Report 2011-002.2 Summary - January 2012

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 12 federal programs administered by four departments. All four departments received Recovery Act funding through seven programs during fiscal year 2010-11. The State Auditor's Office has currently identified nine findings regarding the four 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 cash management, eligibility, and monitoring subrecipients'—such as counties'—use of funds. We also reported that one department fully corrected two findings that we included in last year's annual audit report. Finally, we made numerous recommendations to the respective departments.

The Department of Community Services and Development (Community Services) administers the Weatherization Assistance Program for Low-Income Persons (Weatherization) program. The State reported receiving $89.1 million in federal funds for the Weatherization program for fiscal year 2010-11, including Recovery Act funds totaling $78.3 million. Community Services distributes the Weatherization program funds to nonprofit organizations and local governments that provide weatherization services to improve home energy efficiency for low-income families. The State Auditor's Office identified two findings that pertain to Community Services' internal controls over cash management and subrecipient monitoring. Specifically, we found that Community Services does not always ensure adequate separation of duties when providing advance payments to its subrecipients and does not verify that subrecipients deposit cash advances in interest-bearing accounts and return to the federal government the interest earned on the advances. Additionally, Community Services did not always adhere to its policies related to monitoring subrecipients.

The Department of Education (Education) administers the Title I, Part A Cluster of programs and the Child Care and Development Fund cluster of programs. Education also administers the State Fiscal Stabilization Fund—Education State Grants. During fiscal year 2010-11, Education received nearly $3.1 billion for these programs, including about $1.3 billion in Recovery Act funds. The State Auditor's Office identified two findings as of November 1, 2011, that pertain to Education's administration of these programs. Specifically, Education has not adequately pursued corrective action from local educational agencies and it does not maintain adequate internal controls over an application used for monitoring subrecipients.

The Department of Health Care Services (Health Care Services) administers the Medicaid Cluster of federal programs, which is commonly referred to as Medi-Cal in California. The objective of Medi-Cal is to pay for medical assistance to low-income persons who are age 65 or over, as well as others that meet certain criteria. In fiscal year 2010-11, Health Care Services received $34.4 billion for these programs, including $5 billion in Recovery Act funds. The State Auditor's Office identified four findings as of November 1, 2011, that pertain to Health Care Services' administration of Medi-Cal. Although Health Care Services has taken steps to address some of the issues we reported in last year's annual report, it still needs to do more to fully correct them. For example, we found that Health Care Services continued to submit drug rebate information after federally prescribed deadlines, thus limiting the State's ability to promptly obtain rebates and earn interest on these funds. On a positive note, our testing also revealed that Health Care Services fully corrected two findings from last year's annual audit report.

The Office of the State Treasurer (Treasurer) administers the ARRA—Tax Credit Assistance Program (TCAP), funded by the Recovery Act. The TCAP provides funds to state housing credit agencies for capital investments in rental projects that received or will receive an award of Low-Income Housing Tax Credits. The State reported receiving just over $222 million in federal funds for this program during fiscal year 2010-11, all of which were Recovery Act funds. We identified one finding as of November 2011 that pertains to the Treasurer's administration of the TCAP. Our testing found that the Treasurer did not obtain copies of certified payrolls from participants in the TCAP as required by federal law.

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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