental condition that has a high probability of resulting in developmental delay. Once a child who is suspected of having a disability is referred, states must evaluate the child in accordance with applicable IDEA requirements. Figure 1 illustrates the typical process in Early Intervention programs. Infants and toddlers who are still receiving services by about age 2 and a half are evaluated again to determine if they are eligible for services under Part B. Part B (Special Education Services for Children and Youth ages 3 through 21) Under Part B, states and school districts must make FAPE available to all eligible children with disabilities in mandatory age ranges. FAPE includes special education (specially designed instruction) and related services (support services)—such as speech therapy, psychological services, and physical therapy—tailored to their needs based on an individualized education program (IEP). Figure 2 illustrates the typical process for identifying students for special education under Part B. Figure 3 shows the percentage of children served under IDEA by age and state as of fall 2016. Nationally, for each age group, the percentage of children receiving special education services remained relatively stable from 2012 through 2016, changing by less than 1 percentage point. Varied State Eligibility Criteria and Challenges Identifying and Evaluating Children May Help Explain Differences in Percentages Served Eligibility Criteria and Identification Processes Vary Across States IDEA requires states to have policies and procedures to ensure that school districts identify, locate, and evaluate all children suspected of having a disability who need special education and related services, regardless of the severity of their disability, but also gives states some latitude in establishing eligibility criteria and defining disability categories. In addition, states have some flexibility to determine their own processes for identifying and evaluating children, provided the state’s procedures are consistent with IDEA requirements. As a result, a child eligible for IDEA services in one state might be ineligible in another. Early Intervention (IDEA Part C) Eligibility criteria. IDEA allows states some flexibility to establish their own definitions of developmental delay (when a child does not reach developmental milestones for certain skills, such as motor or language skills, at the expected times), including the level or severity of the delay. For example, in Maryland, a child must have at least a 25 percent delay in one or more developmental areas to be eligible for Early Intervention services, while in Arizona, a child must demonstrate a 50 percent delay in one or more developmental areas to be eligible. In Massachusetts, Part C lead agency officials we interviewed said that the state had, as IDEA allows, tightened eligibility criteria in 2009 to reduce the number of children eligible for Early Intervention services by narrowing the definition of developmental delay. Officials said that there were no current plans to change the eligibility criteria, but that they would consider tightening eligibility criteria again if the number of eligible children outpaces state fiscal resources for these services. Part C of IDEA also allows but does not require states to provide Part C services to at-risk infants and toddlers. States that choose to provide services to at-risk children may use IDEA risk factors to determine eligibility, such as low birth weight or history of abuse and neglect, or they may develop their own list of risk factors. For example, Massachusetts developed its own at-risk criterion for eligibility, which requires the presence of four or more defined child and family factors, including biological, medical, and trauma-related factors. As of 2018, seven states or territories were serving at-risk infants and toddlers, according to an Education official. Early Intervention process. The processes states use to deliver Part C Early Intervention programs can vary in a number of ways. First, the types of agencies designated as the Part C Lead Agency vary from state to state; these lead agencies are responsible for administering and monitoring Early Intervention programs in their states. For example, Iowa’s State Educational Agency (SEA) administers both its Parts C and B programs; Massachusetts and New York administer their Parts C and B programs through separate agencies; and, Colorado shares these responsibilities between two agencies. Second, the extent to which lead agencies directly provide Early Intervention programs, including locating and evaluating children, or do so through contractors varies. For example, both Colorado and Iowa administer their Early Intervention programs directly, while Massachusetts and New York contract with private entities to do so. In Massachusetts, early childhood officials said that they contract with 31 different vendors that operate 60 Early Intervention programs throughout the state. In addition to providing Early Intervention services, these programs are responsible for locating and evaluating children, according to the early intervention officials. Those officials also said that each of these individual programs have unique relationships with referral sources, which can affect the likelihood that the sources will make referrals to a given program. Regardless of the type of entity responsible for Early Intervention programs, having strong relationships with referral sources is important, according to early childhood officials in all four of the states we visited. Otherwise, according to these officials, some children who are likely to be eligible for Early Intervention services may not be identified or evaluated for needed services. In Colorado, where Early Intervention responsibilities are shared between the Part C lead agency and the SEA, state officials said that this arrangement can make it difficult to ensure a seamless process and can cause delays between evaluation and services. They said that this can result in incorrect identification or services because they do not have control over the evaluations—responsibility for evaluations is assigned to the Part B agency. Part C officials also said this can cause confusion for families as they are moved between agencies. Relatedly, some infants and toddlers may not be identified for Early Intervention services because of the challenges of sharing data between state agencies when more than one agency is responsible for providing special education to children. In three of the four selected states we visited, responsibility for special education services for children was shared by more than one agency and officials in all three states told us that difficulties in sharing Early Intervention program data could hamper efforts to identify potentially eligible children for special education services. Officials in one of the states said that sharing data could allow them to identify children being provided school-aged special education services that had not received Early Intervention services. The officials said that if commonalities were found among these children, it could help them find similar children and ensure they receive Early Intervention services in the future. School-Age (IDEA Part B) Eligibility criteria. In practice, IDEA Part B’s disability definitions provide minimum standards that all states must meet. According to Education officials, IDEA allows states the flexibility to adopt more expansive definitions of disabilities than those provided in the IDEA statute and regulation, provided that the state definition would not exclude children who would be covered by the IDEA definition. For example, in New York an intellectual disability is defined as “significantly subaverage general intellectual functioning … that adversely affects a student’s educational performance,” while in Massachusetts an intellectual impairment is defined as occurring when “the permanent capacity for performing cognitive tasks, functions, or problem solving is significantly limited or impaired and is exhibited by…a slower rate of learning .” Also, states must establish their own eligibility criteria for determining the presence of a Specific Learning Disability (SLD)—a broad category of disorders related to understanding and using language. IDEA also requires that states allow the use of research-based procedures in establishing the presence of an SLD, but does not define the specific procedures to be used. Identification process. IDEA requires all states to have Child Find policies and procedures in place, and requires a practical method for determining which children with disabilities are currently receiving needed special education and related services, but does not specify the exact method to be used. In all four of the states we visited, school district officials we interviewed said that the schools in their respective districts were using the same type of approach as part of the Child Find identification process, but that some school districts were in different stages of implementation or that the approach was being used differently by schools within the same districts. Officials in one school district in New York said that, as part of their approach, there was a concerted effort to use student data to make decisions about