Workforce Investment Act:

States' Spending Is on Track, but Better Guidance Would Improve Financial Reporting

GAO-03-239: Published: Nov 22, 2002. Publicly Released: Nov 22, 2002.

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The administration has twice proposed reducing the Workforce Investment Act's (WIA) budget, citing large amounts of states' unspent funds carried over from the prior year. However, in light of current economic conditions, state and local workforce officials have expressed a need for more funds, not less. GAO was asked to assess whether the Department of Labor's spending information is a true reflection of states' available funds. GAO examined the spending rate for states, what Labor does to determine how states are managing their spending, and what factors affect states' WIA expenditure rates.

States are spending their WIA funds much faster than required under the law, according to GAO's analysis of Labor's data. By the end of program year 2001, states had spent virtually all funds allocated in 1999 as well as 90 percent of 2000 funds and 56 percent of 2001 funds. By contrast, Labor's estimate suggests a slower pace of spending because it is based on all available funds, including those only recently distributed. Even though 44 percent of program year 2001 funds are being carried over into program year 2002, many of these funds may have already been committed at the point of service delivery. Furthermore, because of reporting inconsistencies, Labor's data do not accurately reflect funds that have been obligated long-term commitments made by states and local areas on behalf of WIA customers. For a truer picture of available funding, both expenditures and obligations must be considered. But, because Labor lacks consistent data on obligations, it focuses only on expenditures to gauge budgetary need and overestimates funds states have available to spend. Labor compares state expenditures against its benchmarks to determine how states manage their spending, to target guidance and assistance efforts, and to formulate next year's budget request. But Labor does not often communicate these benchmarks to states. Despite active monitoring and additional guidance, state and local officials remain confused by some of Labor's financial reporting requirements. They seek more definitive guidance and the opportunity to share promising strategies to help them better manage spending. Financial reporting delays result from lengthy spending approval and contract procurement procedures lasting as long as 8 months and untimely service provider billing. Also, yearly funding fluctuations affect states' and local areas' willingness to commit resources in the long term and inhibit workforce system planning. Some states and localities have implemented strategies to overcome these factors and better manage their WIA spending.

Status Legend:

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  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: To help states and local areas manage their spending more judiciously, the Department of Labor should communicate spending benchmarks that states should meet.

    Agency Affected: Department of Labor

    Status: Closed - Not Implemented

    Comments: Labor did not agree with GAO's recommendation and indicated that it will not communicate benchmark information beyond that which is already stipulated by the Workforce Investment Act's recapture/reallotment policy. No action has been taken during the recent fiscal year.

    Recommendation: To help states and local areas manage their spending more judiciously, the Department of Labor should proactively provide states and local areas with guidance and technical assistance focused on reporting financial information.

    Agency Affected: Department of Labor

    Status: Closed - Implemented

    Comments: Labor agreed with GAO's recommendation and has issued a training manual for states and local areas: "Financial Accounting for ETA Training Programs" August 2004. According to Labor, its Division of Financial and Grants Management, Policy, and Review has been using the training manual to provide training and technical assistance to states and local areas on how to properly report obligations, accruals, and expenditures. The training manual includes guidance letters, Internet resources, clarification of financial reporting definitions, and class exercises conducted through case studies.

    Recommendation: To provide a more complete picture of spending activity and to obtain accurate information for its recapture decision, the Department of Labor should include such obligations in determining states' available funds.

    Agency Affected: Department of Labor

    Status: Closed - Not Implemented

    Comments: Labor did not agree with GAO's recommendation and continues to use state obligations in accordance with Workforce Investment Act (WIA) regulations. Furthermore, the WIA reauthorization bill proposes that ETA will base recapture on accrued expenditures, not obligations. Thus, obligations will not be considered in determining states' available funds. No action has been taken during the recent fiscal year.

    Recommendation: To provide a more complete picture of spending activity and to obtain accurate information for its recapture decision, the Department of Labor should require states to collect and report information on obligations at the point of service delivery.

    Agency Affected: Department of Labor

    Status: Closed - Implemented

    Comments: Labor agreed with GAO's recommendation and issued policy guidance in November 2002 (TEGL 16-99, Change 1), clarifying that local obligations are incurred when local services are provided or contracts executed, not when state funds are received.

    Recommendation: Through collaboration with states, the Department of Labor should clarify the definition of unliquidated obligations to specify the timeframe for recording an obligation particularly when it covers time periods that are longer than a program year.

    Agency Affected: Department of Labor

    Status: Closed - Implemented

    Comments: Although Labor stated that no further clarification should be needed, it did agree to address this topic in financial training. Labor has since developed and delivered financial reporting training to all states and some local areas that addresses how to properly record obligations for periods longer than a program year. The training includes a segment on contract obligations. It describes how to record obligations that are of indefinite or variable quantity, such as Individual Training Accounts, which can cover periods that are longer than a program year. The training materials also include a class exercise on how to properly record such contracts.

    Recommendation: Through collaboration with states, the Department of Labor should clarify the definition of unliquidated obligations to specify what constitutes an obligation to address state and local area concerns regarding contracts.

    Agency Affected: Department of Labor

    Status: Closed - Implemented

    Comments: Labor agreed with GAO's recommendation and issued policy guidance in November 2002 (TEGL 16-99, Change 1), clarifying whether state or local-level obligations need to be reported for each of Workforce Investment Act's six funding categories. The policy guidance also clarifies that local obligations are incurred when the local services are provided or contracts executed, not when state funds are received. While Labor has not issued any guidance subsequent to TEGL 16-99, Change 1, it has since developed and delivered financial reporting training that addresses how to properly record contracts. The training segment on contract obligations clarifies the definition of a contract and describes how it should be reported. The training includes an exercise on properly recording a contract.

    Recommendation: Through collaboration with states, the Department of Labor should clarify the definition of unliquidated obligations to include funds committed at the point of service delivery in addition to those funds obligated at state level for statewide WIA activities and not funds that states merely allocate to their local areas.

    Agency Affected: Department of Labor

    Status: Closed - Implemented

    Comments: Labor agreed with GAO's recommendation and issued policy guidance in November 2002 (TEGL 16-99, Change 1), clarifying that local obligations are incurred when the local services are provided or contracts executed, not when state funds are received.

    Recommendation: To help states and local areas manage their spending more judiciously, the Department of Labor should systematically share promising practices and effective spending management strategies.

    Agency Affected: Department of Labor

    Status: Closed - Implemented

    Comments: Labor agreed with this recommendation and has incorporated some information in its financial accounting training manual, which it has used to provide training and technical assistance to states and local areas. The training materials contain examples of how to keep track of expenditures on an accrual basis, thereby assisting states and local areas in better managing expenditures. In addition, the training manual lists Internet resources that include a link to the promising-practices.org website.

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