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United States Government Accountability Office: 
GAO: 

Report to the Congress: 

Recovery Act: 

Opportunities to Improve Management and Strengthen Accountability over 
States' and Localities' Uses of Funds (Appendixes): 

GAO-10-1000SP: 

Contents: 

Appendix I: Arizona: 
Appendix II: California: 
Appendix III: Colorado: 
Appendix IV: District of Columbia: Appendix V: Florida: 
Appendix VI: Georgia: 
Appendix VII: Illinois: 
Appendix VIII: Iowa: 
Appendix IX: Massachusetts: 
Appendix X: Michigan: 
Appendix XI: Mississippi: 
Appendix XII: New Jersey: 
Appendix XIII: New York: 
Appendix XIV: North Carolina: 
Appendix XV: Ohio: 
Appendix XVI: Pennsylvania: 
Appendix XVII: Texas: 
Appendix XVIII: Program Descriptions: 

[End of section] 

Appendix I: Arizona: 

Overview: 

This appendix summarizes GAO's work on the seventh of its bimonthly 
reviews of American Recovery and Reinvestment Act (Recovery Act) 
[Footnote 1] spending in Arizona. The full report covering all of 
GAO's work in 16 states and the District of Columbia may be found at 
[hyperlink, http://www.gao.gov/recovery]. 

What We Did: 

We reviewed three specific program areas—the Weatherization Assistance 
Program (WAP), Energy Efficiency and Conservation Block Grants 
(EECBG), and public housing—funded under the Recovery Act. Our work 
focused on the status of the program area's funding, how funds are 
being used, methods used by program managers to monitor projects to 
ensure proper use and safeguarding of Recovery Act funds, and various 
issues that are specific to each program area. (For descriptions and 
requirements of the programs we covered, see appendix XVIII of GAO-10-
1000SP.) 

We selected these programs because they provided different views of 
Recovery Act spending in Arizona. For example, the Recovery Act 
provided a significant addition in WAP funding. We reviewed how this 
increase in funding was being managed and identified challenges the 
Arizona Department of Commerce (ADOC) faces in meeting spending 
deadlines. Furthermore, it provided an opportunity to determine the 
state and local procedures in place to ensure monitoring, tracking, 
and measurement of weatherization program success. 

The EECBG program afforded us an opportunity to assess how the state 
is managing a program that had not received funding prior to the 
Recovery Act. The program provides federal grants through the Recovery 
Act to local governments, Indian tribes, states, and territories to 
reduce energy use and fossil fuel emissions, and for improvements in 
energy efficiency. 

We revisited three public housing agencies—we previously reported on 
these agencies in 2009 and 2010—that received Recovery Act funds 
directly from the federal government to see firsthand the progress 
these agencies were making in expending their funds. We also visited 
the Department of Housing and Urban Development (HUD) Phoenix Field 
Office to discuss its efforts to implement their second year 
monitoring plan for Recovery Act funds. 

Our work in Arizona also included monitoring the state's fiscal 
situation, as well as the city of Phoenix's use of Recovery Act funds. 
The city received nearly $400 million of Recovery Act monies and was 
chosen for that reason. Also, because of the significant amount of 
funding the Arizona Department of Education received, we followed up 
on the actions it is taking to monitor the use of Recovery Act funds 
and found that it is better prepared to monitor the funds. Further, to 
gain an understanding of the state's experience in meeting Recovery 
Act reporting requirements,[Footnote 2] we examined documents prepared 
by and held discussions with the Governor's Office of Economic 
Recovery (OER) and ADOC. Finally, we spoke with OER and Office of the 
Auditor General officials that have oversight responsibilities for 
Recovery Act funds. In assessing all of these programs, we spoke with 
local and state officials responsible for the programs, reviewed 
records, and visited locations where weatherization, energy 
efficiency, and housing improvement activities were underway. 

What We Found: 

* Weatherization Assistance Program. ADOC was awarded $57 million to 
weatherize an estimated 6,400 homes. The weatherization services being 
performed consist of a wide variety of retrofitting measures, such as 
improving heating and cooling systems, applying air sealing and 
weather stripping, and improving insulation. Currently, because the 
average cost to weatherize homes has been less than expected, ADOC 
faces challenges in expending all of its weatherization funds by the 
March 2012 deadline, and, if average costs remain the same, may be 
able to weatherize about 1,200 more homes than originally planned. 
ADOC is exceeding some U. S. Department of Energy (DOE) requirements 
for monitoring the use of Recovery Act funds and estimates that 
weatherization of homes in Arizona will result in up to $2.8 million 
in annual energy savings. 

* Energy Efficiency and Conservation Block Grants. The State Energy 
Office received $9.5 million in EECBG funds and distributed the funds 
to 64 cities, with populations less than 35,000, as well as the 5 
smallest counties in Arizona. In addition, 32 larger communities 
received $54.2 million and 21 tribal communities received $8.9 million 
in direct funding from the DOE for energy efficient programs. 

Recovery Act EECBG funds are being used in Arizona to finance a 
variety of projects, such as energy assessments and the installation 
of energy-saving devices and equipment. Other planned activities 
include retrofitting energy efficient street lighting and installing 
renewable energy technologies in or on government buildings. 

* Public Housing Formula and Competitive Capital Funds. Arizona has 15 
public housing agencies that have received about $12 million from the 
Public Housing Capital fund. To date, the agencies are expending their 
formula funds by the mandated deadlines. Arizona also received one 
Capital Fund competitive grant, which the city of Phoenix housing 
agency plans to combine with other funding to renovate 374 housing 
units. This project has faced challenges stemming from a more complex 
bidding process and historical preservation issues. These are 
potential obstacles to the city's ability to meet the September 23, 
2010, obligation deadline. 

* Arizona's fiscal condition. Recovery Act funds helped Arizona to 
balance its fiscal year 2011 budget by enabling the state to save the 
equivalent amount of approximately $815 million from its general fund. 
The state has enacted a budget for 2011 assuming the passage of two 
ballot measures in the November general election. The state 
legislature is awaiting the November election results before deciding 
on possible contingency budget solutions. 

* The City of Phoenix's use of Recovery Act funds. The largest city in 
Arizona, Phoenix manages a diverse portfolio of Recovery Act funds to 
mainly support short-term, one-time projects in infrastructure 
development, energy conservation, public housing, and other areas. 
Phoenix has been awarded $382 million, of which 62 percent was awarded 
directly from federal agencies while the remaining 38 percent was 
awarded to state agencies that in turn passed the funds to the city. 
Officials said that Recovery Act funds have helped to fund jobs and 
are expected to yield beneficial outcomes to the city, including 
better infrastructure; 

increased services to communities, such as Early Head Start; 

and energy savings from energy grants. 

* Accountability. The Arizona Auditor General released the fiscal year 
2009 Single Audit[Footnote 3] with audit coverage of Recovery Act 
expenditures from February 2009 when the Recovery Act was passed 
through June 2009. Only 2 of the 28 significant internal control 
findings that were related to federal funding awards were specific to 
controls over Recovery Act funds-—one was a lack of maintaining 
documentation and the other was not having current central contractor 
registrations documentation prior to awarding grant money. Corrective 
action plans for both are in place. The OER has begun implementing its 
monitoring of subrecipients of Recovery Act funds, as well as 
providing technical assistance to state agencies on procedures to 
detect fraud, waste, and abuse. 

Arizona is Weatherizing Homes, Showing Energy Savings, Creating Jobs, 
and Monitoring Use of Recovery Act Funds: 

The Recovery Act appropriated about $5 billion for WAP, which DOE is 
distributing to each of the states, the District of Columbia, seven 
territories, and Indian tribes, to be spent by March 31, 2012. This 
program enables low-income families to reduce their utility bills by 
making longterm, energy-efficiency improvements to their homes. This 
includes, for example, installing insulation or modernizing heating or 
air conditioning equipment. ADOC administers the WAP within the state 
and has been awarded about $57 million in Recovery Act funds. The 
department allocated about $49 million of the $57 million to 10 local 
service providers, which includes approximately $42 million to 
weatherize 6,414 homes and $7 million for administration, training and 
technical assistance, audits, and liability insurance. ADOC retained 
about $8 million for administration and initial ramp-up activities, 
such as training center expansion, curricula development, staff 
training, and equipment purchases. The local service providers 
identify homes that are eligible[Footnote 4] to receive weatherization 
work and employ in-house construction crews, hire contractors, or use 
a combination of both approaches to make those improvements. ADOC 
estimates that weatherizing approximately 6,400 homes will result in 
as much as $2.8 million in overall energy savings annually. Table 1 
shows the funding allocated to each of the 10 local service providers, 
the projected number of homes to weatherize, the number and percent of 
homes weatherized, the funds spent weatherizing homes, and the average 
cost per home weatherized as of June 30, 2010. 

Table 1: Funding Allocated to Local Service Providers, the Number and 
Percent of Homes Weatherized, the Funds Spent Weatherizing Homes, and 
Average Cost of Homes Weatherized as of June 30, 2010: 

Local service provider: Maricopa County Human Services Department, 
Community Service Division; 
Funding allocation[A]: $11,911,987; 
Projected number of homes to weatherize: 1,600; 
Number of homes weatherized: 333; 
Percent of homes completed: 21%; 
Funds spent weatherizing homes: $1,654,835; 
Average cost per home weatherized: $4,969. 

Local service provider: Northern Arizona Council of Governments; 
Funding allocation[A]: $7,500,359; 
Projected number of homes to weatherize: 987; 
Number of homes weatherized: 283; 
Percent of homes completed: 29%; 
Funds spent weatherizing homes: $1,290,062; 
Average cost per home weatherized: $4,559. 

Local service provider: City of Phoenix Neighborhood Services 
Department; 
Funding allocation[A]: $7,222,865; 
Projected number of homes to weatherize: 951; 
Number of homes weatherized: 430; 
Percent of homes completed: 45%; 
Funds spent weatherizing homes: $2,779,532; 
Average cost per home weatherized: $6,464. 

Local service provider: Western Arizona Council of Governments; 
Funding allocation[A]: $5,911,442; 
Projected number of homes to weatherize: 768; 
Number of homes weatherized: 187; 
Percent of homes completed: 24%; 
Funds spent weatherizing homes: $1,122,302; 
Average cost per home weatherized: $6,002. 

Local service provider: Tucson Urban League, Inc. 
Funding allocation[A]: $4,749,363; 
Projected number of homes to weatherize: 612; 
Number of homes weatherized: 107; 
Percent of homes completed: 17%; 
Funds spent weatherizing homes: $526,132; 
Average cost per home weatherized: $4,917. 

Local service provider: Southeastern Arizona Community Action Program; 
Funding allocation[A]: $4,654,446; 
Projected number of homes to weatherize: 597; 
Number of homes weatherized: 304; 
Percent of homes completed: 51%; 
Funds spent weatherizing homes: $1,510,280; 
Average cost per home weatherized: $4,968. 

Local service provider: Community Action Human Resource Agency; 
Funding allocation[A]: $2,269,618; 
Projected number of homes to weatherize: 273; 
Number of homes weatherized: 66; 
Percent of homes completed: 24%; 
Funds spent weatherizing homes: $234,145; 
Average cost per home weatherized: $3,548. 

Local service provider: Gila County Community Action Program; 
Funding allocation[A]: $1,744,457; 
Projected number of homes to weatherize: 202; 
Number of homes weatherized: 61; 
Percent of homes completed: 30%; 
Funds spent weatherizing homes: $491,927; 
Average cost per home weatherized: $8,064. 

Local service provider: Pima County, Community Development and 
Neighborhood Conservation Department; 
Funding allocation[A]: $1,705,544; 
Projected number of homes to weatherize: 197; 
Number of homes weatherized: 42; 
Percent of homes completed: 21%; 
Funds spent weatherizing homes: $224,632; 
Average cost per home weatherized: $5,348; 

Local service provider: Mesa Community Action Network; 
Funding allocation[A]: $1,750,512; 
Projected number of homes to weatherize: 227; 
Number of homes weatherized: 117; 
Percent of homes completed: 52%; 
Funds spent weatherizing homes: $871,344; 
Average cost per home weatherized: $7,447. 

Local service provider: Total; 
Funding allocation[A]: $49,420,593; 
Projected number of homes to weatherize: 6,414; 
Number of homes weatherized: 1,930; 
Percent of homes completed: 30%; 
Funds spent weatherizing homes: $10,705,191; 
Average cost per home weatherized: $5,547. 

Source: GAO analysis of ADOC data. 

[End of table] 

This total includes about $41.6 million for program operations and 
$4.9 million for training and technical assistance; 

the remainder is for administration, audit, and liability insurance 
that was allocated among the local service providers (numbers rounded). 

Although $57 million was awarded to Arizona, DOE limited each state's 
access to 50 percent of these funds-—or $28.5 million for Arizona—-
until 30 percent of the homes to be weatherized had been completed and 
other requirements had been met.[Footnote 5] According to ADOC 
officials, as of June 30, 2010, the state had weatherized 1,930 homes, 
about 30 percent, which qualified it for obtaining the balance of its 
funding award from DOE. On August 6, 2010, ADOC notified DOE that it 
could access the remaining $28.5 million. 

Although ADOC has qualified for the remainder of its funding 
allocation, it still faces some challenges in weatherizing its 
projected number of homes and expending weatherization funds by the 
March 2012 deadline. A key factor that is affecting the weatherization 
plan is the statewide average cost per home weatherized. Arizona 
estimated expending a statewide average of about $6,500 per home in 
Recovery Act weatherization funds, which is the maximum average amount 
permitted by statute. However, statewide, local service providers are 
spending an average of approximately $5,500—or about $1,000 less per 
home—because (1) the extent of work required is less than estimated; 

(2) some work is done with funds leveraged from other sources, such as 
rebates from utility companies; 

and (3) to a lesser extent, some contractors are able to buy smaller 
items in bulk that translates to lower per unit costs. If local 
service providers continue to achieve these savings, ADOC will 
weatherize its 6,414 homes as planned with only about $36 million. 
ADOC estimates that, if the average costs remain, it may be able to 
weatherize an additional 1,218 homes with the remainder of the $42 
million it allocated for weatherization program operations. 

ADOC officials recognize that increasing the number of homes 
weatherized can be a challenge for some local service providers. For 
example, some providers (1) awarded contracts to firms who do not want 
to add temporary staff to increase their existing workload and (2) 
have difficulties finding additional contractors who are qualified and 
willing to do the work. For example, Tucson Urban League officials 
informed us that contractors were deterred from doing weatherization 
work because they had to bear the cost of obtaining the training and 
certification to do this work.[Footnote 6] The officials also believed 
that there were not enough contractors available in the community that 
could aid them in increasing their monthly rate of homes completed. 
This poses a real challenge for the Tucson Urban League because its 
average monthly rate has been about 12 homes per month from October 
2009 through June 2010, and it would have to weatherize an average of 
about 33 homes per month to expend all of its funds by the deadline. 
ADOC officials said that they will closely monitor completion rates of 
all of the local service providers and, if necessary, will reallocate 
funds from those who are struggling to meet their goal to those who 
are capable of meeting their goal and taking on additional work. The 
officials said that ADOC will make these reallocation decisions in the 
next 8 to 10 months. 

Weatherization Efforts Expect to Achieve At Least $2.8 million in 
Energy Savings and are Creating Jobs: 

One of WAP's goals is to reduce energy consumption and utility bills 
for low-income households. To measure the impact in Arizona, ADOC 
calculates an estimated kilowatt hour (kWh) usage reduction and 
utility cost savings resulting from the weatherization work performed 
on homes. As of June 25, 2010, ADOC estimates that the WAP Recovery 
Act weatherization services have resulted in a usage reduction of 2.4 
million kWh and approximately $267,000 in savings for the residents of 
the 1,930 homes that have been weatherized. ADOC estimates the 
weatherization work on the original plan covering approximately 6,414 
homes statewide will result in as much as $2.8 million in overall 
energy savings annually.[Footnote 7] If Arizona is able to weatherize 
the additional 1,200 homes, it estimates total energy savings to be 
about $3.3 million. In addition to these estimates, ADOC will 
calculate the actual energy and utility cost savings achieved for the 
residents by comparing monthly utility bills for a 1-year period prior 
to the weatherization work to an 18-month period after the work is 
completed. 

The weatherization services being performed consist of a wide variety 
of retrofitting measures, such as improving heating and cooling 
systems, applying air sealing and weather stripping, and improving 
insulation. Local service providers determine which measures to 
install in a home by diagnostic testing, visual inspection, and 
practical considerations. Health and safety inspections are also 
conducted to ensure that installing efficiency measures will not 
jeopardize the occupants or their home.[Footnote 8] In part, federal 
requirements limiting the amount of money that can be spent on 
residences have helped to ensure that only the most cost-effective 
measures are included in the upgrade of a particular home. The 
residents in three homes we visited informed us that they experienced 
balanced temperatures in their homes and improved effectiveness of 
their heating and cooling systems. Some also reported that the 
contractors had instructed them on steps they could take to reduce 
their energy consumption, such as installing compact fluorescent light 
bulbs and unplugging small appliances when not in use. 

Arizona officials report that the WAP also has had a positive impact 
on creating jobs in Arizona. The Recovery Act significantly increased 
the funding and the number of homes being weatherized compared to the 
DOE weatherization program prior to the Recovery Act. As a result, all 
10 local service providers awarded contracts to firms to perform their 
weatherization work in addition to their in-house crews, which some 
agencies have also expanded. For example, one local service provider 
awarded contracts to eight general contractors, and increased from two 
in-house crews to six in order to meet the increased workload demand 
resulting from the Recovery Act. According to ADOC officials, because 
of the temporary nature of the Recovery Act funds, some contractors 
have expressed a reluctance to submit bids for weatherization work 
because they would need to hire additional staff and pay for training 
and start-up costs if awarded contracts. ADOC said that they have been 
working to educate contractors about other energy retrofit 
opportunities—-such as other DOE-funded programs or Arizona's utility 
company rebate program—-that they would be competitive for with 
trained and certified staff. 

State Agency Monitoring Actions Meet or Exceed DOE Requirements: 

DOE requires state weatherization agencies—-ADOC in Arizona-—to (1) 
visit each local service provider at least once a year to inspect the 
local service provider's management of funds and the completion of 
weatherized homes and to review records and client files, (2) inspect 
at least 5 percent of the weatherized homes, and (3) ensure that each 
local service provider inspects all of the completed homes they 
weatherize. ADOC officials reported that they are meeting all and 
exceeding some of the DOE requirements. 

* Instead of once a year, ADOC officials said their monitors have been 
visiting each of the 10 local service providers at least once a month. 
ADOC officials said that they will conduct more frequent on-site 
monitoring of local service providers who are struggling to achieve 
their completion rates to determine what is causing the problem and to 
assist them in addressing those challenges. 

* ADOC has inspected approximately 8.5 percent of the weatherized 
homes to date, which exceeds the DOE 5 percent requirement.[Footnote 
9] These site visits are conducted at various stages of job completion—
at initial audit, during installation of the weatherization measures, 
and after completion. Both ADOC and local service provider monitors 
can use these on-site inspections to provide feedback to the 
contractors on weatherization activities the monitors observed. For 
example, we observed an ADOC monitor on a home visit informing the 
contractor of a method that could be used in the future for installing 
additional ductwork that would improve the air flow into the room and 
the energy efficiency of the air conditioning system. 

* ADOC officials said that their monitors address the DOE requirement 
to ensure that each local service provider inspects all weatherized 
homes by conducting desk audits on 100 percent of all weatherization 
jobs using its Web-based audit tool. ADOC requires each local service 
provider, at the end of each month, to enter information into its 
database documenting that final inspections have been performed on 
each home completed during that month. The ADOC monitors (1) review 
all of this data to ensure that the local service providers have 
documented whether final inspections have been performed and (2) 
provide a monthly report to each local service provider showing the 
results of these reviews. ADOC officials stated that these reviews, in 
combination with the site visits and home inspections, provide ADOC 
with assurances that local service providers are inspecting all of the 
homes they complete. 

Knowledge Sharing and Planning: 

The 10 community service organizations that have historically provided 
weatherization services in Arizona have a peer to peer information 
exchange, which currently meets quarterly. The agencies discuss topics 
such as workload demands; 

requirements of the Recovery Act, such as Davis-Bacon and Buy American 
issues; 

and how they plan to meet weatherization targets. About 15 years ago, 
this group developed the Southwest Building Science Training Center, 
with which ADOC has partnered to train the number of weatherization 
contractors and auditors required to meet the Recovery Act 
weatherization goals for Arizona. 

EECBGs Help Make it Possible For Arizona Communities to Undertake New 
Energy-Saving Programs The EECBG program, funded for the first time by 
the Recovery Act, funds programs that reduce fossil fuel emissions in 
an environmentally sustainable manner, reduce the total energy use of 
the eligible entities, and improve energy efficiency in 
transportation, construction, and other sectors. Arizona grant 
recipients received a total of $72.6 million in EECBG funds and many 
of its cities and counties are using these funds to assess the energy 
efficiency of public buildings, install energy-saving devices and 
equipment, and partner with the private sector to leverage funds for 
increased potential effectiveness. 

Arizona cities, counties, and tribal communities received EECBG funds 
in two ways: some received funds directly by formula from DOE and 
others received funds through the ADOC's State Energy Office. 
Specifically, 32 cities received $54.2 million directly from DOE for 
energy efficiency programs, and 21 tribal communities received $8.9 
million for this purpose. In addition, the State Energy Office 
received $9.5 million from DOE, which it largely distributed to 64 
cities with populations less than 35,000, as well as the 5 smallest 
counties in Arizona, to help those localities reduce greenhouse gases 
and promote energy efficiency in their jurisdictions. 

The EECBG grant program requires that states pass through a minimum of 
60 percent of the funds they receive to communities with smaller 
populations that were not eligible for direct grants from DOE. 
Officials from the State Energy Office said that it exceeded this 
requirement and has passed more than 80 percent of its EECBG 
allocation (more than $7.6 million) to 64 cities, as well as 5 
counties in order to get as much money to the cities and counties for 
energy efficiency improvements as possible. The State Energy Office is 
using the remainder of the funds (about $2 million) for 
administration, reporting, and technical assistance, including 
providing services such as monitoring and reporting of projects, 
providing program guidance, and encouraging networking to facilitate 
smaller communities' receipt and use of funds and to take advantage of 
additional funding sources. 

EECBG Opens Doors to Additional Energy Project Funds: 

Nonfederal financial assistance is sometimes made available for 
improved energy-efficiency projects, but only after communities have 
made some investment on their own. For example, the State Energy 
Office officials said that the Arizona Public Service, the state's 
largest utility company has, since 2006, offered its commercial and 
governmental customers incentives which reimburse these customers for 
up to 30 percent of the cost of implementing energy efficiency 
programs. Localities apply for the utility company incentives in 
advance of the project and are paid back over a number of years. 
According to the State Energy Office, these incentives have, in the 
past, largely gone unclaimed, in part because localities have not been 
able to afford energy-efficiency projects. 

The fact that EECBG provides funding for energy-efficiency projects 
that would otherwise not be affordable for some communities also opens 
the door to these potential funding sources. When the State Energy 
Office distributed EECBG money to localities, the office was making 
the localities aware of the incentives, encouraging them to apply, and 
helping them to complete the applications. Because communities are 
still ramping up their EECBG activities, there are currently no data 
on the number and amount of incentives that have already been claimed. 
However, according to State Energy Office staff, communities' 
proposals for energy work submitted to the State Energy Office show 
that about $1.9 million in additional incentives may be claimed. 

EECBG Grants in Arizona Are Funding a Variety of New Energy Projects 
Designed to Save Energy: 

Under Arizona's EECBG program, localities are using funds to finance a 
variety of projects such as energy assessments and the installation of 
energy-saving devices and equipment. We visited two localities 
receiving EECBG funds, the cities of Casa Grande and Phoenix. The city 
of Casa Grande, which received about $164,000 in direct EECBG funding 
from DOE, had completed the first of its EECBG projects, an energy 
assessment, and was gearing up to complete the second project, the 
installation of solar lights in three city parks, at the time of our 
review. The energy assessment has provided the city with baseline data 
on energy consumption, energy costs, and the type of energy consumed 
in 30 of the city's buildings. The assessment suggested ways for the 
city to save energy in each of the buildings (see figure 1), such as 
replacing windows and aging air conditioning units, and the baseline 
data allow the city to determine exactly how much energy savings can 
be attained by implementing each of the energy-saving measures. 

Figure 1: Example of Energy Savings Proposed by Casa Grande Energy 
Assessment: 

[Refer to PDF for image: illustration] 

This figure is presented to show the types of energy saving projects 
that the city of Casa Grande will invest in over the next few 
years.The figure presents one page of the energy assessment the city 
had completed using its EECBG funds. In addition to the project’s 
cost, the annual savings each measure will produce, as well as the 
number of years it will take for the investment to pay for itself, is 
presented. 

Source: City of Casa Grande. 

[End of figure] 

Casa Grande officials said that they are planning on implementing the 
energy-savings techniques outlined in the energy assessment. The EECBG 
grant represents the first federal monies that Casa Grande has ever 
received to do energy-efficiency work, and, according to city 
officials, because of budget constraints, they could not have 
implemented these programs without the Recovery Act funds. For 
example, the solar lights Casa Grande will install in city parks will 
provide increased safety, along with energy savings, according to city 
officials. Because Casa Grande currently lacks the electrical 
infrastructure to accommodate street lighting around the parks, adding 
traditional lights to these areas would be cost prohibitive. 

The city of Phoenix received $15.2 million in a direct EECBG formula 
grant to be used for a variety of projects, including making municipal 
buildings more energy efficient and funding the conversion of traffic 
signals from traditional lights to more energy-efficient LED lights 
(see table 2 for a complete list of Phoenix EECBG projects). Phoenix 
officials said that one of the first projects Phoenix completed when 
the city received its EECBG formula grant was an energy audit using a 
tool provided by Environmental Protection Agency (EPA), which allowed 
them to establish a baseline for the energy usage in city buildings. 
Also, officials said that Phoenix used EECBG administrative funds to 
pay for the time spent on setting up and tracking the results of the 
EPA tool. This energy audit will be followed up by another audit 
beginning in September 2010, which will be conducted by an energy 
service company that will identify energy conservation measures and 
implement energy-efficient retrofits. Officials said that the contract 
for the energy audit will be finalized and work will begin in late 
September 2010. The type of energy audit the city is contracting for, 
called an investment grade audit, includes a contractor guarantee that 
the city will realize a specific energy savings when the energy-
efficiency measures are implemented. If Phoenix does not realize the 
promised energy savings after implementing the projects the contractor 
recommends, the city will be able to recoup the difference between the 
savings the contractor guaranteed and the actual savings. 

Table 2: Description, Costs, and Time Frames of Phoenix Direct EECBG 
Formula Grants: 

Project: Energy Efficiency and Conservation Strategy; 
Estimated cost: $24,000; 
Date completed or planned to be completed: June 2009. 

Project: Energy Audit; 
Estimated cost: $191,500; 
Date completed or planned to be completed: March, 2010 (benchmarking), 
May-June 2012 (outreach). 

Project: Municipal building energy efficiency and solar energy; 
Estimated cost: $11,600,000; 
Date completed or planned to be completed: June-July 2010. 

Project: LED traffic signal conversions; 
Estimated cost: $2,700,000; 
Date completed or planned to be completed: November-December 2011. 

Project: Traffic signal optimization program; 
Estimated cost: $80,000; 
Date completed or planned to be completed: May-June 2012. 

Project: Phoenix energy rebate program; 
Estimated cost: $700,000; 
Date completed or planned to be completed: August 2012. 

Project: Total; 
Estimated cost: $15,295,500. 

Source: GAO analysis of city of Phoenix documentation. 

[End of table] 

Monitoring Varies Among the Three Grant Recipients We Visited: 

The State Energy Office has five staff members assigned to work on 
ensuring the EECBG formula grants are monitored closely, according to 
officials from that office. Three of those employees are each assigned 
to a region of the state and travel to all cities and counties in the 
region that received EECBG funds through the State Energy office to 
provide assistance with localities' reporting requirements, as well as 
to conduct on-site inspections of the EECBG projects. State Energy 
Office officials have made preliminary visits to localities receiving 
EECBG funds from the State Energy Office to determine planned EECBG 
activities, but as of August 2010 projects were not far enough along 
for monitors to determine compliance with EECBG guidelines. 

For those localities receiving EECBG funding through the State Energy 
Office, the office has created a database that includes all relevant 
grant information about the localities' specific EECBG projects, 
including the type of project, the amount of the grant, and reporting 
information. This database allows the State Energy Office to monitor 
all relevant grant information and is another device that the office 
uses to track the grant dollars spent and to ensure that the Recovery 
Act funds are being used in accordance with DOE's guidance. The EECBG 
database also helps the State Energy Office prepare quarterly 
recipient reports. Officials said that they use the database to gather 
the appropriate reporting information, including monies spent and the 
number of staff hours charged to each EECBG project to determine the 
number of full-time equivalent employees that cities and counties 
receiving EECBG funds through the State Energy Office are using on 
localities' EECBG projects. State energy officials said that they have 
not experienced any difficulties in reporting these data to the 
federal government and do not anticipate any problems moving forward. 

All EECBG grants require the localities that receive those grants to 
initially pay for the projects and submit receipts to the State Energy 
Office for reimbursement. As a result, the State Energy Office has no 
trouble in tracking the funds for EECBG, according to officials from 
that office. 

When we first met with State Energy Office officials in June 2010, 
they had not developed a monitoring plan for EECBG funds. Subsequent 
to our visit, the office created a monitoring plan so those 
responsible for overseeing those grants that pass through the office 
would collect timely, consistent information on EECBG grant 
expenditures. The plan calls for the collection of information about 
contracts, including Davis-Bacon and Buy American provisions, 
benchmarks of current energy usage, and the project's budget. Because 
many of the projects are just underway, officials said that they have 
not yet used the monitoring plan, but intend for the plan to provide 
consistent assessment across all localities that receive pass-through 
EECBG funding from the State Energy Office. 

Casa Grande city officials have assigned a specific grant number to 
their EECBG funds and said that they can track all expenses separately 
through this number. They said that since their EECBG funds will only 
be used for two projects, they do not see the need for a more formal 
monitoring plan. The city has completed one round of recipient 
reporting, and city officials told us that because of the system they 
have in place—tracking all expenses and employees through the EECBG 
grant—they have had no problems with reporting and are not 
anticipating any problems in the future. 

Phoenix officials are in the process of developing a written 
monitoring plan and intend to base it on a risk-assessment evaluation 
of their contracts and give priority to those they determine to be 
high risk for financial loss. Phoenix has created a separate account 
for each EECBG grant and each project has a separate project number or 
a cost center where the expenditures are booked and tracked. The 
project manager for each EECBG project can access information, 
including individual invoices, at any time and determine how much of 
each project's funding has been spent. In addition to financial 
oversight, Phoenix city management reviews the progress and status of 
all Recovery Act grants monthly. Because Phoenix had received Recovery 
Act grants prior to their EECBG grant, they had experience in 
recipient reporting. As a result, city officials said that they have 
not experienced any difficulty in submitting their recipient reports 
and are not anticipating having problems in the future. 

Housing Agencies Are Meeting Formula Grant Expenditure Deadlines but 
Arizona Faces Challenges in Obligating Competitive Grant Funds: 

The Recovery Act provided the U.S. Department of Housing and Urban 
Development (HUD) with $3 billion to allocate through the Public 
Housing Capital Fund to public housing agencies following the same 
formula for amounts made available in fiscal year 2008, prior to the 
act. The Recovery Act formula funds were allocated to 3,134 public 
housing agencies nationwide, which were to obligate all of their funds 
by March 17, 2010. The Recovery Act also provided HUD with nearly $1 
billion to award to public housing agencies based on a competition for 
priority investments, including investments that leverage private 
sector funding or financing for renovations and energy conservation 
retrofitting. 

Of the 25 public housing agencies in Arizona, 15 collectively received 
$12.1 million in Public Housing Capital Fund formula grants under the 
Recovery Act to improve the physical condition of their properties. 
HUD awarded only one Capital Fund competitive grant in Arizona, which 
was to the Phoenix Housing Department for $3.4 million under the 
category of creating energy-efficient public housing units. 

Housing Agencies Are Expending Their Formula Funds by the Mandated 
Deadlines: 

The Recovery Act required that housing agencies obligate 100 percent 
of their formula grant funds within 1 year of when the funds became 
available to them. According to officials in the HUD field office, all 
Arizona housing agencies met the March 17, 2010, obligation deadline. 
The Recovery Act also required that housing agencies expend 60 percent 
of their formula grant funds within 2 years from when the funds became 
available and expend 100 percent of their funds within 3 years. As of 
August 7, 2010, 13 of the 15 agencies receiving funding had already 
expended at least 60 percent of their Recovery Act formula grant funds—
more than 7 months before the March 17, 2011, deadline. Of the 
remaining two housing agencies, one had expended 59 percent of its 
Recovery Act funds and the other had expended 32 percent of its funds. 
Further, 6 of the 13 agencies had expended 100 percent of their funds. 
In total, agencies had expended nearly $8.7 million as of August 7, 
2010. 

During our review, we followed up on two housing authorities we had 
previously visited—Flagstaff and South Tucson—to see firsthand the 
progress these agencies were making in expending their funds. In 
Flagstaff, officials have expended all Recovery Act formula funds and 
completed their Recovery Act projects, which included window, 
appliance, and furnace replacements. As of August 7, 2010, the housing 
agency in South Tucson had expended 86 percent of its Recovery Act 
funds for its contract to reroof all of the city's public housing 
units and install three boilers in its two apartment buildings for 
seniors and disabled individuals. The roofing project was completed in 
August 2010, and housing agency officials estimated the new boilers 
would be installed by September 2010 (see figure 2). 

Figure 2: Reroofing Work in Progress on South Tucson Apartment 
Building for Seniors: 

[Refer to PDF for image: 2 photographs] 

This figure contains two photographs of the Recovery Act-funded re-
roofing project for the South Tucson Housing Authority. The left-hand 
photograph depicts work in progress on an apartment building for 
seniors, Casa de Bernie Sedley; the right-hand picture shows the 
completed project. 

Source: South Tucson Housing Authority. 

[End of figure] 

The Phoenix Housing Agency Received a Competitive Grant and Faces 
Challenges in Obligating its Funds: 

Phoenix housing officials plan to combine their $3.4 million 
competitive grant award with other funds to renovate 374 units at the 
Marcos de Niza public housing site, which was built in the 1940s and 
1950s. Total development costs for this project are estimated at $20.7 
million, and Recovery Act funding will be used to cover predevelopment 
costs and some construction costs for 281 of the units. Other funding 
sources include bonds, low income housing tax credits, and other non-
Recovery Act formula capital funds. We first reported in December 2009 
approximate total development costs of $24.7 million for this 
project.[Footnote 10] A Phoenix official said that the initial 
estimate was revised after the costs and scope of the project were 
reduced due to changing financial market conditions. As of August 7, 
2010, the housing agency had obligated approximately $1.4 million of 
the Recovery Act funds and had expended $944,364. 

Officials in the HUD field office said that the housing agency has 
faced some challenges in meeting its September 23, 2010, obligation 
deadline.[Footnote 11] According to a housing authority official, its 
mixed financing approach and use of tax credits have created a more 
complex contract bid process. Additionally, addressing historic 
preservation issues has delayed the bid process and has resulted in 
the city modifying some of its original plans for the project. For 
example, the agency cannot apply insulation and stucco to the building 
exteriors or add second floors to some units. As a result, housing 
agency officials have had to develop alternative renovation plans. 
Furthermore, the agency was still in the process of obtaining all HUD 
approvals for the mixed-financing proposal, including applying 
portions of the competitive grant funding to the project's 
construction costs. Although challenging, city officials said that 
they expected to meet the obligation deadline, but as of August 31, 
2010, the officials in the HUD field office expressed concerns about 
the city meeting all requirements with less than 1 month before the 
deadline. 

HUD Field Office Staff Are Meeting Recovery Act Monitoring 
Requirements: 

In May 2010, we reported that HUD was in the process of more clearly 
defining their monitoring requirements for Recovery Act funds and that 
until those requirements were defined, it was not clear that the 
Arizona HUD field office would have the workforce capacity to carry 
out the requirements.[Footnote 12] HUD has now fully defined its 
Recovery Act monitoring requirements and the Arizona office is not 
only certain it has the capacity, but it has already completed much of 
the required monitoring. For example, the field office has already 
completed its mandated review of the four formula grants for those 
housing agencies that had not obligated at least 90 percent of their 
Recovery Act formula funds as of February 26, 2010, and they reported 
no deficiencies. 

Arizona Is Better Prepared to Monitor Its Use of IDEA, Part B and 
Title I, Part A Recovery Act Funds: 

The Arizona Department of Education is responsible for monitoring the 
use of federal funds it receives under the Individuals with 
Disabilities Education Act (IDEA), as amended, Part B and the 
Elementary and Secondary Education Act of 1965 (ESEA), as amended 
Title I, Part A grants, including Recovery Act and non-Recovery Act 
funds. The department has assigned monitoring responsibility to the 
Exceptional Student Services (ESS) Unit for IDEA funds and to the 
Title I Office for ESEA, which includes ESEA Title I, Part A funds. 
The ESS Unit provides funding to support the Arizona Department of 
Education's Audit Unit to perform fiscal monitoring of IDEA, Part B 
funds. In May 2010, we reported that neither the Audit Unit nor the 
Title I Office had begun monitoring local educational agencies' (LEA) 
use of Recovery Act funds. In that report, we noted that the Audit 
Unit and Title I Office were going to modify their guidelines or 
monitoring protocols to incorporate Recovery Act requirements and 
subsequently begin monitoring the use of Recovery Act funds.[Footnote 
13] 

Since our May 2010 report, the Audit Unit and the Title I Office have 
made modifications to their monitoring processes to reflect Recovery 
Act requirements. For example, in June 2010, the Audit Unit revised 
its procedures for selecting LEAs to monitor. The revised procedures 
reflect the need to monitor for the use of Recovery Act funds and 
establish a process for selecting LEAs to monitor based on those that 
receive the largest amount of funding, including Recovery Act funding, 
as well as other factors including geographic, demographic, and high 
risk factors, such as deficiencies noted in prior reports that have 
not been corrected. Officials also have modified their fiscal 
monitoring fieldwork program, which specifically addresses monitoring 
for compliance with Recovery Act requirements. In addition, Audit Unit 
officials said that they began monitoring of Recovery Act funds on 
July 6, 2010. 

We also inquired about how the Audit Unit will be discussing the LEAs' 
use of Recovery Act funds in future audit reports. Officials informed 
us that the reports will include a section that discusses the Recovery 
Act, its requirements, and examples of the types of expenses that are 
allowable. Furthermore, the audit reports will identify the amount of 
Recovery Act funds the LEAS received for the time period audited and 
describe the specific methods used to evaluate LEAs' compliance with 
requirements. 

Finally, the audit reports will include audit time frames, which are 
critical for documenting the scope of work, in response to our 
inquiries. 

The Title I Office has developed a "completion report" that LEAs are 
to use in reporting their use of Recovery Act funds. The report will 
capture information on the amount of Recovery Act funds that (1) LEAs 
have not distributed to schools and have set aside for their own uses, 
such as administration, instructional programs, and professional 
development and (2) private schools have used for professional 
development or family involvement, and homeless student services. The 
report also seeks information from LEAs and schools that have been 
identified as needing improvement in professional development as to 
whether they are eligible for waivers on spending funds for this 
purpose and, if so, how the waived funds were spent.[Footnote 14] 
Monitors plan to use the information contained in this report to 
evaluate and verify the reported uses of the funds. Officials also 
informed us that they are currently completing additions to their on-
line system that allow monitors to enter the results of their 
monitoring efforts and to identify the findings resulting from their 
review of Recovery Act audits. Title I officials said they would begin 
their monitoring through on-site visits after October 1, 2010. 

Arizona's 2011 Balanced Budget is Dependent Upon Recovery Act Funds 
and State Ballot Measures, But Faces Challenges in the Future: 

For fiscal year 2011, approximately $815 million of Recovery Act 
related funds[Footnote 15] helped Arizona to balance its budget by 
enabling the state to save the equivalent amount from its general 
fund, according to the Arizona Joint Legislative Budget Committee. 
This amount of funding is significantly less than the approximately 
$1.4 billion in Recovery Act funds the state applied to its fiscal 
year 2010 budget. 

The balanced budget for fiscal year 2011 in Arizona also assumes the 
passage of two ballot measures in the upcoming November general 
election, which together would provide a total of approximately $469 
million in new revenue for fiscal year 2011 and an estimated $80 
million of on-going revenue in subsequent years. The first measure 
would terminate the Arizona Early Childhood Development and Health 
Board, transfer any remaining uncommitted fund monies—estimated to be 
$325 million—to the general fund; 

and redirect the dedicated ongoing tax revenues to the general fund. 
The second measure would repeal the state's Land Conservation Fund and 
transfer the remaining balance—estimated to be approximately $124 
million—to the general fund. According to the Governor's office, there 
is currently no contingency budget should the November ballot measures 
not pass. The state legislature is awaiting the November election 
results before deciding on possible contingency budget solutions. 

For fiscal year 2012, Arizona faces budget challenges, particularly as 
the Recovery Act funds phase out. Current economic forecasts project 
gradual growth in Arizona's economy; 

however, revenues are not expected to return to 2007 levels until 
after 2014, as seen in figure 3. To fully address the shortfalls of 
fiscal years 2008 through 2011, the state enacted some permanent 
spending reductions, but revenue increases were mostly temporary, such 
as using one-time fund transfers, acquiring debt, and implementing a 3-
year temporary sales tax increase. These solutions are projected to 
narrow the structural gap through 2012. However, according to the 
Arizona Joint Legislative Budget Committee and Governor's office 
budget officials, the options for temporary revenue measures mostly 
have been exhausted and, as a result, without resumed economic growth, 
Arizona budgetary challenges would be significant. 

Figure 3: Arizona General Fund Ongoing Revenues, with and without 
Recovery Act Money, and Ongoing Expenditures: 

Fiscal year: 2007; 
Revenues: $9.6 billion; 
Revenues without Recovery Act: $9.6 billion; 
Expenditures: $9.5 billion. 

Fiscal year: 2008; 
Revenues: $8.8 billion; 
Revenues without Recovery Act: $8.8 billion; 
Expenditures: $10.4 billion. 

Fiscal year: 2009; 
Revenues: $7.64 billion; 
Revenues without Recovery Act: $7 billion; 
Expenditures: $10 billion. 

Fiscal year: 2010; 
Revenues: $7.6 billion; 
Revenues without Recovery Act: $6.2 billion; 
Expenditures: $9.7 billion. 

Fiscal year: 2011; 
Revenues: $8.69 billion; 
Revenues without Recovery Act: $7.8 billion; 
Expenditures: $9.5 billion. 

Fiscal year: 2012; 
Revenues: $8.4 billion; 
Revenues without Recovery Act: $8.4 billion; 
Expenditures: $9.6 billion. 

Fiscal year: 2013; 
Revenues: $8.8 billion; 
Revenues without Recovery Act: $8.8 billion; 
Expenditures: $10 billion. 

Fiscal year: 2014; 
Revenues: $8.1 billion; 
Revenues without Recovery Act: $8.1 billion; 
Expenditures: $10.1 billion. 

Source: Arizona Joint Legislative Budget Committee Analysis and the 
Arizona Governor's Office of Economic Recovery. 

[End of figure] 

Phoenix Aimed Its Recovery Act Funds at Short-Term Projects That 
Create Jobs: 

Phoenix, the largest city in the state (see figure 4), actively sought 
and now manages a diverse portfolio of Recovery Act funds to mainly 
support short-term, one-time projects in infrastructure development, 
energy conservation, public housing, and other areas. It uses multiple 
systems to track progress of Recovery Act funds, including a database 
designed specifically for this purpose and monthly departmental 
progress reports comparing goals to accomplishments. 

Figure 4: Phoenix's Population and Unemployment Data: 

[Refer to PDF for image: map and data] 

Phoenix, Arizona: 
Population: 1,601,587; 
Unemployment rate: 10.3%. 

Source: U.S. Census Bureau and U.S. Department of Labor, Bureau of 
Labor Statistics, Local Area Unemployment Statistics data. 

Notes: Population data are from the latest available estimate, July 1, 
2009. Unemployment rates are preliminary estimates for June 2010 and 
have not been seasonally adjusted. Rates are a percentage of the labor 
force. Estimates are subject to revisions. 

[End of figure] 

Phoenix's Diverse Portfolio of Recovery Act Funds Primarily Support 
One-Time Investments: 

As of June 16, 2010, the city of Phoenix was awarded $382 million in 
Recovery Act funds, most of which were directed toward specific 
purposes and did not go toward discretionary spending. Formula grants 
awarded to Phoenix support street pavement preservation, energy 
efficiency and conservation, and homeless prevention while competitive 
grants fund family housing, public transit, and water main 
improvements, among others.[Footnote 16] Federal agencies provided 
approximately $238 million, or 62 percent, directly, while the 
remaining $144 million was awarded to state agencies that in turn 
passed the funds onto the city. Figure 5 shows categories in which 
Recovery Act Funds were awarded. 

Figure 5: Recovery Act Funds Managed by Phoenix: 

[Refer to PDF for image: pie-chart] 
 
Transportation: $139,953,084 (37%); 
Housing and social services: $108,469,098 (28%); 
Water, environment, and energy: $72,013,197 (19%); 
Economic development: $53,366,000 (14%); 
Public safety: $8,118,568 (2%). 

Source: GAO calculation of Phoenix data, as of June 16, 2010. 

Note: Water, environment, and energy funds support public works and 
water projects. Economic development refers to bonds that are used 
toward public and private property improvements. Housing and social 
services funds support worker training, housing upgrades, and 
community services. Transportation funds support public transit, 
aviation, and street preservation projects. Public safety funds 
support fire, prosecution, and police operations. These funds are 
described in further detail in appendix XVIII. 

[End of figure] 

Officials said that many projects supported by the funds are one-time 
investments, such as energy retrofits, transportation upgrades, or 
heating and cooling improvements in housing developments. For example, 
Phoenix received a $4.3 million grant from the Federal Transit 
Administration to make improvements to transit pads, benches, and 
shelters at various bus stops throughout the city. Because most of the 
funds are directed toward specific short-term projects such as these, 
budget officials said they do not anticipate facing challenges of 
trying to replace Recovery Act funding in order to complete or 
maintain projects, at the end of the grant period. 

Recovery Act Funds Have Helped Create Jobs in Phoenix and Are Expected 
to Yield Beneficial Outcomes: 

Phoenix officials say the city has already benefited from the Recovery 
Act with new jobs through private sector contracts for housing and 
transportation, increased services to communities through programs 
such as Early Head Start, and energy savings and large-scale 
conservation for Phoenix residents from energy grants. 

The Public Housing Capital Fund has been used to fund roof, security 
door, and flooring replacement along with interior painting in public 
housing projects. These projects have resulted in new work for private 
contractors, who in turn, hired or retained workers. City officials 
expect the projects to ultimately increase safety and hygiene in 
public housing. Similarly, all staff for the Early Head Start program 
has been hired, all beneficiaries are enrolled, and the program is 
actively underway, according to officials. Human Services Department 
staff said that this program, which offers regular child developmental 
assessments and increased information to parents, could ultimately 
mitigate developmental delays in children. The city has used the EECBG 
to develop an energy conservation strategy, conduct energy audits of 
public buildings that help to identify potential energy efficiencies, 
and install efficiency upgrades. The projects supported by these funds 
are expected to result in energy savings and conservation in Phoenix. 

Phoenix Uses Multiple Systems to Track and Report Progress of Recovery 
Act Funds: 

Phoenix uses multiple systems to track the progress of its departments 
and the progress of programs supported by Recovery Act funds. These 
systems include an interactive database to report and track Recovery 
Act progress, the city manager's ongoing report on department 
performance, and specific audits to check internal controls and 
reporting consistency in Recovery Act programs. 

Phoenix's Recovery Act Database Serves as a Management Tool: 

To capture and monitor the status and progress of Recovery Act funds, 
city management formed a Recovery Act Task Force, comprised of city 
managers that meets monthly to discuss Recovery Act progress, 
technical matters, and any issues that arise. They collaborate 
electronically using a database created to capture departmental 
information on Recovery Act funds. The database is used as a 
management tool across city departments to capture and disseminate 
information about the status of all Recovery Act grants actively 
managed by the city, such as number of jobs, total expenditures, and 
status notes or next steps. One longer-term benefit from these efforts 
is that officials said the database will most likely be retained as a 
means of electronic collaboration on federal grants in the future. 

Phoenix Tracks Department Performance Monthly: 

Phoenix uses a management tool to monitor performance of its 28 
departments. Each month, the City Auditor publishes a City Manager's 
Performance Report illustrating the year-to-date progress each 
department has made toward its annual goals, including some Recovery 
Act projects. Examples of Recovery Act-funded projects presented in 
the report are included in table 3. 

Table 3: Examples of data presented in the monthly City Manager's 
Performance Report: 

Department: Water; 
Recovery Act funds awarded: Water Infrastructure Finance Authority of 
Arizona loan; 
Goal: Ensure good maintenance of water mains and reduce water waste; 
Target: Water main breaks—-fewer than 360 per year; 
Year to date[A] percent (as of June 2010): 216 leaks. 
 
Department: Housing; 
Recovery Act funds awarded: Public Housing Capital Fund; 
Goal: Maximize federal stimulus funds to maintain public housing stock 
and help communities affected by foreclosures; 
Target: 100% of funds committed and 100% expended (utilized) by 
stimulus fund deadlines; 
Year to date[A] percent (as of June 2010): 61% committed; 33% expended. 
 
Source: City of Phoenix, City Manager's Performance Report, June 2010. 

[A] Year to date reflects fiscal year to date figures (July-June). 

[End of table] 

Funds Are Monitored by the Internal Audit Department: In May 2010, the 
city audit department conducted an audit to determine if: (1) 
departments had a process in place to track the Recovery Act funds; 

(2) the federal funds and reporting data in the city's financial 
system, Recovery Act database, and FederalReporting.gov are consistent; 

and (3) jobs were calculated according to Office of Management and 
Budget guidance. For the first review, officials reviewed internal 
procedures of eight departments. No substantive discrepancies were 
found. 

The audit department is conducting a second audit to examine how 
departments are complying with requirements and how subrecipients are 
reporting their data, and to confirm any findings with external 
auditors. Furthermore, Phoenix will undergo an annual Single Audit by 
an external auditor and many Recovery Act funds will be examined in 
the fiscal year 2010 audit. Previous audits have not resulted in 
negative findings on the use of Recovery Act funds. 

Quarterly Recovery Act Reporting: 
The Recovery Act requires Phoenix, as a recipient of Recovery Act 
funds, to file quarterly reports on the use of funds,[Footnote 17] 
which are filed at FederalReporting.gov. When Phoenix is the primary 
recipient for Recovery Act funds, the city files the reports centrally 
through the City Manager's office. Departments are responsible for 
setting up control procedures to account for Recovery Act spending and 
department delegates enter data into the Recovery Act database. Where 
the city is a recipient of pass-through funds from state agencies, 
such as transportation Recovery Act funds, the city conducts recipient 
reporting through the appropriate state agency, such as the Arizona 
Department of Transportation. 

Arizona's Auditor General and Others in the Accountability Community 
Continue to Monitor and Audit Recovery Act Funds: 

According to data from the Federal Audit Clearinghouse, which is 
responsible for receiving and distributing Single Audit results, it 
received Arizona's Single Audit reporting package for the year ending 
June 30, 2009, on June 4, 2010. This is about 2 months after the 
deadline specified by the Single Audit Act and almost a year after the 
period the audit covered. This was the first Single Audit for Arizona 
that includes Recovery Act programs and it included only 4 months of 
Recovery Act expenditures. Approximately $834 million in Recovery Act 
fund expenditures were included in this audit. The state expects to 
receive approximately $2.8 billion in Recovery Act funds through 2011. 

Arizona's Single Audit report for fiscal year 2009 identified 28 
significant internal control deficiencies related to compliance with 
federal program requirements, of which 9 were classified as material 
weaknesses. Some of these material weaknesses and significant 
deficiencies occurred in programs that included Recovery Act funds. 
This Single Audit reported on internal controls over financial 
reporting and compliance with pertinent laws and regulations. Only 2 
of the 28 significant internal control findings related to federal 
funding awards were specific to controls over Recovery Act funds. Most 
were similar to prior-year findings and were generally for programs 
that received federal funds other than Recovery Act funds. In its two 
findings specifically related to Recovery Act funds, the Auditor 
General reported that the Governor's Office indicated it had verified 
that subrecipients of State Fiscal Stabilization Fund monies had not 
been suspended or debarred from doing business with the federal 
government before doing business with the subrecipient, as required by 
federal regulations, but did not maintain documentation of the 
verification. Additionally, they found that the Arizona Department of 
Education failed to have current central contractor registrations on 
file prior to awarding Recovery Act ESEA Title I grants to LEAs The 
Governor's Office and the Arizona Department of Education have 
corrective action plans to address these findings. 

Auditor General officials said that because Recovery Act monies are 
flowing through existing programs and existing state agencies' 
processes, their current auditing process remains appropriate to 
ensure the proper auditing of Recovery Act awards. 

OER is Implementing its Monitoring of Recovery Act Funds: 

Our May 2010 report noted that the OER planned to implement a risk-
based monitoring plan for the state and local recipients of State 
Fiscal Stabilization Fund monies that expended more than $500,000 for 
fiscal years 2009 and 2010, which included LEAs, community colleges, 
universities, and 1 Teach for America contract. Since that report, OER 
revised its monitoring plan and implemented a two-prong approach. 

The first prong includes a desk review process to ensure that its 
subrecipients have had a Single Audit, as required by the Office of 
Management and Budget Circular No. A-133, Audits of States, Local 
Governments, and Non-Profits requirements to have a Single Audit. The 
OER's desk review monitoring plan covers the Single Audits for the 
state's 11 community colleges and 3 universities. The OER reviews the 
Single Audit results looking for questionable costs and findings and 
issues a management decision regarding findings that are applicable to 
the OER. As of July 30, 2010, the OER had reviewed 9 of the 11 Single 
Audits for the community colleges. No findings were identified in 
seven of the nine community colleges' Single Audits. Two community 
colleges had findings but have corrective action plans to resolve the 
findings. According to OER officials, their plan for monitoring LEAs 
that received State Fiscal Stabilization Fund monies for kindergarten 
through grade 12 continues to be developed and may be done in 
conjunction with other monitoring conducted by the Arizona Department 
of Education or may be done by OER based on a sample of LEAs. 

The OER staff also visit the community colleges and universities as 
part of their monitoring efforts. The on-site visits are to encourage 
communications among the OER and its subrecipients and to verify that 
the Recovery Act funds are being used in accordance with their grant 
applications. As of July 30, 2010, the OER has conducted field visits 
at 5 of the 11 community colleges and at all 3 universities, and no 
issues were identified. 

The second prong of the OER monitoring approach is to provide 
technical assistance to state agencies on how to identify fraud, 
waste, and abuse to agencies receiving Recovery Act funds. As of July 
30, 2010, OER staff had met with 5 of 29 state agencies receiving 
Recovery Act funds to discuss fraud, waste, and abuse prevention. 
Using a guide, "A Resource to Combat Fraud, Waste and Abuse," OER 
staff has met with state agencies to obtain an understanding of the 
agencies' internal controls for its programs receiving Recovery Act 
funds and to provide assistance. 

State Comments on This Summary: 

We provided the Governor of Arizona with a draft of this appendix on 
August 13, 2010. The Director of the Office of Economic Recovery 
responded for the Governor on August 19, 2010. Also, on August 17, 
2010, we received technical comments from the State of Arizona Office 
of the Auditor General. In general, the state agreed with our draft 
and provided some clarifying information which we incorporated. 

GAO Contacts: 

Eileen Larence, (202) 512-6510 or larencee@gao.gov: 

Thomas Brew, (206) 963-3371 or brewt@gao.gov: 

Staff Acknowledgments: 

In addition to the contacts named above, Steven Calvo, Assistant 
Director; Lisa Brownson, auditor-in-charge; Karyn Angulo; Rebecca 
Bolnick; Roy Judy; Jeff Schmerling; and Radha Seshagiri made major 
contributions to this report. 

Appendix I Footnotes: 

[1] Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009). 

[2] 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. Recovery Act, div. A, § 1512. 
We refer to the reports required by section 1512 of the Recovery Act 
as recipient reports. 

[3] The Single Audit Act of 1984, as amended (31 U.S.C. §§ 7501-7507), 
requires that each state, local government, or nonprofit organization 
that expends at least a certain amount per year in federal awards—
currently set at $500,000 by the Office of Management and Budget (OMB)—
must have a Single Audit conducted for that year subject to applicable 
requirements, which are generally set out in OMB Circular No. A-133, 
Audits of States, Local Governments and Non-profit Organizations 
(revised June 27, 2003, and June 26, 2007). 

[4] A household is eligible for weatherization services if it is at or 
below 200 percent of the federal poverty level. Priority service is 
given to the elderly, people with disabilities, families with 
children, high residential energy users, and households with a high 
energy burden. 

[5] DOE requires that recipients complete weatherizing 30 percent of 
the homes identified in their weatherization plans and meet other 
requirements, namely, fulfilling the monitoring and inspection 
protocols established in its weatherization plan; monitoring each of 
its local agencies at least once each year to determine compliance 
with administrative, fiscal, and state policies and guidelines; 
ensuring that local quality controls are in place; inspecting at least 
5 percent of completed units during the course of the respective year; 
and submitting timely and accurate progress reports to DOE, and 
monitoring reviews to confirm acceptable performance. 

[6] As we previously reported, in Arizona, Building Performance 
Institute (BPI) certification is recommended, but not required to be a 
weatherization technician, monitor, or inspector. BPI certified 
professionals diagnose, evaluate, and optimize the critical 
performance factors of a building that can impact health, safety, 
comfort, energy efficiency, and durability. GAO, Recovery Act: Funds 
Continue to Provide Fiscal Relief to States and Localities, While 
Accountability and Reporting Challenges Need to Be Fully Addressed 
(Appendixes), GAO-09-1017SP (Washington, D.C.: Sept. 23, 2009). 

[7] This estimate is based on an April 2010 Oak Ridge National 
Laboratory study of average annual savings of $437 per home. 

[8] For example, at one home we visited, the resident said that prior 
to the weatherization work, the gas-powered furnace in the home did 
not function properly and the occupants often experienced headaches, 
dizziness, and nausea or vomiting during the winter. The health and 
safety inspection revealed that the furnace had been leaking carbon 
monoxide into the home, sickening the family. Sealing the home's air 
leaks to increase energy efficiency would have trapped the carbon 
monoxide in the home, putting the residents at increased risk. The 
local service provider replaced the furnace with an energy efficient 
and safe unit. 

[9] As we previously reported in September 2009, the state has 
established its own goal of inspecting at least 20 percent of 
weatherized homes, and ADOC officials said they still plan to reach 
that goal. According to these officials, they have not yet been able 
to meet this 20 percent goal for several reasons. These reasons 
include the slow start in using Recovery Act weatherization funds 
because of the delay in receiving the Davis-Bacon wage determinations, 
the need to hire and train the ADOC monitors, and the monitors' focus 
on assisting the local service providers in ways to increase their 
weatherization numbers. 

[10] GAO, Recovery Act: Status of States' and Localities' Use of Funds 
and Efforts to Ensure Accountability (Appendixes), [hyperlink, 
http://www.gao.gov/products/GAO-10-232SP] (Washington, D.C.: Dec. 10, 
2009). 

[11] The Recovery Act required the Phoenix housing agency to obligate 
its funds within 1 year from the date, September 24, 2009, when the 
competitive grant funds were made available. 

[12] GAO, Recovery Act: States' and Localities' Uses of Funds and 
Actions Needed to Address Implementation Challenges and Bolster 
Accountability (Appendixes), [hyperlink, 
http://www.gao.gov/products/GAO-10-605SP] (Washington, D.C.: May 26, 
2010). 

[13] [hyperlink, http://www.gao.gov/products/GA0-10-605SP]. 

[14] Section 1116 of ESEA requires schools identified for improvement 
to spend an amount equal to 10 percent of their ESEA Title I, Part A 
allocation for each fiscal year that the school is in improvement 
status for the purpose of providing high quality professional 
development to the school's teachers and principal. In addition, LEAs 
designated for improvement are required to spend 10 percent of their 
total ESEA Title I, Part A, subpart 2 allocation for professional 
development of instructional staff across the LEA. Waivers were made 
available to LEAs to exclude the Recovery Act ESEA Title I amounts 
when calculating school and LEA professional development set aside 
amounts. 

[15] Section 101 of Pub L. No. 111-226, enacted on August 10, 2010, 
provides $10 billion for the new Education Jobs Fund to retain and 
create education jobs nationwide. The fund will generally support 
education jobs in the 2010-2011 school year and be distributed to 
states by a formula based on population figures. States can distribute 
their funding to school districts based on their own primary funding 
formulas or districts' relative share of federal ESEA Title I funds. 

[16] Details of these Recovery Act funds are described in appendix 
XVIII. 

[17] Recovery Act, div. A, § 1512. 

[End of Appendix I] 

Appendix II: California: 

Overview: 

This appendix summarizes GAO's work on the seventh of its bimonthly 
reviews of American Recovery and Reinvestment Act (Recovery 
Act)[Footnote 1] spending in California. The full report covering all 
of GAO's work in 16 states and the District of Columbia may be found 
at [hyperlink, http://www.gao.gov/recovery]. 

What We Did: 

This appendix is based on GAO's work in California and provides a 
general overview of (1) California's uses of Recovery Act funds for 
selected programs, (2) the steps California oversight entities are 
taking to ensure accountability for Recovery Act funds, and (3) the 
impacts that these funds have had on creating and retaining jobs. 
During the course of our work, we reviewed selected programs to assess 
how California recipients used funds. Table 1 provides a general 
description of the programs included in our review. For more details 
on these programs and their requirements, see appendix XVIII of GAO-10-
1000SP. 

Table 1: Description of Selected Recovery Act Programs: 

Recovery Act program: Edward Byrne Memorial Justice Assistance Grants 
(JAG); 
Selected Recovery Act program funding levels and program purposes: 
* The Department of Justice awarded California a total of about $225 
million in JAG Recovery Act funds; 
* JAG is a federal grant program to state and local governments for 
law enforcement and other criminal-justice activities, such as crime 
prevention and domestic violence programs, corrections, drug 
treatment, justice information-sharing initiatives, and victims' 
services. 

Recovery Act program: Energy Efficiency and Conservation Block Grant 
(EECBG); 
Selected Recovery Act program funding levels and program purposes: 
* The Department of Energy (DOE) allocated California about $406 
million in Recovery Act EECBG formula grants directly to the state and 
local governments; 
* EECBG formula grants are intended for the development and 
implementation of projects to improve energy efficiency and reduce 
energy use and fossil fuel emissions. 

Recovery Act program: Elementary and Secondary Education Act of 1965 
(ESEA) Title I, Part A; 
Selected Recovery Act program funding levels and program purposes: 
* The Department of Education (Education) allocated approximately $1.1 
billion in Recovery Act funding to California to support ESEA Title I, 
Part A, and has disbursed about $580.6 million of those funds as of 
August 6, 2010; 
* The purpose of the funds is to improve teaching and learning for at-
risk students and at schools with high concentrations of families 
living in poverty. 

Recovery Act program: Individuals with Disabilities Education Act 
(IDEA), Part B; 
Selected Recovery Act program funding levels and program purposes: 
* Education allocated about $1.3 billion in Recovery Act funding to 
California to support IDEA, Part B, and has disbursed about $621.5 
million of those funds as of August 6, 2010; 
* IDEA, Part B, provides funds to ensure that preschool and school-
aged children with disabilities have access to free and appropriate 
public education through grants to states. 

Recovery Act program: State Energy Program (SEP); 
Selected Recovery Act program funding levels and program purposes: 
* DOE distributed about 
$226 million in Recovery Act SEP funds to California to be spent over 
a 3-year period; 
* SEP provides funds through formula grants to achieve national energy 
goals, such as increasing energy efficiency and decreasing energy 
costs. 

Recovery Act program: Weatherization Assistance Program; 
Selected Recovery Act program funding levels and program purposes: 
* DOE allocated approximately $186 million in Recovery Act 
weatherization funding to California to be spent over a 3-year period; 
* This program enables low-income families to reduce their utility 
bills by making long-term energy efficiency improvements to their 
homes by, for example, installing insulation or modernizing heating or 
air conditioning equipment. 

Sources: GAO analysis of U.S. Departments of Education, Energy, and 
Justice data. 

[End of table] 

To determine how California used Recovery Act funds under selected 
programs, we met with officials from state agencies in charge of 
administering program funds. We also met with recipients of Recovery 
Act funds in three local jurisdictions--the City of Redding (Redding), 
the City of San José (San José), and the County of Sacramento 
(Sacramento)--to discuss their use of Energy Efficiency and 
Conservation Block Grant (EECBG) funds. For the two programs 
administered by Education--ESEA Title I, Part A, and IDEA, Part B--we 
met with five local educational agencies (LEA)--Los Angeles Unified 
School District, Moreno Valley Unified School District, Sacramento 
City Unified School District, San Bernardino City Unified School 
District, and Stockton Unified School District--to discuss their uses 
of Recovery Act funds and the impact or expected impacts of these 
funds. For the Weatherization Assistance Program, we selected four 
service providers to discuss and observe their Recovery Act 
weatherization programs: Community Action Partnership of Orange 
County, Maravilla Foundation, Project GO, Inc., and Self Help Home 
Improvement Project. 

To assess the steps taken by California oversight entities to ensure 
accountability for Recovery Act funds, we interviewed officials from 
the California Recovery Task Force (Task Force), which was established 
by the Governor in March 2009 and has overarching responsibility for 
ensuring that the state's Recovery Act funds are spent efficiently and 
effectively and are tracked and reported in a transparent manner. We 
also met with California's Recovery Act Inspector General, the 
California State Auditor, and selected local auditors to obtain 
information or updates on their oversight and auditing activities. In 
addition, we reviewed products, such as guidance memorandums, letters, 
and reports, issued by these entities related to the Recovery Act. 

To assess the effect Recovery Act funds have had on job creation and 
retention, we reviewed the information California recipients reported 
on www.recovery.gov (Recovery.gov). As required by the Recovery Act, 
recipients of Recovery Act funds must report quarterly on several 
measures, including estimates of the jobs created or retained using 
Recovery Act funds. To collect this information, the Office of 
Management and Budget (OMB) and the Recovery Accountability and 
Transparency Board created a nationwide data-collection system to 
obtain data from recipients, www.federalreporting.gov 
(FederalReporting.gov), and another site for the public to view and 
download recipient reports, Recovery.gov. In addition, we met with the 
Task Force to obtain current information on the state's experience in 
meeting Recovery Act reporting requirements and preparing the state's 
report for the quarter ending June 30, 2010. We continued to follow up 
with the California Department of Education (CDE) on issues we 
previously reported on related to estimating and reporting jobs. 

What We Found: 

California recipients continue to use Recovery Act funds to create new 
programs and expand services under existing programs that are expected 
to provide long-term benefits. For example, localities we visited plan 
to use EECBG funds, which is a program funded for the first time by 
the Recovery Act, to help achieve energy efficiency goals, including 
reduced energy use, and other long-term benefits. As part of this 
program, Sacramento County spent about $531,000 in EECBG Recovery Act 
funds on energy efficiency improvements to a county facility that is 
expected to reduce operations and maintenance costs. Recovery Act 
funds also expanded existing federal programs, such as the State 
Energy Program (SEP), ESEA Title I, Part A, and IDEA, Part B. For 
instance, California was allocated $226 million in SEP Recovery Act 
funds, which is a significant increase from the state's fiscal year 
2009 appropriation of $1.5 million. These funds allowed the state to 
develop several new activities and expand services, including 
allocating about $110 million of the $226 million to retrofit 
municipal, commercial, and residential buildings. In prior reports, we 
noted programs, such as the Weatherization Assistance Program and 
Edward Byrne Memorial Justice Assistance Grants (JAG), which received 
significant increases in funding through the Recovery Act, faced some 
implementation challenges, but recently overcame hurdles and are on 
track to meeting production and spending milestones. While Recovery 
Act funds have helped expand programs and services, California 
continues to face significant budgetary problems. State officials 
reported that Recovery Act funds will have less of an impact this 
fiscal year than they did last year because the state has largely 
distributed its State Fiscal Stabilization Fund (SFSF) funds and other 
one-time Recovery Act funds. As of August 19, 2010, California has not 
yet adopted a budget for state fiscal year 2010-2011, which began on 
July 1, and faces an estimated $19 billion budget gap. 

Since the Recovery Act was enacted in February 2009, state and local 
audit and oversight entities we met with have continued to take steps 
to help ensure the accountability of Recovery Act funds. Our prior 
reports discussed the oversight roles and activities of key state 
entities, including the Task Force, the California Recovery Act 
Inspector General, and State Auditor. Since our last report in May 
2010, these entities regularly met with state departments and agencies 
regarding Recovery Act funds, reviewed selected subrecipients to 
ensure proper accounting for funds received, and issued reports 
highlighting concerns about the management of Recovery Act funds. For 
example, on June 9, 2010, the State Auditor provided an update on the 
progress three state agencies made in responding to recommendations in 
reports issued over the last year and noted areas where additional 
work remained related to the management and oversight provided by 
these entities for three Recovery Act programs--JAG, SEP, and 
Weatherization Assistance Program. Local auditors we met with have 
generally not begun to conduct Recovery Act-specific audits, with the 
exception of the San José Auditors Office, which has issued two 
Recovery Act reports to date. Some local auditors stated that they 
plan to conduct Recovery Act-specific audits in the future, while 
others stated that staffing resources limited their ability to conduct 
additional audits at this time. 

Overall, California recipients reported funding more than 83,000 full- 
time equivalents (FTE) with Recovery Act funds during the last 
recipient reporting cycle--the period covering April 1, 2010, to June 
30, 2010--as reported on Recovery.gov on July 31, 2010. According to 
the Task Force, there were numerous new grants awarded and more 
Recovery Act funds expended during the fourth quarter reporting period 
compared to the prior quarter. Task Force officials also noted that 
this round of recipient reporting went more smoothly than prior 
rounds. During the reporting period, the Task Force took steps to 
ensure California recipients that do not directly report through the 
state's centralized system were accurately reporting FTEs. For 
instance, the Task Force contacted and provided guidance to recipients 
that did not report in the previous quarter to help them improve 
reporting in future quarters. CDE also took steps to address issues 
raised in our prior reports, including recipient reporting concerns 
about underreporting of vendor FTEs by its subrecipients and CDE's 
process for reviewing data. 

California Is Gaining Long-Term Benefits from Recovery Act Funds for 
New and Expanding Programs, While Short-Term Budget Stabilization 
Benefits Are Waning: 

Local Governments Are Using Recovery Act Funds under a Newly Funded 
Program to Help Achieve Energy Goals: 

EECBG was funded for the first time by the Recovery Act and is 
intended to help localities achieve a variety of energy efficiency 
goals, such as reducing fossil fuel emissions and total energy use. 
DOE allocated about $356 million directly to 334 eligible[Footnote 2] 
localities in California based on their residential and commuter 
populations. The state was also allocated approximately $49.6 million 
in EECBG Recovery Act funds, which are administered by the California 
Energy Commission (CEC) to largely be distributed to localities 
ineligible for EECBG direct formula funds.[Footnote 3] 

Officials from the three localities we met with that received direct 
formula EECBG allocations--Redding, Sacramento, and San José--told us 
that they plan to use EECBG funds to achieve long-term energy 
efficiency goals, including reduced energy use and increased use of 
renewable energy sources. For instance, San José plans to use EECBG 
funds to help the city make progress towards its energy goals to 
reduce the city's per capita energy use by 50 percent by 2022 and to 
receive 100 percent of its electricity from renewable energy sources, 
which are included in the city's 15-year plan for economic growth and 
environmental sustainability. Table 2 shows how the three localities 
we visited are planning to use these funds. 

Table 2: EECBG Direct Recovery Act Funds Awarded and Expended, as of 
July 29, 2010, to Selected Localities and Examples of Planned Used: 

Locality: Redding; 
Amount awarded (dollars): $892,700; 
Amount expended (dollars): $892,700; 
Examples of planned uses: 
* Energy efficiency home retrofits, such as air sealing and Heating, 
Ventilation, and Air Conditioning (HVAC) installation for low-income 
residents. 

Locality: Sacramento; 
Amount awarded (dollars): $5.4 million; 
Amount expended (dollars): $1.1 million; 
Examples of planned uses: 
* Energy efficiency upgrades and retrofits for county facilities such 
as a park facility in an underserved community, a community center, 
and a correctional facility; 
* For county owned and leased facilities, establish a revolving loan 
fund to finance (1) energy audits, which evaluate a building's energy 
use and can help target energy leaks or inefficiencies, (2) energy 
retrofits, and (3) retro-commissioning, a systematic process that 
identifies low-cost operational and maintenance improvements in 
existing buildings to optimize system performance; 
* Development of green building policies and standards by an energy 
task force which may serve as the basis for county ordinances; 
* Development of phase two of the County Climate Action Plan, which 
will present a prioritized list of recommended actions and a schedule 
of costs for implementation to reduce green house gas emissions and 
manage water and other resources; 
* The design, purchase, and installation of a generator for the 
Sacramento International Airport. 

Locality: San José; 
Amount awarded (dollars): $8.8 million; 
Amount expended (dollars): $180,795; 
Examples of planned uses: 
* Energy efficiency retrofits to municipal buildings, which could 
include replacing lighting, and installing cool roofs; 
* Replace about 1,500 streetlights with more energy efficient Light 
Emitting Diode (LED) lights; 
* Solar projects for municipal buildings including associated design, 
project engineering, building, solar assessments, and contracting for 
development services. 

Sources: GAO analysis of City of Redding, County of Sacramento, and 
City of San José data. 

[End of table] 

In addition to helping them meet energy efficiency goals, local 
government officials anticipate other benefits from EECBG Recovery Act 
funds, such as increased comfort and safety for residents and reduced 
operations and maintenance costs. For example, Redding plans to use 
EECBG funds for an energy retrofit program in which 65 to 70 homes of 
low-income residents will receive energy efficiency remediation 
through retrofits, such as new heating, ventilation, and air 
conditioning systems, which are expected to increase comfort as well 
as improve safety by reducing carbon dioxide levels within homes. 
According to San José officials, the city's EECBG projects are 
estimated to provide the city $700,000 in energy savings each year. 
During the first 2 years, the savings will be returned to the city's 
energy fund to fund future energy projects, and in subsequent years, 
savings will go to the city's general fund. In order to reduce the 
county's energy use and maintenance costs, Sacramento plans to upgrade 
and retrofit several county facilities--a park facility in an 
underserved community, a community center, and a correctional 
facility. For example, the cost savings from spending approximately 
$531,000 in Recovery Act funds on energy efficiency improvements to a 
county correctional facility are estimated to pay for the project's 
Recovery Act portion within 5-years and result in future savings that 
the county can use for operations or other cost saving measures. See 
fig. 1 for more detail. 

Figure 1: Energy and Cost Savings Associated with Sacramento County 
Correctional Facility Project Partly Funded by Recovery Act EECBG 
Funds: 

[Refer to PDF for image: illustrated table] 

Project: Replace 4,158 light fixtures with higher efficiency units; 

Annual electric savings (kilowatt hours): 847,587; 
Annual natural gas savings (therms): N/A; 
Annual cost savings: $94,930. 

Project: Install a more reliable, higher efficiency cooling system; 
Annual electric savings (kilowatt hours): 62,503; 
Annual natural gas savings (therms): N/A; 
Annual cost savings: $5,698. 

Project: Replace obsolete and broken building temperature control 
system with a new digital, networked control system; 
Annual electric savings (kilowatt hours): 85,773; 
Annual natural gas savings (therms): 2,845; 
Annual cost savings: $12,764. 

Project: Total; 
Annual electric savings (kilowatt hours): 995,863; 
Annual natural gas savings (therms): 2,845; 
Annual cost savings: $113,392. 

Sources: County of Sacramento; and GAO. 

[End of figure] 

Recovery Act Funds Enabled California to Expand Existing Programs and 
Services: 

Although the Recovery Act provided first-time funding for some 
programs, like EECBG, Recovery Act funding increased funding levels 
for existing federal programs with annual appropriations, which 
allowed California recipients to expand services and implement new 
projects and activities. For instance, California was allocated $226 
million in SEP funds through the Recovery Act, which is a significant 
increase from the state's fiscal year 2009 appropriation of $1.5 
million. DOE requires Recovery Act SEP funds to be spent over a 3-year 
period and like EECBG funds these funds aim to achieve energy goals, 
such as increasing energy efficiency and decreasing energy costs. CEC, 
the state administering agency for SEP funds, expanded California's 
program by funding several new activities, including establishing a 
revolving loan program for energy efficiency retrofits to state 
buildings, providing loans to businesses to develop energy efficient 
products, and training for green jobs. CEC plans to use about half of 
the state's SEP allocation, $110 million, to retrofit various types of 
facilities including municipal, commercial, and residential buildings. 
This effort is known as the Energy Efficiency Program or SEP 110 and 
has three components targeting different markets. Table 3 provides 
additional details about the three subprograms. 

Table 3: Description of the Three Subprograms under California's SEP 
110 Energy Efficiency Program: 

Subprogram: Municipal and Commercial Building Targeted Measure 
Retrofit ($50 million); 
Description: The program aims to achieve significant energy savings 
from targeted retrofit measures to the state's municipal and 
commercial buildings with a focus on capitalizing on low-risk, high-
return efficiency opportunities that are readily available throughout 
the state. Some examples of measures include occupancy controlled 
lighting fixtures for parking lots; commercial kitchen ventilation; 
and heating, ventilation, and air conditioning (HVAC) systems. 

Subprogram: Municipal Financing ($30 million); 
Description: The program will fund local governments to implement or 
continue a program in which property owners provide grants for the 
installation of energy efficiency or renewable energy generation 
improvements. One financing option under this program allows property 
owners to repay the assessments with their property taxes; however, 
other financing approaches will be considered. 

Subprogram: California Comprehensive Residential Building Retrofit 
($30 million); 
Description: The program will implement energy retrofits in existing 
residential buildings by working with groups such as local 
governments, utilities, affordable housing programs, and energy 
experts to create and retain jobs. The program will focus on deploying 
retrained construction workers, contractors, and youth entering the 
job market, and will pursue bringing the advantages of energy 
efficient housing to underserved, economically disadvantaged 
populations. 

Source: CEC. 

[End of table] 

CEC plans to use the remaining $116 million on the following programs 
to help reduce long-term energy costs: 

* Revolving loans for state building retrofits--CEC awarded $25 
million to the Department of General Services to retrofit state 
buildings. 

* Green jobs workforce training--CEC used $20 million of the state's 
SEP allocation to partner with the Employment Development Department 
and Employment Training Panel to train workers for green job skills, 
such as home energy rating, duct testing and sealing, and solar 
technology installation and design. 

* Low interest loans for energy conservation assistance--CEC 
apportioned $25 million of its allocation to offer 1 percent loans to 
25 local jurisdictions to invest in energy efficiency. 

* Clean energy business finance loans--CEC plans to use about $31 
million to fund a new loan program designed to promote clean energy 
manufacturing and provide financial assistance to both existing and 
start-up companies that make energy efficient products, such as photo 
voltaics, energy efficient motors, and bio-methane facilities that 
generate energy with methane. 

* Program support and evaluation--CEC plans to use approximately $15 
million to support the program administration, auditing, measurement, 
and evaluation of SEP funds.[Footnote 4] 

The Recovery Act also provided funds to existing federal education 
programs that allowed California LEAs to expand programs and services 
for students. Specifically, California was allocated approximately 
$1.1 billion in Recovery Act ESEA Title I, Part A, and about $1.3 
billion in Recovery Act IDEA, Part B, funds, which was in addition to 
their regular fiscal year 2009-2010 allocations of $1.5 billion and 
$1.1 billion respectively. We previously reported that California LEAs 
planned to use Recovery Act funds to help retain jobs and improve 
services. We visited five of California's largest LEAs that were 
allocated a total of about $370.8 million in Recovery Act ESEA Title 
I, Part A, and $189.7 million in Recovery Act IDEA, Part B, funding as 
of June 11, 2010 and focused our discussions on how they used these 
funds to expand programs and services. Table 4 shows the amounts 
allocated to each of the five LEAs. 

Table 4: Amount of Recovery Act ESEA Title I, Part A, and IDEA, Part 
B, Funds Allocated to Selected LEAs as of June 11, 2010: 

LEA: Los Angeles Unified School District; 
ESEA Title I, Part A allocation: $323.7 million; 
IDEA, Part B allocation: $152.1 million. 

LEA: Moreno Valley Unified School District; 
ESEA Title I, Part A allocation: $5.0 million; 
IDEA, Part B allocation: $7.4 million. 

LEA: Sacramento City Unified School District; 
ESEA Title I, Part A allocation: $13.8 million; 
IDEA, Part B allocation: $10.4 million. 

LEA: San Bernardino City Unified School District; 
ESEA Title I, Part A allocation: $16.8 million; 
IDEA, Part B allocation: $11.6 million. 