intervention levels and special education evaluation decisions, while a school district official in Massachusetts said that the district had placed a greater emphasis on improving classroom instruction as a means to reduce the need for special education services rather than on intervention systems used for identifying and making decisions about potentially eligible children. Officials of school districts in two of the states we visited told us that they are in the midst of revising their identification processes to increase accuracy and consistency across the schools in their districts. Officials in one of those districts said that differences in the processes schools used resulted in variations in how the special education identification process worked in each of the schools. State and Local Officials Said Challenges Identifying and Evaluating Children Who May Be Eligible for Special Education Services May Lead to Differences in Who Is Served Appropriately identifying and evaluating children who may be eligible for special education services can be difficult, according to advocates, subject matter specialists, and state and local officials we interviewed. Representatives of two national special education advocacy organizations and special education subject matter specialists agreed that it may be difficult to identify disabilities and that differences in school district or in school special education processes can add to this challenge. Challenges to Early Childhood Identification and Evaluation (IDEA Part C) Early Intervention services are intended to enhance the development of infants and toddlers with disabilities, minimize developmental delay, and reduce the need for special education later in life. However, officials we interviewed at state agencies in the four states we visited— Massachusetts, Colorado, New York, and Iowa—said that because of challenges in identifying and evaluating children, some infants and toddlers who are eligible and would benefit from Early Intervention services do not receive them. These challenges include navigating referral processes, obtaining parental consent, and dealing with staffing limitations. State early childhood officials and subject matter specialists we interviewed said it can be difficult to secure a parental or physician referral, which can cause delays in evaluating children and may lead to some infants and toddlers not being provided Early Intervention services. In all four states we visited, officials noted that some parents or physicians did not make referrals because they did not understand the referral process. State officials in Iowa expressed concern that some doctors may take a “wait-and-see” approach instead of referring an infant or toddler for evaluation when indications first arise. Early childhood officials in Colorado as well as Early Intervention subject matter specialists we spoke to said that physicians may also choose not to refer patients because they (1) cannot guarantee families that their children will ultimately receive services, (2) find the referral process difficult, or (3) receive little feedback about whether their referrals ultimately lead to children getting Early Intervention services. Before an infant or toddler can be evaluated for Early Intervention services, the parent(s) must give consent. In Massachusetts and Colorado, state early childhood officials said that parents sometimes do not provide consent for an evaluation, which can delay or even prevent the delivery of needed services. Officials from these states cited various reasons parents might withhold consent, such as opting to wait and see if the child’s problems are resolved over time. State early childhood officials in Massachusetts also said that parents will sometimes refuse to provide consent for evaluation due to a lack of awareness of Early Intervention services or the Early Intervention process. To better address this, officials said that they are working collaboratively with state early education and care providers to inform parents about these issues. Massachusetts officials stated that parents may mistrust government agencies or associate Early Intervention services or providers with child protective services agencies and mistakenly think they are being investigated. Insufficient personnel with the right qualifications to conduct evaluations is another reason infants and toddlers may not be consistently identified and evaluated, particularly in certain types of locations. Officials from lead agencies in Massachusetts, Colorado, New York, and regional education officials in Iowa, noted that it was difficult to find enough Early Intervention personnel with appropriate expertise in low population density areas which can complicate the process of identifying and evaluating children. Officials in Massachusetts noted challenges hiring staff that reflect the communities they serve and in hiring for specific disciplines, such as occupational and physical therapists. In addition, officials in New York said that they sometimes face staffing difficulties when children are located in areas with high crime rates. Challenges to Preschool-Age, School-Age, and Young Adult Identification and Evaluation (IDEA Part B) State and local officials as well as special education advocacy organizations said identifying and evaluating students for Part B special education services can be complicated by many factors, which may result in some students inappropriately being determined eligible or ineligible for services. These factors include confusion over IDEA requirements, challenges implementing Response to Intervention (RTI), a child’s lack of English proficiency, the difficulty of detecting certain types of disabilities, or the Part C to Part B transition. School district officials in Massachusetts said that confusion about IDEA requirements is common. For example, a school district official from that state told us that general education staff do not always understand when special education services are appropriate, versus when other options may meet students’ needs, such as Response to Intervention (RTI) or other supports. (See sidebar for more information about RTI.) Officials in another school district in the same state said there was confusion over and little consistency in the eligibility decisions made for special education and other supports. Additionally, officials in that district said that the expertise level among the decision makers varies and can affect eligibility decisions. Response to Intervention For those students who may need additional academic and behavioral supports to succeed in a general education environment, schools may choose to implement a multi-tiered system of supports, such as Response to Intervention (RTI). Regulations implementing the 2004 amendments to the IDEA include a provision mandating that states allow, as part of their criteria for determining whether a child has a Specific Learning Disability (SLD), the use of a process based on the child’s response to scientific, research-based intervention. See 34 C.F.R. § 300.307(a)(2). RTI is a school-wide approach that attempts to address the needs of all students, including struggling learners and students with disabilities, and integrates assessments and interventions to maximize student achievement. Key characteristics of RTI are: (1) students receive high-quality research- based instruction in the general education setting; (2) schools continually monitor and document student performance; (3) schools screen all students for academic and behavioral problems; and (4) schools provide multiple levels (tiers) of instruction that are progressively more intense, based on the student’s response to instruction. Children who do not respond to interventions are to be referred for evaluation to determine eligibility for special education and related services. School district officials in all of the states we visited and representatives from various advocacy organizations said that there were challenges related to implementing RTI. Representatives from advocacy organizations in all four states we visited cited concerns with school RTI practices that may delay student evaluations or contribute to incorrect eligibility determinations. Advocates in Massachusetts told us that some school districts are more likely than others to put students suspected of a disability through the RTI process for extended periods of time before evaluating them. Further, advocates said using RTI to delay or deny evaluations occurs more frequently at the elementary level and for students with specific types of disabilities, such as mental health and social or emotional disabilities. implementation, the type of disability a student has, the quality and quantity of data gathered on students, and the amount of support provided for the process. In all of the states we visited, school district officials cited efforts to address issues with RTI practices. For example, school district officials in all four states noted that training related to RTI was being provided to their schools. In Massachusetts, New York, and Iowa, school district officials cited recent initiatives specifically aimed at strengthening and implementing the RTI process in schools, such as by integrating social- emotional and behavioral components in RTI and better using