Report 2010-002.1 Summary - December 2010

Interim Reporting:

Fiscal Year 2009-10 Single Audit

RESULTS IN BRIEF

On February 17, 2009, the federal government enacted the American Recovery and Reinvestment Act of 2009 (Recovery Act) to help fight the negative effects of the United States' economic recession. California expects that over time its state departments and other entities located within the State will receive $85 billion in Recovery Act funding. With this increased funding comes a strong emphasis on accountability and public transparency to ensure federal funds are spent properly. A key component of such accountability and public transparency is the California State Auditor's Office (State Auditor's Office) annual report on the State's compliance with federal requirements, such as those identified in the Recovery Act.

The State Auditor's Office prepares its annual report in accordance with the requirements described in the U.S. Office of Management and Budget's (OMB) Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. In June 2010 OMB encouraged auditors to communicate promptly any identified internal control deficiencies to management and those charged with governance. By encouraging prompt communication, OMB intends for recipients, including states, to correct these findings as soon as possible to ensure proper accountability and transparency for expenditures of Recovery Act awards. Based on OMB's June 2010 guidance, the State Auditor's Office presents its interim report concerning the State's administration of selected federal programs. Although OMB's guidance regarding prompt communication focused on Recovery Act programs, we have also included audit results for certain departments that did not receive Recovery Act funding in the interests of maximizing the benefits of prompt communication.

This interim report summarizes audit results pertaining to 20 federal programs administered by eight departments. Five of the eight departments received Recovery Act funding through nine programs during fiscal year 2009-10. The State Auditor's Office has currently identified 17 findings regarding the eight departments' administration of these federal programs during fiscal year 2009-10. In many cases the findings are recurring issues we identified in past audits. The findings focused on various federal requirements including those regarding allowable costs, reporting, and monitoring subrecipients'—such as counties—use of funds. We also reported that the departments fully corrected 28 findings that we included in last year's annual audit report. Finally, we made numerous recommendations to the respective departments.

The Department of Aging (Aging) administers the Aging Cluster of programs, which includes: Special Programs for the Aging—Title III, Part B—Grants for Supportive Services and Senior Centers (Federal Catalog Number 93.044); Special Programs for the Aging—Title III, Part C—Nutrition Services (Federal Catalog Number 93.045); Nutrition Services Incentive Program (Federal Catalog Number 93.053); ARRA—Aging Home-Delivered Nutrition Services for States (Federal Catalog Number 93.705); and ARRA—Aging Congregate Nutrition Services for States (Federal Catalog Number 93.707). The State reported receiving $113.5 million in federal funds for these programs for fiscal year 2009-10, which included Recovery Act funds totaling $7.6 million. Aging distributes funds for these programs to 33 area agencies (subgrantees) that provide services and meals to seniors. The State Auditor's Office identified two findings as of August 31, 2010, that pertain to Aging's administration of the Aging Cluster, which generally concerned federal regulations governing reporting and subrecipient monitoring. For example, Aging did not detect errors totaling $38.5 million in one of the financial status reports that it submits to the federal government. Finally, our testing this year confirmed that Aging corrected four other findings that we included in last year's annual report.

The Department of Community Services and Development (CSD) administers the Low-Income Home Energy Assistance Program (LIHEAP) (Federal Catalog Number 93.568) block grant program in which states, territories, and Indian tribes can design their own program, within very broad federal guidelines. The objectives of LIHEAP are to help low-income people meet the costs of home energy (defined as the heating and cooling of residences), increase their energy self-sufficiency, and reduce their vulnerability resulting from energy needs. During fiscal year 2009-10, the State reported receiving $175.7 million in federal funds for LIHEAP, none of which were Recovery Act funds. The State Auditor's Office identified four findings as of September 3, 2010, that pertain to CSD's administration of this federal program, which concerned a variety of different federal regulations including those governing earmarking, suspension and debarment, and subrecipient monitoring. Although CSD has taken steps to address some of the issues we reported in last year's annual audit related to these four findings, these actions either did not affect transactions during fiscal year 2009-10 or additional actions are required. For example, although we found that CSD implemented a new policy requiring its staff to check the federal Excluded Parties List System before issuing subawards to ensure that subrecipients are not ineligible to receive federal funds, this new policy was not in place when CSD issued subawards during fiscal year 2009-10. CSD has begun the corrective action process for other findings we reported last year but has not finalized them. For instance, CSD contracted with a third party to assist it in developing written procedures, processes, and policies. Finally, our testing this year revealed that CSD corrected one other finding that we included in last year's annual audit report.

The Department of Developmental Services (Developmental Services) administers the Special Education—Grants for Infants and Families (Federal Catalog Number 84.181) and the ARRA—Special Education—Grants for Infants and Families (Federal Catalog Number 84.393), which comprise the Early Intervention Services (IDEA) Cluster. The State reported receiving $83.5 million for the cluster during fiscal year 2009-10, including Recovery Act funds totaling $59.5 million. Additionally, Developmental Services administers a portion of the Social Services Block Grant (Block Grant) (Federal Catalog Number 93.667). The federal government originally awarded the Block Grant to the Department of Social Services, which then transferred $204 million of the Block Grant to Developmental Services for its use during fiscal year 2009-10. The State Auditor's Office did not identify any findings as of December 1, 2010, that pertain to Developmental Services' administration of these federal programs. Further, our testing this year revealed that Developmental Services corrected five findings related to the cluster and one finding related to the Block Grant that we included in last year's annual audit report.