LEA: Stockton Unified School District; 
ESEA Title I, Part A allocation: $11.5 million; 
IDEA, Part B allocation: $8.2 million. 

LEA: Total; 
ESEA Title I, Part A allocation: $370.8 million; 
IDEA, Part B allocation: $189.7 million. 

Source: GAO analysis of information from the California Department of 
Education (CDE). 

[End of table] 

While LEAs we visited spent Recovery Act ESEA Title I, Part A, and 
IDEA, Part B, funds to help preserve jobs, they also plan to use funds 
to increase capacity through technology purchases and professional 
development for teachers and other staff that would have lasting 
effects. Some of the goals and related expected uses of Recovery Act 
spending identified by LEAs include: 

Improve student achievement. 

* Stockton Unified School District plans to spend about $433,000 in 
Recovery Act ESEA Title I, Part A, funds to provide professional 
development for its staff to support student achievement in the core 
curriculum[Footnote 5] by hiring specialists to coach teachers in math 
and English language acquisition. 

* Moreno Valley Unified School District is spending about $500,000 in 
Recovery Act ESEA Title I, Part A, funds to implement a math 
curriculum called "Digital Math"--which includes the procurement of 70 
SMART Boards™[Footnote 6] and training for teachers who will be using 
this technology. The program is aimed at improving student achievement 
in mathematics at the district's four middle schools that have been in 
improvement status[Footnote 7] for over 5 years. The curriculum is 
scheduled to be implemented in September 2010 and, according to Moreno 
Valley Unified School District officials, will help improve students' 
math achievement by increasing student engagement. Figure 2 shows a 
teacher demonstrating the interactive feature of a SMART Board™. 

Figure 2: SMART Board™ Demonstration at Moreno Valley Unified School 
District: 

[Refer to PDF for image: 2 photographs] 

On the left is a photo of a teacher at her desk in a classroom with a 
SMART BoardTM, which is an interactive white board that is connected 
to a computer and has a projector, a wireless slate that the 
instructor uses as the master control, and individual student response 
devises. The technology projects visual images of computer programs, 
such as math and science programs, on to a white board screen which 
allows students to interact directly with the screen by using special 
stylus pens, their fingers, or a computer keyboard. 

On the right is a photo of the same teacher demonstrating the 
interactive feature of the SMART BoardTM. The teacher is using a 
special stylus pen to write out and solve a math problem generated by 
a computer program on the white board screen. 

Source: GAO. 

[End of figure] 

Expand teacher capacity with new skills and techniques. 

* Los Angeles Unified School District is using about $4.1 million in 
Recovery Act ESEA Title I, Part A, funds to support two major 
professional development initiatives aimed at enhancing the district's 
efforts toward data-driven instruction by providing teachers with the 
skills to access student data and use it to improve both their 
teaching proficiency and student achievement. These two initiatives 
are (1) training for a student intervention program, which includes 
coaching and problem solving that will help teachers provide 
instruction (e.g., in reading, math, and language development) and 
intervention that matches student needs; 

and (2) training on the district's student performance data system to 
help teachers better identify student and classroom needs. 

* For the 2009-2010 school year, San Bernardino City Unified School 
District used about $3.7 million for the salaries and benefits of 42 
full-time teaching coaches--one at each school in the district--to 
help teachers implement new learning strategies and improve their 
classroom techniques. According to officials, schools with coaching 
programs have fewer students in intervention programs--reflecting the 
improvement in teachers' ability to serve student needs and promote 
student achievement. 

Better address needs of special education students. 

* Los Angeles Unified School District plans to use approximately $1 
million in Recovery Act IDEA, Part B, funds for four libraries, where 
teachers, students, and parents can preview and try out assistive 
technology[Footnote 8]--such as computer and speech generating devices 
controlled by eye movement, lightweight, portable electronic keyboards 
that can be integrated with whiteboards, and other classroom 
technologies--before the district purchases it for them.[Footnote 9] 
According to officials, these libraries could help save money over the 
long run by averting expensive equipment purchases that ultimately do 
not work for the students and help ensure students with disabilities 
and special needs can be assisted to meet their academic, social, and 
behavioral goals. 

* Stockton Unified School District is using Recovery Act IDEA, Part B 
funds to help address the needs of the growing number of autistic 
students. The LEA has awarded a contract with a value of $12,000 for 
an assessment to determine the district's training needs in serving 
these students. According to officials, during the 2010-2011 school 
year, they plan to develop a training plan based on this assessment 
and to spend $50,000 for the associated training. 

* One of the schools we visited in the San Bernardino City Unified 
School District spent about $20,000 on a "sensory room," where 
autistic students can take time out from their regular classroom to 
calm down when they feel agitated, which was something officials told 
us the school needed and wanted to purchase for a long time (fig. 3 
shows items in the sensory room). According to officials, the sensory 
room environment with bright colors has the ability to both stimulate 
and calm the sensory system. Practitioners at the facility said that 
the sensory stimulation students receive helps them be more attentive 
when they return to the classroom. 

Figure 3: Recovery Act IDEA, Part B Funds Used for a Sensory Room for 
Special Needs Students at a School in the San Bernardino City Unified 
School District: 

[Refer to PDF for image: 2 photographs] 

On the left is a photo of a “sensory” room for special education 
students at one of the schools we visited. This room includes brightly 
colored cones, balancing equipment, a trampoline, and other equipment 
for sensory activities. 

On the right is a close up photo of some of the special equipment in 
the room. The equipment vary in shape and color, including a large 
blue multi-purpose ball for play, coordination, and balance; a large 
red tube on its side for students to crawl through; and a bright 
multicolored foam wedge with steps and a slide. 

Source: GAO. 

[End of figure] 

Reduce spending on costly outside services. 

* Los Angeles Unified School District officials said they are focusing 
Recovery Act IDEA, Part B, funding to build district capacity to 
better accommodate students with special needs, which will result in 
less spending on outside providers for those services. For example, 
the district spent about $150,000 to train 6,000 paraprofessionals in 
behavior management during the last week of June 2010 to improve their 
long-term ability to help special education students with appropriate 
classroom behavior and social skills, which will also help reduce the 
district's reliance on outside professionals. Officials said the 
paraprofessionals will be better able to assist teachers in 
maintaining an effective teaching classroom environment that promotes 
student achievement. 

* Sacramento City Unified School District is spending about $394,000 
in Recovery Act IDEA, Part B, funds to reform the district's approach 
to special education needs using a model aimed at including special 
education students in regular classrooms.[Footnote 10] District 
leadership hopes to see an increase in the number of special education 
students being supported in regular classrooms within 5 years. Through 
this model and other training and intervention efforts funded by the 
Recovery Act, the district plans to increase its capacity to provide 
services to special needs students and decrease their use of outside 
services. 

In addition to these special education initiatives, all of the LEAs we 
met with reported taking advantage of the flexible spending authority 
under IDEA that allows them to reduce their local special education 
funding and spend it on non-special education activities, such as 
teacher and other salaries.[Footnote 11] For example, Los Angeles 
Unified School District officials said they used over $67 million in 
Recovery Act funds to support programs they would otherwise have had 
to cut from their operating budget. 

For school year 2010-2011, according to Education data, California is 
projected to receive about $1.2 billion from the new Education Jobs 
Fund. [Footnote 12] The Education Jobs Fund will generally support 
education jobs in the 2010-2011 school year and be distributed to 
states by a formula based on population figures. States can distribute 
their funding to LEAs based on their own primary funding formulas or 
districts' relative share of federal ESEA Title I funds. 

Some Recovery Act Recipients Faced Initial Challenges That Affected 
Spending Timelines, but Are Now on Track to Meet Milestones: 

Our prior reports highlighted challenges faced by state recipients of 
Recovery Act Weatherization Assistance Program and JAG funds, but both 
programs have recently overcome hurdles and are on track to meet 
production goals and spending milestones. California was allocated 
approximately $186 million in Recovery Act funds to be spent over a 3- 
year period for the Weatherization Assistance Program, which enables 
low-income families to reduce their utility bills by making long-term, 
energy efficiency improvements to their homes by, for example, 
installing insulation or modernizing heating or air conditioning 
equipment. By June 2009, DOE had provided 50 percent--about $93 
million--of these funds to the California Department of Community 
Services and Development (CSD), the state agency responsible for 
administering the program.[Footnote 13] DOE limited California's and 
other states' access to the remaining funds until each has met certain 
performance milestones, including weatherizing 30 percent of all homes 
estimated to be weatherized in the approved state plan.[Footnote 14] 
In prior reports, we highlighted delays in this program, which could 
affect California's ability to access the remaining 50 percent of 
Recovery Act funds, including the fact that, in March 2010, CSD did 
not yet have service providers in place for six areas of the state. 
Additionally, as of March 31, 2010, CSD had weatherized 2,934 homes, 
which was short of its target to weatherize 3,912 homes for the first 
quarter. Recently, CSD made progress in these areas. Specifically, CSD 
did the following: 

* Secured service providers for all areas. As of June 30, 2010, CSD 
awarded contracts to service providers for the remaining six areas and 
has a total of 38 service providers in place covering all 58 counties 
of the state. Service providers spent about $22 million on 
weatherization services, as of June 30, 2010, with some providers 
expending funds at a faster rate than others (see fig. 4). 

Figure 4: Expenditure Rates for California's Weatherization Service 
Providers, as of June 30, 2010: 

[Refer to PDF for image: illustrated map] 

Status of state weatherization funds: Total allocation: $185.8 million; 
Amount received: $92.9 million; 
Amount expended: $22.8 million[A]; 
Percent expended: 12.3%. 

This figure depicts a county map of California showing the counties or 
parts of counties serviced by 38 weatherization service providers, 
which include local governments and nonprofit organizations. The map 
also shows the percentage of weatherization Recovery Act funds each 
service provider has spent of their respective allocations, as of June 
30, 2010, displayed in three categories. The categories and results 
are as follows: ten providers spent less than 12.5 percent of their 
allocation, 14 spent 12.5 percent to less than 25 percent, and the 
remaining 14 providers spent 25 percent or more. The top right corner 
of the figure has a table summarizing the overall status of Recovery 
Act Weatherization Assistance Program funds for the state: $185.8 
million allocated, $92.9 million received, and $22.8 million spent or 
12.3 percent of the total allocation. 

Sources: GAO analysis; 

Map Resources (county map). 

Note: Service providers for the counties of Alpine, El Dorado, San 
Francisco, San Mateo, and parts of Alameda and Los Angeles were 
awarded contracts by CSD to begin weatherizing units on June 30, 2010. 

[A] As of June 30, 2010, service providers expended about $21.8 
million of the approximately $77 million that has been distributed to 
them by CSD and CSD has spent about $1 million on oversight, training, 
and other statewide activities. 

[End of figure] 

* Increased pace of weatherization to help meet production targets. 
While CSD initially experienced delays weatherizing homes, it made 
steady progress toward meeting DOE's performance milestone of 
weatherizing 30 percent of the total number of units estimated to be 
weatherized with Recovery Act funds by weatherizing 8,679 homes or 
about 20 percent, as of June 30, 2010. DOE officials indicated that 
its goals are for each recipient to have met this target by September 
30, 2010. As a result, CSD set September 30, 2010, as the deadline for 
the state to weatherize 15,145 homes, or 35 percent of the total goal 
of 43,150 units, which exceeds DOE's minimum target of 12,945 units. 
Figure 5 shows the monthly progression of units weatherized through 
June 30, 2010. 

Figure 5: California's Unit Production Progress Toward Meeting 
Targets, as of June 30, 2010: 

[Refer to PDF for image: combined vertical bar and line graph] 

DOE 30% minimum target: 12,945 units. 

Month: September 2009; 
Actual units weatherized: 0. 

Month: October 2009; 
Actual units weatherized: 0. 

Month: November 2009; 
Actual units weatherized: 0. 

Month: December 2009; 
Actual units weatherized: 12. 

Month: January 2010; 
Actual units weatherized: 317. 

Month: February 2010; 
Actual units weatherized: 1,021. 

Month: March 2010; 
Actual units weatherized: 2,408; 
CSD quarterly target: 3,912. 

Month: April 2010; 
Actual units weatherized: 3,963. 

Month: May 2010; 
Actual units weatherized: 6,218. 

Month: June 2010; 
Actual units weatherized: 8,677; 
CSD quarterly target: 8,966. 

Month: September 2010; 
CSD quarterly target: 15,145. 

Source: GAO analysis of DOE and CSD data. 

[End of figure] 

While CSD is on track to meet its September 2010 production target, 
lower than expected per unit expenditures have affected CSD's rate of 
spending and may necessitate an increase in its targets. As of June 
30, 2010, the average cost to weatherize a unit was $2,750 or 
approximately 21 percent lower than CSD's projected average of $3,500 
per unit. [Footnote 15] According to the service providers we met 
with, one factor that reduced the cost per unit was instances in which 
test [Footnote 16] results showing that the unit already met minimum 
ventilation standards precluded them from installing additional energy 
conservation measures in a unit. The energy conservation measures 
service providers can provide to eligible residents are prescribed in 
CSD's state plan under the list of allowable cost-effective measures. 
As of June 17, 2010, CSD officials recently updated the list of 
measures, which should have been revised in 2006, and submitted it to 
DOE for expedited approval.[Footnote 17] According to CSD officials, 
once the list is approved, they expect per unit expenditures to 
increase, because new measures were added to the list, which will 
allow service providers to implement additional cost-effective 
measures per unit. CSD officials plan to continue monitoring spending 
rates and production levels, and stated that CSD will amend its 
production targets, if necessary. 

Our May 2010 report also noted that the California Emergency 
Management Agency (Cal EMA), the state agency responsible for 
administering JAG funds to localities, began awarding funds to 
localities in February 2010 after spending 3 months defining program 
strategies for 2 of 10 targeted funding areas: Intensive Probation 
Supervision Program and Court Sanctioned Offender Drug Treatment 
Program. These two activities accounted for $90 million of the $135.6 
million allocated to the state to award to local jurisdictions. As of 
June 30, 2010, Cal EMA awarded almost all of the $135.6 million 
Recovery Act JAG funds to localities,[Footnote 18] and anticipates 
that all funds will be expended well before the February 28, 2013, 
deadline. 

Although Recovery Act Funds Expanded Programs and Services, Budgetary 
Problems Persist at the State and Local Levels: 

Task Force officials reported that Recovery Act funds played an 
important role in helping balance the state's fiscal year 2009-2010 
budget, but there will be a lesser impact this fiscal year because the 
state depleted its SFSF funds and other one-time Recovery Act funds. 
As discussed in our prior reports, a portion of the state's Recovery 
Act funds--over $8 billion--was used to help balance its fiscal year 
2009-2010 budget, when the state faced a nearly $60 billion budget 
gap. As of August 19, 2010, the state faces an estimated budget gap of 
$19 billion and has not yet adopted a 2010-2011 budget for the fiscal 
year that began on July 1, 2010.[Footnote 19] In May the Governor 
proposed addressing the gap with a number of budget solutions, 
including about $12 billion in spending reductions, such as reducing 
funding for local mental health services by approximately 60 percent 
and eliminating some programs. In June, the State Controller informed 
the Governor and state legislative leaders that in the absence of a 
state budget, the state will cease to make certain payments including 
payments to local governments, vendors (for services provided on or 
after July 1), and salaries of state elected officials and their 
appointed staff. The State Controller's office also plans to issue 
registered warrants, called IOUs, beginning in late August or 
September, if the situation continues.[Footnote 20] 

Officials we met with from two local governments--Redding and San 
José--also reported that they continue to face budgetary problems. For 
example, Redding officials anticipate budget and staff reductions, and 
told us that over the last 3 years their general fund budget has been 
reduced from $74 million to $60 million, a 20 percent decrease. 
According to Redding officials, retail and property tax revenue 
decreases are the primary reason for their general fund budget 
reductions. In San José, officials reported that for fiscal year 2010- 
2011, the city had a $118.5 million gap, its largest deficit ever. 
According to San José officials, to close the gap, the city took 
several actions, such as deferring the openings of new facilities such 
as community centers, parks, and fire stations, cutting public 
services, increasing fees and charges, and eliminating city positions. 
San Jose eliminated 783 FTEs from the 2010-2011 budget, which 
represents a 12 percent reduction from the city's 2009-2010 workforce 
level of 6,623 FTEs.[Footnote 21] Figure 6 highlights selected 
information about the local governments that we met with. 

Figure 6: Information about Redding and San José: 

[Refer PDF for image: map and data] 

Redding: 
Estimated population (July 1, 2009): 90,521; 
Unemployment rate, June 2010: 13.4%; 
Total Recovery Act funding awarded: $9.4 million; 
Budget fiscal year 2010: $307 million; 
Locality type: City. 

San José: 
Estimated population (July 1, 2009): 964,695; 
Unemployment rate, June 2010: 12.5%; 
Total Recovery Act funding awarded: $108.1 million; 
Budget fiscal year 2010: $3 billion; 
Locality type: City. 

Sources: U.S. Census Bureau and U.S. Department of Labor (demographic 
information); City of Redding and City of San José(funding 
information); Map Resources (map); and GAO. 

Notes: Population data are from the latest available estimate, July 1, 
2009. Unemployment rates are preliminary estimates for June 2010 and 
have not been seasonally adjusted. Rates are a percentage of the labor 
force. Estimates are subject to revisions. 

[End of figure] 

Although these localities continue to face budgetary problems, 
Recovery Act funds helped them fund infrastructure and other 
improvement projects that will have lasting benefits. Redding 
officials reported that the city was awarded about $9 million in 
Recovery Act funds, and San José officials reported Recovery Act 
awards totaling about $108 million for projects and services. In 
general, officials from both localities noted that Recovery Act funds 
were used to fund projects that had no previous funding identified. 
For example, approximately $3 million in transportation Recovery Act 
funds allowed Redding to pursue a highway interchange project--which 
they were previously unable to obtain funding for--that will 
facilitate future commercial and retail growth in the area. San José 
plans to use $25 million in housing Recovery Act funds to purchase and 
rehabilitate foreclosed and abandoned homes in targeted areas around 
the city, and provide secondary financing for income-eligible 
purchasers of foreclosed homes, among other activities. Table 5 
describes selected projects that were funded by Redding and San José 
using Recovery Act funds. 

Table 5: Selected Projects Funded by Redding and San José Using 
Recovery Act Funds: 

Program Area: Aviation; 
Redding: $0.7 million in Grants-in-Aid for Airports funds used for 
improvements to extend the life of runway pavement and to re-paint 
runway markings to be in compliance with new safety standards; 

San José: $20.9 million in Electronic Baggage Screening funds for the 
installation of a baggage screening system and about $5.2 million in 
Grants-in-Aid for Airports funds for airport taxiway improvements. 

Program Area: Highway; 
Redding: $3.2 million in Recovery Act Federal-Aid Highway Surface 
Transportation funds for the construction of a highway interchange, as 
well as pavement preservation throughout the city; 

San José: $15.4 million in Recovery Act Federal-Aid Highway Surface 
Transportation funds to resurface 25 miles of arterial streets in the 
city. 

Program Area: Water; 
Redding: $2.0 million from a Clean and Drinking Water State Revolving 
Fund grant for the construction of a wastewater treatment center; 

San José: $6.5 million in U.S. Bureau of Reclamation Title XVI funds 
to support the construction of 15 miles of pipeline for recycled water. 

Source: GAO analysis of information from the City of Redding and the 
City of San José. 

[End of table] 

State and Local Entities Continue to Conduct Oversight Activities to 
Help Ensure Appropriate Accountability for Recovery Act Funds: 

State oversight entities in California continue their efforts to 
ensure appropriate uses of Recovery Act funds. The Task Force and the 
California Recovery Act Inspector General carry out their ongoing 
oversight responsibilities by regularly meeting with state departments 
and agencies receiving Recovery Act funds to ensure funds are 
efficiently and effectively spent, among other activities. For 
example, since our last report, the Task Force issued two more 
Recovery Act Bulletins to provide instructions and guidelines to state 
agencies receiving Recovery Act funds. Since May 2010, the California 
Recovery Act Inspector General published five reviews of Recovery Act 
funds received by four localities--subrecipients of funds administered 
by three different state agencies for three different Recovery Act 
programs--and one state department, the Department of Rehabilitation. 
The four subrecipient reviews were aimed at determining if these 
recipients properly accounted for and used Recovery Act funds in 
accordance to federal laws and requirements. Three of the reviews 
identified several issues, including inappropriate eligibility 
determinations, incorrectly reported job calculations, and ineligible 
expenditure charges, and the localities have taken steps to respond to 
these findings. There were no issues identified in the other two 
reviews. 

As of August 18, 2010, the State Auditor's role in overseeing Recovery 
Act funds has included testimony during five state and one federal 
legislative committee hearings, issuance of the traditional Single 
Audit[Footnote 22] report for state fiscal year 2008-2009, and 
issuance of nine interim reports or letters communicating early 
results of the Single Audit as part of an OMB project intended to help 
achieve more timely communication of internal control deficiencies for 
higher-risk Recovery Act programs so that corrective action can be 
taken more quickly. The Single Audit report for the year ending June 
30, 2009, was the first Single Audit for California that included 
Recovery Act funds. The report identified 226 significant internal 
control deficiencies related to compliance with federal program 
requirements, of which 85 were classified as material weaknesses. Some 
of these material weaknesses and significant deficiencies occurred in 
programs that included Recovery Act funds. 

Since our last report, the California State Auditor also followed up 
on interim report recommendations made to three state agencies--Cal 
EMA, CEC, and CSD--administering Recovery Act funds under the JAG, 
SEP, and Weatherization Assistance Program, respectively.[Footnote 23] 
Our prior reports noted the State Auditor's work in these areas, which 
covered issues such as the pace of spending and program monitoring and 
evaluation procedures. According to the State Auditor's June 9, 2010 
update on these programs, all three agencies made progress in response 
to the State Auditor's recommendations, but some issues remain. Table 
6 provides a summary of selected State Auditor comments and results of 
follow-up work on recommendations made to the three agencies. The 
State Auditor plans to continue to monitor these agencies and issue 
interim reports on their progress. Additionally, the State Auditor is 
also reviewing the reliability of California's recipient reporting 
data for selected programs. 

Table 6: Selected California State Auditor Updates to Reviews of Three 
Recovery Act Programs, as of June 9, 2010: 

Recovery Act program: JAG; 
Administering state agency: Cal EMA; 
Selected State Auditor recommendations: Promptly execute subgrant 
agreements to localities. Identify the workload associated with 
monitoring subrecipients and the workload standards necessary to 
determine the number of program staff needed; 

Selected State Auditor comments and results of follow-up work: As of 
May 24, 2010, Cal EMA executed 214 subgrant agreements totaling $118.9 
million of the $135 million administered by the state. Cal EMA 
provided the audit team three workload measurement tools; however, 
none provided convincing evidence of the number of program staff 
needed to administer the Recovery Act program. 

Recovery Act program: SEP; 
Administering state agency: CEC; 
Selected State Auditor recommendations: Take the necessary steps to 
implement a system of internal controls adequate to provide assurance 
that Recovery Act funds will be used to meet the purposes of the 
Recovery Act; 
Selected State Auditor comments and results of follow-up work: CEC 
awarded a contract valued at $4.1 million to provide performance 
evaluation and reporting capabilities to assist CEC in meeting its 
subrecipient monitoring and reporting responsibilities. While the 
contract contains specific tasks, it does not assign timelines to the 
tasks, without which CEC cannot be certain the benefits of the 
contract will be available in time to provide meaningful monitoring, 
evaluation, and verification of subrecipient performance. 

Recovery Act program: Weatherization; 
Administering state agency: CSD; 
Selected State Auditor recommendations: Seek federal approval to amend 
its state plan for implementing the program; 
Selected State Auditor comments and results of follow-up work: CSD 
amended its state plan to reduce the number of homes it intends to 
weatherize. However, at the request of the Governor's Office DOE 
performed an assessment of CSD in March 2010 and informed CSD that it 
may need to weatherize 3,300 more homes if the average cost to 
weatherize each home remains low. 

Source: GAO analysis of information provided by the California State 
Auditor. 

[End of table] 

With the exception of the San José Auditor, local auditors we met with 
have not yet conducted Recovery Act-specific audits. While some 
auditors told us that they planned to conduct Recovery Act-specific 
audits in the future, others stated that staffing limitations hindered 
their ability to conduct such audits on top of their normal workload. 
However, we met with officials from the Office of the San José City 
Auditor, which issued two Recovery Act reports to date. The first 
report, issued on June 18, 2009, focused on San José's readiness to 
receive Recovery Act funds and comply with Recovery Act requirements. 
The next report issued on November 12, 2009, reviewed San José's 
ability to comply with Recovery Act recipient reporting requirements 
and included the following observations: 

* The San José City Manager's Office was not regularly updating all 
parts of the city's Recovery Act Web site to help ensure reporting 
transparency. 

* While corrections to Recovery Act reports were being performed in 
accordance with federal guidance, the process for making corrections 
was not consistent. 

According to officials from the San José Auditor's office, the city 
has taken actions to address the concerns raised in the report. In 
addition, the San José Auditor's office has proposed a third Recovery 
Act report to review the effect Recovery Act funds will have on local 
taxpayers. 

California Reported over 83,000 Jobs in the Fourth Reporting Cycle and 
Continued to Make Improvements in the Reporting Process: 

According to Recovery.gov, as of July 31, 2010, California recipients 
reported funding 83,193 FTEs[Footnote 24] with Recovery Act funds 
during the fourth quarter reporting period, which covers the period 
April 1, 2010, to June 30, 2010.[Footnote 25] California recipients 
were awarded numerous new Recovery Act grants and expended more 
Recovery Act funds this quarter compared to last quarter, according to 
the Task Force. Through the Task Force's centralized reporting system 
for Recovery Act funds received through state agencies--the California 
ARRA Accountability Tool (CAAT), 35 California state agencies reported 
funding a total of about 57,807 FTEs during the fourth round of 
recipient reporting, or about 70 percent of the total reported for 
California. Other recipients that receive Recovery Act funds directly 
from federal agencies report through the national database, 
FederalReporting.gov. Figure 7 provides further details on the number 
of FTEs reported for the fourth quarter of recipient reporting. 

Figure 7: FTEs Reported by California Recipients of Recovery Act 
Funding for the quarter ending June 30, 2010, as of July 31, 2010: 

[Refer to PDF for image: pie-chart] 

Employment Development Department: 2.3%; (1,923 FTEs); 
Department of Transportation: 2.5%; (2,100); 
Department of Community Services and Development: 2.8%; (2,360); 
Other state agencies[A]: 4.5%; (3,764). 
Other recipients[B]: 30.5%; (25,386)
Department of Education and Governor’s Office of Planning and 
Research[C]: 57.3%; (47,660). 
Total FTEs reported: 83,193. 

Source: Recovery.gov. 

Notes: Totals may not add to 100 percent due to rounding. 

[A] Other state agencies include the CEC, Cal EMA, and the California 
Department of Public Health. 

[B] Other recipients are those that received Recovery Act funding 
directly from federal agencies, such as local governments, transit 
agencies, and housing authorities. 

[C] Estimates for the Department of Education and the Governor's 
Office of Planning and Research were combined because the Office of 
Planning and Research acts as the pass-through agency for education 
funds under the SFSF. 

[End of figure] 

During the fourth round, Task Force officials took steps to ensure 
California recipients that do not directly report through the CAAT 
were accurately reporting FTEs and said that this round of recipient 
reporting went more smoothly than prior rounds for those state 
agencies that report directly through the CAAT. For example, the Task 
Force requested a list of California recipients that did not report 
the previous quarter. The Task Force sent these recipients letters to 
inform them of their status and provided them with input to improve 
reporting in future quarters. Additionally, the Task Force partnered 
with CDE to host a webinar for CDE's subrecipients on calculating and 
reporting FTEs on June 1, 2010, following the issuance of our May 2010 
report in which we raised concerns about FTEs reported by CDE. 

CDE also took steps to address recipient reporting concerns we raised 
in prior reports. In prior reports we highlighted concerns about 
underreporting of vendor FTEs by CDE subrecipients and the need for 
CDE to review the FTE information for reasonableness. CDE responded to 
these concerns by taking the following actions: 

* In May 2010 CDE issued additional guidance to LEAs and other 
subrecipients on jobs reporting for vendors. Several LEAs we 
previously visited had believed that vendor FTEs were only reported 
for contracts over a $25,000 threshold. The new guidance specifically 
noted that FTEs must be reported for all direct[Footnote 26] vendor 
jobs irrespective of the total contract amount and noted that FTEs are 
to be reported as a separate data element. 

* CDE spent more time reviewing the reports of the 10 largest LEAs 
during the last reporting period by performing a reasonableness check 
on all of their reports, as we recommended in our May 2010 report. 

Overall, CDE officials were pleased with the recipient reporting 
results for the quarter and did not experience any major problems. CDE 
officials said that almost all of the LEAs that were required to 
report responded. CDE followed up with the LEAs that did not report 
and plans on updating its quarterly report at the end of the 
correction period. 

State Comments on This Summary: 

We provided the Governor of California with a draft of this appendix 
on August 16, 2010. Representatives from the Governor's office agreed 
with our draft. We also provided various state agencies and local 
officials with the opportunity to comment. In general, they agreed 
with our draft and provided some clarifying and technical suggestions 
that were incorporated as appropriate. 

GAO Contact: 

Linda Calbom, (206) 287-4809 or calboml@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above, Emily Eischen, Guillermo 
Gonzalez, Richard Griswold, Delwen Jones, Susan Lawless, Gail Luna, 
Heather MacLeod, Joshua Ormond, Emmy Rhine, Eddie Uyekawa, and Lacy 
Vong made major contributions to this report. 

Appendix II Footnotes: 

[1] Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009). 

[2] Funding for EECBG direct formula grants to eligible units of local 
government--cities and counties--were allocated to cities with 
populations of at least 35,000 or that are among the top 10 highest 
populated cities of the state in which they are located; 

and to counties with a population of over 200,000 or that are among 
the 10 highest populated counties of the state in which they are 
located. 

[3] States must pass on at least 60 percent of its allocation to 
localities ineligible for a direct formula grant. California intends 
to award approximately 67 percent of its allocation to such entities 
noncompetitively using a formula based on population and unemployment 
rates among other factors. 

[4] Under SEP, recipients may use any amount judged "reasonable and 
prudent" by DOE when reviewing the state's plan of their awards for 
general services and administration. For SEP Recovery Act activities, 
states usually follow the limit that applies to their respective state 
funds. 

[5] ESEA defines core academic subjects as: English, reading/language 
arts, mathematics, science, foreign languages, civics/government, 
economics, arts, history, and geography. 

[6] SMART Boards™ are interactive white boards that allow students to 
engage directly with the screen by using special stylus pens, fingers 
or a computer keyboard. In addition to the large white board screen, 
which is touch sensitive and is connected to a computer, the 
technology includes a wireless slate that the instructor uses as the 
master control and individual student response system, which allow 
students to answer from their desks as well as to vote on questions or 
topics. The technology can also come with a wide variety of programs, 
including programs for math and science. 

[7] ESEA requires all states to implement statewide accountability 
systems based on challenging state standards in reading, mathematics, 
and science; annual testing for all students in grades three through 
eight; and annual statewide progress objectives ensuring that all 
groups of students reach proficiency by 2014. LEAs and schools that 
fail to make Adequate Yearly Progress toward statewide proficiency 
goals are subject to improvement and corrective action measures. 

[8] Assistive technology is an item, piece of equipment, or system, 
whether acquired commercially, modified, or customized, which is 
commonly used to increase, maintain, or improve functional 
capabilities of individuals with disabilities. 

[9] According to Los Angeles Unified School District officials, the 
district also created a library Web site that will contain links to 
associated training materials as well as links to resources for 
parents to use to help their children communicate, complete homework, 
and access curriculum. 

[10] This inclusion approach involves keeping special education 
students in regular classrooms and bringing the support services to 
the child, rather than the child to the support services. 

[11] Generally, in any fiscal year in which an LEA's IDEA, Part B, 
allocation exceeds the amount the LEA received in the previous year, 
the LEA may reduce its local spending on disabled students by up to 50 
percent of the amount of the increase, as long as the LEA (1) uses 
those freed-up funds for activities authorized under the ESEA, (2) 
meets the requirements under the act, and (3) can provide each child a 
free and appropriate public education. 

[12] Section 101 of Public Law 111-226, enacted on August 10, 2010, 
provides $10 billion for the new Education Jobs Fund to retain and 
create education jobs nationwide. 

[13] California's $186 million Recovery Act weatherization allocation 
represents a large increase in funding over California's annual 
weatherization program appropriation, which was about $14 million for 
fiscal year 2009. CSD retained about $16 million of the 50 percent 
received (approximately $93 million) to support oversight, training, 
and other state activities and distributed the remaining roughly $77 
million to local weatherization service providers, including nonprofit 
organizations and local governments. 

[14] The other performance milestones recipients must meet to access 
the remaining funds are (1) monitoring all service providers at least 
once each year to determine compliance with administrative, fiscal, 
and state policies and guidelines; (2) inspecting at least 5 percent 
of completed units during the course of the respective year; (3) 
fulfilling the monitoring and inspection protocols established in the 
approved state plan; (4) ensuring that local quality controls are in 
place; and (5) submitting timely and accurate progress reports to DOE 
and confirmation of acceptable performance by recipients via DOE 
monitoring reviews. 

[15] California's projected average cost per unit is significantly 
lower than the $6,500 maximum average allowable under the 
Weatherization Assistance Program. CSD officials believe that the 
maximum average was raised to $6,500 by the Recovery Act primarily to 
meet the needs of states with more extreme climates than California 
where more weatherization measures can be installed. 

[16] CSD requires that blower door tests, which measure a unit's 
building tightness, be performed on 100 percent of weatherized units 
with an exception for multifamily properties. For multifamily 
properties, it is recommended that the blower door test be performed 
on a sample of units. 

[17] CSD's current list of cost-effective weatherization measures 
authorized for use by service providers to weatherize homes was last 
approved by DOE in October 2001. The list is required to be 
revalidated every 5 years. 

[18] Of the $135.6 million allocated to the state, about $550,000 
remains to be allocated. Cal EMA plans to retain those funds for state 
operations. 

[19] The California state government fiscal year is July 1 to June 30. 
Included in the estimated $19 billion budget gap is a nearly $8 
billion general fund deficit at the end of the 2009-2010 fiscal year. 

[20] A registered warrant is a "promise to pay" with interest, that is 
issued by the state when there is not enough cash to meet all of its 
payment obligations. The State Controller's office issued $1.95 
billion in registered warrants last fiscal year when the state failed 
to pass a budget before the start of the state 2009-2010 fiscal year 
on July 1, 2009. 

[21] According to San José officials, the position eliminations 
resulted in over 228 employee layoffs, with over 100 additional 
employees having to accept lower level positions within the city to 
help bridge the budget gap. 

[22] Single Audits are prepared to meet the requirements of the Single 
Audit Act, as amended, (31 U.S.C. §§ 7501-7507) and provide a source 
of information on internal control weaknesses, noncompliance with laws 
and regulations, and the underlying causes and risks. 

[23] California State Auditor, Bureau of State Audits, California 
Emergency Management Agency: Despite Receiving $136 Million in 
Recovery Act Funds in June 2009, It Only Recently Began Awarding These 
Funds and Lacks Plans to Monitor Their Use, Letter Report 2009-119.4 
(Sacramento, Calif.: May 4, 2010); California State Auditor, Bureau of 
State Audits, California Energy Resources Conservation and Development 
Commission: It Is Not Fully Prepared to Award and Monitor Millions in 
Recovery Act Funds and Lacks Controls to Prevent Their Misuse, Letter 
Report 2009-119.1 (Sacramento, Calif.: Dec. 1, 2009); California State 
Auditor, Bureau of State Audits, Department of Community Services and 
Development: Delays by Federal and State Agencies Have Stalled the 
Weatherization Program and Improvements Are Needed to Properly 
Administer Recovery Act Funds, Letter Report 2009-119.2 (Sacramento, 
Calif.: Feb. 2, 2010). 

[24] An FTE is a full-time equivalent, which is calculated as the 
total hours worked divided by the number of hours in a full-time 
schedule. 

[25] Although the reporting deadline has passed, the nationwide data 
system, FederalReporting.gov, was reopened for a period of correction--
for the fourth reporting cycle the period is from August 2 through 
September 20, 2010. 

[26] Under OMB guidance, prime recipients are required to generate 
estimates of job impact by directly collecting specific data from 
subrecipients and vendors on jobs resulting from a subaward. To the 
maximum extent practicable, prime recipients are to collect 
information from all subrecipients and vendors in order to generate 
the most comprehensive and complete job impact numbers available. Job 
estimates on vendors are to be limited to direct job impacts and not 
include "indirect" or "induced" jobs. OMB, Updated Guidance on the 
American Recovery and Reinvestment Act--Data Quality, Non-Reporting 
Recipients, and Reporting of Job Estimates, § 5.7 (Dec. 18, 2009), at 
19. 

[End of Appendix II] 

Appendix III: Colorado: 

Overview: 

This appendix summarizes GAO's work on the seventh of its bimonthly 
reviews of Colorado's spending under the American Recovery and 
Reinvestment Act of 2009 (Recovery Act).[Footnote 1] The full report 
covering all of GAO's work in 16 states and the District of Columbia 
may be found at [hyperlink, http://www.gao.gov/recovery]. 

What We Did: 

Our work in Colorado included reviewing the state's use of Recovery 
Act funds and its experience reporting Recovery Act expenditures and 
results to federal agencies under Office of Management and Budget 
(OMB) guidance. We continued our review of the State Fiscal 
Stabilization Fund (SFSF) and added two new programs to our review--
the State Energy Program and the Energy Efficiency and Conservation 
Block Grant (EECBG) program, both managed by the Department of Energy 
(DOE). For descriptions and requirements of the programs we covered, 
see appendix XVIII of GAO-10-1000SP. In addition to reviewing state 
programs, interviewing state officials, and examining documents for 
these programs, we continued our visits to local governments to better 
understand their use of and controls over Recovery Act funds. All 
regions of Colorado are experiencing economic stress. We chose to 
visit two local governments that had received an EECBG grant on the 
basis of each locality's size, location, and unemployment rate. 
Specifically, we selected the City of Colorado Springs, the second 
largest city in Colorado, which has an unemployment rate of 8.9 
percent, higher than the state's average of 8.3 percent. We also 
selected Weld County, a rural county in northern Colorado, which has 
an unemployment rate of 9.6 percent. Furthermore, we asked state and 
local accountability organizations about their efforts to audit and 
review Recovery Act programs in the state. 

During this round, we also followed up on contracts that we selected 
and reviewed in previous rounds and spoke to officials about whether 
there were cost or schedule changes and whether there were any 
contractor performance issues.[Footnote 2] We selected 13 contracts on 
the basis of the state programs we have reviewed and reported on 
previously and the contract's dollar value. We interviewed contract 
administrators for several state agencies, including the Colorado 
Department of Transportation (CDOT), the Governor's Energy Office 
(GEO), three water utilities that provide drinking water and 
wastewater services, two transit authorities, and two housing 
authorities. 

In addition, we continued our efforts to understand state and local 
entities' reporting on Recovery Act funds. Under the Recovery Act and 
OMB's related guidance, recipients are required to report to 
FederalReporting.gov on the number of full-time equivalent (FTE) 
positions paid for with Recovery Act funds. We reviewed FTEs reported 
by the Colorado Department of Education (CDE) for certain education 
programs; the Colorado Water Resources and Power Development Authority 
(Authority), the Colorado Department of Public Health and Environment 
(CDPHE), and the Department of Local Affairs (DOLA) for Clean Water 
and Drinking Water State Revolving Funds (SRF); the Governor's office 
for SFSF funds; and GEO, Weld County, and Colorado Springs for the 
energy programs. 

What We Found: 

State Fiscal Stabilization Fund. During fiscal year 2011, Colorado 
plans to use $89.2 million--the remainder of the $621.9 million of 
SFSF education stabilization funds allocated to it--to support higher 
education. However, the level of support provided will be 
significantly diminished, given the lessened amount of SFSF funds 
remaining. Overall, the amount of state spending on higher education 
will be reduced for the first time in 3 years. The state also has $6.2 
million that remain unallocated of the $138.3 million of SFSF 
government services funds it received. As of August 15, 2010, the 
state had not determined how it will spend these remaining funds. 
Since our last report, the state has continued to refine its plan for 
monitoring the use of SFSF funds and plans to have its first round of 
monitoring completed in mid-October 2010. It has also received 
additional federal funding to improve its data systems to track key 
SFSF data. 

State Energy Program. Colorado received $49 million in State Energy 
Program funds to spend in 3 years--a significant infusion that 
increased the state's annual funding for that program, which totaled 
only $1.5 million in 2009. GEO is using the funds to remove financing, 
information, and access barriers to the deployment of energy 
efficiency and renewable energy across the state and develop a 
sustainable infrastructure to support the renewable and energy 
efficiency industry in Colorado, which the Governor calls the "New 
Energy Economy." More than a year after receiving its Recovery Act 
award, Colorado had obligated more than 80 percent of its funds to pay 
for various energy efficiency and renewable energy activities and had 
spent nearly 20 percent of its funds, but had not yet reported energy 
savings because these projects have only begun to be implemented. The 
state has supplemented existing program controls to oversee the use of 
these funds. 

Energy Efficiency and Conservation Block Grant. In addition to State 
Energy Program funds, DOE awarded almost $43 million in EECBG funds 
directly to state and local governments, as well as Native American 
tribes, in Colorado for them to develop and implement projects to 
improve energy efficiency and reduce energy use and fossil fuel 
emissions in their communities. The three recipients we reviewed--GEO, 
Colorado Springs, and Weld County--varied in the amount of funds they 
had obligated as of August 15, 2010, yet all expect to meet their 
deadlines for obligating and spending funds. The state has modified 
existing controls from other energy programs to provide internal 
controls over EECBG funds, but local recipients reported startup 
problems, such as interpreting a large amount of guidance from 
multiple sources, that still need resolution with DOE. While it is too 
early to know the long-term energy benefits of the program, GEO and 
the local recipients have started to report jobs information. 

Contracting. State and local entities in Colorado have awarded a 
number of contracts under the Recovery Act for a variety of programs, 
including transportation, housing, weatherization, and drinking water 
and wastewater management. Of the 13 contracts we reviewed, which had 
a total value of about $61.4 million, contract oversight officials 
said that 7 have experienced a change in either cost or schedule. In 
some instances, the contract changes were the result of savings from 
lower than anticipated contract costs or the receipt of additional 
Recovery Act funds. Two of these 7 contracts also experienced issues 
with contractor performance. The remaining 6 contracts, according to 
officials, did not have changes or performance issues. 

State and local budgets. The state expects to use about $400 million 
in Recovery Act funds--specifically the increased Federal Medical 
Assistance Percentage (FMAP) and SFSF funds--to help offset continued 
cuts to its fiscal year 2011 budget. However, these remaining funds 
are significantly less than the $800 million in Recovery Act funds the 
state applied to its budget in fiscal year 2010, which also included 
funding for the state Department of Corrections. For the two local 
governments we visited--Weld County and the City of Colorado Springs-- 
the Recovery Act funds they received did not help balance their 
budgets, but will help them maintain some services and complete needed 
projects. For example, although Colorado Springs cut $90 million from 
its budgets beginning in fiscal year 2008, Recovery Act funds allowed 
the city to maintain service on bus routes in 2010 that it otherwise 
would have cut. 

Recipient reporting. According to state officials, the state's central 
reporting process worked smoothly during the fourth round of Recovery 
Act reporting, covering April 1, 2010, through June 30, 2010, although 
our work reviewing recipient reports indicates the need for a 
corrections process. Colorado recipients, including agencies that 
reported centrally and local entities that reported directly, reported 
a total of about 17,790 FTEs funded by the Recovery Act for the fourth 
reporting period.[Footnote 3] The state's FTEs increased by more than 
7,530 over the previous period largely because of an influx of $205 
million in SFSF phase II funding in April 2010. Because of a change to 
reporting guidance and because funding was received late in the year, 
the state did not report all FTEs associated with SFSF phase II funds 
in the fourth period. As a result, the state will need to adjust FTEs 
it reported in the January through March 2010 reporting period. In 
addition, through our review of recipient reports, we found that data 
quality is still a concern at some other state agencies and local 
entities, also demonstrating the need for a corrections process. 

Accountability. The Colorado audit community is continuing to conduct 
reviews of Recovery Act projects and uses of funds, both as part of 
larger reviews and as specific program audits. Specifically, Colorado 
auditors have issued 13 audit reports and 2 non-audit services that 
contained findings related to Recovery Act programs, an increase of 6 
reports since we last reported in May 2010.[Footnote 4] The reports 
include findings aimed at improving management of Recovery Act funds. 
For example, independent auditors found that the City of Fort Collins 
paid about $684,000 to two subrecipients under its federal transit 
grants, which included a Recovery Act grant, without checking whether 
or not the subrecipients had been suspended or debarred from 
participation in federal programs. In response to the finding, the 
city has established a process to check a federal database of excluded 
parties before issuing any purchase orders for projects containing 
federal funding. 

State Draws Down Remaining State Fiscal Stabilization Fund Monies and 
Is Moving Forward with Monitoring Plan and Data System: 

During fiscal year 2011, Colorado plans to distribute the remainder of 
its SFSF education stabilization funds to support higher education, 
although the level of support provided will be significantly 
diminished and overall spending on higher education will be reduced 
for the first time in 3 years. The remaining $89.2 million of 
education stabilization funds is only a fraction of the funds provided 
in the last 2 fiscal years to the state's institutions of higher 
education (IHE), which prompted the state to appropriate more general 
fund support to higher education than the year before. In addition, as 
of August 15, 2010, the state had allocated $1.6 million of government 
services funds to two projects in fiscal year 2011 and had $6.2 
million unallocated--the state had not determined how it will spend 
these remaining funds. Since our last report, the state has continued 
to refine its plan for monitoring the use of SFSF funds and plans to 
have its first round of monitoring completed by mid-October 2010. The 
state also received federal grant funding to develop a new data 
collection and reporting system that will enable it to more 
efficiently gather key education data required under the SFSF grant. 

Colorado Plans to Use Most of the Remaining SFSF Funds for Higher 
Education in Fiscal Year 2011: 

The Recovery Act provided Colorado with a total allocation of $760.2 
million in SFSF funds. Of this, $621.9 million was designated as 
education stabilization funds and $138.3 million as government 
services funds. As we have previously reported, Colorado is providing 
all of the education stabilization funds to its IHEs and has used 
nearly all of the government services funds for the state Department 
of Corrections. [Footnote 5] The state originally planned to 
distribute its education stabilization funds for higher education 
evenly across fiscal years 2009 through 2011. However, because of 
shortfalls in the state's fiscal year 2010 revenue projections, the 
state shifted $61.3 million of SFSF funds for higher education 
originally planned for 2011 to fiscal year 2010. In addition, the 
state reallocated $170.0 million in SFSF funds originally slated for K-
12 to higher education for fiscal year 2010.[Footnote 6] As a result, 
the state allocated $150.7 million of SFSF funds in fiscal year 2009 
and $382.0 million in fiscal year 2010 to the IHEs, which, according 
to officials, spent it largely on faculty costs. The balance of the 
education stabilization funds remaining for use in fiscal year 2011 is 
$89.2 million. For the period covering April 1, 2010, through June 30, 
2010, IHEs reported more than 8,830 FTEs funded with SFSF funds. 

One of the conditions of receiving SFSF funds is that the state is to 
maintain its level of spending on education at least at the level of 
fiscal year 2006 funding in each of fiscal years 2009 through 2011 or 
receive a waiver of this maintenance-of-effort requirement.[Footnote 
7] Because Colorado reduced state support for higher education in 
fiscal year 2010 below fiscal year 2006 levels, it requested a waiver 
for that year. According to state officials, as of August 15, 2010, 
the state had not received final approval of the waiver from the U.S. 
Department of Education (Education). State officials said that 
Education is waiting to assess whether Colorado's actual revenues for 
fiscal year 2010 match the estimated amounts in the waiver before 
making a final determination. State officials said they believe the 
actual revenues and expenditures will be close to the estimates in 
part because the state's June 2010 revenue forecast did not represent 
an improvement in expected revenue. The state plans to submit its 
actual revenue data to Education after the September revenue forecast 
is published. For fiscal year 2011, state officials said they are not 
anticipating the need to file a waiver request because the state has 
increased its contribution from the general fund to the $555.3 million 
necessary to meet the maintenance-of-effort provision. However, the 
final decision hinges on the state's ability to maintain this level of 
IHE funding in the face of potential statewide budget balancing 
efforts. 

Although the state plans to provide more state funding to IHEs in 
fiscal year 2011 than fiscal year 2010, the decline in SFSF funds in 
2011 will contribute to an overall reduction of about $62 million in 
state higher education funding (from about $706 million to $644 
million), as compared to funding levels for the previous 2 fiscal 
years. As shown in figure 1, this is the first reduction in the 
state's higher education budget since the enactment of the Recovery 
Act. 

Figure 1: IHE Funding from SFSF and State General Fund for Fiscal 
Years 2006 through 2012: 

[Refer to PDF for image: stacked vertical bar graph] 

State fiscal year: 2005/2006; 
General Fund: $555 million; 
SFSF: $0; 
Total: $555 million. 

State fiscal year: 2006/2007; 
General Fund: $602 million; 
SFSF: $0; 
Total: $602 million. 

State fiscal year: 2007/2008; 
General Fund: $653 million; 
SFSF: $0; 
Total: $653 million. 

State fiscal year: 2008/2009; 
General Fund: $555 million; 
SFSF: $151 million; 
Total: $706 million. 

State fiscal year: 2009/2010; 
General Fund: $324 million; 
SFSF: $382 million; 
Total: $706 million. 

State fiscal year: 2010-2011; 
General Fund: $555 million; 
SFSF: $89 million; 
Total: $644 million. 

State fiscal year: 2011-2012; 
General Fund: $555 million; 
SFSF: $0; 
Total: $555 million. 

Source: GAO analysis of state data. 

Note: Dollars have not been adjusted for inflation. 

[End of figure] 

According to state officials, the IHEs were expected to budget 
accordingly to accommodate the reduction in funds. Officials we spoke 
with at the University of Colorado said since they have known about 
this coming reduction for a few years, they have had sufficient time 
to plan to reduce costs. For example, they are taking budget balancing 
actions totaling $51 million over 2 years, including eliminating 148 
filled positions and reducing operating costs. In addition, according 
to state officials, Colorado enacted a law in June 2010 allowing the 
IHEs to increase their annual tuition by up to 9 percent to help 
compensate for reductions in state and federal funds. 

Colorado allocated about 94 percent of the $138.3 million the state 
received in SFSF government services funds for fiscal years 2009 and 
2010. While the Department of Corrections was the largest recipient of 
these funds in previous years, the loss of SFSF funds is not expected 
to affect the department's budget for fiscal year 2011 because, 
according to state officials, it has been funded for this fiscal year 
from the state's general fund. For fiscal year 2011, the state 
allocated $1.5 million to help hire teachers under the Teach for 
America program, $120,000 for a Historical Society capital project, 
and, as of August 15, 2010, had approximately $6.2 million 
unallocated. According to a senior state budget official, the state 
plans to spend these funds by September 2011. 

In addition, the state has reserved $2.7 million of its government 
services funds to cover costs associated with oversight and 
administration of the Recovery Act. OMB guidance allowed states to 
recover costs related to such central administrative activities to 
manage Recovery Act programs and funds.[Footnote 8] As of July 13, 
2010, the state had collected approximately $3.6 million of the total 
$4.7 million calculated as its statewide indirect costs over 3 years, 
an increase of $1.4 million in funds collected since we reported in 
May 2010.[Footnote 9] According to state officials, they believe they 
will successfully collect the remaining $1.1 million from Recovery Act 
grants over the next 2 fiscal years, which may allow the state to use 
these government services funds for other program needs through 
September 2011. 

State Is Making Progress on Its SFSF Monitoring Plan and Has Received 
Funding for Improving Its Data System to Gather Key Education Data: 

The Governor's office has made progress in developing the required 
monitoring plan for SFSF funds. States receiving SFSF funds were 
required as part of their application to comply with Education 
regulations, including the requirement that they monitor grant and 
subgrant supported activities.[Footnote 10] As we previously reported, 
the office submitted its proposed plan to Education in March 2010. 
Since that time, state officials explained they have consulted with 
other states, gathering monitoring best practices to implement in 
Colorado. The Governor's office is working with a local consulting 
firm to perform initial sampling and planning, which will allow the 
state to determine the scope and cost of the monitoring efforts. The 
consulting firm will also aid the Governor's office in determining the 
appropriate level of monitoring necessary for each subrecipient--this 
will likely be based on a combination of dollars received as well as 
an assessment of operational risk and past compliance. The monitoring 
itself is expected to include desk and on-site reviews of recipients, 
depending on the level of monitoring. Officials said that, at a 
minimum, they plan on completing the reviews and corrective action 
plans for all schools deemed medium-and high-risk by October 18, 2010, 
the scheduled date of a review of the state's efforts by Education. 

The state has also made progress toward another SFSF requirement, the 
need to collect specific indicators and descriptors showing that the 
state is making progress on education reforms in four areas. In our 
May report, we noted that the state's ability to more efficiently 
collect the indicators and descriptors hinged on the receipt of 
additional federal funding. Since that report, CDE received a $17.4 
million Recovery Act Statewide Longitudinal Data Systems grant from 
Education. According to CDE officials, it will use most of the grant 
to develop a new data collection system, which is designed to allow 
more efficient collection of state data, including the SFSF indicators 
and descriptors data. CDE plans to use a small portion of the grant to 
cover most of the remaining funding needed to collect specific data on 
two of the indicators and descriptors. 

Colorado Plans to Use State Energy Program Funds to Further the 
Development of Energy Efficiency and Renewable Energy across the State: 

With Recovery Act funds provided for the State Energy Program, DOE 
will disburse $3.1 billion to states to fund energy efficiency and 
renewable energy activities such as expanding states' existing energy 
efficiency programs and renewable energy projects. Colorado received 
$49 million in State Energy Program funds to spend over 3 years--a 
significant infusion that increased the state's annual funding for 
that program, which received a total of $1.5 million in 2009. The 
Governor's Energy Office is managing the use of these funds in the 
state. GEO plans to use the funds to remove financing, information, 
and access barriers to the deployment of energy efficiency and 
renewable energy across the state and develop a sustainable 
infrastructure to support the renewable energy and energy efficiency 
industry in Colorado, which the Governor calls the "New Energy 
Economy." States have 18 months from the date they receive their award 
to obligate the full award amount and 36 months from the same date to 
spend the full award amount. Further, states that receive Recovery Act 
funding are required to report quarterly to FederalReporting.gov on 
their use of funds and number of FTEs paid for with Recovery Act funds 
and, in addition, either monthly or quarterly to DOE on a number of 
items, including hours worked, expenditures, and certain performance 
metrics such as energy saved. 

Colorado Has Obligated Most of Its State Energy Program Recovery Act 
Funds and Has Started to Spend Them in Key Program Areas: 

GEO has allocated its State Energy Program Recovery Act funding to be 
used in eight areas. More than a year after receiving its Recovery Act 
award, Colorado has obligated more than 80 percent of its State Energy 
Program funds to pay for various energy efficiency and renewable 
energy activities, and has spent nearly 20 percent of these 
funds.[Footnote 11] Figure 2 illustrates the amounts of funds GEO 
allocated, obligated, and spent as of August 15, 2010, by area, 
including: (1) capital investment grants and revolving loans; (2) 
renewable energy development and expansion; (3) commercial building 
programs; (4) residential programs; (5) information and outreach; (6) 
administration; (7) utilities and transmission; and (8) greening 
government. 

Figure 2: GEO's State Energy Program Recovery Act Amounts Allocated, 
Obligated, and Spent as of August 15, 2010 (Dollars in millions): 

[Refer to PDF for image: vertical bar graph] 

State energy program area: Grant and loans; 
Allocated: $18.0 million; 
Obligated: $17.0 million; 
Spent: $0.7 million. 

State energy program area: Renewable energy; 
Allocated: $9.7 million; 
Obligated: $7.4 million; 
Spent: $3.0 million. 

State energy program area: Commercial buildings; 
Allocated: $6.0 million; 
Obligated: $6.0 million; 
Spent: $1.3 million. 

State energy program area: Residential programs; 
Allocated: $5.8 million; 
Obligated: $4.6 million; 
Spent: $1.5 million. 

State energy program area: Information and outreach; 
Allocated: $5.0 million; 
Obligated: $3.5 million; 
Spent: $1.6 million. 

State energy program area: Administration; 
Allocated: $2.9 million; 
Obligated: $2.9 million; 
Spent: $0.9 million. 

State energy program area: Utilities and transmission; 
Allocated: $1.2 million; 
Obligated: $0.9 million; 
Spent: $0.3 million. 

State energy program area: Greening government; 
Allocated: $0.7 million; 
Obligated: $0.4 million; 
Spent: $0.2 million. 

Source: GAO analysis of GEO data. 

[End of figure] 

Since it received State Energy Program Recovery Act funding, GEO 
officials have been planning to expand existing programs and 
coordinating different energy incentives in the state. GEO's plans in 
these eight areas include the following: 

* GEO plans to use the largest piece of the State Energy Program 
award--$18 million--to provide capital for businesses and consumers to 
invest in energy efficiency and renewable energy projects. For 
example, GEO plans to develop a revolving fund to provide banks low-
cost capital for loans for renewable energy and efficiency projects 
such as on-site renewable energy systems and energy efficiency 
retrofits. 

* GEO will provide $9.7 million in incentives for investments in 
solar, wind, and other renewable energy technologies for homes and 
businesses. This funding will be used for several types of rebates, 
including commercial investments in solar energy systems. Because the 
state already has a significant utility-backed solar rebate program, 
GEO officials said they focused their residential rebate program on 
customers earning less than the national adjusted mean income. 

* GEO plans to use $6 million to encourage energy efficiency in new 
and existing commercial buildings. For example, GEO pre-approved 13 
energy service companies to provide energy performance contracting, 
which, according to officials, involves contracting for energy 
retrofits that are then repaid through utility savings. GEO will also 
provide help to state and local agencies that want to reduce their 
energy and carbon emissions using energy performance contracts and 
technical assistance, workshops, and trainings for construction of new 
energy efficient public buildings. 

* GEO plans to use $5.8 million of its State Energy Program funds to 
improve the energy efficiency of new and existing homes. First, GEO 
officials will work with counties to adopt and enforce energy codes 
that increase the efficiency of new and existing homes. Second, GEO 
officials will educate and work with cities, counties, utilities, and 
home builders to build more efficient Energy Star-rated new homes. 
[Footnote 12] Finally, GEO will expand its current "Insulate Colorado" 
program for existing homes to provide duct sealing, furnace 
replacement, air sealing, and lighting and appliance replacement. 

* GEO's Information and Outreach program aims to spend $5 million on 
providing simple and accurate information to the public through a 
telephone hot line, direct outreach to consumers, and a Web site. 
Under this set of activities, GEO is setting up a separate Web site to 
facilitate its rebate efforts as well. 

* GEO will use nearly $2.9 million to pay for administrative costs of 
managing the program. DOE allows for a prudent and reasonable amount 
of Recovery Act funds to be used for administrative costs. 

* The state plans to use more than $1.2 million working with the 
state's utilities and others to promote the goals of the Governor's 
Climate Action Plan to reduce carbon dioxide emissions by 20 percent 
from electric utilities, transportation, and industry sources. GEO 
will work to align utility rate structures with the plan's objectives 
to manage energy demand and increase use of renewable sources. 

* Finally, GEO plans to use about $712,000 to help state agencies to 
"green" government by reducing their use of petroleum products, 
energy, paper, and water, among other things. Ways to do this include 
energy performance contracting with energy service companies, 
improving the fuel efficiency of state vehicles, and using 
environmental purchasing policies. 

State Has Supplemented Existing Controls over State Energy Program 
Funds and Is Adding a Contractor to Measure and Verify Results: 

According to GEO officials, GEO is using its already-existing controls 
to oversee the use of its State Energy Program funds and, in some 
cases, has created new controls specific to the requirements of the 
Recovery Act. Specifically, officials told us GEO awards funds through 
its existing contracting or grant processes, which involve a formal 
announcement of the request for applications or proposals and multiple 
levels of internal review before recipients are selected. Some of the 
funding is awarded through contracts between GEO and vendors. While 
these contracts are issued through the state's procurement process 
using existing controls, according to officials, the controls have 
been modified to incorporate the requirements of the act, including 
Davis-Bacon and Buy American provisions. GEO plans to monitor the 
monthly progress of its contracts after they are in place. This 
monitoring work will be conducted by GEO staff who will contact 
vendors directly. In addition, vendors will provide required 
documentation for reporting purposes, including the number of hours 
worked on Recovery Act activities and expenditures. 

In addition, GEO has implemented two new controls over particular 
aspects of its State Energy Program. First, because it was concerned 
about the significant increase in the number of rebates it expected to 
issue under the Recovery Act and the potential increase in fraudulent 
claims, GEO instituted a new control over its rebate programs. The 
state has 18 rebate programs, such as furnace rebates, residential 
solar rebates, and commercial wind rebates, and multiple funding 
sources in addition to Recovery Act funds. GEO selected a contractor 
to manage the increased rebate volume and to verify that applicants 
satisfy all rebate requirements before awarding the rebate checks. The 
contractor, which GEO selected in part because of its proposed 
internal controls, has developed certain controls over rebate claims, 
such as the automatic calculation of rebate amounts based on program 
rules and automatic identification of different state funding sources. 
The contractor also provides GEO with online access to claims and 
regular reports on issued rebate checks. 

Second, GEO plans to use a contractor to measure and verify the 
results of the different GEO programs being paid for with Recovery Act 
funds, including the State Energy Program and other programs such as 
appliance rebates and EECBG. Measurement and verification involves the 
field verification of energy conservation measures and renewable 
energy installations, and also involves quantifying energy savings 
from these projects. GEO plans to use the information gathered to 
report to DOE on specific performance metrics, such as energy saved. 
In July 2010, GEO issued a request for proposals for these services 
because, according to GEO officials, the significant increase in the 
size of the programs makes oversight by GEO's program managers 
insufficient. GEO expects the initial period of measurement and 
verification to be completed by December 31, 2011, with an option to 
extend the contract. 

GEO Plans to Save Energy from State Energy Program Activities, but Has 
Not Yet Reported Savings: 

After its State Energy Program activities are implemented, GEO 
officials stated they expect to save 366 billion British thermal units 
(Btu) of energy annually and to have paid for about 470 jobs, but as 
of June 30, 2010, the state had not reported energy savings achieved. 
[Footnote 13] The state has been responsible for reporting this 
metric, plus energy cost savings, jobs created and retained, and other 
metrics such as obligations and outlays on a monthly and quarterly 
basis to DOE using DOE's Performance and Accountability for Grants in 
Energy system. However, DOE reduced reporting requirements for State 
Energy Program grantees in August 2010, including limiting monthly 
reporting to outlays. Obligations and the other performance and 
accountability metrics will still be reported quarterly. As of June 
30, 2010, GEO reported 19,812 hours worked but did not report energy 
savings because, according to officials, it was too early for the 
projects to produce savings. 

In addition to this performance reporting to DOE, GEO has reported FTE 
data quarterly to FederalReporting.gov, as required by OMB's Recovery 
Act reporting guidance, since such reporting began. For the past three 
quarters, GEO reported about 30 FTEs per quarter. The state has 
implemented a process to report FTEs that involves program managers 
gathering and reporting hours from the subrecipients and vendors and 
reporting this to one key person who then performs the calculation to 
convert hours to FTEs. This person works with the program managers to 
gather their internally worked hours and convert these to FTEs as 
well. According to GEO officials, reporting for the quarter ending 
June 30, 2010, went smoothly. 

Energy Efficiency and Conservation Block Grant Projects Are Underway 
at the State and Local Levels: 

In addition to providing funds for the State Energy Program, the 
Recovery Act also appropriated $3.2 billion for DOE to fund, for the 
first time, the EECBG program. While the program has objectives that 
are similar to those of the State Energy Program--to reduce fossil 
fuel emissions and energy use and improve energy efficiency--the 
funding approach is different. With the EECBG program, DOE is 
distributing EECBG funds to state and local governments, as well as 
Native American tribes, for them to develop and implement projects to 
improve energy efficiency and reduce energy use in their communities. 
DOE is providing the majority of funds directly to two types of 
recipients: (1) communities eligible to receive a direct EECBG formula 
award--for example, cities with populations 35,000 or greater, 
counties with populations greater than 200,000, or the 10 cities and 
counties in a state with the highest population count--and (2) states, 
with the requirement that at least 60 percent of the funds be 
distributed to those communities that are not eligible to receive a 
direct formula grant from DOE.[Footnote 14] In Colorado, DOE awarded 
$9.6 million to the state through GEO and 32 grants worth $33 million 
directly to eligible communities in the state, which included 20 
cities, 10 counties, and 2 Native American tribes. We reviewed the 
$9.6 million grant to GEO and two direct grants made to the City of 
Colorado Springs and Weld County. 

After Initial Groundwork, Most of GEO's Energy Efficiency and 
Conservation Projects Have Begun: 

As of August 2010, the state's EECBG grant had been awarded and almost 
fully obligated, but as with the State Energy Program, the state had 
just begun spending EECBG funds and had not yet reported energy 
savings related to the EECBG activities. Under DOE's guidelines for 
the EECBG funds, states were required to develop an energy strategy 
designating the funds for particular program areas and, once the award 
was approved, to obligate and spend the awarded funds in 18 months and 
36 months, respectively. DOE approved GEO's strategy for using its 
$9.6 million in EECBG funding and awarded the funds to the office on 
September 30, 2009. As of August 15, 2010, GEO had obligated about 
$8.1 million, or 84 percent, of the funds and spent about $1.6 
million. GEO officials told us that GEO expects to have fully 
obligated the funds before its March 2011 deadline. Figure 3 shows the 
amounts GEO allocated, obligated, and spent as of August 15, 2010, for 
each of GEO's energy efficiency and conservation program areas. 
[Footnote 15] 

Figure 3: GEO's EECBG Amounts Allocated, Obligated, and Spent as of 
August 15, 2010: 

[Refer to PDF for image: vertical bar graph] 

DOE program activity: Energy efficiency retrofits; 
Allocated: $5.1 million; 
Obligated: $4.7 million; 
Spent: $0.8 million. 

DOE program activity: Community energy coordinators; 
Allocated: $2.3 million; 
Obligated: $2.2 million; 
Spent: $0.6 million. 

DOE program activity: Commercial building audits; 
Allocated: $1.1 million; 
Obligated: $0.3 million; 
Spent: $0.02 million. 

DOE program activity: Administration; 
Allocated: $0.8 million; 
Obligated: $0.8 million; 
Spent: $0.22 million. 

DOE program activity: Other projects and purchases; 
Allocated: $0.34 million; 
Obligated: $0.1 million; 
Spent: $0.007 million. 

Source: GAO analysis of GEO data. 

[End of figure] 

According to GEO officials, the office was given significant 
flexibility within the DOE approved program areas to designate how to 
spend its EECBG funds. As such, GEO plans to distribute $7.3 million, 
or 75 percent, of its total award to those communities across the 
state not eligible to receive a direct formula grant from DOE with the 
overall goal of providing rural communities with access to new energy 
and economic opportunities. GEO's planned uses of the EECBG funds are 
primarily focused in the following program areas: 

* Energy efficiency retrofits. The largest portion of GEO's EECBG 
funding is $5.1 million slated for counties and local communities to 
spend on energy efficiency retrofits of residential and public 
buildings, including energy audits, and renewable energy rebates for 
residences and businesses installing on-site renewable technologies 
such as solar or wind. According to GEO, the renewable energy rebates 
will be limited to consumers who have substituted a renewable energy 
resource for a traditional energy source, such as propane, thereby 
improving their building's energy efficiency. For example, GEO plans 
to offer a $400 rebate for the purchase and installation of a biomass 
burning stove that meets certain thermal efficiency requirements and 
will offer rebates for various solar or wind projects as well. The 
rebate program will be managed by the same contractor that is managing 
the state's 18 rebate programs. Similar to its State Energy Program 
funds, GEO has apportioned EECBG program funds across several 
different rebate programs: energy audits, insulation and air sealing, 
duct sealing, high efficiency furnaces and boilers, commercial solar 
photovoltaic and thermal projects, and commercial wind projects. The 
contractor then selects the correct funding source for claims that are 
submitted, following GEO's program rules for each rebate. According to 
state officials, the large increase in funds available for rebates can 
be effectively applied because of the large number of people across 
the state interested in rebates. 

* Community Energy Coordinators. GEO plans to spend about $2.3 million 
of EECBG funds on 18 Community Energy Coordinators who will work to 
create economic growth and build local capacity for energy efficiency 
and conservation measures throughout the state, specifically in those 
communities that were not eligible to receive an EECBG grant directly 
from DOE. According to GEO officials, GEO has invested a significant 
amount of upfront work in establishing these community coordinator 
positions. Among other responsibilities, the coordinators are to: (1) 
develop an energy efficiency and conservation strategy for those 
communities not eligible to receive a direct formula grant from DOE; 
(2) deliver one clean energy training or outreach event each calendar 
quarter; (3) work with local utility providers and GEO to develop 
clean energy goals; (4) develop a plan to upgrade residential and 
commercial building energy codes by February 2017; and (5) help to 
develop plans to conserve materials and water in their communities. As 
of August 2010, GEO had selected all 18 coordinators, who had begun 
working with their communities on these activities. 

* Commercial building audits. GEO plans to spend about $1.1 million to 
conduct the initial work necessary to improve the energy efficiency of 
businesses such as those found in a community's "Main Street" area, or 
businesses located in older buildings, through funding energy audits 
of these buildings. GEO technical consultants will work with Community 
Energy Coordinators, business district representatives, and other 
partners to create a plan that identifies ways in which each business 
can reduce energy consumption and business operating costs. The 
business or building owner can then make more informed decisions about 
retrofitting the building and potentially collaborate with other state 
or local community development programs to obtain funding for the 
retrofit. 

* Administration and monitoring. GEO has dedicated about $834,000 for 
project administration and monitoring. These funds will be used to pay 
the salaries and expenses of the GEO officials who are administering 
the program, process rebates, and pay a contractor GEO plans to hire 
to verify work performed under the EECBG program. 

* Direct purchases for select projects. GEO plans to spend the 
remaining $340,000 of EECBG funds on a variety of projects to 
diversify its portfolio of projects. Specifically, GEO is awarding 
competitive grants for solar installations at municipal and county-
owned buildings, an on-site recycling project at a correctional 
facility, and the purchase of high-efficiency street lights in those 
communities not eligible to receive a formula grant from DOE. 

GEO spent the early months after receiving its EECBG award developing 
and coordinating local energy programs with state objectives. 
According to officials, GEO decided to hold off on issuing any 
requests for proposals because DOE guidance on National Environmental 
Policy Act and National Historic Preservation Act requirements was in 
flux during the initial months after DOE approved GEO's energy 
efficiency and conservation plan. Meanwhile, GEO established the 
Community Energy Coordinator positions and conducted a "listening 
tour" throughout the state to gather information on what types of 
EECBG projects would be most beneficial to localities. Using this 
input, GEO selected a diverse set of activities within its program 
areas. 

GEO Has Modified Existing Controls from Other Programs to Oversee 
EECBG Funds and Is Adding Procedures for Measuring and Verifying 
Results: 

To provide internal controls over EECBG funds, GEO modified controls 
it uses for its existing programs. For example, according to GEO 
officials, the office follows federal and state rules for reimbursing 
subrecipients and vendors and has added a control requiring that three 
people--the program manager, controller, and deputy director--review 
every invoice before payment of EECBG funds is approved. Officials 
further stated that they oversee all subrecipients through direct 
communications, scheduled reviews, and monthly and final reports. For 
example, GEO reviews monthly reports prepared by the subrecipients to 
ensure that deliverables are on schedule and on budget. GEO also 
conducts formal quarterly reviews of the Community Energy 
Coordinators. During the review, the program manager and GEO's 
regional representative meet with the coordinator to assess progress 
and performance, including the coordinator's ability to meet 
deadlines, level of engagement in the community, quality and 
completeness of the energy efficiency and conservation strategy, and 
level of energy efficiency and renewable energy projects implemented. 
In addition, GEO engineers evaluate the reasonableness of costs 
(hourly rates and hours worked) and deliverables that are shown in 
reports prepared by the Community Energy Coordinators. 

As with the State Energy Program, GEO is adding procedures to verify 
work performed under the EECBG program. Specifically, GEO expects the 
measurement and verification contractor will verify energy savings and 
examine the physical energy efficiency and conservation work performed 
under the EECBG award. 

It Is Too Early to Know Long-Term Energy Benefits of EECBG but GEO Is 
Starting to Report Jobs: 

GEO estimated that it could save 770 billion Btu annually--assuming 
identified efficiency improvements are implemented--and pay for about 
100 jobs with EECBG funding, but as of August 2010, the state had not 
reported savings and reported few jobs. Under DOE's reporting 
requirements, EECBG award recipients, including states, are required 
to report cost savings, energy saved, jobs created and retained, and 
standard reporting metrics such as obligations and outlays.[Footnote 
16] GEO officials told us that they plan to measure actual energy 
savings that result from EECBG; 

they relied on manufacturers' estimates of expected energy savings to 
estimate long-term energy benefits for planning purposes. GEO plans to 
track energy savings that will result from three project areas: 
residential and commercial building audits, energy efficiency 
retrofits, and lighting projects. GEO expects that the greatest energy 
savings will result if changes are made to Main Street area businesses 
as a result of the commercial building audits; 

the improvements made could yield 645 billion of the 770 billion Btu 
GEO estimated as potential annual savings. 

Under OMB Recovery Act reporting guidance, GEO is required to report 
FTEs paid for with Recovery Act EECBG funds. GEO reported about 12 
FTEs paid for with EECBG funds for the April through June reporting 
period. To calculate and report FTEs, as with the State Energy 
Program, the program manager gathers and reports hours worked from 
subrecipients and vendors and then sends the data to the GEO reporting 
staff. This staff person converts the hours worked into FTEs. Also as 
with the State Energy Program, reporting for the April through June 
period went smoothly, according to GEO officials. 

Localities Are Using EECBG Funds to Enhance Long-Term Programs and for 
One-Time Projects: 

The two localities we visited, Colorado Springs and Weld County, both 
received direct EECBG formula grants from DOE that they are using to 
invest in energy efficiency in their communities. Colorado Springs 
received approximately $3.7 million from DOE, which it plans to use to 
further its long-term goals for improving energy efficiency in the 
city. The city already had an environmental sustainability coordinator 
in place who was looking for energy efficiency opportunities. 
According to city officials, the funds represent an opportunity to (1) 
demonstrate that energy conservation projects are a good financial 
investment, potentially impacting future city decisions, and (2) 
develop an energy sustainability plan that will reduce energy use and 
emissions and result in cost savings beyond the period of EECBG 
funding. According to a Colorado Springs official, approximately 22 
percent of its EECBG funds were obligated as of August 15, 2010, and 
the city expects all funds to be obligated by its March 2011 deadline. 
The following include some of the projects selected and their 
anticipated benefits: 

* Retrofitting municipal buildings, costing $1.9 million, to improve 
energy efficiency. The city projects savings of $140,000 in annual 
utility costs. 

* Replacing city-owned streetlights with LED bulbs, costing about 
$500,000, which will reduce energy use and costs, as well as 
demonstrate to the local utility that LED streetlights are cost- 
beneficial. 

* Weatherization of affordable housing units, costing about $400,000, 
including funding energy efficiency measures not paid for by existing 
programs, such as replacing windows and exterior doors. 

* Conducting energy audits and related retrofit work for small to mid-
size commercial, non-profit and educational customers, costing more 
than $500,000, which has provided training opportunities for students 
in energy-related fields through a collaborative effort with the local 
utility, which supervised and trained the students. 

Weld County, a rural county in northern Colorado, received more than 
$616,000 in EECBG funds that it is largely using to pay for replacing 
boilers, lighting, and heating, ventilation, and air conditioning 
systems in several county buildings, including the administration 
building and a jail complex. County officials expect the new equipment 
to yield energy savings of 20 to 40 percent. Weld County will also 
fund a new transportation software project for non-emergency transit 
services for medical patients, which should produce more efficient 
routes, thereby reducing energy consumption. According to Weld County 
officials, all EECBG funds had been obligated as of June 30, 2010, and 
officials expect to spend all the funds by the end of September 2010. 

Two Colorado Localities Have Established Controls and Reporting 
Processes, but Said DOE Guidance Is Overwhelming and Confusing: 

The two localities that we visited have procedures intended to ensure 
that EECBG funds are used for approved purposes, although they have 
found some of the DOE guidance confusing and requirements challenging. 
Colorado Springs has designated someone to manage each of its EECBG 
activities, written an EECBG grant oversight and responsibilities 
plan, and assigned each EECBG activity a separate account code. Weld 
County is using its standard grant oversight procedures for its EECBG 
award. A designated Weld County official does regular on-site visits 
to ensure work is being completed prior to signing invoices for 
payment by the controller. Both Colorado Springs and Weld County have 
one person responsible for submitting all the required EECBG reports. 
Colorado Springs plans to use a portion of its EECBG funds to hire a 
half-time grants administrator to ensure quality control over the 
EECBG monitoring and reporting requirements. 

As they developed their plans for EECBG funds, these two localities 
received a large amount of program guidance from DOE. Both localities 
stated that the amount of communication from DOE has at times been 
overwhelming and confusing and, as a result, they found it challenging 
to understand and ensure compliance with all of the EECBG 
requirements. For example, Weld County officials explained they have 
limited resources for EECBG monitoring and reporting; 

as a result, they have not been able to keep up with all the guidance 
and emails and have sometimes missed information. The confusion and 
misinterpretation have resulted in errors that have had to be 
corrected. 

* Based on Colorado Springs officials' understanding of a DOE funding 
announcement, city officials thought that they should draw down the 
city's entire $3.7 million award as of March 2010, even though federal 
guidance requires that grant recipients draw down funds only as they 
are needed. A Colorado Springs official attended training provided by 
a private grants management training company in late April 2010 and 
realized the mistake. The official then notified DOE and paid back 
$3.1 million in mid-May 2010. Since then, DOE has begun providing 
reports to its project officers to enable them to monitor the draw 
down of funds. 

* Weld County misunderstood how to calculate FTEs associated with its 
EECBG award. County officials said that for the April through June 
reporting period they planned to use a formula that projected FTEs 
based on amount of expenditures rather than the actual hours worked, 
in contrast to OMB and DOE guidance.[Footnote 17] According to 
officials, they were not aware of these guidance documents and 
acknowledged that any announcements they might have received 
containing the new guidance were likely missed among the voluminous 
correspondence they receive from multiple people within DOE. After we 
provided the DOE and OMB guidance, county officials used hours worked 
to calculate FTEs for the April through June reporting period, 
reporting three FTEs for this period. 

We found several other instances where the local entities found DOE's 
guidance unclear and confusing: 

* Budgets. Colorado Springs initially sought guidance from DOE on 
allocating indirect costs among its EECBG funded activities. Based on 
the information it received, the officials submitted a budget to DOE. 
However, city officials were told to allocate indirect costs 
differently by another DOE contact and, as a result, have had to 
reallocate costs and revise these budget worksheets accordingly. 

* Reporting time frames. The localities we visited had different 
understandings of how long they are to continue providing DOE with 
performance reports and did not find clear direction for this in DOE 
guidance. Colorado Springs officials said they are to report for the 
entire 3-year period of the award in order to have time to report on 
energy savings. On the other hand, Weld County officials said that 
they believed that reporting would stop once all funds were expended. 

* Energy metrics. DOE expects its grantees to report on energy savings 
and other metrics on a monthly or quarterly basis; 

however, the localities we visited had different understandings of 
what was required. Colorado Springs officials plan to measure and 
calculate actual energy reductions after their projects are 
implemented, but Weld County officials plan to report projected energy 
savings and do not plan to collect data on energy savings for 
reporting purposes beyond their projects' completion. 

* Buy American guidance. Colorado Springs officials said that trying 
to meet the Buy American requirements has delayed their LED lighting-
replacement project by at least four months and they are still not 
sure if their four possible vendors are truly eligible. DOE issued 
guidance in June 2010 directing recipients to verify that products 
were manufactured or produced in the United States, but Colorado 
Springs officials said they were unclear how to comply with this 
additional requirement in a reasonable way. They asked DOE to provide 
a list of eligible vendors but were told DOE did not have one. City 
officials thought such a list would be important for the other 
communities like itself that are purchasing this equipment with 
Recovery Act funds. In a June 25, 2010, notice, DOE indicated that it 
expected to get a list from the National Electrical Manufacturers 
Association of domestic producers that can meet the Buy American 
criteria; however, as of August 16, 2010, this information was not 
available.[Footnote 18] 

DOE program monitors for GEO, Weld County, and Colorado Springs agreed 
that these issues have caused delays and misreported data but that DOE 
has efforts underway to address some of these problems. According to 
the officials, heavy workloads at the beginning of the program reduced 
the time they spent on EECBG monitoring. Since March and April 2010, 
DOE has reduced the workload of project officers and technical 
monitors providing assistance and oversight to recipients, which the 
DOE officials believe has improved their responsiveness. Further, to 
deal with the amount of guidance and requirements being provided to 
grantees, DOE has a proposed initiative, referred to as "One Voice," 
that is intended to improve the coordination of communication that 
comes from various DOE offices. DOE is also working on developing 
specific requirements for closing out the EECBG grants that should 
clarify when recipients can stop reporting and a working group within 
DOE plans to clarify the energy metrics reporting guidance. 