student- level data to improve eligibility determinations. In one district, officials specifically noted that efforts to improve their schools’ RTI processes and core curriculum had reduced the number of special education students in their district. According to Education’s 2016-17 school year data, 73 percent of public school districts in the nation had English Learner students; nationwide, English Learner students comprise about 10 percent of public school students, an increase of almost 3 percent since 2010. School district officials we interviewed in all four states we visited described inherent challenges in properly identifying and evaluating English Learner students for special education disabilities. In Massachusetts and New York, school district officials we interviewed explained that they do not always have staff with the necessary expertise to perform evaluations in a child’s first language, which makes it more difficult to determine if a child’s learning difficulties are caused by a disability or by language proficiency issues. State education officials in New York told us that they are concerned about identification issues related to English Learner students, noting that over 200 languages are spoken by their students and about 12 percent of their students with disabilities were also English Learners in 2017-18. In the same state, officials in one school district said that over 100 different languages are spoken by their students and that it was a challenge to properly identify and evaluate them. Representatives of special education advocacy organizations in two states we visited—Massachusetts and New York—made similar observations, noting that English Learner students were at risk of being both over identified and under identified. For example, advocates we interviewed in Massachusetts said that under identification can occur when school districts do not communicate with parents in their home language and, as a result, the parents do not understand how to engage with the special education process. Advocates in both states told us that over and under identification may also occur if the lack of language proficiency is mistaken for a disability or if a disability is mistaken for language learning issues. Education and the Department of Justice have issued guidance to assist schools in meeting their obligations under federal law to ensure that English Learner students who may be eligible for services under IDEA are located, identified, and evaluated for special education services in a timely manner. This guidance instructs schools to consider the English language proficiency of the students appropriately so that they are not identified as students with disabilities because of their limited English language proficiency. Local officials we interviewed in four states said that some disabilities, such as those related to mental health or behavioral disorders, can be difficult to identify and may go undiagnosed. These officials noted that behavioral disabilities can be particularly difficult to correctly identify because they sometimes affect academic performance or behavior in more subtle ways. Some school district officials said they may not have the right tools or staff to identify these students. For example, officials in one school district in Colorado stated that a commonly used disability identification process on its own was not effective for students with mental health and behavioral disabilities. School district officials we spoke to in Massachusetts and Iowa noted that they often struggle to employ staff with the appropriate expertise to address mental health or behavioral issues and that there are fewer resources for schools to use in these areas. Part C to Part B transition Another area of confusion may arise when children transition from Part C services to Part B services, at about age 3. School district officials in the four states we visited said that they identify a significant number of their districts’ school-aged special education students through referrals from the state’s Early Intervention programs during the transition process. State education officials in Massachusetts indicated that the majority of children referred from the early childhood programs for Part B services are not found eligible for school-aged services, which may indicate a lack of a common understanding of the Part B eligibility criteria as the early childhood programs are required to refer the children they think could be eligible for those services. Education and Selected States Reported Monitoring Child Find Implementation through Data Collection and Supporting It through Technical Assistance Education Reported Monitoring State Implementation through Data Reporting and Supporting States with Technical Assistance and Information Education’s Monitoring of State Implementation of Child Find Education’s monitoring of state efforts to implement Child Find requirements is part of a broad framework—known as Results Driven Accountability (RDA)—the department uses to monitor certain aspects of IDEA implementation. Education’s monitoring activities specific to Child Find are based on data and information that states submit annually, as required by IDEA and as part of the RDA process. Because IDEA gives states some discretion in how to meet Child Find requirements, according to Education officials, it focuses on ensuring states have policies, procedures, and systems in place for monitoring local school districts’ special education programs, including their Child Find activities. To monitor state Child Find activities, Education relies, in part, on four indicators specific to the Child Find requirements and requires states to report data on them annually in the State Performance Plan/Annual Performance Report. Three of the indicators pertain to Part C Early Intervention programs and one pertains to Part B. Two Part C Child Find indicators compare the numbers of children served to two data points—the national Part C average (as a percentage) as well as the percentage Education would expect a state to serve based on the state’s population. Education requires states to report these Part C data for two subsets of children—birth to 1 year and birth through 3 years. Education has encouraged states whose Part C enrollment is significantly lower than the national average or below expected levels based on the state’s population, to examine compliance with related Part C requirements. The third Part C Child Find indicator measures state compliance with the 45-day timeline. For this indicator states must report on the number and percentage of children referred to Part C whose evaluations, assessments, and initial individualized family service plan meetings were held within 45 days of referral. The Part B indicator measures the percent of children who were evaluated within 60 days of receiving parental consent for initial evaluation. This indicator is a compliance indicator for which states must establish a target of 100 percent. According to Education officials, the department developed these Parts C and B indicators in response to requirements in the 2004 IDEA reauthorization, which directed the Secretary of Education to monitor the states, and require each state to monitor local educational agencies located in the state or as applicable, the early intervention providers located in the state, using quantifiable indicators in specific priority areas (including Child Find), and using such qualitative indicators as are needed to adequately measure performance in those areas. In developing the indicators, Education officials told us that the department sought to strike a balance between the statutory requirement that they be quantifiable and the inherent challenges in knowing how many children should be identified, evaluated, and found eligible—at the state level or in individual school districts. Education officials said that states and school districts are in a much better position to estimate how many children who have disabilities and who could potentially be found eligible for special education and related services because of their disability. Education officials told us they consulted internal stakeholders, states, school districts, and other special education experts to develop possible quantifiable measures given the inherent challenges in doing so. In addition to the Child Find indicator data submitted annually, under Part B, states provide other information related to Child Find as part of their annual data reporting to Education and the public. These data include the number and percentage of children with disabilities by race, ethnicity, English Learners, gender, and disability category that receive a free appropriate public education; participate in general education; are placed in separate classes, schools, or residential facilities; receive Early Intervention services; and are between birth to 2 years who are no longer receiving Early Intervention services. States are also required to report the number and percentage of infants and toddlers, by race and ethnicity, who are at risk of having substantial developmental delays and who are receiving Early Intervention services. Additionally, Education may receive information about states’ Child Find activities in states’ annual reports as part of the description of IDEA