The report by the department's Office of the Inspector General also singles out state education departments in California, Florida and Arizona for failing to properly track what charter schools are doing with the funds and if they comply with federal regulations.
The three states have collectively received $275 million in federal funds for charter schools from 2008 to 2011.
The report on the Office of Innovation and Improvement was released in late September.
The report says the office has agreed to beef up its procedures to track federal funds and ensure states are adequately monitoring charter schools.
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