Status of Contracts and Reasons for Cost, Schedule, and Performance 
Changes: 

State and local entities in Colorado have awarded a number of 
contracts under the Recovery Act to support a variety of programs, 
including transportation, housing, weatherization, and drinking water 
and wastewater management. These entities are prime recipients of 
awards under the Recovery Act and have chosen to use all or a portion 
of their awards to contract out work to be performed. In 2009, we 
selected 13 Recovery Act contracts to review, including 4 we reported 
on in September 2009, considering the value of the contract and the 
state program it helped support.[Footnote 19] Table 1 shows the 13 
contracts--which have a combined estimated value of about $61.4 
million--and any cost or schedule changes or contractor performance 
issues. 

Table 1: Changes in 13 Selected Contracts as of June 30, 2010: 

Contracting agency: CDOT; 
Purpose: Highway construction at C-470; 
Original contract value: $25,850,411; 
Cost change: [Empty]; 
Schedule change: [Check]; 
Contractor performance issue: [Empty]. 

Contracting agency: Summit County; 
Purpose: Construction of fleet maintenance facility; 
Original contract value: $8,398,741; 
Cost change: [Check]; 
Schedule change: [Check]; 
Contractor performance issue: [Check]. 

Contracting agency: Town of Georgetown; 
Purpose: Wastewater treatment facility improvements; 
Original contract value: $5,116,786; 
Cost change: [Empty]; 
Schedule change: [Empty]; 
Contractor performance issue: [Empty]. 

Contracting agency: City of Manitou Springs; 
Purpose: City water and sanitation system improvements; 
Original contract value: $4,361,360; 
Cost change: [Check]; 
Schedule change: [Empty]; 
Contractor performance issue: [Empty]. 

Contracting agency: CDOT; 
Purpose: Highway construction at Johnson Village North; 
Original contract value: $4,197,756; 
Cost change: [Empty]; 
Schedule change: [Check]; 
Contractor performance issue: [Check]. 

Contracting agency: Pagosa Area Water and Sanitation District; 
Purpose: Construction of wastewater conveyance system; 
Original contract value: $3,524,189; 
Cost change: [Check]; 
Schedule change: [Empty]; 
Contractor performance issue: [Empty]. 

Contracting agency: Town of Georgetown; 
Purpose: Drinking water treatment facility improvements; 
Original contract value: $3,008,000; 
Cost change: [Empty]; 
Schedule change: [Empty]; 
Contractor performance issue: [Empty]. 

Contracting agency: Governor's Energy Office; 
Purpose: Weatherization assistance for 641 low-income residences in 
Adams and Arapahoe counties; 
Original contract value: $2,925,575; 
Cost change: [Empty]; 
Schedule change: [Empty]; 
Contractor performance issue: [Empty]. 

Contracting agency: City of Fort Collins; 
Purpose: Purchase of transit buses; 
Original contract value: $2,433,792; 
Cost change: [Check]; 
Schedule change: [Empty]; 
Contractor performance issue: [Empty]. 

Contracting agency: Governor's Energy Office; 
Purpose: Weatherization assistance for 325 low-income residences in 
western Colorado; 
Original contract value: $1,271,920; 
Cost change: [Empty]; 
Schedule change: [Empty]; 
Contractor performance issue: [Empty]. 

Contracting agency: Denver Housing Authority; 
Purpose: Renovation of 192-unit Westwood Homes; 
Original contract value: $295,926; 
Cost change: [Check]; 
Schedule change: [Check]; 
Contractor performance issue: [Empty]. 

Contracting agency: Holyoke Housing Authority; 
Purpose: Replacement of hinged patio doors at Sunset View Apartments; 
Original contract value: $27,409; 
Cost change: [Empty]; 
Schedule change: [Empty]; 
Contractor performance issue: [Empty]. 

Contracting agency: Denver Housing Authority; 
Purpose: Purchase of energy saver gas water heaters for residential 
properties; 
Original contract value: $24,800; 
Cost change: [Empty]; 
Schedule change: [Empty]; 
Contractor performance issue: [Empty]. 

Contracting agency: Total; 
Purpose: [Empty]; 
Original contract value: $61,436,665; 
Cost change: 5; 
Schedule change: 4; 
Contractor performance issue: 2. 

Source: GAO analysis of contracting agencies' information. 

[End of table] 

Although work is still ongoing under most of the 13 contracts we 
reviewed, oversight officials for 6 of these contracts reported that 
as of June 30, 2010, there have been no cost or schedule changes or 
any contractor work performance issues for their contracts. Oversight 
officials reported that 7 of the 13 contracts have experienced changes 
in their planned costs or schedules; 

in some instances these changes were due to additional funds becoming 
available for the project, allowing contracting officials to expand 
the scope of work. Further, oversight officials reported that 2 of the 
7 contracts experienced challenges related to contractor performance. 

Changes in Contract Cost: 

Officials responsible for five of the seven contracts that experienced 
changes reported that, for various reasons, the original costs of the 
contracts changed after the contracts were awarded. Table 2 shows the 
cost changes for these five contracts. 

Table 2: Recovery Act Contract Cost Changes as of June 30, 2010: 

Contract: Denver Housing Authority--Westwood Homes; 
Original contract value: $295,926; 
Current contract value: $605,026; 
Percent change: 104.5. 

Contract: Pagosa Area Water and Sanitation District--wastewater system; 
Original contract value: $3,524,189; 
Current contract value: $3,874,189; 
Percent change: 9.9. 

Contract: Summit County--fleet maintenance facility; 
Original contract value: $8,398,741; 
Current contract value: $8,891,516[A]; 
Percent change: 5.9. 

Contract: City of Manitou Springs--water and sanitation improvements; 
Original contract value: $4,361,360; 
Current contract value: $4,395,740[A]; 
Percent change: 0.8. 

Contract: City of Fort Collins--purchase of transit buses; 
Original contract value: $2,433,792; 
Current contract value: $2,449,350[A]; 
Percent change: 0.6. 

Source: GAO analysis of contracting agencies' information. 

[A] According to oversight officials, these cost increases are being 
covered with county or city funds and not Recovery Act funds. 

[End of table] 

In two of these cases, the Recovery Act award recipient either 
received additional Recovery Act funds beyond its initial award or 
decided to dedicate a larger portion of its original award to the 
contract, thereby making more funding available to spend on the 
contract. For example, a Denver Housing Authority official explained 
that after its contract with an architectural and engineering design 
firm was awarded, the housing authority learned that it had received, 
through a Capital Fund Recovery Competition grant, an increase from $4 
million to $11 million in Recovery Act funds for its Westwood Homes 
project, which is renovating a 192-unit housing development. This 
official explained that the additional funds allowed the housing 
authority to expand the scope of its renovation work from a limited 
rehabilitation of the 192 units to a full-scale rehabilitation, 
incorporating energy efficiency measures. As a result, the cost of 
technical services that the housing authority contracted for increased 
from about $296,000 to about $605,000. 

For the remaining three contracts, costs have come in higher than 
expected, either due to requests for design changes after the 
contracts were signed or due to unexpected circumstances. In the first 
situation, the additional costs are being paid for by the awarding 
entities and not with Recovery Act funds. For example, a Summit County 
oversight official reported that the cost of its contract to construct 
a new fleet maintenance facility had increased by almost $500,000, 
from about $8.4 million to $8.9 million. The official explained that 
the fleet manager and shop foreman requested changes in the locations 
of an office, various electrical outlets, and an exterior air 
connector for the buses. In addition, the fire inspector requested a 
change in the position that sprinkler heads were mounted in a 
building's ceiling and an increase in the height of a building's 
heating duct work. The oversight official explained that Summit County 
was using county funds set aside for work contingencies to cover the 
contract cost increases. Similarly, a Fort Collins oversight official 
reported that the cost of six 40-foot transit buses it was acquiring 
with Recovery Act funds increased by about $16,000 to accommodate 
design changes requested by the city. For example, for safety reasons, 
the city requested a change in the type of brakes installed on the 
buses (from S-cam brakes to four-wheel disc brakes). This official 
clarified that the city would use local transportation funds, and not 
Recovery Act funds, to pay for these changes. 

In the second situation, costs have increased due to difficulties 
associated with unanticipated project conditions. According to an 
official for the City of Manitou Springs, the contract to improve the 
city's water and sanitary system had, as of June 30, 2010, incurred 
close to a 1 percent increase in contract costs. He said the 
contractor is upgrading a system that is very old and no good records 
existed at the time the contract was signed regarding its condition. 
As a result, the contractor is frequently dealing with unanticipated 
conditions in the field that require changes to the planned work. The 
official stated that, if at contract completion total costs exceed the 
nearly $4.4 million contract award amount, city officials will pay the 
additional costs using city funds. 

It should also be noted that while a Governor's Energy Office 
oversight official on the two weatherization contracts stated that 
these contracts did not experience a change in cost during the 
contractor performance period (which ended June 30, 2010), GEO's final 
reconciliation of the contracts determined that the contractors 
weatherized more homes for less than originally budgeted. For example, 
one weatherization contractor completed work on 650 instead of 641 
residences for approximately $500,000 (about 17 percent) less than the 
state cost estimate, while the other contractor completed work on 327 
instead of 325 residences for approximately $100,000 (about 8 percent) 
less than the state cost estimate. The oversight official explained 
that these differences between actual costs and the original estimated 
costs were a normal occurrence in the weatherization program and were 
due to actual costs of construction work, including such items as 
supplies and labor, coming in less than originally anticipated. The 
official said that GEO will use the $600,000 in unspent funds from 
these two contracts prior to March 2012 for further activities under 
its Recovery Act weatherization award, as required by DOE. 

Changes in Contract Schedule: 

Officials responsible for four of the seven contracts that experienced 
changes reported that the original work schedule changed after 
contract award, also for a variety of reasons. Table 3 outlines the 
extent of the schedule changes associated with these four contracts. 

Table 3: Recovery Act Contract Schedule Changes as of June 30, 2010: 

Contract: Denver Housing Authority--Westwood Homes; 
Original planned completion date: September 5, 2009; 
Current planned or actual completion date: March 30, 2012; 
Schedule change: 2.5 years. 

Contract: CDOT--C-470 project; 
Original planned completion date: August 13, 2010; 
Current planned or actual completion date: September 18, 2010; 
Schedule change: 36 days. 

Contract: CDOT--Johnson Village North project; 
Original planned completion date: October 10, 2009; 
Current planned or actual completion date: November 9, 2009; 
Schedule change: 30 days. 

Contract: Summit County--fleet maintenance facility; 
Original planned completion date: July 26, 2010; 
Current planned or actual completion date: August 18, 2010; 
Schedule change: 24 days. 

Source: GAO analysis of contracting agencies' information. 

[End of table] 

The lengths of the schedule changes ranged from a few weeks to roughly 
2.5 years. According to officials, in two instances, the original 
contract schedule was extended to account for spending additional 
funds--these funds resulted from either receipt of additional Recovery 
Act funds or savings generated from lower than anticipated contract 
costs--that allowed for an expansion of the scope of work for both 
projects. For example, Denver Housing Authority's decision to expand 
the scope of its Westwood Homes project after receiving an additional 
Recovery Act award also resulted in an extension of the project's 
schedule by 2.5 years to accommodate the additional renovation work. 
In another example, a CDOT contract oversight official reported that 
the schedule for completing highway construction work at its Johnson 
Village North project in Chaffee County was extended from 65 to 80 
working days, which translated to about a 30-day extension.[Footnote 
20] The official explained that additional funds became available from 
contract costs being lower than anticipated because, for example, the 
contractor did not earn incentive fees. As a result, some of these 
funds were used to pave 4 more miles of highway than originally 
planned and the work schedule was extended the additional 15 working 
days to perform the work. In addition, some of the funds were used on 
another project to pave 7 additional highway miles. 

Moreover, schedule changes occurred at the remaining two projects 
because of unanticipated issues encountered during construction. For 
example, a CDOT official responsible for the C-470 highway 
construction project reported that contract completion was extended by 
36 days because of weather delays and additional engineering work 
(including concrete, pipe drainage, sealant, and guardrail) required 
of the contractor. The official explained that costs for this work 
were paid under the contract. In another example, the Summit County 
oversight official reported that the completion date of its fleet 
maintenance facility contract was extended by 23 days in part because 
of delays associated with the need to complete unanticipated 
underground cabling work and manage groundwater pooling onsite. 

Contractor Performance: 

Officials for 2 of the 13 contracts we reviewed reported that during 
inspections they identified issues with the contractors' performance 
of work that adversely affected the projects' schedules. According to 
officials, these performance issues extended the time needed for the 
contractors to complete the work and the associated costs were borne 
by the contractors. For example, a CDOT inspector determined that the 
top mat of paving did not meet the required smoothness criteria at its 
Johnson Village North project. The contracting official reported that 
the main cause of the problem with the contractor's work performance 
was the contractor's choice and operation of paving equipment, which 
resulted in the pavement not meeting the smoothness criteria. CDOT 
required the contractor to grind the rough areas of pavement 
repeatedly until the road met the criteria, determined by further 
inspection by CDOT. In a second example, a Summit County inspector 
observing the construction of the county's fleet maintenance facility 
identified substandard work by a subcontractor doing concrete work in 
the facility's vehicle wash building. According to the county's 
oversight official, the subcontractor prematurely poured concrete in a 
specific location before the crew responsible for performing related 
heating work had satisfactorily finished and the building inspector 
had reviewed and approved the work. The official stated that the 
inspector required the subcontractor to remove the concrete so that 
the heating crew could complete all the necessary work and it could be 
re-inspected for approval, causing a schedule delay of about 1 week. 
The oversight official reported that the costs and schedule delay 
associated with this subcontractor mistake were absorbed by the 
contractor. 

Recovery Act Funds Will Provide State Budget Relief for One More Year 
and Additional Funds for Local Projects and Services: 

The state expects to use about $400 million in Recovery Act funds for 
higher education and Medicaid assistance to Colorado residents, which 
will help offset cuts to its fiscal year 2011 budget. This remaining 
funding is significantly less than the $800 million in Recovery Act 
funds the state applied to its fiscal year 2010 budget, including $87 
million used to fund the state Department of Corrections. Table 4 
shows the Recovery Act funds that, according to a senior state budget 
official, have provided a significant direct benefit to the state's 
budget over 3 fiscal years. This official said that other Recovery Act 
funds received by entities in the state also have had a positive, if 
indirect, effect on the state's fiscal stability by meeting needs that 
cannot be met with state funds and by creating jobs. For example, the 
state continues to spend $265 million in Individuals with Disabilities 
Education Act, as amended, (IDEA) Part B, and Elementary and Secondary 
Education Act of 1965, as amended, (ESEA) Title I, Part A Recovery Act 
funds to pay for teachers, curriculum, and other education needs at 
the state's local educational agencies (LEA). 

Table 4: Recovery Act Funds Directly Affecting Colorado State Budgets: 

Fiscal year: 2009; 
Increased FMAP: $215,721,373; 
SFSF Education Stabilization Funds: $150,676,055; 
SFSF Government Services Funds--Corrections[A]: $24,600,000; 
Total: $390,997,428. 

Fiscal year: 2010; 
Increased FMAP: $331,409,119; 
SFSF Education Stabilization Funds: $382,008,243; 
SFSF Government Services Funds--Corrections[A]: $87,206,274; 
Total: $800,623,636. 

Fiscal year: 2011; 
Increased FMAP: $311,551,463; 
SFSF Education Stabilization Funds: $89,194,099; 
SFSF Government Services Funds--Corrections[A]: 0; 
Total: $400,745,562. 

Fiscal year: Total; 
Increased FMAP: $858,681,955; 
SFSF Education Stabilization Funds: $621,878,397; 
SFSF Government Services Funds--Corrections[A]: $111,806,274; 
Total: $1,592,366,626. 

Source: GAO analysis of Colorado Office of State Planning and 
Budgeting data. 

[A] Funds in this column represent SFSF government services funds that 
were spent on the state Department of Corrections. According to a 
state budget official, it was this portion of the SFSF government 
services funds that had a direct impact on the state's budget. 

Note: Dollars have not been adjusted for inflation. 

[End of table] 

As we have previously reported, state officials said Recovery Act 
funds--specifically, SFSF funds and the increased FMAP--have had a 
significant positive effect on the state's budget condition since the 
Recovery Act was enacted.[Footnote 21] A senior state budget official 
said that the funds will still provide significant benefits to the 
state's budget condition in fiscal year 2011, despite the overall 
decline in Recovery Act funding, because the funds will enable the 
state to save the equivalent amount from its general fund for use in 
other areas. With the passage of federal legislation in early August, 
the state learned that it would receive an extension to its increased 
FMAP for the remainder of fiscal year 2011, rather than those 
additional funds ending in December 2010.[Footnote 22] However, the 
amount of the extension was about $67 million less than the state had 
projected in its fiscal year 2011 budget. The legislation, according 
to state officials, is also estimated to provide about $156 million in 
funding for certain K-12 jobs.[Footnote 23] 

The state expects that a combination of this extension of increased 
FMAP funds, higher than expected actual general fund revenues from 
fiscal year 2010, and budget balancing measures presented in August 
2010 will help it maintain its general fund reserve at slightly more 
than 2 percent by the end of fiscal year 2011.[Footnote 24] The 
state's June 2010 revenue forecast projected a reserve shortfall below 
the 2 percent level by the end of fiscal year 2011, prompting the 
Governor to submit a budget balancing plan on August 23, 2010. 
[Footnote 25] The plan addressed both this projected shortfall as well 
as the additional monies needed to compensate for the less-than-
budgeted FMAP extension amount. Specifically, the plan incorporated 
$76.8 million more in general fund revenues for fiscal year 2010 than 
had been forecasted and presented $59.6 million in specific budget 
balancing measures, including $53.4 million in cash fund transfers and 
$6.2 million in general fund reductions. These reductions included a 
$4.9 million across-the-board reduction in personnel costs by delaying 
hiring of some state positions and a $1.3 million cut to the 
Department of Corrections. The Governor's next budget review will 
follow the revenue forecasts to be released in late September 2010. 

The state faces some potentially significant budget challenges in 
fiscal year 2012 as the nearly $400 million in Recovery Act funds from 
fiscal year 2011 are no longer available for the state budget. State 
forecasts show slow growth for the Colorado economy for the next few 
years. The June 2010 forecast reported fiscal year 2011 general 
revenue increases of 10.9 percent over the previous year. According to 
the Office of State Planning and Budgeting, this is qualified by the 
fact that the increases are the result, in part, of specific 
legislative actions such as the elimination of tax exemptions on sales 
of cigarettes, candy, and soft drinks. 

We visited two local governments--Weld County and the City of Colorado 
Springs--to discuss the effects of Recovery Act funds on their 
budgets. They differed in terms of their economic situations and in 
the amount of Recovery Act funds they received, as shown in table 5. 
Overall, the Recovery Act funds did not help balance local budgets 
because the funds could not generally be used for operating costs, but 
to varying degrees, will help the localities maintain services and 
complete projects.[Footnote 26] 

Table 5: The City of Colorado Springs and Weld County, Colorado: 

City of Colorado Springs; 
Population: 399,827; 
Unemployment rate: 8.9%; 
Total operating budget in 2010: $385.0 million; 
Recovery Act funds reported: $63.0 million. 

Weld County; 
Population: 254,759; 
Unemployment rate: 9.6%; 
Total operating budget in 2010: $192.1 million; 
Recovery Act funds reported: $5.1 million. 

Source: GAO analysis of U.S. Census Bureau and U.S. Department of 
Labor, Bureau of Labor Statistics (BLS), Local Area Unemployment 
Statistics (LAUS) data and local governments' data. 

Note: Population data are from the latest available estimate, July 1, 
2009. Unemployment rates are preliminary estimates for June 2010 and 
have not been seasonally adjusted. Rates shown are a percentage of the 
labor force. Estimates are subject to revision. The state's 
unemployment rate is 8.3 percent. 

[End of table] 

Weld County. Recovery Act funds have not had a major impact on Weld 
County's fiscal situation, but the funds have allowed the county to 
implement one-time projects it had previously prioritized. Although 
Weld County is projecting a slight increase in general fund revenues 
in 2010 (from $77.0 million to $77.7 million), it is projecting 
revenue reductions in 2011 and 2012. Specifically, compared to 2010, 
the county is anticipating a decrease in property tax revenues of $20 
million in 2011 and $14 million in 2012, primarily due to reductions 
in oil and gas prices. The county plans to absorb these reductions by 
cutting expenditures and spending portions of its general and total 
fund reserves. The cuts will be distributed across the county's 
general fund and other funds it uses to provide services to the county 
(the general fund comprises about 40 percent of county's total 
expenditures for 2010). For example, when preparing the 2010 budget, 
county officials asked all departments to cut their budgets by 10 
percent, resulting in $1.5 million in savings, and have asked 
departments to cut another 2.5 percent in 2011. In addition, the 
county is using its property tax revenue from 2010 to build up its 
fund reserves in preparation for the upcoming revenue decreases--the 
total fund reserve is projected to reach $50 million by the end of 
2010, of which $5 million is the general fund reserve. 

Weld County received $5.1 million in Recovery Act funds: $3.7 million 
in formula grants and $1.4 million in competitive grants. The County 
Board of Commissioners chose to pursue funding for programs and 
projects that were already a priority for the county--they were not 
interested in receiving funds that would create an expectation of 
continued funding once Recovery Act funds were spent. As a result, the 
county focused its Recovery Act funds on augmenting existing programs 
and completing high priority projects. For example, the county is 
using a $526,000 Health and Human Services Child Care and Development 
Fund grant to provide child care assistance to additional eligible 
families and approximately $696,000 in Workforce Investment Act of 
1998 (WIA) funds for existing adult job-training programs. More 
specifically, the WIA funds are providing occupational skills 
training, placement assistance, and on-the-job training to unemployed 
clients. According to county officials, the EECBG funds have also been 
significant in that they are enabling the county to improve energy 
efficiency in county buildings and are expected to provide budget 
savings in the future. Finally, the county used its Federal Highway 
Administration grant of about $431,000 to complete road construction 
on County Road 74 and a $487,000 Community Services Block Grant 
primarily to provide short-term rental assistance for low income and 
unemployed citizens. According to a county official, without these 
funds, Weld County would not have been able to provide these 
additional social services and would have delayed several projects, 
including the energy efficiency improvements and the road improvement 
project. 

Colorado Springs. Colorado Springs received $63.0 million in Recovery 
Act funds, which, according to city officials, helped implement some 
high-priority projects, maintain critical city services, and support 
some community activities. Nonetheless, the Recovery Act funds did not 
help make up for large funding losses in the city's operating budget. 
According to officials, other than for transit services, the funds 
could not be used for operating expenses. As such, Colorado Springs 
faces a difficult economic and budget situation, having worked to 
close a $90 million funding gap in its budgets since 2008. According 
to city officials, continual budget cuts were necessary in part 
because the city's revenues from sales and use taxes--which account 
for approximately half of its general funds--have been declining. 
Specifically, the city has reduced services, including eliminating 
night and weekend bus operating hours, turning off street lights, and 
leaving city parks unwatered, and has cut about 195 city positions. 

According to Colorado Springs officials, Recovery Act funds enabled 
the city to pay for key projects and to keep transit services that 
would otherwise have been cut from the city's budget. Of its $63.0 
million in Recovery Act funding, the city is using $43.8 million for 
two key transportation projects. Table 6 shows the Recovery Act grants 
Colorado Springs is using to fund these transportation efforts. 

Table 6: Colorado Springs's Recovery Act Transportation Awards: 

Project name: Woodmen Road Widening and Interchange; 
Federal program/Grant name: Highway Infrastructure Investment Funds; 
Funding: $35.0 million; 
Description: Woodmen Road will be widened to six lanes and an overpass 
will be built at the intersection of Academy Boulevard and Woodmen 
Road; 
Benefits: Traffic congestion mitigation, improved safety, economic 
development. 

Project name: Transit Operating and Capital Projects; 
Federal program/Grant name: Federal Transit Administration; 
Funding: $8.8 million; 
Description: Provide bus service for 2010, 2011, and a portion of 2012; 
fund a portion of the Americans with Disabilities Act paratransit 
services for 2010; and fund building and vehicle preventative 
maintenance for 2010; The grant will also fund some infrastructure 
investments, including renovating the Downtown Bus Terminal; 
Benefits: Cuts to additional hours of fixed-route service and 
paratransit service avoided. 

Source: City of Colorado Springs. 

[End of table] 

The city received $35.0 million in Recovery Act funds from CDOT, which 
will allow it to complete the Woodmen Road Widening and Interchange 
project, a high priority project in the area. This project has been on 
the city's and the Pikes Peak Rural Transportation Authority's (PPRTA) 
priority list for many years due to projected increases in traffic 
volumes.[Footnote 27] However, according to a Colorado Springs 
official, it has been difficult to fund this project because the city 
has a limited amount of resources to use for an investment of this 
size. With the receipt of Recovery Act funds to complete the project, 
the city was able to return approximately $16.4 million to PPRTA, 
which was originally slated to provide the majority of the funds for 
the project, allowing PPRTA to complete four other high-priority 
transportation projects--including road upgrades and bridge design--in 
the area. 

The city's $8.8 million award from the Federal Transit Administration 
allowed it to keep its full offering of bus routes during 2010. 
According to city officials, the city has already eliminated evening 
and weekend bus service on these routes, and without these funds it 
would have eliminated certain routes altogether. The transit funds 
will allow the city to continue to maintain operation on all routes at 
the reduced hours through 2011, with the exception of one express 
route to Denver that will be eliminated. Colorado Springs officials 
said they are working on a plan for maintaining bus service from 2012 
forward, after the Recovery Act funds are expended. 

According to city officials, the city's other Recovery Act awards also 
provided some significant benefits. For example, its $3.7 million in 
EECBG funding enabled the city to pursue its energy efficiency goals, 
while four housing grants provided a combined $5.5 million to purchase 
abandoned property and provide, on average, 3 months of rental 
assistance to 179 households. The officials explained that without 
these Recovery Act funds, the city would not have been able to provide 
housing assistance to citizens facing foreclosure, improve public 
safety services, or increase energy efficiency at public facilities. 

State's Central Reporting Process Is Working Smoothly, Although Data 
Quality Is Still a Concern and FTE Data from Past Quarters Will Need 
to Be Corrected: 

State officials said the state's central reporting process worked 
smoothly during the fourth round of Recovery Act reporting, although 
they expressed some concerns about the quality and accuracy of data 
reported by local entities that do not report through the state's 
central process.[Footnote 28] Colorado recipients, including state 
agencies that reported centrally and other entities that reported 
directly, reported about 17,790 FTEs funded by the Recovery Act for 
the fourth reporting period, covering April 1, 2010, through June 30, 
2010. These FTEs increased by more than 7,530 over the previous 
quarter largely because of an influx of $205 million of SFSF phase II 
funding in April 2010. With the additional SFSF funding, IHEs reported 
about 8,830 FTEs during this round, an increase of 5,590 FTEs over the 
previous quarter. However, to accommodate this late funding and 
revised guidance, the state did not report a total of 1,110 FTEs 
associated with some IHEs' phase II awards in the April through June 
period. As a result, at such time that OMB issues instructions for 
making corrections in closed quarters, the state will need to update 
FTEs it reported for the January through March quarter to include 
these 1,110 FTEs. In addition, through our review of recipient 
reports, we found incorrect data reported by other state agencies and 
local entities that also indicate the need for a corrections process 
for previous quarters' reported data. 

Despite Some Challenges, Central Reporting Process Was Completed 
Successfully: 

Colorado officials reported that the April through June round of 
centralized reporting was more challenging than the last round, but 
was completed successfully. According to reporting officials, the 
primary challenge was the untimely submission of data by IHEs to the 
state--the submissions were delayed largely because they were due at 
the same time IHEs were closing out their fiscal years. However, the 
officials stated that the 4-day extension to the reporting deadline by 
the Recovery and Accountability Transparency Board--from July 10 to 
July 14--was beneficial because it provided additional time to perform 
data quality checks to identify necessary corrections, particularly 
since one of the days leading up to the deadline was the July 4 
holiday. 

Going forward, state officials said they expect some modest challenges 
for future reporting. First, they foresee problems with uploading data 
during the next round of recipient reporting in October 2010 for those 
recipients whose registration in the Central Contractor Registration 
database will have expired. As we reported in May 2010, recipients and 
subrecipients must maintain a current registration in the database--if 
they do not, FederalReporting.gov will reject their submissions. We 
also reported that state officials have proposed that the Recovery 
Accountability and Transparency Board allow the original registrations 
to be used throughout the life of the grant, preventing the 
rejections. According to state officials, they have not received a 
response. Second, Colorado will experience a change in state 
leadership in January 2011 and state officials said they and others 
are in the initial planning phase for this transition. While the 
officials believe the central recipient reporting process has 
stabilized and should transfer to the next administration with little 
disruption, the inherent uncertainty of the political transition 
process could pose a challenge. 

Finally, state officials said that reporting by recipients who receive 
grants directly from the federal government and do not report 
centrally through the state will be challenging as these recipients 
may not have the resources to navigate the changing guidance and 
processes. For example, we found that one of these recipients--Weld 
County--encountered problems when reporting its FTEs for the April 
through June period. According to a senior county official, the county 
was unable to obtain sufficient assistance from DOE, resulting in 
county officials creating a duplicate award record in 
FederalReporting.gov when they were trying to update an existing 
record from the prior period. While the state Recovery Office has 
offered assistance to non-state recipients, according to officials, 
the offer largely resulted in confusion--most of the small percentage 
of recipients who responded to the offer did not understand the 
state's role in local reporting and in some cases thought they were 
being informed they had received state funds in addition to Recovery 
Act funds. 

Quality of Reported Data Remains a Concern, While a Process Is Needed 
to Correct FTEs from Closed Reporting Periods: 

Several Colorado recipients will need to make corrections to FTEs 
reported in previous quarters, which continues to raise questions 
about the quality of some of the FTE data reported. For example, one 
recipient needs to correct reported FTEs because of changed guidance 
it received for calculating FTEs, while other recipients need to 
correct FTEs because they misunderstood or misinterpreted federal 
guidance and miscounted FTEs. According to OMB's December 18, 2009, 
guidance, if recipients need to make corrections to their quarterly 
FTE data for prior quarters, these recipients are expected to maintain 
records containing this information until such time that OMB develops 
a process to submit it to the federal government, which OMB has yet to 
do.[Footnote 29] 

For selected programs, we identified a number of instances in which 
state and local entities will need to correct or update FTE data for 
prior reporting periods that are currently closed to additional 
changes. These instances raise questions about the quality of FTE data 
for previous rounds published on Recovery.gov, as well as support the 
need for a defined corrections process. 

* SFSF Education Stabilization Funds. The infusion of SFSF phase II 
funds late in the fiscal year resulted in Colorado IHEs using those 
funds to pay for additional FTEs in fiscal year 2010. However, because 
funding was received late in the year and changes were made in federal 
guidance, about 1,110 FTEs have not been reported. Based on guidance 
received from Education, the state had instructed IHEs in May 2010 to 
report all FTEs funded by phase II monies in the April through June 
reporting period, regardless of whether the FTEs were created or saved 
in this period, to prevent undercounting FTEs.[Footnote 30] Even if 
the IHEs did not have sufficient expenditures to absorb the infusion 
of SFSF funds in the April through June quarter, the instructions 
directed the IHEs to report all FTEs reimbursed by phase II funds in 
that quarter. However, Education subsequently alerted the states on 
July 8, 2010--6 days before the reporting deadline--they should not 
report all FTEs paid for with phase II funds in the fourth reporting 
period if an IHE's expenditures were less than the SFSF phase II 
funding. The alert stated that the IHEs should instead retain records 
of FTEs worked in previous quarters so this data can be corrected at 
some point in the future. According to Education, this change resulted 
from a Recovery Accountability and Transparency Board decision that 
all FTEs should be reported in the quarter in which they were worked, 
not the quarter in which funding was received. As a result, the state 
attributed approximately 1,110 FTEs to the January through March 
quarter, prompting the need to update its reported FTE figure for that 
quarter as part of a future corrections process. 

While this change in approach does not raise questions about the 
quality of the state's fourth reporting period SFSF FTEs, it does 
highlight the need for a corrections process for closed reporting 
periods. According to state reporting officials, they agreed with 
Education's initial assessment that the new approach may result in 
underreporting of FTEs associated with phase II SFSF funds if OMB's 
corrections process does not include all closed reporting periods. 
Furthermore, a state official expressed concern that the new approach 
may be less transparent if the public does not know to go back to 
previous quarters on Recovery.gov to see corrected data. 

* Clean Water and Drinking Water SRFs. Although OMB guidance requires 
all FTEs paid for with Recovery Act funds to be reported, the 
Authority, CDPHE, and DOLA--the three entities which jointly manage 
the Recovery Act SRF programs in Colorado--have not reported any FTEs 
associated with the management of the two SRF programs, likely 
resulting in underreporting of FTEs in past quarters that will 
subsequently need to be corrected. As allowed under the SRF program, 
the state SRF agencies reserved a portion, in this case $2.6 million, 
of their SRF Recovery Act awards as "administrative" set-asides to pay 
for project management activities, including project oversight and 
loan monitoring. Based on guidance from OMB and the U.S. Environmental 
Protection Agency (EPA) and a conversation with regional EPA staff 
that indicated the state was not required to report administrative 
FTEs, state officials said they determined in mid-2009 that they were 
not required to report FTEs associated with project management 
activities paid for with the set-aside funds. 

However, EPA officials said they then interpreted OMB's December 18, 
2009, guidance as requiring SRF recipients to report these FTEs since 
they were funded by Recovery Act monies. Although such an 
interpretation represented a change in EPA's expectations of what 
recipients would report, EPA officials said they did not formally or 
systematically communicate this change to states, including Colorado, 
because they deferred to the states' interpretations of OMB's 
guidance. Yet, according to Colorado SRF officials, they did not 
interpret OMB's December guidance in the same way as EPA; as a result, 
the Authority, CDPHE, and DOLA have not calculated or reported their 
SRF-related FTEs funded by set-aside monies. Based on those hours 
reported as worked by CDPHE staff on the Clean Water and Drinking 
Water SRF projects for the January through March period, we estimated 
there would be at least 10 FTEs associated with CDPHE's efforts. 
[Footnote 31] According to Authority staff, it has records of the 
hours worked by CDPHE, DOLA, and its own staff that have been paid for 
with the Recovery Act set-aside funds; as a result, it would be 
relatively simple for the Authority to reconstruct the FTEs it would 
need to report for all three agencies for the prior quarters. 

Further, the Colorado SRF agencies missed the continuous corrections 
period for the January through March 2010 reporting period, which 
ended on June 14, 2010. As a result, they will need to add about 28 
FTEs combined to their totals for Clean Water and Drinking Water SRFs 
for that period. State officials explained that for the January 
through March reporting period, their quarterly FTE numbers were not 
final immediately after the quarter had ended, requiring them to 
initially report forecasted numbers to FederalReporting.gov.[Footnote 
32] They then had the opportunity to upload final numbers during the 
continuous corrections period. However, according to these officials, 
they believed that they had until the end of June 2010 to upload their 
corrected FTEs. Although updated guidance was posted on 
FederalReporting.gov and shared by EPA indicating the period ended two 
weeks earlier, officials said they were not aware of the June 14 
deadline. 

* IDEA, Part B, and ESEA Title I, Part A. The Colorado Department of 
Education will likely need to correct FTE data from its LEAs for 
previous quarters. In our review of one LEA's FTE calculation for the 
April through June period, we found that the LEA included FTEs for 
both years of the grant rather than just 1 year, effectively double 
counting FTEs worked in that quarter. In response to our review, CDE 
reexamined the LEAs' FTE submissions for the April through June period 
and revised the FTE figure it reported from about 1,410 to 1,350. In 
addition, we found that three LEAs were providing CDE with monthly FTE 
data rather than quarterly data as requested. Because an LEA's monthly 
FTE data can vary, the use of the monthly figure instead of an average 
of the 3 months of data can result in misreporting total FTEs. CDE 
officials stated they plan to review LEAs' FTE submissions from 
previous quarters, which may identify the need to correct calculations 
of FTEs for those periods. 

* Colorado Springs. Due to confusion and incorrect assistance provided 
by DOE, the city reported FTEs associated with its EECBG award in the 
April through June period inaccurately. Although Colorado Springs 
reported about two FTEs for the January through March quarter, city 
officials explained they did not include vendor hours in their 
calculations and they did not check supporting documentation from each 
reporting entity to verify hours worked. According to city officials, 
they misinterpreted DOE's March 11, 2010, guidance until the City 
Auditor informed them that they should have included vendor hours in 
their FTE calculation. In addition, upon further review of the 
supporting documentation, Colorado Springs officials identified 
additional FTEs that had not been reported. According to these 
officials, once they identified the problem, they contacted DOE to 
report the error and make corrections and were told that these missed 
FTEs should be included in their April through June FTE calculations. 
According to OMB's December 2009 guidance, these missed FTEs should be 
recorded by the city and retained until a corrections process is 
established. However, based on the direction it received from DOE, 
Colorado Springs reported about six FTEs for April through June, which 
includes the two FTEs from vendor and other corrected hours worked 
during the January through March quarter. This will likely prompt the 
need in the future for the city to correct both the January through 
March and April through June reporting periods. Although the FTE 
impact is relatively minor, it raises a concern regarding guidance 
being provided by DOE. 

Colorado's Accountability Community Continues to Review Recovery Act 
Programs: 

The Colorado audit community is continuing to conduct reviews of 
Recovery Act projects and uses of funds, both as part of larger 
reviews and as specific program audits. Specifically, Colorado 
auditors have issued 13 audit reports and 2 non-audit services, an 
increase of 6 reports since we last reported in May 2010.[Footnote 33] 
Some of these reports contained findings aimed at improving the 
management of Recovery Act funds. In addition, ongoing audits include 
a review of the state's weatherization program under the act by the 
Office of the State Auditor, three reviews of CDOT Recovery Act 
projects by the agency's audit division, and an assessment of the City 
of Denver's Recovery Act processes and monitoring by the City Auditor. 
These and other audit entities have additional reviews planned into 
2011. 

As we reported in May 2010, Colorado issued its Single Audit Report 
for fiscal year 2009 in February 2010.[Footnote 34] According to data 
from the Federal Audit Clearinghouse, which is responsible for 
receiving and distributing Single Audit results, it received 
Colorado's initial Single Audit reporting package for the year ending 
June 30, 2009, on March 23, 2010, in advance of the state's deadline 
of March 30, 2010.[Footnote 35] According to the State Auditor, the 
Clearinghouse then requested additional information from the state, 
which audit officials submitted on May 25, 2010. In addition, we 
reported Colorado participated in OMB's Single Audit Internal Control 
Project in 2009, whereby audit reports were to be presented to 
management 3 months sooner than the 9-month time frame required by the 
Single Audit Act and OMB Circular A-133. According to officials at the 
Colorado State Auditor's office, OMB is continuing this project for 
fiscal year 2010 single audits but Colorado has not determined whether 
it will participate. 

Since we reported in May, Colorado's State Auditor issued two reports 
which contained findings relevant to the Recovery Act. The first 
examined the state's compliance with federal reporting requirements 
during the first round of recipient reporting, which covered the 
February 2009 through September 2009 period.[Footnote 36] The State 
Auditor's findings corroborated findings we reported in November 2009 
with respect to the first round of recipient reporting--for example, 
that the lack of reporting a standardized FTE meant jobs data could 
not be aggregated or compared nationally or statewide.[Footnote 37] 
The report did not make any recommendations and stated that the change 
in methodology contained in OMB's December 18, 2009, guidance--from 
identifying jobs created and retained to jobs funded and calculating 
FTE using a standard formula--attempted to address these issues. 

The second recently issued report from the State Auditor found the 
laws, policies, and practices in place in Colorado do not promote the 
long-term solvency of the state's Unemployment Insurance Trust Fund, 
and that reform of the state's unemployment insurance financing system 
is needed.[Footnote 38] Colorado's trust fund is used to pay regular 
unemployment benefits, lasting up to 26 weeks, to eligible unemployed 
claimants. Under the Recovery Act, Colorado received an additional 
$127.5 million in 2009 to help make payments for these regular 
benefits to claimants.[Footnote 39] However, because of a decrease in 
the trust fund's primary source of revenues--payroll premiums--
combined with a more than doubling of benefit payments from the prior 
year, the trust fund reserve became insolvent (the reserve is zero or 
in deficit) in January 2010. This prompted Colorado to borrow about 
$254 million from the federal government to pay its regular 
unemployment insurance benefits, as of May 20, 2010. The report 
recommended that the state Department of Labor and Employment, which 
has responsibility for administering the program, perform a 
comprehensive evaluation of the unemployment insurance financing 
system, focused in part on raising the maximum annual wage amount on 
which unemployment insurance premiums are charged and raising the 
amount of the premiums themselves, and communicate the need to improve 
the long-term solvency of the trust fund to Colorado decisionmakers 
and employers. The agency agreed with all of the report's 
recommendations. 

Further, a CDOT audit of one of the agency's Recovery Act-funded 
highway resurfacing projects found, among other things, the agency may 
have violated state fiscal rules when it authorized and paid for 
additional work that was outside of the scope of the original project 
before it executed a change order.[Footnote 40] The audit report noted 
that CDOT does not provide clear guidance on this matter. 
Nevertheless, the report also noted that the additional work was 
necessary, the prices appeared to be fair and reasonable, the 
contractor performed the work as agreed, and the work was paid for at 
the agreed-upon prices. In a separate communication related to the 
audit report, the Audit Division suggested that CDOT stress the 
importance of timely execution of change orders, clarify the 
documentation requirements for change orders and price justifications, 
and emphasize that the authority to review and approve change order 
documentation rests with the Resident Engineer, subject to funding 
approval by the Program Engineer. In response to the concerns raised 
in the audit, CDOT has formed a task force to look at revisions to its 
construction manual. 

In addition to these state-level audits, two city audits found 
compliance problems with federal grants. First, as part of the City of 
Fort Collins's fiscal year 2009 Single Audit, independent auditors 
found that the city paid about $684,000 to two subrecipients under its 
Federal Transit Formula Grants, which included a Recovery Act grant, 
without checking whether or not the subrecipients had been suspended 
or debarred from participation in federal programs.[Footnote 41] 
According to the audit report, the city is required by OMB to verify 
this information before issuing procurement contracts of $25,000 or 
more or making subawards of any amount. The report recommended that 
the city ensure vendors and subrecipients that may receive federal 
awards have not been suspended or debarred from participation in one 
of two ways, either (1) have these entities sign certifications as to 
their eligibility or (2) have the city check the federal Excluded 
Parties List System before making any subawards. In response, 
according to the audit report, the city has established a process that 
includes checking the Excluded Parties List System before issuing any 
purchase orders for projects containing federal funding. 

Finally, the Denver City and County Auditor found several areas in 
need of improvement related to reporting and managing Recovery Act 
funding for the Airport Improvement Program at Denver International 
Airport (DIA).[Footnote 42] The report identified some specific 
weaknesses, including that DIA's written policies and procedures do 
not contain the necessary steps to ensure that an effective review of 
Recovery Act data is completed. This resulted in DIA reporting 
incorrect data and failing to submit reimbursements to the Federal 
Aviation Administration in a timely manner and in accordance with 
applicable regulatory requirements. The report made a number of 
recommendations to DIA to strengthen its management and reporting of 
Recovery Act funds, which DIA agreed to implement by October 31, 2010. 

Colorado's Comments on This Summary: 

We provided officials in the Colorado Governor's Recovery Office, 
Governor's Office of State Planning and Budgeting, Department of 
Personnel and Administration, the Office of the State Controller, and 
the Office of the State Auditor with a draft of this appendix for 
comment. State officials agreed with this summary of Colorado's 
recovery efforts to date. The officials provided technical comments, 
which were incorporated into the appendix as appropriate. 

GAO Contacts: 

Robin M. Nazzaro, (202) 512-3841 or nazzaror@gao.gov: 

Brian J. Lepore, (202) 512-4523 or leporeb@gao.gov: 

Staff Acknowledgments: 

In addition to the contacts named above, Paul Begnaud, Kathy Hale, Kay 
Harnish-Ladd, Susan Iott, Jennifer Leone, Tony Padilla, Leslie Kaas 
Pollock, Kathleen Richardson, and Dawn Shorey made significant 
contributions to this report. 

[End of section] 

Appendix III Footnotes: 

[1] Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009). 

[2] GAO, Recovery Act: Funds Continue to Provide Fiscal Relief to 
States and Localities, While Accountability and Reporting Challenges 
Need to Be Fully Addressed (Colorado), [hyperlink, 
http://www.gao.gov/products/GAO-09-1017SP] (Washington, D.C.: Sept. 
23, 2009). 

[3] FTE data are as of August 11, 2010, unless otherwise indicated. 

[4] GAO, Recovery Act: States' and Localities' Uses of Funds and 
Actions Needed to Address Implementation Challenges and Bolster 
Accountability (Colorado), [hyperlink, 
http://www.gao.gov/products/GAO-10-605SP] (Washington, D.C.: May 26, 
2010). 

[5] GAO, Recovery Act: Status of States' and Localities' Use of Funds 
and Efforts to Ensure Accountability (Colorado), [hyperlink, 
http://www.gao.gov/products/GAO-10-232SP] (Washington, D.C.: Dec. 10, 
2009). 

[6] The focus on using Recovery Act funds for higher education is a 
result of the state's constitutional requirement to maintain its level 
of funding for K-12 programs, according to officials. According to a 
state legislative study, in 2000, Colorado voters approved a measure 
to increase education spending in the state; 

this amendment directed a portion of state tax revenues to the State 
Education Fund through fiscal year 2011. The amendment requires an 
annual increase in per-pupil funding and requires the state general 
fund appropriation for state aid to schools to increase by 5 percent 
per year, unless state personal income increased by less than 4.5 
percent during the previous year. 

[7] To receive a waiver from the maintenance-of-effort requirement, a 
state has to show that its share of education spending as a percentage 
of total state revenues is equal to or greater than that of the 
previous year. 

[8] OMB, Payments to State Grantees for Administrative Costs of 
Recovery Act Activities, M-09-18 (Washington, D.C.: May 11, 2009). 

[9] The state's supplemental statewide indirect cost allocation plan 
estimated that the state would need $6.3 million over 3 years. This 
includes $4.7 million in statewide indirect costs and $1.6 million to 
pay for direct billed services such as audits by the Office of the 
State Auditor. 

[10] 34 C.F.R. § 80.40(a). 

[11] We use the term allocated to mean that the state designated 
funding to particular program areas; obligated to mean that the state 
entered into a binding agreement or otherwise committed the funds; and 
spent to mean that the state expended funds by making payments. 

[12] To earn the Energy Star rating, a home must meet strict 
guidelines for energy efficiency set by the U.S. Environmental 
Protection Agency. These homes are at least 15 percent more energy 
efficient than homes built to the 2004 International Residential Code 
and include additional energy-saving features that typically make them 
20 to 30 percent more efficient than standard homes. 

[13] A Btu is the quantity of heat needed to increase the temperature 
of 1 pound of water by 1 degree Fahrenheit. 

[14] Of the total $3.2 billion, up to $456 million is to be awarded on 
a competitive basis to grant applicants of any population size, while 
the rest was distributed as formula grants. 

[15] As with the State Energy Program, we use the term allocated to 
refer to funds that the state designated to programs areas; obligated 
to mean that the state entered into a binding agreement or otherwise 
committed the funds; and spent to refer to funds that have been paid. 

[16] As with the State Energy Program, DOE recently reduced reporting 
requirements. 

[17] OMB, Updated Guidance on the American Recovery and Reinvestment 
Act-Data Quality, Non-Reporting Recipients, and Reporting of Job 
Estimates, M-10-08 (Washington, D.C.: Dec. 18, 2009) and DOE, 
Calculation of Job Creation Through DOE Recovery Act Funding, EECBG 
Program Notice 10-08 (Washington, D.C.: Mar. 11, 2010). 

[18] DOE, EERE Program Notice: Recovery Act Buy American Provisions 
and Potentially Misleading Manufacturer Claims (Washington, D.C.: June 
25, 2010). 

[19] [hyperlink, http://www.gao.gov/products/GAO-09-1017SP]. 

[20] The contract schedule was based on working days--actual days on 
which work occurred--minus holidays or days when poor weather 
suspended construction activity, rather than calendar days. 

[21] [hyperlink, http://www.gao.gov/products/GAO-10-605SP]. 

[22] The Recovery Act initially provided eligible states with an 
increased FMAP for 27 months from October 1, 2008, to December 31, 
2010. Recovery Act, div. B, title V, § 5001, Pub. L. No. 111-5, 123 
Stat. at 496. On August 10, 2010, federal legislation was enacted 
amending the Recovery Act and providing for an extension of increased 
FMAP funding through June 30, 2011, but at a lower level. See Pub. L. 
No. 111-226, § 201, 124 Stat. 2389 (Aug. 10, 2010). 

[23] Public Law 111-226 also provides $10 billion for the new 
Education Jobs Fund to retain and create education jobs nationwide. 
The Fund will generally support education jobs in the 2010-2011 school 
year and be distributed to states by a formula based on population 
figures. States can distribute their funding to school districts based 
on their own primary funding formulas or districts' relative share of 
federal ESEA Title I funds. See Pub. L. No. 111-226, § 101. 

[24] A state budget official explained that, although the state is 
required to maintain its general fund reserve at 4 percent of 
appropriations for 2011, section § 24-75-201.5 of the Colorado Revised 
Statutes allows the state to use half of this reserve if revenues come 
in short of appropriations. 

[25] This quarterly forecast is from the Office of State Planning and 
Budgeting. The Colorado Legislative Council also prepares quarterly 
forecasts. 

[26] Although additional Recovery Act funds went to separate 
jurisdictions within Weld County and the county in which Colorado 
Springs is located, such as school districts and housing agencies, 
these funds are not included in our review. 

[27] PPRTA was established by voters in late 2004 and has the 
authority to levy a 1-cent sales and use tax to be used to fund 
specific capital projects, maintenance projects, and metro transit 
improvements in unincorporated El Paso County, the Cities of Colorado 
Springs and Manitou Springs, and the Town of Green Mountain Falls. 

[28] As we have previously reported, the state of Colorado has chosen 
to report its Recovery Act information centrally, meaning that the 
state agencies submit their data through one central office. The 
state's central reporting process does not include local governments, 
authorities, or other direct recipients, including non-profit 
organizations or private entities. 

[29] OMB's December 2009 guidance established a continuous corrections 
period, during which recipients are able to make corrections to 
reported FTEs for the quarter most recently ended. According to a 
subsequent update posted on FederalReporting.gov, recipients have 
about 40 days after the data is published on Recovery.gov to make 
corrections to that quarter only, after which the quarter is closed to 
future corrections. 

[30] We noted in our May 2010 report that if an IHE allocated its SFSF 
phase II funding across its annual budget (assuming it did so with its 
SFSF phase I funding), it would underreport those FTEs associated with 
prior, closed quarters because FederalReporting.gov does not allow for 
adjustments to previous quarterly reports once the continuous 
corrections period has closed. See GAO, Recovery Act: States' and 
Localities' Uses of Funds and Actions Needed to Address Implementation 
Challenges and Bolster Accountability, [hyperlink, 
http://www.gao.gov/products/GAO-10-604] (Washington, D.C.: May 26, 
2010). 

[31] This estimate does not include any hours worked by Authority or 
DOLA staff for this period. 

[32] CDPHE officials explained that, by the end of a quarter, they 
have final FTEs for the first two months of that quarter but need to 
report forecasted FTEs for the final month of the quarter in part 
because of a delay in receiving certification of hours worked from 
their subrecipients. 

[33] [hyperlink, http://www.gao.gov/products/GAO-10-605SP]. 

[34] This was the first Single Audit for Colorado that includes 
Recovery Act programs. The audit identified 55 significant internal 
control deficiencies related to compliance with Federal Program 
requirements, of which 19 were classified as material weaknesses. Some 
of these significant deficiencies occurred in programs that included 
Recovery Act funds. 

[35] The Single Audit Act requires that a nonfederal entity subject to 
the act transmit its reporting package to a federal clearinghouse 
designated by OMB no later than 9 months after the period audited. 

[36] Office of the State Auditor, American Recovery and Reinvestment 
Act of 2009, Section 1512 Reporting, Performance Audit (Denver, 
Colorado: Mar. 19, 2010). Although the report is dated March 2010, it 
was not released to the public until June 2010. 

[37] GAO, Recovery Act: Recipient Reported Jobs Data Provide Some 
Insight into Use of Recovery Act Funding, but Data Quality and 
Reporting Issues Need Attention, [hyperlink, 
http://www.gao.gov/products/GAO-10-223] (Washington, D.C.: Nov. 19, 
2009). 

[38] Office of the State Auditor, Evaluation of the Unemployment 
Insurance Trust Fund, Department of Labor and Employment (Denver, 
Colorado: June 23, 2010). 

[39] At the time of the State Auditor's review, the federal government 
and the state of Colorado also offered extended benefits to eligible 
unemployed workers paid for with funds appropriated under the Recovery 
Act. 

[40] CDOT Memorandum, Audit of Construction Project Payments, Project 
ES4 0141-020, State Highway 14 Resurfacing (SA 15511), Prime 
Contractor: LaFarge North America dba LaFarge West, Audit Number A1- 
1010 (Denver, Colorado: May 3, 2010). 

[41] City of Fort Collins, Colorado, Compliance Report (Denver, 
Colorado: Dec. 31, 2009). 

[42] City and County of Denver's Office of the Auditor, Denver 
International Airport, Airport Improvement Program, Performance Audit 
(Denver, Colorado: Aug. 19, 2010). 

[End of Appendix III] 

Appendix IV: District of Columbia: 

Overview: 

The following summarizes GAO's work on the seventh of its bimonthly 
reviews of American Recovery and Reinvestment Act of 2009 (Recovery 
Act) spending in the District of Columbia (the District).[Footnote 1] 
The full report on our work, which covers 16 states and the District, 
is available at [hyperlink, http://www.gao.gov/recovery]. 

What We Did: 

We reviewed the following programs funded under the Recovery Act--the 
State Energy Program (SEP), the Energy Efficiency and Conservation 
Block Grant Program (EECBG), the Weatherization Assistance Program 
(WAP), and three education programs. We began work on SEP and EECBG 
because services and projects were just getting underway for these 
programs. We continued our work on WAP and three education programs to 
update the status of these programs. For descriptions and requirements 
of the programs covered in our review, see appendix XVIII of GAO-10-
1000SP. Our work focused on how the funds were being used and 
monitored, how safeguards were being implemented, and issues that were 
specific to each program. To gain an understanding of the District's 
efforts to oversee and monitor the use of Recovery Act funds, we 
talked to the District's Office of the Inspector General (DC OIG) 
about its oversight role and audits related to Recovery Act funds. In 
addition to our program-specific reviews, we also updated information 
on the District's fiscal situation and how Recovery Act funds are 
being used for budget stabilization, as well as the District's 
experience in meeting Recovery Act reporting requirements.[Footnote 2] 

What We Found: 

State Energy Program and Energy Efficiency and Conservation Block 
Grant Program. Under the Recovery Act, the U.S. Department of Energy 
(DOE) awarded the District over $31 million in funding through SEP and 
EECBG. The District Department of the Environment (DDOE) administers 
both programs for the District. In April 2009, the District received 
the initial award notice for approximately $22 million in Recovery Act 
SEP funding, although the full funding award was not available to DDOE 
until September 2009. Although approximately 2 percent ($366,513) of 
funds have been expended as of June 30, 2010, DDOE officials expect 
all non-personnel Recovery Act SEP funds to be obligated by September 
30, 2010 and approximately 40 percent to be expended by that date. 
DDOE plans to use the majority of SEP funds for energy efficiency 
retrofits at various District government and public school buildings. 
The EECBG program, funded for the first time by the Recovery Act, was 
created to assist state, local, and tribal governments in implementing 
strategies to reduce fossil fuel emissions, reduce total energy use, 
and improve energy efficiency in the transportation, building, and 
other appropriate sectors. In December 2009, the District was awarded 
almost $9.6 million in Recovery Act funding for the EECBG program. 
According to DDOE officials, the District has obligated nearly all of 
the $9.6 million of EECBG funds as of June 25, 2010. However, less 
than 0.5 percent has been expended, as of June 30, 2010--mainly for 
expenditures on personnel costs, as projects did not begin until late 
July 2010. The majority of EECBG funds have been obligated to District 
facilities, such as libraries and recreation centers, to provide 
energy improvements. 

Weatherization Assistance Program. DOE allocated about $8 million in 
Recovery Act weatherization funds to the District for a 3-year period. 
DDOE--the agency responsible for administering the program for the 
District--did not begin to spend its operational weatherization 
funding until February 2010. However, as of July 30, 2010, DDOE 
obligated all of its Recovery Act funding for weatherization and has 
completed weatherization for 230 homes, according to DDOE officials. 
These officials stated that the District will spend all its 
weatherization funding by March 31, 2011. DDOE expects to exceed its 
initial goal of weatherizing 785 homes using its Recovery Act funding, 
but does not have an updated estimate at this time. 

Education. The U.S. Department of Education allocated $143.6 million 
in Recovery Act funds to the District from the State Fiscal 
Stabilization Fund (SFSF); 

for grants under the Individuals with Disabilities Education Act, as 
amended (IDEA) Part B; 

and for grants under Title I, Part A of the Elementary and Secondary 
Education Act of 1965, as amended (ESEA). A large percentage of these 
funds are being used to pay employee salaries. The Office of the State 
Superintendent of Education (OSSE) continues to monitor the District's 
local educational agencies (LEA)[Footnote 3] utilizing the monitoring 
protocol it developed in March 2010, which includes conducting on-site 
monitoring visits and desk reviews. As of June 2010, OSSE completed 
its ESEA grant on-site monitoring visits for the 2009-2010 school 
year, consisting of visits to 18 LEAs. Concurrently, OSSE visited 3 
LEAs receiving IDEA Part B grant funds, and completed 19 desk reviews 
of LEAs receiving Recovery Act funds--all of which OSSE officials 
considered to be higher-risk subrecipients. According to OSSE, LEAs 
generally complied with Recovery Act requirements, but some LEAs had 
inconsistencies with specific record management practices. OSSE has 
required these LEAs to improve their record management practices. 

Accountability efforts. As of July 14, 2010, the DC OIG has initiated 
one audit specifically related to the use of Recovery Act funds 
involving construction contracts at the District Department of 
Transportation that were awarded under the Recovery Act. This audit is 
expected to be completed by spring 2011. Other planned Recovery Act 
audits have not yet begun because of lack of resources. Additionally, 
the District completed its fiscal year 2009 Single Audit report on 
June 29, 2010. The 2009 audit--the first Single Audit for the District 
that included Recovery Act programs--identified 5 significant 
deficiencies and 17 material weaknesses related to controls over 
programs that received Recovery Act funds, including the Medicare 
program. However, a senior official from the Office of the Chief 
Financial Officer (OCFO) noted that the deficiencies and weaknesses 
were not a result of noncompliance with Recovery Act requirements. 

The District's fiscal situation. Additional Recovery Act funds have 
helped support certain District education, human services, and 
technology programs. District officials told us that the District has 
received over $56 million in Recovery Act funding since we last spoke 
with them in April 2010 - about $36 million in noncompetitive grants 
and about $20 million in competitive grants. According to the 
District's Chief of Budget Execution, the infusion of Recovery Act 
funds has helped mitigate the negative effects of the recession on the 
District's budget by providing time to adjust for the decline in 
revenues, which allowed the District to avoid making drastic cuts to 
services and programs. Although the District continues to face fiscal 
challenges, there are signs that the District's economy is starting to 
recover. In June 2010, the District's Chief Financial Officer reported 
that the revenue estimates for fiscal years 2010 through 2014 remain 
unchanged from the estimate made in the previous quarter, noting that 
there are indicators of economic recovery. 

The District Is Beginning to Spend Recovery Act Funds on the State 
Energy Program and the Energy Efficiency and Conservation Block Grant 
Program: 

Under the Recovery Act, DOE awarded the District over $31 million in 
funding through SEP and EECBG. In the District, both programs are 
administered by DDOE. To develop a proposed allocation of funding 
among District agencies, DDOE and the Office of the City Administrator 
(OCA) requested detailed energy efficiency project proposals from 
various District government agencies that would deliver immediate 
energy savings and create jobs, and could easily be implemented. DDOE 
officials said that District agencies submitted requests for funding 
(over $200 million) that far exceeded the available budget. DDOE 
officials said the final allocation of funding agreed upon by DDOE and 
OCA was based on two factors: (1) the agency's approximate share of 
the District government's total building energy retrofit needs, 
[Footnote 4] and (2) the desire to distribute Recovery Act funding 
across the District portfolio to promote energy efficiency measures by 
as many agencies as possible, and for the benefit of as many 
constituencies as possible. 

SEP provides funds through formula grants to achieve national energy 
goals such as increasing energy efficiency and decreasing energy 
costs. In April 2009, the District received the initial award notice 
for approximately $22 million in Recovery Act SEP funding, although 
the full funding award was not available to DDOE until September 2009. 
According to a DDOE official, DDOE submitted its original application 
(or state plan) to DOE in May 2009. The application described the 
activities the District planned to implement; a description of how the 
District intended to achieve 20-30 percent cost savings annually 
through 2012; how the activities will help achieve this goal, along 
with any preliminary progress toward achieving this goal; and a 
monitoring plan for how the District will conduct oversight of project 
implementation. The original application has been revised because of 
changes in the proposed uses of funds, according to DDOE officials. 

DDOE officials stated that, as of June 30, 2010, approximately 2 
percent ($366,513) of the SEP funds have been expended. DDOE officials 
explained that they have allocated funding to other District agencies 
through memorandums of understanding for about 91 percent of Recovery 
Act SEP funds. DDOE is working to ensure that all non-personnel 
Recovery Act SEP funds are obligated under signed agreements with the 
contractors or partners that will do the work by September 30, 2010 
and approximately 40 percent to be expended by that date.[Footnote 5] 
According to DDOE officials, the District has a portfolio of buildings 
that need energy efficiency measures and retrofitting. To address this 
need, DDOE officials stated that about 75 percent of Recovery Act SEP 
funds will be allocated for building retrofits and about 25 percent 
will be allocated for internal/direct service projects, such as 
outreach and education, renewable grants, and energy efficiency 
activities. For example, according to DDOE, almost $7.9 million of the 
District's Recovery Act SEP funds will be used to retrofit eight 
elementary and middle schools in the District. This project started on 
June 23, 2010, and is expected to be completed by August 23, 2010. 
DDOE officials said another $1.3 million of Recovery Act SEP funds 
will be used for advertisements of energy conservation measures for 
programs funded under SEP and specific outreach programs, among other 
things. 

The EECBG program, funded for the first time by the Recovery Act, 
[Footnote 6] was created to assist state, local, and tribal 
governments in implementing strategies to reduce fossil fuel 
emissions, reduce total energy use, and improve energy efficiency in 
the transportation, building, and other appropriate sectors. The 
Recovery Act appropriated $3.2 billion for this program. In December 
2009, the District was awarded almost $9.6 million in Recovery Act 
funding by DOE for the EECBG program. EECBG funding will be used in 
the District to (1) reduce energy consumption in government 
facilities, (2) help District residents and businesses conserve energy 
by implementing energy efficient practices, and (3) create "green 
collar" jobs. 

According to DDOE officials, the District had memorandums of 
understanding and other agreements executed with other District 
agencies and community-based organizations (CBOs) as of June 25, 2010 
for $7 million and expected to have almost all of the $9.6 million of 
EECBG funds under agreements by July 31, 2010. However, less than 0.5 
percent has been expended, as of June 30, 2010--mainly for 
expenditures on personnel costs, as projects did not begin until late 
July 2010. DDOE officials stated that about 75 percent of EECBG funds 
has been allocated to District facilities such as libraries, 
firehouses, and recreation centers. For example, $1.5 million will be 
used to provide energy efficiency improvements to 10 public libraries 
in an effort to reduce their overall energy use. DDOE officials said 
that this project began in July 2010 and is estimated to end by March 
31, 2011. DDOE officials said the other 25 percent of EECBG funds is 
allocated to worthwhile programs that had no longer been funded or new 
programs that could not be funded in the absence of Recovery Act 
funds. District officials said they had been unable to serve certain 
target populations, such as the nonprofit and small business sectors, 
and a portion of EECBG funds will be targeted to these populations. 
For example, the District plans to use $500,000 of EECBG funds to 
provide energy audits and retrofits to nonprofit CBOs in the District. 
The estimated completion date for this project is April 30, 2011. 

Monitoring of SEP and EECBG Programs is Just Beginning: 

DDOE officials stated that because Recovery Act SEP and EECBG projects 
have just begun in the District, as of July 1, 2010, DDOE had not yet 
conducted any monitoring activities of these programs. However, DDOE 
officials indicated that the District is committed to the proper 
management and oversight of all Recovery Act SEP-and EECBG-funded 
projects and has a number of procedures planned or in place to monitor 
both programs. For example, the District has recently developed a 
grants manual and sourcebook as a complement to the pre-existing 
subrecipient monitoring manual for District agencies to implement as 
part of their management of grant-funded programs. DDOE plans to adapt 
this manual to address the specific monitoring requirements of the SEP 
and EECBG programs. DDOE also noted that all District agencies 
receiving SEP and EECBG funds must meet Recovery Act requirements and 
ensure that standard protocols are being used, monitoring is 
occurring, and reporting and projects are done on time. According to 
DDOE officials, they are developing plans that describe how this 
monitoring will occur in practice. For example, DDOE officials told us 
that their monitoring will include monthly field visits to District 
agencies receiving SEP and EECBG funds to check on the progress of SEP 
and EECBG projects. In addition, DDOE officials stated that these 
agencies would provide DDOE with monthly status updates on SEP and 
EECBG projects, which would include a discussion of milestones and 
timelines for each project. 

For the SEP program, DDOE officials told us they will, at a minimum, 
conduct routine monitoring visits to the two largest projects--the 
energy retrofit projects at the eight District schools and the largest 
District government building. DDOE officials also stated they will 
monitor all projects using the Recovery Act monitoring checklist they 
developed, which includes checking expenditures of funds awarded, 
energy measures installed, and milestones met or missed by projects, 
based on the District's state plan. DDOE officials stated that their 
focus while monitoring will be to ensure that the work being done is 
consistent with the agreed-upon scope of work. Further, DDOE officials 
stated that their Recovery Act financial manager will conduct a 
separate "desktop" financial monitoring of projects by verifying 
expenditures through a shared financial database used by DDOE and the 
other District agencies. 

DDOE officials told us they will use a process for monitoring the 
EECBG program very similar to what they use for the weatherization 
program. For example, although DDOE has partnered with other District 
agencies to complete SEP and EECBG projects, DDOE officials said they 
will also make use of six of the seven CBOs doing weatherization under 
the Weatherization Assistance Program for the District to implement 
retrofit projects, including conducting postwork inspections for 
completed projects. DDOE officials said they will conduct monthly 
field visits to the CBOs to ensure that the invoices received from the 
CBOs match up with the work ordered, as well as conducting postwork 
inspections to ensure quality workmanship. In addition, DDOE will use 
the same project tracking system set up for the weatherization 
program. DDOE officials stated they plan to monitor all parties they 
have contracts with as well as audit 10 percent of all projects for 
administrative, programmatic, and financial compliance. 

The District Will Use the Same Recipient Reporting Process for Both 
Recovery Act Energy Programs: 

DDOE is one of the prime recipients in the District and utilizes the 
centralized recipient reporting system, which is discussed in further 
detail later in this report.[Footnote 7] For recipient reporting 
purposes, DDOE officials told us that only one SEP or EECBG program--
an SEP funded outreach program--had started during the reporting 
period ending June 30, 2010, so both programs reported minimal program 
costs expended and minimal full-time equivalents (FTE) for the latest 
reporting period, consisting only of hours worked by DDOE's Recovery 
Act administrative staff for SEP and EECBG. DDOE officials told us 
that when more work on SEP and EECBG projects begins, they plan to 
collect recipient reporting data from the subrecipients, including 
certified payroll records to verify hours worked by contractors. 
Additionally, DDOE officials told us that other District agencies 
receiving SEP and EECBG funding will be responsible for submitting 
recipient reporting data to the District for its respective projects. 
However, officials indicated there have been issues in the past with 
other agencies not reporting in a timely fashion on SEP projects. DDOE 
officials told us they have developed Recovery Act training for other 
District agencies and subrecipients, which should help ensure timely 
reporting. According to DDOE officials, the recipient reporting data 
collected will then be reviewed by the SEP or EECBG program officer 
and Recovery Act grant managers for accuracy before the data are 
submitted to the District and federal recipient reporting systems for 
review and approval.[Footnote 8] However, DDOE officials told us they 
needed additional staff to help with timely recipient reporting for 
all of its Recovery Act grants, including SEP and EECBG, and planned 
to hire a Recovery Act coordinator in August 2010. 

The District Plans to Measure Project Impacts: 

Because DDOE has just begun to implement projects with SEP and EECBG 
funds, DDOE does not yet have outcome measures, such as energy savings 
or job creation. As part of its quarterly reports to DOE, DDOE is 
required to report measures such as energy saved and greenhouse gas 
emission reductions. For completed SEP projects, officials stated that 
DDOE will calculate energy savings and greenhouse gas emissions by 
incorporating the building square footage, pre-and post-installation 
utility bills, measures installed, and dollars spent. For EECBG 
projects, officials told us the District will measure both kilowatt 
and thermal savings generated from the installation of the various 
energy efficiency measures. Most of the energy retrofit projects 
require a pre-and post-audits that clearly identify the energy 
upgrades needed and the projected energy savings from installing the 
recommended energy efficiency measures. 

Although the District Has Made Progress Performing Weatherization 
Work, Oversight Challenges Remain: 

The Weatherization Assistance Program is intended to weatherize homes, 
save energy, and create jobs. Under the Recovery Act, the District 
Department of the Environment (DDOE), the agency responsible for 
administering the program for the District, was allocated about $8 
million in Recovery Act funds by DOE. 

After a Slow Start, the District Has Made Progress Expending Funding 
and Weatherizing Homes: 

DDOE did not begin to spend its operational weatherization funding 
until February 2010. However, as of July 30, 2010, DDOE had obligated 
all of its Recovery Act funding for weatherization and expended about 
$3,774,000, according to DDOE officials. Seven community-based 
organizations in the District manage weatherization projects and could 
not start weatherizing homes until they received funding from DDOE. As 
a result, CBOs did not begin to weatherize homes until March 2010, 
making the District among the last recipients of Recovery Act 
weatherization program funding to begin spending funds. According to a 
senior DDOE official, DDOE was slow to expend funds because DDOE was 
developing the infrastructure to administer the program. Recovery Act 
funding has substantially increased the size of the weatherization 
program in the District, from about $650,000 in 2008 to about $8 
million in Recovery Act funds. To manage the program, DDOE has worked 
to increase its staff, but there had been delays in this process. 
However, as of June 30, 2010, DDOE had completed hiring six additional 
staff to help oversee and manage the program.[Footnote 9] According to 
DDOE officials, the District will spend all its weatherization funding 
by March 31, 2011.[Footnote 10] With Recovery Act funding, CBOs have 
completed weatherizing 230 homes in the District as of July 30, 2010. 
DDOE expects to exceed its initial goal of weatherizing 785 homes 
using its Recovery Act funding, but does not have an updated estimate 
at this time. 

District Efforts to Monitor Weatherization Program Have Just Begun: 

DDOE and the CBOs have a number of procedures in place or planned to 
monitor the weatherization program. 

* Annual reviews of CBOs: DDOE officials informed us that, as of July 
15, 2010, their program managers had just recently conducted 
monitoring visits to all seven CBOs. The final reports from these 
monitoring visits were not available for us to review in time for this 
report, as the CBOs have 30 days to address any findings prior to 
issuance of DDOE's final written report. However, DDOE reported to us 
that there were no major findings. The final monitoring reports will 
be forwarded to DOE and to the associated CBOs. 

DOE requires that DDOE conduct such comprehensive monitoring of each 
CBO at least annually. This monitoring must include a review of client 
files and the CBO's records, as well as a status-of-work statement and 
a comparison of the actual accomplishments with the goals and 
objectives established for the period, the cost status, and schedule 
status. The cost status must show the approved budget by the budget 
periods and the actual costs incurred, and the schedule status should 
list milestones, anticipated completion dates, and actual completion 
dates. The annual review must also include results of the site 
inspections referred to below. 

* Site inspections: In its Recovery Act program guidance, DOE requires 
state agencies, such as DDOE, to inspect at least 5 percent of all 
completed weatherization work and recommends inspection of even more. 
DDOE, in its grant agreement with the CBOs, had committed itself to 
inspecting 10 percent of all work completed. According to DDOE 
officials, DDOE's auditors had begun conducting site inspections for 
the quality assurance of work completed by contractors. 

In addition to DDOE's oversight of the program, all CBOs are required 
to perform site inspections of 100 percent of completed weatherization 
projects. One CBO performs weatherization work using its own crews and 
has contracted with independent site inspectors to review their work, 
to avoid a conflict of interest. These inspection reports are checked 
by that CBO's program manager, according to officials from the CBO. 
According to the CBOs we talked to, if they find cases of poor quality 
or workmanship, CBOs will require contractors to fix the problem at no 
additional cost to the CBO. 

The District's System of Internal Controls for Weatherization Is in 
Transition and Presents Challenges: 

We conducted a customer file review of three of the seven CBOs to 
understand how CBOs document their weatherization work and to 
determine the extent to which DDOE uses its CBOs' files to track the 
status of weatherization projects.[Footnote 11] We found that while 
some of the customer files maintained by the CBOs were not complete, 
much, but not all, of the missing documentation could be found in 
DDOE's online software system used to manage weatherization projects. 
We met with DDOE and received an in-person demonstration of the system 
and how the agency uses its many features. We found that the system--
complete with price lists and automated change order approvals via 
email--is a useful tool in managing weatherization projects, but has 
not yet been fully implemented and does not contain all the data 
necessary to track individual weatherization projects from start to 
finish. As a result, at the time of our review neither the physical 
customer files maintained by the CBOs nor the online weatherization 
management system presented a complete record of weatherization 
projects.[Footnote 12] 

GAO File Review of CBOs Revealed Some Incomplete Physical Files: 

For the purposes of this report, we contacted three of the seven CBOs 
DDOE is using to perform weatherization work under the Recovery Act. 
At each CBO we planned to randomly select 10 customer files of 
completed weatherization jobs to review.[Footnote 13] Customer files 
are retained by CBOs for payment purposes and consist of documentation 
of work authorizations and progress of weatherization work, among 
other things. We also consulted with CBO staff to clarify any 
questions we had about the customer files we reviewed, and met with 
DDOE officials to discuss their record-keeping policies. Our file 
reviews at the CBOs were limited in scope and were not sufficient for 
expressing an opinion on the effectiveness of CBO internal control or 
compliance with Recovery Act requirements. 

We found that DDOE officials were unable to cite clear guidance to 
CBOs on what CBOs must at a minimum include in their weatherization 
customer files. One CBO official told us that he maintains records 
that he deems necessary for the files based on his experience with 
managing weatherization projects. However, shortly before the 
beginning of our file review, DDOE distributed a checklist of minimum 
file contents to CBOs. This list includes (1) DDOE's energy audit 
report, (2) a data client sheet (work order detail), (3) the CBO's 
post inspection form, (4) a customer satisfaction form and (5) an 
invoice for work completed. 

We found that in some cases, the CBOs' files did not contain all the 
documents required by DDOE's checklist. For instance: 

* According to DDOE's checklist, copies of work orders and invoices 
are to be included in the file. Officials told us that these 
documents, along with copies of change orders, are intended to show 
that the scope of work has been approved before the contractor or CBO 
is paid for work completed. In our review, 12 of 23 files either 
lacked copies of work orders or invoices, or the work invoices 
exceeded work shown in the work orders without documented approval 
from DDOE. Without a complete set of these documents, the physical 
file does not record that the work that was paid for was also approved. 

* Also, DOE requires recipients to perform an energy audit on every 
home receiving weatherization assistance. According to DDOE's customer 
file checklist, a copy of this audit must be included in each file. 
The energy audit forms the basis of the scope of work and represents 
DDOE's assessment of what weatherization work a unit requires. 
Weatherization measures in the energy audit are listed in priority 
order, with those measures with the greatest energy efficiency impact 
listed first. In our review, 13 of 23 files either lacked copies of 
the energy audit or the work listed in the work orders exceeded work 
recommended in the energy audit without documented approval. Without a 
complete set of these documents, the physical file does not indicate 
that the scope of work addresses the unit's most critical energy 
efficiency issues identified by the energy auditor. 

* DOE requires CBOs to conduct a final quality inspection of 100 
percent of all units before submitting an invoice to DDOE for 
reimbursement. In addition, DDOE's checklist requires CBOs to collect 
signed customer satisfaction forms as a final assurance that work was 
performed professionally. In our review, 5 of 23 files did not contain 
a final quality inspection form, and in an additional 5 cases, the 
forms were neither signed nor dated. According to a DDOE official, 
invoices associated with these files have been paid. Without a 
completed quality inspection form, the physical file does not record 
whether the CBOs were satisfied with the contractors' weatherization 
work. 

DDOE Uses an Online Reporting Tool to Track Progress and Expenditures, 
but It Is Not Fully Implemented and Does Not Capture All Required 
Documentation: 

We found that much, but not all, of the documentation missing from CBO 
customer files was found in DDOE's Hancock Energy Software 
Weatherization Program (Hancock system). The Hancock system is a 
private-sector online reporting tool for tracking and managing 
Recovery Act funds, including budgeting and invoicing, administrative 
costs, and job management, among other things.[Footnote 14] 

After our file review, we met with DDOE officials and received a 
demonstration of the capability of the Hancock system and their 
application of it. Using the Hancock system, CBOs record project data, 
allowing them and DDOE to track, for example, the number of jobs CBOs 
have completed as well as those still in progress. The system is 
designed to show estimated costs for each weatherization item or task 
as well as estimates of the time it will take to complete the work. 
Officials from CBOs said they used this feature to evaluate contractor 
bids. DDOE officials stated that they use the Hancock system to 
monitor each CBO's progress and perform daily checks of the data 
entered. The following are examples of information contained in the 
system: 

* Client eligibility. The Hancock system maintains information 
pertinent for WAP eligibility such as the household income, income 
sources, size of household, and client eligibility letter. However, 
DDOE WAP staff receive this information from another program within 
DDOE that does not use the Hancock system.[Footnote 15] As a result, 
client eligibility information must be entered into the Hancock system 
manually. A DDOE WAP official we spoke with voiced a desire that 
Hancock be widely adopted, because this manual data entry is 
cumbersome and time-consuming. 

* Work orders. From the energy audit, the Hancock system generates a 
work order that lists weatherization measures for the CBO to complete. 
The Hancock system lists the weatherization measures in order of 
priority based on criteria such as effectiveness, health and safety, 
and DOE requirements or guidance. The Hancock system also displays the 
estimated cost for the line items on the work order. A DDOE official 
told us that the estimated prices for material are based on retail 
prices found at local home improvement stores and that, for example, a 
window replacement is expected to cost about $300. DDOE increases this 
cost estimate in the Hancock system to provide CBOs and contractors a 
margin for profit. 

However, a DDOE official told us that the Hancock system does not yet 
contain estimated costs for all the weatherization work the CBOs and 
contractors perform. For example, some energy audits have specified 
gutter replacement as one of the necessary weatherization measures. 
However, gutters had not been an approved use of weatherization funds 
in prior years and therefore do not have an associated estimated cost. 
Consequently, the Hancock system assigns an estimated price of $0. 
When this happens, the Hancock system underestimates the true cost of 
a weatherization job and there is a risk of that job exceeding the 
$6,500 per unit threshold. DDOE is working on adding accurate cost 
estimates for these tasks in the Hancock system. 

* Project changes. DDOE and CBOs have found that while a contractor is 
working on site, additional work may be identified as necessary in 
order to appropriately weatherize a home. For example, in the course 
of insulating a room per the energy audit, a contractor discovered 
that the ceiling or roof must be mended as well.[Footnote 16] When a 
CBO identifies that there is additional work to be completed, the CBO 
will enter the request for additional work into the Hancock system. 
This generates an e-mail automatically sent to an approving official 
at DDOE who either approves or denies the request. Currently there is 
only one official at DDOE who approves such project changes--the 
program director. Typically, this official approves the request as 
long as she considers it to be "reasonable" and under the $6,500 per 
unit threshold. Because of time constraints and other 
responsibilities, this official told us she does not closely review 
each project change but largely relies on the CBOs' and contractors' 
judgment that the work is necessary. This DDOE official told us that 
because the Hancock system is Web-based, she can respond to these 
change requests at any time, including while on vacation. DDOE is 
currently training additional staff to approve requests for project 
changes, according to this official. 