oversight policies and procedures; in explanations of any actions taken in response to Education’s finding of noncompliance with Child Find indicators in prior years; or in the comprehensive multi-year improvement plan Education requires as part of its RDA framework. Education Supports States in Implementing Child Find Requirements Education supports states’ implementation of Child Find in a variety of ways, including a network of technical assistance centers, written guidance, and direct assistance from Education staff. The Technical Assistance and Dissemination (TA&D) program is the primary way Education provides educators, administrators, service providers, and parents with information regarding IDEA. This program assists state and local administrators on a range of topics including clarifying Child Find obligations, professional development for staff and administrators on various aspects of Child Find, and federal accountability requirements. Technical assistance offerings include training on data collection and Early Intervention issues for various audiences such as teachers, administrators, and special education service providers. Officials in each of the states we visited said they had used Education’s technical assistance. In addition to the TA&D program, Education has established six centers that specifically support states in the annual data collection process. Education provides written guidance to states through documents such as Dear Colleague Letters, Frequently Asked Questions, and Questions and Answers. These documents clarify provisions of Child Find and other IDEA requirements as well as respond to common inquiries from school administrators or the public. The written guidance may also address information gathered during oversight activities and changes in federal law or regulation. Topics Education has addressed in written guidance on Child Find include school districts’ uses of RTI and requirements for subgroups of children who may be difficult to find. For example, Education issued a memorandum in 2016 reminding states and districts that (1) RTI processes cannot be used to delay or deny a timely evaluation of a child suspected of having a disability and (2) implementation or completion of RTI is not required prior to evaluating a student for special education services. Officials in Colorado said they found this guidance helpful and issued guidance to their school districts based on Education’s memorandum. Additionally, in 2007 and 2008 Education addressed issues regarding Child Find requirements for certain groups of children, such as those who are homeless or those who are residing in Immigration and Customs Enforcement (ICE) residential facilities. Homeless children, for example, are inherently difficult to identify and evaluate for special education services because they and their families are highly mobile. Education’s guidance reminded states and school districts that their Child Find obligations include these hard to find subgroups and directed states to coordinate with emergency shelters and homeless advocacy programs, among others, to help find children suspected of having a disability. Education’s website notes that each state is assigned a customer service representative, a Part B contact, a Part C contact, and a team leader. Education officials we spoke to told us that staff hold monthly check-in meetings with state officials to provide information and discuss issues of concern. They also said that issues needing clarification sometimes arise during these check-in meetings. For example, they said that in a meeting with state directors they identified a lack of clarity around some English Learner issues. As a result, Education developed guidance to explain Child Find obligations regarding English Learner students as well as other obligations under IDEA. Education also has a customer service unit available to assist states with questions about IDEA, special education, and related services. State officials in all four states we visited told us they had good relationships with Education IDEA monitoring staff and rely on them to learn about available technical assistance and other resources. Officials we interviewed in one state said their Education contacts were instrumental in helping them improve their programs. facilities, although Education stated that an ICE facility and the state or local school district could enter into a voluntary agreement to provide Child Find or other educational services. U.S. Department of Education, Office of Special Education and Rehabilitative Services, Letter to David Anderson, General Counsel, Texas Education Agency (Dec. 21, 2007); U.S. Department of Education, Office of Special Education and Rehabilitative Services, Letter to David Anderson, General Counsel, Texas Education Agency, (Apr. 22, 2008). Education officials told us that if these children are released from ICE facilities into the care of a sponsor to await their immigration hearings, they do have a right under federal law to enroll in public elementary and secondary schools and to receive educational services, including special education services, if found eligible. Selected States Reported Monitoring Local Implementation through Audits and Data Reporting and Support Local Districts with Technical Assistance and Professional Development Data Collection and Regularly Timed Audits States must monitor their local school districts’ implementation of IDEA requirements. As part of the State Performance Plan/Annual Performance Report, each state must establish measurable and rigorous targets for the indicators, including Child Find, and must analyze the performance of each local school district in the state in implementing the requirements of Part B or as applicable, each Early Intervention provider located in the state in implementing the requirements of Part C. Data analysis and regular audits are the primary means states use to monitor local school districts, according to officials we interviewed in each of the four states we visited. The Part C lead agencies in the four states we visited reported monitoring local implementation of Early Intervention programs through indicator data or on-site visits. In their State Performance Plan/Annual Performance Reports for federal fiscal year 2016, the states we visited reported various monitoring activities. For example: Colorado gathers data from an online system to monitor local programs and analyze performance. In addition to desk audits of local service providers, Colorado’s lead agency does on-site monitoring, selecting local agencies for monitoring visits based on its annual priority areas, or focusing on a cross-section of programs based on size, region, and program structure. Colorado’s annual priority areas have included topics such as increasing public awareness regarding Early Intervention services by providing developmental information to parents of newborns in the hospital and ensuring that the transdisciplinary team members who are responsible for evaluating infants and toddlers are effectively communicating. Massachusetts’ local Early Intervention programs complete and submit to the state lead agency annual reports and self- assessments based on federal indicators. Additionally, the Part C lead agency conducts on-site monitoring of selected sites on a cyclical basis, and focused monitoring to examine specific aspects of local Early Intervention programs. New York conducts comprehensive on-site monitoring of municipalities that administer local Early Intervention programs and approved providers who perform Early Intervention services including reviewing written policies and procedures regarding Early Intervention processes as well as examining a sample of client records at each service location. Iowa monitors all regional grantees on an annual basis. The process includes review of parent surveys and review of family outcome data, among other things. When performance or compliance issues are identified, the lead agency conducts desk audits and data verification checks. Although Part B monitoring activities in the four selected states are similar, they reflect the structure, policies and procedures of individual states. For example, Iowa officials said they monitor both Area Education Agencies and local school districts through desk audits and site visits. Officials told us that the SEA has developed (1) a process to evaluate the performance of the regional agencies regarding the provision of special education services and their oversight responsibilities for the local school districts, and (2) a separate process that examines the performance of school districts with regard to IDEA implementation. The State Performance Plan/Annual Performance Reports for federal fiscal year 2016 for the remaining three states we visited note the following monitoring activities: Colorado collects data and reviews the results of school district self- audits from each of its districts. Massachusetts reported reviewing indicator data and instituting a new monitoring process called Tiered Focus Monitoring. In the first year of the monitoring cycle, all local school districts are to conduct self- assessments on specific criteria related to the special education identification processes and other topics. The self-assessments inform the SEA’s on-site