The Department of Industrial Relations (Industrial Relations) administers the Occupational Safety and Health—State Program (program) (Federal Catalog Number 17.503). The State reported receiving $22.7 million for the program during fiscal year 2009-10, including Recovery Act funds totaling about $4,000. The State Auditor's Office did not identify any findings as of August 1, 2010, that pertain to Industrial Relations' administration of this federal program. Further, our testing this year revealed that Industrial Relations corrected two findings related to this program that we included in last year's annual audit report.

The Department of Mental Health (Mental Health) administers the Block Grants for Community Mental Health Services (block grant) program (Federal Catalog Number 93.958). The objectives of this program include providing financial assistance to states to carry out their plans for providing comprehensive community mental health services to adults with a serious mental illness and to children with a serious emotional disturbance. Almost all of the federal block grant funds Mental Health receives are passed down to county mental health agencies. During fiscal year 2009-10 the State reported receiving almost $41 million in federal funds for the block grant program, none of which were Recovery Act funds. The State Auditor's Office identified four findings as of August 31, 2010, that pertain to Mental Health's administration of this federal program, which concerned a variety of different federal regulations including those governing allowable activities and costs, earmarking, and maintenance of effort. Although Mental Health has taken steps to address some of the issues we reported in last year's annual audit related to these four findings, it still needs to do more to fully correct the issues. For example, although we found that the program budgets and narratives submitted by the counties for fiscal year 2009-10 contained sufficient detail to determine how counties intended to spend their allocation of block grant funds, Mental Health has not yet developed a process to verify that the counties' actual expenditure of federal grant funds is for allowable activities and costs. Finally, our testing this year revealed that Mental Health corrected five other findings that we included in last year's annual audit report.

The Military Department (Military) administers the National Guard Military Operations and Maintenance Projects program (Federal Catalog Number 12.401). During fiscal year 2009-10, the State reported receiving $56.8 million for this program, none of which were Recovery Act funds. The State Auditor's Office identified one finding as of August 31, 2010, that pertains to Military's administration of this federal program. This finding focused on the federal requirement pertaining to allowable activities and costs. Specifically, we found that Military lacked internal controls that would allow it to prevent and/or detect instances when personnel costs are being inappropriately charged to this federal program. We reported a similar finding in the last two years' annual audits.

The Department of Rehabilitation (Rehabilitation) administers the Rehabilitation Services—Vocational Rehabilitation Grants to States (Vocational Rehabilitation) program (Federal Catalog Number 84.126) and the related Recovery Act grant (Federal Catalog Number 84.390). Under this program states are awarded formula grants that may be used to cover the costs of providing vocational rehabilitation services. The objectives of the Vocational Rehabilitation program are to assist states in operating comprehensive, coordinated, effective, and accountable programs of vocational rehabilitation that assess, plan, develop, and provide vocational rehabilitation services to individuals with disabilities so they may prepare for and engage in competitive employment. During fiscal year 2009-10 the State reported receiving approximately $252 million in federal funds for the Vocational Rehabilitation program, including approximately $18 million in Recovery Act funds. The State Auditor's Office identified two findings as of October 2010 that pertain to Rehabilitation's administration of this federal program, which concerned federal regulations governing eligibility, matching, and reporting. Although Rehabilitation has taken steps to address some of the issues we reported in last year's annual audit related to these two findings, additional actions are required. For example, although Rehabilitation implemented a new process for reviewing the spreadsheets that staff prepare to track and total certified expenditure information submitted by its vendors to help it meet its nonfederal funds matching obligation, we still found errors on the spreadsheet. Finally, our testing this year revealed that Rehabilitation corrected three other findings that we included in last year's annual audit report.

The Department of Social Services (Social Services) administers a variety of programs that have been awarded Recovery Act funds during fiscal year 2009-10 including the State Administrative Matching Grants for the Supplemental Nutrition Assistance Program (SNAP) (Federal Catalog Number 10.561), which is part of the SNAP Cluster; Foster Care—Title IV-E (Foster Care) program (Federal Catalog Number 93.658); Adoption Assistance program (Federal Catalog Number 93.659); the Temporary Assistance for Needy Families (TANF) (Federal Catalog Number 93.558); and the ARRA—Emergency Contingency Fund for Temporary Assistance for Needy Families State Programs (Federal Catalog Number 93.714). The last two programs listed are part of the TANF Cluster. Social Services also administers the Social Services Block Grant (SSBG) program (Federal Catalog Number 93.667) and the Social Security—Disability Insurance program (Federal Catalog Number 96.001). The State reported that these seven programs collectively received $6.9 billion for fiscal year 2009-10, including Recovery Act funds totaling $680 million. The State Auditor's Office identified four findings as of December 1, 2010, that pertain to Social Services' administration of these federal programs. In general, these findings focused on federal requirements pertaining to allowable costs, eligibility, and subrecipient monitoring. For example, although the federal government indicated it had reviewed three findings we included in our report last year and concluded that certain procedures Social Services performs when making payments to counties for SNAP, Foster Care, Adoption Assistance, SSBG, and the TANF Cluster are appropriate, the federal government also indicated that these procedures still do not meet the monitoring requirements outlined in federal regulations. Thus, it determined that Social Services still needed to implement onsite monitoring procedures of the counties. We reported all three of these findings in the last two years' annual audits. Finally, our testing this year revealed that Social Services corrected seven other findings that we included in last year's annual audit report.

AGENCY COMMENTS

We summarized the department's responses. In general, the departments concurred with the audit findings discussed in this interim report and plan to take corrective action.


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