* Invoices and payment. DDOE officials told us that CBOs can submit 
invoices to DDOE through the Hancock system. A DDOE official reviews 
the invoice for accuracy and compares it with the corresponding work 
order and energy audit in the Hancock system. After approval, DDOE 
pays the invoice. However, as of July 9, 2010, DDOE had not released 
payment for any invoices submitted through the Hancock system for 
weatherization work funded by the Recovery Act. The DDOE official who 
reviewed Hancock-issued invoices received prior to July 9, 2010, told 
us that the Hancock system had improperly calculated invoice totals, 
but that the problem had since been fixed. The Hancock system was 
incorrectly calculating the CBOs' administrative fees by adding $650, 
or 10 percent of the maximum allowable average cost per home of 
$6,500, instead of adding 10 percent of the actual cost incurred. 

Also the Hancock system has been set up to raise a flag and identify 
invoices related to homes that have incurred costs in excess of the 
maximum allowable average cost per home of $6,500.[Footnote 17] A 
senior DDOE official told us that units in the District incur 
weatherization costs both above and below this amount, but that WAP 
was still within the allowable limit. 

* Energy savings. DDOE is trying to capture energy savings for each 
weatherized unit in the Hancock system, but this is a work in 
progress, and the savings currently cannot be determined for the 
weatherization program as a whole. A senior DDOE official told us 
until the weatherization online system is updated, DDOE will continue 
to use the National Energy Audit Tool (NEAT) to determine energy 
savings. 

While the system contains a variety of information on weatherization 
projects and fills in some of the gaps we identified in the physical 
files maintained by the CBOs, the system does not contain a record of 
all required documents. For example, the system does not maintain the 
client satisfaction form that must be completed at the close of each 
weatherization job. The Hancock system also does not include a record 
of the post-installation inspection conducted by the CBO. 

DDOE Is Using the District's Centralized Recipient Reporting System: 

DDOE officials told us they use the same recipient reporting process 
for all of its Recovery Act grants, including WAP. DDOE reported 13.42 
FTEs were funded by WAP funds from April 1, 2010, to June 30, 2010. 
[Footnote 18] DDOE is one of the District's prime recipients and 
utilizes the centralized recipient reporting system, which is 
discussed in further detail later in this report. CBOs submit 
certified payroll records to DDOE on a weekly basis to support the 
hours reported that were worked and funded by Recovery Act 
weatherization funds by the CBOs' employees and contractors. According 
to a DDOE official, weatherization program staff and the Recovery Act 
grant manager review for accuracy the recipient reporting information 
submitted by the CBOs before DDOE reports it to the District on a 
monthly basis. The DDOE official told us that DDOE did not experience 
problems collecting or reporting recipient reporting information for 
weatherization for the period ended June 30, 2010. 

The District's Local Educational Agencies Continued Using Recovery Act 
Funds, and the Office of the State Superintendent of Education Began 
Monitoring Fund Use: 

The U.S. Department of Education has allocated $143.6 million in 
Recovery Act funds to the District for three programs: 

* $16.7 million in Individuals with Disabilities Education Act, as 
amended (IDEA) Part B Recovery Act funds, which provides funding for 
special education and related services for children with disabilities; 

* $37.6 million in Title I, Part A of the Elementary and Secondary 
Education Act of 1965, as amended (ESEA) Recovery Act funds, which 
provides funding to help educate disadvantaged students; 

* $89.3 million in funds from the State Fiscal Stabilization Fund 
(SFSF), which was created under the Recovery Act in part to help state 
and local governments stabilize their budgets by minimizing budgetary 
cuts in education and other essential government services. Of the SFSF 
funds, 81.8 percent are designated as education stabilization funds 
and intended to support public elementary, secondary, and higher 
education, and as applicable, early childhood education programs and 
services. The remaining 18.2 percent of SFSF funds are designated as 
government services funds, intended to provide additional resources to 
support public safety and other government services, which may include 
education. 

Additionally, Public Law 111-226, enacted on August 10, 2010, provides 
$10 billion for the new Education Jobs Fund to retain and create 
education jobs nationwide.[Footnote 19] The Fund will generally 
support education jobs in the 2010-2011 school year and be distributed 
to states by a formula based on population figures. States can 
distribute their funding to school districts based on their own 
primary funding formulas or districts' relative share of federal ESEA 
Title I funds. 

The District LEAs Are Accessing Their Recovery Act Funds: 

IDEA Part B. OSSE provides the LEAs with IDEA Part B Recovery Act 
funds on a reimbursement basis, whereby the LEAs can obligate Recovery 
Act funds, spend their state and local funds, and then request 
reimbursement from OSSE for Recovery Act funds. OSSE reported that as 
of July 23, 2010, out of the $16.7 million in Recovery Act funds 
allocated to the District LEAs for IDEA Part B, about $2.2 million had 
been requested for reimbursement by 32 charter school LEAs and OSSE 
had made a total of over $1.2 million in payments to those charter 
schools. OSSE also reported that as of August 16, 2010, the District 
of Columbia Public Schools (DCPS) had submitted an IDEA Part B 
Recovery Act reimbursement request for about $9.1 million out of its 
allocation of approximately $12.9 million. According to OSSE 
officials, DCPS has provided assurances that it is working closely 
with its Office of the Chief Financial Officer to submit timely 
reimbursement requests and has established a timeline for submitting 
multiple requests for reimbursement before September 30, 2010. 

ESEA Title I. OSSE also provides the ESEA Title I Recovery Act funds 
to the LEAs on a reimbursement basis, whereby the LEAs can obligate 
Recovery Act funds, spend their own state and local funds, then 
request reimbursement from OSSE for Recovery Act funds. As of July 23, 
2010, the charter school LEAs had requested reimbursement for about 
$7.1 million and DCPS had requested $264,197 for a total of about $7.4 
million requested for reimbursement by the District LEAs.[Footnote 20] 
As of July 23, 2010, OSSE had made a total of about $3.5 million in 
payments to 33 charter school LEAs and an additional $1.5 million was 
approved with payment pending. According to OSSE officials, DCPS has 
provided assurances that it is working closely with its Office of the 
Chief Financial Officer to submit timely reimbursement requests and 
has established a timeline for submitting multiple requests for 
reimbursement before September 30, 2010. Officials at the two charter 
school LEAs that we contacted, Center City Public Charter School and 
Friendship Public Charter School, noted that while the flow of ESEA 
Title I Recovery Act funds started late in the year, once it was 
underway, the reimbursement process ran faster and smoother than it 
had in the past. 

State Fiscal Stabilization Fund. The District was allocated $73.1 
million in Recovery Act SFSF education stabilization funds.[Footnote 
21] The District was also allocated almost $16.3 million in SFSF 
government services funds, $9.8 million (60 percent) of which it 
designated for public schools, including public charter schools. 
[Footnote 22] OSSE's Deputy Chief of Staff told us that the District 
allocated the SFSF funds directly to LEAs using the District's Uniform 
per Student Funding Formula (UPSFF) which, by law, is distributed in 
quarterly payments to public charter schools and is incorporated into 
DCPS's budget as DCPS is a District agency. As a result, charter 
schools are not reimbursed for their SFSF spending. Rather, charter 
schools spend their SFSF funds as UPSFF funds and report their 
expenditures to OSSE, which reviews their expenditures to verify 
appropriate use of the funds. OSSE disbursed the SFSF funds to the 
charter school LEAs in two payments, one on January 14, 2010 
(government services funds), and the other on April 15, 2010 
(education stabilization funds). As of May 7, 2010, OSSE had completed 
its payments of SFSF funds to the District charter school LEAs for a 
total of more than $29 million. As of July 23, 2010, the charter 
school LEAs had submitted expenditure reports for SFSF funds totaling 
about $23 million out of the over $29 million that OSSE had disbursed. 
However, SFSF funds are federal funds governed by the applicable cash 
management rules.[Footnote 23] In general , these rules require 
executive agencies implementing federal assistance programs and 
states, including the District, participating in them to minimize the 
time elapsing between the state's disbursement of federal funds to 
subrecipients, such as LEAs, and the disbursement of those funds by 
subrecipients.[Footnote 24] To address this issue, on June 18, 2010, 
OSSE provided guidance to its LEAs about reporting their SFSF 
expenditures to OSSE in order to comply with such federal rules. 

Unlike the charter school LEAs, DCPS must access SFSF funds in the 
same manner as it accesses other federal funds--by requesting 
reimbursement for its expenditures through OSSE. As of August 18, 
2010, according to the Deputy Chief of Staff, DCPS had requested 
reimbursement and received approval for $40 million of its $52 million 
SFSF allocation. 

The Majority of LEAs Planned to Use Their IDEA Part B Recovery Act 
Funds Primarily for Salaries and Contracted Services: 

At the time of our analysis, 33 LEAs had submitted a Phase II 
application and were approved by OSSE to receive reimbursement for 
their allocated portion of the District's $16.7 million in IDEA Part B 
Recovery Act funds.[Footnote 25] The District LEAs planned to spend 
the largest portion of their IDEA Part B Recovery Act funds on 
salaries (about 45 percent) and the second largest portion on 
contractual services (about 35 percent).[Footnote 26] The third 
largest portion of planned spending was designated for supplies and 
materials (about 10 percent). About 3 percent of IDEA Part B Recovery 
Act planned spending was designated for fringe benefits such as health 
care or retirement accounts. The remaining portion of planned spending 
was spread across the other budget categories.[Footnote 27] 

Twenty-two of the 33 LEAs planned to use all or part of their IDEA 
Part B Recovery Act funds for salaries. Specifically, 11 of the 22 
LEAs designated 100 percent of their funds and 6 of the 22 LEAs 
designated between 75 and 100 percent for that purpose. Six of the 22 
LEAs that planned to use their funds for salaries also planned to use 
up to 25 percent of their IDEA Part B Recovery Act funds to provide 
fringe benefits. 

Fourteen of the 33 LEAs planned to use all or part of their IDEA Part 
B Recovery Act funds for contractual services.[Footnote 28] Seven of 
those LEAs designated from 75 through 100 percent of their funds for 
that purpose. According to DCPS's Phase III application, DCPS planned 
to spend 37 percent of its IDEA Part B Recovery Act funds on salaries 
and 63 percent on contractual services.[Footnote 29] This is similar 
to DCPS's plan for ESEA Title I Recovery Act funds, of which DCPS 
planned to spend about 70 percent on contracted professional services. 
[Footnote 30] 

Selected LEAs Used Recovery Act Funds to Implement Programs that Focus 
on Students with Disabilities and on Reducing Negative Behaviors: 

We met with three District LEAs--DCPS, Center City Public Charter 
School,[Footnote 31] and Friendship Public Charter School[Footnote 
32]--to discuss uses of Recovery Act funds that they consider to be 
successful.[Footnote 33] We selected these LEAs based on factors such 
as the amount of Recovery Act funds allocated, the amount of Recovery 
Act funds expended, and to maintain continuity with our prior Recovery 
Act reports. 

IDEA Part B Recovery Act funds. DCPS officials described their 
enhancements to the Special Education Data System (SEDS) as a success 
that was made possible by IDEA Part B Recovery Act funds. SEDS is a 
state-level data system that tracks students with disabilities and 
services provided for them. A DCPS official observed that prior to the 
infusion of IDEA Part B Recovery Act funds, SEDS did not provide all 
the tools that DCPS desired for converting raw data into usable 
information. The official told us that the improved SEDS program will 
allow various DCPS staff to track a variety of data such as the 
timeliness of ordering and conducting new assessments, achievement 
levels, and areas for improvement.[Footnote 34] According to the 
official, using the IDEA Part B Recovery Act funds to improve SEDS 
functionality will strengthen DCPS's ability to provide special 
education services to its students, and ultimately result in cost 
savings. Without the Recovery Act funds, the improvements would have 
taken a number of years to accomplish, according to DCPS officials. 

Officials at Center City Public Charter School told us they used some 
IDEA Part B Recovery Act funds to improve their program for students 
with disabilities by hiring six inclusion specialists. According to 
Center City documents, inclusion specialists are the primary educators 
responsible for ensuring that students with Individualized Education 
Programs (IEP) receive appropriate and consistent instruction and 
services prescribed by their IEPs.[Footnote 35] The specialists worked 
not only with students but also worked collaboratively with classroom 
teachers and parents. According to Center City officials, by 
increasing the number of inclusion specialists, the LEA would be able 
to provide greater support for every Center City student. Center City 
Officials said that without IDEA Part B Recovery Act funds, they would 
not have been able to hire these six additional specialists. Officials 
view this program as successful because the additional six specialists 
enabled the LEA to ensure that its inclusion model exceeded IDEA 
requirements for such models and fulfilled the goal of giving 
additional support to all students as well as ensuring that students 
with IEPs reached their IEP goals. 

Officials from Friendship Public Charter School told us they used some 
of their IDEA Part B Recovery Act funds to support a program to 
benefit students with behavioral or academic challenges. Friendship 
officials stated that the program, known as the Resource Intensive 
Support for Education (RISE) program, provides a continuum of services 
for students who are experiencing behavioral or academic challenges 
beyond the scope of Friendship's education model, which aims to 
educate all students in the general education classroom and provide 
students with additional resources as needed. The RISE program's goal 
is to help more students stay in general education rather than being 
placed in a special school by giving students who need assistance 
additional support on a temporary basis. According to program 
officials, there are three RISE centers in the Friendship LEA 
differentiated by grade level--pre-kindergarten through grade 4, 
grades 5 through 8, and grades 9 through 12. RISE classes are small, 
with a maximum of 12 students, one teacher, and one aide. The RISE 
teachers are generally experienced teachers and offer students one-on-
one attention. Each RISE student has an individualized plan with a 
timeline at the end of which the student returns to the home school or 
moves to a more restricted environment. Officials told us that the 
IDEA Part B Recovery Act funds allowed Friendship to hire more staff, 
purchase more resource materials, and open all three centers in a 
timely manner. According to Friendship officials, the RISE program for 
the 2009-2010 school year produced positive outcomes for the students 
who required more intensive academic and behavioral support. 
Friendship officials reported that the students' overall behavior 
improved, while discipline referrals were markedly reduced or 
eliminated. 

ESEA Title I. Using ESEA Title I funds, Center City was able to 
convert part-time counselors to full-time employment, enabling the LEA 
to place a full-time counselor on each Center City campus. LEA 
officials reported that the counselors were instrumental in 
identifying key student needs that distract from academic success. For 
example, according to officials, data collected at one campus 
demonstrated that the students needed support in managing emotions--
specifically anger. Bullying and peer pressure also were identified as 
consistent challenges among students. This data collection was an 
important first step that subsequently guided the development of a 
program to work on these issues by highlighting areas of need that 
could be addressed by classroom guidance and small-group counseling. 
To address these challenges, staff at one Center City school began a 
small program to emphasize and recognize positive interactions among 
peers and increase the use of appropriate language during conflicts. 
Center City officials noted that without Recovery Act funds, the LEA 
would not have been able to afford full-time counselors at each campus. 

Friendship officials described a behavior management program funded by 
ESEA Title I Recovery Act funds as a success. According to officials, 
the model they adopted is based on minimizing the time students spend 
outside the classroom for discipline-related issues. The program 
provides intensive training to help teachers keep the students in the 
classroom by better managing discipline and redirecting negative or 
unacceptable behaviors. For example, coaches observe and advise new 
teachers to help them recognize disengaged students and redirect the 
students before there are behavior issues. The program also involves 
parents and administrators which, officials said, helps provide 
consistency throughout the grades (pre-K through 12) and the six 
charter schools. The program is evaluated by tracking how many 
students are sent out of the classroom and how many suspensions there 
are.[Footnote 36] This model of classroom discipline had been started 
on a small scale in the previous year, but the ESEA Title I Recovery 
Act funds made it possible to expand the program to cover grades Pre-K 
through 12. 

The Office of the State Superintendent of Education Continues to 
Monitor LEAs Utilizing Both Its Monitoring Protocol and Quarterly 
Review of Its LEAs' Recovery Act Data: 

OSSE Continues to Monitor Its LEAs and Has Completed Reviews of the 
Higher-Risk LEAs It Has Identified: 

In May 2010, we reported that OSSE took steps to reform its processes 
of monitoring its federal grants, including implementing new protocols 
to monitor its subrecipients.[Footnote 37] OSSE developed and 
implemented a monitoring protocol in March 2010 that included 
conducting on-site monitoring visits and desk reviews for LEAs, with 
expenditure testing conducted during both procedures. OSSE's on-site 
monitoring protocols encompassed SFSF funds, ESEA grant awards, 
including ESEA Title I Recovery Act funds, and IDEA Part B Recovery 
Act funds.[Footnote 38] The on-site monitoring protocol involves 
interviewing LEA officials and external stakeholders, including 
parents, in addition to reviewing the LEA's policies and procedures 
and conducting expenditure testing to verify appropriate use of funds. 
Additionally, OSSE developed a desk review protocol to review Recovery 
Act-related expenditures made by its subrecipients.[Footnote 39] 
OSSE's Deputy Chief of Staff told us that as of June 21, 2010, OSSE 
had completed its ESEA grant on-site monitoring visits for the 2009-
2010 school year, consisting of visits to 18 LEAs. Further, another 
OSSE official told us that concurrently, OSSE visited 3 LEAs receiving 
IDEA grant funds, and the Deputy Chief of Staff added that they 
completed 19 desk reviews of LEAs receiving Recovery Act funds--all of 
which OSSE officials considered to be higher-risk subrecipients. 
[Footnote 40] 

Following the on-site or desk review, OSSE's monitoring team compiles 
summary reports for the subrecipients, which present findings 
identified by OSSE during the monitoring review and recommended 
corrective actions for resolving the findings. According to OSSE's 
protocols, subrecipients with one or more findings must develop and 
submit a corrective action plan that describes the subrecipient's 
strategies and a timeline for resolving the findings.[Footnote 41] 
OSSE officials told us that OSSE would consider all findings resolved 
only after a subrecipient has provided evidence, such as documentation 
of changed policies, that the corrective action plan has been 
implemented.[Footnote 42] Then OSSE will issue a letter to the 
subrecipient indicating the resolution of findings and document any 
restrictions that have been lifted. According to OSSE officials, if a 
subrecipient fails to implement its corrective action plan in a timely 
manner, as determined by OSSE officials, OSSE may impose restrictions 
on the subrecipient's future grant funds, including additional 
required reporting to OSSE, additional on-site monitoring by OSSE, 
mandatory technical assistance from OSSE, and withholding or 
suspending grant funds. 

We reviewed 3 ESEA grant on-site monitoring reports and 13 Recovery 
Act desk review reports to understand OSSE's monitoring activities of 
its LEAs.[Footnote 43] According to the 3 on-site monitoring reports 
prepared by OSSE, the LEAs generally complied with Recovery Act 
requirements, but 2 of the 3 LEAs had inconsistencies in keeping and 
maintaining records for financial management and administrative 
purposes--specifically, the 2 LEAs failed to maintain supporting 
documentation for expenditures so that the documentation could be 
easily located. OSSE's monitoring report states that supporting 
documentation includes, but is not limited to, invoices, contracts, 
canceled checks, and other documentation related to expenditures made 
with federal grant funds. OSSE officials told us that a majority of 
the supporting documentation that could not be located was not for 
expenditures made with Recovery Act funds; and in examining 
expenditures, the scope of OSSE's review did not require OSSE's team 
to separately identify expenditures made with Recovery Act funding, as 
the purpose was to review LEA's ESEA grants as a whole. OSSE's 
monitoring team found that one LEA only provided supporting 
documentation for only 16 of the 52 expenditures that OSSE requested 
to review. OSSE required the LEA to provide all of the documents 
requested during the on-site visit by July 2010, but the LEA provided 
only half of the documents, according to an OSSE official. The OSSE 
official stated that in response, OSSE is withholding subsequent 
reimbursements to this LEA until the LEA complies with OSSE's request 
and creates and implements a corrective action plan to resolve the 
issue and prevent future occurrences.[Footnote 44] With respect to the 
second LEA, OSSE found that the LEA could not provide the 
documentation for a significant amount of expenditures. In response, 
OSSE required that LEA submit corresponding invoices to support all 
future reimbursement requests until the LEA creates and implements a 
corrective action plan, approved by OSSE, such as revising its 
procedures so that supporting documentation for its expenditures is 
retained and easily located. 

On the basis of our analysis of the 13 desk review reports that OSSE 
had completed, we found that OSSE identified at least one finding for 
all 13 LEAs it had reviewed, and two findings were identified for 
nearly all of the LEAs. First, OSSE's desk reviews identified that 12 
of the 13 LEAs did not demonstrate that their accounting records 
accurately and separately tracked expenditures made with Recovery Act 
funds. To address this finding, OSSE required, for example, that an 
LEA submit evidence to OSSE that it is separately tracking Recovery 
Act expenditures in its general ledger, by September 2010; otherwise, 
OSSE may suspend all Recovery Act payments at that time. Second, OSSE 
found that 12 of the 13 LEAs either did not submit a section of their 
Recovery Act grant application on time or did not submit required 
revisions in a timely fashion, for applicable grants. To address this 
finding, in one instance OSSE required an LEA to develop a policy by 
September 2010 that governs the preparation and approval of the LEA's 
Recovery Act grant applications to enforce timely submission of the 
LEA's applications to OSSE. OSSE officials explained that the number 
of findings identified is due, in part, to the LEAs' lack of 
experience with the monitoring process and Recovery Act requirements 
because they had not been subjected to such a rigorous review in prior 
years.[Footnote 45] However, OSSE officials told us that as OSSE 
strengthens its federal grant oversight role, LEAs will learn the 
process and should have fewer findings. 

According to OSSE officials, they plan to continue their on-site 
monitoring reviews after the Recovery Act funds are expended. OSSE 
intends to visit all subrecipients receiving ESEA grants in 2-year 
cycles and subrecipients receiving IDEA grants in 3-year cycles. 
However, OSSE officials do not plan to continue the Recovery Act- 
specific desk reviews after Recovery Act funds are expended, but said 
they may modify the desk review protocol for oversight of other grant 
funds. 

OSSE Utilizes a Quarterly Review of Its Subrecipients' Recovery Act 
Grant Information: 

In addition to conducting on-site and desk reviews at LEAs, OSSE also 
reviews the uses of Recovery Act funds through reimbursement 
workbooks, which LEAs use to submit reimbursement requests to OSSE. 
According to OSSE officials, while reviewing subrecipients' 
reimbursement workbooks, they found that subrecipients were trying to 
comply with Recovery Act requirements, as the workbooks were generally 
free of egregious or deliberately inappropriate requests.[Footnote 46] 
OSSE officials told us that the disallowable expenditures they 
identified during their reimbursement workbook reviews were generally 
for expenditures that did not align with an LEA's approved budget and 
spending plan. For example, some LEAs requested reimbursement for a 
specific category that exceeded the budgeted amount in that category. 
In such cases, OSSE advised its LEAs to either resubmit the request 
under a different budget category or readjust its budget to get 
approval for the reimbursement within 3 business days in order to 
receive payment. Additionally, an OSSE official noted that OSSE also 
identified reimbursement requests that were not in compliance with the 
Recovery Act. For example, according to the OSSE official, an LEA 
submitted a request for reimbursement of ESEA Title I Recovery Act 
funds for the cost of a field trip to an amusement park, which is not 
allowable under the ESEA Title I program. Accordingly, OSSE denied 
payment to the LEA. The official added that because of OSSE's review 
process, some LEAs are now seeking approval for spending Recovery Act 
funds before accruing the expenditure. 

In addition to reviewing Recovery Act reimbursement requests, OSSE 
officials told us they also use the reimbursement workbooks to collect 
recipient reporting data. OSSE has been using the District's 
centralized recipient reporting process to report to the federal 
reporting Web site, which is discussed in further detail later in this 
report. OSSE reported a total of 2,833.2 FTEs were funded by Recovery 
Act SFSF, ESEA Title I, and IDEA Part B funds from April 1, 2010, to 
June 30, 2010.[Footnote 47] OSSE collects recipient reporting data 
from its subrecipients on a quarterly basis, according to OSSE 
officials. OSSE officials told us that they implemented multiple 
levels of review of the recipient reporting data, which included 
verifying that the subrecipient's actual FTE calculation was 
consistent with the subrecipient's requested reimbursement amount for 
salaries. OSSE officials told us that they are working with 
subrecipients to implement the recipient reporting process, but some 
LEAs are still having difficulties in reporting. For example, we found 
that an LEA misunderstood the recipient reporting requirements for its 
Recovery Act IDEA funds in that it did not report the hours worked by 
its contractors that were funded by IDEA grant as FTEs. OSSE's Deputy 
Chief of Staff told us that OSSE is working with the LEA to provide 
corrections and updates to the data during the continuous corrections 
period prior to the next reporting period.[Footnote 48] OSSE also 
identified 9 LEAs that had not submitted any expenditure data for 
their SFSF funds as of July 13, 2010, even though LEAs received their 
SFSF payments in January and April 2010.[Footnote 49] In response, an 
OSSE official told us that OSSE followed up with each of the 
identified LEAs, resulting in 4 of the 9 LEAs reporting expenditure 
data for SFSF funds, as of August 9, 2010. 

Recipient Reporting Provided the District the Opportunity to Develop 
Plans for Future Districtwide Grant Oversight: 

The District has consistently met the quarterly Recovery Act recipient 
reporting deadlines, utilizing its centralized Web-based recipient 
reporting system designed by the District, according to officials in 
the Office of the City Administrator (OCA). An OCA official told us 
that as of July 29, 2010, the District agencies reported 3,512 FTEs 
funded by Recovery Act funds from April 1, 2010, to June 30, 2010. 
[Footnote 50] As described in detail in our December 2009 report, 
[Footnote 51] the District developed a Web-based system for reporting 
mandated recipient reporting data. Per the District's process, with 
the exception of OSSE, each District agency receiving Recovery Act 
funds submits recipient reporting data to the District's recipient 
reporting Web site (reporting.dc.gov) on a monthly basis.[Footnote 52] 
Designated OCA officials--known as Recovery Act coordinators--are to 
review each District agency's recipient reporting data for accuracy 
and completeness before that agency can submit data to the federal 
recipient reporting Web site. At the end of the reporting period, the 
coordinators complete the review of each agency's recipient reporting 
data and approve the data for submission to the federal reporting Web 
site (federalreporting.gov), and the data are then published on the 
federal Web site for tracking Recovery Act spending (Recovery.gov). 

According to the Recovery Act coordinators, the District did not face 
significant problems or issues with recipient reporting for the period 
ended June 30, 2010. In fact, the coordinators added that the 
recipient reporting process has gone more smoothly for the District 
agencies and OCA after each successive reporting period, as agencies 
became more experienced with the process. The coordinators noted that 
they designed the centralized Web-based reporting system so they could 
implement changes to the system as needed to comply with federal 
reporting requirements or to assist District agencies in recipient 
reporting. For example, when the federal reporting system was modified 
to allow for continuous corrections by prime recipients, the Recovery 
Act coordinators altered the District's system so that District 
agencies could correct inaccurate or incorrect recipient reporting 
data during the continuous corrections period. The coordinators told 
us they made the change to the system--limiting agencies to access and 
revise only inaccurate or incorrect recipient reporting data--because 
the coordinators were concerned that agencies would accidentally 
change accurate recipient reporting data that had been submitted. The 
coordinators also noted that, on the basis of requests from District 
agencies, the District's system can now produce summary reports of 
recipient reporting data for individual Recovery Act grants, such as 
SFSF funds, in the same format as displayed on Recovery.gov. This 
allows District agencies to compare and more easily verify that the 
data they submitted to the federal reporting Web site were correct. 
Prior to the ability to create these reports, according to the 
coordinators, the District agencies were comparing their submitted 
recipient reporting data with summary reports produced by the 
District's reporting system that were difficult to read and understand 
because reports were displayed in programming language. The 
coordinators added that they required District agencies to also submit 
the new summary reports to OCA when submitting recipient reporting 
data for review, to aid in the coordinators' review. Other than this 
change in how data were verified by agencies and the District before 
being submitted to federalreporting.gov, the coordinators stated that 
the District's recipient reporting process was the same for the 
reporting period ended June 30, 2010, as compared with the reporting 
process for previous reporting periods. 

According to the District's Recovery Act coordinators, the recipient 
reporting experience has been helpful in a number of areas, most 
notably in providing the District with the opportunity to reform its 
grant management practices. Coordinators told us that because they 
implemented a centralized reporting process--with OCA developing and 
leading the process and reviewing and approving the District's 
recipient reporting data--the District, through OCA, was able to 
establish a new approach for federal grant oversight. Recovery Act 
coordinators explained that prior to the Recovery Act, the District's 
grant oversight was decentralized, and primarily grant management was 
dependent upon individual District agencies. However, utilizing the 
new approach, the coordinators told us that they plan to strengthen 
the District's grant oversight by creating a new office to manage all 
District grants under OCA. With the new office, Recovery Act 
coordinators told us the District plans to strengthen oversight by 
developing citywide grant management training, standardizing grant 
management practices, and providing technical assistance to District 
agencies, as needed. Recovery Act coordinators told us that additional 
staff positions for the new office have already been budgeted for the 
next fiscal year. Coordinators added that because District agencies 
demonstrated the ability to report consistently due to the recipient 
reporting mandate, they plan to continue to use the centralized Web- 
based system to manage all federal grant funds awarded to the District 
after Recovery Act funds are expended. 

The District's Office of the Inspector General Has Initiated One Audit 
of Recovery Act Funding: 

The DC OIG is responsible for conducting audits, inspections, and 
investigations of government programs and operations in the District, 
including auditing the District's use of Recovery Act funds. In our 
last report, issued in May 2010, we noted that DC OIG had initiated 
one audit specifically related to the use of Recovery Act funds 
involving construction contracts with the District Department of 
Transportation that were awarded under the Recovery Act.[Footnote 53] 
According to DC OIG, the purpose of this audit is to determine whether 
the District Department of Transportation fulfilled the terms of its 
certification under Section 1511 of the Recovery Act,[Footnote 54] 
complied with District procurement regulations in awarding contracts, 
and utilized effective controls. This audit is expected to be 
completed by spring 2011. DC OIG plans to coordinate with GAO and U.S. 
Department of Transportation officials to obtain general information 
about the federal requirements for Recovery Act funds provided to the 
District and the project certification process. As of July 14, 2010, 
the District OIG has not initiated any additional Recovery Act audits. 
A senior DC OIG official told us that other planned audits and 
inspections of Recovery Act funds had not begun because of limited 
resources within the agency. 

The District's Single Audits Provide Oversight of Some Recovery Act 
Funds: 

According to data from the Federal Audit Clearinghouse, which is 
responsible for receiving and distributing single audit results, it 
received the District's single audit reporting package for the year 
ending September 30, 2009, on June 29, 2010. The 2009 audit--the first 
Single Audit for the District that included Recovery Act programs-- 
identified 5 significant deficiencies and 17 material weaknesses 
related to controls over programs that received Recovery Act funds, 
including FMAP.[Footnote 55] However, a senior official from the 
Office of the Chief Financial Officer (OCFO) noted that the 
deficiencies and weaknesses were not a result of noncompliance with 
Recovery Act requirements. This official added that the District has a 
single audit oversight committee--chaired by a staff member from the 
OCFO with representatives from the Executive Office of the Mayor, City 
Council, and the Office of the Inspector General--that oversees the 
progress of the Single Audit to include follow-up and remediation of 
past findings and timely completion of the audit. 

Recovery Act Funds Have Helped Support Certain District Programs and 
Balance Its Budget in Fiscal Year 2010, and There Are Signs the 
District's Economy Is Improving: 

Table 1: Characteristics of the District of Columbia: 

Population: 599,657; 
Unemployment rate: 10.5%; 
Fiscal year 2011 proposed operating budget: $8.9 billion. 

Sources: U.S. Census Bureau, U.S. Department of Labor, Bureau of Labor 
Statistics (BLS), Local Area Unemployment Statistics (LAUS), District 
of Columbia budget document. 

Notes: Population data are from the latest available estimate, July 1, 
2009. Unemployment rates are a preliminary estimate for June 2010 and 
have not been seasonally adjusted. Rates are a percentage of the labor 
force. Estimates are subject to revision. 

[End of table] 

Additional Recovery Act grants have helped support certain District 
education, human services, and technology programs. District officials 
told us that the District has received over $53 million in Recovery 
Act funding since we last spoke with them in April 2010--about $36 
million in non-competitive grants and about $20 million in competitive 
grants. On April 2, 2010, OSSE was awarded $12 million to improve its 
persistently lowest-achieving schools through the non-competitive 
School Improvement Grant, administered by the U.S. Department of 
Education. Additionally, on April 28, 2010, the District's Department 
of Human Services qualified for and was awarded about $24 million from 
the U.S. Department of Health and Human Services for the Temporary 
Assistance for Needy Families Emergency Contingency Fund to support 
the increased demand for assistance due to the economic downturn. Of 
the $20 million awarded to the District in Recovery Act competitive 
grants after March 2010, about $17 million was awarded to the 
District's Office of the Chief Technology Officer, on June 28, 2010, 
by the U.S. Department of Commerce for its Broadband Technology 
Opportunities Program (BTOP) to support its Comprehensive Community 
Infrastructure award. The District plans to provide direct Internet 
connections to public areas in communities located predominately in 
the District's economically distressed areas. An additional $1.6 
million was awarded to the District through the same BTOP program on 
July 2, 2010, focusing on providing public computer centers to the 
District of Columbia Public Libraries. The remainder of the 
competitive grant awards consists of over $600,000 awarded to the 
District's Department of Employment Services by the U.S. Department of 
Labor for its On-the-Job-Training Grant to assist in reemployment for 
dislocated workers experiencing prolonged unemployment. 

Although the District continues to face fiscal challenges, there are 
signs the District's economy is starting to recover. In our May 2010 
report, we noted that the Mayor's proposed fiscal year 2011 budget 
identified a $523 million budget gap as a result of the decline in 
revenues in fiscal year 2011, slow economic recovery, and the end of 
Recovery Act funding. The Mayor's budget proposes to close the 
projected $523 million budget shortfall for fiscal year 2011 through 
maximizing efficiency in the District government, including such 
strategies as the elimination of 385 positions through attrition, 
retirement, and reductions in force;[Footnote 56] freezing automatic 
pay increases for government employees; and renegotiating contracts 
with the District's vendors. According to the District's Chief of 
Budget Execution, the infusion of Recovery Act funds has helped 
mitigate the negative effects of the recession on the District's 
budget by providing time to adjust for the decline in revenues, which 
allowed the District to avoid making drastic cuts to services and 
programs. 

In June 2010, the District's Chief Financial Officer (CFO) reported 
that the revenue estimates for fiscal year 2010 through 2014 remain 
unchanged from the estimate made in February 2010, noting that there 
are indicators of economic recovery, although recovery will be a long, 
slow process.[Footnote 57] For example, the District's real property 
tax collections were better than expected, and withholding tax 
collections remained strong, according to the CFO. On the other hand, 
collections from the April individual tax filings performed below 
expectations, according to the quarterly revenue estimate. 

The District has prepared for the end of Recovery Act funding because 
the District is required by law to prepare an annual balanced budget 
and multiyear financial plan. As a result, District officials have 
accounted for the future decrease in Recovery Act funds in planning 
the budgets for fiscal years 2011 to 2014. 

Comments from the District of Columbia: 

We provided the Office of the Mayor of the District a draft of this 
appendix on August 16, 2010. On August 18, 2010, the Recovery Act Co- 
Coordinator within the Office of the City Administrator concurred with 
the information in the appendix and provided technical suggestions 
that were incorporated, as appropriate. In addition, we provided 
relevant excerpts to officials of the District agencies and 
organizations that we visited. They agreed with our draft and provided 
some clarifying information, which we incorporated, as appropriate. 

GAO Contact: 

William O. Jenkins, Jr., (202) 512-8757 or jenkinswo@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above, Leyla Kazaz, Assistant 
Director; Adam Hoffman, analyst-in-charge; Laurel Beedon; Labony 
Chakraborty; Sunny Chang; Nagla'a El-Hodiri; Nicole Harris; and 
Mattias Fenton made major contributions to this report. 

[End of section] 

Appendix IV Footnotes: 

[1] Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009). 

[2] Recipients of Recovery Act funds are required to report quarterly 
on a number of measures, including the use of funds and estimates of 
number of jobs created and retained. Recovery Act, div. A, § 1512. We 
refer to the reports required by section 1512 of the Recovery Act as 
recipient reports. 

[3] The District has 58 LEAs, including 57 charter school LEAs and the 
District of Columbia Public Schools (DCPS). 

[4] A building that has been retrofitted is one that has been updated 
with new or modified equipment or systems for the purpose, in this 
case, of increasing energy savings. 

[5] [5] According to DOE guidance, states are required to obligate all 
of the Recovery Act SEP grant funds within 18 months. DOE guidance 
further states that Recovery Act SEP grant funds should be obligated 
by September 30, 2010 and spent by March 31, 2012 to meet 
Congressional and Department goals. 

[6] The EECBG program was authorized in Title V, Subtitle E of the 
Energy Independence and Security Act, which was signed into law on 
December 19, 2007. 

[7] Prime recipients are nonfederal entities, such as District 
agencies, that receive Recovery Act funding as federal awards in the 
form of grants, loans, or cooperative agreements directly from the 
federal government. 

[8] In July 2009, the City Administrator directed District agencies to 
assign one individual staff member as the grant manager for each 
individual Recovery Act grant award an agency received. According to 
the City Administrator, the grant manager is responsible for day-to-
day management of the grant, such as verifying that all recipient 
reporting information for the grant is accurate and submitted within 
deadlines. 

[9] Since March 2010, DDOE has hired a program manager, an assistant 
program manager, two energy auditors, and two energy program 
specialists. 

[10] This represents a delay from prior estimates. In May 2010, we 
reported that DDOE officials anticipated expending all of its Recovery 
Act funding by September 30, 2010. See GAO, Recovery Act: States' and 
Localities' Uses of Funds and Actions Needed to Address Implementation 
Challenges and Bolster Accountability (District of Columbia), 
[hyperlink, http://www.gao.gov/products/GAO-10-605SP] (Washington, 
D.C.: May 26, 2010). 

[11] To capture a variety of approaches to performing weatherization 
work, we selected these three CBOs on the basis of their use of 
contractors as opposed to use of their own crews, whether they offer 
training to these crews, and congressional interest. We determined 
that the selection was appropriate for our design and objectives, and 
that the selection would generate valid and reliable evidence to 
support our work. 

[12] DDOE reported that they conducted inspections of CBOs in early 
July 2010--roughly 2 weeks after our review --and found that all CBOs 
they reviewed had copies of all required documentation. 

[13] Only one of the three CBOs we visited had more than 10 complete 
customer files for us to choose from. Of the other two CBOs, one had 4 
and another had 9 complete files; other customer files were on jobs 
that were still in progress. In total we reviewed 23 completed 
weatherization customer files. 

[14] Other states also use the Hancock system. 

[15] The eligibility of a client for WAP is based on the same criteria 
the District uses for its Low Income Home Energy Assistance Program 
(LIHEAP). Within DDOE, this program shares client eligibility data 
with WAP. 

[16] It is the CBO's responsibility to get DDOE's approval to proceed 
with additional work. DDOE monitors that the average cost of all 
Recovery Act jobs does not exceed the $6,500 federal maximum per home 
average limit for weatherization. 

[17] The Hancock system raises an alert when the invoice amount for 
one home exceeds $7,150, or $6,500 plus the 10 percent administrative 
fee. 

[18] We obtained the FTE information from Recovery.gov on August 6, 
2010. 

[19] Pub. L. No. 111-226, § 101, 124 Stat. 2389. The legislation also 
provided for an extension of increased Federal Medical Assistance 
Percentage (FMAP) funding. 

[20] The amount requested for reimbursement may not equal the amount 
ultimately paid to the subrecipient (LEA) depending on the grant 
manager's review of the submitted expenditures. 

[21] Of the total $73.1 million in SFSF education stabilization funds 
allocated to the District, the District allocated almost $1.3 million 
to the University of the District of Columbia (UDC). 

[22] The Metropolitan Police Department received $6.5 million (40 
percent) of the District's SFSF government services funds. 

[23] The Cash Management Improvement Act of 1990, as amended, requires 
the Secretary of the Treasury, along with the states, including the 
District, to establish equitable funds transfer procedures so that 
federal financial assistance is paid to states in a timely manner and 
funds are not withdrawn from Treasury earlier than they are needed by 
the states for grant program purposes. The act requires that states 
pay interest to the federal government if they draw down funds in 
advance of need and requires the federal government to pay interest to 
states if federal program agencies do not make program payments in a 
timely manner. The Department of the Treasury promulgates regulations 
to implement these requirements. 31 C.F.R. pt. 205. However, cash 
management by subrecipients, such as LEAs, is subject to Department of 
Education grant administration regulations, which may require 
subrecipients to remit to the U.S. government interest earned on 
excess balances. See 34 C.F.R. §§ 74.22, 80.21. 

[24] For the Department of Education, see 34 C.F.R. § 80.21(b). The 
specific requirements can vary depending on whether the program (1) is 
listed in the Catalogue of Federal Domestic Assistance, (2) meets the 
threshold for a major federal assistance program, and (3) is covered 
by an agreement between the U.S. Treasury Department and the state, 
among other circumstances. 

[25] To receive Recovery Act funds, OSSE requires that LEAs submit an 
application that describes how the funds will be used, and OSSE must 
approve this application. The IDEA Part B Recovery Act application 
process consists of three phases: phase I--LEAs make programmatic 
assurances; phase II--LEAs submit spending plans and budgets based on 
preliminary allocations; and phase III--LEAS submit revised spending 
plans and budgets based on their final allocations. The 33 LEAs that 
applied for and were approved to receive Recovery Act IDEA funds at 
the time of our analysis--May 24, 2010--comprise 32 public charter 
schools and DCPS. As of August 4, 2010, OSSE reported that an 
additional 7 LEAs had applied for and received IDEA Part B Recovery 
Act funds, for a total of 40. The additional 7 LEAs were not included 
in our analysis. In addition to its 129 schools, DCPS also serves as 
the LEA for IDEA purposes for16 public charter schools. According to 
an OSSE official, 2 of those 16 LEAs will be closed as of the 2010-
2011 school year, and as a result, DCPS will be the IDEA LEA for 14 
public charter schools for the 2010-2011 school year. In our last 
report (GAO-10-695SP), we discussed the planned uses for ESEA Title I 
Recovery Act funds and SFSF funds. We found that a significant portion 
of LEAs planned to use these funds for salaries and benefits. 

[26] To gather these data, we obtained from OSSE the IDEA Part B 
Recovery Act fund applications with budget sheets for the 33 LEAs that 
had submitted applications for those funds at the time of our 
analysis. These budget sheets were approved by OSSE and identified the 
LEAs' planned uses of these funds. We reformatted and analyzed the 
planned uses and determined that the data were sufficiently reliable 
for the purposes of this report. The totals do not add to 100 percent 
because the four budget categories discussed are four out of the seven 
total budget categories on the budget sheets and the percentages have 
been rounded. 

[27] Including salaries, contracts, supplies and materials, and fringe 
benefits, there are seven budget spending categories in the OSSE- 
created application that LEAs must complete to receive IDEA Recovery 
Act funds. The other three categories are fixed costs (rent and 
utilities), other services, and equipment. The categories for IDEA 
budgets and direct costs are slightly different from the categories 
used in the Recovery Act ESEA Title I and SFSF applications. The ESEA 
Title I and SFSF applications put salaries and benefits together in 
one budget category. The IDEA application puts salary and fringe 
benefits into two separate budget categories. The totals do not add to 
100 percent because the four budget categories discussed are four out 
of the seven total budget categories on the budget sheets and the 
percentages have been rounded. 

[28] The budget category "contractual services" can include contracts 
for direct instruction, administration, support services, operation 
and maintenance, and student transportation. For the 33 LEAs that were 
part of our analysis, "contractual services" were used primarily in 
the program categories of direct instruction and support services. 

[29] DCPS submitted its IDEA Part B Recovery Act Phase III application 
on August 2, 2010, according to OSSE officials. 

[30] Recovery Act ESEA Title I and SFSF fund recipient LEAs can be 
separated into two distinct groups for analysis--the public charter 
schools and DCPS. In contrast, for IDEA Recovery Act funds, DCPS is 
the LEA for its own 129 schools and additionally serves as the LEA for 
IDEA purposes for 16 of the public charter school LEAs. Thus, it is 
not possible in this analysis of Recovery Act IDEA Part B funds to 
separate all the public charter LEAs and their planned spending from 
the DCPS LEA and its planned spending. 

[31] Center City Public Charter School has six campuses. 

[32] Friendship Public Charter School has six campuses. 

[33] When asked to describe what they saw as successes, Center City 
Public Charter School and Friendship Public Charter School chose to 
describe the use of both ESEA Title I Recovery Act funds and IDEA Part 
B Recovery Act funds. DCPS chose to describe successes using IDEA Part 
B Recovery Act funds. 

[34] The DCPS official also noted that SEDS provides information not 
just across the individual schools but also across the whole LEA. 

[35] An IEP is a written educational plan for a student with 
disabilities. The purpose of an IEP is to provide for a child with 
disabilities specialized or individualized assistance in school. 

[36] According to Friendship officials, prior to the program, 
Friendship's former discipline policy was based on rule enforcement 
and was inconsistent both within the individual schools and across the 
LEA. Additionally, a teacher's response to a discipline problem was 
often sending a child out of the classroom, a response that meant 
children were missing school time. 

[37] Subrecipients consist of District LEAs and other District 
organizations receiving federal funds through OSSE. 

[38] The SFSF funds, ESEA grants, and IDEA Part B on-site monitoring 
reviews utilize separate protocols. 

[39] OSSE's desk review examines the uses of the following Recovery 
Act funds, where applicable: IDEA Part B; McKinney-Vento; School 
Improvement Grants; State Fiscal Stabilization Fund--education 
stabilization funds and government services funds; ESEA Title I, Part 
A; and Enhancing Education Through Technology. 

[40] OSSE officials told us that the on-site monitoring schedule and 
the desk-review schedule were determined by separate risk analyses. 
Some of the LEAs that received on-site monitoring visits also received 
desk reviews from March through June 2010. The on-site monitoring 
schedule divided the LEAs into two categories--higher-risk and lower- 
risk--with OSSE conducting visits to higher-risk LEAs in the 2009-2010 
school year. OSSE has developed its ESEA grants on-site monitoring 
schedule for the 2010-2011 school year. The desk-review schedule 
divided the LEAs into three categories--high-risk, medium-risk, and 
low-risk--with OSSE conducting reviews of LEAs in May 2010 and July 
2010 and planning to conduct reviews in October 2010. 

[41] As of July 23, 2010, an OSSE official told us they had received 
corrective action plans from two LEAs. 

[42] OSSE officials told us that they may conduct additional on-site 
monitoring or desk reviews to verify plans have been sufficiently 
implemented, as determined by OSSE staff. 

[43] We reviewed the 3 on-site monitoring reports that were completed 
as of July 2, 2010 and the 13 desk review reports that were completed 
as of July 20, 2010. Our review of the monitoring reports is limited 
to discussing the findings related to Recovery Act funding, because of 
the scope of our work. Additionally, as of July 15, 2010, OSSE had not 
finalized any on-site monitoring reports of subrecipients receiving 
IDEA funds, and therefore there were no reports for us to review. 

[44] OSSE provides subrecipients with certain Recovery Act funds on a 
reimbursement basis, whereby subrecipients can obligate Recovery Act 
funds, spend their own state and local funds, then request 
reimbursement from OSSE for the expenditure amount. Before 
subrecipients can access the funds, OSSE requires subrecipients to 
submit an application that describes how the funds will be used in a 
budget and spending plan and provide assurances that the uses comply 
with the Recovery Act. According to OSSE officials, upon approval of 
the application, subrecipients can submit requests for reimbursement, 
using a Recovery Act reimbursement workbook developed by OSSE. OSSE 
officials then review these workbooks quarterly, to verify the 
requests align with the subrecipients' approved applications. 

[45] OSSE was created in October 2007 to be the District's stand-alone 
state educational agency. Prior to this, DCPS served as both the local 
and state educational agency. 

[46] The Recovery Act generally dictates that funds may not be used 
for any casino or other gambling establishment, aquarium, zoo, golf 
course or swimming pool, and also provides specific spending 
limitations for certain grant programs. For example, the State Fiscal 
Stabilization Fund provisions state that LEAs may not use SFSF funds 
for payment of maintenance costs; stadiums or other facilities 
primarily used for athletic contests for which admission is charged to 
the general public; purchase or upgrades of vehicles; or improvement 
of stand-alone facilities the purpose of which is not the education of 
children, including central office administration or operations or 
logistical support facilities. 

[47] We obtained the FTE information from Recovery.gov on August 6, 
2010. 

[48] In January 2010, the Recovery Accountability and Transparency 
Board modified the process for correcting data on the federal 
reporting Web site by initiating a "continuous corrections" period, 
where Recovery Act fund recipients could correct submitted data for 
the immediately preceding reporting period, if necessary, after the 
reporting period ended. Prior to January, data in the federal 
reporting Web site, for a given reporting period, were locked and no 
longer correctable once the reporting period ended and the information 
was published on Recovery.gov. 

[49] In July 2010, OSSE issued a memorandum to its subrecipients 
reminding them to, among other things, submit quarterly SFSF 
expenditure reports and identifying LEAs that have obligated all of 
their SFSF funds and completed reporting of their SFSF expenditures, 
as well as LEAs that have not submitted SFSF expenditure reports. 
According to OSSE's Deputy Chief of Staff, LEAs have until September 
30, 2012 to report all of their SFSF expenditures. 

[50] In May 2010, our report on the Recovery Act stated that the 
recipient reporting exercise is highlighting problems in obtaining 
quality recipient-reported data because of the overall complexity of 
funded programs and the nationwide scope. Although, updated guidance 
and system enhancements have helped improve data and quality 
reliability, FTE calculations continue to result in noncomparable data 
across Recovery Act-funded programs and pose problems for some 
recipients. 

[51] GAO, Recovery Act: Status of States' and Localities' Use of Funds 
and Efforts to Ensure Accountability (District of Columbia), 
[hyperlink, http://www.gao.gov/products/GAO-10-232SP] (Washington, 
D.C.: Dec. 10, 2009). 

[52] According to OCA and OSSE officials, one District agency--OSSE-- 
does not submit recipient reporting data to the District's reporting 
Web site on a monthly basis because OSSE collects and submits 
recipient reporting data for its subrecipients on a quarterly basis, 
imposing a deadline of 1 to 2 weeks prior to the end of each reporting 
period to allow for data quality review and processing time. According 
to OSSE officials, OSSE cannot require subrecipients to report their 
recipient reporting data on a monthly basis, but highly recommends 
that subrecipients do so. 

[53] [hyperlink, http://www.gao.gov/products/GAO-10-605SP]. 

[54] With respect to Recovery Act funds made available to state or 
local governments for infrastructure projects, the governor, mayor, or 
other chief executive, as appropriate, is required to certify that the 
infrastructure investment has received the full review and vetting 
required by law and that the chief executive accepts responsibility 
that the infrastructure investment is an appropriate use of taxpayer 
dollars. The certification is also to include a description of the 
investment, the estimated total cost, and the amount of Recovery Act 
funds to be used, among other requirements. Recovery Act, div. A. § 
1511, 123 Stat. 287. 

[55] The District's Single Audit for the year ended September 30, 2009 
identified a total of 78 significant internal control deficiencies 
related to compliance with Recovery Act and non-Recovery Act Federal 
Program requirements, of which 66 were classified as material 
weaknesses. A senior official from the Office of the Chief Financial 
Officer told us that the number of findings identified in the fiscal 
year 2009 Single Audit decreased by 32 percent, compared with the 
number of findings identified in the prior year. 

[56] According to the Mayor's proposal, the District has eliminated a 
total of 2,016 District government positions during the last 2 years. 

[57] The District's fiscal year begins on October 1 and ends on 
September 30. Each February, the Office of the Chief Financial Officer 
issues a revenue estimate that is used to develop the budget for the 
next fiscal year. The estimate is revised as the new fiscal year 
begins and subsequently at regular intervals. 

[End of section] 

Appendix V: Florida: 

Overview: 

The following summarizes GAO's work on the latest in a series of 
bimonthly reviews of American Recovery and Reinvestment Act of 2009 
(Recovery Act) spending in Florida.[Footnote 1] The full report on our 
work in 16 states and the District of Columbia is available at 
[hyperlink, www.gao.gov/recovery]. 

Florida has been deeply affected by the national economic recession 
with high unemployment and home foreclosure rates. State officials 
have taken steps to reduce expenditures and increase revenues and have 
used Recovery Act funds to address short-term economic hardship. 
Florida officials expect the state to receive about $21.7 billion in 
Recovery Act funds over multiple years through formula and competitive 
grants and contracts as well as benefits directly to individuals. Of 
the $21.7 billion, approximately $10.75 billion is subject to special 
reporting requirements that include an estimate of the number of jobs 
created or retained by the project, with about $7.8 billion of that 
amount coming through state agencies. The remaining $10.98 billion 
goes directly to individuals (e.g., unemployment compensation, 
increased food stamp assistance, and other programs) and is not 
subject to the special reporting requirements. 

What We Did: 

Our work in Florida focused on specific programs funded under the 
Recovery Act. For this review, we collected relevant data from June to 
September 2010 on the use of specific funds, recipients' experiences 
in reporting Recovery Act expenditures and results to state and 
federal agencies, and steps to ensure accountability of the funds (see 
table 1). Our review focused exclusively on these entities and 
programs and our results cannot be generalized to Florida or 
nationwide. For descriptions and requirements of the programs we 
covered, see appendix XVIII of GAO-10-1000SP. 

Table 1: Sites Selected for the Seventh Report, Rationale, and Work 
Done: 

Program: Weatherization Assistance Program; 
Entities and sites selected: Florida Department of Community Affairs 
(DCA); 
Two subgrantees: Tampa Hillsborough Action Plan, and Miami-Dade 
Community Action Agency. Selected subgrantees based on the dollar 
value of weatherization funding allocated to the respective programs 
and geographic dispersion. Methodology and information collected: DCA: 
Discussed management controls in place. Subgrantees: Selected 28 
weatherization client files: 13 randomly and 15 nongeneralizable cases 
based on geographic dispersion within the subgrantees’ service areas, 
high dollar amount and whether the home was inspected by a contract 
field monitor to review for documentation supporting compliance with 
DCA requirements, such as income eligibility; however, we did not 
independently verify clients’ income. Weatherized homes: Visited 20 
homes to determine whether the work paid for was completed and of 
acceptable quality. A licensed engineer on our staff participated in 
inspections of these homes to assess work quality. 

Program: Tax Credit Assistance Program (TCAP) and Section 1602 Program; 
Entities and sites selected: Florida Housing Finance Corporation 
(FHFC); 
Three projects receiving funding awards: Cypress Cove in Winter Haven; 
Bonnet Shores in Lakeland; and Northwest Gardens 1 in Ft. Lauderdale. 
Projects were selected based on source of funds. Methodology and 
information collected: FHFC: Reviewed and collected relevant 
documentation. Projects: Visited Cypress Cove and Bonnet Shores sites 
to observe status of projects; interviewed FHFC, Cypress Cove, Bonnet 
Shores, Northwest Gardens and Boston Capital officials with focus on 
the increased risks and costs to FHFC for monitoring compliance, FHFC’
s internal controls for ensuring compliance with federal requirements, 
and changes in asset management responsibilities among project owners, 
investors, and FHFC. 

Program: Energy Efficiency and Conservation Block Grant; 
Entities and sites selected: City of Jacksonville, City of Miami, 
Miami-Dade County, and the City of Tampa were selected because, among 
cities and counties receiving grants, they received the largest 
allocations. Methodology and information collected: Interviewed 
cognizant officials and collected relevant documentation. 

Program: Early Head Start Expansion Grant; 
Entities and sites selected: U.S. Department of Health and Human 
Services (HHS) Office of Head Start (OHS); 
Two grantees: Miami-Dade Community Action Agency and Children First, 
Inc. in Sarasota. Grantees were selected based on the size of the 
grant, geography, and previous audit findings. Methodology and 
information collected: OHS Atlanta Regional Office: Interviewed 
officials regarding oversight and grantee use of funds. Grantees: 
Interviewed officials regarding their use of Recovery Act funds, 
challenges in spending within the Recovery Act time frame, and 
protocols for enrollment of eligible children. 

Program: State and local budgets; 
Entities and sites selected: State budget officials; 
Selected Miami-Dade County because it received Energy Efficiency 
Conservation Block Grants (EECBG). We conducted joint site visits to 
the county for the use of Recovery Act funding in general, and its use 
of EECBG specifically, to focus on a common program from a budget and 
program perspective. Methodology and information collected: 
Interviewed state officials on state’s use and effect of Recovery Act 
funds on the current fiscal year, 2010-2011, budget and strategies for 
when these funds are no longer available and reviewed budget 
documentation. Interviewed county officials on use and amount of 
Recovery Act funds received, effect of these funds on the county’s 
budget, and strategies for addressing challenges when Recovery Act 
funds are no longer available, and reviewed budget documents. 

Program: Contracting; 
Entities and sites selected: Selected a total of 12 highway, 
education, and Workforce Investment Act (employment and training) 
contracts that we had reviewed in previous audit cycles to gain an 
understanding of the extent to which officials believed the contracts 
were awarded competitively and chose pricing structures that reduce 
the government’s risk. Methodology and information collected: We 
followed up on 12 contracts to determine whether contracts experienced 
significant changes to cost, schedule, scope of work, and/or 
experienced performance issues. We administered a questionnaire to the 
project managers responsible for each contract and reviewed their 
responses and supporting documentation, such as contracts, contractor 
performance reports, and project management system reports. We also 
reviewed the highway contracts with Florida Department of 
Transportation (FDOT) officials and FDOT’s Inspector General to obtain 
further understanding of how the state manages contracts, including 
changes to contract schedules. 

Program: Transparency and accountability; 
Entities and sites selected: Florida Auditor General; Florida Chief 
Inspector General and Agency Inspectors General; Florida Recovery Czar
Methodology and information collected: Interviewed state officials on 
audit work planned or completed. Reviewed accountability activities 
reported by state officials and Inspectors General. Reviewed state 
officials’ websites to assess transparency of state’s accountability 
activities and information made publicly available. Participated in 
the Inspector General’s quarterly Recovery Act Oversight Partners 
Meeting. 

Program: Recipient reporting; 
Entities and sites selected: Florida Recovery Czar; Florida Department 
of Community Affairs; Florida Energy and Climate Commission; City of 
Tampa; Tampa Hillsborough Action Plan; Pinellas County Urban League; 
Methodology and information collected: Interviewed state officials on 
the reporting of jobs created and retained. Interviewed a local agency 
administering the Energy Efficiency and Conservation Block Grant and 
two subrecipients of the Weatherization Assistance Program regarding 
jobs calculations for recipient reporting for the quarter ended June 
30, 2010 and reviewed documentation used to calculate the reported 
number of jobs. 

Source: GAO. 

[End of table] 

What We Found: 

The following are highlights of our review. 

* Weatherization. As of June 30, 2010, Florida reported weatherizing 
3,878 housing units, or about 20 percent of the 19,090 housing units 
it expects to weatherize with Recovery Act funding, and spending $35 
million, or 40 percent of the $88 million it has thus far been 
allocated. Florida's Department of Community Affairs (DCA) has 
instituted various management controls over the program, but our 
review of two additional subgrantees identified similar control gaps 
and compliance issues as those identified in our May 2010 report. For 
example, weatherization work done was often not consistent with the 
recommendations of home energy audits and no reasons were given for 
the differences; in some instances, work was charged to the program 
but not done or lacked quality; several potential health and safety 
issues were not addressed; and contractors' prices were not being 
compared to local market rates, as required by DCA. In addition, DCA's 
contract field monitors did not identify these issues in their reviews 
of the two subgrantees' completed cases we and they reviewed. DCA 
officials have acknowledged these problems and have taken steps to 
address the problems, including changing procedures and guidelines and 
instructing contract field monitors to be more attentive to these 
issues. The two subgrantees we reviewed also agreed to take corrective 
actions. 

* Tax Credit Assistance and Section 1602 Tax Credit Exchange. Although 
Florida's Housing Finance Corporation (FHFC) and its project owners 
appeared to be on track to meet the Department of Housing and Urban 
Development's spending deadlines for TCAP, this did not appear to be 
the case for Department of the Treasury's December 31, 2010 funding 
and spending deadlines for the Section 1602 Program. For example, as 
of July 30, 2010, 28 provisionally approved projects had not yet 
received final funding awards under the Section 1602 Program. FHFC 
generally expected these projects to receive final approval or close 
by November 2010. In addition, several projects could face additional 
risk because they did not have third-party investors who would also 
typically monitor the projects to ensure compliance with program 
requirements and protect their financial interests. FHFC has taken or 
planned steps to address the risks associated with not meeting 
Treasury's deadlines and the absence of third-party oversight. FHFC 
reported significant job creation under these programs, but the 
methodologies used for these estimates differed. TCAP is subject to 
Recovery Act recipient reporting requirements but the Section 1602 
Program is not. 

* Energy Efficiency and Conservation Block Grants. As of July 15, 
2010, of the municipalities we reviewed, only Jacksonville did not yet 
have monitoring procedures in place to track EECBG funds. While each 
city and county had met project requirements, such as environmental 
review, they varied in their progress toward meeting Department of 
Energy deadlines for obligating funds. 

* Early Head Start Expansion Grants. Delays in OHS's award of the 
grant and in grantee implementation of the program slowed the delivery 
of services. For example, although Miami-Dade County Community Action 
Agency anticipated serving all its Recovery Act-funded children by 
January 1, 2010, it was not able to achieve full enrollment until 
months later. Due to the delays, the Community Action Agency also 
expects to have unspent funds at the end of fiscal year 2010, but they 
hope to obtain approval to use the unspent funds in the second and 
final year of the grant. 

* State and local budgets. Florida's state budget for the current 
fiscal year includes $2.6 billion in Recovery Act funds in addition to 
about $270 million for increased federal match for Medicaid. However, 
the state may be required to make budget reductions for its fiscal 
year 2011-2012 when the flow of Recovery Act funding decreases 
substantially. Officials in Miami-Dade County said that Recovery Act 
funds are considered as nonrecurring revenue and have primarily been 
used for infrastructure and capital projects and that budget gaps have 
been closed with salary and service reductions and the use of reserve 
funds; remaining reserves are now below the goal established in county 
policy. 

* Contracting. While most of the 12 Recovery Act-funded contracts we 
reviewed had post-award changes, according to project managers, the 
changes generally did not have significant effects on the projects' 
outcomes or costs and were within acceptable levels. 

* Transparency and accountability. The Office of Inspector General 
(OIG) at each Florida agency receiving Recovery Act funds continues to 
conduct oversight activities. For example, the Florida Department of 
Transportation's (FDOT) OIG reported that it performed 493 reviews and 
identified no findings that would jeopardize federal funding. The 
State Auditor General's Office performs annual audits of federal award 
expenditures, including the $1.8 billion identified as Recovery Act 
funds in fiscal year 2008-2009. The Auditor General reported that its 
audits of these expenditures in certain programs, such as Medicaid, 
identified some internal control issues. 

* Recipient reporting. Florida's Recovery Czar said that overall this 
round of recipient reporting appeared to go smoothly as the process 
has become routine. However, at the three recipients we visited we 
identified some reporting omissions or errors in estimating job 
creation or retention. 

Our Work Found Some Compliance and Control Issues in Florida's 
Weatherization Assistance Program but It Has Taken Steps to Address 
Concerns: 

The Weatherization Assistance Program is intended to weatherize homes 
to save energy and improve health and safety, and to create jobs. As 
of June 30, 2010, the Florida Department of Community Affairs (DCA) 
had received $88 million (half of its total allocation) and reported 
obligating about $65 million and expending about $35 million in 
Recovery Act money for the program. It has funded 27 subgrantees to 
deliver weatherization services throughout the state. DCA's goal is to 
weatherize 13,812 single-family and 5,278 multifamily residences by 
March 31, 2012, the date by which the U.S. Department of Energy (DOE) 
has indicated all Recovery Act weatherization program funds are to be 
spent by grantees. As figure 1 shows, after a slow start, program 
weatherizations have steadily increased each month since September 
2009. By June 30, 2010, a total of 3,878 single-family residences had 
been weatherized or about 20 percent of the program's total goal of 
19,090.[Footnote 2] Furthermore, DCA officials said Florida is on 
track to weatherize 30 percent--about 5,700 homes--of its total 
program goal by the end of September 2010. DCA officials said that on 
May 10, 2010, DCA contracted with the University of Florida to conduct 
a study of energy savings overall and by weatherization measure 
installed utilizing consumption data obtained from clients' utility 
bills. According to DCA, Florida saved or created about 215 jobs for 
the quarter ending June 30, 2010, as a result of the weatherization 
program.[Footnote 3] 

Figure 1: Actual Single Family Homes Weatherized Compared to 
Cumulative Monthly Goals for Florida's Weatherization Assistance 
Program: 

[Refer to PDF for image: vertical bar graph] 

Month: September 2009; 
Actual: 14;
Goal: 65. 

Month: October 2009; 
Actual: 91; 
Goal: 353. 

Month: November 2009; 
Actual: 278; 
Goal: 826. 

Month: December 2009; 
Actual: 546; 
Goal: 1,258. 

Month: January 2010; 
Actual: 964; 
Goal: 1,764. 

Month: February 2010; 
Actual: 1,433; 
Goal: 2,283. 

Month: March 2010; 
Actual: 1,988; 
Goal: 2,815. 

Month: April 2010; 
Actual: 2,593; 
Goal: 3,352. 

Month: May 2010; 
Actual: 3,198; 
Goal: 3,898. 

Month: June 2010; 
Actual: 3,878; 
Goal: 4,448. 

Source: DCA. 

[End of figure] 

As previously reported, DCA has instituted a variety of management 
controls, including policies for determining and documenting (1) 
client eligibility and priority for services, (2) completion of home 
energy audits prior to weatherization work, and (3) acceptable 
completion of weatherization work.[Footnote 4] DCA also reviews 
subgrantee operations. As of June 30, 2010, DCA said it had completed 
reviews of 22 subgrantees and inspected 101 homes for completed work. 
Since November 2009, DCA has also contracted with field monitors to 
verify subgrantees' data entry, review all client files, and inspect 
50 percent of homes completed.[Footnote 5] As of June 30, 2010, DCA 
reported that contract field monitors had reviewed all required 
completed client files and had inspected 1,957 completed homes, 
considerably more than the number of homes DOE requires to be 
inspected.[Footnote 6] 

Client Files We Reviewed and Homes We Visited Generally Met Program 
Requirements, but We Found Some Compliance Issues and Control Gaps: 

For our previous report issued in May 2010, we visited three 
subgrantees. Although they generally met DCA's program requirements, 
we found gaps in the state's controls, resulting in problems 
undetected by state program personnel or noncompliance.[Footnote 7] In 
this review of two additional subgrantees, we found similar issues; 
however, DCA has taken several steps to put procedures in place aimed 
at reducing the occurrence of these types of issues. 

Client File Reviews and Home Inspections at Two Subgrantees Identified 
Several Issues: 

For this update, we reviewed 28 client files and inspected 20 
completed homes at two DCA subgrantees. Officials at both subgrantees 
attributed problems we identified to such reasons as staff errors or 
omissions and said corrective actions would be or have been taken. DCA 
has also taken steps to address these issues. 

Client Eligibility: 

All 13 client files we reviewed at one subgrantee contained the 
required documentation for program eligibility. At the other 
subgrantee, 7 of 15 cases had discrepancies: household income recorded 
on the client application form did not match income amounts in 
supporting documentation; documentation for disability was missing; or 
both.[Footnote 8] 

Home Energy Audits: 

Based on the 28 client files we reviewed, subgrantees performed home 
energy audits required by DCA. These audits, which are done before 
work begins, are used to determine appropriate weatherization measures 
as well as any needed health and safety improvements. However, in 26 
of the 28 client files reviewed, we found one or more instances in 
which work listed as completed was not consistent with audit 
recommendations. For example, installation of a new hot water heater, 
sliding glass door, or smart thermostat was either recommended in the 
audit but not done, or done without recommendation. In six cases, a 
test that is part of the energy audit done to determine if heating and 
air conditioning ducts need to be sealed was not performed, or showed 
air leakage higher than DCA's targeted maximum, with no explanation. 

Subgrantees attributed the various audit discrepancies to such reasons 
as staff errors, omissions or changes occurring after the audit 
without documenting explanations for those changes. We also noted both 
subgrantees did not always authorize weatherization work in the 
priority order prescribed by DCA.[Footnote 9] DCA conducted monitoring 
visits to these subgrantees prior to our review and noted similar 
issues. DCA instructed both subgrantees to conduct home energy audits 
and follow DCA's priority order as required. 

Weatherization Work: 

We found the work charged to the program was authorized, performed, 
and appeared to be of acceptable quality in 14 of the 20 homes we 
inspected. In all 20 cases, the clients said they were generally 
satisfied. However, in 6 of the 20 homes some listed improvements were 
either not completed or lacked quality.[Footnote 10] For example, at 
one home we inspected, attic insulation was reported as done and 
charged to the program but had not been installed. Subgrantee 
officials said this problem occurred due to a contractor coordination 
issue, and the insulation has since been installed. At another home, a 
smart thermostat was on the work order and included in the contract 
price but not installed. Subgrantee officials said this was due to a 
misunderstanding and the issue would be resolved. None of the client 
files we reviewed contained documentation of inspections while work 
was in progress although both subgrantees said they performed such 
inspections.[Footnote 11] They said they would document those 
inspections in the future. In addition, at another home which we did 
not inspect, our client file review noted that the subgrantee had 
double charged DCA for certain costs. Subgrantee officials said a 
supervisor and a crew chief unknowingly both made time sheets for the 
same crew for the same day; they refunded the excess charge. 

Health and Safety: 

As required by DCA policy, home energy audits performed by the two 
subgrantees we reviewed covered health and safety issues. However, we 
found 9 instances in the 28 client files we reviewed in which the air 
flow/ventilation rate in the homes was insufficient based on the 
subgrantee's energy audit, possibly affecting indoor air quality, and 
no remedial actions were taken or explanations provided in the client 
files.[Footnote 12] In a few of these instances, the standard for 
restricting air flow through a home to prevent the loss of too much 
conditioned air (heated and air conditioned/dehumidified air) 
conflicted with the standard for providing adequate ventilation for 
good indoor air quality. Although both subgrantees said the issue was 
discussed at a DCA meeting with subgrantees in May 2010, they told us 
they were still unclear how to handle situations in which this 
conflict exists. DCA said it has a procedure to address the situation. 
At one subgrantee, we noted three cases in which window heating and 
air conditioning units were installed without evidence in the client 
file of a check for electrical system capacity, and in one case wiring 
was exposed.[Footnote 13] At the other subgrantee, the energy audit 
recommended venting a gas stove but the work was not done and 
documentation regarding why was not included in the client file, as 
required by DCA. Subgrantee officials told us costs of venting were 
prohibitive and the homeowner did the work. 

Fair and Reasonable Prices: 

One of the subgrantees did most of the weatherization work itself, and 
provided documentation showing it advertised and received multiple 
bids for materials used by its in-house crews and some work performed 
by contractors. The other subgrantee outsourced all weatherization 
work and officials said they awarded contracts mostly through a sealed 
bid process. It believed that the prices it received from contractors 
were significantly below market rates. However, information made 
available to us on the solicitation and receipt of multiple bids for 
the 15 client files we reviewed was either absent, incomplete, or 
unclear. Neither subgrantee provided documentation of price 
comparisons with local market rates, as required by DCA. Both 
subgrantees said they would perform and document price comparisons in 
the future. In addition, officials at the second subgrantee said it 
would develop clear procurement policies and procedures to address the 
issues involving the bidding process. To address these issues 
statewide, DCA has changed its procedures and guidelines manual, as 
discussed below, including issuing new guidance on price comparisons 
and bid information, and has its fiscal contractor review subgrantees' 
procurement polices and procedures as part of its work scope. DCA also 
said it was working with one of its subgrantees who has collected 
comparable pricing data for Florida regions so the data can be shared 
with other subgrantees. 

Reviews by Contract Field Monitors: 

DCA's contract field monitors had reviewed all 28 client files we 
reviewed for this report, but the DCA reviews did not note any of the 
problems we identified regarding client eligibility, home energy 
audits, or possible duct system leakage.[Footnote 14] Field monitors 
had also inspected two of the seven homes with issues that we 
inspected, but did not note the workmanship issues we found. 

DCA Has Taken Actions to Address Concerns and Non-compliance Issues: 

DCA officials told us many of the concerns and non-compliance items we 
noted in this and the prior round have been addressed by a state 
monitor, issuance of notices to subgrantees and contract field 
monitors or in conference calls with those monitors. In May 2010, DCA 
met with its subgrantees and included the issues we identified among 
the topics discussed. The Florida Solar Energy Center made a 
presentation on how to address home ventilation issues in Florida. 

On June 17, 2010, partly in response to our findings, DCA made changes 
to its procedures and guidelines manual and energy audit form, 
effective July 1, 2010.[Footnote 15] DCA's changes address the issues 
we noted during our reviews. For example, its newly issued procedures 
and guidelines and/or home energy audit form now requires (1) 
documentation of disability if it is used in determining priority 
points and documentation from a public entity with the name of the 
applicant or household member and the Social Security number; (2) 
justifications or data for addressing or not addressing each item to 
be covered in the home energy audits, including venting gas stoves, 
and for certain measures, the client's initials on the pre-work order 
agreement form if the client refuses to accept the measure; (3) before 
and after pictures for each measure to help document the need for and 
performance of the work; (4) performance of an electrical load test if 
a window air conditioning unit is to be installed and use of air flow 
calculations to govern air sealing activities and the need for 
additional ventilation for air quality; and (5) periodic (every 6 
months) cost comparisons to local market rates for each allowable work 
measure, justifications for excessive costs, and reference to a DOE 
guide for establishing a bidding process that meets DCA's competition 
requirements. The procedures and guidelines also clarified 
requirements for testing duct system leakage. DCA also revised its 
form for subgrantees to report completed work so it includes two 
items--faucet aerators and smart thermostats--previously on the audit 
form but not on the completed work form. 

We believe that the actions DCA has taken are responsive to the issues 
we noted during our review of its five subgrantees. Because our field 
work was completed before DCA changes to procedures and the energy 
audit form became effective, we were not in a position to assess their 
implementation or the extent to which contract field monitors now 
handle these issues differently. It will be important for DCA to work 
closely with its subgrantees and contract field monitors to achieve 
effective implementation and oversight. 

Tax Credit Programs Have Spurred Creation of Housing and Jobs but Some 
Projects Could Miss Treasury Funding Deadline: 

The Recovery Act established two funding programs that provide capital 
investments to Low-income Housing Tax Credit (LIHTC) projects: (1) the 
Tax Credit Assistance Program (TCAP) administered by the U.S. 
Department of Housing and Urban Development (HUD), and (2) the Grants 
to States for Low-income Housing Projects in Lieu of Low-income 
Housing Credits Program under section 1602 of division B of the 
Recovery Act (Section 1602 Program) administered by the U.S. 
Department of the Treasury (Treasury) to fill financing gaps in 
planned LIHTC projects. Descriptions and requirements of the programs 
are discussed in the program descriptions section of this report. 

The Florida Housing Finance Corporation (FHFC) administers these as 
well as other low income housing programs. FHFC received about $101 
million in TCAP funds and about $580 million under the Section 1602 
Program. As of July 30, 2010, FHFC made provisional or final awards 
totaling about $659 million (about 97 percent) and disbursed about 
$113 million (about 17 percent) under these two programs for 
acquisition, new construction, or rehabilitation. Altogether, FHFC has 
selected 82 multi-family housing projects involving 8,026 rental 
housing units for TCAP and Section 1602 Program funds throughout 
Florida.[Footnote 16] Of the 82 projects, 13 involve repayable loans 
under TCAP; 56 involve grant awards under the Section 1602 Program; 
and 13 have been awarded funding under both programs. 

FHFC Appears on Track to Meet HUD Spending Deadlines but Some Projects 
Could Fall Short of Meeting a Treasury Deadline: 

FHFC projects appear on track to meet HUD's TCAP spending deadlines. 
Under the Recovery Act, FHFC must disburse 75 percent of TCAP funds by 
February 2011, and individual projects must spend all their TCAP funds 
by February 2012. FHFC has awarded all TCAP funds and expects the 
eight projects that had not yet closed (signed the legal and financial 
documents to allow funds disbursement to begin) to do so in sufficient 
time for it and its projects to meet HUD's spending deadlines. It 
reported disbursing about $45.7 million, or about 45 percent of its 
TCAP funds, as of July 30, 2010. Under the Recovery Act, all Section 
1602 Program awards must be committed by December 2010, or the housing 
finance agency (HFA) must return the unawarded funds to Treasury. 
Treasury's deadline for HFAs to disburse all Section 1602 Program 
funds is December 31, 2011. However, Treasury requires that individual 
project owners spend 30 percent of their eligible project costs by 
December 31, 2010 in order to continue receiving Section 1602 Program 
funds in 2011.[Footnote 17] As of July 30, 2010, FHFC reported 
disbursing about $66.6 million (about 11.5 percent) of its funds. FHFC 
and several project owners might be challenged to meet Recovery Act's 
Section 1602 Program spending deadlines.[Footnote 18] 

Several Factors Could Negatively Affect FHFC's Section 1602 Program 
Awards and Spending Deadlines: 

As of August 2010, about $22.3 million of Section 1602 Program funds 
were involved in litigation.[Footnote 19] FHFC expected to resolve 
litigation for the majority of these funds in September 2010 but was 
uncertain when the litigation involving the remainder of the funds 
would be resolved. In addition, the number of projects in provisional 
stages of approval could affect spending deadlines.[Footnote 20] For 
example, as of July 30, 2010, 28 projects with provisional awards 
ranging from $2.3 million to about $14.5 million had not received 
final FHFC approval. FHFC generally expected these projects to receive 
final approval or close by November 2010. It noted that if a problem 
does arise, it would most likely involve projects having $5 million or 
more in Section 1602 Program provisional funding, of which there were 
13. Further, as of July 30, FHFC had not disbursed funds to 19 
projects with final awards ranging from $1.8 million to $21.8 million; 
one of the projects had closed, and FHFC generally expected the 
remaining 18 to close between August and November 2010. In addition to 
needing to complete the award process, projects could face delays in 
closing or construction.[Footnote 21] 

FHFC noted that these programs significantly expanded its workload and 
given their nature and complexity, require a significant amount of 
time and effort to implement. Nonetheless, FHFC said it has taken or 
is taking steps to meet Section 1602 Program deadlines, including 
increasing the number of Board meetings to expedite the review and 
approval process and having a monthly assessment by its contract 
monitors of projects' progress toward meeting the December 31 
deadline. FHFC said that it is prepared to reduce the size of grant 
awards to ease grantees' ability to spend all of their awarded funds 
and may divide un-awarded funds available to it among ongoing projects 
so that Treasury's deadlines can be met. FHFC said that project owners 
may also take steps, such as buying materials early (to incur costs 
earlier) or beginning construction before closing, although officials 
noted this step increases the project owner's risk. Although these 
steps should help, their ability to enable FHFC and all of its 
projects to meet Treasury's deadlines is unclear. 

Despite FHFC's Monitoring, Absence of Investors Could Create Risks: 

According to FHFC officials, they oversee TCAP and the Section 1602 
Program using FHFC's existing asset management program.[Footnote 22] 
For much of its asset management activities, FHFC uses contractors and 
says FHFC staff periodically performs tests of the contractors' work 
for completeness, accuracy, and timeliness. FHFC also coordinates its 
activities with project investors, who typically engage in similar 
activities to protect their financial interests.[Footnote 23] However, 
13 TCAP projects as well as 15 Section 1602 Program projects do not 
have third-party investors.[Footnote 24] An FHFC official said that 
both the appropriate up-front structuring of transactions and 
monitoring are important to mitigate this risk. More specifically, he 
said that FHFC imposed reserve and guarantee requirements on project 
owners greater than those typically required by investors and 
restricted the size of first mortgages. In addition, FHFC noted that 
it implemented tighter market standards, including minimum market 
occupancy rates; supplemented typical financial monitoring of each 
project with the development of a new electronic data base that can 
track and compare projects' financial performance based on many common 
characteristics; and requires monthly project reports that are to 
include such information as unit occupancy and rent structures. 
Although these measures appear to provide additional assurance 
relative to maintaining project financial viability over the 
compliance period, it is unclear whether they will fully mitigate the 
risks associated with the lack of project oversight by third-party 
investors. 

The three project owners and the investor representative we spoke with 
about Florida projects gave FHFC high marks for its implementation and 
management of these programs. Even though FHFC shifted some risk to 
project owners through requiring guarantees and higher reserves, they 
believed the project's benefits outweighed the risks. Further, they 
noted that the projects would not have moved forward without this 
funding and that an extension of the Section 1602 Program for 2010 
would likely be necessary to fund new projects because the market for 
tax credits has not fully recovered. FHFC officials concurred. 

