Recovery Act:

Funds Continue to Provide Fiscal Relief to States and Localities, While Accountability and Reporting Challenges Need to Be Fully Addressed

GAO-09-1016: Published: Sep 23, 2009. Publicly Released: Sep 23, 2009.

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This report, the third in response to a mandate under the American Recovery and Reinvestment Act of 2009 (Recovery Act), addresses the following objectives: (1) selected states' and localities' uses of Recovery Act funds, (2) the approaches taken by the selected states and localities to ensure accountability for Recovery Act funds, and (3) states' plans to evaluate the impact of Recovery Act funds. GAO's work for the report is focused on 16 states and certain localities in those jurisdictions as well as the District of Columbia (District)-- representing about 65 percent of the U.S. population and two-thirds of the intergovernmental federal assistance available. Under the Recovery Act, GAO collected and analyzed documents and interviewed state and local officials. GAO also analyzed federal agency guidance and spoke with Office of Management and Budget (OMB) officials and with program officials at the federal agencies overseeing Recovery Act programs.

Across the United States, as of September 11, 2009, the Department of the Treasury had outlayed about $48 billion of the estimated $49 billion in Recovery Act funds projected for use in states and localities in federal fiscal year 2009, as shown in the figure. More than three quarters of the federal outlays has been provided through the increased Medicaid Federal Medical Assistance Percentage (FMAP) and the State Fiscal Stabilization Fund (SFSF) administered by the Department of Education. All 16 states and the District have drawn down increased Medicaid FMAP grant awards of just over $20.3 billion for October 1, 2008, through September 15, 2009, which amounted to over 87 percent of funds available. All states and the District experienced Medicaid enrollment growth. States and the District reported they are planning to use the increased federal funds to cover their increased Medicaid caseload and to maintain current benefits and eligibility levels. Most states also reported that they would use freed-up funds to finance general state budget needs. A substantial portion of the approximately $35 billion the Recovery Act appropriated for highway infrastructure projects and public transit has been obligated nationwide and in the states and the District that are the focus of GAO's review. As of September 1, the Department of Transportation (DOT) had obligated approximately $11 billion for almost 3,800 highway infrastructure and other eligible projects in the 16 states and the District and had reimbursed these 17 jurisdictions about $604 million. As of September 15, 2009, the District and 15 of the 16 states covered by our review had received approval from Education for their initial SFSF funding applications. Pennsylvania had submitted an application to Education, but it had not yet been approved. As of August 28, 2009, Education had made $21 billion in SFSF grants for education available to the 15 states and the District--of which over $7.7 billion had been drawn down. While many program officials, employers, and participants believe the Workforce Investment Act summer youth program activities have been successful, measuring actual outcomes has proven challenging and may reveal little about what the program achieved. States have implemented various internal control programs; however, federal Single Audit guidance and reporting does not fully address Recovery Act risk. The Single Audit reporting deadline is too late to provide audit results in time for the audited entity to take action on deficiencies. Moreover, current guidance does not achieve the level of accountability needed to effectively respond to risks. States and localities as nonfederal recipients of Recovery Act funds are required to report quarterly on a number of measures, including the use of funds and estimates of the number of jobs created and retained. This unprecedented level of detailed information to be reported by a large number of recipients into a new centralized reporting system raises possible risk for the quality and reliability of these data.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: OMB implemented its Single Audit Internal Control Project in October 2009. The project called for a minimum of 10 participants. OMB solicited the 50 states, the District of Columbia, Puerto Rico, and Guam, from which 16 states volunteered to participate. The following 16 states elected to participate: Alaska, California, Colorado, Florida, Georgia, Louisiana, Maine, Missouri, Nevada, North Carolina, Ohio, Oklahoma, South Dakota, Tennessee, Texas, and Virginia. The volunteer states were diverse in geographic characteristics and population and included states that use auditors within state government as well as external auditors to conduct Single Audits. In addition, the volunteer states included California and Texas, which are among the top three states with the highest levels of Recovery Act obligations from the federal government. Each state selected at least two Recovery Act programs from a list of 11 high-risk Recovery Act programs for internal control testing. OMB designed the project to be voluntary and OMB officials states that, overall, they were satisfied with the population and geographic diversity among the states that volunteered. Although the project's coverage could be more comprehensive to provide greater assurance over Recovery Act funding, the results of the project could provide meaningful insight for making improvements to the Single Audit process. See GAO-10-604, report p. 272.

    Recommendation: To leverage Single Audits as an effective oversight tool for Recovery Act programs, the Director of OMB should take steps to achieve sufficient participation and coverage in the Single Audit pilot program that provides for early written communication of internal control deficiencies to achieve the objective of more timely accountability over Recovery Act funds.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  2. Status: Closed - Implemented

    Comments: On March 22, 2010, OMB addressed this recommendation by issuing memorandum M-10-14, Updated Guidance on the American Recovery and Reinvestment Act. This guidance directed federal agencies to not grant any requests made to extend the Single Audit reporting deadlines for fiscal years 2009 to 2011. OMB further stated that to meet the criteria for a low risk auditee in the current year, the auditee must have submitted the prior 2 years' audit reports by the required due dates. OMB communicated this revised policy through the OMB website, the American Institute of Certified Public Accountants, and the National Association of State Auditors, Comptrollers and Treasurers. See GAO-10-604, pp. 273-274.

    Recommendation: To reduce the impact of untimely Single Audit reporting, the Director of OMB should formally advise federal cognizant agencies to adopt a policy of no longer approving extensions of the due dates of single audit reporting package submissions beyond the nine month deadline.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  3. Status: Closed - Implemented

    Comments: In February 2010, Education instructed states to submit to Education for review their plans and protocols for monitoring subrecipients of SFSF funds. Education also issued its plans and protocols for monitoring state implementation of the SFSF program. The plan includes on-site visits to about half the states and desk reviews of the other states to be conducted over the next year.

    Recommendation: To reduce the impact of untimely Single Audit reporting, the Director of OMB should widely communicate this revised policy to the state audit community and others who have responsibility for the conducting single audits and submitting the single audit reporting package.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  4. Status: Closed - Implemented

    Comments: In September 2009, in responding to our recommendation, DOT said that it had conducted outreach, including providing technical assistance, training, and guidance to recipients, and will continue to assess the need to provide additional information. For example, in February 2010, FTA continued three training Webinars to provide technical assistance in complying with reporting requirements under section 1201(c) of the Recovery Act. In addition, on February 1, 2010, FTA issued guidance to transit agencies instructing them to use the same methodology for calculating jobs retained through vehicles purchased under section 1201 as they had been for recipient reporting. This reversed previous guidance that had instructed transit agencies to use a different methodology for vehicle purchases under sections 1201 and recipient reporting. See GAO-10-604, pp. 268-269.

    Recommendation: The Secretary of Transportation should continue the Department's outreach to state DOTs and transit agencies to identify common problems in accurately fulfilling reporting requirements and provide additional guidance, as appropriate.

    Agency Affected: Department of Transportation

  5. Status: Closed - Implemented

    Comments: Labor agreed with our recommendation and has begun to take several actions to implement it. Labor's Bureau of Labor Statistics has developed a definition of green jobs which was finalized and published in the Federal Register on September 21, 2010. In addition, Labor continues to host a Green Jobs Community of Practice, an online virtual community available to all interested parties. As part of this effort, in December 2010, Labor hosted its first Recovery Act Grantee Technical Assistance Institute, which focused on critical success factors for achieving the goals of the grants and sustaining the impact into the future. The department also hosted a symposium on April 28-29, 2011, with the green jobs state Labor Market Information Improvement grantees. Symposium participants shared recent research findings, including efforts to measure green jobs, occupations, and training in their states. In addition, the department released a new career exploration tool called "mynextmove" (www.mynextmove.gov) in February 2011. This Web site includes the Occupational Information Network (O*NET) green leaf symbol to highlight green occupations. Furthermore, Labor's implementation study of the Recovery Act-funded green jobs training grants is still ongoing. The interim report is expected in late 2011.