monitoring in the second year. In the third year, school districts are to continue internal monitoring; and in the fourth year, they complete a self-assessment regarding special education and legal requirements. New York reported reviewing data and using school district self- assessments, desk audits, and on-site monitoring. According to the annual report the selection of sites for on-site monitoring depends on a variety of information, including performance on indicator targets. Professional Development and Technical Assistance for Local School Districts IDEA requires states and lead agencies to provide professional development and technical assistance to local school districts. The State Performance Plan/Annual Performance Reports for federal fiscal year 2016 for each of the four states we visited described professional development activities provided on topics related to Part C Early Intervention and Part B programs. For Part C, states reported that they provided the following professional development activities among others: Colorado provided training on data management to ensure valid and reliable data for monitoring purposes. Iowa provided service coordination training which provides knowledge and skills to understand Early Intervention eligibility, the IDEA, and Early Intervention services. Massachusetts held training sessions for Early Intervention service providers regarding Early Intervention transitions to support children who are exiting Early Intervention services or are referred for Part B services. Early Intervention service providers were also able to receive training concerning functional assessments. New York employed contractors to provide training on best practices for delivering Early Intervention services and training about providing those services in a child’s natural environments. Additionally, they provided training to primary referral sources. For Part B, the states reported that they provided the following professional development activities among others: Colorado provided professional development on topics that were identified by teachers. The SEA surveys teachers, providers, and Special Education Directors annually to determine professional development topics. Officials we interviewed in selected school districts told us that they had received training on Child Find obligations and classroom interventions. Iowa requires each district to develop professional development plans that support the needs of district staff responsible for instruction. Districts officials said they have provided training concerning intervention strategies and Child Find responsibilities. Massachusetts has provided training in social emotional learning and behavioral interventions. New York provides ongoing statewide training regarding classroom and behavioral interventions, as well as a program for school principals regarding special education law and regulations as well as the principal’s responsibilities for implementing IDEA. Officials we interviewed in each of the four states we visited told us that they offer a range of technical assistance, including written guidance, webinars, meetings/conferences, telephone assistance, and one-on-one training to support local school districts and schools in implementing Child Find requirements. For example, New York instituted a Blueprint for Improved Results for Students with Disabilities. This Blueprint establishes expectations to improve instruction and results for students with disabilities, which in turn informs the state’s technical assistance networks. In each of the four states, officials reported (1) offering targeted assistance where there were concerns related to performance or results of Part B programs and (2) examining results and compliance data to identify areas of concern and potential recipients for targeted assistance. For example, Massachusetts reported in its annual report that it had provided one-on-one technical assistance to local school districts where there were performance concerns, while New York reported that its technical assistance improvement specialists review low-performing schools and help to develop tools for improvement. Similarly, the Part C lead agency officials in all of the states we visited told us they provided training and technical assistance to Early Intervention programs. These states offered assistance in a variety of ways including written guidance, information provided via phone or email, and formal training sessions. Officials from Colorado and Iowa reported holding monthly technical assistance calls, while officials from Massachusetts reported holding monthly webinars for local Early Intervention providers. In its annual report, Iowa reported providing training on using technology to provide Early Intervention services, while New York reported offering training on best practices in identifying and evaluating infants and toddlers. Each of the four states we visited reported offering targeted assistance to schools where monitoring efforts identified concerns or compliance issues. The targeted assistance is intended to improve performance in the areas identified. We provided a draft of this report to Education for review and comment. Education provided technical comments, which we incorporated as appropriate. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees, the Secretary of Education, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (617) 788-0580 or nowickij@gao.gov. Contact points for our offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix II. Appendix I: Objectives, Scope, and Methodology The objectives of this study were to examine (1) factors that may account for differences in the percentage of children receiving special education services, and (2) how the U.S. Department of Education (Education) and selected states monitor and support Child Find requirements. To conduct this work we (1) reviewed federal special education data from school years 2011 through 2016 (the most recent available at the time of our review); (2) reviewed relevant Department information, such as Dear Colleague Letters, Frequently Asked Questions, and Questions and Answers; federal laws; regulations and policies; and selected state laws; (3) interviewed Education officials; (4) interviewed officials from state agencies responsible for administering Parts C and B of the Individuals with Disabilities Education Act (IDEA) special education programs in four states (Colorado, Iowa, Massachusetts, and New York) and fifteen school districts within those states; and (5) interviewed representatives from special education advocacy organizations that represent parents and families of individuals with disabilities and subject matter specialists to discuss issues related to Child Find. The following sections contain detailed information about the scope and methodology for this report. Review of Federal Special Education Data To determine the differences in the percentage of children receiving special education services across states we used Education’s Annual Reports to Congress on the Implementation of the Individuals with Disabilities Education Act (IDEA) to review national and state level special education data. We used the most recent five reports, 2014 through 2018, which reported on data for school years 2012 through 2016, to review the percentages of children that were receiving special education services under IDEA Part C and Part B during school years 2012 through 2016 nationally and by state. These data, known as Section 618 data, are self- reported by school districts. We focused our review primarily on data regarding the percentage of children served under IDEA Part C (ages 0- 2), Part B (ages 3-5), and Part B (ages 6-21), nationally and by state during school years 2012 through 2016. We determined that the data we used from the Annual Reports to Congress on the Implementation of IDEA were sufficiently reliable for the purposes of the report by reviewing technical documentation and interviewing Education officials to determine what mechanisms are in place to ensure data quality. Review of Agency Documentation, Federal Laws, Regulations, Policies, and Selected State Laws and Regulations and Interviews of Education Officials To obtain information on the factors that may account for variation in the percentage of children receiving special education services and to examine how Education and selected states support and monitor Child Find requirements, we reviewed Education documents, such as Dear Colleague Letters, Frequently Asked Questions, and Questions and Answers. We also reviewed Education’s recent annual reports to Congress and documents containing guidance to states on required annual data submissions. Additionally, we reviewed relevant federal laws, regulations, and policies, and selected state laws and regulations. With both Education and state agencies responsible for supporting and monitoring Child Find requirements, we interviewed officials about the agencies’ responsibilities with respect to IDEA, as well as the processes the agencies put in place to monitor implementation of those requirements. We also discussed each agency’s guidance and support to school districts on these issues. In addition, we collected and reviewed relevant agency procedures and guidance documents. Site Visits and Associated Interviews