FHFC said using FHFC funds to administer and enforce the programs' 
requirements adversely affects its ability to fund other programs. 
FHFC said that federal restrictions prohibit it from collecting 
administrative fees or using program funds to cover such costs as 
those associated with program administration and recapturing funds 
from projects that do not meet program requirements[Footnote 25]. FHFC 
expects these costs to amount to about $6.3 million over the next 5 
years. 

TCAP and Section 1602 Appear to Have Had an Impact on Job Creation: 

For the quarter ending June 30, 2010, FHFC reported significant job 
creation: 266 jobs for TCAP; 2,402 for 16 projects awarded only 
Section 1602 Program funds; and, 1,275 for 11 projects awarded funds 
under both programs.[Footnote 26] However, job estimates for the two 
programs are not comparable. TCAP is subject to Recovery Act recipient 
reporting requirements but Section 1602 is not.[Footnote 27] Both 
programs require use of a full-time equivalent approach to job 
estimation. However, unlike the Office of Management and Budget's 
instructions that apply to TCAP, FHFC specified that job estimates 
under the Section 1602 Program should cover the entire project period 
rather than just the most recent reporting quarter and that the count 
should not be reduced to reflect parts of the project not funded under 
the Section 1602 Program. [Footnote 28] Project owners we spoke with 
said that the Recovery Act jobs reporting method results in an 
understatement of TCAP's jobs impact because TCAP job estimates are to 
reflect only those jobs that were or are to be funded by TCAP. They 
argue that because projects funded under TCAP would not have moved 
forward without TCAP funds, all the jobs associated with the projects 
should be counted. 

Most Recipients of Largest Energy Efficiency and Conservation Block 
Grant Allocations Have Procedures in Place to Monitor Funds: 

The State of Florida, 87 eligible counties and cities, and 2 tribal 
governments received Energy Efficiency and Conservation Block Grant 
direct formula grant allocations totaling $168,886,400.[Footnote 29] 
The Department of Energy has made site visits to nine Florida cities 
and counties receiving funds as of July 20, 2010. Florida direct 
formula grantees, on average, had obligated 45 percent of their funds 
as of July 13, 2010 and spent 5 percent, as of July 18, 2010.[Footnote 
30] 

We selected the one county and three cities with the largest direct 
formula grant allocations: Miami-Dade County, and the cities of Miami, 
Jacksonville, and Tampa. Combined, their allocations represent about 
21 percent of the total going directly to Florida cities and counties. 
We visited one project in Tampa. 

The county and cities we reviewed vary in their progress toward 
meeting Department of Energy deadlines for obligating funds. (See 
table 2.) 

Table 2: Percent of EECBG Funds Obligated and Spent by the County and 
Cities We Reviewed as of August 19, 2010: 

Municipality: Jacksonville; 
Allocation: $12,523,700; 
Percentage of EECBG funds: 55; 
Percentage of EECBG funds: Spent[B]: 20. 

Municipality: City of Miami; 
Allocation: $7,891,500; 
Percentage of EECBG funds: 25; 
Percentage of EECBG funds: Spent[B]: 1.6. 

Municipality: Tampa; 
Allocation: $4,742,300; 
Percentage of EECBG funds: 9; 
Percentage of EECBG funds: Spent[B]: 0. 

Municipality: Total; 
Allocation: $3,712,100; 
Percentage of EECBG funds: 39; 
Percentage of EECBG funds: Spent[B]: 17.5. 

Source: Department of Energy and Miami officials. 

Note: The starting points to meet the deadlines for obligating and 
spending funds were as follows: Jacksonville, April 2010; Miami, 
October 2009; Miami-Dade, September 2009; and Tampa, October 2009. 

[A] Obligation includes funds under contract and funds set aside for 
internal costs. 

[B] According to Department of Energy officials, these represent funds 
the city or county drew down for an obligation; drawing down of funds 
does not necessarily mean that the obligation has been liquidated. 

[End of table] 

As of July 15, 2010, officials for each locality, except Jacksonville, 
reported having monitoring procedures in place. For example, Miami-
Dade County and the city of Miami officials said they will provide 
oversight through routine site visits and/or meetings with project 
managers, contractors and sub-recipients and through regularly 
monitoring expenditures. Jacksonville officials said they were still 
developing a process for tracking obligated funds; 

that their current financial system could track such information, but 
not produce reports; and that they did not anticipate having 
subgrantee agreements or a checklist for monitoring sub-grantees until 
fall. Nonetheless, officials said it was their intent to monitor 
expenditures on a routine basis, to conduct site visits, and require 
appropriate documentation from grantees. According to Department of 
Energy project managers, Miami-Dade County and the cities of Miami, 
Tampa, and Jacksonville have adequate systems in place to monitor 
their grants. A Department of Energy monitoring review of Jacksonville 
from June 16, 2010 noted that the city had procedures for personnel 
and payroll, procurement and financial management and accounting that 
specifically address the grant program. It also noted that the city 
planned to create specific policies and procedures that address onsite 
monitoring of grantees. 

In each locality, officials said projects followed Department of 
Energy guidance. Specifically, projects had met requirements for 
historical preservation and environmental review. Each had a plan for 
waste disposal, according to officials. 

Each municipality has projects with potential to create jobs, but some 
projects are expected to create jobs as a result of goods procured, 
rather than through hiring workers for the project in question. Miami- 
Dade County used over $1,000,000 to purchase computer equipment that 
county workers installed. Likewise, Jacksonville plans to procure 
recycling bins ($42,000), lighting and light controls (over $746,000) 
installed by state employees and solar parking meters (over $187,000) 
that may be installed by city workers.[Footnote 31] Tampa planned to 
use over $2.5 million to purchase electrical lighting for municipal 
garages and incandescent traffic signal lighting installed by city 
workers.[Footnote 32] In contrast, the City of Miami will use its 
grant funds to make city-owned buildings more energy efficient and 
will contract out all work. 

Officials in Tampa, the one site we visited to view a project, 
reported positive outcomes resulting from grant-funded projects. 
Specifically they reported jobs created. In addition, they provided 
data showing the energy usage in two garages where lighting was 
changed reduced energy consumption by over 40 percent. Officials said 
they did not know how long the Department of Energy would expect them 
to report energy savings from funded projects. 

Early Head Start Grantees Experienced Delays in Funding and 
Implementation of Recovery Act Expansion Funds in 2010: 

Grantees in Florida received approximately $26.8 million in Recovery 
Act Early Head Start (EHS) expansion grants for fiscal year 2010--the 
first year of the 2-year grant--to serve additional children and 
provide training and technical assistance to grantees.[Footnote 33] To 
review the implementation of the grants, we visited the Miami-Dade 
Community Action Agency (CAA), a county agency that administers social 
programs including Early Head Start, and Children First, a nonprofit 
organization that provides early childhood services in Sarasota 
County. See table 3 for Recovery Act-funded activity at the grantees 
we visited in Florida for Fiscal Year 2010. 

Table 3: Recovery Act-Funded Early Head Start Activity at Selected 
Grantees in Florida, for Fiscal Year 2010: 

Grant amount: 
Miami-Dade Community Action Agency: $1,716,860; 
Children First, Sarasota: $1,451,694. 

Children to be served by Recovery Act funding: Miami-Dade Community 
Action Agency: 128 (including 40 home based); 
Children First, Sarasota: 120 (all center based). 

Date service began: January 2010; 
Children First, Sarasota: January 2010. 

Date grantee was fully enrolled: 
Miami-Dade Community Action Agency: July 2010; 
Children First, Sarasota: March 2010. 

Projected unspent funds: 
Miami-Dade Community Action Agency: $320,000; 
Children First, Sarasota: $0. 

Source: www.recovery.gov, Miami-Dade Community Action Agency, and 
Children First. 

[End of table] 

Delays in the award of the EHS grants and in grantee implementation of 
the program slowed the delivery of services. As GAO previously 
reported, HHS's Office of Head Start (OHS) delayed the award of EHS 
expansion grants.[Footnote 34] CAA and Children First did not receive 
their grants from OHS until the end of November 2009--2 months after 
the grants were scheduled to be awarded. Officials at CAA said that 
the delay in funding was their greatest challenge to implementation. 
Although CAA anticipated full enrollment of Recovery Act-funded 
children by January 1, 2010--3 months after the expected award 
notification from OHS--they were not able to achieve full enrollment 
until July 14, 2010--more than 7 months after the award was actually 
received. CAA officials explained that this extended implementation 
period was caused by their inability to negotiate agreements to 
deliver services with subgrantees until the grant was received, the 
time associated with meeting county hiring requirements, and 
renovations required by one subgrantee. Officials at Children First 
said that they began planning for the expansion and negotiating with 
partner organizations prior to receiving the grant and were able to 
reach full enrollment by March 10, 2010. 

One grantee we visited expects to have unspent funds at the end of 
fiscal year 2010.[Footnote 35] CAA officials said they used the 
Recovery Act funds to hire additional staff for home-based care and 
new teachers. However, due to the delay in initiating services, CAA 
officials said they expect to have approximately $320,000--more than 
18 percent of their fiscal year 2010 grant--remaining at the end of 
fiscal year 2010. CAA officials said they will request that OHS allow 
them to use the unspent funds to purchase equipment and supplies as 
well as to hire two additional staff in fiscal year 2011; however, OHS 
has not yet determined the strategy for addressing unspent funds. 
Children First officials said the organization used the EHS expansion 
grant to hire new teachers and expand services by offering year-round 
enrollment for some Recovery Act-funded children. Due to capacity 
limitations in its own facilities, Children First partnered with other 
agencies to provide services to more children. Children First 
officials reported that they do not expect to have any funds remaining 
at the end of fiscal year 2010. 

Both grantees we visited hope to be able to identify funds to continue 
to provide services to the additional children once the Recovery Act 
funding ends in September 2011. CAA officials said they plan to shift 
Recovery Act funded children into regularly funded Early Head Start 
and Head Start spots when possible. Children First officials said they 
are also seeking alternative funding from state, local, and private 
sources. However, officials at both of the grantees acknowledge that 
there may not be funding to continue services for some children 
currently funded under the Recovery Act. 

Florida State Budget Includes $2.6 Billion in Recovery Act Funding, 
and State Officials Are Preparing for Decreased Flow of Recovery Act 
Funds: 

Florida's adopted budget--about $70 billion in total--for fiscal year 
2010-2011 was approved by the governor in late May 2010. Florida 
officials stated that about $2.6 billion in Recovery Act funding was 
included for education, health and human services, transportation, and 
general government operations. In addition to this amount, state 
officials said that about $270 million was budgeted for the extension 
of the increased Federal Medical Assistance Percentages (FMAP). 
[Footnote 36] Officials stated that certain appropriations for 
economic development, Everglades restoration, student aid, and health 
care were contingent on Florida receiving the extended FMAP. Officials 
said that because these appropriations were contingent on the state 
receiving the increased FMAP funds, balancing the state's budget did 
not rely on the increased funding. 

According to state officials, Florida is preparing for when the flow 
of Recovery Act funds substantially decreases beginning in the state's 
fiscal year 2011-2012. Although budget officials have yet to determine 
whether reductions will be necessary due to the state's improving 
fiscal condition, the Office of Policy and Budget has instructed 
agencies to submit reductions totaling at least 5 percent of their 
appropriations that could be used to address a potential revenue 
shortfall for fiscal year 2010-11. Further, agencies are required to 
submit reductions totaling 15 percent of their recurring 
appropriations that could be used to address a potential revenue 
shortfall for fiscal year 2011-12.[Footnote 37] Officials said that 
they may use the agencies' plans in combination with other measures to 
make budget recommendations to close any potential budget gaps. 

Miami-Dade County Considers Recovery Act Funding as Nonrecurring 
Revenue While Fiscal Challenges Continue: 

We also examined the use and effect of Recovery Act funds on a local 
government's budget, Miami-Dade County.[Footnote 38] According to 
county officials, the county received about $89.8 million over 
multiple years in Recovery Act funds. Housing programs for low-to 
moderate-income residents received the largest amount of Recovery Act 
funding. Generally, county officials said Recovery Act funds are 
treated as nonrecurring revenue and primarily used for infrastructure 
and capital projects such as purchasing police equipment and computer 
equipment.[Footnote 39] (See table 4). Overall, Recovery Act funds 
received over multiple years contribute a small amount to the county's 
total general fund operating budget of about $1.7 billion for the 
current fiscal year, 2009-2010. 

Table 4: Recovery Act Grants and Loans to Miami-Dade County, Fiscal 
Years 2008-2011: 

Program area: Housing; 
Project or federal award: Public Housing Capital Fund Program for the 
construction and renovation of public housing developments. Community 
Development Block Grant Recovery to promote neighborhood stabilization 
in low to moderate-income communities. Homeless Prevention and Rapid 
Re-housing Program for homeless services. Total: $48.2 million over 3 
years. 

Program area: Energy efficiency; 
Project or federal award: Energy Efficiency and Conservation Block 
Grant used to demonstrate and evaluate the use of renewable 
alternative energy technologies and Weatherization Assistance Program 
used to improve energy efficiency for privately-owned residences. 
Total: $15.6 million over 3 years. 

Program area: Human services; 
Project or federal award: Head Start and Early Head Start for 
salaries, cost of living increases, and to expand child care services. 
Community Services Block Grant to provide employment-related services 
to low-income communities. Total: $11.1 million over 3 years. 

Program area: Public safety; 
Project or federal award: Edward Byrne Memorial Justice Assistance 
Grant used for salaries, equipment purchases, and to address substance 
abuse. Grant for system enhancement to automate reporting and expedite 
the booking process. Total: $9.3 million over 3 years. 

Program area: Environment; 
Project or federal award: National Diesel Funding Assistance Program 
used to purchase five hybrid diesel transit buses and programs to 
reduce diesel fuel emissions. Drinking Water State Revolving Fund for 
construction of water lines. Total: $5.2 million over 3 years 

Program area: Arts, culture, and humanities; 
Project or federal award: National Foundation on the Arts and 
Humanities to sustain jobs in the arts community threatened by 
declines in philanthropic support during the economic downturn. Total: 
$300,000 over 1 year. 

Program area: Total Recovery Act Funding; 
Project or federal award: $89.8 million over multiple years 

Source: GAO analysis of federal and state data. 

Note: Amounts for each program area do not add up to total Recovery 
Act funding due to rounding. 

[End of table] 

Although Recovery Act funds have not been used to balance the current 
2009-2010 fiscal year budget, county officials explained that several 
actions were taken to address a budget gap of about $426 million. 
[Footnote 40] For example, county officials said the gap was closed by 
salary and service reductions and using reserves--about $58 million--
from the Countywide Emergency Contingency Reserve. Remaining reserves 
are currently below the goal established in county policy, according 
to its officials, which requires a minimum reserve fund balance of 7 
percent of the general fund operating budget by fiscal year 2012. 
County officials stated that the minimum can be waived during times of 
fiscal constraints by the Board of County Commissioners with the 
County Manager's recommendation and the condition that a plan is in 
place to replenish the funds over a period of 7 years.[Footnote 41] 
Moreover, county officials said that further reductions to reserves 
would jeopardize the county's bond rating. 

While Most Contracts We Reviewed Had Post-award Changes, the 
Modifications Generally Do Not Appear to Have Significantly Affected 
Projects' Outcomes, Schedule, or Costs: 

While most of the 12 Recovery Act-funded contracts we reviewed had 
post-award changes, according to state and local project managers, the 
changes generally did not have significant effects on the projects' 
outcomes or costs and were within acceptable levels. As shown in table 
5, 8 of 12 contracts experienced changes to the schedule, cost, and/or 
scope of work from the original contracts. However, none of the 
changes adversely impacted the delivery of services under the 
contracts. 

Table 5: Changes to Selected Recovery Act-Funded Contracts in Florida 
as of July 26, 2010: 

Description of project: Highways—contract T3066: road and bridge 
reconstruction in Okaloosa County[A,C]; 
Original contract cost: $25.2 million; 
Changes in cost: 1.87% change ($407,916 increase); 
Changes to scheduled completion: 3% change (29 days added). 

Description of project: Highways--contract E2N36: Road widening and 
improvements in Nassau County[C]; 
Original contract cost: $26.2 million; 
Changes in cost: No change; 
Changes to scheduled completion: 3.7% change (26 days added). 

Description of project: Highways—contract T2303: Highway and drainage 
improvements in Union County[B]; 
Original contract cost: $454,745; 
Changes in cost: 0.17% change ($809 decrease); 
Changes to scheduled completion: 23 days ahead of allowable contract 
time. 

Description of projects: Highways--contract E2N34: Road 
reconstruction, widening, and bike lanes in Duval County[C]; 
Original contract cost: $12.8 million; 
Changes in cost: No change; 
Changes to scheduled completion: 5.2% change (33 days added). 

Description of project: Highways--contract E2N37: New road and bridge 
construction in Clay County[C]; 
Original contract cost: $7.3 million; 
Changes in cost: No change; 
Changes to scheduled completion: 3.2% change (14 days added). 

Description of project: Highways--contract E2N56: Road repaving in 
Alachua County[B]; 
Original contract cost: $936,007; 
Changes in cost: No change; 
Changes to scheduled completion: 88 days ahead of allowable contract 
time. 

Description of project: Highways--contract APJ94: Drainage and road 
improvements in Putnam County[A,B]; 
Original contract cost: $398,484; 
Changes in cost: 1.2% change ($4,866 increase); 
Changes to scheduled completion: 12.5% change (30 days added). 

Description of project: Education--contract 10795C: 1-day writing 
training for teachers in Hillsborough County;[B]; 
Original contract cost: $4,725; 
Changes in cost: 20% change ($945 decrease); 
Changes to scheduled completion: No change. 

Description of project: Education--contract 10797C: 1-day teacher 
training in Hillsborough County[B]; 
Original contract cost: $4,800; 
Changes in cost: No change; 
Changes to scheduled completion: No change. 

Description of project: Education--contract K02479981: Teacher and 
principal training in Miami-Dade County[C]; 
Original contract cost: $900,000; 
Changes in cost: No change; 
Changes to scheduled completion: No change. 

Description of project: Education--contract R02475264: Extra academic 
help, such as tutoring, for students with disabilities in Miami-Dade 
County[B]; 
Original contract cost: $98,600; 
Changes in cost: No change; 
Changes to scheduled completion: No change. 

Description of project: WIA Summer Youth--contract 525: Providing 
appropriate classroom-type space and support for Employment and 
Leadership teams, such as verifying daily attendance among trainees[B]; 
Original contract cost: $11,252; 
Changes in cost: No change; 
Changes to scheduled completion: No change. 

Source: Analysis of information from contract project managers of 
highway, education, and Workforce Investment Act projects funded by 
the Recovery Act: 

Notes: According to FDOT Office of Inspectors General (OIG) officials, 
the OIG's Rapid Review Advisory and Consulting Group have been 
monitoring numerous Recovery Act contracts, including T3066, E2N34, 
and E2N36. According to these officials, the contracts are being 
monitored and to date, none of the contracts exhibited the risk 
characteristics that would trigger a more detailed review or audit. 

[A] The scope of work changed. 

[B] As of July 26, 2010, the contract has been completed. 

[C] This contract remains ongoing as of June 15, 2010, so additional 
days or costs, for example, could be added to the contract. 

[End of table] 

The days added to contract schedules for each of the five highway 
projects accounted for less than a 20 percent change of the initial 
estimated time, which is the performance measure set in agreement by 
the Florida Department of Transportation (FDOT) and Federal Highway 
Administration (FHWA) and according to state and local project 
managers, did not increase the financial costs of the projects. 
[Footnote 42] Two other highway contracts we reviewed were completed 
ahead of schedule.[Footnote 43] 

As reported by state and local project managers, costs increased for 
two of the contracts while costs decreased for two others. The cost 
increases--accounting for less than a 2 percent change from the 
awarded contracts' costs--are within FDOT and FHWA performance 
measures of less than a 10 percent cost increase. According to state 
officials, costs increased due to changes in the scope of work. They 
told us that the scope changes occurred because of conditions not 
anticipated at the time of the contract award. For example, in one 
case the county design engineer inadvertently omitted required 
materials from the contract; this required subsequent adjustments that 
increased the project cost. In both cases, project managers reported 
that the modifications were beyond the control of the contractors. Two 
other contracts we reviewed--involving an education training program 
and a highway project--experienced price reductions. State and local 
project managers reported that price reductions occurred because of 
price adjustments, such as having fewer people than expected attending 
training or the cost of paving material being less than estimated. 

Florida Continues to Provide Oversight and Transparency to Recovery 
Act Spending: 

Florida's Office of the Chief Inspector General and the Auditor 
General have the primary responsibility for the audit of the state's 
use of Recovery Act funds. The Chief Inspector General monitors the 
activities of the Offices of Inspectors General for Florida's various 
state agencies who are responsible for conducting audits and 
investigations within their respective agencies. The Auditor General 
conducts the state's annual audit of federal awards expenditures and 
other audits of Florida's governmental entities which serve to promote 
accountability and stewardship within government operations. 

Florida's inspectors general continue to conduct the types of 
oversight and accountability activities we described in our previous 
work.[Footnote 44] For this reporting period, several inspectors 
general reported Recovery Act programs audits that were completed, in 
process, or planned. For example, as of June 15, 2010, the Florida 
Department of Transportation Office of Inspector General (FDOT OIG) 
reported it had reviewed 493 Recovery Act funded transportation 
projects and noted no findings that would jeopardize federal funding. 
[Footnote 45] Additionally, FDOT OIG reported that it had initiated a 
review of 20 Recovery Act funded construction projects with total 
project amounts over $10 million. So far, construction files for 2 
projects have been reviewed with no findings noted; 

site visits and reviews are being scheduled. The Florida Department of 
Law Enforcement reported it is completing reviews of 20 subrecipients' 
efforts to document and report on the number of full-time equivalent 
jobs created or retained by Recovery Act funds. The Department of 
Community Affairs Inspector General reported it had finished fieldwork 
for the implementation of the Weatherization Assistance Program and 
was drafting its report. In addition, the Inspector General for the 
Executive Office of the Governor reported plans to audit the subgrant 
and contract award processes and the monitoring procedures of the 
office administering the Energy Efficiency and Conservation Block 
grant, in fiscal year 2010-2011. 

The annual audit of federal award expenditures, conducted by the State 
Auditor General's Office in accordance with the Single Audit Act, also 
provides oversight for Recovery Act funds.[Footnote 46] For the state 
fiscal year ending June 30, 2009, Florida expended $30.2 billion in 
federal awards; of that amount $1.8 billion was identified as Recovery 
Act funds. [Footnote 47] The Auditor General reported several 
findings. [Footnote 48] For example, in the audit of the Medicaid 
cluster of major programs, which expended $1.3 billion of Recovery Act 
funds, the state was unable to document that certain individuals were 
eligible for benefits and procedures were not sufficient to ensure all 
health care providers receiving Medicaid payments had provider 
agreements in effect.[Footnote 49] The state agencies acknowledged 
these findings continued to exist, citing staff shortages and 
increased workloads among the contributing factors; however, the 
agencies plan to provide additional training and implement procedures 
to address these findings. In planning for the Single Audit for fiscal 
year 2010, the Auditor General estimated that 24 of the 35 major 
programs will contain some Recovery Act expenditures due to increased 
Recovery Act funds expended during fiscal year 2010. 

Florida Recovery Czar Indicated that Recipient Reporting Process Went 
Smoothly, but We Found that Some Reports Were Based on Incomplete Data: 

The state Recovery Czar stated that overall, the fourth round of 
recipient reporting went smoothly as the process has become routine; 

however, during site visits to local agencies, we identified instances 
in which contractors' hours were mistakenly omitted from 
subrecipients' full-time equivalent (FTE) calculations.[Footnote 50] 
The Recovery Act requires recipients to report an estimate of the 
number of jobs created or retained by the project or activity no later 
than 10 days after the end of each quarter so this information can be 
used for reporting on Recovery.gov. The Recovery Czar acknowledged the 
possibility of under reporting jobs data and plans to follow up at the 
agency level. However, he emphasized that the jobs reported number is 
a point in time number of jobs being paid with a portion of Recovery 
Act funds rather than an overall measure of cumulative jobs being 
created with Recovery Act funds. Further, he said that while some 
agencies continue voicing concerns about obtaining jobs data in time 
to report by the tight deadline, he believes that OMB's process for 
continuous corrections of data for the most recent quarter will 
address these concerns. To help identify data anomalies that may be 
corrected, the Recovery Czar analyzes data from Recovery.gov after the 
quarter's results are published and provides additional analysis of 
the state's Recovery Act awards, expenditures and jobs on the Florida 
Office of Economic Recovery Web site.[Footnote 51] 

We visited three recipients and found that their jobs reports were 
filed on time, were calculated correctly using the FTE formula, and 
were supported by timesheets for the periods we tested; however, we 
identified reporting omissions or errors at each location. The two 
Weatherization Assistance Program subrecipients did not include hours 
worked by their contractors weatherizing homes in the jobs data 
submitted to the Florida Department of Community Affairs (DCA). 
[Footnote 52] These subrecipients said they were unaware of the 
requirement to report contractors' hours, but both agreed to work with 
DCA to correct this omission. DCA officials said they would look into 
the reporting from these two subrecipients, as well as others, and 
clarify any questions of reporting requirements. Additionally, DCA's 
Inspector General stated that its office will take steps to help 
identify omissions when it makes site visits to selected 
subrecipients.[Footnote 53] As a result of our work, the DCA Inspector 
General reported that DCA program staff have taken steps to reiterate 
to subrecipients the policy and approved method of reporting FTE 
counts to DCA at the end of each quarter. 

The prime Energy Efficiency Conservation Block Grant recipient had two 
reporting issues. First, after recently centralizing staffing in the 
grants accounting department, officials discovered that FTE jobs data 
from its payroll records had not been reported in previous quarters. 
To correct this omission, the recipient included the omitted hours in 
its FTE calculation for the quarter ending June 30, 2010. Second, some 
hours worked on Recovery Act projects will not be reported until the 
following quarter. This occurs because the accounting systems that 
produce documentation lag the reporting deadline and the recipient did 
not want to calculate estimates.[Footnote 54] For example, for the 
April, May, and June reporting period, one of the Recovery Act 
projects instead reported data for March, April, and May. 

State Comments on This Summary: 

We provided the Special Advisor to the Governor of Florida, Office of 
Economic Recovery (who is referred to in this appendix as the Recovery 
Czar), with a draft of this appendix on August 17, 2010. The Recovery 
Czar agreed with our draft. 

GAO Contact: 

Andrew Sherrill, (202) 512-7215 or sherrilla@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above, Michael Armes, Patrick di 
Battista, Sabur Ibrahim, Kevin Kumanga, Frank Minore, Maria Morton, 
Daniel Ramsey, Brenda Ross, Bernie Ungar, Margaret Weber, and James 
Whitcomb made major contributions to this report. Art Merriam assisted 
with quality assurance. Susan Aschoff contributed to writing this 
report. 

[End of section] 

Appendix V Footnotes: 

[1] Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009). 

[2] As of June 30, 2010, DCA had not yet approved weatherization of 
multifamily residences, but it reported having received proposals. 

[3] Our spot check of data reported by two subgrantees raised 
questions about the completeness of jobs data being reported to DCA. 
This issue is discussed further in the recipient reporting section of 
this appendix. 

[4] GAO, Recovery Act: States' and Localities' Uses of Funds and 
Actions Needed to Address Implementation Challenges and Bolster 
Accountability (Appendixes), [hyperlink, 
http://www.gao.gov/products/GAO-10-605SP] (Washington, D.C.: May 26, 
2009). 

[5] DOE requires grantees to inspect 5 percent of the homes 
weatherized. 

[6] DCA has also contracted for fiscal monitoring and technical 
assistance to its subgrantees and training and technical assistance to 
subgrantees on Davis-Bacon prevailing wage and reporting requirements. 
As of June 30, 2010, DCA reported that its contractors performed 
fiscal reviews at seven subgrantees and visited nine subgrantees for 
Davis-Bacon reviews. 

[7] We found instances in which (1) required documentation was missing 
from client files; (2) work listed as completed was not consistent 
with home energy audit recommendations; (3) listed improvements were 
either not completed or lacked quality; (4) health and safety issues 
were not addressed; (5) procurement practices were inconsistent with 
DCA's requirements; and (6) file reviews and home inspections by DCA's 
contract field monitors did not always detect problems with subgrantee 
program or noncompliance; see [hyperlink, 
http://www.gao.gov/products/GAO-10-605SP]. 

[8] We did not independently verify client income. According to the 
subgrantee, the staff computational errors made in determining client 
income did not affect client eligibility. 

[9] Florida's 10 authorized weatherization measures, in descending 
order of energy savings importance are: air sealing, attic and floor 
insulation, dense-pack sidewall insulation, solar window screens, 
smart thermostat, compact fluorescent lamps, seal/insulate ducts, 
refrigerator replacement, heating and cooling systems, and water 
heater repair or replacement. 

[10] In one case involving loose weather-stripping, it is not clear 
whether the problem existed at the time of installation or arose 
subsequently. 

[11] DCA's procedures and guidelines manual states subgrantees should 
perform home inspections at least once while work is in progress for 
such purposes as documenting lead-safe weatherization procedures and 
to spot check compliance. However, except for photos of lead-safe 
procedures, DCA's manual does not require such inspections be 
documented. 

[12] As noted in our May 2010 report (GAO-10-605SP), when the air 
flow/ventilation rate for a home is found to be below the minimum 
threshold, a case-by-case assessment should be made on how to address 
the problem. 

[13] The subgrantee said electrical system checks were done for two 
cases, but the results were not in the client files. 

[14] According to DCA, field monitors have not been required to 
determine whether a test was done as part of the energy audit to 
determine if heating and air conditioning ducts need to be sealed; 
however, it will consider adding this to the list of review items. 

[15] DCA said that briefings we provided on the results of the reviews 
at the two subgrantees we most recently reviewed, along with our 
previous work and information from others, were used to develop its 
new guidance. 

[16] This rental housing, to be located in both urban and rural areas, 
is to serve mostly low income families, the elderly, farm workers and 
commercial fishing workers. 

[17] Project owners must spend 30 percent of the project's adjustable 
basis for land and depreciable property by December 31, 2010. FHFC 
requires that each project's accountant report this information to 
FHFC along with the accountant's certification on compliance with the 
spending requirement in January 2011. 

[18] As of June 30, 2010, Treasury had not issued guidance on how its 
December 31, 2010 deadline is to be enforced or monitored or whether a 
time extension may be possible. 

[19] According to FHFC, the litigation involves three projects for 
which the owners disagreed with FHFC's decision to rescind provisional 
awards based on an unfavorable credit underwriting review. 

[20] FHFC said the review and approval process includes (1) 
application review to determine whether all application requirements 
have been met, (2) a provisional award; i.e., a preliminary commitment 
of funds pending a credit underwriting review; (3) a credit 
underwriting review and final award, which can take about 3-6 months; 
and (4) closing, which involves execution of legal and financial 
documents and triggers the beginning of FHFC's release of funding for 
construction. 

[21] Each of the three projects we reviewed, all in the early stages 
of construction, reported experiencing delay in closing or 
construction. 

[22] This program includes various review and inspection steps and 
required reporting to ensure that projects, both during and after 
construction, continue to meet requirements and remain financially 
viable, in good physical condition, and affordable to low income 
tenants. 

[23] This is particularly important because a project's failure to 
comply with LIHTC requirements over a 15-year compliance period can 
result in the investors losing their tax credits. 

[24] These projects have both TCAP and Section 1602 Program funds. 
Treasury does not require equity investments for Section 1602 Program 
projects, but HUD requires such investments for TCAP projects. 
However, HUD does not require a specific kind of investment or specify 
a minimum investment amount. For these 13 TCAP projects, the owners 
contributed $650 in investment equity to each project, but there were 
no third-party investors. 

[25] Under the conventional LIHTC program, HFAs are not liable for 
recapturing funds if a project owner fails to comply with LIHTC 
requirements. Rather, HFAs are to report noncompliance to IRS, which 
then takes any further actions with respect to recapture. 

[26] We did not confirm the reliability of these data. 

[27] Section 1512 of the Recovery Act describes recipient reporting 
requirements, including that of estimated jobs created and retained. 
Section 1512 and the recipient reporting requirements apply only to 
programs under division A of the Recovery Act, which includes TCAP. 
The Section 1602 Program is under division B of the Recovery Act, and, 
therefore, not subject to Section 1512 requirements. Except for 
requiring the use of full-time equivalents, Treasury has not issued 
detailed guidance specifying job estimation methodology under the 
Section 1602Program. 

[28] Thus, for TCAP projects, job estimates are to reflect only those 
jobs that were or are to be funded by TCAP for the most recent 
quarter; whereas for Section 1602 Program projects, job counts are to 
reflect all jobs created or retained for the entire project period 
regardless of funding sources. 

[29] A city is eligible to receive a formula grant if it has a 
population of at least 35,000 or if it is one of the 10 highest 
populated cities in the state. Similarly, a county is eligible for a 
formula grant if it has a population of at least 200,000 or if it is 
one of the 10 highest populated counties of the state in which it is 
located. Each state awarded a formula grant must pass on at least 60 
percent of its allocation to cities and counties that are not eligible 
for such formula grants. 

[30] According to program Notice10-011 dated April 21, 2010, grantees, 
the majority of whom received their grants by September 2009, must 
obligate all funds within 18 months of receipt and spend them within 
36 months. Funds "spent" are those drawn down for an obligation. 

[31] In Jacksonville's grant application each of the above mentioned 
projects is part of a larger project. The estimated job creation for 
the larger projects is 69. 

[32] In its grant application, Tampa estimated that the procurement of 
lighting would create 8 jobs and result in the retention of 16. 

[33] The Head Start program, administered by the Office of Head Start 
(OHS) of the Administration for Children and Families within the 
Department of Health and Human Services, provides a variety of 
education, health, and social services to enhance physical, social, 
emotional, and intellectual development of low-income infants, 
toddlers, and pregnant women. 

[34] GAO, Recovery Act: States' and Localities' Uses of Funds and 
Actions Needed to Address Implementation Challenges and Bolster 
Accountability, [hyperlink, http://www.gao.gov/products/GAO-10-604] 
(Washington, D.C.: May 26, 2010). 

[35] Unspent funds are the difference between a Head Start grantee's 
total federal award for a budget year and the amount spent by the 
grantee during that year. 

[36] The Recovery Act initially provided eligible states with an 
increased FMAP for 27 months from October 1, 2008, to December 31, 
2010. Recovery Act, div. B, title V, § 5001, Pub. L. No. 111-5, 123 
Stat. at 496. On August 10, 2010 federal legislation was enacted 
amending the Recovery Act and providing for an extension of increased 
FMAP funding through June 30, 2011, but at a lower level. See Pub. L. 
No. 111-226, § 201, 124 Stat. 2389 (Aug. 10, 2010). 

[37] Florida officials report that the state's fiscal condition is 
improving based on revenues exceeding estimates in fiscal year 2009- 
2010, and projected continued revenue growth of 5 to 6 percent in 
fiscal year 2010-2011, which began July 1, 2010. As we previously 
reported, increased revenue resulting from certain fees such as 
driver's license, motor vehicle, and court fees led to a moderate 
increase in the general revenue fund in fiscal year 2009-2010, 
according to state officials. Moreover, officials said the state 
exceeded its estimates for taxes on insurance premiums and corporate 
income in fiscal year 2009-2010. 

[38] Miami-Dade County is comprised of 35 municipalities and 
unincorporated municipal service areas that do not fall within the 
jurisdiction of a municipality. 

[39] County Recovery Act funds referred to in this section include 
only funds administered by the county government and not the full 
scope of Recovery Act funds--including unemployment insurance, 
Medicaid, highways, and transit--that benefit county residents. For 
example, Recovery Act highway and transit funds being used in Miami-
Dade County total $123.5 million. 

[40] The county's revenue has been directly impacted by decreased 
property taxes resulting, in part, from the housing market decline. 

[41] Strategies to begin replenishing reserves are being considered in 
the fiscal year 2010-2011 budget development process, according to 
county officials. 

[42] According to FDOT officials, adding days to contract schedules 
was mainly attributed to days off granted for inclement weather and 
holidays. Their policy permits granting extensions of contract 
schedules when work is delayed by factors not reasonably anticipated 
or foreseeable at the time of bid, such as for inclement weather. 
Additionally, FDOT officials said holidays are granted as they occur 
during the course of a contract because it is more efficient than 
estimating the number of holidays as part of the original contract and 
because of the uncertainty of when a contractor will actually begin 
the work. While FDOT tracks weather and holidays in the time added to 
the original contract time, it does not count those added days against 
their performance measures. 

[43] In reviewing FDOT officials' responses and supporting 
documentation for 3 of the 7 highway projects, we identified minor 
discrepancies between the summary reports produced by an FDOT 
procurement system and memorandums documenting FDOT granted days off 
for inclement weather, holidays, and other events. FDOT officials said 
the discrepancies were due to human error in data entry. FDOT 
officials corrected the errors, and the overall impact of these 
discrepancies appears minor. Officials from FDOT's Office of Inspector 
General said that on occasion they have found similar types of 
discrepancies related to data entry in their reviews of other 
contracts and have brought these to management's attention for 
resolution. 

[44] GAO Recovery Act: States' and Localities' Uses of Funds and 
Actions Needed to Address Implementation Challenges and Bolster 
Accountability (Appendixes), [hyperlink, 
http://www.gao.gov/products/GAO-10-605SP] (Washington, D.C.: May 
2010); Recovery Act: Status of States' and Localities' Use of Funds 
and Efforts to Ensure Accountability (Appendixes), [hyperlink, 
http://www.gao.gov/products/GAO-10-232SP] (Washington, D.C.: December 
2009); Recovery Act: Funds Continue to Provide Fiscal Relief to States 
and Localities, While Accountability and Reporting Challenges Need to 
Be Fully Addressed (Appendixes), [hyperlink, 
http://www.gao.gov/products/GAO-09-1017SP], (Washington, D.C.: 
September 2009); Recovery Act: States' and Localities' Current and 
Planned Uses of Funds While Facing Fiscal Stresses (Appendixes), 
[hyperlink, http://www.gao.gov/products/GAO-09-830SP] (Washington, 
D.C.: July 2009); and, Recovery Act: As Initial Implementation Unfolds 
in States and Localities, Continued Attention to Accountability Issues 
Is Essential, [hyperlink, http://www.gao.gov/products/GAO-09-580] 
(Washington, D.C.: April 23, 2009). 

[45] FDOT reported working in conjunction with the Federal Highway 
Administration to complete these reviews. The reviews were limited to 
ensuring compliance with certain state and federal laws, rules and 
regulations. 

[46] The Single Audit Act of 1984, as amended (31 U.S.C. §§ 7501-
7507), requires that states, local governments, and nonprofit 
organizations expending more than $500,000 in federal awards in a year 
to obtain an audit in accordance with the act and subject to 
applicable requirements in OMB Circular No. A-133, Audits of States, 
Local Governments and Non-profit Organizations (June 27, 2003 and June 
26, 2007). The act sets a deadline for submitting the audit at 9 
months from fiscal year end. According to data from the Federal Audit 
Clearinghouse, which is responsible for receiving and distributing 
Single Audit results, it received Florida's Single Audit reporting 
package for the year ending June 30, 2009, on March 29, 2010 which was 
within the 9 month deadline in accordance with the act. 

[47] Of the 39 federal programs or clusters listed as major programs 
in the Single Audit report, 12 were identified as expending Recovery 
Act funds. 

[48] The Auditor General reported numerous findings on internal 
control over compliance of federal awards and questioned costs charged 
to several programs in the Single Audit for the fiscal year ending 
June 30, 2009. Within the findings, the Single Audit identified 73 
significant internal control deficiencies related to compliance with 
Federal Program requirements, of which 10 were classified as material 
weaknesses. Of the 73 significant deficiencies which cover many 
federal programs, 25 were identified in programs receiving Recovery 
Act Funds. Of the 10 material weaknesses, an elevated level of a 
significant deficiency, 8 were identified in programs receiving 
Recovery Act funds. Some findings continue to exist from the prior 
year pre-dating the receipt of Recovery Act funds. Some findings are 
categorized as material weaknesses, an elevated level of a significant 
deficiency, as explained in the Single Audit report. The Auditor 
General follows up on prior audit findings to assess the status of 
actions reported to be taken by the agencies to resolve the findings, 
as required by OMB Circular No. A-133. 

[49] Specifically, these two findings, FA 09-059 and FA 09-062, were 
reported as material weaknesses and contributed to qualified opinions 
on compliance for the related Medicaid Cluster compliance requirements. 

[50] Florida has a centralized system into which all 17 state agencies 
report; then the information is uploaded to the federal system via 
Federal Reporting.gov. 

[51] This additional analysis is located on [hyperlink, 
http://www.flarecovery.com] under the "Documents" link. 

[52] DCA, which administers the Weatherization Assistance Program, is 
the prime recipient of this Recovery Act funded program, and is 
responsible for collecting jobs data from its subrecipients. In 
addition to omitting hours worked by contractors, we noted some 
discrepancies between the data one of these subrecipients provided to 
us and DCA; 

DCA agreed to look into these differences and make and report 
corrections, as appropriate. 

[53] Currently, DCA's Office of Inspector General performs a review of 
the agency's quarterly recipient reporting prior to submission to the 
Recovery Czar by comparing, on a sample basis, data submitted by the 
subrecipients to the data in DCA's report. However, the Inspector 
General acknowledged this review would not identify omissions based on 
the information on hand during that limited period of review. The 
Inspector General stated that her staff will look into the issue of 
omissions in subrecipients' reporting during site visits to a sample 
of subrecipients for the Weatherization Assistance Program. 

[54] At this recipient, its departments report payroll data to one of 
two accounting systems. Jobs data reported on one system lags one full 
month; jobs data reported on the second system lags for several days 
at the end of a quarter depending on the timing of the end of the pay 
period. The recipient stated that it wants to maintain an audit trail 
based on the actual hours documented in the accounting systems at the 
time the quarterly reports are prepared in order to demonstrate that 
at the completion of the projects, it has accounted for all hours 
charged to Recovery Act funded projects. 

[End of Appendix V] 

Appendix VI: Georgia: 

Overview: 

The following summarizes GAO's work on the seventh of its bimonthly 
reviews of American Recovery and Reinvestment Act of 2009 (Recovery 
Act)[Footnote 1] spending in Georgia. The full report on our work, 
which covers 16 states and the District of Columbia, is available at 
[hyperlink, http://www.gao.gov/recovery]. 

What We Did: 

We reviewed the following programs funded under the Recovery Act--the 
Early Head Start Program, the Energy Efficiency and Conservation Block 
Grant Program, the Weatherization Assistance Program, the Tax Credit 
Assistance Program, the Grants to States for Low-income Housing 
Projects in Lieu of Low-income Housing Credits Program under section 
1602 of division B of the Recovery Act (Section 1602 Program), and the 
Public Housing Capital Fund. We began work on the Early Head Start 
Program because significant funds had been obligated and on the Energy 
Efficiency and Conservation Block Grant Program because it was funded 
for the first time by the Recovery Act. We continued our work on the 
Weatherization Assistance Program, the Tax Credit Assistance and 
Section 1602 Programs, and the Public Housing Capital Fund to update 
the status of these programs. For descriptions and requirements of the 
programs covered in our review, see appendix XVIII of GAO-10-1000SP. 
In addition, we focused on Georgia's efforts to ensure accountability 
over funds and the use of Recovery Act funds by selected localities. 

What We Found: 

Following are highlights of our review. 

* Early Head Start Program. Under the Recovery Act, the Office of Head 
Start designated approximately $19 million for the expansion of the 
Early Head Start program in Georgia. For example, the Clarke County 
School District, which received an Early Head Start expansion grant of 
about $2.2 million, used the funds in part to construct new classrooms 
and hire additional staff, allowing it to serve 84 additional clients. 
Enrichment Services Program, Inc. received an Early Head Start 
expansion grant of about $1.5 million, which it used to make a down 
payment on a new facility and hire new staff, among other things. The 
funding allowed it to provide Early Head Start services for the first 
time to 72 clients. The two grantees defined enrollment differently 
than each other when reporting to the Office of Head Start, but had 
similar processes in place to determine client eligibility. 

* Energy Efficiency and Conservation Block Grant Program. The U.S. 
Department of Energy (DOE) allocated a total of about $67.2 million in 
formula grants to the State of Georgia--approximately $45.6 million 
directly to 17 cities and 10 counties and about $21.6 million to the 
state. The recipients we interviewed--the Georgia Environmental 
Finance Authority (GEFA), Cobb County, the Columbus Consolidated 
Government, and the City of Warner Robins--had just begun to spend 
funds on projects such as a revolving loan fund for improvements to 
commercial buildings, retrofits to government buildings, and 
improvements to a wastewater treatment plant. All of the recipients we 
interviewed were putting monitoring strategies and plans in place and 
developing methodologies for measuring energy savings. 

* Weatherization Assistance Program. DOE allocated about $125 million 
in Recovery Act weatherization funding to Georgia for a 3-year period. 
As of the end of June 2010, the 22 service providers in the state had 
completed 3,017 (about 22 percent) of the 13,617 homes to be 
weatherized with these funds by March 2012. GEFA and the three 
providers we interviewed have taken steps to address issues with 
prioritizing clients for service and awarding contracts that we 
identified in our May 2010 report.[Footnote 2] 

* Tax Credit Assistance and Section 1602 Programs. Georgia received 
about $54.5 million in Tax Credit Assistance Program funds and 
approximately $195.6 million in Section 1602 Program funds. As of July 
31, 2010, the state had committed about $228 million (approximately 91 
percent) under both programs for 39 projects, including the 
construction of 52 units for persons over age 55 in Sandersville, 
Georgia. The state expects to commit the remainder of its funds by the 
end of September 2010. The state has processes in place to conduct 
oversight of the projects during construction and is developing 
processes designed to ensure their long-term viability after 
completion. 

* Public Housing Capital Fund. The U.S. Department of Housing and 
Urban Development (HUD) allocated about $113 million in Recovery Act 
formula funding to 184 public housing agencies in Georgia to improve 
the physical condition of their properties. As of August 7, 2010, 
these agencies had obligated all of their funds and drawn down about 
$62 million (approximately 55.1 percent). The housing agencies we 
visited in Athens, Atlanta, and Macon had made progress on projects 
funded with formula grants. For example, the Athens Housing Authority 
was close to completing the renovation of 25 scattered site housing 
units. HUD also awarded about $14 million in Recovery Act competitive 
funding to five public housing agencies in Georgia. HUD expects all 
five agencies to meet the Recovery Act requirement to obligate their 
funds within 1 year of the date they were made available. 

* Accountability efforts. The State Auditor's fiscal year 2010 Single 
Audit will include audits of Recovery Act programs. The internal audit 
departments of several state agencies have plans to audit or are 
already auditing Recovery Act funds. For example, GEFA conducts fiscal 
audits that focus on the contractual, administrative, and accounting 
aspects of the Weatherization Assistance Program. In addition, the 
State Accounting Office is implementing an internal control initiative 
to enhance accountability for Recovery Act funds. The initiative began 
in June 2010 and provided internal control training to 28 state 
agencies. These agencies will be required to certify that all 
necessary controls are in place by the end of fiscal year 2011. 

* Selected localities' use of Recovery Act funds. The Columbus 
Consolidated Government and the Unified Government of Athens-Clarke 
County had been awarded about $17.5 million and $13.3 million, 
respectively, as of August 6, 2010. These localities received funds 
for purposes such as improving energy efficiency and preventing 
homelessness. 

Grantees in Georgia Are Using Early Head Start Funds to Serve 
Additional Children and Create Additional Infrastructure: 

In Georgia, 12 organizations operated an Early Head Start program 
prior to the Recovery Act.[Footnote 3] Eight of these organizations 
and seven new organizations received a total of approximately $19 
million in Recovery Act Early Head Start expansion grants to serve 
approximately 1,300 new clients. As of July 16, 2010, these agencies 
had drawn down about $7.4 million (39 percent). 

Despite a Delayed Start, Georgia Grantees Have Begun Providing Early 
Head Start Services: 

We visited two grantees--Clarke County School District (CCSD) and 
Enrichment Services Program, Inc. (ESP).[Footnote 4] CCSD had operated 
an Early Head Start program prior to receiving its Recovery Act 
funding. ESP had operated a Head Start Program but did not previously 
have an Early Head Start program. Both grantees used the Recovery Act 
funds to offer three different program options for their clients-- 
center-based services, home-based services, and a combination of the 
two.[Footnote 5] 

Clarke County School District: 

CCSD was awarded about $2.2 million in Recovery Act Early Head Start 
expansion grants (see fig. 1). As of July 16, 2010, CCSD had drawn 
down about $1.2 million (55 percent). With this funding, CCSD plans to 
serve 84 additional clients through three program options. It began to 
serve these clients on March 1, 2010, and as of the end of June 2010, 
had enrolled 78 clients. The district used about $1 million for an 
addition to a new building that includes classrooms for Early Head 
Start and program support areas for Early Head Start and Head Start. 
In accordance with its grant application, CCSD plans to use the 
remaining funds to hire additional staff, for professional 
development, to improve playgrounds, and to purchase program and 
instruction supplies. 

Figure 1: Overview of Clarke County School District's Early Head Start 
Expansion Grant: 

[Refer to PDF for image: pie-chart and horizontal bar graph] 

Budget categories and amount of expansion funds: 
Facilities construction: $998,000; 
Staffing: $530,000; 
Contractual: $290,000; 
Other: $209,000; 
Supplies: $160,000; 
Equipment: $25,000; 
Travel: $3,000; 
Total: $2.2 million. 

Total clients enrolled as of June 2010: 
Combination: 11; 
Home-based: 35; 
Center-based: 32; 
Total: 78. 

Source: Office of Head Start and Clarke County School District data. 

[End of figure] 

Because CCSD previously operated an Early Head Start program, it also 
received about $43,000 in Recovery Act quality improvement funds. 
[Footnote 6] CCSD plans to use some of these funds for playground 
improvements. The remaining funds will be used for supplies and 
professional development, among other things. Figure 2 shows the new 
building that was partially constructed with Recovery Act funds and 
one of the playgrounds to be improved. 

Figure 2: Examples of Clarke County School District's Plans for Its 
Early Head Start Funds: 

[Refer to PDF for image: 2 photographs] 

Figure 2 shows examples of Clarke County School District’s plans for 
its Early Head Start funds. On the left is a picture of a new building 
partially constructed with Recovery Act funds. On the right is a 
picture of a playground to be improved. 

Source: GAO. 

[End of figure] 

CCSD experienced some delays in implementing its Recovery Act Early 
Head Start expansion grant.[Footnote 7] According to CCSD officials, 
they originally expected to receive their Financial Assistance Award 
in September 2009.[Footnote 8] However, CCSD did not receive its award 
until December 2009. Officials stated the delay affected the time line 
for hiring and training staff, preparations for facilities and 
playgrounds, purchasing of supplies, and completion of the addition to 
the new building and subsequently delayed the opening date for some of 
its center-based programming by about 4 months. Despite this delay, 
officials said they were on target to expend their first year awards 
by the end of fiscal year 2010.[Footnote 9] Once its Recovery Act 
expansion funding expires at the end of September 2011, CCSD plans to 
continue to provide expanded services to infants and toddlers by 
applying for additional federal grants.[Footnote 10] If funding is 
made available through the Office of Head Start for continuing the 
Early Head Start expansion programming, then CCSD will apply to 
continue Early Head Start services. 

Enrichment Services Program: 

ESP was awarded approximately $1.5 million in Recovery Act Early Head 
Start expansion grants (see figure 3). As of July 16, 2010, ESP had 
drawn down about $958,000 (64 percent). According to ESP officials, 
the funds allowed the agency to start providing Early Head Start 
services, which had been a goal for them and other entities in the 
community. ESP began serving 72 clients through three program options 
on April 15, 2010. 

Figure 3: Overview of Enrichment Services Program's Early Head Start 
Expansion Grant: 

[Refer to PDF for image: pie-chart and horizontal bar graph] 

Budget categories and amount of expansion funds: 
Staffing: $488,000; 
Supplies: $406,000; 
Facilities construction: $278,000; 
Other: $210,000; 
Indirect costs: $65,000; 
Contractual: $12,000; 
Equipment: $48,000; 
Total: $1.5 million. 

Total clients enrolled as of June 2010: 
Combination: 28; 
Home-based: 8; 
Center-based: 40; 
Total: 72. 

Source: Office of Head Start and Enrichment Services Program, Inc. 
data. 

[End of figure] 

ESP used about $278,000 of its Recovery Act funding to make a down 
payment on a facility and approximately $488,000 for personnel costs 
(see figure 4). It intends to use the remaining funds to make minor 
renovations to the facility and to purchase additional supplies, among 
other things. 

Figure 4: Facility that Enrichment Services Program Purchased with 
Early Head Start Funds: 

[Refer to PDF for image: 2 photographs] 

Figure 4 shows the facility that Enrichment Services Program purchased 
with Early Head Start funds. On the left is a picture of the exterior 
of the newly purchased building. On the right is a picture of the 
community room located inside the building. 

Source: GAO. 

[End of figure] 

Similar to CCSD, ESP officials stated that the implementation of their 
Early Head Start program was delayed. First, ESP did not receive its 
award until December 2009. Second, ESP faced additional delays because 
the agency had to make modifications to its proposed program. For 
instance, ESP had to find an alternate location to hold some of its 
Early Head Start classes because the originally proposed property was 
found to be unacceptable because of health and safety concerns. As a 
result, ESP postponed its original opening date by 2 months to May 
2010. Despite this delay, officials expected to expend their first 
year awards by the end of fiscal year 2010. ESP officials have 
identified options to extend the services to infants and toddlers once 
their Recovery Act funds are no longer available. They are presently 
working on obtaining the required licensing for their newly purchased 
facility to participate in Georgia's subsidized childcare program. 

Grantees We Visited Differ in Their Definition of Enrollment but Have 
Similar Processes in Place to Determine Client Eligibility: 

The two grantees we visited define enrollment differently when 
reporting to the Office of Head Start, but had similar processes in 
place to determine client eligibility. 

Enrollment: 

For the Head Start and Early Head Start programs, enrollment is 
defined by regulation as the official acceptance of a family by a 
program and the completion of all procedures necessary for a child and 
family to begin receiving services.[Footnote 11] The Office of Head 
Start's guidance states that, for monthly enrollment reporting, 
grantees should "report the total number of children and/or pregnant 
women enrolled on the last operating day of the month. [They should] 
report the total number of enrollees, not the number in attendance." 
[Footnote 12] In our May 2010 report, we concluded that, due to this 
guidance, the Office of Head Start lacks assurance that grantees 
actually serve the numbers of children in each program they report 
having enrolled, and for which they are receiving funds.[Footnote 13] 
We noted that under the current regulatory definition of "enrollment," 
grantees--particularly those experiencing obstacles in start-up--could 
reasonably report full enrollment, while some classrooms sat empty, 
perhaps due to licensure or other delays. 

The two Early Head Start grantees we visited were defining 
"enrollment" differently than one another when reporting to the Office 
of Head Start. While both grantees use similar processes to enroll 
students, they consider the client to be "enrolled" at different 
points during the process.[Footnote 14] CCSD officials stated they 
consider a child enrolled on the day the required paperwork is 
approved. For example, if a client completes the required paperwork on 
June 1 but does not receive Early Head Start services until July 1, 
CCSD reports the client as enrolled as of June 1. In contrast, ESP 
told us it considers a client enrolled on the day the client begins to 
receive services. Using the above example, ESP would report the same 
client as enrolled as of July 1. 

Client Eligibility: 

Our review of 20 files and other documentation during site visits to 
the two grantees found that all 20 files included a form to document 
that the client's income eligibility was assessed.[Footnote 15] The 
form required the grantee's staff to review documentation--such as tax 
returns, pay stubs, written statements from employers, or 
documentation showing receipt of public assistance--and record the 
determination of eligibility. The Office of Head Start's guidance does 
not require grantees to maintain documentation supporting their 
eligibility determinations.[Footnote 16] Consistent with this 
guidance, we did not find the original documentation used to assess 
income eligibility in any of the files we reviewed. Both of the 
grantees we visited indicated that if required to maintain 
documentation, they could do so without the need for additional 
resources. However, one noted that the immigrant population it serves 
could have concerns about how the documents would be used if they were 
retained. 

Grantees Have Submitted Required Recipient Reports: 

Both grantees we visited have submitted the quarterly recipient 
reports required under the Recovery Act.[Footnote 17] These reports 
include the amount of funds expended and the number of jobs funded by 
Recovery Act awards. To determine the number of jobs funded, both 
grantees told us they rely on payroll information from their 
accounting systems. CCSD also relied on information from vendors to 
calculate the full-time equivalents (FTE) associated with the addition 
to the new building. Both grantees stated they have procedures in 
place to review the data before it is submitted to 
FederalReporting.gov, the system through which recipients report 
information on the projects and activities funded by Recovery Act 
awards. For example, at CCSD, a fiscal specialist prepares the 
recipient report and sends it to the Early Head Start coordinator to 
review before submission. At ESP, the Early Head Start coordinator 
prepares the recipient report, and then the financial staff and 
Executive Director review it prior to submission. 

Recipients in Georgia Have Begun to Implement the Energy Efficiency 
and Conservation Block Grant Program: 

The Energy Efficiency and Conservation Block Grant (EECBG) Program, 
funded for the first time by the Recovery Act, was established for the 
purpose of assisting states and communities to develop and implement 
projects to improve energy efficiency and reduce energy use and fossil 
fuel emissions.[Footnote 18] The Recovery Act provides approximately 
$3.2 billion for the program. DOE administers the program through 
competitive and formula grants for local and state governments and 
Indian tribes. Formula grants were awarded directly to states and 
larger communities within each state.[Footnote 19] 

EECBG Recipients Have Developed Plans to Use Their Funds, but Most 
Projects Have Just Begun: 

DOE allocated a total of about $67.2 million in formula grants to the 
State of Georgia--approximately $45.6 million directly to 17 cities 
and 10 counties and about $21.6 million to the state. We visited GEFA, 
the state agency that administers the program, and three communities 
that received formula grants directly from DOE--Cobb County, the 
Columbus Consolidated Government, and the City of Warner Robins. 
[Footnote 20] 

GEFA: 

GEFA was awarded about $21.6 million on September 14, 2009. As of July 
30, 2010, the agency had been reimbursed by DOE for about $237,000. 
GEFA plans to use the majority of its funds to implement the following 
three programs:[Footnote 21] 

* Competitive grants. $13.3 million to local governments for 
activities such as energy-efficiency conservation and renewable energy 
technology.[Footnote 22] 

* On-bill financing. $5 million to three utility companies that plan 
to administer a loan program to homeowners to make energy-efficiency 
upgrades. 

* Georgia Cities Revolving Loan Fund. $2 million for a revolving loan 
fund to support energy-efficiency improvements in commercial buildings 
located in downtowns of cities. 

To select the competitive grant recipients, GEFA issued a request for 
proposals from communities outlining projects in the eight eligible 
activities upon which the agency had decided to focus, including 
energy-efficiency retrofits, renewable energy technologies in 
government buildings, and energy-efficiency conservation for building 
and facilities.[Footnote 23] GEFA received 84 applications and 
selected communities using a panel that scored and ranked each 
application. The final award of 58 grants to 69 communities was 
approved by the GEFA board. The following are examples of projects 
that GEFA funded: 

* The City of Brunswick was awarded $300,000 to implement energy- 
efficiency retrofits for government and nonprofit buildings. The 
city's proposed retrofits include higher-efficiency lighting, 
efficiency improvements to heating and air conditioning systems, and 
programmable thermostats. 

* The City of Kingsland, as lead applicant for multiple local 
governments, was awarded $500,000 to implement energy-efficiency 
retrofits for local government and nonprofit buildings, among other 
things. 

Cobb County: 

DOE awarded $5,288,500 in EECBG formula funds to Cobb County on 
September 8, 2009. As of July 30, 2010, the county had been reimbursed 
by DOE for about $385,000. Cobb County plans to use the majority of 
its funds for three projects: $270,985 for consultant services to 
assist with the development of an integrated energy conservation plan, 
$4,713,500 for energy retrofits and system improvements at 20 
government buildings, and $100,015 for energy software and 
benchmarking.[Footnote 24] The county has made some progress on its 
projects. According to officials, the county had used consultant 
services to complete site audits, prioritize the retrofit site 
selections, and develop performance bid specifications. Energy 
retrofits and system improvements had been completed at three sites as 
of July 31, 2010. In addition, the county plans to solicit bids for 
the energy software by October 15, 2010, with software installation to 
occur in the fourth quarter of 2010. The software will be used to 
track and report historic and future energy use, energy cost, and 
greenhouse gas emissions. Officials expect to fully expend all EECBG 
funds by 2012, with the majority of work being fully completed by the 
end of 2011. 

Columbus Consolidated Government: 

DOE awarded $1,844,800 in EECBG formula funds to Columbus on December 
24, 2009. As of July 30, 2010, the consolidated government had not 
been reimbursed by DOE for any spending. Columbus plans to use its 
funds for the following four projects: 

* $244,660 for traffic signal and street light upgrades, 

* $1 million for traffic management technology equipment and 
installation, 

* $400,000 for weatherization assistance to homeowners, and: 

* $200,140 for a public awareness campaign on air quality. 

Officials explained that they selected these projects based on DOE's 
guidance on eligible activities and to complement projects that 
already were underway. As of August 9, 2010, preliminary work had 
begun on all of the projects. For example, officials were preparing 
the transportation projects for contract award by January 2011 and had 
held a "kick off" meeting for the air quality project. Columbus also 
had awarded a contract for the weatherization assistance project to a 
community action agency already providing weatherization services with 
Recovery Act funds under the Weatherization Assistance Program. 
[Footnote 25] 

City of Warner Robins: 

DOE awarded $573,100 in EECBG formula funds to Warner Robins on 
September 14, 2009. As of July 30, 2010, the city had been reimbursed 
by DOE for about $247,000. Warner Robins plans to use its entire EECBG 
grant to make energy-efficiency improvements to its wastewater 
treatment plant that has been operating with inadequate and 
malfunctioning equipment for a number of years.[Footnote 26] More 
specifically, the city plans to procure new equipment for its 
wastewater treatment plant. According to the project manager, some of 
the equipment has been installed, and the city anticipates soliciting 
bids for the remaining project work in October 2010. The project is 
expected to be completed by March 2011. 

Recipients Have Begun to Develop Monitoring Strategies for the EECBG 
Program: 

Recipients we interviewed had developed initial monitoring strategies 
for their EECBG funds. GEFA was in the process of tailoring the 
monitoring plan it has been using for other Recovery Act programs to 
address the specific requirements of the EECBG program. GEFA officials 
stated they planned to procure the services of a contractor to conduct 
desk and field reviews and hire two additional fiscal 
monitors.[Footnote 27] Similarly, officials at Cobb County explained 
they were adapting their current oversight policy and procedures. For 
example, while buildings were undergoing energy retrofits, officials 
planned to follow their general procedures that include conducting 
weekly to daily on-site visits. To help ensure compliance with the Buy 
American provision of the Recovery Act, Cobb County developed 
certifications for its contractors to complete that attest that 
equipment and materials used complied with the Buy American standards. 
Also, officials plan to conduct on-site or desk reviews of the 
projects. Officials at Columbus and Warner Robins stated they had not 
developed a specific monitoring plan for EECBG funds, but intended to 
use their local government's standard contracting and accounting 
oversight procedures. Additionally, Columbus's internal auditor plans 
to review Recovery Act programs upon completion, and the city 
maintains a dedicated team that provides oversight for all of the 
city's Recovery Act programs through quarterly reports to the mayor 
and city council. 

Although initial monitoring plans were underway, some recipients we 
interviewed requested additional or clearer guidance related to 
monitoring and complying with EECBG requirements. For instance, GEFA 
officials suggested that a monitoring checklist for subrecipients 
would be helpful. Officials at Cobb County recommended that DOE 
develop clearer guidance on the documentation needed to show 
compliance with the Recovery Act's Buy American provision. Columbus 
officials stated that some DOE requirements, such as those for 
environmental reviews, were not necessarily aligned with similar 
requirements for other programs. For instance, a transportation 
project approved in its EECBG application would be required to follow 
different procedures if the project was awarded through the Federal 
Highway Administration. 

Recipients Have Plans to Measure Project Impacts and Complete 
Recipient Reports, but Methods for Measuring Impact Vary: 

As part of quarterly reports to DOE, EECBG recipients are required to 
report measures such as energy saved and greenhouse gas emission 
reductions.[Footnote 28] However, some officials we interviewed noted 
that methods for determining these measures can vary. For example, 
officials from Columbus stated energy savings from upgrades to traffic 
lights will be estimated by making assumptions on the amount of energy 
used by the original lights compared to retrofitted traffic lights. 
The Warner Robins project manager explained the city intends to report 
project impacts on energy savings after the project is completed by 
comparing past monthly utility bills for the water treatment plant to 
new monthly utility bills. To measure the impact of energy retrofits, 
Cobb County plans a mixed approach. According to officials, the county 
will take field measurements of the performance of old equipment prior 
to removal and replacement equipment and use energy models or 
engineering estimates, including estimates provided by the county's 
energy audit consultant. Cobb County also intends to use the new 
energy software procured through the EECBG grant to benchmark and 
track energy use, cost, and savings and revise calculations based on 
observed energy usage for each facility. To help ensure consistency, 
GEFA has provided guidance from DOE to its subrecipients detailing 
instructions on estimating and reporting energy savings. 

The three localities we visited provided the following anecdotal 
information on the impact of EECBG funds: 

* Cobb County officials anticipate their projects will reduce the 
energy, cost, and greenhouse gas emissions at county facilities, and 
will allow the county to sustain savings and continuously improve 
efficiency. 

* According to Columbus officials, expected benefits include 
electricity efficiency gains from upgraded traffic signals and street 
lights and reduced energy consumption through the air quality campaign 
and traffic-management initiatives. 

* According to Warner Robins' application, the city's wastewater 
improvement project is expected to reduce the plant's energy 
consumption by approximately 30 percent after it is fully completed. 

In addition to reporting energy savings measures, EECBG recipients are 
required under the Recovery Act to submit quarterly recipient reports. 
These reports include financial information and the number of jobs 
funded by Recovery Act awards. To help its subrecipients supply the 
required information, GEFA offered training and developed a Web-based 
tool. The training covered topics such as how to calculate FTEs for 
reporting the number of jobs funded by Recovery Act awards. The Web 
tool pre-populates fields for award and financial data to help ensure 
accuracy and consistency. To determine the number of jobs funded, Cobb 
County told us they rely on payroll information from their accounting 
systems and certified payrolls from their contractors to calculate the 
FTEs. The Warner Robins project manager said that the city reviews 
invoices (with hours worked) provided by its contractor. Columbus had 
not yet reported FTEs because projects were not underway. 

GEFA, Cobb County, and Columbus officials told us they have procedures 
in place to review the data before they are submitted to 
FederalReporting.gov. For example, GEFA has developed procedures to 
assess the accuracy of the information submitted by its subrecipients. 
First, each subrecipient is required to certify its submission. Then, 
GEFA reviews the information for reasonableness. If the information is 
not found to be reasonable, GEFA officials contact the provider to 
discuss the submission. At Cobb County, multiple staff and the 
accounting department review the recipient report prepared by the 
EECBG administrator before submission. At Columbus, the project 
manager prepares the recipient report with assistance and review from 
a grant accountant. The grant accountant submits the report to 
FederalReporting.gov and the city's internal auditor for review. The 
Warner Robins project manager explained that no review was conducted 
on the information submitted in the report. 

Georgia and Its Service Providers Have Made Improvements to the 
Weatherization Assistance Program: 

Under the Recovery Act, GEFA--the agency that administers the 
Weatherization Assistance Program in Georgia--will receive 
approximately $125 million to weatherize 13,617 homes by March 2012. 
[Footnote 29] DOE approved Georgia's weatherization plan on June 26, 
2009, for the period April 1, 2009, through March 31, 2012. GEFA 
awarded contracts to 22 providers--community action agencies, 
nonprofit agencies, or local governments--which were in place prior to 
the Recovery Act. For our May 2010 report, we visited three providers--
the City of Albany (Albany), Economic Opportunity Authority for 
Savannah-Chatham County Area, Inc. (EOA-Savannah), and Ninth District 
Opportunity, Inc. (Ninth District), located in Gainesville.[Footnote 
30] We followed up with each of these providers for this report. 

Weatherization Production Has Increased Since Our Last Report: 

As of the end of June 2010, 3,017 homes (about 22 percent) had been 
weatherized, and about $26.3 million of the $99.7 million awarded to 
providers (about 26 percent) had been drawn down.[Footnote 31] In June 
2010, providers weatherized 514 units, below the monthly production 
goal of 638 homes (see figure 5). Although the production of 
weatherized homes has continued to increase since our May 2010 report, 
Georgia has not met its production goals. GEFA noted that DOE had 
increased the state's production goal by about 25 percent for April 
through September 2010, which raised the target from 500 units to 638 
units. 

Figure 5: Homes Weatherized in Georgia, August 2009 through June 2010: 

[Refer to PDF for image: vertical bar graph] 

Date: August 2009; 
Actual: 42. 

Date: September 2009; 
Actual: 99. 

Date: October 2009; 
Actual: 126. 

Date: November 2009; 
Actual: 165. 

Date: December 2009; 
Actual: 205; 
Goal: 115. 

Date: January 2010; 
Actual: 219; 
Goal: 231. 

Date: February 2010; 
Actual: 329; 
Goal: 496. 

Date: March 2010; 
Actual: 387; 
Goal: 508. 

Date: April 2010; 
Actual: 430; 
Goal: 638. 

Date: May 2010; 
Actual: 501; 
Goal: 638. 

Date: June 2010; 
Actual: 514; 
Goal: 638. 

Source: GEFA. 

Note: GEFA did not set a goal during the early months of production 
(August 2009 to November 2009). 

[End of figure] 

The progress that individual providers made continues to vary. Four 
providers, including the three largest, had completed 14 percent or 
less of their targeted number of homes as of the end of June 2010. The 
highest rate was 35 percent. Table 1 shows the percentage of funds 
drawn down and homes weatherized by all 22 service providers, as of 
the end of June 2010. 

Table 1: Percentage of Recovery Act Funds Drawn Down and Homes 
Weatherized by Service Provider, as of the end of June 2010: 

Service provider: Coastal Plain Area Economic Opportunity Authority, 
Inc.; 
Counties served: 10; 
Total contract value: $4,886,875; 
Percentage drawn down: 29%; 
Homes to be weatherized: 590; 
Homes weatherized through June: 206; 
Percentage of homes weatherized: 35%. 

Service provider: EOA for Savannah-Chatham County Area, Inc.; 
Counties served: 1; 
Total contract value: $2,743,978; 
Percentage drawn down: 23%; 
Homes to be weatherized: 371; 
Homes weatherized through June: 120; 
Percentage of homes weatherized: 32%. 

Service provider: Southwest Georgia Community Action Council, Inc.; 
Counties served: 14; 
Total contract value: $5,469,280; 
Percentage drawn down: 31%; 
Homes to be weatherized: 753; 
Homes weatherized through June: 242; 
Percentage of homes weatherized: 32%. 

Service provider: West Central Georgia Community Action Council, Inc.; 
Counties served: 8; 
Total contract value: $2,448,384; 
Percentage drawn down: 36%; 
Homes to be weatherized: 336; 
Homes weatherized through June: 108; 
Percentage of homes weatherized: 32%. 

Service provider: Concerted Services, Inc.--Waycross; 
Counties served: 8; 
Total contract value: $3,455,919; 
Percentage drawn down: 37%; 
Homes to be weatherized: 478; 
Homes weatherized through June: 149; 
Percentage of homes weatherized: 31%. 

Service provider: Tallatoona Community Action Partnership, Inc.; 
Counties served: 6; 
Total contract value: $4,103,205; 
Percentage drawn down: 36%; 
Homes to be weatherized: 563; 
Homes weatherized through June: 177; 
Percentage of homes weatherized: 31%. 

Service provider: Concerted Services, Inc.--Reidsville; 
Counties served: 9; 
Total contract value: $4,163,318; 
Percentage drawn down: 33%; 
Homes to be weatherized: 574; 
Homes weatherized through June: 165; 
Percentage of homes weatherized: 29%. 

Service provider: Coastal Georgia Area Community Action Authority, 
Inc.; 
Counties served: 6; 
Total contract value: $3,384,006; 
Percentage drawn down: 38%; 
Homes to be weatherized: 468; 
Homes weatherized through June: 130; 
Percentage of homes weatherized: 28%. 

Service provider: Partnership for Community Action, Inc.; 
Counties served: 3; 
Total contract value: $6,926,773; 
Percentage drawn down: 23%; 
Homes to be weatherized: 956; 
Homes weatherized through June: 262; 
Percentage of homes weatherized: 27%. 

Service provider: City of Albany; 
Counties served: 1; 
Total contract value: $1,546,104; 
Percentage drawn down: 28%; 
Homes to be weatherized: 209; 
Homes weatherized through June: 55; 
Percentage of homes weatherized: 26%. 

Service provider: Gwinnett County Board of Commissioners; 
Counties served: 1; 
Total contract value: $3,284,888; 
Percentage drawn down: 18%; 
Homes to be weatherized: 461; 
Homes weatherized through June: 118; 
Percentage of homes weatherized: 26%. 

Service provider: Heart of Georgia Community Action Council, Inc.; 
Counties served: 9; 
Total contract value: $2,764,125; 
Percentage drawn down: 33%; 
Homes to be weatherized: 379; 
Homes weatherized through June: 91; 
Percentage of homes weatherized: 24%. 

Service provider: North Georgia Community Action, Inc.; 
Counties served: 10; 
Total contract value: $5,471,460; 
Percentage drawn down: 19%; 
Homes to be weatherized: 752; 
Homes weatherized through June: 184; 
Percentage of homes weatherized: 24%. 

Service provider: Overview, Inc.; 
Counties served: 7; 
Total contract value: $2,463,271; 
Percentage drawn down: 33%; 
Homes to be weatherized: 340; 
Homes weatherized through June: 82; 
Percentage of homes weatherized: 24%. 

Service provider: Middle Georgia Community Action Agency, Inc.; 
Counties served: 12; 
Total contract value: $6,358,846; 
Percentage drawn down: 35%; 
Homes to be weatherized: 870; 
Homes weatherized through June: 200; 
Percentage of homes weatherized: 23%. 

Service provider: Clayton County Community Action Authority, Inc.; 
Counties served: 3; 
Total contract value: $3,250,251; 
Percentage drawn down: 18%; 
Homes to be weatherized: 452; 
Homes weatherized through June: 88; 
Percentage of homes weatherized: 19%. 

Service provider: Community Action for Improvement, Inc.; 
Counties served: 6; 
Total contract value: $4,138,220; 
Percentage drawn down: 29%; 
Homes to be weatherized: 569; 
Homes weatherized through June: 108; 
Percentage of homes weatherized: 19%. 

Service provider: Area Committee to Improve Opportunities Now, Inc.; 
Counties served: 10; 
Total contract value: $5,010,500; 
Percentage drawn down: 20%; 
Homes to be weatherized: 687; 
Homes weatherized through June: 125; 
Percentage of homes weatherized: 18%. 

Service provider: Southeast Energy Assistance; 
Counties served: 1; 
Total contract value: $8,196,838; 
Percentage drawn down: 31%; 
Homes to be weatherized: 1,112; 
Homes weatherized through June: 157; 
Percentage of homes weatherized: 14%. 

Service provider: Enrichment Services Program, Inc.; 
Counties served: 8; 
Total contract value: $3,758,994; 
Percentage drawn down: 21%; 
Homes to be weatherized: 512; 
Homes weatherized through June: 64; 
Percentage of homes weatherized: 13%. 

Service provider: Central Savannah River Area EOA, Inc.; 
Counties served: 13; 
Total contract value: $7,000,302; 
Percentage drawn down: 18%; 
Homes to be weatherized: 962; 
Homes weatherized through June: 91; 
Percentage of homes weatherized: 9%. 

Service provider: Ninth District Opportunity, Inc.; 
Counties served: 14; 
Total contract value: $8,837,469; 
Percentage drawn down: 14%; 
Homes to be weatherized: 1,223; 
Homes weatherized through June: 95; 
Percentage of homes weatherized: 8%. 

Service provider: Total; 
Counties served: 160; 
Total contract value: $99,663,006; 
Percentage drawn down: 26%; 
Homes to be weatherized: 13,617; 
Homes weatherized through June: 3,017; 
Percentage of homes weatherized: 22%. 

Source: GAO analysis of GEFA data. 

Note: Georgia has 159 counties. However, both Albany and Southwest 
Georgia Community Action Council, Inc. serve portions of Dougherty 
County. 

[End of table] 

According to GEFA officials, seven providers are on a list of 
underperforming agencies because these providers have not met 
production goals.[Footnote 32] These providers were issued warning 
letters in which GEFA explained the steps it would consider taking if 
production did not increase, such as (1) reducing the funding level to 
the provider and providing unexpended dollars to another provider or 
(2) reducing the funding to the subgrantee and providing the dollars 
on a competitive basis to a qualified nonprofit to serve the defined 
geographic territory. 

GEFA and Selected Service Providers Have Taken Steps to Address Issues 
We Previously Identified: 

In our May 2010 report, we identified several issues related to the 
Weatherization Assistance Program in Georgia.[Footnote 33] We reported 
that oversight of the providers had been slow to start and some 
monitoring positions remained vacant. In addition, we noted instances 
in which the three providers we visited inconsistently followed DOE 
and GEFA guidance for prioritizing clients for service, determining 
client eligibility, prioritizing work, and awarding contracts. GEFA 
and the three providers have taken steps to address these issues. 

First, GEFA worked with the University of Georgia Cooperative 
Extension (UGA), the entity it hired to perform monitoring, to ensure 
that all of the providers had monitors assigned to them and to refine 
their monitoring reports.[Footnote 34] According to GEFA officials, 
each of the 22 providers had been assigned a desk and field monitor as 
of July 2010. In some cases this was achieved by assigning multiple 
agencies to one monitor. In addition, UGA officials started including 
summary reports in the monthly monitoring report that (1) rated each 
provider as very good, good, or unacceptable in 17 areas, such as file 
documentation, subcontractor administration, and program and financial 
reporting and (2) described any issues of significant concern. 
According to GEFA officials, they review the monitoring reports 
provided by UGA to identify any findings that need to be addressed by 
the providers. If findings are identified, GEFA requests a corrective 
action plan from the provider within 15 days. 

Second, GEFA has implemented a Web-based reporting tool that helps 
providers prioritize clients for service. The tool prioritizes 
applicants based on characteristics such as age (households with 
people under 12 or over 60), disability status, high energy use or 
burden, and poverty. Third, GEFA offered procurement training for 
providers in May 2010 after identifying the need for more education in 
this area. The training covered topics such as requests for proposal, 
solicitations and advertising, document retention, and reporting 
requirements. 

The three providers we visited also have taken steps to address issues 
identified in our May 2010 report. For example, 

* According to Albany officials, they have revised their contracts to 
include language requiring compliance with Recovery Act provisions, 
including Davis-Bacon Act prevailing wages.[Footnote 35] In addition, 
Albany has amended its application review procedures to include a new 
checklist for assessing income eligibility that requires the review of 
additional income documentation, such as tax returns.[Footnote 36] 

* EOA-Savannah officials told us that they are revising their process 
for awarding contracts to install heating systems and perform 
electrical work. Rather than continuing to rely on a group of 
preferred vendors with which they had negotiated prices, they plan to 
solicit bids from a larger group of contractors on an ongoing basis. 

* To speed up the production process, Ninth District officials stated 
they have revised the way they procure contractor services. Ninth 
District now awards contracts to several general contractors and then 
competes the work required on each home amongst those general 
contractors. Since implementing this process in July 2010, Ninth 
District officials have awarded contracts for 60 homes and plan to 
increase the number of contracts in the coming months. 

GEFA Has Conducted Training and Developed a Tool to Help Providers 
Meet Recipient Reporting Requirements: 

GEFA is responsible for submitting the quarterly recipient report for 
the Weatherization Assistance Program that is required under the 
Recovery Act. In this report, it includes financial information and 
the number of jobs funded by Recovery Act awards. To help its 22 
providers supply the required information, GEFA offered training and 
developed a Web-based tool. The training covered topics such as how to 
calculate FTEs for reporting the number of jobs funded by Recovery Act 
awards. The electronic tool pre-populates fields with award and 
financial data to help ensure accuracy and consistency. To determine 
the number of jobs funded, the three providers we interviewed told us 
they rely on payroll information from their accounting systems and 
certified payrolls from their contractors to calculate the FTEs. 

Ninth District and Albany have procedures in place to review the data 
before they are submitted to GEFA; 

however, EOA-Savannah does not. For example, according to Ninth 
District officials, the Executive Director reviews the recipient 
report prepared by the weatherization coordinator prior to submission 
to GEFA. GEFA also has developed procedures to assess the accuracy of 
the information submitted. First, each provider is required to certify 
its submission. Then, GEFA reviews the information for reasonableness. 
For the most recent reporting period (April 1 to June 30), GEFA 
officials told us they contacted all 22 providers to discuss their 
submissions, which resulted in some changes to providers' job 
calculations. 

