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The state education department needs to regulate how it spends its stimulus money more thoroughly, according to an audit released last week by the U.S. Department of Education.

The report, prepared by the USDOE’s Office of Inspector General in a round of “initial” audits of four large states, calls into question state oversight practices that monitor how federal grant money is disbursed to school districts and then spent. The report concluded that the state needs to upgrade its regulatory systems in order to provide “a reasonable assurance of compliance” with federal law.

The Obama administration has made a clear accounting of how education stimulus money is spent a top priority, and U.S. Secretary of Education Arne Duncan has said that the funds should be tracked on a district-by-district level.

Last week, in an interview with Washington Post reporter Jay Matthews, Duncan said that flaws in states’ data and reporting system will count against them in determinations of who receives Race to the Top money as well.

The inspector general’s office gave the state education department a preliminary copy of the report at the beginning of October for response, the audit states. NYSED provided comments two weeks later, but the auditors did not modify their recommendations based on New York’s response.

In September, the federal Government and Accountability Office placed New York on a list of states that are at “high risk” of misusing federal Title I funds, which provide assistance to districts and schools with high proportions of poor students. The office did not include New York on the list of states most at risk for problems with their education stimulus spending, however.

Here’s the complete final audit report: