Recovery Act:

States' and Localities' Current and Planned Uses of Funds While Facing Fiscal Stresses

GAO-09-829: Published: Jul 8, 2009. Publicly Released: Jul 8, 2009.

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This report, the second 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 the Recovery Act funds they received. GAO's work for this report is focused on 16 states and certain localities in those jurisdictions as well as the District of Columbia--representing about 65 percent of the U.S. population and two-thirds of the intergovernmental federal assistance available. GAO collected documents and interviewed state and local officials. GAO analyzed federal agency guidance and spoke with Office of Management and Budget (OMB) officials and with relevant program officials at the Centers for Medicare and Medicaid Services (CMS), and the U.S. Departments of Education, Energy, Housing and Urban Development (HUD), Justice, Labor, and Transportation (DOT).

Across the United States, as of June 19, 2009, Treasury had outlayed about $29 billion of the estimated $49 billion in Recovery Act funds projected for use in states and localities in fiscal year 2009. More than 90 percent of the $29 billion in 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. GAO's work focused on nine federal programs that are estimated to account for approximately 87 percent of federal Recovery Act outlays in fiscal year 2009 for programs administered by states and localities. Increased Medicaid FMAP Funding All 16 states and the District have drawn down increased Medicaid FMAP grant awards of just over $15 billion for October 1, 2008, through June 29, 2009, which amounted to almost 86 percent of funds available. Medicaid enrollment increased for most of the selected states and the District, and several states noted that the increased FMAP funds were critical in their efforts to maintain coverage at current levels. 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. Due to the increased federal share of Medicaid funding, most state officials also said they would use freed-up state funds to help cope with fiscal stresses. Highway Infrastructure Investment As of June 25, DOT had obligated about $9.2 billion for almost 2,600 highway infrastructure and other eligible projects in the 16 states and the District and had reimbursed about $96.4 million. Across the nation, almost half of the obligations have been for pavement improvement projects because they did not require extensive environmental clearances, were quick to design, obligate and bid on, could employ people quickly, and could be completed within 3 years. State Fiscal Stabilization Fund As of June 30, 2009, of the 16 states and the District, only Texas had not submitted an SFSF application. Pennsylvania recently submitted an application but had not yet received funding. The remaining 14 states and the District had been awarded a total of about $17 billion in initial funding from Education--of which about $4.3 billion has been drawn down. School districts said that they would use SFSF funds to maintain current levels of education funding, particularly for retaining staff and current education programs. They also said that SFSF funds would help offset state budget cuts. Accountability 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 noted in Recovery Act programs. Moreover, current guidance does not achieve the level of accountability needed to effectively respond to Recovery Act risks. Finally, state auditors need additional flexibility and funding to undertake the added Single Audit responsibilities under the Recovery Act. Impact Direct recipients of Recovery Act funds, including states and localities, are expected to report quarterly on a number of measures, including the use of funds and estimates of the number of jobs created and the number of jobs retained. The first of these reports is due in October 2009. OMB--in consultation with a broad range of stakeholders--issued additional implementing guidance for recipient reporting on June 22, 2009, that clarifies some requirements and establishes a central reporting framework.

Matters for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: As of April 10, 2014, Congress has not taken action on this Matter. Given that the Recovery Board reports that most of the funding that the Congressional Budget Office estimated would be expended under the Recovery Act has now been paid out, we are closing out this matter as not implemented.

    Matter: To the extent that appropriate adjustments to the Single Audit process are not accomplished under the current Single Audit structure, Congress may wish to consider amending the Single Audit Act or enacting new legislation that provides for more timely internal control reporting, as well as audit coverage for smaller Recovery Act programs with high risk.

  2. Status: Closed - Not Implemented

    Comments: As of April 10, 2014, Congress has not taken action on this Matter. Given that the Recovery Board reports that most of the funding that the Congressional Budget Office estimated would be expended under the Recovery Act has now been paid out, we are closing out this matter as not implemented.

    Matter: To the extent that additional audit coverage is needed to achieve accountability over Recovery Act programs, Congress may wish to consider mechanisms to provide additional resources to support those charged with carrying out the Single Audit Act and related audits.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: Based on OMB's actions, we have concluded that OMB has addressed the intent of this recommendation. To provide direct focus on Recovery Act programs through the Single Audit to help ensure that smaller programs with higher risk have audit coverage in the area of internal controls and compliance, the OMB Circular No. A-133, Audits of States, Local Governments, and Non-Profit Organizations Compliance Supplement (Compliance Supplement) for fiscal years 2009 through 2011 required all federal programs with expenditures of Recovery Act awards to be considered as programs with higher risk when performing standard risk-based tests for selecting programs to be audited. The auditors' determination of the programs to be audited is based upon their evaluations of the risks of noncompliance occurring that could be material to an individual major program. The Compliance Supplement has been the primary mechanism that OMB has used to provide Recovery Act requirements and guidance to the auditors. One presumption underlying the guidance is that smaller programs with Recovery Act expenditures could be audited as major programs when using a risk-based audit approach. The most significant risks are associated with newer programs that may not yet have the internal controls and accounting systems in place to help ensure that Recovery Act funds are distributed and used in accordance with program regulations and objectives. Since Recovery Act spending is projected to continue through 2016, we believe that it is essential that OMB provide direction in Single Audit guidance to help ensure that smaller programs with higher risk are not automatically exlcuded from receiving audit coverage based on their size and standard Single Audit Act requirements. We spoke to OMB officials and reemphasized our concern that future Single Audit guidance provide instruction that helps to ensure that smaller programs with higher risk have audit coverage in the area of internal controls and compliance. OMB officials agreed and stated that such guidance will continue to be included in future Recovery Act guidance. We also performed an analysis of Recovery Act program selection for single audits of 10 states for fiscal year 2010. In general, we found that the auditors selected a relatively greater number of smaller programs with higher risks with Recovery Act funding when compared to the previous period. Therefore, this appears to have resulted in a relative increase in the number of smaller Recovery Act programs being selected for audit for 7 of the 10 states we reviewed.