Georgia Has Made Progress in Implementing Its Tax Credit Assistance 
and Section 1602 Programs: 

The Recovery Act established two funding programs that provide capital 
investments in low-income housing tax credit projects: (1) the Tax 
Credit Assistance Program (TCAP) administered by HUD and (2) the 
Section 1602 Program administered by the U.S. Department of the 
Treasury (Treasury).[Footnote 37] Before the credit market was 
disrupted in 2008, the low-income housing tax credit program provided 
substantial financing in the form of third-party investor equity for 
affordable rental housing units. As the demand for tax credits 
declined, so did the prices investors were willing to pay for them, 
which created funding gaps in projects that had received tax credit 
allocations in 2007 and 2008. TCAP and the Section 1602 Program were 
designed to fill financing gaps in planned tax credit projects and 
jump-start stalled projects. 

Georgia Expects to Meet Spending Deadlines for TCAP and the Section 
1602 Program: 

Georgia received about $54.5 million in TCAP funds. As of July 31, 
2010, the Georgia Department of Community Affairs (DCA)--which 
administers the low-income housing tax credit program--had approved 
TCAP funding for eight projects containing 1,140 units (including 
1,046 tax credit units). For these eight projects, Georgia had 
committed about $49.5 million (91 percent) and disbursed about $20.8 
million (38 percent). Under the Recovery Act, state housing finance 
agencies must disburse 75 percent of TCAP funds by February 2011, and 
project owners must spend all of their TCAP funds by February 2012. 
The housing finance agency must return any funds not expended by this 
deadline to HUD. DCA plans to commit the remainder of its TCAP funds 
by the end of September 2010 and expects to meet the deadline for 
disbursing 75 percent of its TCAP funds. 

Georgia also received about $195.6 million in Section 1602 Program 
funds. As of July 31, 2010, DCA had approved Section 1602 Program 
funding for 31 projects containing 2,086 units (including 1,847 tax 
credit units). For these projects, Georgia had committed about $178.3 
million (91 percent) and disbursed about $62.7 million (32 percent). 
Under Section 1602 Program rules, all subawards must be made by 
December 2010, or the housing finance agency must return the funds to 
Treasury. Housing finance agencies can continue to disburse funds for 
committed projects through December 31, 2011, provided that the 
project owners spend at least 30 percent of eligible project costs by 
December 31, 2010.[Footnote 38] Housing finance agencies must disburse 
100 percent of Section 1602 Program funds by December 2011. DCA plans 
to award the remainder of its Section 1602 Program funds by the end of 
September 2010 and expects project owners to meet the 30 percent 
spending deadline. 

We reviewed documentation on or visited three TCAP projects and four 
Section 1602 Program projects.[Footnote 39] Table 2 provides 
information on the progress of each project. The owners of Baptist 
Towers Apartments and Riverview Heights had spent 100 percent and 97 
percent of their TCAP funds, respectively. The project owner at 
Baptist Towers Apartments expected the renovations of the high-rise 
for the elderly and disabled to be finished ahead of the planned 
December 2010 completion date.[Footnote 40] The project owner at 
Riverview Heights expected the renovation of the property to be 
completed in October 2010. DCA officials explained that the closing on 
TCAP funds for the second phase of Sustainable Fellwood had been 
delayed several times due to factors such as the need to attract 
additional investors. DCA and the project owner expect to meet the 
February 2012 expenditure deadline. 

Table 2: Status of Selected TCAP and Section 1602 Program Projects in 
Georgia, as of July 31, 2010: 

Project name: Baptist Towers Apartments, Atlanta; 
Type of funding: TCAP; 
Recovery Act funds committed: $1,850,000; 
Percentage of Recovery Act funds disbursed: 100%; 
Recovery Act funds as percentage of total project costs: 11%; 
Number of housing units (tax credit units/total units): 268/300; 
Project description: Urban; Rehabilitation; Housing for elderly; 
Expected placed in service date: December 2010. 

Project name: Riverview Heights (also known as Oconee Park), Dublin; 
Type of funding: TCAP; 
Recovery Act funds committed: $8,311,921; 
Percentage of Recovery Act funds disbursed: 97; 
Recovery Act funds as percentage of total project costs: 69%; 
Number of housing units (tax credit units/total units): 115/116; 
Project description: Rural; Rehabilitation; Housing for families; 
Expected placed in service date: December 2010. 

Project name: Sustainable Fellwood, Phase II, Savannah; 
Type of funding: TCAP; 
Recovery Act funds committed: $4,300,000; 
Percentage of Recovery Act funds disbursed: 0; 
Recovery Act funds as percentage of total project costs: 28; 
Number of housing units (tax credit units/total units): 99/110; 
Project description: Urban; New construction; Housing for families; 
Expected placed in service date: December 2011. 

Project name: Antigua Place, Moultrie; 
Type of funding: Section 1602 Program; 
Recovery Act funds committed: $2,102,746; 
Percentage of Recovery Act funds disbursed: 100%; 
Recovery Act funds as percentage of total project costs: 39; 
Number of housing units (tax credit units/total units): 36/40; 
Project description: Rural; New construction; Housing for ages 55 and 
older; 
Expected placed in service date: December 2010. 

Project name: Camellia Lane, Sandersville; 
Type of funding: Section 1602 Program; 
Recovery Act funds committed: $8,348,674; 
Percentage of Recovery Act funds disbursed: 68%; 
Recovery Act funds as percentage of total project costs: 96; 
Number of housing units (tax credit units/total units): 52/52; 
Project description: Rural; New construction; Housing for ages 55 and 
older; 
Expected placed in service date: December 2010. 

Project name: The Landing at Southlake, Albany; 
Type of funding: Section 1602 Program; 
Recovery Act funds committed: $5,125,000; 
Percentage of Recovery Act funds disbursed: 35%; 
Recovery Act funds as percentage of total project costs: 98; 
Number of housing units (tax credit units/total units): 36/40; 
Project description: Urban; New construction; Housing for ages 55 and 
older; 
Expected placed in service date: December 2010. 

Project name: Waterford Estates, Dublin; 
Type of funding: Section 1602 Program; 
Recovery Act funds committed: $9,500,000; 
Percentage of Recovery Act funds disbursed: 23%; 
Recovery Act funds as percentage of total project costs: 93; 
Number of housing units (tax credit units/total units): 50/56; 
Project description: Rural; New construction; Housing for families; 
Expected placed in service date: December 2010. 

Source: DCA. 

Note: The placed in service date for a new or existing building used 
as residential rental property is the date on which the building is 
certified as being suitable for occupancy in accordance with state or 
local law. 

[End of table] 

According to DCA, the four Section 1602 Program projects we reviewed 
were on target to meet the program's requirement that project owners 
spend at least 30 percent of eligible project costs by December 31, 
2010. For example, the Camellia Lane project owner had spent 68 
percent of the Section 1602 Program funds and planned to complete the 
project in November 2010. Since our initial visit in March 2010, 
progress has been made in several areas, including the installation of 
rooftop solar panels to power the exterior lights on the property and 
construction of the community center (see fig. 6). This project also 
will provide geothermal heating and cooling. 

Figure 6: New Construction at Camellia Lane: 

[Refer to PDF for image: 2 photographs] 

Figure 6 shows pictures of new construction at Camellia Lane. The 
picture on the left shows the exterior of a new two-story brick 
apartment building with rooftop solar panels to power the exterior 
lights on the property. The picture on the right shows the interior of 
a new community center under construction. The picture shows a large 
open activity room with a trey ceiling and large bay windows. 

Source: GAO. 

[End of figure] 

Georgia Has Plans for Construction Oversight and Asset Management: 

TCAP and the Section 1602 Program require a greater project oversight 
role for state housing finance agencies than the standard low-income 
housing tax credit program. Under the low-income housing tax credit 
program, housing finance agencies are not required to monitor 
construction on a monthly basis, but are required to report that 
projects are completed and occupied in accordance with program 
requirements and deadlines. With respect to long-term monitoring under 
the program, housing finance agencies are required to review projects 
at least annually to determine project owner compliance with tenant 
qualifications and rent and income limits. Additionally, every 3 
years, agencies must conduct on-site inspections of all buildings in 
each project and inspect at least 20 percent of the tax credit units 
and resident files associated with those units. However, under TCAP 
and the Section 1602 Program, housing finance agencies must monitor 
the disbursement and use of funds throughout the construction period. 
Also, housing finance agencies are obligated to perform asset 
management, which imposes ongoing responsibilities on the agencies for 
the long-term viability of each project.[Footnote 41] Housing finance 
agencies are responsible for returning TCAP and Section 1602 Program 
funds to HUD and Treasury, respectively, if a project fails to comply 
with low-income housing tax credit program requirements.[Footnote 42] 

DCA has processes in place for oversight during the construction 
period and has made plans for asset management over the 15-year tax 
credit compliance period. For oversight during the construction 
period, DCA has contractors that conduct monthly inspections of each 
project. The resulting inspection reports include descriptions of any 
funding requests and change orders, site observations, and comments on 
the schedule. After the agency receives inspection reports, DCA staff 
stated they compare expenditure rates to the percentage of 
construction completed. DCA staff also review all costs included in 
funding requests, and an on-site inspection is required before DCA 
will process a funding request. DCA also requires each general 
contractor to provide a cost certification prepared by a certified 
public accountant at project completion. 

Prior to TCAP and the Section 1602 Program, DCA had an asset 
management department that managed a multifamily portfolio consisting 
of 206 projects with investments and loans totaling about $247 
million. To cover the costs of the new asset management requirements 
under the Recovery Act, DCA charged a 3 percent asset management fee 
for TCAP and Section 1602 Program projects. DCA issued new policy 
guidelines to recipients of TCAP and Section 1602 Program awards that 
detail the types of asset management activities that may be performed 
at various stages of projects that receive TCAP or Section 1602 
Program funds.[Footnote 43] For example, DCA plans to review marketing 
plans, leasing procedures, and occupancy rates; review project 
financial management for proper budgeting, accounting, and internal 
controls; and conduct periodic long-term viability analyses such as 
the project cash flow and market conditions. Moreover, DCA stated it 
plans to modify one of its databases to assist in tracking asset 
management and compliance information for TCAP and Section 1602 
Program projects. 

For projects without an investor, DCA will be responsible for 
overseeing all asset management activities. Of the 39 projects in 
Georgia, 24 (62 percent) do not have an investor or syndicator. 
[Footnote 44] According to DCA officials, the participation of a 
private investor adds an additional layer of oversight because 
investors have an incentive to protect their capital investments by 
performing asset management. DCA has not yet decided if it will 
contract out some or all of its asset management functions, but plans 
to make a final decision on its approach by the end of 2010. Although 
officials stated that DCA has more asset management experience than 
some state housing finance agencies, they may consider contracting out 
some functions because so few of their Recovery Act projects have 
investors. 

The Low-Income Housing Tax Credit Market in Georgia Has Slowly Been 
Recovering: 

DCA officials noted that the low-income housing tax credit market in 
Georgia has slowly been recovering. In one sign of improvement, 
investors have been willing to pay more for the tax credits. According 
to DCA and investors, the typical projects that currently are funded 
are straightforward, located in urban areas, and provide housing for 
families and seniors. DCA officials stated projects located in rural 
areas remained difficult to finance and Section 1602 Program funds 
still were needed for those types of projects. The two investors and 
three project owners we interviewed stated there was a need to extend 
the Section 1602 Program for at least 1 more year to help the low- 
income housing tax credit market in these areas. 

Georgia Has Submitted Required Reports on Jobs Funded: 

DCA is required to report information on jobs funded with Recovery Act 
awards to HUD and Treasury. DCA officials believe HUD and Treasury 
provided adequate guidance to them on preparing the necessary reports, 
but they did not believe current reporting systems adequately captured 
the true economic benefits from Recovery Act funds. For TCAP projects, 
housing finance agencies are required to report the nature of projects 
and number of jobs funded via FederalReporting.gov. Recipients of 
Section 1602 Program funds are not required to report jobs to 
FederalReporting.gov.[Footnote 45] Treasury requires state housing 
finance agencies to submit quarterly financial status reports and 
performance reports and to report the number of construction and non- 
construction jobs created and retained. To help its TCAP subrecipients 
comply with recipient reporting requirements, DCA conducted training 
and provided guidance. The guidance requires subrecipients to 
calculate the hours worked on a monthly basis by entering data into 
HUD's job calculator tool. Once subrecipients have submitted the data, 
a DCA staff person reconciles the job data submitted by comparing it 
with Davis-Bacon payroll reports compiled by project owners. 

DCA officials believed that only a fraction of the jobs created and 
retained with Recovery Act funds were captured. For example, $2 
million in TCAP funds could enable an $8 million project to be 
constructed that would not otherwise have been built, but only the 
jobs directly related to the $2 million TCAP expenditure would be 
reported. Moreover, one project owner stated the number of jobs he 
reported on his TCAP project was significantly lower than what he 
reported for his Section 1602 Program project, but the amount of work 
being performed was the same.[Footnote 46] 

Housing Agencies in Georgia Continue to Make Progress on Projects 
Funded with Recovery Act Formula and Competitive Grants: 

In Georgia, 184 public housing agencies received Public Housing 
Capital Fund formula grants, and 5 public housing agencies received 
Public Housing Capital Fund competitive grants. As of August 7, 2010, 
agencies had expended about 55 percent of their formula grants. The 
agencies that received competitive grants were expected to meet the 
Recovery Act's September 2010 obligation deadline. 

Housing Agencies in Georgia Have Spent Over Half of Their Formula 
Grant Funds: 

In Georgia, 184 public housing agencies received about $113 million in 
Public Housing Capital Fund formula grants (see fig. 7). These grant 
funds were provided to the agencies to improve the physical condition 
of their properties. As of August 7, 2010, these agencies had 
obligated 100 percent of their funds and drawn down about $62 million 
(about 55.1 percent). Of the 184 agencies, 112 had drawn down 80 
percent to 100 percent of their funds while 2 had not drawn down any 
funds. We interviewed three: the Housing Authority of the City of 
Athens (Athens Housing Authority), the Housing Authority of the City 
of Atlanta (Atlanta Housing Authority), and the Housing Authority of 
the City of Macon (Macon Housing Authority).[Footnote 47] 

Figure 7: Percentage of Public Housing Capital Fund Formula Grants 
Allocated by HUD That Had Been Obligated and Drawn Down in Georgia, as 
of August 7, 2010: 

[Refer to PDF for image: 3 pie-charts; horizontal bar graph] 

Funds obligated by HUD: $112,675,806 (100%); 
Funds obligated by public housing agencies: $112,675,806 (100%); 
Funds drawn down by public housing agencies: $62,047,869. 

Number of public housing agencies: 
Were allocated funds: 184; 
Obligated 100% of funds: 184; 
Have drawn down funds: 182. 

Source: GAO analysis of data from HUD's Electronic Line of credit 
Control System. 

[End of figure] 

Athens Housing Authority: 

The Athens Housing Authority received about $2.6 million in Recovery 
Act formula grant awards. As of August 7, 2010, the housing agency had 
obligated all of its funds and drawn down approximately $2.1 million 
(81 percent). The agency's largest Recovery Act project is a 
comprehensive modernization of 25 scattered site housing units, which 
includes asbestos and lead abatement and the installation of new 
windows, doors, cabinets, appliances, water heaters, and heating and 
air systems. Figure 8 shows a unit prior to renovation and 
improvements made to another unit's heating and air systems and 
kitchen. The housing agency expects this project to be completed in 
September 2010. The agency also has designated Recovery Act funds to 
replace the roofs on 40 units and the two elevators in a senior high 
rise, among other things. 

Figure 8: Athens Housing Authority's Renovation of Scattered Site 
Units: 

[Refer to PDF for image: 4 photographs] 

Figure 8 shows before and after pictures of units renovated by the 
Athens Housing Authority. On the top, there are pictures of a unit 
prior to renovation that show the original single space heater and 
outdated kitchen. The bottom pictures of a renovated unit show the new 
heater and modernized kitchen, which includes new cabinets, 
appliances, and countertops, among other things. 

Source: GAO. 

[End of figure] 

Atlanta Housing Authority: 

The Atlanta Housing Authority received about $26.6 million in Recovery 
Act formula grant awards. As of August 7, 2010, the housing agency had 
obligated all of its funds and drawn down approximately $4.1 million 
(15 percent). The Atlanta Housing Authority plans to use about $20.6 
million of its Recovery Act funds to rehabilitate 13 properties 
containing a total of 1,953 units and the remaining $6 million to 
demolish 4 properties. The agency originally planned to use about $19 
million for rehabilitation and about $8 million for demolition. 
However, when the procurement for the demolition came in almost $2 
million under the estimated cost, additional funds were made available 
for the rehabilitation of the 13 properties. The agency has completed 
its original design plans for the 13 properties and expects to 
complete its plans for spending the additional $2 million by October 
30, 2010. The work will include renovations to common areas and 
exterior and site improvements. Renovations are expected to be 
completed on all the properties by August 2011. 

Macon Housing Authority: 

The Macon Housing Authority received about $4.8 million in Recovery 
Act formula grant awards. As of August 7, 2010, the housing agency had 
obligated all of its funds and drawn down approximately $2.3 million 
(about 49 percent). The agency plans to use all of these funds to 
complete a major rehabilitation of a 250-unit housing development 
called Pendleton Homes. The planned work includes remodeling the 
bathrooms and kitchens; replacing appliances, windows, doors, and 
flooring; repainting; improving landscaping; and resurfacing parking 
lots and streets (see figure 9). As of August 6, 2010, 81 units had 
been completed and others were undergoing renovation. 

Figure 9: Renovated Kitchen at Pendleton Homes: 

[See PDF for image: photograph] 

Figure 9 is a picture of a remodeled kitchen with new countertops, 
cabinets, flooring, and paint at Pendleton Homes. 

Source: GAO. 

[End of figure] 

HUD Expects Housing Agencies in Georgia to Meet the Obligation 
Deadline for Competitive Grants, but the Macon Housing Authority Faces 
Challenges: 

In Georgia, five public housing agencies received about $14 million in 
Public Housing Capital Fund competitive grants for the creation of 
energy-efficient communities and improvements to address the needs of 
the elderly or persons with disabilities.[Footnote 48] As of August 7, 
2010, four of the five agencies had obligated about $1.1 million 
(approximately 8 percent) and had drawn down $523,956 (about 4 
percent). 

The Recovery Act requires housing agencies to obligate 100 percent of 
their Public Housing Capital Fund competitive grants within 1 year of 
the date they received the grants, or by September 2010. To help 
public housing agencies in Georgia meet this deadline, two HUD field 
office staff in Atlanta are providing assistance through e-mails and 
phone conversations. According to HUD field office staff, the five 
public housing agencies that received competitive funds are not at 
serious risk of missing the obligation deadline. However, officials 
stated that the Macon Housing Authority faced some challenges in 
meeting this deadline due to the complexity of the project and 
multiple types of financing involved. The project requires the 
approval of HUD headquarters, the state housing finance agency, and 
others and is not expected to close until just prior to the September 
2010 deadline. 

We visited the Macon Housing Authority to determine the status of its 
competitive grant. The agency will use the $8.6 million grant awarded 
under the energy efficiency community category for substantial 
rehabilitation of a 100-unit housing development. Agency plans include 
wrapping the exterior of the buildings in a rigid insulation system 
covered with siding; re-engineering the roof with a higher pitch to 
allow for more insulation and more efficient duct work for heating and 
air systems; and installing energy-efficient windows and heating and 
air systems and water-conserving appliances and fixtures. Also, the 
units will be reconfigured to reposition doors and windows to give the 
appearance of single-family houses. The agency had planned to start 
the work in April 2010 and complete it by December 2011. However, 
officials told us the construction start date has been delayed due to 
complications in getting the complex financing--which includes 
competitive grant funds, bonds, and low-income housing tax credits-- 
approved. Officials stated that once the agency closes on the 
financing in mid-September 2010, the project will be 100 percent 
obligated. To date, the agency has hired architects and various 
consultants, designed the project, selected the general contractor, 
and received the first round of project bids. After the agency closes 
on the financing, officials stated they will be prepared to 
simultaneously issue a notice to proceed and sign the general 
contractor's contract. 

HUD Field Office Staff Have Conducted Monitoring of Recovery Act 
Grants: 

HUD field office staff in Atlanta have conducted oversight of Recovery 
Act formula and competitive grants. For the formula funds, they 
conducted 63 "quick look" reviews of public housing agencies that had 
not obligated 90 percent of their funds as of February 26, 2010. They 
wanted to ensure that funds obligated after that date, but before the 
March 17, 2010, obligation deadline for formula grants, were for 
eligible activities. According to HUD officials, these agencies all 
met the obligation deadline for formula grants and accurately 
completed contract activities per HUD and Recovery Act requirements. 
For the competitive funds, staff told us they had conducted remote 
reviews of obligations at four of the agencies. HUD headquarters staff 
will perform the remote review of the Macon Housing Authority. HUD 
field office officials stated that the additional oversight 
requirements associated with the Recovery Act programs had not 
affected their ability to meet their responsibilities for oversight, 
monitoring, and technical assistance for regular capital fund 
management. Similarly, the receipt of Recovery Act funds does not 
appear to have affected the ability of housing agencies in Georgia to 
obligate their regular capital funds. According to HUD officials, all 
but one agency in Georgia met the June 12, 2010, obligation deadline 
for 2008 regular capital funds. The Housing Authority of the City of 
Savannah received a 1-year extension due to a loss of a major 
financial commitment. HUD headquarters determined that this event was 
beyond the control of the agency and granted the extension. 

Housing Agencies Have Reported Jobs Funded with Recovery Act Grants: 

The three public housing agencies we interviewed have submitted the 
quarterly recipient reports required under the Recovery Act. To 
determine the number of jobs funded, officials at the agencies told us 
they rely on certified payrolls from their contractors to calculate 
FTEs. All three agencies had procedures in place to review data prior 
to submission. Atlanta Housing Authority officials explained that 
three staff, including the chief operating officer, review the report 
before submission to FederalReporting.gov. According to Macon Housing 
Authority officials, the Director of Technical Services reviews the 
information prior to submission. Athens Housing Authority officials 
stated that the financial data are reviewed by two staff prior to 
submission. 

Georgia's Accountability Community Continues to Audit Recovery Act 
Funding: 

The State Auditor, the State Inspector General, and agencies' internal 
audit departments continue to be responsible for auditing and 
investigating Recovery Act funds. As we reported in May 2010, the 
State Auditor's oversight of Recovery Act funds occurs primarily 
through the Single Audit.[Footnote 49] The fiscal year 2009 Single 
Audit was the first Single Audit for Georgia that included Recovery 
Act programs.[Footnote 50] It identified 51 significant internal 
control deficiencies related to compliance with federal program 
requirements, of which 14 were classified as material weaknesses. Some 
of these material weaknesses and significant deficiencies occurred in 
programs that included Recovery Act funds. For the fiscal year 2010 
Single Audit report, the State Auditor plans to include audits of 
Recovery Act programs administered by GEFA and the Georgia Departments 
of Community Affairs, Community Health, Corrections, Education, Human 
Services, Juvenile Justice, Labor, and Transportation. 

The State Inspector General continues to take a complaint-based 
approach to investigating alleged misuse of Recovery Act funds. 
Citizens can submit complaints directly to the Inspector General using 
a form on its Web site. Since we last reported in May 2010, the office 
has received two complaints--one that was resolved without a finding 
of fraud, waste, abuse, or corruption and one that is still under 
investigation. In addition, each state agency is required to notify 
the Inspector General when a complaint is filed with the agency. For 
example, GEFA has received five complaints about the weatherization 
program, which involved issues such as potential fraud and hiring 
practices. In response to one of the fraud complaints, GEFA required a 
community action agency to return approximately $9,000 to the state 
because the agency had been reimbursed for office furniture that was 
not received. The State Inspector General reviewed these complaints 
and GEFA's responses and was satisfied with the actions taken. 

A number of state agencies including GEFA and the Georgia Departments 
of Community Health, Education, Human Services, and Transportation 
have internal audit departments that plan to audit or are already 
auditing Recovery Act funds. For example, GEFA conducts fiscal audits 
that focus on the contractual, administrative, and accounting aspects 
of the Weatherization Assistance Program. As of August 6, 2010, GEFA 
had issued fiscal monitoring reports that identified risk and control 
weaknesses at two of its weatherization service providers. One report 
included five recommendations related to procurement practices and 
liability insurance, among other concerns. The second report included 
four recommendations related to procurement and billing, among other 
activities. Both providers agreed with the recommendations and planned 
to make the suggested changes. In addition, the Department of 
Community Health's internal audit department reviewed the agency's 
first round of recipient reporting. The auditors identified 
information that appeared to be missing or duplicated across programs 
and required the agency to provide explanations. 

The State Accounting Office (SAO) continues to monitor Recovery Act 
funding. For example, it oversees Recovery Act recipient reporting by 
providing state agencies with technical assistance, reviewing the data 
each state agency submits, and collecting the data required for the 
state's Recovery Act Web site. SAO holds periodic implementation team 
meetings with agency officials responsible for recipient reporting to 
disseminate guidance and discuss deadlines, processes, and other 
issues related to the reports. Each quarter, SAO requires state 
agencies to submit copies of their recipient reports so that the 
office can review them for reasonableness and potential inaccuracies. 
After the review period, SAO reconciles the data it received from 
agencies against information posted on Recovery.gov and supplies the 
data needed to populate the state's Recovery Act Web site. According 
to SAO officials, state agencies generally are comfortable with the 
reporting process and said that they experienced no challenges related 
to the most recent reporting round. 

In addition, SAO has launched an internal control initiative to 
enhance accountability for Recovery Act funds that began in June 2010 
and provided internal control training to 28 state agencies.[Footnote 
51] According to SAO officials, many of these agencies were identified 
as high-risk in the fiscal year 2009 Single Audit and have received 
Recovery Act funds. After the training, each agency was required to 
identify an internal control officer. In addition, each agency had to 
complete an internal control self assessment tool, which covered 
internal controls in place for six general areas, such as financial 
reporting, revenue, and Recovery Act funds. Furthermore, SAO plans to 
hold monthly group meetings with the internal control officers similar 
to those held with the state officials responsible for recipient 
reporting. The selected agencies also will be required to certify that 
all necessary controls are in place and working by the end of fiscal 
year 2011. According to SAO, it has identified two state agencies--the 
Departments of Education and Human Services--to work with a consultant 
on an in-depth risk-assessment initiative. SAO plans to leverage the 
results of the initiative with other state agencies. SAO also plans to 
work with the federal Recovery Accountability and Transparency Board 
to conduct two regional training sessions--one specific to the 
Department of Transportation and the other related to Medicaid. 

Recovery Act Funds Have Helped Georgia Balance Its Budget and Enabled 
Localities to Fund Needed Capital Projects: 

Georgia has incorporated Recovery Act funding into its budget for 
fiscal year 2011, but also has planned future budget reductions in 
anticipation of the end of funding under the Recovery Act. Localities 
we visited began receiving Recovery Act funds, and they had varying 
budget situations. 

Georgia Used Almost $2 Billion in Recovery Act Funds to Balance Its 
Fiscal Year 2011 Budget: 

Georgia's budget for fiscal year 2011 is $38.2 billion.[Footnote 52] 
It includes approximately $1.9 billion in Recovery Act funds, 
including about $749 million in increased Medicaid Federal Medical 
Assistance Percentage (FMAP) grant awards.[Footnote 53] Georgia is 
preparing for the cessation of Recovery Act funds by planning 
additional budget reductions. The budget office has issued budget 
instructions directing agencies to submit 6, 8, and 10 percent 
reduction plans for fiscal year 2012. For the Georgia Department of 
Education's primary elementary education funding formulas, the budget 
reduction plans are 2 and 4 percent. Also, the state is projecting 
moderate revenue growth. Revenue collections improved in June 2010 by 
3.8 percent compared to June 2009, but overall revenue collections for 
fiscal year 2010 were down 9.1 percent compared with fiscal year 2009. 

Recovery Act Funds Have Helped Selected Localities in Georgia Fund 
Additional Projects: 

We visited two local governments--the Columbus Consolidated Government 
(Columbus/Muscogee County) and the Unified Government of Athens-Clarke 
County--to discuss their use of Recovery Act funds and fiscal 
condition.[Footnote 54] 

Columbus Consolidated Government: 

According to consolidated government officials, Columbus had been 
awarded about $17.5 million in Recovery Act funds as of August 6, 2010 
(see figure 10).[Footnote 55] The largest award was a $3.4 million 
transportation grant for a pedestrian bridge. The consolidated 
government also was awarded funds under the Transit Capital Assistance 
Program, Homelessness Prevention and Rapid Re-housing Program, and the 
EECBG Program, among others. According to Columbus officials, the 
Recovery Act funds have helped the capital fund budget to a great 
extent by allowing the consolidated government to continue 
implementing or accelerate projects that otherwise would have been 
delayed. For example, the government's transit operator will be able 
to replace seven buses that had met or exceeded their recommended 
life. Columbus officials stated that most of the projects funded by 
the Recovery Act were one-time projects and therefore it was not 
necessary to develop a strategy for winding down their use of the 
funds. Columbus plans to continue funding infrastructure projects 
through its normal funding streams for transportation projects 
(state/federal) and the Local Option Sales Tax. 

Figure 10: Columbus Consolidated Government Profile and Recovery Act 
Funds: 

[Refer to PDF for image: map, pie-chart and associated data] 

Demographics: 
Estimated population (2009): 190,414; 
Unemployment rate (June 2010): 9.7%; 
FY11 budget: (change from FY10): $280 million (19.22%); 
Locality type: Consolidated city/county. 
Recovery Act funding reported by Columbus Consolidated Government: 
Awarded: $17,538,138; 
Application pending: $30,000,000; 
Not awarded: $30,854,232; 
Total: $78,392,370. 

Sources: (Left) U.S. Census Bureau data; 

U.S. Department of Labor, Bureau of Labor Statistics, Local Area 
Unemployment Statistics; budget documents; and Art Explosion (map). 
(Right) Columbus officials. 

Note: The population is from the latest available estimate, July 1, 
2009. The unemployment rate is a preliminary estimate for June 2010 
and has not been seasonally adjusted. The rate is a percentage of the 
labor force. Estimates are subject to revision. Percentages do not add 
to 100 due to rounding. 

[End of figure] 

Columbus had a balanced fiscal year 2011 budget of about $280 million. 
To balance its budget, Columbus officials delayed some projects, 
capital items, and pay increases. 

According to officials, Columbus formed a cross-departmental team-- 
comprised of a deputy city manager, the finance director, the internal 
auditor, and the heads of the departments that received funding--that 
provides regular oversight of Recovery Act funds. In addition, the 
finance department reviews Recovery Act expenditures, and the city's 
internal auditor plans to audit each Recovery Act program at its 
conclusion. To date, the internal auditor has completed one report on 
the Workforce Investment Act summer youth program. The auditor 
reviewed selected employee records to ensure that the supporting 
documentation was sufficient and selected reports sent to governing 
agencies for accuracy and completeness. The auditor did not have any 
findings or make any recommendations for the program. 

Regarding the recipient reporting required by the Recovery Act, 
Columbus officials stated that each department and program manager is 
responsible for collecting and reporting the information. The cross- 
departmental team meets to discuss the reporting process, and each 
department provides a copy of the reports to the auditor and grant 
accountant. At the conclusion of each project, the auditor reviews the 
reports to ensure that they are accurate. Columbus officials stated 
that they have had some challenges regarding how to count the jobs 
resulting from the bus purchases.[Footnote 56] 

Unified Government of Athens-Clarke County: 

According to government officials, Athens-Clarke County had been 
awarded about $13.3 million in Recovery Act funds as of August 6, 2010 
(see figure 11).[Footnote 57] The largest award was a Clean Water 
State Revolving Loan Fund Program loan from GEFA totaling $8 million. 
[Footnote 58] Other funding came from programs such as the Edward 
Byrne Memorial Justice Assistance Grant Program, the Homelessness 
Prevention and Rapid Re-housing Program, and the EECBG Program. Athens-
Clarke County officials stated that most of the funding received 
allowed them to fund some previously identified projects that had been 
delayed due to a lack of funding. The officials also stated that in 
identifying and applying for Recovery Act funds, they focused on 
grants with limited ongoing funding requirements. Because the three 
positions added using Recovery Act funds were temporary positions, 
they did not anticipate any future fiscal challenges related to 
Recovery Act funds being completely expended. 

Figure 11: Unified Government of Athens-Clarke County Profile and 
Recovery Act Funding: 

[Refer to PDF for image: map, pie-chart and associated data] 

Demographics: 
Estimated population (2009): 116,342; 
Unemployment rate (June 2010): 8.3%; 
FY11 budget: (change from FY10): $174 million (-0.63%); 
Locality type: Consolidated city/county. 
Recovery Act funding reported by Athens-Clarke County: Awarded: 
$13,309,705; 
Application pending: $0; 
Not awarded: $45,728,590; 
Total: $59,038,395. 

Sources: (Left) U.S. Census Bureau data; 

U.S. Department of Labor, Bureau of Labor Statistics, Local Area 
Unemployment Statistics;budget documents; and Art Explosion (map). 
(Right) Athens-Clarke County officials. 

Note: The population is from the latest available estimate, July 1, 
2009. The unemployment rate is a preliminary estimate for June 2010 
and has not been seasonally adjusted. The rate is a percentage of the 
labor force. Estimates are subject to revision. 

[End of figure] 

Athens-Clarke County has a balanced total fiscal year 2011 budget of 
approximately $174 million. To balance the budget, elected officials 
increased property taxes, approved 2 furlough days, froze pay for the 
second consecutive year, and increased the medical insurance 
contributions by staff and retirees. According to officials, Athens- 
Clarke County contracts with an external auditing firm, which reviews 
the government's basic financial statements. As part of the required 
annual financial audit, the auditing firm will review Recovery Act 
funding activities. Athens-Clarke County also has an internal auditor 
whose mission is to audit the fiscal affairs and operations of various 
departments, but the auditor does not currently have plans to review 
Recovery Act funding specifically. 

Athens-Clarke County officials stated that each department that 
received funds is responsible for the recipient reporting required by 
the Recovery Act. The Assistant Manager reviews the reports prior to 
submission to FederalReporting.gov or the prime recipient if Athens- 
Clarke County is a subrecipient of funds. Officials verify that the 
information is correctly reported; 

however, they do not use the data for public reports or other internal 
purposes. 

Georgia's Comments on This Summary: 

We provided the Governor of Georgia with a draft of this appendix on 
August 16, 2010, and a representative from the Governor's office 
responded on August 18, 2010. The official agreed with our draft, 
stating that it accurately reflects the current status of the Recovery 
Act program in Georgia. 

GAO Contacts: 

Alicia Puente Cackley, (202) 512-7022 or cackleya@gao.gov: 

John H. Pendleton, (404) 679-1816 or pendletonj@gao.gov: 

Staff Acknowledgments: 

In addition to the contacts named above, Paige Smith, Assistant 
Director; Nadine Garrick Raidbard, analyst-in-charge; Waylon Catrett; 
Chase Cook; Marc Molino; Daniel Newman; Barbara Roesmann; and David 
Shoemaker made major contributions to this report. 

[End of section] 

Appendix VI Footnotes: 

[1] Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009). 

[2] GAO, Recovery Act: States' and Localities' Uses of Funds and 
Actions Needed to Address Implementation Challenges and Bolster 
Accountability (Georgia), [hyperlink, 
http://www.gao.gov/products/GAO-10-605SP] (Washington, D.C.: May 26, 
2010). 

[3] These organizations include school systems and community action 
agencies. 

[4] Clarke County School District is located in Athens, Georgia. 
Enrichment Services Program, Inc. is located in Columbus, Georgia. We 
selected these two grantees because they represented two of the types 
of organizations that operate the program--school districts and 
community action agencies. We also wanted to visit a grantee that had 
operated an Early Head Start program previously (CCSD) and one that 
had not (ESP), as well as grantees that received grants that were 
larger than the median for Georgia. 

[5] Center-based services refer to child development services that are 
provided in a child care center. These services are full-or part-day 
for 4 or 5 days a week. With home-based services, families receive 
weekly home visits and bimonthly group socialization experiences. A 
combination program incorporates center-and home-based services. 

[6] Quality improvement funds are used for purposes such as facility 
upgrades, improving compensation, and increasing the hours of 
operation. 

[7] In our May report, we stated that the Office of Head Start did not 
meet its initial goal to award Early Head Start expansion grants by 
the end of fiscal year 2009 due to several factors, contributing to a 
low drawdown (spending) rate and shortened start-up periods for some 
grantees. See GAO, States' and Localities' Uses of Funds and Actions 
Needed to Address Implementation Challenges and Bolster 
Accountability, [hyperlink, http://www.gao.gov/products/GAO-10-604] 
(Washington, D.C.: May 26, 2010). 

[8] The Office of Head Start regional offices allocate Early Head 
Start expansion awards among budget categories through a Financial 
Assistance Award document. Financial Assistance Awards are legally 
binding and outline how grantees are expected to spend their funds. 
The document states the terms and conditions of the grants, provides 
each grantee a grant number and total award amount, and allocates the 
funds to budget categories representing different program elements, 
such as supplies. 

[9] The Office of Head Start requires that grantees forfeit first-year 
program funds they have not obligated by September 29, 2010, unless 
grantees obtain Office of Head Start approval to carry over funds into 
the next program year. 

[10] CCSD officials rely on multiple grants from the U.S. Department 
of Education to fund many of their current programs. 

[11] 45 C.F.R. § 1305.2(b). 

[12] Office of Head Start, "Enrollment Frequently Asked Questions" 
(grantee guidance on enrollment reporting, last updated on April 22, 
2010). 

[13] [hyperlink, http://www.gao.gov/products/GAO-10-604]. 

[14] Both grantees require a client who has expressed interest in 
participating in the Early Head Start program to complete an 
application. If the client meets eligibility requirements, the client 
is asked to complete the enrollment packet, which includes forms and 
waivers. Upon completion and approval of the required paperwork, the 
client can begin to receive services. 

[15] We selected a simple random sample of Early Head Start clients 
who were being served with Recovery Act funds. 

[16] "Income Eligibility for Enrollment in Head Start and Early Head 
Start Programs," memorandum from the Director of the Office of Head 
Start, May 10, 2010. 

[17] Recovery Act, div. A, § 1512(c), 123 Stat. at 287-88. 

[18] EECBG's statutory authorization lists 14 eligible activities for 
the EECBG program. 

[19] The following communities were eligible for direct grants from 
DOE: (1) cities with populations of at least 35,000 or which are one 
of the 10 highest-populated cities of the state in which they are 
located and (2) counties with a population of more than 200,000 or 
which are one of the 10 highest-populated counties of the state in 
which they are located. 

[20] We selected the three localities we visited based on the amount 
of their EECBG allocation. We also made the selection based on the 
type of government (that is, city, county, or consolidated city and 
county). 

[21] GEFA plans to use the remainder of the funds ($1.3 million) for 
the administration and oversight of the grant. 

[22] DOE required states to award at least 60 percent of their 
allocation to communities that did not meet the size requirements to 
receive formula funds directly. 

[23] Other eligible activities that GEFA was willing to fund included 
the development of an Energy Efficiency and Conservation Strategy, 
technical assistance, residential and commercial building energy 
audits, financial incentive programs, and building codes and 
inspections updates. GEFA decided to limit its awards to 8 of the 14 
eligible activities for EECBG, based on a survey of communities and 
its assessment of projects that would have the greatest return on 
investment and a small amount of administrative burden, among other 
things. 

[24] Cobb County allocated the balance of its award ($204,000) for 
grant administration. 

[25] As we note later in this report, the community action agency 
(ESP) had only weatherized 13 percent of its Weatherization Assistance 
Program units as of the end of June 2010. 

[26] The total expected cost of the project is $947,000. 

[27] Field monitoring will include a review of building improvements 
and post-retrofit audits, and a check that the project is following 
scope. Desk monitoring will include a review of contracts, a review of 
client files for all necessary documents, and a review of compliance 
with the Buy American provision of the Recovery Act. 

[28] Quarterly reports to DOE include jobs created or retained; 
standard programmatic metrics, such as obligations, outlays, and 
metrics associated with the activity undertaken; and other critical 
metrics such as energy savings and energy cost savings. 

[29] The Recovery Act appropriated $5 billion for the Weatherization 
Assistance Program, which DOE is distributing to each of the states, 
the District of Columbia, and seven territories and Indian tribes, to 
be spent by March 31, 2012. This program enables low-income families 
to reduce their utility bills by making long-term energy-efficiency 
improvements to their homes--for example, installing insulation or 
modernizing heating or air conditioning equipment. 

[30] [hyperlink, http://www.gao.gov/products/GAO-10-605SP]. 

[31] GEFA will use the balance of the $125 million allocation for 
monitoring, training, and technical assistance, among other things. 
Drawing down is the process by which subrecipients request and receive 
authorized federal funds for projects under the terms of the grant. 

[32] The seven providers on the list are Central Savannah River Area 
EOA, Inc.; Clayton County Community Action Authority, Inc.; Enrichment 
Services Program, Inc.; Heart of Georgia Community Action Council, 
Inc.; Middle Georgia Community Action Agency, Inc.; Ninth District 
Opportunity, Inc.; and Southeast Energy Assistance. 

[33] [hyperlink, http://www.gao.gov/products/GAO-10-605SP]. 

[34] UGA's desk and field monitors are to conduct weekly visits to 
each provider to review file documentation and inspect at least 10 
percent of individual projects each month. The desk monitors will 
review contracting documents, compliance with program requirements, 
and file documentation. In addition, desk monitors will educate 
clients on energy saving tips and customer behaviors and track the 
results of those efforts. The field monitors will inspect 10 percent 
of the homes weatherized each month for overall effectiveness, 
workmanship, appearance, and compliance with installation standards. 

[35] Historically, the Weatherization Assistance Program funded 
through the regular appropriations process has not been subject to the 
Davis-Bacon Act. However, the Recovery Act does require compliance 
with Davis-Bacon provisions. Under section 1606, division A, of the 
Recovery Act, all contractors and subcontractors performing work on 
projects funded in whole or in part by Recovery Act funds must pay 
their laborers and mechanics not less than the prevailing wage rates 
and fringe benefits for corresponding classes of laborers and 
mechanics employed on similar projects in the area. The Secretary of 
Labor determines the prevailing wage rates and fringe benefits for 
inclusion in covered contracts. 

[36] In our May report, we noted that files we reviewed did not 
include evidence that all of the required types of income were 
considered during application. See [hyperlink, 
http://www.gao.gov/products/GAO-10-605SP]. 

[37] State housing finance agencies award low-income housing tax 
credits to owners of qualified rental properties who reserve all or a 
portion of their units for occupancy by low-income tenants. Once 
awarded tax credits, project owners sell them to investors to obtain 
funding for their projects. Investors receive tax credits for 10 years 
if the property continues to comply with program requirements. 

[38] The project owner must have, by the close of 2010, spent at least 
30 percent of his or her total adjusted basis in land and depreciable 
property that is reasonably expected to be part of the low-income 
housing project. 

[39] We selected Riverview Heights and Baptist Towers Apartments 
because they were TCAP projects that had been awarded by December 31, 
2009. We selected Antigua Place because it was a Section 1602 Program 
project with a tax-credit investor and The Landing at Southlake 
because it was a Section 1602 Program project without an investor. We 
selected Camellia Lane because it was a rural green project. In 
addition, we selected Sustainable Fellwood because DCA suggested it as 
an interesting example of an urban green project and Waterford Estates 
because of its proximity to Riverview Heights. For this report, we 
visited two of these projects, Riverview Heights and Camellia Lane. 

[40] Other funding sources are being used to complete the remainder of 
the renovations. 

[41] A housing finance agency's asset management may include 
monitoring current financial and physical aspects of project 
operations. For example, a housing finance agency may analyze 
operating budgets, cash flow trends, and reserve accounts, and 
physically inspect projects. Asset management activities also include 
examinations of long-term issues related to plans for addressing a 
project's capital needs, changes in market conditions, and 
recommendations and implementation of plans to correct troubled 
projects. Housing finance agencies also need to ensure compliance with 
tax credit requirements as part of asset management activities. 

[42] In contrast, under the conventional low-income housing tax credit 
program, housing finance agencies are not liable for recapturing funds 
if a project owner fails to comply with program requirements. Rather, 
their obligation is to report any noncompliance to the Internal 
Revenue Service (IRS), and IRS takes any further actions with respect 
to recapture. We reported previously on the risks and responsibilities 
of recapture for housing finance agencies under TCAP and the Section 
1602 Program. See [hyperlink, http://www.gao.gov/products/GAO-10-604]. 

[43] The project stages include development and construction 
activities, property management and operations, financial management, 
and long-term viability assessment. 

[44] While TCAP projects are required to have an investor, Section 
1602 Program funds can be used to finance projects without investors. 
Some project owners sell low-income housing tax credits to an investor 
that will invest directly in the project while others use a 
syndicator, which assembles a group of investors and pools funds that 
are then invested in the project. 

[45] Recipient reporting requirements apply only to division A of the 
Recovery Act. TCAP is a division A program, while the Section 1602 
Program is in division B of the act. 

[46] As we noted earlier, TCAP projects are required to report 
quarterly the number of jobs funded based on an FTE calculation. For 
projects receiving Section 1602 Program funds, Treasury requires state 
housing finance agencies to report only one time on jobs created and 
retained. The number of jobs reported to Treasury need not be reduced 
to reflect the parts of the project not funded under the Section 1602 
Program. 

[47] We interviewed these three housing agencies to update information 
we reported in December 2009. See GAO, Recovery Act: Status of States' 
and Localities' Use of Funds and Efforts to Ensure Accountability 
(Georgia), [hyperlink, http://www.gao.gov/products/GAO-10-232SP] 
(Washington, D.C.: Dec. 10, 2009). 

[48] A total of six competitive grants were awarded. One housing 
authority, the Housing Authority of the City of Savannah, received two 
grants. 

[49] [hyperlink, http://www.gao.gov/products/GAO-10-605SP]. Single 
Audits are prepared to meet the requirements of the Single Audit Act, 
as amended, (31 U.S.C. §§ 7501-7507) and provide a source of 
information on internal control and compliance findings and the 
underlying causes and risks. The Single Audit Act requires states, 
local governments, and nonprofit organizations expending $500,000 or 
more in federal awards in a year to obtain an audit in accordance with 
the requirements in the act. A Single Audit consists of (1) an audit 
and opinions on the fair presentation of the financial statements and 
the Schedule of Expenditures of Federal Awards; (2) gaining an 
understanding of and testing internal control over financial reporting 
and the entity's compliance with laws, regulations, and contract or 
grant provisions that have a direct and material effect on certain 
federal programs (that is, the program requirements); and (3) an audit 
and an opinion on compliance with applicable program requirements for 
certain federal programs. 

[50] According to data from the Federal Audit Clearinghouse, which is 
responsible for receiving and distributing Single Audit results, it 
received Georgia's Single Audit reporting package for the year ending 
June 30, 2009, on June 24, 2010. This was almost 3 months after the 
deadline specified by the Single Audit Act. The State Auditor 
explained that they had initially submitted the Single Audit reporting 
package to the clearinghouse on March 18, 2010, which was within the 
deadline. However, due to a technical issue, the data collection form 
(which is part of the reporting package) had to be revised and 
resubmitted in June 2010. 

[51] SAO also provided the training to several universities and 
technical colleges. 

[52] The Governor signed the fiscal year 2011 budget on June 4, 2010. 
The state's fiscal year begins on July 1. 

[53] Medicaid is a joint federal-state program that finances health 
care for certain categories of low-income individuals, including 
children, families, persons with disabilities, and persons who are 
elderly. The federal government matches state spending for Medicaid 
services according to a formula based on each state's per capita 
income in relation to the national average per capita income. The rate 
at which states are reimbursed for Medicaid service expenditures is 
known as the Federal Medical Assistance Percentage (FMAP). The 
Recovery Act provides eligible states with an increased FMAP for 27 
months from October 1, 2008, through December 31, 2010. Recovery Act, 
div. B, title V, § 5001, Pub. L. No. 111-5, 123 Stat. at 496. On 
August 10, 2010, federal legislation was enacted amending the Recovery 
Act and providing for an extension of increased FMAP funding through 
June 30, 2011, but at a lower level. See Pub. L. No. 111-226, § 201, 
124 Stat. 2389 (Aug. 10, 2010). 

[54] We chose these locations because they represented a mix of 
population sizes and unemployment rates and were consolidated city/ 
county governments. 

[55] The Recovery Act funds awarded are a combination of funds awarded 
directly to the locality and funds passed through the state. 

[56] In September 2009, we reported that a number of transit agencies 
had expressed confusion about calculating the number of direct jobs 
resulting from Recovery Act funding, especially when using Recovery 
Act funds for purchasing equipment. See GAO, Recovery Act: Funds 
Continue to Provide Fiscal Relief to States and Localities, While 
Accountability and Reporting Challenges Need to Be Fully Addressed, 
[hyperlink, http://www.gao.gov/products/GAO-09-1016] (Washington, 
D.C.: Sep. 23, 2009). 

[57] The Recovery Act funds awarded are a combination of funds awarded 
directly to the locality and funds passed through the state. 

[58] Forty percent of the loan was a grant due to principal 
forgiveness. 

[End of Appendix VI] 

Appendix VII: Illinois: 

Overview: 

This appendix summarizes GAO's work on the seventh of its bimonthly 
reviews of American Recovery and Reinvestment Act of 2009 (Recovery 
Act) spending in Illinois.[Footnote 1] The full report covering all of 
GAO's work in the 16 states and the District of Columbia may be found 
at [hyperlink, http://www.gao.gov/recovery]. 

What We Did: 

We conducted work on one of the programs in Illinois that was funded 
under the Recovery Act--the Public Housing Capital Fund--to follow up 
on issues that we had reported on in previous bimonthly reviews. For 
this program, we conducted interviews and examined relevant program 
documents. Additionally, we met with state-level auditors to determine 
what steps they were taking to oversee state agencies' implementation 
of the Recovery Act. We also met with officials from the Illinois 
Governor's Office to discuss the state's ongoing role in reviewing the 
quarterly recipient reports that state agencies receiving Recovery Act 
funds must submit to federal agencies through the FederalReporting.gov 
Web site.[Footnote 2] Finally, we monitored the state's fiscal 
condition and spoke to officials from two rural communities--Chrisman 
and the Village of Steward--to discuss their use of Recovery Act funds 
and the effect of these funds on their budgets. (For descriptions and 
requirements of the programs we covered, see appendix XVIII of GAO-10-
1000SP.) 

What We Found: 

* Public Housing Capital Fund. Six public housing agencies in Illinois 
collectively received $83.7 million in Public Housing Capital Fund 
competitive grant funds under the Recovery Act.[Footnote 3] As of 
August 7, 2010, five of the recipient public housing agencies had 
obligated $53.5 million of the $83.7 million and had drawn down a 
cumulative total of $23.8 million, or 44.4 percent of the obligated 
funds.[Footnote 4] Similarly, 99 public housing agencies in Illinois 
collectively received $221.5 million in Public Housing Capital Fund 
formula grants under the Recovery Act. As of August 7, 2010, the 
recipient agencies had obligated all of the $221.5 million and drawn 
down a cumulative total of $143.6 million, or 64.8 percent of the 
obligated funds. For this report we visited the Chicago Housing 
Authority (CHA), which continues to make progress on its Recovery Act 
competitive and formula grant projects. For example, as of July 1, 
2010, CHA had expended 52 percent of its Recovery Act formula funds 
and completed work on 5 of 12 projects funded by the Recovery Act. 

* Oversight Activities. Auditing responsibility within the state 
passed from the Illinois Office of Internal Audit (IOIA) within the 
Governor's Office to state agencies effective July 1, 2010.[Footnote 
5] Officials said that IOIA staff will finish the 20 audits the office 
planned or started prior to July 1. State officials expect that the 
Office of Accountability, also within the Governor's Office, will 
follow up on the implementation of IOIA audit recommendations as part 
of its existing role assisting agencies in implementing corrective 
action plans to address audit findings. In addition, the Office of the 
Auditor General issued the fiscal year 2009 statewide Single Audit, 
and the Inspectors General of the U.S. Departments of Education and 
Energy are currently conducting audits of state programs that received 
larger amounts of Recovery Act funds.[Footnote 6] We spoke to state 
and federal auditors about these audits for this review. 

* Recipient Reports. The Governor's Office requires state agencies to 
submit employment and other data to the Illinois Federal Reporting 
Test site for review and verification before they submit these data to 
their respective federal agencies through the FederalReporting.gov Web 
site. IOIA used to be responsible for reviewing these reports; 

however, with the statutorily-mandated transfer of audit 
responsibility to state agencies, and the corresponding dissolution of 
IOIA, the Illinois Office of Accountability has taken responsibility 
for reviewing and verifying most state agencies' reports. 

* Illinois's Fiscal Condition. Representatives of the Governor's 
Office emphasized the important role that Recovery Act funds have 
played in aiding the state's fiscal situation over the previous 2 
fiscal years. However, Illinois's fiscal year 2011 budget does not 
include Recovery Act State Fiscal Stabilization Fund (SFSF) monies, 
which provided more than $2 billion toward education in the state over 
the past 2 fiscal years. The Governor's Office had planned to address 
the phasing out of SFSF monies in fiscal year 2011 with a tax 
increase, but the Illinois General Assembly did not pass such an 
increase. Facing a balance of between $5 billion and $6 billion in 
unpaid bills from prior fiscal years, the state passed legislation 
that provides the governor with expanded authority to address the 
budget deficit, according to state officials.[Footnote 7] 

* Rural Communities' Use of Recovery Act Funds. Although the 
communities we spoke to applied for and were awarded Recovery Act 
funds, they ultimately delayed use of the funds. For example, an 
official from the Village of Steward, Illinois, told us that the 
village applied for $2.5 million in Recovery Act funding through the 
U.S. Department of Agriculture's (USDA) Rural Development Water and 
Waste Program to establish a sewer system, but had to put the project 
on hold because residents were unwilling to pay costs associated with 
the project. 

Housing Agencies in Illinois Continue to Make Progress on Recovery Act 
Projects as HUD Monitors Their Use of Funds: 

As previously highlighted, six public housing agencies in Illinois 
collectively received $83.7 million in Public Housing Capital Fund 
competitive grant funds under the Recovery Act. HUD provided these 
funds to the agencies to improve the physical condition of their 
properties. As of August 7, 2010, five of the recipient public housing 
agencies had obligated $53.5 million of the $83.7 million and had 
drawn down a cumulative total of $23.8 million, or 44.4 percent, of 
the obligated funds. Similarly, 99 public housing agencies in Illinois 
collectively received $221.5 million in Public Housing Capital Fund 
formula grants under the Recovery Act. HUD also provided these funds 
to the agencies to improve the physical condition of their properties. 
As of August 7, 2010, the recipient agencies had obligated all of the 
$221.5 million and had drawn down a cumulative total of $143.6 
million, or 64.8 percent, of the obligated funds. 

The Chicago Housing Authority Continues to Make Progress on Recovery 
Act Projects: 

For this report we visited CHA to determine the status of both its 
competitive and formula grants under the Recovery Act. HUD awarded CHA 
a total of 27 competitive grants, 23 for energy-efficiency 
improvements (which CHA used to replace boilers and hot water heaters 
in several properties) and 4 for redevelopment (including the Ogden 
North project, described below). As of July 1, 2010, CHA had obligated 
approximately 38 percent of its total competitive grant funds. The 
housing agency expects to obligate 100 percent of its competitive 
grant funds by September 2010, as required under the Recovery Act. CHA 
had expended 32 percent of its total competitive grant funds as of 
July 1, 2010, including 50 percent or more of the funds for 20 
projects. The housing agency expects to expend 60 percent of its 
competitive grant funds by September 2011, as required under the 
Recovery Act. 

HUD awarded CHA a $9.9 million competitive grant for the redevelopment 
of the housing agency's Ogden North property (see figure 1).[Footnote 
8] CHA will use the grant in combination with other public and private 
funds to develop 60 new replacement public housing units and 77 non- 
public housing rental units, 123 for-sale homes, a community space, 
and a management and maintenance facility. CHA initiated the project 
in July 2010. As of July 1, 2010, CHA had obligated approximately 11 
percent and expended approximately 5 percent of the grant funds, 
primarily for predevelopment work (including legal and site 
preparation work). 

Figure 1: Site of CHA's Ogden North Development Project: 

[Refer to PDF for image: 2 photographs] 

This figure shows two pictures of the site of the Chicago Housing 
Authority’s Ogden North development project. Both photos, taken from 
different angles, show the empty lot where construction started in 
July 2010. 

Source: GAO. 

[End of figure] 

As of July 1, 2010, CHA had expended 52 percent of its Recovery Act 
formula funds and completed work on 5 of 12 Recovery Act funded 
projects. For the two projects we reviewed as part of this and prior 
bimonthly reports--Dearborn Homes and Kenmore Senior Apartments--CHA 
had expended 33 percent of the $28.9 million and 34 percent of the 
$16.8 million obligated to those projects, respectively. As of July 1, 
2010, the Dearborn Homes project was 46 percent complete and on 
schedule to be fully completed by November 2010 (see figure 2). Four 
of the eight floors in the Kenmore Senior Apartments building were 
past 50 percent complete as of July 1, 2010, and also on schedule to 
be fully completed by November 2010.[Footnote 9] 

Figure 2: Completed and In-progress Exterior Views of CHA's Dearborn 
Homes Development: 

[Refer to PDF for image: 2 photographs] 

This figure shows two pictures of the exterior of the Chicago Housing 
Authority’s Dearborn Homes project. The photo on the left shows a 
completed building in the background and a new playground in the 
foreground. The photo on the left shows a building under renovation in 
the background and construction equipment in the foreground. 

Source: GAO. 

[End of figure] 

CHA reported a total of 271.95 full-time equivalent (FTE) positions 
for its formula grants and 5.47 FTEs for its competitive grants for 
the quarter ending June 30, 2010. With respect to the three projects 
we reviewed, CHA reported 107.30 FTEs for Dearborn Homes, 38.09 FTEs 
for Kenmore Senior Apartments, and 2.12 FTEs for Ogden North.[Footnote 
10] On June 14, 2010, CHA reopened its waiting list for public housing 
units after more than a decade, in part as a result of funding 
available through the Recovery Act. Through a lottery process, CHA 
will select 40,000 families for the waiting list and those families 
will be placed in rental units as they become available. 

Finally, as we reported in our May 2010 report, CHA officials said 
that Recovery Act related activities had not had an effect on the 
agency's ability to administer its regular Capital Fund 
program.[Footnote 11] According to HUD data, CHA had obligated 100 
percent of its 2008 regular capital funds by April 30, 2010, ahead of 
the June 2010 deadline. As of the same date, CHA had obligated 21 
percent of its 2009 regular capital funds. The deadline for obligating 
100 percent of these funds is September 2011. 

HUD Field Office Officials Cited Monitoring of Recovery Act Funds as 
One of HUD's Top Priorities: 

According to officials from HUD's Illinois State Office of Public 
Housing, Recovery Act work is one of the agency's top priorities. In 
describing the types of activities staff engage in to oversee Recovery 
Act funds, field office officials told us that they had developed 
tracking sheets for all the competitive and formula grants awarded to 
housing agencies in the state. Field office officials contact each 
housing agency on a weekly basis by means of telephone, e-mail, and, 
when necessary, correspondence. The tracking sheets are updated and 
reviewed regularly to ensure all housing agencies meet Recovery Act 
deadlines, such as the September 2010 deadline for obligating 
competitive grant funds. In addition, under HUD's Formula Grant 
Monitoring Strategy, the field office was required to review the 
obligations of housing agencies that had obligated less than 90 
percent of their Recovery Act formula funds by February 26, 2010. As 
of June 1, 2010, field office officials completed reviews of all nine 
Illinois public housing agencies that had not met this obligation 
goal. Although officials found no deficiencies, they said that their 
reviews raised questions at some housing agencies. For example, field 
office officials noted that it appeared that one housing agency had 
not demonstrated compliance with the Buy American provision in its 
original contract.[Footnote 12] According to these officials, when the 
field office followed up on this finding, the housing agency was able 
to provide documentation demonstrating compliance. At another housing 
authority, field office officials questioned the award of seven 
contracts to only one contractor. According to these officials, the 
housing agency provided evidence showing that it had complied with 
competitive bidding requirements for these contracts.[Footnote 13] 
Officials stated that HUD did not deobligate or recapture any formula 
grant funds due to deficiencies. 

Field office officials told us that staff were assigned to Recovery 
Act monitoring duties based on the relative workload of other projects 
assigned at the time. The field office has not received additional 
resources or staff to assist with Recovery Act monitoring. The risks 
HUD considers in determining how resources are allocated to Recovery 
Act monitoring have been based on identified management issues, audit 
findings, or other concerns related to performance that were 
identified through on-site and desk reviews. Field office officials 
said that HUD headquarters has emphasized the importance of focusing 
resources on overseeing housing agencies implementation of the 
Recovery Act. Despite this focus, field office officials said that 
Recovery Act responsibilities had not negatively affected their 
ability to monitor and oversee the regular capital fund and other 
programs. Officials told us that they had been able to successfully 
assign or reassign duties among all field office staff to meet the 
needs of the monitoring and reporting of Recovery Act grants. 

Auditors Are Finalizing Audits on Recovery Act Funded Programs as 
Illinois's Auditing Responsibilities Return to State Agencies: 

According to state officials, recent legislation transferred auditing 
responsibility within the state from IOIA to state agencies effective 
July 1, 2010. The legislation gave the Illinois Department of Central 
Management Services (CMS) within the Governor's Office audit 
responsibility for those agencies that do not have an internal audit 
function. However, state officials noted that it was not yet clear how 
CMS would execute this responsibility, as it does not have authority 
to audit state agencies without their consent. According to state 
officials, only two agencies that received Recovery Act funds do not 
have their own internal audit functions--the Illinois Arts Council and 
the Illinois Criminal Justice Information Authority (ICJIA). The 
Illinois Arts Council received a $361,600 Recovery Act grant through 
the National Endowment for the Arts, while ICJIA was the recipient of 
a $50.2 million Edward Byrne Memorial Justice Assistance Grant (JAG) 
from the U.S. Department of Justice.[Footnote 14] State officials said 
that the Office of Accountability will continue to review ICJIA's 
quarterly recipient reports; however, it is unclear whether the agency 
will request an audit of its Recovery Act JAG program from CMS. 
[Footnote 15] 

Officials from the Governor's Office said that despite the statutorily-
mandated transfer of audit responsibility to state agencies, IOIA is 
scheduled to complete work on 20 planned or ongoing audits (16 in 
state fiscal year 2010 and 4 in state fiscal year 2011). According to 
state officials, the audited programs include two of the largest 
Recovery Act funded programs in the state--the Unemployment Insurance 
Program and the Highway Planning and Construction Program.[Footnote 
16] Our review of completed IOIA audits as of July 1, 2010, showed 
that they were generally designed to evaluate the adequacy of the 
programs' internal accounting and administrative controls.[Footnote 
17] Some of the audits we reviewed had findings related to Recovery 
Act funds, including cash-management issues (for example, failure to 
minimize the time between drawdowns of federal funds and expenditure 
of those funds and to charge hours worked to the correct grant) and 
recipient reporting issues (for example, incorrect calculation of jobs 
funded with Recovery Act funds and lack of review of recipient 
reports). The audits also found some instances of insufficient 
internal controls for ensuring compliance with Recovery Act and other 
federal program requirements. For example, one agency did not have 
procedures in place to ensure that subrecipients separately record and 
account for Recovery Act activities, and another agency did not have 
processes in place to ensure the eligibility of program participants. 
IOIA issued several recommendations based on its findings. State 
officials expect that, as part of its existing role in assisting 
agencies with corrective action plans to address audit findings, the 
Office of Accountability will follow up these recommendations to 
determine whether they have been implemented.[Footnote 18] 

As we reported in our May 2010 report, the Illinois Office of the 
Auditor General conducts an annual audit (the Single Audit) of the 
state's financial statements and expenditures from federal awards, 
including Recovery Act awards.[Footnote 19] According to data from the 
Federal Audit Clearinghouse, which is responsible for receiving and 
distributing Single Audit results, it received Illinois's Single Audit 
reporting package for the year ending June 30, 2009, on August 12, 
2010. This was over 4 months after the deadline specified by the 
Single Audit Act and over a year after the period the audit covered. 
The State Auditor General finalized this audit on July 28, 2010, and 
this was the first Single Audit for Illinois that included Recovery 
Act programs. It identified 92 significant internal control 
deficiencies related to compliance with Federal Program requirements, 
of which 50 were classified as material weaknesses. Two of these 
material weaknesses and significant deficiencies were directly related 
to agencies' use of Recovery Act funds. Specifically, state auditors 
found that the Illinois Department of Children and Family Services 
(DCFS) failed to separately identify and report Recovery Act 
expenditures for its Foster Care and Adoption Assistance programs to 
the Illinois Office of the Comptroller.[Footnote 20] According to the 
report, DCFS agreed with the finding, and state audit officials said 
that the agency provided the necessary corrections to the 
Comptroller's Office. In addition, the Illinois Department of Commerce 
and Economic Opportunity (DCEO) failed to communicate Recovery Act 
information and requirements to subrecipients of Workforce Investment 
Act of 1998 grants, which could potentially result in inadequate 
administration of the funds and misreporting among subrecipients. 
[Footnote 21] According to the report, DCEO agreed with the 
recommendation and revised its procedures to include information on 
Recovery Act disbursements and reporting requirements to subrecipients. 

In addition to the state auditing activities, federal Inspectors 
General are also reviewing the use of some Recovery Act funds in 
Illinois. The audits include reviews of programs discussed in our 
previous reports of April 2009, July 2009, September 2009, and May 
2010, such as the $2.1 billion in SFSF monies administered by the 
Illinois State Board of Education (ISBE), and the $242.5 million Home 
Weatherization Assistance Program administered by DCEO.[Footnote 22] 
An official from the Office of Inspector General within the U.S. 
Department of Education stated that staff have conducted interviews 
with officials from ISBE, the Illinois Board of Higher Education 
(IBHE), the Illinois Community College Board (ICCB), the Governor's 
Office, a university, and multiple local educational agencies (mostly 
school districts). The audit work is expected to be completed in the 
fall of 2010 and reporting dates are yet to be determined. The Office 
of the Inspector General within the U.S. Department of Energy is also 
currently determining the extent to which DCEO and one of its local 
agencies are effectively and efficiently administering the 
Weatherization Assistance Program in Illinois. This review is focusing 
on the Illinois Community and Economic Development Association (CEDA), 
the largest subrecipient of weatherization funds in Illinois (and one 
of the largest local agencies nationwide). CEDA received $81 million 
to weatherize an estimated 12,500 homes throughout the state. A report 
is currently being drafted and is expected to be issued in the fall of 
2010. 

The Governor's Office Has Changed the Way It Monitors Recovery Act 
Recipient Reports: 

The Illinois Governor's Office has changed the way it monitors 
Recovery Act recipient reports in light of the July 1, 2010, transfer 
of audit responsibility to state agencies. As we described in our 
December 2009 report, the Governor's Office has required state 
agencies to submit employment and other data to the Illinois Federal 
Reporting Test site for review and verification before they submit 
these data to FederalReporting.gov.[Footnote 23] IOIA previously 
monitored these reports, and in its absence the Illinois Office of 
Accountability has assumed responsibility for reviewing and verifying 
these reports.[Footnote 24] The Office of Accountability's review does 
not include recipient reports from three agencies receiving some of 
largest Recovery Act grants in the state: ISBE, the Illinois Housing 
Development Agency, and the Illinois Department of Transportation. 
[Footnote 25] State officials said that these agencies each had an 
existing internal audit function with the necessary resources to 
review the reports and noted that not requiring the Office of 
Accountability to conduct a review would lighten its workload. They 
also pointed out that the state's tight budget situation and the 
dissolution of IOIA had resulted in significant reductions in the 
Office of Accountability's staff. 

State officials indicated that they had not identified any major 
problems with the recipient reports they received from agencies for 
the quarter ending June 30, 2010. They believed that the reporting 
process was starting to "become routine," as federal reporting 
guidelines stayed the same and agencies had been reporting Recovery 
Act related data for several reporting periods. 

According to State Officials, Recovery Act Funds Have Been Critically 
Important to the State Budget: 

Representatives of the Governor's Office emphasized the crucial role 
that Recovery Act funds had played in helping the state through a 
difficult financial situation during state fiscal years 2009 and 2010. 
As we reported in our May 2010 report, the fiscal year 2011 budget 
does not include Recovery Act SFSF monies, which provided over $2 
billion toward education in fiscal years 2009 and 2010; 

however, recent federal legislation made additional funds for 
education available to the states.[Footnote 26] As a result, according 
to the Governor's Office of Management and Budget, funding levels in 
fiscal year 2011 for General State Aid, early childhood programs, and 
special education will be maintained at fiscal year 2010 levels, and 
overall funding for elementary and secondary education will increase 
by an estimated $104 million. However, the fiscal year 2011 budget 
reduces funds for higher education by $105 million from the prior 
year, $85 million of which is accounted for by Recovery Act funds in 
fiscal year 2010 that will not be available in 2011. Overall, 
according to the Governor's Office, the state's fiscal year 2011 
budget is $1.4 billion less than that of fiscal year 2010 and nearly 
$3.0 billion less than that of fiscal year 2009. 

The Governor's Office had planned to address the phasing out of SFSF 
monies in fiscal year 2011 with a 1-year, $2.8 billion tax increase; 
however, the Illinois General Assembly did not approve such an 
increase. Facing a balance of between $5 billion and $6 billion in 
unpaid bills from prior fiscal years, on July 1, 2010, the state 
enacted legislation that, among other things, requires the State 
Treasurer and State Comptroller, at the direction of the Governor, to 
make transfers to the General Revenue Fund or the Common School Fund 
on or after July 1, 2010, and through January 9, 2011, out of special 
funds of the state, to the extent allowed by law.[Footnote 27] Such 
transfers are expected to help the state manage cash flow deficits and 
maintain liquidity in the General Revenue Fund and the Common School 
Fund and are subject to certain restrictions. The same legislation 
also establishes an entity, the Railsplitter Tobacco Settlement 
Authority, which was authorized to purchase from the state the right 
to future revenue from the 1998 tobacco settlement in exchange for the 
net proceeds of bonds issued by the new entity.[Footnote 28] According 
to the Governor's Office, these two measures are expected to provide 
$2 billion that the state can use to address the backlog of unpaid 
bills. 

In addition to reviewing the state's fiscal year 2011 budget, we also 
met with officials from two rural communities to discuss their use of 
Recovery Act funds and the effect of these funds on their budgets. 
Although the communities we spoke to applied for and were awarded 
Recovery Act funds, they ultimately delayed use of the funds due to 
local financing concerns. For example, an official from the Village of 
Steward, Illinois, told us that the village applied for $2.5 million 
in Recovery Act funding through the U.S. Department of Agriculture's 
(USDA) Rural Development Water and Waste Program to establish a sewer 
system for its residents.[Footnote 29] The official said that the 
project would facilitate economic development in the area and that the 
village has been trying to secure funding for the project for nearly 
10 years. Although USDA awarded Recovery Act funds to the village--a 
grant for 40 percent of the project's total cost and a loan for the 
remaining 60 percent of the cost (to be repaid at 2 percent interest 
over 48 years)--the official stated that the village has placed the 
project on hold for a year, as residents have raised concerns about 
the costs associated with financing the project. The official 
estimated that each household would spend roughly $700 per year in the 
near-term on sewer rates to repay this loan. The town of Chrisman, 
Illinois, was also awarded a $1.25 million loan (to be repaid at 2.5 
percent interest over 20 years) for a sewer project through USDA's 
Rural Development Water and Waste Program, but the town also placed 
the project on hold due to similar concerns. According to officials in 
both localities, it is uncertain when and if these projects will be 
completed. 

State Comments on This Summary: 

We provided the Office of the Governor of Illinois with a draft of 
this appendix on August 18, 2010. The Director of Recovery Operations 
and Reporting responded for the Governor on August 19, 2010. The 
official provided technical suggestions that were incorporated, as 
appropriate. 

GAO Contact: 

James Cosgrove, (202) 512-7029 or cosgrovej@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above, Paul Schmidt, Assistant 
Director; Silvia Arbelaez-Ellis; Josh Bartzen; Dean Campbell; Cory 
Marzullo; and Rosemary Torres Lerma made major contributions to this 
report. 

[End of section] 

Appendix VII Footnotes: 

[1] Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009). 

[2] Under section 1512 of the Recovery Act, recipients of Recovery Act 
funds must submit quarterly reports that include employment and other 
data to the federal agencies through the FederalReporting.gov Web 
site. These reports are due on the 10th day of the month following the 
end of the reporting period and are available to the public on the 
Recovery.gov Web site. 

[3] The U.S. Department of Housing and Urban Development's (HUD) 
Illinois State Office of Public Housing monitors all Illinois housing 
agencies for compliance with Recovery Act requirements, including 
obligation and expenditure deadlines. 

[4] As of August 7, 2010, one housing agency had not obligated any of 
its competitive grant funds. 

[5] According to Illinois officials, Illinois Executive Order 2003-10, 
Executive Order to Consolidate Facilities Management, Internal 
Auditing and Staff Legal Functions, consolidated the state's internal 
audit function under the Illinois Department of Central Management 
Services within the Governor's Office. 27 Ill. Reg. 6401 (Apr. 11, 
2003). State officials further explained that Illinois Public Act 096-
0795 mandated the return of the internal audit function to state 
agencies and the dissolution of IOIA, as the function would again 
reside at the agencies. 

[6] Single Audits are prepared to meet the requirements of the Single 
Audit Act of 1984, as amended (31 U.S.C. §§ 7501-7507) and provide a 
source of information on internal control and compliance findings and 
the underlying causes and risks. The Single Audit requires that 
states, local governments, and nonprofit organizations expending more 
than $500,000 in federal awards in a year obtain an audit in 
accordance with the requirements set forth in the act. A Single Audit 
consists of (1) an audit and opinions on the fair presentation of the 
financial statements and the Schedule of Expenditures of Federal 
Awards; (2) gaining an understanding of and testing internal control 
over financial reporting and the entity's compliance with laws, 
regulations, and contract or grant provisions that have a direct and 
material effect on certain federal programs (i.e., the program 
requirements); and (3) an audit and opinion on compliance with 
applicable program requirements for certain federal programs. See also 
Office of Management and Budget (OMB) Circular A-133 (revised June 27, 
2003, and June 26, 2007). 

[7] Ill. Pub. Act 096-0958, art. 1 (July 1, 2010). 

[8] Our fourth bimonthly report also contains an overview of the Ogden 
North project. See GAO, Recovery Act: Status of States' and 
Localities' Uses of Funds and Efforts to Ensure Accountability 
(Appendixes), GAO-10-232SP (Washington, D.C.: Dec. 10, 2009). 

[9] Our fourth bimonthly report of December 2009 contains an overview 
of the Dearborn Homes and Kenmore Senior Apartments projects. See GAO-
10-232SP. 

[10] These data are as of June 30, 2010. 

[11] See GAO, Recovery Act: States' and Localities' Uses of Funds and 
Actions Needed to Address Implementation Challenges and Bolster 
Accountability (Appendixes), [hyperlink, 
http://www.gao.gov/products/GAO-10-605SP] (Washington, D.C.: May 26, 
2010). 

[12] Section 1605 of the Recovery Act required that "none of the funds 
appropriated or otherwise made available by [the] Act may be used for 
the construction, alteration, maintenance, or repair of a public 
building or a public work unless all of the iron, steel, and 
manufactured goods used in the project are produced in the United 
States." Federal agencies may, under certain circumstances, waive the 
Buy American requirement and the requirement is to be applied in a 
manner consistent with the United States obligations under 
international agreements. For more information, see HUD, PIH 
Implementation Guidance for the Buy American Requirement of the 
American Recovery and Reinvestment Act of 2009 including Process for 
Applying for Exceptions, PIH-2009-31 (HA) (Washington, D.C., Aug. 21, 
2009). 

[13] Our May 2010 report includes a discussion of the difficulties 
this housing authority faced in soliciting bids and awarding contracts 
for Recovery Act funds. See [hyperlink, 
http://www.gao.gov/products/GAO-10-605SP]. 

[14] The Illinois Arts Council used the Recovery Act grant to fund the 
Illinois Arts Job Preservation Grant Program. According to state 
officials, all the funds have been expended. The JAG Program provides 
federal grants for state and local law enforcement and criminal 
justice assistance. 

[15] In April 2009, the Department of Justice's Office of the 
Inspector General issued a report on the allocation of Recovery Act 
JAG funds in Illinois. See Department of Justice, Office of the 
Inspector General, Edward Byrne Memorial Justice Assistance Grant 
Allocation of Recovery Act Funds to Local Municipalities in the State 
of Illinois (Apr. 9, 2009). 

[16] According to state documents, as of March 31, 2010, these 
programs were expected to receive $3.8 billion and $934.3 million in 
Recovery Act awards, respectively. 

[17] We reviewed 12 of the 13 audits IOIA had completed as of July 1, 
2010. We did not review 1 completed IOIA audit on the Women, Infants 
and Children (WIC) Special Supplemental Nutrition Program-Contingency. 
State officials indicated that the audit had no findings. 

[18] According to state officials, the Office of Accountability is 
also responsible for, among other things, obtaining clarifications to 
federal guidance related to the Recovery Act; establishing 
standardized policies and procedures for state agencies for tracking, 
reporting on, and monitoring Recovery Act funds; and providing 
technical assistance to state agencies on Recovery Act reporting 
requirements to ensure accurate and timely reporting. The Governor's 
Office expects to dissolve the Office of Accountability in February 
2011. 

[19] See [hyperlink, http://www.gao.gov/products/GAO-10-605SP]. 

[20] According to the 2009 Single Audit report, subrecipients of 
Recovery Act awards must (1) maintain records that identify the source 
and application of their awards and (2) provide identification of 
Recovery Act awards in their Schedule of Expenditures of Federal 
Awards (SEFA) and data collection forms. The Illinois Office of the 
Comptroller compiles and reviews the financial forms required for the 
SEFA before forwarding SEFA data to the Office of the Auditor General. 
The Office of the Auditor General uses data from the SEFA in scoping 
and conducting the state's Single Audit. See State of Illinois, Office 
of the Auditor General, Single Audit Report For the Year Ended June 
30, 2009 (July 28, 2010). 

[21] According to the 2009 Single Audit report, recipients of Recovery 
Act awards must (1) separately identify to each subrecipient, and 
document at the time of the subaward and disbursement of funds, the 
Federal Award Number, the Catalog of Federal Domestic Assistance 
(CFDA) number, and the amount of Recovery Act funds; and (2) require 
their subrecipients to provide similar identification on their SEFAs 
and data-collection forms. 

[22] For past reports discussing SFSF see GAO, Recovery Act: As 
Initial Implementation Unfolds in States and Localities, Continued 
Attention to Accountability Issues is Essential(Appendixes), 
[hyperlink, http://www.gao.gov/products/GAO-09-580] (Washington, D.C.: 
Apr. 23, 2009); GAO, Recovery Act: States' and Localities' Current and 
Planned Uses of Funds While Facing Fiscal Stresses (Appendixes), 
[hyperlink, http://www.gao.gov/products/GAO-09-830SP] (Washington, 
D.C.: July 8, 2009); GAO, Recovery Act: Funds Continue to Provide 
Fiscal Relief to States and Localities, While Accountability and 
Reporting Challenges Need to Be Fully Addressed (Appendixes), 
[hyperlink, http://www.gao.gov/products/GAO-09-1017SP] (Washington, 
D.C.: Sept. 23, 2009); and GAO-10-605SP. For past reports discussing 
the Weatherization Assistance Program see [hyperlink, 
http://www.gao.gov/products/GAO-09-830SP] and [hyperlink, 
http://www.gao.gov/products/GAO-10-605SP]. 

[23] Illinois is considered a decentralized reporting state because 
state agencies, not the state, are responsible for uploading their 
employment and other data into FederalReporting.gov. For a discussion 
of the role the Governor's Office plays in reviewing state agencies' 
recipient reports, see [hyperlink, 
http://www.gao.gov/products/GAO-10-232SP]. 

[24] State officials said that they anticipate that the Office of 
Accountability will be disbanded in February 2011. 

[25] Each of these agencies provided the Governor's Office with the 
following information for the quarter ending June 30, 2010: total 
Recovery Act expenditures, total number of Recovery Act jobs reported, 
and an explanation for any major changes in the number of jobs 
reported from the previous reporting quarter. In our sixth bimonthly 
report of May 2010, we discussed some of the challenges ISBE has faced 
in ensuring the accuracy of its recipient reports. See GAO-10-605SP. 
We did not assess the reports ISBE, the Illinois Housing Development 
Agency, or the Illinois Department of Transportation submitted for the 
quarter ending June 30, 2010. 

[26] See [hyperlink, http://www.gao.gov/products/GAO-10-605SP] and 
Pub. L. No. 111-226, § 101, 124 Stat. 2389 (Aug. 10, 2010). The 
legislation also provided for an extension of increased Federal 
Medical Assistance Percentage (FMAP) funding. As of August 13, 2010, 
Illinois had drawn down its entire share of SFSF Education funds and 
99.8 percent of its SFSF Government Services funds. 

[27] 30 Ill. Comp. Stat. 105/5h. 