with Officials at State Agencies and School Districts To obtain information on the factors that may account for differences among selected states and school districts in the percentage of children receiving special education services and how selected states support and monitor Child Find requirements, we conducted site visits in a non- generalizable sample of four states and 15 school districts. We selected states primarily for diversity in (1) the percentage of special education students; (2) changes in the percentage of special education students over a 5-year period; (3) geography; and (4) the agency responsible for state Early Intervention programs (i.e., the state educational agency or another state agency). We used data from the National Center for Education Statistics (NCES), Common Core of Data (CCD) for the 5-year period, 2011-2015 (the most recent available data at the time of our selection) to identify the percentage of special education students in each state as well as the change in the percentage of special education students in each state over the 5-year period. We determined that the data used were sufficiently reliable for the purposes of the report by reviewing technical documentation and interviewing Education officials to determine what mechanisms are in place to ensure data quality. In each state, we interviewed officials from the state educational agency, the agency responsible for Part B special education, as well as officials from the state agency responsible for Part C special education. In addition, we also interviewed officials from special education advocacy organizations that represent parents and families of individuals with disabilities. We selected school districts primarily for diversity of size. We used state department of education enrollment data for 2017-2018 to sort school districts based on the size of the student population. We selected three school districts in Colorado, five in Iowa, three in Massachusetts and four in New York. In each district, we interviewed district-level officials involved in special education and school Child Find processes. These officials included assistant superintendents, administrators, and directors of special education. While not generalizable, our interviews provided illustrative examples of a range of state and district Child Find processes, and the differences and challenges states and school districts face. Interviews with Special Education Advocates and Special Education Subject Matter Specialists To obtain information on the factors that may account for differences among states and school districts in the percentage of children receiving special education services and processes that states and school districts may use in implementing their Child Find requirements, we interviewed representatives from eight special education advocacy organizations that represent parents and families of individuals with disabilities and four special education subject matter specialists to discuss issues related to Child Find. Some of the issues we discussed included Early Intervention eligibility, assessment processes of students including Response to Intervention, and other topics to get a better sense of Child Find processes and issues. We conducted this performance audit from August 2017 to April 2019 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Bill MacBlane (Assistant Director), Mindy Bowman (Analyst-in-Charge), Aaron Karty, Deborah Signer, Phillip Steinberg, and Shelia Thorpe made key contributions to this report. Also contributing to this report were James Bennett, Deborah Bland, Shilpa Grover, Serena Lo, Art Merriam, Sheila R. McCoy, Corinna Nicolaou, James Rebbe, Brian Schwartz, Daren Sweeney, and Kathleen van Gelder.


Background IRA owners are not permitted to engage in certain prohibited transactions involving IRA assets. Prohibited transactions generally fall into two categories: Transaction involving disqualified persons. An IRA is prohibited from engaging in a transaction with disqualified persons, such as members of the IRA owner’s family or an IRA fiduciary. Transaction involving self-dealing. An IRA owner who is a fiduciary is prohibited from engaging in a transaction with the IRA where the IRA owner personally benefits (other than through the receipt of a distribution). We previously reported that prohibited transactions are more likely to arise when IRA owners make unconventional IRA investments. Unlike conventional IRA investments in publicly traded stocks, bonds, and mutual funds, unconventional investments in real estate, virtual currency, or private equity are more likely to involve the IRA owner, disqualified family members, or other disqualified persons. For example, an IRA invested in rental real estate can leave IRA owners susceptible to a number of prohibited transactions, such as renting to family or paying for repairs with personal funds. IRA owners may face adverse and potentially severe tax consequences if they are found to have engaged in a prohibited transaction. Specifically, the IRA could lose its tax-favored status. The account would then be treated as distributing all its assets to the IRA owner at the fair market value on the first day of the year in which the prohibited transaction occurred. The IRA owner may be subject to additional income taxes because of any early distribution from an IRA. The prohibited transaction may also be subject to excise taxes. The Employee Retirement Income Security Act of 1974 (ERISA), which established IRAs and rules prohibiting certain IRA transactions, assigned IRA oversight roles to both DOL and IRS. To avoid confusion over dual jurisdiction, a 1978 Executive Order further clarified the agencies’ roles and responsibilities regarding prohibited transactions. As a result, the authority to interpret the prohibited transaction rules and grant exemptions to those rules was transferred to DOL. The transfer did not affect IRS’ ability to enforce the excise tax provisions or the tax consequences for IRA owners who are found to have engaged in a prohibited transaction. However, in enforcing such tax consequences, IRS is bound by the regulations, rulings, opinions, and exemptions issued by DOL. DOL has the authority to grant administrative exemptions to the prohibited transaction rules on either an individual or a class basis. DOL can grant prospective exemptions for a transaction that an IRA is considering, as well as retroactive exemptions for transactions that have already occurred. DOL Has Not Sufficiently Documented Internal Policies and Procedures for Reviewing Prohibited IRA Transaction Exemption Applications To grant an exemption from prohibited IRA transaction rules, DOL evaluates applications using statutory criteria, and follows administrative procedures codified in regulations. Generally, DOL may not grant an exemption unless it finds the exemption to be: in the interest of the plan and its participants and beneficiaries, and protective of the rights of plan participants and beneficiaries. Before granting an exemption, DOL generally must publish a notice of proposed exemption in the Federal Register inviting interested parties to comment on the proposed exemption. DOL Has a Process to Grant Administrative Exemptions for Otherwise Prohibited IRA Transactions DOL regulations lay out the process for filing and processing prohibited transaction exemptions applications. Among other things, the regulations explain: who may apply, what information must be included with an application, when a conference with DOL can be requested, when a request for reconsideration of a DOL decision can be made, how DOL and the applicant will notify interested persons if DOL decides a tentative approval is warranted. DOL also publishes a booklet that provides an explanation of the regulations and applicable laws, and includes additional information for applicants like examples of common types of exemption requests. IRA owners or their fiduciaries file applications for exemptions with DOL’s Office of Exemption Determinations which is part of EBSA. Applicants can research information about past exemptions granted by the agency on EBSA’s website. As explained in the DOL booklet describing the application requirements, applicants have the burden of demonstrating that they should be granted an exemption. If DOL tentatively denies an application, applicants have options for requesting that the denial be reconsidered. Within 20 days of the tentative denial, applicants can request a conference with DOL, or notify DOL of their intent to submit additional information. If, after a conference has been convened, DOL issues a final denial of the application, DOL will entertain one request for reconsideration if the applicant presents significant new facts or arguments, which, for good reason, could not have been submitted earlier. After DOL publishes a notice of proposed exemption in the Federal Register that describes the pending application, the applicant must notify interested persons of the pending exemption. Often, the contents of the information sent to all interested persons, the manner in which it is sent, and any associated deadlines will have previously been agreed to by DOL and the applicant. DOL may also hold public hearings during the comment period. For example, if the transaction involves