    Recommendation: To better support state and local efforts to provide youth with employment and training in green jobs, the Secretary of Labor should provide additional guidance about the nature of these jobs and the strategies that could be used to prepare youth for careers in green industries.

    Agency Affected: Department of Labor

  6. Status: Closed - Implemented

    Comments: Labor agreed with our recommendation and has taken several actions to implement it. Labor's Bureau of Labor Statistics (BLS) has developed a definition of green jobs, which was finalized and published in the Federal Register on September 21, 2010. In addition, Labor continues to host a Green Jobs Community of Practice, an online virtual community available to all interested parties. The department also hosted a symposium on April 28 and 29, 2011, with the green jobs state Labor Market Information Improvement grantees. Symposium participants shared recent research findings, including efforts to measure green jobs, occupations, and training in their states. In addition, the department released a new career exploration tool called "mynextmove" (www.mynextmove.gov) in February 2011 that includes the Occupational Information Network (O*NET) green leaf symbol to highlight green occupations. Additional green references have recently been added and are noted in the latest update, The Greening of the World of Work: O*NET Project's Book of References. Furthermore, Labor is planning to release a Training and Employment Notice this fall that will provide a summary of research and resources that have been completed by BLS and others on green jobs definitions, labor market information and tools, and the status of key Labor initiatives focused on green jobs.

    Recommendation: To enhance the usefulness of data on work readiness outcomes, the Secretary of Labor should provide additional guidance on how to measure work readiness of youth, with a goal of improving the comparability and rigor of the measure.

    Agency Affected: Department of Labor

  7. Status: Closed - Implemented

    Comments: HUD implemented our recommendation. In a letter dated November 20, 2009 HUD told us it had expanded its criteria for selecting housing agencies for on-site reviews to include all housing agencies with open 2007 and 2008 single audit findings as of July 7, 2009, relevent to the administration of Recovery Act funds. HUD identified 27 such housing agencies and planned to complete these on-site reviews by February 15, 2010.

    Recommendation: To enhance HUD's ability to prevent, detect, and correct noncompliance with the use of Recovery Act funds, the Secretary of the Department of Housing and Urban Development should expand the criteria for selecting housing agencies for on-site reviews to include housing agencies with open Single Audit findings that may affect the use of and reporting on Recovery Act funds.

    Agency Affected: Department of Housing and Urban Development

  8. Status: Closed - Implemented

    Comments: In response to this recommendation, OMB issued a memorandum on October 13, 2009, to provide guidance to address states' questions regarding specific exceptions to OMB circular A-87, Cost Principles for State, Local and Indian Tribal Governments. In the memorandum, OMB provided clarifications for states regarding specific exceptions to OMB Circular A-87 that are necessary in order for the states to perform timely and adequate Recovery Act oversight, reporting, and auditing. We believe the October 2009 OMB guidance provides the additional clarification needed for states and localities to proceed with their plans to recoup administrative costs.

    Recommendation: To the extent that the Director of OMB has the authority to consider mechanisms to provide additional flexibilities to support state and local officials charged with carrying out Recovery Act responsibilities, it is important to expedite consideration of alternative administrative cost reimbursement proposals.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  9. Status: Closed - Implemented

    Comments: In February 2010, Education instructed states to submit to Education for review their plans and protocols for monitoring subrecipients of SFSF funds. Education also issued its plans and protocols for monitoring state implementation of the SFSF program. The plan includes on-site visits to about half the states and desk reviews of the other states to be conducted over the next year. See GAO-10-604, report pp. 270-271.

    Recommendation: The Secretary of Education should take further action such as collecting and reviewing documentation of state monitoring plans to ensure that states understand and fulfill their responsibility to monitor subrecipients of SFSF funds and consider providing training and technical assistance to states to help them develop and implement state monitoring plans for SFSF.

    Agency Affected: Department of Education

 

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