[28] Ill. Pub. Act 096-0958, art. 3, §§ 3-1 to 3-16 (July 1, 2010). In 
1998, 46 states, including Illinois, signed a Master Settlement 
Agreement as part of a resolution of the states' case against four 
major tobacco companies to recover smoking-related Medicaid expenses. 
The agreement stipulated that the tobacco companies pay the states 
settlement costs over a period of years. To raise revenues in the 
immediate term, some states have "securitized" these payments, issuing 
bonds backed by future payments owed to them under the agreement. 

[29] Loans under USDA's Rural Development Water and Waste Program are 
to be used for the purpose of developing water and waste disposal 
(including solid waste disposal and storm drainage) systems in rural 
areas and towns with a population not in excess of 10,000. The funds 
are available to public entities such as municipalities, counties, 
special-purpose districts, Indian tribes, and corporations not 
operated for profit. 

[End of Appendix VII] 

Appendix VIII: Iowa: 

Overview: 

The following summarizes GAO's work on the seventh of its bimonthly 
reviews of American Recovery and Reinvestment Act of 2009 (Recovery 
Act) spending in Iowa.[Footnote 1] The full report covering all of 
GAO's work in 16 states and the District of Columbia is available at 
[hyperlink, http://www.gao.gov/recovery]. 

What We Did: 

Our work in Iowa examined six programs receiving Recovery Act funds-- 
the State Energy Program (SEP), the Energy Efficiency and Conservation 
Block Grant (EECBG) program, the Weatherization Assistance Program, 
and three education programs: (1) Title I, Part A, of the Elementary 
and Secondary Education Act of 1965 (ESEA), as amended; 

(2) Individuals with Disabilities Education Act (IDEA), Part B, as 
amended; 

and (3) the State Fiscal Stabilization Fund (SFSF)--as well as state 
and local efforts to stabilize their budgets, monitor the use of 
Recovery Act funds, and report the number of jobs paid for by these 
funds. We selected the SEP and EECBG programs because the Department 
of Energy (DOE) has instructed the states to increase their efforts to 
obligate and spend the Recovery Act funds for these programs. We 
selected the weatherization program because community action agencies 
in Iowa are weatherizing large numbers of homes. Finally, we selected 
the three education programs because these continue to be the largest 
source of Recovery Act funds in Iowa. For descriptions and 
requirements of the programs we reviewed, see appendix XVIII of GAO-10-
1000SP. 

To review the use of Recovery Act funds for the SEP and EECBG 
programs, we examined documents and met with officials of the Iowa 
Office of Energy Independence (OEI) in Des Moines, which is 
responsible for administering both programs. For the SEP program, we 
visited three grant recipients: the Des Moines Area Community College 
at Ankeny, the Iowa Association of Municipal Utilities, and the Sun 
Prairie/Vista Court Apartments. For the EECBG program, we visited two 
local governments that DOE supported directly: Iowa City and Warren 
County. For both SEP and EECBG, we discussed with officials how their 
agencies were using Recovery Act funds to support national energy 
goals, any concerns about complying with the Recovery Act's 
requirements, whether internal controls and monitoring systems were in 
place to ensure the effective and efficient use of funds, and the 
extent to which program recipients collected data on energy savings 
and job creation. 

To review the weatherization program, we examined documents and met 
with officials of Iowa's Division of Community Action Agencies (DCAA), 
within the Department of Human Rights, which is responsible for 
administering the weatherization program in Iowa. We also met with the 
Executive Director of the Southern Iowa Economic Development 
Association (SIEDA), a local community action agency responsible for 
weatherizing homes in seven southern Iowa counties. 

To review the use of Recovery Act funds for education, we met with 
officials from the Iowa Department of Education and reviewed state 
grant applications, financial records, and monitoring plans to 
identify the state's policies and procedures for ensuring the 
appropriate expenditure of Recovery Act funds. To obtain officials' 
projections of the financial condition of Iowa schools in 2010 and 
2011, we interviewed the Iowa Department of Education's Chief 
Financial Officer and officials from six local school districts that 
we had contacted for previous Recovery Act reports--Atlantic, Des 
Moines, Maple Valley, Marshalltown, Ottumwa, and Waterloo. We also 
visited the Des Moines Independent Community School District and the 
Marshalltown Community School District to review districts' controls 
over the expenditure of Recovery Act funds.[Footnote 2] At each 
district we selected a judgmental sample of disbursements to review 
the use of funds and documentation of expenditures.[Footnote 3] We 
also discussed our findings with local and state officials. 

To review state and local efforts to use Recovery Act funds and 
stabilize their budgets, we analyzed state and local budget 
information and met with state and municipal officials. We visited two 
Iowa localities--Des Moines and Marshalltown--which we selected to 
provide a mix of large and small communities and unemployment rates. 
We selected Des Moines because it is the largest city in Iowa and has 
an unemployment rate above the state's average--7.4 percent compared 
with a state average of 6.6 percent--and Marshalltown because its 
population is smaller compared with many other localities throughout 
the state, and its unemployment rate is 7.5 percent, above the state's 
average. 

What We Found: 

* State Energy Program (SEP). As of July 20, 2010, OEI had obligated 
$34.3 million, or 84.6 percent, of $40.5 million in Recovery Act funds 
for SEP. Specifically, OEI awarded $19.2 million in grants, which 
recipients plan to match with an additional $48.5 million from other 
sources. OEI also obligated $1.5 million to commission energy projects 
and is establishing a $6.5 million loan fund to stimulate energy 
efficiency improvements by Iowa businesses and a $1 million loan loss 
reserve to enhance financing credit for private sector energy 
efficiency projects. OEI has retained $6.1 million for administrative 
expenses. OEI expects to obligate its remaining funds by September 30, 
2010. OEI reimburses grant recipients for applicable costs only after 
major milestones are achieved and recipients submit receipts and other 
supporting documentation. To monitor the use of funds, OEI plans to 
visit each grant recipient annually and will make more frequent visits 
to recipients receiving the largest SEP awards and to those with 
little or no prior experience with government accounting requirements. 

* Energy Efficiency and Conservation Block Grants (EECBG) program. 
Almost all (94 percent) of the $21.1 million in Recovery Act funds 
allocated to recipients in Iowa for EECBG has been obligated. However, 
only about 6 percent of the funds have been spent, in part because of 
delays between when OEI received its portion of the funds and when it 
awarded grants. According to OEI officials, the program was new and 
officials waited for DOE to issue guidance on the program's federal 
requirements. In addition, some grant recipients spent few funds 
because they were developing plans, providing information to agencies 
involved in ensuring compliance with federal and state requirements, 
or waiting for decisions on requests for waivers from certain federal 
requirements. The DOE project officer for the grant to OEI said that 
he believes Iowa will meet the DOE goal to draw down 20 percent of 
grant funds by September 30, 2010. As projects have begun, DOE and OEI 
have implemented strategies for monitoring grant recipients' use of 
funds. These strategies involve reviewing the information recipients 
report and visiting grant recipient's projects. Moreover, grant funds 
are paid only after recipients submit invoices and supporting 
documentation to DOE or OEI for payment. 

* Weatherization Assistance Program. In a July 13, 2010, letter to 
DOE, DCAA certified that it had, among other things, completed 
weatherizing 2,178 homes--30.3 percent of its target of 7,196 homes--
using Recovery Act funds. DCAA also certified that it had inspected at 
least 5 percent of the homes weatherized by each of the 17 local 
agencies that used Recovery Act funds. In response, DOE notified DCAA 
on July 26, 2010, that the department had released the remaining 50 
percent of Iowa's Recovery Act weatherization funds, or $40.4 million. 
On August 17, 2010, DCAA notified SIEDA that it would release $1.7 
million in Recovery Act funds effective August 23, 2010, for 
weatherizing homes in seven southern Iowa counties. DCAA had delayed 
making these funds available until SIEDA had corrected numerous 
weaknesses in its oversight of weatherization contractors. 

* Education. Between 2009 and 2011, Iowa will receive about $666 
million in Recovery Act funds from the U.S. Department of Education 
(Education) to support local school districts, institutions of higher 
learning, and selected public safety and assistance programs. These 
funds will be provided to the state through three Education programs: 
Title I, Part A, of the ESEA; IDEA, Part B; and SFSF.[Footnote 4] As 
of June 30, 2010, Iowa reported that local school districts, 
institutions of higher learning and state government entities had 
spent or distributed about $501 million in Recovery Act education 
funds--more than 75 percent of the Recovery Act education funds 
provided to the state. Iowa reported that these funds paid for more 
than 7,800 education-related positions across the state in the final 
quarter of the 2009-2010 school year (April 1 to June 30, 2010). 
Although Recovery Act funding for education in Iowa will be much less 
in the 2010-2011 school year, a state education official said that he 
was optimistic about the financial outlook for most local school 
districts in the state. Officials from six local districts stated that 
they expected to balance their budgets by taking a number of actions, 
including reducing staff, suspending new hiring, consolidating 
schools, raising local taxes, and drawing upon their reserve funds, 
including unspent Recovery Act funds received in school year 2009-2010. 

Our review of expenditures at the Des Moines and Marshalltown school 
districts showed that Recovery Act funds were used to pay educators' 
salaries, purchase books to support curriculum, and purchase 
specialized equipment to upgrade services to students with 
disabilities. Our review of selected disbursements at these two local 
school districts showed that Recovery Act funds were generally spent 
and accounted for appropriately. However, we found and state officials 
agreed that these districts did not fully comply with requirements to 
obtain approval for IDEA equipment purchases of $5,000 or more. 

* State and local governments' use of Recovery Act funds. According to 
senior officials from the Iowa Department of Management, Recovery Act 
funds have enabled the state to continue avoiding tax increases and 
reduce the amount of funds drawn from the state's Cash Reserve Fund to 
balance the fiscal year 2011 budget. Anticipating the end of Recovery 
Act funds and other one-time sources of revenue, Iowa is implementing 
several plans to improve the efficiency of state operations and 
reorganize state agencies to reduce state expenditures. For example, 
as of June 30, 2010, about 2,100 eligible state employees had applied 
for retirement under the state's early retirement plan. Officials at 
the two localities we visited--Des Moines and Marshalltown--said that 
they have used Recovery Act funds for various programs, and that these 
funds have helped to stabilize their budgets. However, they also said 
that they plan to reduce expenditures or eliminate programs--such as 
Marshalltown's lead abatement program--once Recovery Act funds are 
depleted. Local officials also said that they encountered several 
problems applying for and administering funds from some Recovery Act 
competitive grants. These problems included finding staff to apply for 
the grants and difficulties complying with some of the statutory 
requirements, such as the Buy American and Davis-Bacon provisions. 

* State monitoring and internal controls. Iowa's Office of the State 
Auditor and the Iowa Accountability and Transparency Board continue to 
monitor controls over Recovery Act funds. While the Office of the 
State Auditor did not identify any material weaknesses in its fiscal 
year 2009 Audit report,[Footnote 5] officials said that they 
identified some problems with internal controls, such as inadequate 
monitoring of subrecipients. In May 2010, the state provided training 
on subrecipient monitoring to state and local agencies receiving 
Recovery Act funds. 

* State and local recipient reporting. Iowa created a centralized 
database that it uses to calculate the number of jobs created based on 
data provided by state and local agency officials. Through its 
centralized database, Iowa reported that 9,696 jobs were funded by the 
Recovery Act for the period April 1 to June 30, 2010, as of July 29, 
2010. Iowa has also implemented internal controls to ensure the 
accuracy of jobs data, such as requiring state and local agency 
officials to certify that they reviewed and approved jobs data prior 
to submission. 

Iowa Has Obligated Most of Its State Energy Program Funds, but 
Recipients Are Just Beginning to Spend Them: 

DOE obligated $40.5 million in Recovery Act SEP funds to OEI for 
energy efficiency and renewable energy projects. Subsequently, in an 
April 2010 letter to the states, DOE set new interim milestones for 
each state to obligate at least 80 percent of its Recovery Act SEP 
funds by June 30, 2010, and spend at least 20 percent of its funds by 
September 30, 2010.[Footnote 6] As shown in table 1, OEI had obligated 
$34.3 million, or 84.6 percent, of its $40.5 million as of July 20, 
2010, and according to DOE's Recovery Act Web site, OEI had spent $1 
million as of July 30, 2010. To obligate its SEP funds, OEI awarded 
$19.2 million in grants for the public sector (government and 
university), technology demonstration, training and information, and 
innovation projects. The largest SEP grant was $1.1 million to 
Kirkwood Community College for three large wind turbines, while the 
smallest grant was $1,800 to Whiting community schools for humidity 
sensors to reduce heating and cooling costs. Grant recipients intend 
to implement their projects by leveraging SEP funds with an additional 
$48.5 million from other sources to increase the program impact on job 
creation and energy savings. OEI also obligated SEP funds to 
commission energy projects, create a loan fund to stimulate energy 
efficiency improvements by Iowa businesses, and create a loan loss 
reserve to enhance financing credit for residential and private sector 
energy efficiency projects. OEI expects to obligate the remaining $6.2 
million in SEP funds by September 30, 2010. Regarding SEP 
expenditures, OEI officials told us that expenditure data can lag more 
than a month from when costs are incurred because OEI reimburses 
recipients only after major milestones are achieved and recipients 
submit invoices and other supporting documentation. 

Table 1: Iowa's Use of Recovery Act SEP Funds, as of July 20, 2010: 

Category: Public sector[C]; 
Planned allocation: $21,161,000; 
SEP funds obligated[A]: $15,528,807; 
SEP project funding from other sources[B]: $37,923,100. 

Category: Technology demonstration[D]; 
Planned allocation: $4,160,000; 
SEP funds obligated[A]: $2,554,000; 
SEP project funding from other sources[B]: $8,254,000. 

Category: Training and information; 
Planned allocation: $1,082,000; 
SEP funds obligated[A]: $582,206; 
SEP project funding from other sources[B]: $728,206. 

Category: Innovation[E]; 
Planned allocation: $3,556,000; 
SEP funds obligated[A]: $3,055,000; 
SEP project funding from other sources[B]: $1,549,000. 

Category: Private sector loans; 
Planned allocation: $4,500,000; 
SEP funds obligated[A]: $6,500,000; 
SEP project funding from other sources[B]: 0. 

Category: Nonprofit sector loans; 
Planned allocation: $7,000; 
SEP funds obligated[A]: 0; 
SEP project funding from other sources[B]: 0. 

Category: OEI administrative expenses[F]; 
Planned allocation: $6,080,000; 
SEP funds obligated[A]: $6,081,000; 
SEP project funding from other sources[B]: 0. 

Category: Total; 
Planned allocation: $40,546,000; 
SEP funds obligated[A]: $34,301,013; 
SEP project funding from other sources[B]: $48,454,306. 

Source: Iowa Office of Energy Independence. 

[A] DOE considers (1) loan program funds to be obligated because the 
Iowa Finance Authority has agreed to underwrite the program and (2) 
OEI administrative expenses to be obligated because the funding will 
primarily be used to pay for salaries of additional staff hired to 
implement the Recovery Act program. In some cases, funds obligated may 
exceed planned allocations. 

[B] Iowa requires that SEP grant recipients provide at least a one-to- 
one matching of funds to increase the program impact on job creation 
and energy savings. 

[C] Public sector funding supports energy efficiency and renewable 
energy projects for state buildings, cities, schools, community 
colleges, and universities, and for Iowa's Building Energy Smart 
program. 

[D] Technology demonstration funding supports new energy efficiency 
and renewable technologies for businesses, electric power utilities, 
nonprofit organizations, and community colleges, among others. 

[E] Includes $555,000 for grant awards as well as $1.5 million for 
commissioning energy projects by verifying, among other things, that 
the design and specifications meet original project intent and the 
equipment purchased is as specified; $1 million for establishing a 
loan loss reserve through the Iowa Finance Authority to leverage $20 
million for a residential and private sector energy efficiency 
financing program; and $500,000 for benchmarking through Iowa's Energy 
Center. 

[F] OEI's staff has grown from 4 to 34 to administer the Recovery 
Act's SEP and EECBG programs, the SEP program that DOE funds through 
its regular appropriation, and Iowa's energy programs. 

[End of table] 

OEI staff have focused on awarding Recovery Act SEP grant funds and 
negotiating the terms and conditions for each SEP funding agreement to 
ensure that recipients spend funds by DOE's April 2012 deadline. 
[Footnote 7] Before SEP grant recipients can proceed with their 
projects, they must certify to OEI that they have complied with the 
National Environmental Policy Act (NEPA),[Footnote 8] the National 
Historic Preservation Act, and the Recovery Act's Buy American and 
Davis-Bacon provisions, among other requirements. Regarding NEPA 
compliance, all but eight of the SEP grant projects are designed to 
improve the energy efficiency of existing buildings and transportation 
infrastructure or install small amounts of renewable energy generating 
capacity, thereby minimizing their impact on the environment and 
qualifying them for a categorical exclusion under NEPA. Of the eight 
SEP projects requiring a detailed NEPA review, five have been reviewed 
and approved by DOE and three are under review--of these, two projects 
are for wind turbines and one is for a solar system installation. OEI 
officials told us that DOE guidance has been useful for addressing 
Davis-Bacon prevailing wage, Buy American, and historic preservation 
requirements. 

OEI has established several controls to ensure that SEP funds are 
effectively and efficiently spent. For example, OEI requires that 
grant recipients provide at least a one-to-one matching of SEP funds 
with funds from other sources. Matching funds are an Iowa, rather than 
a SEP, requirement that is designed to enhance project oversight 
because the grant recipient is responsible for more than half of the 
project's cost. In addition, OEI generally does not provide up-front 
funding.[Footnote 9] Instead, OEI reimburses grant recipients for 
applicable costs only after major milestones are achieved and 
recipients submit receipts and other supporting documentation for 
incurred costs. 

OEI officials told us that they plan to visit each SEP project at 
least once per year, projects that receive grants of $750,000 or more 
at least two times per year, and projects that receive grants of $1 
million or more at least four times per year. OEI also plans to give 
priority to monitoring recipients with little or no prior experience 
in complying with government accounting and reporting requirements. 
Recipients are considered to be higher risk if their management 
control systems have not been previously examined, as they have been 
for grant recipients with established accounting procedures, and if 
external audits of their financial systems have not been completed. 
OEI requires most SEP grant recipients to complete their construction 
activities by January 1, 2012, and all recipients to submit their 
final reports by March 31, 2012. 

Most Funds from Iowa's Energy Efficiency and Conservation Block Grants 
Have Been Obligated but Little Has Been Spent: 

DOE allocated a total of about $21.1 million in Recovery Act funds to 
recipients in Iowa for EECBG. Of this total, DOE allocated about $11.5 
million directly to the 13 largest cities and 10 largest counties in 
the state according to a federal population formula; about $46,600 to 
the Sac and Fox Tribe of the Mississippi in Iowa; and about $9.6 
million to OEI.[Footnote 10] Following statutory requirements, DOE 
required OEI, in turn, to make at least 60 percent of the $9.6 million 
it received available to local governments not eligible for grants 
directly from DOE because of their size. According to DOE, about 94 
percent of the $21.1 million allocated to recipients in Iowa had been 
obligated as of July 16, 2010. The remaining 6 percent of funds were 
programmed for Cedar Rapids, Dubuque, and Scott County, which have not 
received all of their DOE allocations. DOE officials told us that 
grant recipients were allowed to obtain a portion of their allocation 
to develop energy strategies and obtain the balance of funds after 
resubmitting plans for specific projects. 

The two localities we visited--Iowa City and Warren County--received 
direct grants from DOE. With its direct grant of $692,300, Iowa City 
is establishing (1) an energy office, (2) a public education campaign 
to promote existing energy audit programs for residences and 
businesses, (3) a municipal energy efficiency retrofit program to 
reduce energy costs in municipal buildings, and (4) an energy 
efficiency revolving loan fund for businesses to implement energy 
efficiency upgrades in their buildings. With its direct grant of 
$171,200, Warren County has upgraded the heating and cooling system at 
a county nature center and plans to construct a wind turbine for the 
center's electricity needs. 

OEI grants to Iowa entities were generally made several months later 
than the DOE direct formula grants. More specifically: 

* OEI received its $9.6 million award in September 2009. The office 
retained 10 percent, or about $960,000, for program administration, as 
allowed under the program, and in March 2010 awarded over $8.2 million 
in grants. About $5.8 million went to cities and counties that were 
not large enough to be eligible for the direct grants from DOE. This 
total met the requirement that at least 60 percent of grant funds 
provided to state energy offices go to these smaller cities and 
counties. Subsequent awards increased the total amount of OEI awards 
to over $8.6 million to 76 recipients. 

* While DOE used a population-based formula to determine the amounts 
and recipients of the direct grants from DOE, it did not prescribe how 
the state energy offices were to distribute their grant funds. OEI 
decided to make the awards competitive and, in January 2010, requested 
proposals for use of EECBG grant funds.[Footnote 11] According to OEI 
officials, the office delayed announcing its request for proposals 
until DOE provided guidance on federal requirements applicable to 
EECBG funding and OEI could assess whether grant proposals 
sufficiently addressed them. These requirements included those 
governing labor (e.g., the Davis-Bacon provisions of the Recovery 
Act); purchasing (e.g., the Buy American provisions of the Recovery 
Act); the treatment of environmental resources (e.g., NEPA); and 
historical sites (e.g., the National Historic Preservation Act). DOE 
issued program guidance on NEPA and the Buy American provisions in 
December 2009. The department issued program guidance on historic 
preservation in February 2010 and continues to issue additional 
program guidance. 

OEI required that its EECBG grants be used cost-effectively, yielding 
continuous benefits over time in terms of energy and emission 
reductions, and that recipients provide matching funds equal to the 
amount of the grant award. OEI also required that projects complete on 
or before September 2012 in order to be eligible for funding. OEI 
limited the types of projects eligible for funding, in part, to avoid 
the need for extensive NEPA reviews, which could affect the start date 
of projects. In this regard, OEI limited the size or output of certain 
projects, such as wind turbines and ground source heat pumps. A 
proposed project could exceed these limits if the applicant provided 
additional information on how it would obtain NEPA approval and an 
approval timeline. 

OEI's EECBG grants are primarily being used to upgrade to energy- 
efficient lighting or install energy-efficient heating, ventilating, 
and air conditioning (HVAC) equipment or controls. The lighting 
upgrades were for street lights; traffic lights; or lights in 
buildings, parking lots, and garages. HVAC activities included 
replacing HVAC systems, furnaces, boilers, or building ventilation or 
control systems. Other local governments received grants from OEI to 
develop and implement a community energy plan or to fund activities 
such as adding insulation to buildings, installing energy-efficient 
windows and doors, training staff in energy efficiency building codes, 
and optimizing traffic flow. 

The largest OEI grant was for $1 million to the county of Washington 
community schools for insulation, a geothermal system, windows, and 
lighting. The smallest OEI grant was for $3,405 to the city of Murray 
for various energy efficiency measures such as replacing an existing 
furnace with a more efficient one. The grants OEI made were generally 
smaller than the DOE direct grants. For example, the allocations for 
11, or 44 percent, of the 25 DOE direct grant recipients were for 
$500,000 or more, while only 3 OEI recipients received awards in that 
range. On the other hand, 41 of OEI's 76 recipients, or about 54 
percent, received grants under $50,000, and only 1 DOE grant was about 
that amount. 

While almost all EECBG funds for Iowa have been obligated, spending 
has been slow. Some grant recipients have taken time to further refine 
their plans or, in the case of OEI, waited for additional DOE program 
guidance before distributing grant funds to spend. 

* DOE data showed that about $1.2 million, or about 6 percent, of 
EECBG funds provided to recipients within Iowa had been spent as of 
July 16, 2010. Of the 24 cities, counties, and Indian tribes allocated 
funds directly from DOE, 12 had not spent any funds. In contrast, 2 
counties had spent all of their award funds, and the county of Warren 
had spent over half of its funds. OEI and its grant recipients had 
spent less, slightly over $129,000, or about 1 percent of the funds 
awarded to them. DOE officials told us that spending has been slower 
than anticipated but that many EECBG grantees are beginning to 
identify projects and complete plans for them. They said that the 
results of energy audits and engineering studies have shown that many 
grantees' original plans for energy projects are no longer feasible, 
and replacement activities have been common. 

* Now that OEI has received DOE guidance on how to comply with program 
requirements, OEI officials said that projects are gearing up, with 5 
of the 76 projects completed as of July 15, 2010. OEI officials said 
that they believed that the majority of funds will be spent in fiscal 
year 2011. The DOE project officer for the award told us that he 
expects that Iowa will meet the DOE goal to draw down at least 20 
percent of funds by September 30, 2010. 

* The city and county we visited that received direct grants from DOE 
had used a considerable portion of their grant funds. DOE reported 
that, as of July 16, 2010, Iowa City had spent $280,000 of its 
$692,300 grant. City officials told us that $250,000 of these 
expenditures was a drawdown of funds for the revolving loan fund that 
the city established to help finance local businesses' energy 
efficiency activities. A city official said that the funds were moved 
into a city account to be available for loans under the revolving 
fund. As of late June 2010, no loans had been requested from the fund, 
and project officials were considering whether they should lower the 
minimum loan amount that could be obtained from the fund. The city had 
also created a small energy office to continue to support the mission 
to increase energy efficiency and reduce greenhouse gas emissions and 
spent small amounts of funds on some of its other initiatives. For 
example, city officials said that over $9,800 had been spent on 
setting up and operating the energy office as of June 30, 2010, and 
over $8,600 had been spent for software and energy audits to support 
the municipal retrofit activity. 

* The county of Warren had spent $116,849 of its $171,200 grant. At 
the time of our visit, the county had installed a geothermal heating 
and cooling system to replace a less energy-efficient system at a 
local nature center and was waiting for a decision from DOE on its 
request for a waiver of the Buy American provisions of the Recovery 
Act. According to county officials, the waiver is being sought to use 
Recovery Act funds to procure a wind turbine for the center project 
from a Canadian manufacturer. County officials said that they received 
three bids on the wind turbine: two from U.S. manufacturers and one 
from the Canadian manufacturer. The officials stated that the Canadian 
wind turbine is much more efficient and will be less costly to 
maintain. They also said that an American firm will build the 
supporting tower for the turbine. 

DOE and OEI have similar approaches to monitoring their grants. Both 
review reports submitted by grantees, which DOE refers to as desktop 
reviews, and make site visits. Both award grants on a cost 
reimbursable basis and review invoices (and supporting documentation) 
submitted for payment. In March 2010, DOE issued a reference manual 
for monitoring Recovery Act funding for EECBG, SEP, and 
weatherization. The manual, which provides more detailed instructions 
to implement DOE's monitoring plan for these programs, requires that 
DOE personnel conduct both desktop and onsite monitoring of grantees, 
with the frequency based on the dollar amount of the grants and 
grantees' performance. According to the manual, desktop monitoring 
requires DOE to constantly review details of project planning, 
implementation, and outcome (such as overall energy efficiency 
impacts) captured in DOE data management/evaluation systems through 
regular reporting by grantees and DOE's project management teams. DOE 
project officers are to review the report submissions to determine 
progress toward goals and objectives, compare planned and actual 
activities, and determine whether grantees are meeting benchmarks and 
deliverables on schedule and within budget. According to DOE, the 
purpose of its onsite visits is to formally evaluate progress and 
identify issues concerning progress. Visits generally involve 
interviews of grantee staff and a review of project documents, and may 
include visits to work sites. DOE staff have begun to make site 
visits. According to DOE officials, as of July 23, 2010, department 
personnel visited five EECBG grantees, including Iowa City, between 
May 24 and May 27, 2010. 

* In November 2009, OEI set out its monitoring strategy for the EECBG 
program, which applies only to the grants OEI awarded. The office does 
not monitor the grants DOE provided directly. OEI's monitoring is 
similar to DOE's--both use their reviews of grant recipients' 
reporting as the primary device to monitor project activity and both 
make onsite visits on a schedule based on the size of the award. OEI 
also plans to give priority to monitoring grantees with little or no 
prior experience in complying with government accounting and reporting 
requirements because the office believes these recipients' management 
control systems are uncertain and likely higher risk. 

* OEI requires its grantees to report quarterly on progress and submit 
other project data on use of the funds. These data include quarterly 
status reports on funds received during the reporting period; the 
amount of Recovery Act funds obligated or expended; a detailed list of 
all projects or activities for which Recovery Act funds were expended 
or obligated, including the name and description of the project or 
activity; and an estimate of the number of jobs created or retained by 
the project/activity. 

According to OEI officials, the office plans to make at least one 
onsite visit for each grant per year. For grants from $750,000 to $1 
million, it plans to make site visits at least once every 6 months. 
For recipients of grants of $1 million or more, OIE plans to visit at 
least once every 3 months. If this schedule cannot be maintained for 
all grants, OEI will, at a minimum, review the agreement, all reports, 
submittals, and financial records on a grant, and contact the grantee 
by e-mail or telephone. As of July 23, 2010, OEI had made 13 site 
visits. 

Under OEI's program, grant recipients incur project expenses and 
submit invoices for applicable project costs that are supported by 
receipts and related documentation for OEI's review. OEI staff are 
responsible for comparing the billings with the terms of the grant 
agreement and ensuring the charges and payments being made are within 
the agreement terms. OEI makes payments to grantees on a quarterly 
basis, which provides additional leverage to OEI to ensure that 
grantees meet requirements for their quarterly reporting on projects. 
According to OEI officials, the office can refuse to make these 
payments or even suspend the availability of grant funds if grantees 
do not comply with reporting or other requirements. 

Iowa Has Access to All of Its Recovery Act Weatherization Funds and 
Approved a Local Agency's Management Reforms: 

In a July 13, 2010, letter to DOE, DCAA requested access to the 
remaining 50 percent of its Recovery Act weatherization funds, or 
$40.4 million, and certified that it had, among other things, 
completed weatherizing 2,178 homes--30.3 percent of its target of 
7,196 homes--using Recovery Act funds. DCAA also certified that it had 
inspected at least 5 percent of the homes weatherized by each of the 
17 local agencies that used Recovery Act funds. In response, DOE 
notified DCAA on July 26, 2010, that the department had released the 
remaining 50 percent of Iowa's allotted Recovery Act funds. As shown 
in table 2, Iowa began using Recovery Act funds to weatherize homes in 
August 2009 once the U.S. Department of Labor had determined 
prevailing wage rates for weatherization workers. Since then, Iowa's 
monthly total of completed weatherized homes grew to 546 in July 2010 
as DCAA used funding from the Recovery Act, DOE's regular 
weatherization appropriation, and the federal Low-Income Home Energy 
Assistance Program. As of July 30, 2010, Iowa had spent $22.6 million 
of its Recovery Act weatherization funds, according to DOE's Recovery 
Act Web site. 

Table 2: Number of Homes Weatherized in Iowa, by Funding Source, 
August 2009 through July 2010: 

Month: August 2009; 
Homes weatherized using annual appropriated funds[A]: 264; 
Homes weatherized using Recovery Act funds: 1; 
Total: 265. 

Month: September 2009; 
Homes weatherized using annual appropriated funds[A]: 202; 
Homes weatherized using Recovery Act funds: 6; 
Total: 208. 

Month: October 2009; 
Homes weatherized using annual appropriated funds[A]: 184; 
Homes weatherized using Recovery Act funds: 59; 
Total: 243. 

Month: November 2009; 
Homes weatherized using annual appropriated funds[A]: 105; 
Homes weatherized using Recovery Act funds: 147; 
Total: 252. 

Month: December 2009; 
Homes weatherized using annual appropriated funds[A]: 73; 
Homes weatherized using Recovery Act funds: 156; 
Total: 229. 

Month: January 2010; 
Homes weatherized using annual appropriated funds[A]: 53; 
Homes weatherized using Recovery Act funds: 231; 
Total: 284. 

Month: February 2010; 
Homes weatherized using annual appropriated funds[A]: 40; 
Homes weatherized using Recovery Act funds: 258; 
Total: 298. 

Month: March 2010; 
Homes weatherized using annual appropriated funds[A]: 11; 
Homes weatherized using Recovery Act funds: 318; 
Total: 329. 

Month: April 2010; 
Homes weatherized using annual appropriated funds[A]: 23; 
Homes weatherized using Recovery Act funds: 400; 
Total: 423. 

Month: May 2010; 
Homes weatherized using annual appropriated funds[A]: 14; 
Homes weatherized using Recovery Act funds: 361; 
Total: 375. 

Month: June 2010[B]; 
Homes weatherized using annual appropriated funds[A]: 8; 
Homes weatherized using Recovery Act funds: 241; 
Total: 249. 

Month: July 2010[B]; 
Homes weatherized using annual appropriated funds[A]: 19; 
Homes weatherized using Recovery Act funds: 527; 
Total: 546. 

Month: Total; 
Homes weatherized using annual appropriated funds[A]: 996; 
Homes weatherized using Recovery Act funds: 2,705; 
Total: 3,701. 

Source: Iowa Division of Community Action Agencies. 

Note: Iowa considers weatherization to be complete only after the 
local agency's inspector has conducted the final inspection and 
approved the work. 

[A] Includes DOE's regular Weatherization Assistance Program 
appropriations and funding from the U.S. Department of Health and 
Human Services' Low-Income Home Energy Assistance Program. According 
to DCAA officials, Iowa has spent all of the $8.6 million made 
available through DOE's fiscal year 2009 regular and supplemental 
appropriations. DOE allocated about $3.9 million to Iowa for 
weatherization activities from its regular fiscal year 2010 
appropriation. 

[B] The number of weatherized homes is underreported for June and over 
reported for July because totals were reported early in June to meet 
Recovery Act quarterly reporting deadlines, according to a DCAA 
official. 

[End of table] 

As we reported in May 2010,[Footnote 12] DCAA had found numerous 
management weaknesses in the oversight of weatherization contractors' 
work by SIEDA, one of the state's local agencies that implement the 
weatherization program. Although Recovery Act funds had not been used, 
DCAA believed that the identified weaknesses were sufficiently serious 
that it suspended Recovery Act funding to SIEDA in September 2009 and 
required SIEDA to develop and implement an action plan to correct 
them. In response, SIEDA fired its weatherization coordinator and 
decertified its furnace and weatherization contractors. DCAA and SIEDA 
officials told us that SIEDA has also (1) hired and trained several 
new weatherization staff members, (2) revised its contracting 
procedures, and (3) developed a new list of general and furnace 
contractors to bid on weatherization work. On the basis of SIEDA's 
test of its new procedures for overseeing contractors' performance, 
DCAA notified SIEDA that it would release $1.7 million in Recovery Act 
funds effective August 23, 2010, for weatherizing homes in seven 
southern Iowa counties. 

Recovery Act Education Funds in Iowa Primarily Fund Teachers' 
Salaries, and Controls over Expenditures at Two Local Districts Are 
Generally Working: 

Between 2009 and 2011, Iowa will receive approximately $666 million in 
Recovery Act funds through three Education programs. As of June 30, 
2010, Iowa's local school districts, institutions of higher learning, 
and other state government entities had expended about $501 million as 
described below: 

* ESEA Title I, Part A. As of June 30, 2010, Education had allocated 
to the Iowa Department of Education an estimated $51.5 million in ESEA 
Title I, Part A, funds under the Recovery Act to help school districts 
educate disadvantaged youth. The Iowa Department of Education reported 
that school districts had spent a total of about $16 million using 
federal funding formulas that target funds on the basis of such 
factors as schools with high concentrations of students from families 
living in poverty. In addition, Education awarded Iowa an $18.7 
million ESEA Title I School Improvement Grant. These funds are 
intended to help improve student achievement in the nation's 
persistently low-performing schools identified for improvement, 
corrective action, or restructuring. As of June 30, 2010, Iowa had 
disbursed only about $36,000 of these funds, primarily for expenses 
associated with the review and approval of districts' applications for 
grants. The Iowa Department of Education will begin disbursing program 
funds to selected districts at the beginning of the 2010-2011 school 
year. 

* IDEA, Part B. As of June 30, 2010, Education had allocated to the 
Iowa Department of Education an estimated $126.2 million in IDEA, Part 
B, funds under the Recovery Act. IDEA, Part B, is the major federal 
statute supporting the provisions of early intervention and special 
education and related services for children and youth with 
disabilities. The Iowa Department of Education reported that local 
school districts and area education agencies[Footnote 13] had expended 
about $101 million of these funds as of June 30, 2010. 

* SFSF. Education allocated to Iowa a total of about $472 million in 
SFSF funds: about $386 million in education stabilization funds-- 
generally financial aid to local school districts and institutions of 
higher learning--and about $86 million in government services funds. 
Of the $86 million in government services funds, Iowa used $63 million 
for public assistance, public safety, and Medicaid programs. The 
remaining $23 million will be used to support K-12 education in the 
coming school year. As of June 30, 2010, Iowa reported that local 
school districts, institutes of higher learning and state government 
entities had spent or distributed about $384 million of the total $472 
million in SFSF funds. 

* Iowa officials told us that Recovery Act funds made up for statewide 
funding shortfalls in education, which allowed local districts and the 
states' universities to retain general and special education 
instructors, make changes in course curriculum, or replace outdated 
instructional equipment. This past school year--July 2009 through June 
2010--Iowa officials estimated that the Recovery Act provided about 6 
percent of the state's per pupil K-12 funding and about 14 percent of 
the state's per pupil funding for institutions of higher learning. 
According to information on Iowa's Recovery Act Web site, the Recovery 
Act funded more than 7,800 educator and education-related 
administrative positions across the state for the period April 1 
through June 30, 2010. Recovery Act state aid funding for the 2010-
2011 school year will be about $48 million, down from $202 million in 
2009-2010. However, according to a state education official, most 
districts in the state should not face significant financial 
difficulties in the year ahead. Officials at six local districts that 
we contacted told us they planned to balance their budgets by taking a 
number of different actions, including reducing staff, suspending new 
hiring, consolidating schools, raising local taxes, and drawing upon 
their reserve funds including unspent Recovery Act funds received in 
school year 2009-2010. 

* Public Law 111-226, enacted on August 10, 2010, provides $10 billion 
for the new Education Jobs Fund to retain and create education jobs 
nationwide.[Footnote 14] The Fund will generally support education 
jobs in the 2010-2011 school year and be distributed to states using a 
formula based on population figures. States can distribute their 
funding to school districts based on their own primary funding 
formulas or districts' relative share of federal ESEA Title I funds. 
According to a state Education official, Iowa expects to receive about 
$96 million from the Education Jobs Fund that will be distributed to 
districts across the state based on weighted student counts per the 
state's established aid formula. 

Controls over Recovery Act Education Funds Are in Place, but Two 
Districts We Visited Did Not Fully Comply: 

To receive Recovery Act funds, Education required that states provide 
assurances concerning accountability, transparency, reporting, and 
compliance with certain federal laws and regulations. The Iowa 
Department of Education had systems in place to monitor the state's 
361 local school districts' compliance with federal requirements for 
education programs prior to receiving Recovery Act funds. These 
processes, including oversight and financial analyses at the state 
level as well as required financial statement reporting by local 
school districts, were extended to oversight of Recovery Act funds. In 
addition, specifically for the Recovery Act, districts must report 
quarterly on funds spent and related jobs information. 

To assess whether controls were working as designed and verify that 
funds were spent in accordance with Recovery Act guidelines, we 
reviewed purchases and financial control activities at two 
judgmentally selected school districts--the Des Moines Independent 
Community School District, as of March 31, 2010, and Marshalltown 
Community School District, as of April 30, 2010. Specifically, we 
reviewed the use of funds and documentation of selected Recovery Act 
expenditures for SFSF, ESEA Title I, and IDEA Part B. We found the 
following at the time of our review: 

* Both districts had controls, including written policies and 
established review procedures, to ensure Recovery Act funds were 
appropriately spent and expenditures were generally in accordance with 
established guidelines and requirements. The Des Moines School 
District had received $17.8 million in Recovery Act funds and used 
those funds to retain general education, ESEA Title I, and special 
education teachers; purchase materials to implement a new mathematics 
learning series; and purchase specialized equipment to support 
students with sight impairments. The Marshalltown School District had 
received $2.8 million in Recovery Act funds and used those funds to 
retain educators across the district, purchase materials to implement 
a new literacy learning series, and upgrade district communication 
systems and related services. 

* District officials acknowledged that, in some instances, they did 
not follow state or federal guidelines or made an erroneous accounting 
entry, although the districts were taking corrective actions to 
address these problems. Specifically, we identified equipment 
purchases for the IDEA, Part B program larger than $5,000 that were 
not submitted to the state for approval, that state officials agreed 
was required by U.S. and Iowa Department of Education guidelines. The 
Des Moines School District purchased a Gemini Braille machine and a 
Braille notes machine for about $25,000 without seeking review and 
approval from the state prior to purchase. Since April 2009, according 
to state officials, Iowa state policy has required local school 
districts to obtain prior approval from the state Department of 
Education to purchase equipment exceeding $5,000.[Footnote 15] 
Similarly, we found that the Marshalltown School District had not 
requested approval to purchase communication equipment and software at 
a cost of $8,400. In both cases, administrators at the local district 
stated that they were unaware of the state requirement. As we 
completed our reviews, the districts were making changes in their 
procedures to ensure that they received state approval of IDEA 
equipment purchases greater than $5,000. Furthermore, the state 
Department of Education emphasized to area education agencies and 
local districts the importance of obtaining state review of plans to 
purchase equipment for the IDEA, Part B program valued at $5,000 or 
more. We also found two instances in which products or services were 
erroneously coded to the IDEA Part B program--one for a carbon 
monoxide detector that should have been charged to IDEA, Part C, and 
one for books that should have been charged to the ESEA Title I 
programs. In both instances, the dollar amounts were small and the 
districts initiated corrective action. 

State and Local Officials Said They Benefited from Recovery Act Funds 
but Will Need to Reduce or Eliminate Programs Once These Funds Are 
Spent: 

Senior Iowa Department of Management officials told us that Iowa will 
benefit from the use of Recovery Act funds received in fiscal year 
2011 because these funds will enable the state to avoid tax increases 
and limit the amount of funds drawn from its Cash Reserve Fund to 
balance the state's fiscal year 2011 budget. The state's fiscal year 
2011 budget is based on a revenue estimate of approximately $5.44 
billion. The Governor has signed the budget into law. During fiscal 
year 2010--ending June 30, 2010--Iowa had collected approximately $5.5 
billion in revenues for the state's General Fund. According to 
officials from Iowa's Legislative Services Agency, fiscal year 2010 
General Fund revenues were approximately $244 million above the 
projections of Iowa's Revenue Estimating Conference.[Footnote 16] 
These officials added that the state should end fiscal year 2010 with 
excess revenue of approximately $350 million.[Footnote 17] 

Senior Iowa Department of Management officials said that the Governor 
implemented plans for improving the efficiency of state operations to 
reduce state expenditures, in part to account for revenue shortfalls 
following the disbursement of the remaining Recovery Act funds and 
other one-time sources of revenue, such as state reserve funds. 
According to a June 2010 report issued by the Iowa departments of 
administrative services and management, the implementation of 
efficiency measures approved by the Governor and General Assembly will 
benefit Iowa taxpayers by $298.8 million.[Footnote 18] According to 
senior Iowa Department of Management officials we spoke with, most of 
the savings will be realized in fiscal year 2011. Furthermore, the 
state implemented a State Employee Retirement Incentive Program 
(SERIP) in February 2010.[Footnote 19] Senior Iowa Department of 
Management officials said that, as of June 30, 2010, approximately 
2,100 employees had participated in SERIP. 

We visited the cities of Des Moines and Marshalltown to discuss local 
governments' use of Recovery Act funds, including plans to adjust 
their budgets once they use available Recovery Act funds. (Table 3 
provides some demographic information on these two localities.) Local 
government officials said that their cities and budgets benefited from 
the use of Recovery Act funds for various programs but that they 
planned to reduce expenditures or eliminate programs once Recovery Act 
funds are expended. Additionally, some local government officials 
indicated they faced difficulties when applying for and administering 
funds for Recovery Act competitive grant programs, such as a limited 
number of staff to apply for grants and difficulty in complying with 
Buy American and Davis-Bacon provisions. 

Table 3: Demographics of Localities Visited to Address Use of Recovery 
Act Funds: 

Local government: City of Des Moines; 
Population[A]: 198,460; 
Unemployment rate, June 2010 (percentage)[B]: 7.4%; 
Operating budget[C]: $577,110,866. 

Local government: City of Marshalltown; 
Population[A]: 25,645; 
Unemployment rate, June 2010 (percentage)[B]: 7.5%; 
Operating budget[C]: $25,794,881. 

Sources: GAO analyses of U.S. Census Bureau population data and U.S. 
Department of Labor, Bureau of Labor Statistics, Local Area 
Unemployment Statistics; City of Des Moines; and City of Marshalltown. 

[A] Population data are from the latest available estimate, July 1, 
2009. 

[B] Unemployment rates are preliminary estimates for June 2010 and 
have not been seasonally adjusted. The state of Iowa had a 
nonseasonally adjusted unemployment rate of 6.6 percent during the 
same period. Rates are a percentage of the labor force. Estimates are 
subject to revisions. 

[C] The time frame for the operating budgets of the localities we 
interviewed is July 1, 2010, through June 30, 2011. 

[End of table] 

Des Moines: 

As of May 31, 2010, Des Moines had been awarded approximately $18.6 
million in Recovery Act funds from federal and state sources and 
expended approximately $5.4 million for community development, public 
housing, and transportation enhancement, among other things (see table 
4). Since our May 2010 report on the Recovery Act,[Footnote 20] Des 
Moines officials said the city had completed resurfacing projects on 
two streets, including Fleur Drive, a major roadway in Des Moines, and 
continues to use Recovery Act funds awarded by OEI.[Footnote 21] City 
officials also noted that they received approval from DOE to use a 
revolving loan fund program, funded by Recovery Act EECBG funds, to 
purchase hybrid vehicles and charging stations for the city's vehicle 
fleet. Des Moines officials said that Recovery Act funds will help 
improve the city's budget and long-term fiscal stability by allowing 
Des Moines to use Recovery Act funds for several infrastructure 
projects, such as street repairs and extensions of pedestrian trails 
that would have been funded through other sources of revenue. 

Table 4: Select Sources of Recovery Act Funding to Des Moines: 

Agency: Iowa Department of Transportation; 
Program: Transportation Enhancement; 
Use of funds: Constructing multipurpose trail extensions of a walkway 
along the Des Moines River; 
Amount awarded: $2,849,000; 
Amount expended[A]: $845,926. 

Agency: U.S. Department of Housing and Urban Development; 
Program: Community Development Block Grant - Recovery; 
Use of funds: Expanding neighborhood infrastructure rehabilitation 
programs (e.g., street, curb, sidewalk repairs) and demolition 
programs for neighborhood redevelopment; 
Amount awarded: $1,152,886; 
Amount expended[A]: $76,073. 

Agency: U.S. Department of Housing and Urban Development; 
Program: Recovery Act Public Housing Capital Fund; 
Use of funds: Modernizing Southview Manor to serve elderly residents 
eligible for public housing; 
Amount awarded: $1,455,108; 
Amount expended[A]: $1,309,598. 

Agency: U.S. Department of Justice; 
Program: COPS Hiring Recovery Program (CHRP); 
Use of funds: Creating nine additional police officer positions for 3 
years, with an additional year funded by Des Moines, to support 
community policing efforts[B]; 
Amount awarded: $2,191,806; 
Amount expended[A]: 0. 

Agency: U.S. Department of Justice; 
Program: Edward Byrne Memorial Justice Assistance Grant (JAG); 
Use of funds: Improving forensic capabilities, upgrading technology, 
and funding equipment to improve officer safety; 
Amount awarded: $1,178,833[C]; 
Amount expended[A]: $542,684. 

Source: City of Des Moines. 

[A] Amount expended as of May 31, 2010. 

[B] According to Des Moines officials, the city is expected to begin 
expending funds for the COPS Hiring Recovery Program in 2010. 

[C] Local governments in the Des Moines metropolitan area, including 
Des Moines, the City of Altoona, and Polk County, received a joint 
award of $1,502,161. Of that amount, Des Moines received $1,178,833. 

[End of table] 

Des Moines officials said that while the city applied for but was not 
awarded funding from two Recovery Act competitive grants, it may apply 
for other Recovery Act grants.[Footnote 22] City officials also said, 
however, that the city has had difficulties finding staff who have 
time to research and apply for Recovery Act grants and obtaining 
funding for matching requirements required by some Recovery Act grants 
programs. 

Des Moines officials said that the city is continuing its partnership 
with other localities in the Des Moines metropolitan area to 
administer funds from the Edward Byrne Memorial Justice Assistance 
Grant (JAG) program and EECBG. The city is considering using EECBG 
funds to implement an energy assessment program, in coordination with 
private firms and nonprofit entities, to improve energy conservation 
or find alternative sources of electricity for use in Des Moines. 

Once Des Moines uses all of its Recovery Act funds, city officials 
said that they plan to reduce expenditures for programs receiving 
these funds to levels established prior to the implementation of the 
Recovery Act. Des Moines officials also said that they were looking 
for other sources of revenue for the city's budget, such as increased 
sewer and storm water fees; however, officials said that under Iowa 
law, the city would need to obtain approval from the Iowa General 
Assembly to obtain new taxing authority or expand its current 
authority to tax properties. 

Des Moines projected total revenues of about $639.2 million for fiscal 
year 2010-2011, which is about a 12.9 percent decrease from total 
revenues of about $733.6 million in fiscal year 2009-2010. In 
response, city officials plan to decrease expenditures by reducing 
citizen services, changing business and contracting practices, and 
eliminating 58 full-time equivalent positions during fiscal year 2010- 
2011.[Footnote 23] 

Marshalltown: 

As of June 3, 2010, Marshalltown had been awarded at least $3.52 
million in Recovery Act funds from federal and state sources, and had 
expended at least $1.11 million of this amount. Marshalltown officials 
said that Recovery Act funds were used, in part, to resurface a 
segment of Iowa Avenue, which is a major roadway in Marshalltown, 
acquire a bus for Marshalltown Municipal Transit, and purchase new 
radio equipment for law enforcement officials in Marshalltown and 
surrounding Marshall County. 

Furthermore, according to city officials, Marshalltown was awarded 
about $2.6 million in grants from the Lead-Based Paint Hazard Control 
Program to eliminate lead-based paint, replace leaded windows, and 
repaint residences eligible for renovations through the program (see 
table 5). Marshalltown officials noted that the city worked 
extensively with partners from surrounding counties, educational 
institutions, and other agencies to administer funds for this program. 
[Footnote 24] City officials also reported that they coordinated with 
Marshall County to purchase radios for law enforcement through the 
Edward Byrne Memorial Justice Assistance Grant (JAG) program because 
Marshalltown and Marshall County have an integrated system of 
communications. 

Table 5: Select Sources of Recovery Act Funding to Marshalltown: 

Agency: Iowa Department of Transportation; 
Program: Highway Infrastructure Investment Funds; 
Use of funds: Resurfacing a segment of Iowa Avenue, a major roadway in 
Marshalltown, to improve driving quality and safety; 
Amount awarded: $449,377; 
Amount expended[A]: $449,377. 

Agency: Iowa Department of Transportation; 
Program: Transit Capital Assistance Program; 
Use of funds: Purchasing one 30-foot bus for Marshalltown Municipal 
Transit in order to reduce the agency's maintenance costs for its bus 
fleet; 
Amount awarded: $328,666; 
Amount expended[A]: 0. 

Agency: U.S. Department of Housing and Urban Development; 
Program: Lead-Based Paint Hazard Control Grant Program; 
Use of funds: Eliminating lead-based paint, replacing leaded windows 
and repainting residences, and housing citizens affected by 
renovations in temporary quarters; 
Amount awarded: $2,591,227[B]; 
Amount expended[A]: $614,070. 

Agency: U.S. Department of Justice; 
Program: Edward Byrne Memorial Justice Assistance Grant (JAG); 
Use of funds: Purchasing portable radios for law enforcement purposes; 
Amount awarded: $155,546[C]; 
Amount expended[A]: $49,872. 

Sources: City of Marshalltown (as of May 31, 2010), Recovery.gov (as 
of June 3, 2010). 

[A] Amounts expended for the Highway Infrastructure Investment Funds, 
Transit Capital Assistance Program, and Edward Byrne Memorial Justice 
Assistance Grant (JAG) programs are updated as of May 31, 2010. 
Amounts expended for the Lead-Based Hazard Control Grant Program are 
updated as of June 3, 2010. All amounts rounded to the nearest dollar. 

[B] Funds were shared among Marshalltown and other entities in Hardin, 
Marshall, and Tama counties in Iowa. 

[C] Funds were shared between Marshalltown and Marshall County to 
purchase portable radios for law enforcement purposes. 

[End of table] 

Marshalltown officials said they encountered some difficulties in 
applying for and administering Recovery Act competitive grants. For 
instance, Marshalltown's efforts to renovate homes with Lead-Based 
Paint Hazard Control funds were initially slowed by issues concerning 
the Buy American and Davis-Bacon provisions, such as helping small 
contractors meet Davis-Bacon requirements. 

According to Marshalltown officials, the city projects total revenues 
of about $32.7 million for fiscal year 2011, a 14.2 percent decrease 
from total revenues of about $38.1 million in fiscal year 2010. 
[Footnote 25] Marshalltown officials noted that the city has 
experienced a decline in property values since 2009, leading to a 
reduction in the growth of property tax revenues. Additionally, city 
officials said that revenues from the city's local option sales tax 
have slowed since 2008, and city employees' wages have increased in 
recent years. Because the city does not have the authority to increase 
property tax rates above current levels,[Footnote 26] it needed to 
reduce expenditures in several areas. For instance, the city 
eliminated its full-time city attorney position and delayed 
expenditures for training and equipment. However, Marshalltown 
officials also expect some positive economic growth from the recent 
establishment and expansion of new business facilities within the 
city, which could lead to job creation. 

Owing to the current state of the economy, Marshalltown officials said 
that they anticipate the city will not have enough resources to 
maintain its lead abatement program following the depletion of 
Recovery Act funds; as a result, the program would likely be shut 
down. However, according to city officials, the depletion of such 
funds should otherwise not have a significant impact on Marshalltown's 
operating budget because they used most of the Recovery Act funds for 
one-time capital expenditures, such as the planned purchase of a new 
bus and portable radios for law enforcement. Marshalltown officials 
added that the city's budget and long-term fiscal stability benefited 
from the receipt of Recovery Act funds because the city was able to 
implement various capital projects that otherwise would have been 
delayed for several years. 

Iowa's State Auditor and the Iowa Accountability and Transparency 
Board Continue to Monitor Recovery Act Funds: 

For fiscal year 2009, the State of Iowa issued a Comprehensive Annual 
Financial Report dated December 18, 2009 and a Single Audit report 
dated March 17, 2010. The Office of Auditor of State (Auditor's 
office) issued a qualified audit opinion on the state of Iowa's 
financial statements because the Auditor's office could not 
sufficiently audit the State's General Fund and other governmental 
activities due to a reduction in audit work caused by a significant 
(34 percent) reduction in its fiscal year 2010 appropriation. In the 
State's fiscal year 2009 Single Audit report, the Auditor's office did 
not identify any material weaknesses. Approximately 11 percent of the 
fiscal year 2010 budget reduction was restored for fiscal year 2011. 

According to data from the Federal Audit Clearinghouse, which is 
responsible for receiving and distributing single audit results, it 
received Iowa's single audit reporting package for the year ending 
June 30, 2009, on March 31, 2010. This was the first Single Audit for 
Iowa that included Recovery Act programs, and it included only 4 
months of Recovery Act expenditures. Iowa's Single Audit report for 
fiscal year 2009 identified 58 significant internal control 
deficiencies related to compliance with Federal Program requirements, 
none of which were classified as material weaknesses. Some of these 
significant deficiencies occurred in programs that included Recovery 
Act funds. 

* A state audit official told us that Iowa's single audit covered 
almost all Recovery Act funds received in fiscal year 2009 and that 
the office tested some recipient reports for fiscal year 2010. 
Furthermore, this official told us that the audit found that some 
departments receiving Recovery Act funds, such as the Department of 
Education, lacked formal written policies for reviewing and approving 
subrecipient reports. The official also found that although 
subrecipient reports are reviewed for reasonableness, specific 
procedures were not applied by the Department of Education to 
determine whether the financial amounts and number of jobs reported 
were supported by adequate documentation. The state auditor's office 
recommended that the Department of Education implement written 
policies and procedures to review section 1512 recipient reports 
submitted by school districts to determine allowability and 
completeness. In March 2010, the Iowa Department of Education 
submitted a Recovery Act Funds Monitoring Plan to the U.S. Department 
of Education. 

* According to an Iowa Audit official, an embezzlement of funds at the 
Clinton, Iowa, school district totaling approximately $500,000 was 
discovered in March 2010 when an accounting supervisor was replaced. 
According to state audit officials, Recovery Act funds were commingled 
with other school district revenues. Although the Iowa Office of the 
State Auditor and others investigated the misappropriation, they could 
not determine if Recovery Act funds were misused because the 
district's financial records were in poor condition. 

* Iowa's Office of the State Auditor is preparing its fiscal year 2010 
audit plan. It plans to audit almost all programs receiving Recovery 
Act funds. According to a state audit official, the office has not yet 
identified any significant fiscal year 2010 audit risks for Recovery 
Act programs. 

* Iowa's Accountability and Transparency Board surveyed 82 programs 
and identified 6 high-priority programs--such as the Weatherization 
Assistance Program and SFSF--that it expects may have some difficulty 
in fully complying with the Recovery Act's accountability and 
transparency requirements. These high-priority programs submitted 
comprehensive accountability plans for the board's review by December 
2009. The board plans to establish an ongoing audit process, assess 
needs for additional oversight, and develop a method to confirm 
Recovery Act information reported on the state's Web site. Despite 
budget cuts and layoffs, the state is taking steps to achieve some of 
these goals, including the use of targeted site visits and recipient 
surveys. 

* At the recommendation of State Audit and Department of Management 
officials, the Iowa Department of Public Health held additional 
training on subrecipient reporting for high-priority programs and 
other Recovery Act programs on May 3, 2010. 

Iowa Reported on Jobs Funded Using Recovery Act Funds: 

We found that Iowa has established a centralized database and 
validation and certification processes to help ensure the accuracy of 
data, reported jobs, and other information related to the use of 
Recovery Act funds to the federal government, as described below: 

* Iowa reported to the federal government on Recovery Act funds that 
the state received directly from federal agencies, including 
information on Recovery Act expenditures and the number of jobs funded 
by the Recovery Act. The Iowa Department of Management used a 
centralized database that it created with the Iowa Department of 
Administrative Services to report the state's Recovery Act information 
to www.federalreporting.gov. Through its centralized database, Iowa 
reported that 9,696 jobs were funded by the Recovery Act for the 
period April 1 to June 30, 2010 as of July 29, 2010. However, some 
local agencies, such as public housing and urban transit agencies, 
which receive their funding directly from federal agencies and not 
through the state, report Recovery Act information to 
www.federalreporting.gov and not through the state's centralized 
reporting database. 

* Beginning with the quarter ending March 31, 2010, state officials 
required departments to perform quarterly reconciliations of Recovery 
Act revenues and expenditures reported to the federal government with 
amounts reported to the state's centralized accounting system. These 
reconciliations, when summarized across the state agencies, resulted 
in increases to the state's reported Recovery Act revenues and 
expenditures. Some state agencies, such as the Board of Regents, do 
not report to the state's centralized accounting system and are not 
included in this reconciliation process. 

* For the July 2010 recipient reporting period, state officials said 
that their centralized reporting process worked well. As of July 30, 
2010, 100 percent of the prime recipient reports submitted by Iowa 
were successfully validated by the Office of Management and Budget. A 
state official noted one issue where a subrecipient improperly 
reported on vendors; 

however, the subrecipient plans to file a corrected report. Overall, 
an Iowa state official noted, the system illustrates for the public 
how Recovery Act funds are spent and could be used to report the use 
of non-Recovery Act funds in the future. For example, the centralized 
Recovery Act reporting system has been expanded to facilitate 
reporting on Iowa's I-JOBS program, the state's infrastructure 
investment initiative. 

State Comments on This Summary: 

We provided the Governor of Iowa with a draft of this appendix on 
August 12, 2010. We also provided relevant excerpts to state and local 
agencies that we visited. The Deputy Director of the Iowa Department 
of Economic Development responded for the Governor on August 16, 2010, 
and agreed with our findings. The Governor's office as well as state 
and local agency officials also offered clarifying and technical 
suggestions, which we have incorporated, as appropriate. 

GAO Contact: 

Lisa Shames, (202) 512-3841 or shamesl@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above, Richard Cheston, Thomas Cook, 
Daniel Egan, Christine Kehr, Ronald Maxon, Mark Ryan, Raymond H. 
Smith, Jr., and Carol Herrnstadt Shulman made key contributions to 
this report. 

[End of section] 

Appendix VIII Footnotes: 

[1] Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009). 

[2] We selected the Des Moines District because it is the largest K-12 
school district in the state and receives the most federal Recovery 
Act dollars. Marshalltown, a midsized district, was selected because 
of financial control weaknesses identified in the district's 2008 
Independent Auditor's Report. 

[3] We judgmentally selected 40 Des Moines School District 
disbursements for February 2009 through March 2010 and 20 Marshalltown 
School District disbursements for February 2009 through April 2010. 
Among other things, when selecting disbursements for review, we 
considered large-dollar purchases; round number purchases such as 
$20,000; payments to unusual payees, such as a local department store; 
and large purchases broken into several smaller payments. 

[4] The state received an additional $15 million to fund education 
technology, IDEA Part C, school lunch equipment, homeless youth and a 
teacher quality partnership project. 

[5] The State Auditor issued the fiscal year 2009 Single Audit report 
on March 31, 2010. Single Audits are prepared to meet the requirements 
of the Single Audit Act, as amended, (31 U.S.C. §§ 7501-7507) and 
provide a source of information on internal control and compliance 
findings and the underlying causes and risks. The Single Audit Act 
requires states, local governments, and nonprofit organizations 
expending $500,000 or more in federal awards in a year to obtain an 
audit in accordance with the requirements set forth in the act. A 
Single Audit consists of (1) an audit and opinions on the fair 
presentation of the financial statements and the Schedule of 
Expenditures of Federal Awards; (2) gaining an understanding of and 
testing internal controls over financial reporting and the entity's 
compliance with laws, regulations, and contract or grant provisions 
that have a direct and material effect on certain federal programs 
(i.e., the program requirements); and (3) an audit and an opinion on 
compliance with applicable program requirements for certain federal 
programs. 

[6] Recovery Act funds for loan programs are treated as obligated if 
OEI and the Iowa Finance Authority expect to sign an agreement by 
September 30, 2010, according to DOE's contracting officer for Iowa. 

[7] DOE's funding opportunity announcement stated that Recovery Act 
SEP grant funds are to be spent within 36 months after the grant's 
award date--April 20, 2009, for Iowa. 

[8] NEPA requires that federal agencies assess the environmental 
impacts of proposed actions before making decisions. 42 U.S.C. §§ 4321-
4370f. Projects deemed to have no significant impact on the 
environment because of their size, type of activity, and the agency's 
experience with similar projects can qualify for categorical exclusion 
determinations. Alternatively, if a project is expected to have a 
significant environmental impact, DOE would prepare either an 
environmental assessment or an environmental impact statement, which 
generally takes a few months to more than a year to complete. 

[9] OEI has provided up-front SEP funding only to the Iowa Department 
of Administrative Services, which needed up-front capital to help with 
cash flow for its multi-million dollar project to improve the energy 
efficiency of several buildings in the state capitol complex. 

[10] On August 4, 2010, DOE also awarded a competitive EECBG grant for 
$1 million to the City of West Union, Iowa. 

[11] In its January 2010 request for proposals, OEI stated that it was 
making about $5.8 million (60 percent of its grant award) available 
for local governments that were not eligible for direct grants from 
DOE because of their smaller size. The remaining over $2.8 million was 
to be available for all Iowa local governments and other entities such 
as state agencies. 

[12] GAO, Recovery Act: States' and Localities' Uses of Funds and 
Actions Needed to Address Implementation Challenges and Bolster 
Accountability (Appendixes), [hyperlink, 
http://www.gao.gov/products/GAO-10-605SP] (Washington, D.C.: May 26, 
2010). 

[13] Iowa's 10 regional area education agencies, which were 
established by the Iowa Legislature in 1974 to provide equitable and 
economical educational opportunities for Iowa's children, partner with 
public and some private schools to provide education and instructional 
support services. 

[14] Pub. L. No. 111-226, § 101, 124 Stat. 2380 (Aug. 10, 2010). The 
legislation also provided for an extension of increased Federal 
Medical Assistance Percentage (FMAP) funding. 

[15] Moreover, Department of Education guidance states that, in 
general, local education agencies must obtain prior approval from the 
state before using IDEA funds to purchase equipment with a unit cost 
of $5,000 or more. 

[16] Fiscal year 2010 receipts will continue to be deposited and final 
net fiscal revenue growth will not be known until the end of September 
2010. 

[17] This figure, according to Iowa Legislative Service Agency 
officials, does not include adjustments for any appropriation 
reversions, or increases or decreases to unlimited appropriations. 

[18] According to officials from Iowa's Legislative Services Agency, 
the Governor implemented some plans for improving the efficiency of 
state operations through Executive Order 20 (Dec. 16, 2009), and the 
General Assembly passed additional efficiency improvements and plans 
to reorganize state agencies, as detailed in Iowa Senate File 2088 
(Feb. 1, 2010). For more information, see [hyperlink, 
http://www.gao.gov/products/GAO-10-605SP]. 

[19] According to senior Iowa Department of Management officials, 
SERIP is intended to reduce state personnel expenditures and help 
reduce the state's unemployment, provide greater diversity in state 
government, and expand employees' service capabilities. 

[20] [hyperlink, http://www.gao.gov/products/GAO-10-605SP]. 

[21] OEI awarded Des Moines funding from the EECBG program to expand 
and update climate control systems in five city buildings, convert 
streetlights to use light-emitting diode technology, and purchase and 
install equipment at the Des Moines Metropolitan Wastewater 
Reclamation Authority facility. 

[22] According to Des Moines officials, the city applied for but was 
not awarded (1) a Transit Investments for Greenhouse Gas and Energy 
Reduction grant from the Department of Transportation and (2) a 
Recovery Act Assistance to Firefighters Fire Station Construction 
Grant from the Federal Emergency Management Agency. 

[23] A full-time equivalent is the number of hours that represent what 
a full-time employee would work over a given time period, such as a 
year or a pay period. 

[24] Marshalltown obtained and administered funding for the Lead-Based 
Paint Hazard Control Program in coordination with Hardin, Marshall, 
and Tama counties in Iowa. Additionally, Marshalltown coordinated with 
Iowa Valley Continuing Education and Marshalltown Community College to 
administer training, and signed an agreement with Primary Health Care 
to test children potentially affected by lead poisoning. Marshalltown 
also partnered with Friends of the Library and Habitat for Humanity to 
use their properties to temporarily relocate families affected by 
housing renovations. 

[25] According to Marshalltown officials, the total revenues for 
fiscal years 2010 and 2011 do not include transfers from other city 
funds (e.g., capital improvement funds). 

[26] According to Marshalltown officials, the property tax rate for 
the city's general fund levy is $8.10 per $1,000 valuation. 

[End of Appendix VIII} 

Appendix IX: Massachusetts: 

Overview: 

This appendix summarizes GAO's work on its most recent review of 
American Recovery and Reinvestment Act of 2009 (Recovery Act)[Footnote 
1] spending in Massachusetts. The full report covering all of GAO's 
work in 16 states and the District of Columbia may be found at 
[hyperlink, http://www.gao.gov/recovery]. 

What We Did: 

GAO's work in Massachusetts focused on (1) the commonwealth's use of 
Recovery Act funds for selected programs, (2) the approaches taken by 
Massachusetts agencies to ensure accountability for Recovery Act 
funds, and (3) impacts of these funds. We reviewed several specific 
programs funded under the Recovery Act in Massachusetts related to 
education, highways, transit systems, and public housing. We selected 
the programs we reviewed because all have significant funds awarded, 
as discussed below. For descriptions and requirements of the programs 
we covered, see appendix XVIII of GAO-10-1000SP. 

In conducting our, we contacted state agencies and some localities 
responsible for implementing the programs. We contacted the state 
education office and the Springfield local educational agency. We 
followed up on ongoing Recovery Act projects at the Massachusetts 
Department of Transportation and Massachusetts Bay Transportation 
Authority, which included a review of quality assurance procedures for 
Recovery Act projects. We contacted the Boston Housing Authority, 
which received Public Housing Capital Fund formula and competitive 
grant awards. 

We also continued to track the use of Recovery Act funds for state and 
local fiscal stabilization and the oversight of funds. We contacted 
state officials at the state's central management agency addressing 
fiscal issues and handling of Recovery Act funds, as well as officials 
at state oversight agencies. We also met with officials from the City 
of Boston to discuss its use of Recovery Act funds, including funding 
from the Energy Efficiency and Conservation Block Grant, and the 
city's fiscal condition. Finally, we contacted oversight officials in 
both Massachusetts and Boston to receive an update on their continuing 
review and audit of various Recovery Act programs. 

What We Found: 

* Recovery Act education programs. Massachusetts has been awarded over 
$1 billion in Recovery Act funds through three major education 
programs, the largest of which is the State Fiscal Stabilization Fund 
(SFSF) with an allocation of close to $994 million. These funds were 
awarded, in part, to help state and local governments stabilize their 
budgets by minimizing budgetary cuts in education and other essential 
services. As of July 16, 2010, the commonwealth had drawn down 80 
percent of its SFSF funds. Massachusetts has also made progress on its 
SFSF oversight efforts by selecting a public accounting firm to 
conduct SFSF supplemental reviews of 15 local educational agencies 
(LEA). 

* Highway infrastructure investment. Massachusetts has begun 
construction on 78 of 84 Recovery Act highway projects for which 
funding was obligated prior to the March 2, 2010, obligation deadline. 
As of August 2, 2010, 9 of the 84 projects have completed 
construction. Massachusetts continues to lag behind the national 
average on its reimbursement rate. According to a state official, 
approximately $30 million have been deobligated from highway contracts 
as a result of contracts being awarded below state cost estimates. A 
state official stated that they plan to have all deobligated funds 
obligated to other projects by the September 30, 2010, deadline--
including one noteworthy project to rehabilitate River Road in 
Tewksbury, which was washed out in the March 2010 flooding. State 
officials report that some deobligated suballocated funds may be 
obligated to other projects outside of their initially intended region. 

* Transit Capital Assistance funds. Massachusetts and its urbanized 
areas have expended $85.6 million of its initial Recovery Act Transit 
Capital Assistance apportionment on several projects, including some 
that are nearing completion. An additional $59.7 million was 
transferred from the Federal Highway Administration, which included 
$24.8 million that originated from funds that were initially 
apportioned to suballocated regions in the state. These funds will go 
back to suballocated regions for additional projects at regional 
transit agencies, including a parking garage at the Wonderland Station 
in Revere, emergency repairs on the Massachusetts Bay Transportation 
Authority's (MBTA) Red Line subway, and vehicle and equipment 
purchases and terminal improvements for the Cape Cod Regional Transit 
Authority. At the request of the U.S. Department of Transportation, 
Massachusetts will recalculate its planned transit expenditures to 
include additional state funds allocated to MBTA which will help the 
commonwealth meet the September 30, 2010, maintenance-of-effort 
deadline for transit expenditures. Finally, our review of MBTA's 
quality assurance procedures revealed that it uses a construction 
management firm to perform daily oversight of several of its Recovery 
Act-funded projects and MBTA has procedures in place to independently 
verify the firm's performance. 

* Public Housing Capital Fund. Public housing agencies in 
Massachusetts received about $82 million in Public Housing Capital 
Fund formula grants and about $73 million in Public Housing Capital 
Fund competitive grants. All 68 housing agencies that received formula 
grants obligated all of their grant funds by the required deadline of 
March 17, 2010, and 63 housing agencies had drawn down a cumulative 
total of about $41 million as of August 7, 2010. Of the seven housing 
agencies that also received about $73 million in Public Housing 
Capital Fund competitive grants, five agencies had drawn down a 
cumulative total of $6 million as of August 7, 2010. The Boston 
Housing Authority (BHA) received a $33.3 million formula grant and 
over half of the $73 million in competitive grant funds (about $40 
million) for Massachusetts. For example, BHA received about $22 
million in competitive funds to begin rebuilding its Old Colony 
development in South Boston as an energy-efficient and green 
community. The U.S. Department of Housing and Urban Development (HUD) 
regional office in Massachusetts has conducted quality reviews of 
Public Housing Capital grant funds and is assisting public housing 
agencies with meeting Recovery Act requirements. 

* Massachusetts state government's and City of Boston's use of 
Recovery Act funds. The Commonwealth of Massachusetts continues to 
experience budget pressures, although state officials report that tax 
revenue should trend higher during the current fiscal year. Recovery 
Act funds continue to support the commonwealth's operating budget for 
fiscal year 2011, but less than in the previous 2 fiscal years. Also, 
officials report they are preparing for when Recovery Act funding will 
no longer be available, mostly through a combination of spending 
reductions and availability of state "rainy-day" funds. Boston 
officials told us that while Recovery Act funds have strengthened the 
city's economy and Boston has experienced some revenue growth in the 
last year, the city's costs are increasing and layoffs are expected in 
fiscal year 2011. City officials expressed concern for the fiscal 
challenges ahead, and they are taking steps to try to mitigate the 
impact of the loss of Recovery Act funds. 

* Oversight and accountability efforts. The Massachusetts Office of 
the State Auditor has several audits under way focused on programs 
funded by the Recovery Act, including audits of various local housing 
authorities, state and community colleges, regional transit 
authorities, and the Massachusetts Department of Transportation. The 
state Inspector General has concentrated its Recovery Act efforts on 
prevention initiatives, as well as on monitoring, reviewing, and 
investigating a variety of Recovery Act-funded programs. Officials 
from Boston's City Auditor's office told us that their independent 
auditor will conduct Boston's Single Audit for fiscal year 2010 (ended 
June 30), which will include an audit of 10 of the city's Recovery Act-
funded projects. 

* Recipient reporting. The Massachusetts Recovery and Reinvestment 
Office (MRRO) has redesigned Massachusetts's Recovery Act Web site to 
facilitate users' ability to track, as well as map, Recovery Act jobs 
and dollars by ZIP code, town, county, and congressional district. The 
redesigned Web site also includes a link to Recovery Act data reported 
by nonstate entities, such as housing agencies and regional transit 
agencies. The MRRO has begun to use Recovery Act data to monitor 
spending across state agencies and provide increased oversight to 
state agencies that have slower rates of Recovery Act spending and 
obligation. 

Massachusetts Has Used Recovery Act Funds to Stabilize Education and 
Has Begun Audits of Local Educational Agencies as Part of Its 
Oversight Plan: 

Massachusetts has been awarded over $1 billion in Recovery Act funding 
through three major education programs, the largest of which is the 
State Fiscal Stabilization Fund (SFSF)[Footnote 2] with an allocation 
of close to $994 million.[Footnote 3] These SFSF funds were awarded, 
in part, to help state and local governments stabilize their budgets 
by minimizing budgetary cuts in education and other essential 
services.[Footnote 4] Massachusetts also received about $164 million 
to be used to help educate disadvantaged youth under Title I, Part A 
of the Elementary and Secondary Education Act of 1965, as amended 
(ESEA) and about $291 million to be used to support special education 
and related services under the Individuals with Disabilities Education 
Act, as amended, (IDEA) Part B.[Footnote 5] As of July 16, 2010, the 
commonwealth had drawn down 80 percent of its SFSF funds and about 40 
percent of the other funds. See figure 1 for more information on 
selected funds awarded to Massachusetts. 

In addition, Public Law 111-226, enacted on August 10, 2010, provides 
$10 billion for the new Education Jobs Fund to retain and create 
education jobs nationwide.[Footnote 6] The fund will generally support 
education jobs in the 2010 to 2011 school year and be distributed to 
states by a formula based on population figures. States can distribute 
their funding to school districts based on their own primary funding 
formulas or districts' relative share of federal ESEA Title I funds. 

Figure 1: Allocations and Drawdowns for the Three Recovery Act 
Education Programs as of July 16, 2010: 

[Refer to PDF for image: vertical bar graph] 

Program: SFSF; 
Awarded by Education: $994 million; 
Drawn down by state: $795 million. 

Program: IDEA Part B; 
Awarded by Education: $290 million; 
Drawn down by state: $122 million. 

Program: ESEA Title I; 
Awarded by Education: $164 million; 
Drawn down by state: $61 million. 

Source: GAO analysis of Education data. 

[End of figure] 

Massachusetts has made progress on its SFSF oversight efforts. Among 
other things, the commonwealth has finalized plans to conduct SFSF 
supplemental audits of select LEAs to verify reported expenditures, 
identify ineligible expenses, and assess the consistency of reported 
data.[Footnote 7] In July 2010, the state selected a public accounting 
firm using $100,000 in SFSF-Government Services funds. Under the 
supervision of the state education department's Internal Audit Unit, 
the accounting firm is expected to conduct these reviews using agreed- 
upon procedures during August and September 2010. In cases in which 
the reviews discover ineligible uses of funds and reporting errors, 
LEAs will be required to develop corrective action plans that may 
include such things as substitution of eligible expenses for 
ineligible ones and amendments to previously submitted reports. 

The SEA provided the U.S. Department of Education (Education) with an 
updated SFSF monitoring schedule in early July that reflected its 
coordination with the Massachusetts Office of the Inspector General. 
One significant change in the revised plan is that the supplemental 
audits will focus on fiscal year 2010, not fiscal year 2009, SFSF 
expenditures. A state official told us this change was made because 
the Inspector General is currently conducting selected reviews of SFSF 
fiscal year 2009 funds for many of the same LEAs that had initially 
been selected for supplemental audits. Another change in the plan is 
the specific LEAs selected for review. The final list includes the 
recipients of the 10 largest recipients of SFSF funds in fiscal year 
2010, while the original list included the 10 largest from fiscal year 
2009. Another five LEAs were selected based on previous audit 
findings, as planned. 

As of August 9, 2010, Massachusetts reported that the SFSF education 
stabilization funds supported 3,838 jobs, defined in terms of full-
time equivalents (FTE), during the recipient reporting period 
(quarter) ending June 30, 2010.[Footnote 8] These SFSF-funded jobs 
supported public elementary, secondary, and postsecondary education 
and, as applicable, early childhood education programs and services. 
These jobs have included administrators, teachers, paraprofessionals, 
and staff members in school districts across Massachusetts, as well as 
administrators, faculty members, and staff members at the state and 
community colleges and the University of Massachusetts campuses. 

While SEA officials we contacted told us they found the process of 
reporting jobs to be manageable, MRRO, which is responsible for the 
commonwealth's central reporting of jobs, found that the process was 
complicated by changes to guidance regarding whether to report FTEs 
not captured in previous quarters in the reporting period ending June 
30, 2010. In April 2010, LEAs received $172 million of the second 
phase of SFSF funds. Despite the midyear disbursement date, the funds 
could be applied to salaries incurred anytime in fiscal year 2010. 
Education officials initially instructed the state to report all FTEs 
from these previous quarters in the current quarter. However, in early 
July 2010, Education sent an e-mail to all states explaining that the 
Recovery Accountability and Transparency Board had changed its 
interpretation of OMB's December 18, 2009, guidance, and Education was 
now instructing SEA officials that FTEs should only be reported in the 
actual quarter they were worked. As a result, Massachusetts officials 
reported only those FTEs worked in the April 1 to June 30, 2010, 
recipient reporting quarter, and those FTEs that were reallocated to 
cover expenses from previous quarters have not yet been reported. 
Education's new guidance also indicated that OMB is developing a 
process to make corrections to data reported in previous quarters, and 
that it is through this process that recipients will report those FTEs 
generated when funds were reallocated to cover salary expenses from 
previous quarters. SEA officials told us that the data system used to 
collect job information from LEAs was flexible enough for them to 
provide data in compliance with the revised guidance. 

Massachusetts Has Begun Construction on the Majority of Its Recovery 
Act Highway Projects and Has Developed Projects for Deobligated Funds: 

Work has begun on 78 of 84 of the Massachusetts Recovery Act highway 
projects for which funding was obligated prior to the March 2, 2010, 
deadline, according to data provided by the Massachusetts Department 
of Transportation (MassDOT). As of August 2, 2010, 9 of the 84 
projects have completed construction.[Footnote 9] The rate by which 
the Federal Highway Administration (FHWA) has reimbursed Massachusetts 
Recovery Act highway projects (an indicator of the portion of highway 
work completed) has increased from 13 percent on May 3, 2010, to 29 
percent on August 2, 2010, although it is still below the national 
average of 44 percent (see table 1). According to FHWA officials, as a 
result of the time-consuming work in planning these Recovery Act 
projects, Massachusetts has been delayed in requesting obligation of 
its annual highway apportionment (for non-Recovery Act projects) and 
will make the majority of its requests for this fiscal year's 
obligation in the fourth quarter. As of August 12, 2010, Massachusetts 
had asked FHWA to obligate only 52 percent of these funds.[Footnote 10] 

Table 1: Massachusetts Recovery Act Federal Aid Highway Amounts and 
Projects as of August 2, 2010: 

Total available apportionment: $438 million; 
Amount transferred to Federal Transit Administration: $59.7 million; 
Total amount reimbursed: $104 million; 
Number of projects: 88; 
Number of projects with construction complete: 9. 