potential fiduciary self-dealing or conflicts of interest, any individual potentially adversely affected by the exemption may submit a request for a public hearing to DOL. If granted, DOL publishes information about the exemption in the Federal Register and on its website. Figure 1 provides an overview of the exemption application process. The regulations describe circumstances in which DOL will ordinarily not consider an application. For example, DOL generally will not consider an individual application if DOL already has under consideration a class exemption relating to the same type of transaction. DOL will also not consider an application for transactions subject to DOL or IRS investigations. DOL requires applicants to disclose in their applications whether exemption transactions are, or have been, subject to an investigation or enforcement action by DOL or IRS. In addition, if the applicant or any other party in interest becomes the subject of an investigation or enforcement action, the applicant is required to promptly notify DOL. If applicants find that their prospective transaction is substantially similar to other transactions for which the agency has previously granted exemptions, they can follow an expedited process by submitting an “EXPRO” application. EXPRO applications are required to cite prior exemptions granted by DOL to demonstrate that the proposed IRA transaction is substantially similar to other IRA transactions for which DOL has previously provided an exemption. Specifically, EXPRO applicants must cite as substantially similar, either (1) two individual exemptions granted by DOL within the previous 5 years, or (2) one individual exemption granted within the past 10 years, and one transaction authorized pursuant to the EXPRO class exemption within the past 5 years. The applicant must give notice to all interested persons, and the applicant must resolve all substantive adverse comments provided by interested persons before DOL will grant final approval. The time to complete the exemption process can range from a few months to more than a year. DOL officials told us that the process generally takes about 1 year for an individual IRA application that is relatively simple or routine. EXPRO applications have been processed in as few as 78 days. According to DOL officials, the process can start before an applicant submits a formal application because applicants can, and do, request informal consultations and conferences with DOL. DOL officials explained that sometimes potential applicants decide not to file an application after an informal conference because applicants realize that their application would likely be denied. DOL officials explained that during the review process, they first confirm their understanding and characterization of the proposed exemption through correspondence with the applicants. Then, in response, DOL often sets conditions under which relief from the prohibited transaction rules is contingent, such as on the applicant taking additional actions and remaining in compliance with those conditions. For example, if an applicant wants to sell or purchase an asset in what would be an otherwise prohibited IRA transaction, DOL may stipulate that the applicant first obtain an independent appraisal or valuation assessment to determine a fair-market value of that asset. After applications are formally submitted, many IRA applicants withdraw during DOL’s review process. Over an 11-year period, we found that of the 124 IRA applications, applicants withdrew roughly half (56) before the review process was completed (see table 1). Of the remaining 68 applications that continued with the review process, DOL granted 48, denied 16, and closed four application cases for administrative or other reasons. DOL officials did not dispute the results of our analysis, but they said that it would be misleading to conclude that DOL is more likely to grant than deny applications. Rather, they said that their practice of encouraging applicants to consult with DOL in advance leads some potential applicants to decide not to pursue an exemption. In our review of processed applications, we found that most of the applications involved the sale of IRA assets. We found that 88 of the 124 applications were for transactions involving the sale of IRA assets. Most of these were sales of securities or real property (see appendix I for additional information). The next most common type of transaction was for the purchase of assets (21 applications), and most of those also involved securities or real property. The remaining applications involved other transactions, including leases, loans, and extensions of credit. DOL Lacks Documented Policies and Procedures to Manage Its Reviews and Data DOL has not sufficiently documented internal policies and procedures to manage and help ensure effective internal controls of its prohibited transactions exemption process. While DOL regulations and guidance detail the requirements for applicants, DOL generally lacks internal documentation of the steps and actions DOL officials are to follow when processing applications, and the roles and responsibilities of agency officials. DOL officials told us that they use a case tracking system to record and track applications. When an application is received by DOL, the division chief of EBSA’s Office of Exemption Determinations (OED) reviews the application and assigns it to an OED supervisor. Either the division chief or the supervisor enters preliminary information from the application into the system, and classifies the transaction by applying one or multiple subject matter codes. The supervisor then reviews the information in the applicant’s case file and assigns the case to an OED analyst. DOL officials told us that any interim data, such as the publication date for a proposed exemption, is entered by the supervisor in the system. If an application is withdrawn by an applicant, denied, or granted, the supervisor records this information in the system, including the dates of these actions. When a case is closed, the analyst completes a close-out index form and submits it to the supervisor for review, and the supervisor enters a closing code in the system. DOL officials told us that they can use the system to generate management reports, such as on the number of applications filed and the amount of time to process cases. Neither the process described above, nor the different roles and responsibilities of the OED division chief, supervisors, and analysts in that process, were documented in the internal documents that DOL provided. A system reference guide included instructions to system users for how to input and modify case records, generate reports, and add or modify users. The reference guide also included screen prints indicating which fields are required by the system to process a case. However, the reference guide did not contain information about responsibilities and duties for these data entry activities, and how those duties are assigned. The documentation provided is unclear regarding who within OED is ultimately responsible for making final decisions on applications. According to Standards for Internal Control in the Federal Government, documentation of an agency’s policies and procedures is a necessary part of an effective internal control system. Such documentation can appear, for example, in management directives or operating manuals, and it should be readily available for examination. Policies and procedures can also help document internal control responsibilities within the agency. DOL officials told us that OED is a small and compact organization, and as such, its policies and procedures can easily be communicated “person to person” and through onsite training. DOL officials also said that the process for entering data is not difficult, and there are few opportunities for error because nearly all data on applications is prepopulated. The principles of internal control, however, apply to both large and small organizations. The level and nature of documentation may vary based on the size of the organization and the complexity of the processes the organization performs, but documentation is still necessary. By documenting policies and procedures, management will be better positioned to monitor whether the organization’s activities are aligned with those policies and procedures, and assess whether the organization is achieving its objectives. Documenting procedures also would provide greater transparency about how applications are handled, and can reduce the risk of employees carrying out their duties inconsistently. For a small organization like OED, documentation of policies and procedures provides a means to retain organizational knowledge, and can help ensure continuity of and consistency in operations if key personnel leave the organization unexpectedly. DOL and IRS Currently Share Some Information on Exemption Applications, but More Formalized Collaboration Could Improve Their Oversight Efforts Some information sharing takes place between DOL and IRS on applications for IRA prohibited transaction exemptions, but no formal mechanism exists to help guide collaboration between the two agencies. As previously discussed, DOL and IRS share oversight responsibility for prohibited IRA transactions. Based on our review