New York State's Education Law requires local school districts with eight or more teachers and all Boards of Cooperative Educational Services (BOCES) to obtain annual independent audits. They are required to submit annual audit reports to the State Education Department. The Department also requires these entities to obtain a "Single Audit" if they receive federal assistance over $25,000. This report presents findings of an audit that examined the procurement, use, and quality of annual school-district audits and the related oversight provided by the New York State Education Department. The audit concludes that the department and school districts need to work to ensure that they are receiving quality audits that comply with applicable requirements. In addition, department and district managers should use school-district audits more effectively. It is suggested that they use a competitive selection process in which the quality of the proposed services is equal or more important than the price; and consider peer-review results of the auditor's work, extent of the auditor's continuing professional education, and the auditor's governmental and single-audit experience. Ongoing reviews of the audit work being conducted are also needed. In summary, the department should consider changes to the annual audit and subsequent report to enable audited data to be used for state aid purposes. Appendices contain a list of major contributors, a list of school districts visited, and comments from department officials. (LMI)