In 1984 the Education Department (ED) began to monitor state education agencies' (SEA) administration of the education block grant known as "Chapter 2." ED staff visited 21 states, the District of Columbia, and Puerto Rico and found many serious problems among the SEAs and local education agencies (LEAs). The problems are divided into five major areas with the percentages of states having problems in each area cited as follows: (1) public and parent involvement, 56 percent; (2) SEA controls over SEA programs, 52 percent; (3) SEA monitoring of LEA programs, 83 percent; (4) SEA/LEA oversight of private participation, 70 percent; and (5) SEA/LEA guarantees of private participation, 78 percent. Within these areas, of the 87 different items identified as needing correction, 39 percent concerned private school participation and, of these, 62 percent concerned assurances of maximum benefit, rather than controls over possible abuse. Although ED holds the SEAs responsible for assuring that the program is run properly in local districts, the law, regulations, and ED's "non-regulatory guidance" (NRG) are ambiguous about SEA authority. Ironically, ED can justify compromising the Administration's policy of noninterference by pointing out that it must ensure that states guarantee maximum benefit to children in private schools. (MLF)