of applications and DOL data as well as interviews with agency officials, we found that interactions between DOL and IRS regarding applications for prohibited transaction exemptions are infrequent and limited in scope. Of the 124 applications we reviewed, only eight were coded in OED’s Case Tracking System as having “external contact with IRS,” and DOL officials confirmed that this accurately reflects the level of interagency coordination. DOL officials stated that they sometimes contact IRS about exemption applications, and IRS officials confirmed to us that they periodically receive communications from DOL. IRS officials also told us that they occasionally contact DOL. Both agencies described to us how their current interaction occurs. DOL officials told us that they coordinate with IRS in the following ways: If, during the application review process, OED staff identify applications that may warrant further review or investigation for tax violations, they refer the case to EBSA’s Office of Enforcement, which may then coordinate or refer the case to IRS. DOL officials said that OED staff review the IRS “Dirty Dozen” list of potentially abusive tax scams and schemes. IRS officials said that when possible prohibited transactions arise during an examination that might require DOL input, IRS examiners reach out to DOL to ensure that IRS understands DOL decisions on those transactions. DOL officials said that, in their view, most requested prohibited IRA transaction exemptions do not require extensive interaction with IRS. They questioned the potential usefulness of information about denied or withdrawn applications that might be shared with IRS, but said that IRS could certainly obtain this information if IRS requested it. IRS officials, however, told us that more information from DOL about prohibited IRA transactions and requested exemptions could be useful in carrying out IRS’s oversight responsibilities. For example, DOL does not share information on denied or withdrawn applications with IRS, information that IRS officials told us would be helpful to them. We found that denial information could be useful to IRS as illustrative examples of prohibited transactions for examiner training and educational outreach to IRA owners. Information about the types of transactions in withdrawn applications could also help IRS identify emerging issues or trends in potential prohibited transactions marketed to IRA owners. Although some limited collaboration between DOL and IRS exists, the agencies have not applied to their oversight of prohibited transactions some key practices we have identified in prior reviews of interagency collaboration. Specifically, developing a mechanism to formalize the sharing of information between DOL and IRS could help support current collaboration activities, and could be useful in helping the agencies identify opportunities for greater collaboration going forward. Furthermore, documentation is a necessary part of an effective internal control system. Documenting the procedures for interagency collaboration would improve internal control over the agencies’ activities. A formal agreement, such as a memorandum of understanding (MOU) or other mechanism, can further help agencies monitor, evaluate, and update interagency collaboration. For example, DOL and IRS have previously formalized their collaboration regarding oversight of a different type of retirement savings vehicle— employer-sponsored retirement plans. DOL and IRS have oversight responsibilities for employer-sponsored retirement plans, such as pensions, and in 2003, DOL and IRS completed an MOU to implement collaboration between the two agencies with regards to investigations of and litigation involving employer-sponsored retirement plans. The employer retirement plan MOU and the implementing guidance contain some features of interagency collaboration mechanisms that we have identified in prior work. For example: The responsibilities of each agency are documented, and responsible agency components and officials are identified. The agencies use collaboration tools (checklists) for determining whether issues presented in an examination or investigation by one agency should be referred to the other. A system and process exists to track referrals, and the agencies reconcile their data about referrals (including pending referrals) quarterly. The employer retirement plan MOU also established a process to periodically monitor its effectiveness, and the MOU was last updated in 2013. Developing a similar mechanism to formalize the sharing of information between DOL and IRS regarding IRA prohibited transaction exemptions could help the agencies better support their current coordination efforts and identify additional opportunities for greater collaboration. Conclusions IRAs are a key vehicle for individuals to save for retirement. IRA owners’ decisions to invest in unconventional assets can expand their role and responsibilities substantially. The consequences for account owners who make a mistake can be severe. When IRA owners request an exemption from rules on prohibited transactions, DOL evaluates applications using statutory criteria, and follows administrative procedures codified in regulations. However, DOL has not sufficiently documented internal policies and procedures for how to manage its process for granting exemptions. Such documentation is a necessary part of an agency’s effective internal control system. DOL and IRS share oversight responsibility of prohibited IRA transactions. While the two agencies do share some information, they do not have a formal mechanism to guide and monitor their collaboration. By formalizing interagency collaboration, such as through an MOU or other mechanism, DOL and IRS could help reinforce their current information sharing and potentially identify new opportunities to improve their oversight efforts through greater collaboration. Documenting procedures for DOL and IRS collaboration on prohibited IRA transactions would also help introduce better internal control over these activities. Recommendations for Executive Action We are making a total of three recommendations, including two to DOL and one to IRS. The Secretary of Labor should document internal policies and procedures for managing the IRA prohibited transaction exemption process. (Recommendation 1) The Secretary of Labor, in consultation with the Commissioner of Internal Revenue, should establish a formal means, such as a memorandum of understanding or other mechanism, to support and guide DOL’s and IRS’s collaborative efforts to oversee IRA prohibited transaction exemptions. (Recommendation 2) The Commissioner of Internal Revenue, in consultation with the Secretary of Labor, should establish a formal means, such as a memorandum of understanding or other mechanism, to support and guide DOL’s and IRS’s collaborative efforts to oversee IRA prohibited transaction exemptions. (Recommendation 3) Agency Comments We provided a draft of this report to the Secretary of Labor, the Commissioner of Internal Revenue, and the Secretary of the Treasury for review and comment. In its comments, reproduced in appendix II, DOL generally agreed with our two recommendations directed to it. For recommendation 1, DOL plans to create an internal procedure manual formalizing OED’s administrative case processing procedures to help in passing along institutional knowledge. For recommendation 2, DOL agreed to periodically discuss all IRA exemption cases with IRS and did not elaborate on the formal means for this information sharing. DOL also provided technical comments which we incorporated as appropriate. In its comments, reproduced in appendix III, IRS generally agreed with our recommendation directed to it. For recommendation 3, IRS said it is committed to discussing an appropriate mechanism, including periodic meetings, to formalize collaboration on IRA prohibited transaction exemptions. IRS plans to consider expanding its formal collaboration with DOL as part of the next periodic update of the existing employer plan MOU. IRS also provided technical comments which we incorporated as appropriate. The Department of the Treasury provided technical comments which we incorporated as appropriate. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees, the Secretary of Labor, the Secretary of the Treasury, and the Commissioner of Internal Revenue. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact James R. McTigue, Jr. at (202) 512-9110 or Charles A. Jeszeck at (202) 512-7215. You may also reach us by email at mctiguej@gao.gov or jeszeckc@gao.gov. GAO staff making key contributions to this report are listed in appendix IV. Appendix I: Applications for Individual Retirement Account Exempted Transactions by Type Appendix II: Comments from the Department of Labor Appendix III: Comments from the Internal Revenue Service Appendix IV: GAO Contact and Staff Acknowledgments GAO Contacts Staff Acknowledgments In addition to the contacts named above, MaryLynn Sergent and David Lehrer (Assistant Directors), Ted Burik, Susan Chin, Steven Flint, Emily Gruenwald, Mark Kehoe, Jungjin Park, and David Reed made key contributions to this report. James Bennett, Amy Bowser, Jacqueline Chapin, Edward J. Nannenhorn, Andrew J. Stephens, Walter Vance, and Adam Wendel also provided support.