Report 2011-002.1 Summary - December 2011

Interim Reporting:

Fiscal Year 2010-11 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 March 2011 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 March 2011 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 31 federal programs administered by 10 departments. Seven of the 10 departments received Recovery Act funding through 15 programs during fiscal year 2010-11. The State Auditor's Office has currently identified 11 findings regarding the 10 departments' administration of these federal programs during fiscal year 2010-11. 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 18 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. The State reported receiving $119 million in federal funds for these programs for fiscal year 2010-11, including Recovery Act funds totaling $1.7 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 one finding that pertains to Aging's deficiencies in monitoring subgrantees within the Aging Cluster. Specifically, Aging did not issue monitoring reports and did not ensure that subgrantees submitted corrective action plans within the time required by Aging's policies and procedures, hindering its ability to ensure that subgrantees promptly correct problems detected during its on-site assessments. In addition, our testing this year confirmed that Aging corrected one of the findings that we included in last year's annual report.

The CaliforniaVolunteers administers the Americorps program. The State reported that this program received $24.3 million during fiscal year 2010-11, including Recovery Act funds totaling $1.9 million. The State Auditor's Office identified one finding that pertains to CaliforniaVolunteers' failure to verify that matching contributions are from allowable sources. Specifically, CaliforniaVolunteers is still in the process of requiring subgrantees to submit documentation to support the matching contributions they reported and it has not yet eliminated its backlog of desk reviews. Our testing this year also confirmed that CaliforniaVolunteers corrected another finding that we included in last year's annual report.

The California Department of Corrections and Rehabilitation (Corrections) administers the State Criminal Alien Assistance Program (SCAAP). The State reported that it received $88.1 million in federal funds for SCAAP for fiscal year 2010-11, none of which were Recovery Act funds. The State Auditor's Office identified one finding that pertains to deficiencies in Corrections' claims for reimbursement for the incarceration of undocumented criminal aliens. Specifically, Corrections has not implemented procedures to ensure that it does not include ineligible inmate data in its application for SCAAP funding.

The Employment Development Department (EDD) administers several programs that have been awarded funds from the Recovery Act during fiscal year 2010-11, including the Unemployment Insurance program, the Employment Service Cluster, and the Workforce Investment Act Cluster. Additionally, EDD administers the Trade Adjustment Assistance program. The State reported that these programs collectively received $22 billion for fiscal year 2010-11, including Recovery Act funds totaling $843.1 million. However, as we reported in our last two annual audits and continue to report for our current audit, we cannot conclusively identify Recovery Act dollars because EDD has not been able to track all Recovery Act dollars separately from non-Recovery Act dollars. Our testing this year also confirmed that EDD corrected three findings that we included in last year's annual audit report.

The Department of Housing and Community Development (Housing) administers the Community Development Block Grants/State's Program (CDBG Program) and the ARRA CDBG Program. The State reported receiving $85.7 million in federal funds for the program during fiscal year 2010-11, including Recovery Act funds totaling $5.6 million. Our testing this year found that Housing still does not complete an adequate number of site visits of CDBG Program subrecipients. We also confirmed that Housing corrected two other CDBG Program findings 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. The objectives of this program include providing financial assistance to states to carry out their plans for providing comprehensive community-based 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 2010-11 the State reported receiving almost $46.2 million in federal funds for the block grant program, none of which were Recovery Act funds. As of August 31, 2011, we found that Mental Health had not addressed three of the four findings we reported in our annual report for fiscal year 2009-10. Specifically, Mental Health had not yet implemented a process to verify that counties' block grant program expenditures are for allowable activities and costs, had not ensured that it appropriately charges administrative costs to the block grant, and had not implemented a process to ensure it complies with maintenance of effort requirements. However, Mental Health corrected the one other finding that we included in last year's annual report.

The Military Department (Military) administers the National Guard Military Operations and Maintenance Projects (O&M projects) program. The objectives of this program include providing funding for minor construction and maintenance of Army National Guard and Air National Guard facilities; installation of security surveillance remote monitoring equipment; and the maintenance, fabrication, and repair of aircraft and aircraft subassemblies. During fiscal year 2010-11, the State reported receiving $59.8 million for this program, $79,000 of which were Recovery Act funds. Our testing this year revealed that Military corrected the finding related to this program that we included in last year's annual audit report.

The Department of Social Services (Social Services) administers a variety of federal programs that have been awarded Recovery Act funds during fiscal year 2010-11, including the State Administrative Matching Grants for the Supplemental Nutrition Assistance Program (SNAP), which is part of the SNAP Cluster; Foster Care—Title IV-E (Foster Care); Adoption Assistance; Temporary Assistance for Needy Families (TANF); and the ARRA—Emergency Contingency Fund for Temporary Assistance for Needy Families State Program. The last two programs listed are part of the TANF Cluster. Social Services also administers the Social Services Block Grant and the Social Security—Disability Insurance programs. The State reported that these seven programs collectively received $7 billion for fiscal year 2010-11, including Recovery Act funds totaling $695.4 million. We identified one finding that pertains to Social Services' administration of these programs. Specifically, during fiscal year 2010-11 Social Services did not inform subrecipient counties of information and requirements associated with federal awards. Additionally, our testing this year confirmed that Social Services corrected all four findings that we included in last year's annual audit report.

The California Department of Transportation (Caltrans) administers the Highway Planning and Construction Cluster, which includes the Highway Planning and Construction program. The objectives of this program are to assist states in the planning and development of an integrated, interconnected transportation system important to interstate commerce and travel by constructing and rehabilitating the National Highway System, including interstate highways and most other public roads. Caltrans uses federal funds under this program for a variety of activities, such as making capital improvements to certain designated highways and providing subgrants to local agencies, such as cities and counties, for similar projects. The State reported receiving approximately $3.3 billion in federal funds for the program during fiscal year 2010-11, more than $1 billion of which were Recovery Act funds. We identified one finding that pertains to Caltrans' administration of the Highway Planning and Construction program. Specifically, we noted that Caltrans lacked adequate internal controls to ensure that local agencies had audits performed under the Single Audit Act as required by OMB Circular A-133. However, to its credit, our testing this year also confirmed that Caltrans corrected two findings that we included in last year's annual audit report.

The California Department of Veterans Affairs (Veterans Affairs) administers the Grants to States for Construction of State Home Facilities (construction grant) and Veterans Housing—Guaranteed and Insured Loans (loan guaranty) programs. The objectives of the construction grant program include providing financial assistance to states to acquire or construct state veterans home facilities, while the loan guaranty program offers home loans to eligible veterans that are guaranteed in part by the U.S. Department of Veterans Affairs (VA). Through the loan guaranty program, as of June 30, 2011, the VA provided guarantees for loans held by Veterans Affairs totaling more than $100 million. These guarantees are considered federal assistance to the State for fiscal year 2010-11. Additionally, the State reported receiving $8.2 million in federal funds during that period for the construction grant program. Neither program received Recovery Act funds. We identified one finding related to the loan guaranty program that pertains to Veterans Affairs' failure to report to the VA certain loan events by the required deadlines. As for the construction grant program, our testing this year confirmed that Veterans Affairs corrected the three findings that we included in last year's annual report related to that program.

AGENCY COMMENTS

We summarized the departments' 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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