    Recommendation: To help auditors with single audit responsibilities meet the increased demands imposed on them by Recovery Act funding, the Director of OMB should provide more focus on Recovery Act programs through the Single Audit to help ensure that smaller programs with high risk have audit coverage in the area of internal controls and compliance.

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

  2. Status: Closed - Implemented

    Comments: OMB addressed our recommendation by issuing guidance to executive departments and agencies to help states with various approaches to recover administrative costs associated with the wide range of activities to comply with the Recovery Act. Administrative costs include oversight and audit costs and the costs of performing additional Single Audits.

    Recommendation: To help auditors with single audit responsibilities meet the increased demands imposed on them by Recovery Act funding, the Director of OMB should, to the extent that options for auditor relief are not provided, develop mechanisms to help fund the additional Single Audit costs and efforts for auditing Recovery Act programs.

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

  3. Status: Closed - Implemented

    Comments: OMB has issued clarifications and frequently asked questions on Recovery Act reporting requirements. In addition, federal agencies issued additional guidance that builds on the OMB recipient reporting guidance for their specific programs. Federal agencies have also taken steps to provide additional education and training opportunities for state and local program officials on recipient reporting, including Web-based seminars.

    Recommendation: To increase consistency in recipient reporting or jobs created and retained, the Director of OMB should work with federal agencies to have them provide program-specific examples of the application of OMB's guidance on recipient reporting of jobs created and retained. This would be especially helpful for programs that have not previously tracked and reported such metrics.

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

  4. Status: Closed - Not Implemented

    Comments: It was an objective of the Recovery Act to use existing measures to allow the public to see the performance impact of the Act's investments. Some federal agencies have issued or plan to issue additional guidance on what other programs or impact measures are required for evaluating the impact of Recovery Act funding. Some state program officials said that they use existing program performance measures developed by federal agencies to track the performance impact of Recovery Act funding, while other states have developed their own measures. With the passage of time, we have concluded that the intent of this recommendation is being addressed by individual federal agencies, as well as being addressed by local program officials.

    Recommendation: Because performance reporting is broader than the jobs reporting required by section 1512, the Director of OMB should also work with federal agencies--perhaps through the Senior Management Councils--to clarify what new or existing program performance measures--in addition to jobs created and retained--that recipients should collect and report in order to demonstrate the impact of Recovery Act funding.

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

  5. Status: Closed - Implemented

    Comments: Since GAO made this recommendation, federal agencies have issued additional guidance that builds on the OMB recipient reporting guidance for their specific programs. This guidance was in the form of frequently asked questions (FAQs), tip sheets, and more traditional guidance. Federal agencies have also taken steps to provide additional education and training opportunities for state and local program officials on recipient reporting including web-based seminars.

    Recommendation: In addition to providing these additional types of program-specific examples of guidance, the Director of OMB should work with federal agencies to use other channels to educate state and local program officials on reporting requirements, such as Web- or telephone-based information sessions or other forums.

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

  6. Status: Closed - Implemented

    Comments: As described in our September 2010 report (GAO-10-999, p. 228), OMB agreed with the recommendation in concept but questioned the cost/benefit of data certification given the tight reporting time frames for recipients and federal agency reviewers. OMB staff stated that grant recipients are already expected to comply with data requirements appropriate to the terms of a grant. OMB will be monitoring the results of the quarterly recipient reports for data quality issues and wants to determine whether there are persistent problems before concluding that certification is needed. Through issuance of additional guidance and clarification, we are satisfied OMB has implemented this recommendation.

    Recommendation: To strengthen the effort to track the use of funds, the Director of OMB should (1) clarify what constitutes appropriate quality control and reconciliation by prime recipients, especially for subrecipient data, and (2) specify who should best provide formal certification and approval of the data reported.

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

  7. Status: Closed - Implemented

    Comments: In July 2010, FHWA directed Arizona, California, and Illinois to revise their designations and to report these projects as being in noneconomically distressed areas. FHWA also directed all states to ensure that future Recovery Act Data System entries be coded as economically distressed only if FHWA division and headquarters offices had approved the designation.

    Recommendation: To ensure states meet Congress's direction to give areas with the greatest need priority in project selection, the Secretary of Transportation should develop clear guidance on identifying and giving priority to economically distressed areas that are in accordance with the requirements of the Recovery Act and the Public Works and Economic Development Act of 1965, as amended, and more consistent procedures for the Federal Highway Administration to use in reviewing and approving states' criteria.

    Agency Affected: Department of Transportation

  8. Status: Closed - Not Implemented

    Comments: This recommendation is closed because it is no longer applicable.

    Recommendation: The Director of OMB should provide a long range time line for the release of federal guidance for the benefit of nonfederal recipients responsible for implementing Recovery Act programs.

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

 

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