Source: GAO analysis of FHWA data. 

[End of table] 

According to the MassDOT Economic Stimulus Coordinator, Massachusetts 
has had FHWA deobligate approximately $30 million in Recovery Act 
highway funds, as a result of contracts being awarded below state cost 
estimates. The MassDOT Economic Stimulus Coordinator said that they 
plan to have FHWA obligate all of the deobligated Recovery Act funds 
by September 30, 2010, to additional projects and they have developed 
a list of eight highway projects they will recommend for funding. One 
noteworthy project on this list is the River Road project in 
Tewksbury. River Road was washed out as a result of the March 2010 
flooding in Massachusetts. The MassDOT Economic Stimulus Coordinator 
noted that the state and regional planning organization had previously 
identified the drainage repair and road realignment for River Road as 
a ready-to-go project on their transportation improvement plan. 
However, there were no funds available. According to the MassDOT 
Economic Stimulus Coordinator, the March floods made this project a 
necessity, and the timing of available deobligated Recovery Act 
highway funds made the project possible. 

Some Suballocated Funds May Be Obligated Outside of Their Initially 
Intended Region: 

Massachusetts had approximately $131 million of its $438 million 
Recovery Act highway apportionment dedicated to use in suballocated 
regions.[Footnote 11] As a result of contract savings on the initial 
round of highway projects in suballocated regions, as of August 2, 
2010, Massachusetts has approximately $3.5 million in deobligated 
funds to be applied to these regions. The MassDOT Economic Stimulus 
Coordinator noted that they were initially uncertain about how to 
apply deobligated funds in suballocated regions, but they subsequently 
received instructions from FHWA. According to FHWA officials, funds 
deobligated from a suballocated region should be used to fund 
additional projects in a suballocated region that meets the same 
population criteria as the region for which they were initially 
intended.[Footnote 12] 

A senior planning official at MassDOT said that the commonwealth may 
need to move some of these deobligated funds between suballocated 
regions. As of August 9, 2010, Massachusetts had two suballocated 
regions with approximately $770,000 in deobligated suballocated 
Recovery Act funds, although that is less than 1 percent of the 
commonwealth's total suballocated apportionment. According to this 
senior planning official, in order to maintain spending levels within 
the initially intended suballocated region, they will try to obligate 
these funds to projects through line-item modifications.[Footnote 13] 
If this solution is not possible, the commonwealth would look to 
transfer the deobligated suballocated funds to a Recovery Act project 
in a suballocated region meeting the same population criteria. 
According to FHWA officials, if the commonwealth cannot have all 
deobligated funds obligated to projects within the suballocated 
regions for which they were initially intended, FHWA will allow 
flexibility to ensure the best utilization of deobligated Recovery Act 
funds. However, FHWA officials expect the commonwealth to have all 
deobligated funds obligated to projects within the suballocated 
regions for which they were initially allocated. 

Massachusetts Meets Multiple Reporting Requirements and Continues to 
Develop Its Office for Performance Management and Innovation: 

MassDOT continues to report its Recovery Act highway project recipient 
reporting numbers through the centralized state reporting system to 
Federalreporting.gov, as part of the Recovery Act's Section 1512 
requirements. As of August 2, 2010, for the April through June 2010 
round of reporting, the commonwealth reported 380 Recovery Act highway 
FTEs. The MassDOT Economic Stimulus Coordinator said that, although 
they are becoming more comfortable with the commonwealth's centralized 
approach to the quarterly recipient reporting process, MassDOT has the 
burden of duplicative Recovery Act reporting requirements--to the 
Office of Management and Budget (OMB) and to FHWA's Recovery Act Data 
System.[Footnote 14] 

As we reported in the May 2010 bimonthly report, MassDOT continues to 
make plans to develop an Office of Performance Management and 
Innovation that will serve to establish program goals, measure program 
performance, and report publicly on progress to improve the 
effectiveness of transportation design and construction, service 
delivery, and policy decision making. According to the MassDOT 
Economic Stimulus Coordinator, at this point, there are no plans to 
assess the broader economic impact of Recovery Act highway projects, 
but through the Office of Performance Management and Innovation, 
MassDOT plans to develop performance measures that will help the 
agency interpret the economic impact of its capital investments and 
operations activities, in general. FHWA continues to assist MassDOT 
with developing its plans for the Office of Performance Management and 
Innovation. FHWA division officials said that in July 2010 they hosted 
a CEO Roundtable with MassDOT that included input from other states' 
departments of transportation and focused on lessons learned related 
to the use of performance management to manage their agencies. 

While Some Transit Capital Assistance Projects Are Nearing Completion 
Some Projects Funded with Money Transferred from Recovery Act Highway 
Funds Are Just Getting Under Way: 

Massachusetts and its urbanized areas have expended $85.6 million of 
its initial Recovery Act Transit Capital Assistance apportionment on 
several projects, including some projects, that are nearing 
completion. [Footnote 15] According to the Federal Transit 
Administratin (FTA) data, of the 16 projects funded with the initial 
apportionment, 1 project has been completed, 6 projects are more than 
50 percent complete, and 9 are less than 50 percent complete.[Footnote 
16] As illustrated in figure 2, the largest portion of the initial 
Transit Capital Assistance apportionment was obligated for transit 
infrastructure construction and vehicle purchases and rehabilitation. 
According to Recovery.gov, as of August 2, 2010, MBTA reported funding 
370 FTEs attributed to Recovery Act funds during the most recent 
quarter, ending June 30, 2010. 

Figure 2: Massachusetts Transit Capital Assistance Program Recovery 
Act Obligations by Project Type as of August 3, 2010A: 

[Refer to PDF for image: pie-chart] 

Transit infrastructure construction: ($119,638,642) 46%; 
Vehicle purchase and rehabilitation: ($73,365,758) 28%; 
Other capital expenses: ($38,853,443) 15%; 
Operating assistance: ($25,930,815) 10%; 
Preventive maintenance: ($1,519,511) 1%. 

Source: GAO analysis of Federal Transit Administration data. 

Note: "Transit infrastructure construction" includes engineering and 
design, acquisition, construction, and rehabilitation and renovation 
activities. "Other capital expenses" includes items such as leases, 
training, finance costs, mobility management project administration, 
and other capital projects. 

[A] Data include projects funded with Massachusetts's initial Transit 
Capital Assistance Program Recovery Act apportionment and do not 
reflect projects funded with money subsequently transferred from FHWA. 

[End of figure] 

Several additional projects funded with money transferred from FHWA 
are just beginning to get under way. As discussed in our previous 
report, Massachusetts requested that FHWA transfer $59.7 million of 
Massachusetts's federal-aid highway apportionment to FTA, enabling 
transit agencies across Massachusetts to use Recovery Act funds for 
their operating costs, as well as many of their planned capital 
expenditures.[Footnote 17] According to an FTA official we spoke with, 
all of the funds transferred from FHWA have been obligated as of 
August 3, 2010, and according to FTA data we reviewed, 87 percent of 
these transferred funds have been obligated for transit infrastructure 
construction projects. For example, the Southeastern Regional Transit 
Authority will use transferred funds they received to construct a new 
terminal on a blighted inner city site in Fall River. This project was 
delayed because the site was owned by a local utility company and 
there were substantial environmental permitting challenges to resolve 
before the land could be purchased for the new terminal. Currently, 
the transit agency is operating services out of a trailer. In some 
cases, these additional funds allowed transit agencies to avoid 
cutting services. For example, additional funds received by the 
Montachusett Area Regional Transit Authority will allow it to continue 
operations on its urban "in-town" transportation service in the cities 
of Fitchburg, Leominster, and Gardner, facilitating access to jobs, 
training, education, and medical appointments for the citizens of 
economically depressed areas of north-central Massachusetts. 

Of the $59.7 million that was transferred from FHWA to FTA, $24.8 
million originated from funds that were initially apportioned to 
suballocated regions. According to MassDOT data we reviewed, these 
funds were transferred for three transit projects within suballocated 
regions and include $22.7 million for a parking garage at the 
Wonderland Station in Revere, $1.7 million to fund emergency repairs 
on the MBTA's Red Line subway, and $348,846 to fund additional vehicle 
and equipment purchases and terminal improvements for the Cape Cod 
Regional Transit Authority. 

Massachusetts will recalculate its planned transit expenditures to 
include additional state funds allocated to MBTA, which will make it 
easier for the commonwealth to meet the maintenance-of-effort (MOE) 
requirement for transit expenditures. As part of its review of state 
MOE certifications, the U.S. Department of Transportation (USDOT) 
discovered that MassDOT did not include a portion of the state sales 
tax dedicated to MBTA in its calculation of planned state funding for 
transit programs. According to a USDOT official, because this is a 
dedicated revenue stream for the purpose of providing funding to 
transit, MassDOT should have included this funding in its calculation 
for the commonwealth's 1201(a) certified MOE amount for transit. 
[Footnote 18] As a result of its review, USDOT recommended that the 
commonwealth recertify its MOE to include state funds allocated to 
MBTA in its transit expenditure calculation. According to the MassDOT 
Economic Stimulus Coordinator, although this amount will increase the 
commonwealth's overall spending requirement, the large amount of state 
funds allocated to MBTA will enable the commonwealth to meet its MOE 
expenditure requirement for transit spending by the September 30, 
2010, deadline. According to a USDOT official, the commonwealth most 
recently updated its transit expenditure report in February 2010, and 
USDOT plans to ask states to update their expenditure information 
again in the fall of 2010 in response to an earlier GAO recommendation 
that USDOT gather timely information on the progress states are making 
in meeting the MOE requirement.[Footnote 19] 

MBTA Has Procedures to Independently Verify the Performance of 
Construction Management Firms: 

As we reported previously, MBTA is using a construction management/ 
project management (CM/PM) firm to supplement their internal project 
management staffing resources in order to handle the influx of 
Recovery Act funded projects.[Footnote 20] This CM/PM firm provides a 
variety of project and construction management support services and is 
largely responsible for the day-to-day oversight of several of MBTA's 
Recovery Act projects. According to CM/PM firm officials we spoke with 
and documentation from the firm we reviewed, the CM/PM firm is 
responsible for daily on-site project monitoring and for preparing a 
variety of oversight documents, including daily inspection reports, 
weekly staffing reports, and weekly resident engineer status reports. 
These reports capture the conditions, equipment usage, number of 
workers, and status of work performed each day. With the exception of 
the invoices submitted by the CM/PM firm, all quality assurance 
documentation is available to MBTA project managers through the firm's 
online media asset management system. According to MBTA officials, 
this allows busy MBTA project managers to monitor project status on an 
ongoing basis to ensure that expenditures are kept within contract 
limits and project performance goals are met. 

In addition to reviewing project documentation submitted by the CM/PM 
firm, MBTA takes steps to independently verify the firm's performance 
through on-site surveillance and invoicing procedures that ensure 
compliance with contract specifications. In addition to the oversight 
provided by the CM/PM firm, MBTA verifies the firm's performance by 
staffing an MBTA supervisor and trade foremen to the job site each day 
to provide daily supervision of the workforce and ensure that the 
project timelines are met. According to our review of MBTA invoicing 
procedures and an examination of invoice transactions related to one 
of MBTA's Recovery Act projects, invoices submitted by the firm were 
reviewed by multiple MBTA officials, including the project manager and 
a contract administration auditor who reconciled expenses with 
contract specifications. 

Local Housing Agencies in Massachusetts Have Implemented Formula-
Funded Projects, and Some Have Begun Spending Competitive Grant Funds: 

Public housing agencies in Massachusetts received about $82 million in 
Public Housing Capital Fund formula grants and had expended about $41 
million as of August 7, 2010. Additionally, seven public housing 
agencies received about $73 million in Public Housing Capital Fund 
competitive grants, six agencies had obligated $13 million of these 
funds, and five agencies had expended $6 million as of August 7, 2010. 

Local Housing Agencies Obligated All Formula Funds and Started 
Spending to Improve Some Housing Developments: 

Of the 253 public housing agencies in Massachusetts, 68 collectively 
received $81.9 million in Public Housing Capital Fund formula grants 
under the Recovery Act as of August 7, 2010. HUD provided these grants 
directly to housing agencies to improve the physical condition of 
their properties and for management improvements. As of August 7, 
2010, the Massachusetts public housing agencies had obligated 100 
percent of the $81.9 million. Additionally, 63 of these agencies had 
drawn down or expended 50 percent of the obligated funds, as of August 
7, 2010. According to Recovery Act requirements, public housing 
agencies are required to expend 60 percent of obligated funds by March 
17, 2011. HUD officials said that they are on track to meet this 
deadline. 

The Boston Housing Authority (BHA) received the largest Public Housing 
Capital Fund formula grant allocation in Massachusetts for projects 
involving such things as bathroom and plumbing replacements, boiler 
replacements, roof replacements, and adding security to elevators and 
lobbies. We contacted BHA regarding its Public Housing Capital Fund 
formula grants for the Walnut Park Project and the Mary Ellen 
McCormack Project, which have repair work currently in progress. BHA 
officials told us they are on time and on budget for these projects. 
The Walnut Park project involves repair work to the building, a 20-
story concrete structure built in 1971, and the estimated cost is 
approximately $1 million. Agency officials are using contractors to do 
repair work at the Walnut Park site. The work at the Mary Ellen 
McCormack project has been ongoing since February 2009 and involves 
completely modernizing the bathrooms of 152 units at an estimated cost 
of $3,976,000. As of June 1, 2010, BHA has expended a total of 
$208,828 on these two projects. 

Some Public Housing Agencies in Massachusetts Have Begun Spending 
Competitive Grant Funds: 

HUD awarded 15 competitive grants to seven housing agencies in 
Massachusetts. Housing agencies across the country could apply for 
these funds to support specific priority investments in four 
categories.[Footnote 21] As of August 7, 2010, six of these housing 
agencies had obligated about $13 million of the $73 million awarded, 
and five recipient agencies had drawn down a cumulative total of $6 
million from the obligated funds. We selected BHA to visit because it 
received both Public Housing Capital Fund formula grants and 
competitive grants. 

Although HUD expects all public housing agencies in Massachusetts to 
meet the September 2010 deadline for obligating their competitive 
grant funds, BHA told us that they experienced challenges related to 
mixed financing, accelerated time frames, and complexity of the 
permitting process relative to demolition and rebuilding of housing. 
According to BHA officials, mixed financing requires additional work 
because officials must not only identify supplemental sources of 
funding for these projects, they must also find developers to plan the 
site according to specific federal criteria. Furthermore, Recovery Act 
funds must be obligated and spent in a very tight time frame, while 
the housing agency is also conducting its other work. Additionally, 
BHA officials noted that there are challenges associated with the 
complexity of the permitting process. For example, they must get 
approval for the demolition of the old buildings, which means they 
must obtain a "land use" approval before they begin the demolition, 
and additional permits to begin construction of the site. 

Another challenge faced by some public housing agencies has been the 
specific Recovery Act provision requiring them to use only American 
iron, steel, and manufactured goods in certain construction and repair 
projects. BHA officials told us that they had overcome the challenges 
posed by the purchasing requirements of the Buy American provision by 
requesting waivers. One BHA official we interviewed explained that 
many appliances are made outside of the United States and there is 
often a need to get a waiver for them. This issue is not a problem for 
smaller projects because, under HUD policy, the Buy American 
requirement is inapplicable where the size of the contract funded with 
Recovery grant assistance is less than $100,000.[Footnote 22] With 
respect to mixed-finance projects, the Buy American requirement does 
not apply to a public housing agency that uses a private developer for 
the project and merely serves as a lender of funds having no ownership 
interest in the project. 

Old Colony Competitive Grant Will Help Boston Housing Authority 
Replace Distressed Housing with Energy-Efficient, Green Community: 

BHA received $22,196,000 in Public Housing Capital Fund competitive 
funds to begin rebuilding its Old Colony development to create an 
energy-efficient and green community in South Boston. Built in 1940, 
BHA describes the 845-unit development as the most physically 
distressed site in its federal portfolio, with outdated structures and 
inefficient systems that have an annual energy and water cost of over 
$4,000 per unit. Ultimately, BHA proposes to redevelop the entire Old 
Colony site, but this first phase will be funded as a stand-alone 
initiative with Public Housing Capital Fund competitive funds along 
with other public and private funds.[Footnote 23] The BHA has selected 
the developer, completed the design, and begun the relocation of 
current residents of the Old Colony housing units to be demolished, 
according to its planned schedule. See figure 3 for graphics depicting 
the current site and proposed site. 

Figure 3: Images of the Old Colony Development (Current and Proposed): 

[Refer to PDF for image: 2 photographs] 

The figure on the right is presented to show the current state of the 
Old Colony public housing development, part of which will be 
demolished and replaced. The figure on the left is presented to show 
the proposed housing developed that will constructed using Recovery 
Act funds. 

Source: Boston Housing Authority. 

[End of figure] 

Although the scope of this project has increased from its original 96- 
unit proposal to 116 units, the budget and timeline have not changed 
since the project was approved. However, BHA has negotiated certain 
terms of the grant award with HUD in order to meet the grant award 
requirements. For example, BHA obtained a waiver from HUD from certain 
specific green energy criteria. BHA officials have said that they plan 
to use alternatives that will be equally energy-efficient as those 
listed in the Enterprise Green Criteria used in HUD's Notice of 
Funding Availability. Additionally, because of the complexity of the 
Old Colony project financing arrangements, BHA was concerned that they 
may not be able to obligate the entire award amount by the September 
2010 deadline. As a result, BHA sought to be allowed to use an 
alternative obligation date, using the developer agreement date in 
place of the financing closing date. HUD has agreed that, upon review 
and approval of the developer agreement and financing documents, BHA 
would be allowed to use the developer agreement date. 

Massachusetts Has Identified Projected Near-Term and Long-Term Impact 
of Recovery Act-Funded Projects: 

BHA officials have stated that the Recovery Act has provided funds to 
jump start capital, maintenance, and energy-efficiency upgrades across 
BHA, as well as to improve services for elder residents. Additionally, 
Recovery Act-funded initiatives have employed hundreds of people, 
putting local companies to work doing heating and electrical upgrades, 
repairs to buildings, and a wide range of capital improvements. To 
determine the extent to which Recovery Act funds have helped the local 
economy, the City of Boston has conducted an analysis of both near-
term and long-term economic impacts of Recovery Act-funded projects. 
This analysis describes the near-term impact in terms of jobs created 
and income generated by retained jobs, new expenditures, and 
construction activities. In addition, the city has identified long-
term economic impacts of Recovery Act-funded projects. These are 
considered sustainability benefits, and are measured over time in 
terms of energy-cost savings, emissions reductions, water 
preservation, travel-time savings, safety, and accelerated development 
value for some of Boston's Recovery Act investments. Examples of these 
sustainability benefits of BHA investments include modernization of 
multifamily residential buildings, roof replacements, new hot water 
heater systems, and new construction of energy-efficient, green 
residential properties. According to the city's analysis, there is a 
strong return on investment with an aggregate benefit-cost ratio of 
9.2--meaning that benefits are 9.2 times larger than costs--over a 
discounted payback period of 2 years. BHA officials continue to rely 
on the current system for reporting hours to meet the Section 1512 job-
reporting requirements, with contractors reporting and certifying the 
number of labor hours used in Recovery Act work. 

HUD Has Conducted Reviews on Public Housing Formula Grants and 
Assisted Public Housing Agencies in Meeting Recovery Act Requirements: 

HUD officials in the Boston regional office have completed reviews on 
housing agencies that had obligated less than 90 percent of their 
formula grant funds as of February 26, 2010, and have begun the 
process of reviewing obligations for competitive grants. Of the 16 
formula grant reviews HUD conducted for Massachusetts public housing 
agencies, officials identified four cases in which they found that 
additional technical assistance would be needed. For example, 
according to HUD's quality-review records, one public housing agency 
could not provide documents to support that the refrigerator contract 
was executed on or before the deadline of March 17, 2010. In another 
example, HUD's quality-review records indicate that the public housing 
agency awarded a contract without competition, and the public housing 
agency must justify this to HUD or face recapture of funds. 

Officials explained that smaller housing agencies need more assistance 
because they sometimes lacked the capacity that the larger housing 
agencies have. Larger housing agencies, such as those in Boston and 
Cambridge, have financial experts, attorneys, and other specialized 
staff that aid in the understanding of Recovery Act requirements. HUD 
officials also told us that they have spent a lot of time working with 
the smaller housing agencies to help them understand the Recovery Act 
procurement requirements. As a result of these efforts, officials 
expect that the next round of quality reviews will have fewer 
procurement issues. 

Massachusetts Redesigns Its Recovery Act Data Web Site and Begins to 
Use Data for High-Level Management of State Agencies' Use of Recovery 
Act Funds: 

In May 2010, the Massachusetts Recovery and Reinvestment Office (MRRO) 
redesigned the Massachusetts Recovery Web site to facilitate users' 
ability to track jobs and Recovery Act dollars by ZIP code, town, 
county, and congressional district for all Recovery Act projects 
implemented through state agencies. The MRRO manages the Massachusetts 
Recovery Web site, which serves as the primary communication and 
reporting tool to ensure greater transparency for the commonwealth's 
implementation of Recovery Act programs.[Footnote 24] The 
Massachusetts Recovery Web site offers users the ability to view 
Recovery Act jobs on a quarterly basis through the FTE numbers 
calculated using OMB's FTE calculation and by headcount, or the total 
number of individuals paid with Recovery Act funds. The MRRO has 
chosen to provide both the headcount value as well as the FTE numbers 
because headcount numbers indicate the number of individuals employed 
with Recovery Act dollars. 

Recovery Act jobs and dollars spent may also be viewed via the new Web 
site's mapping feature. This feature allows users to view FTEs, 
headcount, and awarded and expended amounts mapped by ZIP code, town, 
county, or congressional district. As part of an effort to report on 
the Recovery Act's total impact on the commonwealth, the Massachusetts 
Recovery Web site has a link to Recovery.gov data for all Recovery Act 
awards in Massachusetts.[Footnote 25] This includes data from state 
and nonstate agencies. MRRO officials only have access to nonstate 
entity data, such as housing agencies and most regional transit 
agencies, through the Recovery.gov Web site. According to MRRO 
officials, they plan to keep these data separate from state agency 
data on the Massachusetts Recovery Web site, as they cannot guarantee 
the quality of the nonstate entity data. MRRO officials noted that 
further Web site changes may be coming after they conduct a usability 
test based on how the media, public, and legislators use the site. 

The MRRO Uses Recovery Act Expenditure Data as a Management Tool for 
State Agencies: 

The MRRO currently uses Recovery Act data to monitor spending across 
state agencies and develops management priority lists based on weekly 
spending, which the MRRO uses to track whether state agencies are 
spending Recovery Act funds at an appropriate rate. According to the 
MRRO Deputy Director, they established benchmarks, which are modified 
over time for the rates at which they would like to see state agencies 
spend Recovery Act funds. Using the benchmarks, they categorize state 
agencies and provide increased oversight to those with slower spending 
and obligations. Each week, the MRRO reviews the list and asks slow- 
spending agencies to identify and explain why they fall into this 
category.[Footnote 26] The MRRO Director and Deputy Director stated 
that this level and frequency of monitoring and feedback are new 
features for many state agencies. According to these MRRO officials, 
some state agencies had an initial adjustment period to this quick 
turnaround time for reporting data, receiving feedback, and then 
offering follow-up progress on improving spending and obligation 
rates. These MRRO officials stated that, based on the data-collection 
efforts, state agencies now provide forecasts on their spending 
related to Recovery Act projects. However, according to the MRRO 
Director, Recovery Act data are not currently being used for long-
term, state-level management or economic development planning purposes. 

Recovery Act Funding Continues to Help Support the Governments of 
Massachusetts and Boston, Though Fiscal Challenges Remain: 

The commonwealth continues to experience spending and revenue 
pressures, although recent trends point to higher revenue figures for 
the current fiscal year. Spending pressures continue from caseload 
driven programs such as Medicaid and Transitional Aid to Families with 
Dependent Children. Total revenue collections were slightly higher 
than budgeted for the fiscal year that ended on June 30, 2010, but 
projected revenue figures had been reduced since the start of the 
fiscal year. According to a senior budget official, the commonwealth 
expects tax revenue (which includes income, sales, and corporate 
taxes) to trend higher during fiscal year 2011 based upon revenue 
collections during the last several months of fiscal year 2010, as 
well as expectations of economists that state officials consult. For 
state fiscal year 2011, Recovery Act funding will again help support 
the commonwealth's operating budget; 

however, the amount used to support the budget is less than during 
fiscal years 2009 and 2010. SFSF and increased Federal Medical 
Assistance Percentage (FMAP) remain the largest sources of Recovery 
Act funding to support the state budget (see figure 4). 

Figure 4: Recovery Act Funds Used to Support State Budget, by State 
Fiscal Years: 

[Refer to PDF for image: vertical bar graph] 

Fiscal year: 2009; 
Increased FMAP: $870 million; 
SFSF: $412 million; 
Other Recovery Act funds supporting budget: $41 million. 

Fiscal year: 2010 projected; 
Increased FMAP: $1.328 billion; 
SFSF: $486 million; 
Other Recovery Act funds supporting budget: $83 million. 

Fiscal year: 2011 projected; 
Increased FMAP: $690 million; 
SFSF: $96 million; 
Other Recovery Act funds supporting budget: $23 million. 

Source: GAO analysis of information provided by Massachusetts 
officials. 

Note: Dollar amounts shown under increased FMAP do not include funds 
from the recent bill which extended some increased FMAP funding 
through June 30, 2011. 

[End of figure] 

The commonwealth continues to prepare for when Recovery Act funding 
will no longer be available through a combination of spending 
reductions and availability of state "rainy-day" funds. According to a 
senior budget official, the commonwealth will continue to hold down 
spending during fiscal year 2011 by, for example, instituting an 
agency cap on the number of FTE staff positions, having agencies 
finalize their spending commitments earlier in the year, and more 
closely scrutinizing transfers between budget accounts.[Footnote 27] 
Also, for fiscal year 2011, unrestricted, general government local aid 
was reduced by 4 percent. Furthermore, the final fiscal year 2011 
budget included use of roughly $200 million of the state's rainy-day 
fund.[Footnote 28] Officials estimate that the commonwealth will have 
a balance of $556 million in its rainy day fund at the end of fiscal 
year 2011 to contribute to closing a likely $1.3 billion gap as they 
prepare for fiscal year 2012. A senior budget official noted that 
Massachusetts is better prepared than most states for the end of 
Recovery Act funding because of its healthy rainy-day fund balance. 

Most Recovery Act funds expected to come to Massachusetts have already 
been received. As of August 20, 2010, Recovery Act funding anticipated 
to go to or through state government totals $6.0 billion, with $4.4 
billion drawn down from the U.S. Treasury. According to a state 
official, recent Recovery Act funding streams include a $15 million 
grant for the state's education department for a statewide 
longitudinal study of education performance, as well as funds for 
Broadband use. Also, Massachusetts was awarded a grant for $250 
million in the second phase of Education's "Race to the Top" 
competitive grant program. 

In addition to speaking to state officials, we again visited with 
officials from the City of Boston to review its use of Recovery Act 
funds (see table 2).[Footnote 29] 

Table 2: Boston--Characteristics of City Government for Fiscal Year 
2011: 

Fiscal year: 2011; 
Population: 645,169; 
Unemployment rate (percentage): 9.0; 
Operating budget: $2.33 billion; 
FTE government employees: 17,549[A]. 

Sources: U.S. Census Bureau and U.S. Department of Labor, Bureau of 
Labor Statistics (BLS), Local Area Unemployment Statistics (LAUS) data; 
and Boston budget documents, fiscal year 2011. 

Notes: Population data are from the latest available estimate, July 1, 
2009. Unemployment rates are preliminary estimates for June 2010 and 
have not been seasonally adjusted. Rates are a percentage of the labor 
force. Estimates are subject to revisions. 

[A] This is an estimate by Boston officials of full time equivalent 
(FTE) positions, including externally funded FTE's, as of January 1, 
2011. This estimate does not include grant-funded employees of the 
Boston Public Health Commission. 

[End of table] 

Boston officials told us that they have used Recovery Act funds to 
strengthen the city's economy, improve housing, expand youth 
opportunities, and increase public safety and public health. As an 
example, two additional Recovery Act grants received by Boston in 
recent months include over $12 million in Recovery Act public health 
funding directed toward initiatives for the prevention of obesity and 
tobacco use.[Footnote 30] Though Recovery Act funds will not prevent 
layoffs in fiscal year 2011 altogether, city officials stated that 
these funds will allow Boston to avoid layoffs of critical employees 
in both the school and police departments. 

In the last 5 months, city officials have made very few grant 
applications and their focus has been on implementing and managing 
Recovery Act resources, one of which is the Energy Efficiency and 
Conservation Block Grant (EECBG).[Footnote 31] According to Boston 
officials, the strategy for implementing the city's $6.5 million EECBG 
award focuses, in part, on providing residents and small businesses 
with the financial resources needed to make homes and workplaces more 
energy-efficient. In mid July 2010, as part of its EECBG initiative, 
Boston officials told us they entered into a $1.8 million contract 
with a vendor to perform weatherization work on existing residential 
homes of residents with 60 to 120 percent of state median income. 
[Footnote 32] Officials said they also contracted with various 
utilities using $990,000 of Recovery Act funds to leverage existing 
utility-sponsored energy-efficiency programs and that this will 
provide participating small businesses with up to 30 percent of the 
cost of selected energy-efficiency improvements. City officials' 
stated goal of their EECBG initiative is to reduce Boston's greenhouse 
gas emissions by 40,000 metric tons annually. 

City officials reported that Boston experienced some growth in revenue 
in the last fiscal year, and are expecting in fiscal year 2011 a 4.3 
percent increase in property tax revenues, a 4.9 percent increase in 
licenses and permits revenues, as well as a full year of additional 
revenues from Boston's new Meals Tax and its increased Hotel Tax. 
However, officials expressed concern for the fiscal challenges ahead. 
State aid revenues have again dropped, with net state aid decreasing 
by 9 percent for fiscal year 2011. In addition, Boston's costs are 
increasing in fiscal year 2011--pensions and debt service will 
increase 2.9 percent, while health insurance costs are increasing by 
6.4 percent. Two percent of the fiscal year 2011 budget, $45 million, 
comes from the city's reserves, and according to officials, this use 
of reserves is not sustainable. Officials anticipate approximately 230 
layoffs in fiscal year 2011 from a variety of city departments and the 
Boston public schools. With the end of the Recovery Act funds, city 
officials told us they foresee additional cuts in state aid and future 
public school closings. Officials told us they are taking steps to try 
to mitigate the impact of the loss of Recovery Act funds by 
controlling hiring, taking advantage of natural employment attrition, 
evaluating their city's available assets, and looking for ways to 
consolidate city infrastructure. As an example, officials anticipate 
they will consolidate some of the public schools in Boston that are 
operating under capacity. City officials are also working on a plan to 
adjust for the loss in fiscal year 2012 of approximately $20 million 
in Recovery Act funding that currently supports school department 
operations. 

Oversight Officials Continue to Review and Audit a Variety of Recovery 
Act Programs: 

The Massachusetts Office of the State Auditor (OSA) has several audits 
under way focused on programs funded by the Recovery Act, including 
audits of various local housing authorities, state and community 
colleges, regional transit authorities, and MassDOT. Recently 
completed OSA audits of weatherization programs, block grants, and a 
local housing authority that received Recovery Act funding did not 
identify or report findings. The OSA audit of the WIA Youth Program 
found that in three cases, the actual number of youths being reported 
as participating in the program was overstated, that the calculation 
of job numbers needed to be monitored more closely, and that 
compliance with participation levels needed to be reviewed.[Footnote 
33] In response to OSA's findings, the responsible state agency agreed 
to implement OSA's suggested improvements regarding monitoring 
controls. The OSA has completed a statewide Recovery Act expenditure 
analysis and is using this analysis as part of its audit planning. 
According to data from the Federal Audit Clearinghouse, which is 
responsible for receiving and distributing Single Audit results, it 
received Massachusetts's Single Audit reporting package for the year 
ending June 30, 2009, on May 3, 2010. Although this was about a month 
after the deadline specified by the Single Audit Act, the First Deputy 
Auditor has stated that the commonwealth is on track to meet the 2010 
audit's deadline. The 2009 audit--the first Single Audit for 
Massachusetts that included Recovery Act programs--identified 
significant deficiencies related to controls over programs that 
received Recovery Act funds, including SFSF and Medicaid.[Footnote 34] 
OSA, together with an independent auditor, has begun work on the 
state's 2010 fiscal year Single Audit. 

The Massachusetts Office of the Inspector General (OIG) has a broad 
mandate to detect and prevent fraud, waste, and abuse in government 
spending. It has concentrated its Recovery Act efforts on prevention 
initiatives, as well as on monitoring, reviewing, and investigating 
programs. While the OIG is prohibited from discussing the specifics of 
its ongoing work, its general areas of Recovery Act project review 
include the following: 

* Reviews of procurement activity by MBTA, recipients of Edward Byrne 
Memorial Justice Assistance Grant (JAG) funds, and recipients of 
fiscal year 2009 SFSF funding. 

* Fraud risk assessment reviews of the Weatherization Assistance 
Program and the Lead Hazard and Neighborhood Stabilization Program. 

* A compliance review of EECBG recipients and assistance to the state 
Department of Energy Resources to develop EECBG oversight capacity. 

* Investigations in coordination with two federal inspector general 
offices regarding fraud complaints, as well as addressing complaints 
relating to HUD, Department of Labor, and Department of Justice grants. 

The OIG continues to provide procurement, fraud prevention, and risk 
assessment training to state, municipal, and not-for-profit groups. 
Also, the OIG, as well as the OSA, are members of Massachusetts's STOP 
Fraud Task Force which coordinates the Recovery Act-related efforts of 
many of the state's oversight authorities and develops fraud policy 
for state agencies and state vendors. 

Officials from Boston's City Auditor's office told us that they 
awarded a contract to an independent auditor to conduct Boston's 
Single Audit for fiscal year 2010. According to officials, the Single 
Audit will include an audit of 10 of the city's Recovery Act-funded 
projects. Officials stated that the independent auditor is also 
developing a computerized worksheet in which Recovery Act fund 
recipients will submit their reporting data in a standardized format 
that will be centrally stored at the City Auditor's office. According 
to city officials, this will make the managing of subrecipients and 
the reporting process easier and more efficient. Officials plan to 
offer training on this new worksheet and have it operational by the 
September reporting period. This system will eventually centralize the 
reporting of all of Boston's grants, not just those with Recovery Act 
funding. 

State Comments on This Summary: 

We provided a draft of this appendix to the Governor of Massachusetts, 
the Massachusetts OSA, and the Massachusetts OIG, and provided 
excerpts of the draft to other entities including the City of Boston, 
BHA, and MBTA. The Governor's office that oversees Recovery Act 
implementation, in general, agreed with our draft report. State and 
local officials provided clarifying and technical comments, which we 
incorporated where appropriate. 

GAO Contacts: 

Stanley J. Czerwinski, (202) 512-6806 or czerwinskis@gao.gov: 

Laurie E. Ekstrand, (202) 512-6806 or ekstrandl@gao.gov: 

Staff Acknowledgments: 

In addition to the contacts named above, Carol L. Patey, Assistant 
Director; Anna M. Kelley, analyst-in-charge; Anthony M. Bova; Nancy J. 
Donovan; Kathleen M. Drennan; David J. Lin; Keith C. O'Brien; Kathryn 
I. O'Dea; and Robert D. Yetvin made major contributions to this report. 

[End of section] 

Appendix IX Footnotes: 

[1] Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009). 

[2] There are two types of SFSF funds--education stabilization funds 
and government services funds. 

[3] Massachusetts also received additional Recovery Act funding to 
support a range of educational activities and services. 

[4] The education stabilization funds were awarded in two phases. 

[5] Moreover, state educational agencies (SEA) may reserve additional 
administrative funds to help defray the costs of meeting the 
additional data collection requirements under the Recovery Act for 
ESEA Title I, Part A and the grants to states under IDEA Part B. For 
ESEA Title I, Part A, the maximum additional amount an SEA may reserve 
is 0.5 percent of the state's fiscal year 2009 Title I, Part A 
Recovery Act allocation, or $1 million, whichever is less. Similarly, 
for IDEA Part B grants to states, the maximum additional amount an SEA 
may reserve is 0.1 percent of the state's fiscal year 2009 IDEA Part B 
allocation, or $500,000, whichever is less. The additional amount a 
state may reserve also depends on whether the SEA requests and 
receives a waiver of certain requirements. 

[6] Pub. L. No. 111-226, § 101, 124 Stat. 2389 (Aug. 10, 2010). 

[7] In Massachusetts, the Executive Office of Education and the 
Department of Elementary and Secondary Education work together to 
coordinate oversight efforts. 

[8] An FTE is a full-time equivalent, which is calculated as the total 
hours worked divided by the number of hours in a full-time schedule. 

[9] Projects may have completed the construction phase, but they may 
not be financially closed out as a result of project close-out 
paperwork. In addition, as of August 2, 2010, the state has 5 Recovery 
Act highway projects that have completed construction except for minor 
finishing touches. 

[10] In federal fiscal year 2010, Massachusetts was apportioned $551 
million in annual highway formula funds. 

[11] The Recovery Act requires that 30 percent of these funds be 
suballocated, primarily based on population, for metropolitan, 
regional, and local use. 

[12] According to FHWA officials, deobligated funds are only used in 
regions meeting the specific criteria for the suballocated region. 

[13] According to a MassDOT official, through line-item modifications 
for projects funded with both statewide and suballocated Recovery Act 
funds, total project costs may be shifted between the two sources of 
funding by deobligating a portion of the statewide funds dedicated to 
a project and increasing the suballocated funds dedicated to the same 
project. This allows MassDOT to maintain Recovery Act spending levels 
within the same suballocated region. 

[14] Transportation funding recipients must also report certain 
information to the Department of Transportation under section 
1201(c)(1) of division A of the Recovery Act. 

[15] The Recovery Act appropriated $8.4 billion to fund public transit 
throughout the country through existing Federal Transit Administration 
(FTA) grant programs, including the Transit Capital Assistance Program 
and the Fixed Guideway Infrastructure Investment program. Under the 
Transit Capital Assistance Program's urbanized area formula grant 
program, Recovery Act funds were apportioned to large and medium 
urbanized areas--which in some cases include a metropolitan area that 
spans multiple states--throughout the country according to existing 
program formulas. Massachusetts's initial Recovery Act Transit Capital 
Assistance apportionment of $290 million includes funds apportioned to 
other states because some urbanized areas cross state boundaries. For 
example, the Providence, RI-MA urbanized area includes the Rhode 
Island Public Transit Authority and two transit agencies located in 
southeastern Massachusetts--the Greater Attleboro Taunton Regional 
Transit Authority and the Southeast Regional Transit Authority. 

[16] In this instance, "projects" refers to several activities bundled 
under a single application. FTA encourages transit agencies to combine 
several projects into one application to expedite the approval process 
and provide flexibility to grant recipients to move excess funds from 
one project to another. 

[17] GAO, Recovery Act: States' and Localities' Uses of Funds and 
Actions Needed to Address Implementation Challenges and Bolster 
Accountability (Appendixes), [hyperlink, 
http://www.gao.gov/products/GAO-10-605SP] (Washington, D.C.: May 26, 
2010), MA-11. 

[18] Under section 1201(a) of the act, states were required to certify 
that they will maintain the level of spending that they had planned to 
expend between the date of enactment, February 17, 2009, and September 
30, 2010. 

[19] GAO, Recovery Act: States' and Localities' Uses of Funds and 
Actions Needed to Address Implementation Challenges and Bolster 
Accountability, [hyperlink, http://www.gao.gov/products/GAO-10-604] 
(Washington, D.C.: May 26, 2010), 242. 

[20] [hyperlink, http://www.gao.gov/products/GAO-10-605SP], MA-12. 

[21] The four categories include: (1) improvements addressing the 
needs of the elderly and/or persons with disabilities, (2) public 
housing transformation, (3) gap financing for projects that are 
stalled due to financing issues, and (4) creation of energy-efficient, 
green communities. 

[22] U.S. Department of Housing and Urban Development, Office of 
Public and Indian Housing, PIH Notice 2009-31. 

[23] BHA proposes to obtain additional funding from other sources, 
such as the Commonwealth of Massachusetts Affordable Housing Trust 
Fund and Community Based Housing Fund, Low Income Housing Tax Credit 
funds, and City of Boston funds. 

[24] The MRRO was established as the commonwealth's office to collect 
spending and jobs data for all Recovery Act projects managed through 
state agencies. The MRRO also takes steps to ensure the completeness 
and accuracy of data and project descriptions submitted by state 
agencies and other prime recipients as part of the recipient reporting 
process. 

[25] Recovery.gov is the official Web site for Recovery Act funds. 

[26] The benchmark for being categorized as slow-spending was less 15 
percent of funds expended as of July 2010. 

[27] According to a senior official, during fiscal year 2011 the 
commonwealth plans to reduce the number of staff supported by the 
operating budget by as many as 1,000 FTEs. 

[28] This figure includes a rainy-day fund withdrawal of $106 million 
and the omission of an annual deposit into the fund. 

[29] The Recovery Act funds for Boston referred to in this section 
cover funds which are administered by the city government and not the 
full scope of Recovery Act funds that benefit Boston's residents, such 
as unemployment insurance and Medicaid. 

[30] These initiatives are the Communities Putting Prevention to Work 
Obesity Prevention project and Communities Putting Prevention to Work 
Tobacco Prevention & Control project. See appendix XVIII of GAO-10-
1000SP for more information on the Communities Putting Prevention to 
Work initiative. 

[31] The EECBG, which is administered by the Department of Energy, 
provides Recovery Act funds through competitive and formula grants to 
local and state governments for projects to improve energy-efficiency 
and reduce energy use. For more information on the EECBG, see appendix 
XVIII of GAO-10-1000SP. 

[32] According to city officials, Boston's Weatherization Assistance 
Program funds weatherization work targeted to residents with 0 to 60 
percent median income. 

[33] Massachusetts Office of the State Auditor, Review of Career 
Center of Lowell, 2010-0003-3R1 (June 16, 2010); 

Review of South Costal Career Centers, 2010-0003-3R2 (June 16, 2010); 

and Review of Brockton Area Workforce Investment Board, 2010-0003-3R3 
(June 16, 2010). 

[34] Massachusetts 2009 Single Audit identified a total of 35 
significant internal control deficiencies related to compliance with 
Recovery Act and non-Recovery Act federal program requirements, of 
which 7 were classified as material weaknesses. 

[End of Appendix IX} 

Appendix X: Michigan: 

Overview: 

This appendix summarizes GAO's work on the seventh of its bimonthly 
reviews of American Recovery and Reinvestment Act of 2009 (Recovery 
Act)[Footnote 1] spending in Michigan. The full report covering all of 
GAO's work in 16 states and the District of Columbia may be found at 
[hyperlink, http://www.gao.gov/recovery]. 

What We Did: 

Our work in Michigan focused on the Recovery Act-funded Energy 
Efficiency and Conservation Block Grant (EECBG), how Michigan provided 
accountability over Recovery Act funds, and how Recovery Act funds 
affected Michigan's and a selected locality's fiscal conditions. We 
reviewed selected recipient reports to the federal government, as well 
as oversight and accountability practices at both the state and local 
level. We selected program areas and activities based on a number of 
risk factors, such as the receipt of significant amounts of Recovery 
Act funds. We also reviewed the design of internal controls over 
program areas and activities, as well as those put in place to gather 
and report spending and jobs data for recipient reports to the federal 
government. For descriptions and requirements of the programs we 
covered, see appendix XVIII of GAO-10-1000SP. 

We performed our work at state and local agencies responsible for 
implementing, monitoring, and overseeing the programs. For our review 
of EECBG, we spoke with officials from two local communities--the city 
of Farmington Hills and Kent County--as well as officials from the 
Michigan Department of Energy, Labor & Economic Growth (DELEG)--the 
state agency which administers the program. 

We continued to track the use and impact of Recovery Act funds on 
state and local fiscal stabilization. We met with state budget 
officials and local officials from the city of Farmington Hills to 
assess their fiscal situations and the Recovery Act's impact on their 
communities. To understand the state's Recovery Act oversight and 
accountability efforts, we spoke with officials from the Economic 
Recovery Office (ERO), Office of the Auditor General (OAG), Office of 
Internal Audit Services (OIAS), and the Detroit Office of Auditor 
General. We obtained the June 2010 reports of the OAG covering its 
financial audits that included the provisions of the Single Audit Act 
[Footnote 2] for seven Michigan departments and a component unit of 
the state.[Footnote 3] Each of these audits covered the 2-year period 
that ended September 30, 2009. We read and summarized the Single Audit 
reports for the Michigan Department of Education (MDE) and the 
Department of Community Health (DCH). We also reviewed the most recent 
Single Audit reports for the local communities that we visited as well 
as the most recent Single Audit report for the city of Detroit. To 
address financial management and internal control challenges we 
previously reported on in September 2009 (GAO-09-1017SP) and May 2010 
(GAO-10-605SP), we followed up on actions taken and those planned by 
MDE and Detroit Public Schools (DPS), and state and local agencies 
with responsibility for the state's Workforce Investment Act of 1998 
(WIA) Youth Employment Program. 

Finally, to understand Michigan's experience in meeting the June 30, 
2010, Recovery Act reporting deadline, we met with state and local 
officials to discuss processes and procedures selected recipients have 
in place to implement the Office of Management and Budget's (OMB) 
guidance on job calculations. Additionally, we followed up on 
recipient reporting issues related to the March 31, 2010, quarterly 
recipient reports that we identified in our May 2010 report. 

What We Found: 

* Energy Efficiency and Conservation Block Grants. The U.S. Department 
of Energy (DOE) awarded a total of $76.6 million in EECBG funds to 
Michigan--74 percent ($57.0 million) directly to 68 communities and 26 
percent ($19.6 million) to DELEG. In turn, DELEG awarded 89 percent 
($17.4 million) of its allocation to 131 subgrantees through a 
competitive grant process. Michigan and some local governments have 
begun spending EECBG, with the state relying on existing mechanisms to 
oversee spending. State officials told us that DELEG is not 
responsible for and does not monitor the use of EECBG funds that 
localities received directly from DOE. We spoke with officials from 
two local communities that received EECBG funds directly from DOE, who 
told us that they rely on existing internal controls and systems to 
safeguard EECBG funds. DELEG directs most of its EECBG funds to 
projects in communities across the state to spread program funds as 
widely as possible and increase the visibility of these projects. 
Direct grantees in Michigan are likewise using their grants for 
projects that promote intergovernmental cooperation and public 
awareness, along with energy conservation. 

* Recipient reporting. Beginning with the quarter ending June 30, 
2010, Michigan shifted from a centralized to a new decentralized 
reporting process. For the first time, Michigan state agencies 
submitted quarterly recipient reports directly to the federal 
government rather than to the state's ERO, which had previously served 
as a centralized reporting point transmitting reports to the federal 
government. ERO officials told us that state agencies successfully 
submitted their reports by the July 14, 2010 deadline, and did not 
experience substantial challenges with compiling or reporting the 
data. We met with a Farmington Hills official regarding the city's 
recipient report for its EECBG grant. While Farmington Hills submitted 
the recipient report by the deadline, the official told us he 
experienced some challenges and, subsequent to our meeting, took steps 
to resubmit the report to better reflect hours worked. Finally, we 
followed up with state and other officials to identify actions taken 
to address issues we previously identified regarding recipient 
reporting. We found that recipients still varied in compliance with 
guidance on reporting jobs due to varying interpretation of OMB's 
guidance. 

* Oversight and accountability efforts. Michigan's OAG and OIAS serve 
key roles in safeguarding Recovery Act-funded programs. In June 2010, 
OAG issued eight reports covering its financial audits that included 
the provisions of the Single Audit Act for seven Michigan departments 
and a component unit of the state. Each of these audits covered the 2- 
year period that ended September 30, 2009, and collectively covered 
entities that reported federal program expenses of approximately $20 
billion, including $2 billion of Recovery Act funds. These are the 
first state level Single Audits for Michigan that include Recovery Act 
programs. The OAG issued "clean" or unqualified opinions on each of 
the financial statements for each of the entities. The OAG also 
reported significant deficiencies in internal controls over federal 
program compliance matters for each of the entities audited - 
including controls over Recovery Act and non Recovery Act federal 
programs. OIAS officials told us that in fiscal year 2011 they intend 
to prepare summaries of findings reported by accountability 
professionals related to federal programs, including Recovery Act-
funded programs, which they anticipate will identify issues to 
consider at a state-wide level, such as lessons learned from oversight 
and monitoring of Recovery Act funds. Local accountability practices, 
including single audits by independent public accountants, also help 
provide oversight and monitoring of federal programs. 

* Actions taken to address previously reported internal control 
challenges. In July 2010 officials with MDE, DPS and DELEG as well as 
ERO officials told us that some actions have been taken and that 
others are underway to address the internal control challenges 
described in our September 2009 and May 2010 reports. For example, MDE 
officials told us that they continue to monitor Recovery Act funds 
provided to DPS and, among other things, they are using an independent 
public accounting firm to monitor payroll and non payroll expenditures 
at DPS. According to OIAS officials, MDE plans to hire an auditor in 
the near term and initiate a fiscal monitoring program. Officials from 
DELEG--the state agency responsible for the WIA program--told us that 
they are continuing to work with stakeholders to address the payroll 
and eligibility challenges that we identified with the WIA summer 
youth program in Detroit. DELEG officials also provided us with 
documentation describing the Detroit Workforce Development 
Department's (DWDD) plan for improved monitoring of future programs in 
Detroit. The plan is under review, and DWDD officials told us they 
developed and approved eligibility criteria for use in future youth 
employment programs. 

* States' and local governments' fiscal condition and use of Recovery 
Act funds. Michigan continues to experience economic challenges as a 
result of the decline in the automotive industry, which has lead to 
budget pressures and declines in state revenues. Michigan has 
addressed its fiscal year budget gaps since the beginning of the 
Recovery Act through a combination of Recovery Act funds and cost-
cutting measures. As of June 30, 2010, slippage in revenue estimates 
left the state with a projected General Fund shortfall of 
approximately $200 million for the fiscal year ending September 30, 
2010. Officials are seeking solutions to this shortfall while 
simultaneously addressing a projected fiscal year 2011 budget gap of 
$1.1 billion. On August 11, 2010, state budget officials told us that 
based on recent federal action extending the increased Federal Medical 
Assistance Percentage (FMAP), Michigan estimates it will receive 
approximately $300 million.[Footnote 4] According to state budget 
officials, as of July 16, 2010, expenses of Michigan state entities 
totaled about $7.0 billion of the approximately $7.4 billion in 
Recovery Act funds it has been awarded. State officials told us they 
are aware of the upcoming "cliff effect" in fiscal year 2012, when 
Recovery Act funds diminish, and are working to devise solutions to 
address the potential budget shortfall. As we previously reported, 
local governments we visited in Michigan are facing the pressure of 
balancing budgets in the midst of declining revenues. Officials from 
Farmington Hills told us their city is experiencing a similar 
situation. They said that Recovery Act funds allowed the city to 
undertake projects and purchase equipment it otherwise would not have 
been able to, but that these funds have not had an impact on the 
city's fiscal stability. Given that the city plans to spend all of its 
Recovery Act funds on one-time projects or acquisitions, officials do 
not foresee having to deal with a "cliff effect" once Recovery Act 
funds are expended. 

Energy Efficiency and Conservation Subgrants Were Awarded Promptly and 
State and Local Governments Are Generally Relying on Existing 
Mechanisms to Oversee Spending: 

The Recovery Act appropriated $3.2 billion for the EECBG program--$2.8 
billion to be allocated directly to states and eligible units of local 
government by formula, and the remaining $0.4 billion to be awarded on 
a competitive basis. Grantees may use EECBG funds for a variety of 
activities to help reduce energy use and fossil fuel emissions and 
improve energy efficiency in state and local jurisdictions. Grantees 
are to obligate or commit all program funds within 18 months of the 
date funds are awarded and expend them within 3 years of the award 
date. In addition, states are to use at least 60 percent of their 
grant funds to communities not eligible for direct grants from DOE and 
no more than 10 percent of their grant funds for administrative 
expenses. 

DOE awarded a total of $76.6 million in EECBG program funds for grants 
to Michigan, of which 74 percent ($57.0 million) was awarded directly 
to 68 communities, and 26 percent ($19.6 million) to the state's DELEG 
on September 14, 2009.[Footnote 5] Of the $19.6 million allocated to 
the state, DELEG awarded 89 percent ($17.4 million) to 131 
subgrantees, through a competitive grant process, and retained the 
maximum 10 percent ($2.0 million) for state program administration. 
DELEG awarded the remaining 1 percent ($0.2 million) to four nonprofit 
agencies for technical assistance to local communities. As of June 30, 
2010, DELEG officials told us the state had awarded all of the $17.4 
million budgeted for subgrants to local communities. 

Michigan grantees have begun to spend EECBG program funds. According 
to DOE data, as of July 23, 2010, the state and its subgrantees had 
spent approximately $0.6 million, about 3 percent of the $19.6 million 
grant that the state received directly. According to DOE, Michigan's 
remaining direct grantees had spent approximately $8.0 million through 
July 23, 2010, or 14 percent of the total $57.0 million awarded 
directly to them by DOE. 

State Oversight Is Limited to Monitoring Subgrantees: 

To provide accountability for EECBG program funds, DELEG generally 
relies on existing processes and procedures. In addition, DELEG hired 
a full-time staff member to monitor subgrantee progress and coordinate 
the financial aspects of managing Michigan's EECBG grant. DELEG also 
established an online reporting system that subgrantees must use to 
submit detailed data on program expenditures and outcomes on a 
quarterly basis. State officials told us that the online system is 
designed to be similar to DOE's Performance and Accountability for 
Grants in Energy (PAGE) system. DELEG posts guidance on DOE's 
reporting requirements on its Web site to help subgrantees understand 
how to report their expenditures and outcomes into DELEG's online 
system. In addition, an EECBG grant administrator completed site 
visits with four subgrantees during the period June 23 through June 
25, 2010 that allowed the state to verify that these subgrantees were 
tracking federal funds separately and were complying with Buy American 
requirements.[Footnote 6] 

State officials told us that DELEG is not responsible for and does not 
monitor the use of EECBG funds that localities received directly from 
DOE. The agency does keep track of how much DOE has awarded to these 
localities although it may, if requested, provide support to 
localities. For example, state officials told us that when one direct 
grantee in the state encountered difficulties in meeting federal 
historic preservation standards for a planned revitalization and 
retrofitting project, DELEG officials worked with the county to 
resolve the issues, and the project was approved. 

EECBG Grants Are Being Used to Fund High-Visibility Projects across 
the State: 

DELEG's energy conservation strategy includes directing most of its 
EECBG grants to projects in local communities across the state to 
spread program funds as widely as possible and increase the visibility 
of these projects. For example, DELEG officials told us that Michigan 
targeted light-emitting diode (LED) lighting projects first to ensure 
that there would be a visible pipeline of projects throughout the 
state for which Michigan LED manufacturers could begin preparing bids. 
The state also hired a consultant to provide assistance to localities 
with the technical aspects of their LED project proposals. DELEG has 
awarded a total of 10 subgrants for LED projects. DELEG officials told 
us Michigan used a strategic approach for awarding its technical 
assistance grants. Long before the Recovery Act was passed, Michigan 
had divided the state into geographic regions and promoted the 
development of expertise among various coalitions of energy 
conservation groups to serve each of these regions. Officials told us 
this helped encourage regional planning efforts and minimize the 
number of overlapping projects, as well as virtually blanketing the 
state with energy efficiency projects. 

Direct grantees in Michigan are also using their grants to fund 
projects that promote intergovernmental cooperation and public 
awareness. For example, officials with the city of Farmington Hills 
told us they are using their $791,300 EECBG grant to fund start-up 
costs for a coalition of local governments for developing and 
implementing long-term strategies to reduce energy consumption. In 
addition, the city plans to develop a Web site to provide information 
to its residents and businesses about energy efficiency efforts. They 
are also using their grant to build additional energy saving measures 
into its City Hall revitalization project (see figure 1). For example, 
according to Farmington Hills officials, they are using grant funds to 
install a solar hot water heater and a green roof--a roof that is 
covered with vegetation--as part of its preplanned renovation of its 
City Hall facility. 

Figure 1: Example of an Energy Conservation Improvement Paid for with 
Recovery Act EECBG Program Funds in Farmington Hills, MI: 

[Refer to PDF for image: 2 photographs] 

On the left is a photo of a light tube that is installed on the 
exterior of Farmington Hills’ City Hall roof. This light tube was 
purchased using Recovery Act funds. On the right is a photo of a 
restroom inside Farmington Hills’ City Hall, which shows the lighting 
provided from the light tube. 

Source: City of Farmington Hills. 

[End of figure] 

Officials with Kent County told us they will use about half of the 
county's total grant of $2,796,700 to fund two projects. One of the 
projects takes advantage of the lower cost of buying materials in bulk 
by coordinating the purchase of a large volume of more energy 
efficient replacement glass for one of its county owned facilities in 
the city of Grand Rapids. The other project involves installing a 
geothermal heating and cooling system at the new county correctional 
facility, which is currently under construction. 

Local Communities We Spoke with Rely on Existing Controls to Safeguard 
EECBG Funds: 

We spoke with two local Michigan grantees--one county and one city-- 
that received EECBG funds directly from DOE, and officials from both 
communities told us that they rely on existing internal controls and 
systems to safeguard EECBG funds. For example, Kent County officials 
told us that the county is the recipient of many federal grants, 
including EECBG funds, and will rely upon existing internal controls 
and systems, including established accounting and purchasing policies, 
to safeguard these funds. Officials also told us that county policies 
that govern areas such as accounting and purchasing are applicable to 
these funds. In addition, the county has assembled an implementation 
team that meets to consider EECBG progress, funding, and other issues, 
as necessary.[Footnote 7] For example, the implementation team 
communicates regularly about activities related to the EECBG grant, 
such as soliciting bids for projects and compliance with the Buy 
American and Davis-Bacon provisions of the Recovery Act.[Footnote 8] 

Farmington Hills officials told us the city has not developed a 
formal, written monitoring plan for the use of its EECBG funds. 
Instead, the city relies on its existing internal controls, including 
those for monitoring of grant funds. For example, officials told us 
that Farmington Hills requires contractors to submit certified 
payrolls each week, and the city's Finance Department reviews these 
for compliance with Davis-Bacon wage-rate requirements. In addition, 
the city's EECBG Program Manager said that it is standard practice to 
require written letters from contractors verifying that final assembly 
of items purchased with contract funds was completed in the United 
States and that he reviews all proposed expenditures for compliance 
with the Buy American provision of the Recovery Act before approving 
the purchases. Officials told us that although it was a challenge at 
first to fully understand all of the requirements for managing and 
monitoring this grant, they are comfortable with the system that they 
have in place to safeguard the use of EECBG funds. 

Michigan Agencies Were Able to Submit Recipient Reports on Time: 

The Recovery Act requires each recipient of Recovery Act funds to 
report information quarterly to the federal government on each award, 
including (1) the total amount of funds received, (2) the amount of 
funds expended or obligated to projects or activities, and (3) the 
estimated number of jobs created and retained by the projects and 
activities.[Footnote 9] For this report, we met with state and local 
officials to discuss selected recipients' processes and procedures to 
implement OMB's guidance on full-time equivalent (FTE) job 
calculations.[Footnote 10] We also reviewed steps recipients took to 
assess the quality of the data they used in their most recent 
recipient reports, which covered the period April 1, 2010, through 
June 30, 2010. We found that Michigan state agencies were able to 
submit their recipient reports on time. Additionally, we followed up 
on recipient reporting issues related to the March 31, 2010, quarterly 
recipient reports that we identified in our May 2010 report (GAO-10-
605SP). 

State Agencies Had No Issues Switching to Decentralized Reporting 
System: 

Beginning with the quarter ending June 30, 2010, Michigan shifted from 
a centralized to a decentralized reporting process, wherein state 
agencies submitted recipient reports directly to the federal 
government via federalreporting.gov rather than to the state's 
Economic Recovery Office (ERO), which had previously served as a 
centralized reporting point transmitting reports to the federal 
government. ERO officials told us that because of upcoming changes to 
the state's administration,[Footnote 11] they moved to a decentralized 
process this quarter to give state agencies time to adjust to the new 
process and seek ERO's assistance if necessary. 

ERO officials told us that the decentralized reporting process for the 
quarter ended June 30, 2010, went smoothly. They said that state 
agencies encountered no serious issues in submitting their reports to 
the federal government by the July 14, 2010, deadline.[Footnote 12] 
The only issue state agencies experienced was that the large volumes 
of traffic on the federalreporting.gov Web site led to significant 
site slow-down and posed some accessibility challenges, particularly 
during the last 48 hours before reports were due. According to ERO 
officials, this caused one state agency--the Department of 
Agriculture--to try unsuccessfully to submit its report by the 
deadline; it submitted the report the next day. 

ERO officials stated that the quality of the submitted state agency 
data has improved over time. They told us the opportunity for making 
corrections during the expanded open period for amendment has improved 
data quality by allowing agencies to address issues that come to 
light, even after the submission deadline. 

To prepare for the transition to decentralized reporting, ERO 
officials told us they trained state agencies on how to submit reports 
directly to the federal government. For the June 30, 2010, reports, 
and through the end of the 2010 calendar year, ERO officials told us 
they will advise state agencies needing assistance, but will no longer 
review state agencies' reports for reasonableness and completeness, 
leaving this up to each agency. 

One Community Experienced Challenges with Recipient Reporting: 

In July 2010, we met with the Farmington Hills city official 
responsible for completing and submitting the EECBG recipient reports. 
Farmington Hills, a direct recipient of a DOE award, submitted the 
recipient report to the federal government by the July 14, 2010, 
deadline. The official told us he used DOE guidance to prepare the 
recipient reports. He told us that he used one method to calculate 
FTEs for DOE PAGE reporting[Footnote 13] and another for the federal 
recipient reports, which has been difficult. For DOE reporting, he 
aggregated and reported quarterly hours regardless of whether they had 
been paid, but for federal recipient reports he aggregated and 
reported quarterly hours only if they had been paid. We suggested he 
seek clarification from DOE on how to aggregate and report quarterly 
hours. Subsequent to our meeting, he told us he sought clarification 
and took steps to resubmit the OMB recipient report to reflect hours 
worked by staff and contractors during this quarter, regardless of 
whether they had been paid. He said that using the same information 
for both the OMB and DOE reports will be much simpler. 

Some Recipients Still Varied in Compliance with OMB's Guidance on 
Reporting Jobs: 

We reported in May 2010 on selected recipients' steps to assess the 
quality of the data used in their March 31, 2010, recipient reports. 
We also reviewed supporting documents and met with state officials 
from the ERO; 

DELEG and DWDD; 

MDE, DPS, and Michigan State University (MSU). We reported that the 
report preparers we reviewed generally followed OMB guidance; however, 
their interpretations of the guidance and processes varied and did not 
consistently ensure that they reported complete and accurate 
information to the federal government. [Footnote 14] In May 2010, ERO 
officials told us that they would work with stakeholders to address 
the issues we identified and in July 2010 we followed up on their 
progress. 

Officials from DWDD--one of 25 Michigan Works! Agencies (MWA)--told us 
that the FTE information they provided to DELEG for its March 31, 
2010, report to the federal government did not, as required, include 
either staff, contractor or subcontractor hours.[Footnote 15] We 
suggested that DELEG should ask ERO and federal officials what 
information they needed to obtain from contractors and direct their 
subrecipients as appropriate. 

In July 2010, ERO officials told us that they had been working with 
DELEG to address recipient reporting requirements. ERO officials also 
told us that DELEG is expected to make an amendment to their June 30, 
2010, recipient report during the open period for amendment ending 
September 13, 2010, to include jobs worked by DWDD's contractor during 
the previous quarter. ERO officials said that DELEG has a strategy in 
place to make sure that DWDD staff hours worked are reported 
appropriately in future recipient reports. ERO officials told us in 
August 2010 that they will continue to work with DELEG on this issue. 

MDE and DPS--For our May 2010 report, we noted that DPS officials told 
us that their initial report to MDE for the quarter ending March 31, 
2010, did not include staff jobs paid for with Recovery Act State 
Fiscal Stabilization Fund (SFSF) education stabilization funds nor 
contractor jobs paid for with Recovery Act funds. We determined that 
DPS had submitted an amended March 31, 2010, report which included 430 
staff jobs paid for with SFSF funds, but not, as required, jobs 
created by contractors and subcontractors. ERO officials told us in 
August 2010 that they will continue to work with MDE and DPS to ensure 
that contractor and subcontractor jobs are included in future 
recipient reports and that actions are taken to amend past reports. 

MSU--MSU officials told us that through March 31, 2010, MSU had spent 
$2.5 million of its $35.7 million awarded SFSF education stabilization 
funds on scholarships, and reported zero jobs in the recipient report 
for the quarter ending March 31, 2010. University officials told us 
that approximately $30.1 million of these funds would be used to fund 
MSU salaries and related benefits retroactive to October 1, 2009. They 
told us they would seek guidance from Michigan's Department of 
Management and Budget about how to report the jobs funded by the 
Recovery Act and paid for in previous quarters. When we contacted 
officials from the ERO and MSU in July 2010, ERO officials told us 
that after we brought the matter to their attention in our May report, 
[Footnote 16] they contacted MSU to provide guidance on how they 
thought MSU should report FTEs funded by the Recovery Act in previous 
quarters. ERO officials told us that they advised MSU officials to 
compute and report jobs that had been funded retroactively with 
Recovery Act funds in previous quarters. University officials told us 
they also received guidance from MDE through the Michigan Department 
of Technology, Management & Budget, and for the June 30, 2010, report, 
MSU reported 312.02 FTEs. 

State and Local Accountability Professionals Have Completed a Number 
of Audits and Related Oversight Activities That Included Recovery Act 
Funds and Monitoring and Oversight is Continuing: 

Michigan's OAG and OIAS serve key roles in safeguarding Recovery Act- 
funded programs. OAG is responsible for conducting financial, 
performance, and Single Audits[Footnote 17]--under the Single Audit 
Act--of Michigan's state agencies. The OIAS, Michigan's central 
internal audit group, assists executive branch departments in 
assessing risk and implementing, maintaining, and monitoring internal 
controls, along with providing a variety of other assurance and 
consulting activities. In addition, local city and county governments 
in Michigan that we visited for this report--such as the city of 
Farmington Hills and Kent County--and various local community 
organizations that we visited for our earlier work in Michigan--
including Local Educational Agencies (LEA), Community Action Agencies, 
and Public Housing Authorities--typically rely upon financial 
statement audits that include single audit processes performed by 
independent public accountants as a safeguard to provide oversight of 
Recovery Act funds. Also, the Detroit Office of Auditor General 
performs important oversight functions as does the independent public 
accountant that performs Single Audits for the City of Detroit. 

Office of Auditor General's Single Audits Provide Oversight Of 
Michigan's Departments and Agencies: 

OAG officials told us that they conduct separate Single Audits for 
each of Michigan's departments and agencies every 2 years. Although 
the scope of the audit for each state department and agency differs-- 
depending on the results of risk assessments--the auditor typically 
conducts compliance work in areas such as Davis-Bacon Act provisions, 
state cost matching or maintenance-of-effort requirements, allowable 
costs, recipient reporting, and subrecipient monitoring.[Footnote 18] 

In June 2010, OAG issued eight reports covering its financial audits 
that included the provisions of the Single Audit Act for seven 
Michigan departments and the Michigan Public Educational Facilities 
Authority, a component unit of the state.[Footnote 19] These audits 
were the first state level Single Audits for Michigan that included 
Recovery Act programs. Each of these audits covered the 2-year period 
that ended September 30, 2009, and collectively covered entities that 
reported federal program expenses of approximately $20 billion--
including $2 billion of Recovery Act funds.[Footnote 20] The OAG 
issued "clean" or unqualified opinions on each of the financial 
statements for each of the entities. The OAG also reported significant 
deficiencies in internal control over federal program compliance 
matters for each of the entities audited.[Footnote 21] The OAG's 
findings of internal control deficiencies at state agencies may have a 
direct effect on Recovery Act funds even when the issue reported is 
based on non Recovery Act funds. For example, the OAG single audit 
report for DCH reported significant deficiencies for all 11 major 
federal programs audited. This indicates that the controls DCH has in 
place may not prevent or detect errors and ensure sufficient 
accountability. OAG audits in future years will include the Recovery 
Act and non-Recovery Act federal program activities of the other 9 
Michigan departments for 2009 and later years. 

To meet the accountability requirements of the Recovery Act, it is 
important that Michigan officials promptly address the challenges 
identified in the June 30, 2010, single audit reports covering the 2 
years ended September 30, 2009. These single audit reports provide 
information on internal controls and compliance issues that directly 
affect some Recovery Act funds. As reported by the OAG, noncompliance 
with federal requirements for Recovery Act funds could result in 
sanctions and disallowances, or future reductions in Recovery Act 
awards. 

To further consider the issues reported by the OAG that may apply to 
Recovery Act funds, we read and summarized the Single Audit reports 
for MDE and DCH, the two largest departments that received Single 
Audits. We also read the preliminary responses of agency management to 
the audit findings that were contained in the June 30, 2010, audit 
reports for MDE and DCH. The OAG stated that Michigan law requires 
that the audited agency develop a formal response within 60 days after 
release of the audit reports. Because these two audit reports are 
dated June 30, 2010, no formal responses were available for us to 
consider in this report. 

Michigan Department of Education. For the 2 years ended September 30, 
2009, the OAG single audit of MDE covered 18 federal programs-- 
including seven Recovery Act awards. During this period, MDE reported 
expenses of approximately $3.7 billion in federal awards, including 
$611 million in Recovery Act funds. The OAG reported significant 
deficiencies in MDE's internal controls--including subrecipient 
monitoring of Recovery Act funded programs--and stated that MDE's 
internal controls did not ensure its compliance with certain federal 
laws and regulations. Compliance issues were reported with respect to 
special tests and provisions (such as the requirements for allocation 
of special education funds to charter schools), eligibility 
requirements, subrecipient monitoring, allowable costs and cost 
principles, and maintenance-of-effort by the state. For example, OAG 
reported that MDE's internal control did not ensure that subrecipients 
met allowable costs and cost principles for ESEA Title I[Footnote 22] 
grants to LEAs, stating, for example, that three contracts for 
professional and information technology services totaling $11.1 
million were not competitively bid, and neither MDE nor its 
subrecipients could document how these expenditures were determined to 
be reasonable. In their preliminary response to the June 30, 2010, 
audit report, MDE officials agreed with 8, disagreed with 1, and 
partially agreed with 8 of the OAG's 17 internal control findings and 
compliance issues. MDE officials disagreed with the finding related to 
documentation supporting professional and information technology 
services expenditures and stated that they agreed with the underlying 
intent of the recommendation--to improve MDE's internal control over 
subrecipient monitoring--but disagreed with the questioned costs. 

Department of Community Health. For the 2 years ended September 30, 
2009, the OAG single audit of DCH covered 11 federal programs which 
reported approximately $15.2 billion in federal awards--including 
approximately $1 billion in Recovery Act awards. The OAG report 
identified $489 million of known[Footnote 23] questioned costs and 
$4.4 billion[Footnote 24] of known and likely[Footnote 25] questioned 
costs. These amounts include questioned costs for Recovery Act funds 
of $88 million of known and likely questioned costs related to prompt 
pay requirements for the Medicaid program. [Footnote 26] The OAG noted 
that DCH had developed, but had not officially implemented, a 
reporting system that would enable it to monitor compliance with the 
Recovery Act's prompt pay requirements. Further, the OAG recommended 
that DCH improve its internal control over the Medicaid Cluster to 
ensure compliance with federal laws and regulations on allowable costs 
and cost principles.[Footnote 27] In their preliminary response to the 
June 30, 2010 audit report, DCH officials stated that they agreed with 
19, disagreed with 1, and partially agreed with 15 of OAG's 35 
internal control findings and compliance issues. DCH officials 
disagreed with the finding related to the Recovery Act prompt pay 
requirements. 

Michigan's Office of Internal Audit Services Provides Important 
Oversight and Monitoring of Recovery Act Funds: 

State agencies must complete a self-assessment evaluating their 
internal controls and biennially issue a report on the status of their 
internal control system. The self assessment must include a 
description of any material internal control weaknesses and a 
corrective action plan to address the weaknesses. OIAS reviews these 
self assessments and issues an Internal Control Evaluation report on a 
biennial basis. This report highlights best practices that departments 
have employed that may be helpful to other departments and identifies 
OIAS's planned actions to assist departments in making improvements to 
internal controls. OIAS issued its most recent Internal Control 
Evaluation report in November 2009, and it was based on evaluations of 
internal controls by Michigan departments as of September 30, 2008. 
OIAS officials told us that when Congress enacted the Recovery Act in 
February 2009, they began designing an approach for monitoring 
Recovery Act funds and that the office assigned 2 of its 45 internal 
audit staff to work full-time on programs funded by the Recovery Act, 
and plans to increase staffing as necessary. OIAS officials also told 
us that they selected eight programs for detailed review based on an 
assessment of the control risks posed by the programs, and that they 
planned to conduct further reviews of the selected programs as 
spending occurred.[Footnote 28] 

Along with OAG and OIAS efforts to monitor Michigan's state agencies 
through audits, reviews, and technical assistance, state agencies are 
responsible for monitoring their subrecipients. For example, MDE is 
responsible for monitoring LEAs, including DPS. An OIAS official told 
us that they observed MDE staff monitoring of several LEAs in April 
2010. They also told us that they plan to observe how the Michigan 
Department of Human Services--the state agency that oversees the 
Weatherization Assistance Program--conducts onsite reviews of the 
local agencies that administer the program to assist in identifying 
opportunities for improvements in monitoring processes and procedures. 

Lastly, in July 2010, OIAS officials told us that in fiscal year 2011 
they intend to prepare summaries of findings reported by Michigan's 
accountability professionals related to federal programs, including 
Recovery Act-funded programs, which they anticipate will identify 
issues to consider at a state-wide level, including lessons learned 
from oversight and monitoring of Recovery Act funds. 

Local Accountability Efforts Also Provide Oversight and Monitoring of 
Recovery Act funds: 

Local accountability practices, including single audits by independent 
public accountants, also help provide oversight and monitoring of 
federal programs including Recovery Act funds. We discussed 
accountability and oversight efforts with officials from two Michigan 
localities: the City of Farmington Hills and Kent County. Officials 
with both localities told us they rely upon the Single Audit process 
as a safeguard to provide oversight over federal program activities, 
including program funds provided by the Recovery Act. 

The City of Farmington Hills and Kent County rely on the work of an 
independent public accountant for financial auditing. In November 
2009, Farmington Hills received its most recent Single Audit Report 
for the year ending June 30, 2009. The Farmington Hills' auditor 
provided an unqualified opinion on the city's financial statements for 
the year ended June 30, 2009, and did not report any matters involving 
compliance with governmental regulations, nor any deficiencies in 
internal controls over major programs. In June 2010, the independent 
public accountant for Kent County issued its Single Audit Report that 
included an unqualified opinion on its financial statements for the 
year ended December 31, 2009, and did not identify any weaknesses in 
internal control that should be considered as material weaknesses nor 
any instances of noncompliance with certain provisions of laws, 
regulations, contracts and grant agreements. 

In April 2010, officials in the Detroit Office of Auditor General told 
us that their Recovery Act initiatives included an internal control 
risk assessment and review of the control structure and the 
preparedness of three city departments that received Recovery Act 
funds: Detroit's Department of Human Services, the DWDD, and the 
Detroit Police Department. In October 2009, the Detroit Office of 
Auditor General recommended to the Detroit City Council that the city 
strengthen its overall reporting process to comply with the 
accountability and transparency requirements of the Recovery Act. The 
auditor's report noted that conditions related to weaknesses in 
reporting, bank reconciliations and other internal controls cited in 
the city's single audits increased the financial control risks over 
Recovery Act funds. In July 2010 these officials told us that they 
have continued to monitor Recovery Act funding and plan to issue two 
audit reports in September 2010 that cover the city's WIA Summer Youth 
Employment Program and the Homelessness Prevention and Rapid Re-
Housing Program. These officials also stated that they have dedicated 
two auditors to reviewing Recovery Act programs, with plans to audit 
at least six different city departments by June 2011. 

On May 28, 2010, Detroit's independent public accountant issued its 
Single Audit report--covering the fiscal year ended June 30, 2009-- 
which included federal award expenditures of approximately $283 
million, of which $3.5 million were Recovery Act funds. The report 
identified approximately $14 million of questioned costs. Of the 14 
major programs audited, 1 received an unqualified opinion on 
compliance with government requirements, 11 received qualified 
opinions, 1 received an adverse opinion, and 1 received a disclaimer 
of opinion. The report noted significant deficiencies including 
material weaknesses in internal controls over major federal programs 
such as the Community Development Block Grant and the Workforce 
Investment Act. 

State and Local Officials Told Us They Are Addressing Internal Control 
Challenges We Previously Reported: 

To address financial management and internal control challenges we 
previously reported on in September 2009 (GAO-09-1017SP) and May 2010 
(GAO-10-605SP) we followed up on actions taken and those planned by 
the MDE and DPS, and state and local agencies with responsibility for 
the WIA Program.[Footnote 29] Over the course of our Recovery Act work 
in Michigan during the period from March 2009 through August 2010, we 
interacted with OIAS officials regarding internal control challenges 
and opportunities we identified with activities and programs involving 
Recovery Act funds. In December 2009, OIAS officials told us they 
would take steps to address issues we reported on in September 2009, 
such as oversight and monitoring challenges at MDE, including DPS, and 
the payroll and eligibility challenges at DELEG and DWDD for the WIA 
program. 

In July 2010 officials with MDE, DPS and DELEG--the state agency 
responsible for the WIA program--as well as ERO officials told us that 
some actions have been taken and that others are underway to address 
the internal control challenges described in our prior reports. For 
example, MDE officials told us that they continue to monitor Recovery 
Act funds provided to DPS and, among other things, they are using an 
independent public accounting firm to monitor payroll and non payroll 
expenditures at DPS. In June 2010, MDE officials conducted a site 
visit at DPS that included MDE staff as well as representatives from 
the OIAS. This monitoring included a review of over $35 million of 
teacher salaries and benefit payments charged to Recovery Act SFSF. 

During July 2010 meetings to discuss OIAS's ongoing oversight efforts 
related to Recovery Act-funded programs, officials told us that, among 
other things, they participated in several on-site visits at Michigan 
schools and evaluated MDE's monitoring process over ESEA Title I 
grants as part of their ongoing internal control oversight activities 
involving MDE. They concluded that although MDE may have effective 
program monitoring practices in place over LEAs, the agency has not 
implemented strong fiscal monitoring practices. OIAS officials stated 
that this may be because MDE relies on the schools' single audits as a 
control to identify fiscal issues that may exist at the school level. 
If there are findings in the school's single audit, MDE typically will 
follow-up to determine how the issue can be addressed. According to 
OIAS officials, MDE's Office of Field Services plans to hire an 
auditor in the near term and initiate a fiscal monitoring program, 
which OIAS plans to review. They plan to focus their own reviews on 
schools with ESEA Title I findings reported in single audits and large 
amounts of funding. OIAS officials also told us they plan to conduct 
site visits independently, and to share the results of their reviews 
with MDE. In response to our September 2009 report regarding control 
challenges at DPS, OIAS officials have had several discussions with 
officials in MDE's Field Services and Grants Office regarding ongoing 
oversight at DPS. OIAS officials also noted that they contacted DPS 
and will work directly with DPS officials to plan for and schedule an 
August 2010 OIAS on-site review. 

OIAS officials also told us that they are continuing to work with DWDD 
and other stakeholders to address the payroll and eligibility 
challenges that we identified with the WIA program in Detroit. During 
a July 2010 follow-up visit, DELEG officials provided us with 
documentation describing the DWDD plan for improved monitoring of 
future programs. The plan--which, as of July 2010, is under review by 
DWDD officials--includes revised monitoring forms as well as other 
guidance. DWDD officials also told us they developed and approved 
eligibility criteria for use in future youth employment programs. 

OIAS officials noted that they met with the Director of the WIA 
Monitoring Unit at DELEG to obtain an understanding of how the 
program's expenditures are monitored and how they assure that 
expenditures reported by each of the 25 Michigan Works! Agencies 
(MWAs) are accurate. 

Further, in May 2010, we reported on recipient reporting issues at 
DELEG for the WIA program; MDE, DPS, and Michigan State University for 
salaries that were retroactively paid with Recovery Act funds; and 
with DPS for issues with non reporting of contractor and sub 
contractor jobs.[Footnote 30] In the Recipient Reporting section of 
this report we discuss our July and August 2010 follow up on these 
issues. In addition, OIAS officials told us that their work in recent 
months included consideration of recipient reporting issues at DELEG, 
MDE, and DPS. 

Although Economic and Budgetary Challenges Persist at the State and 
Local Levels, Recovery Act Funds Have Provided Partial Relief: 

Michigan continues to experience economic challenges as a result of 
the decline in the automotive industry, which has lead to budget 
pressures and declines in state revenues. Michigan has addressed its 
fiscal year budget gaps since the beginning of the Recovery Act 
through a combination of Recovery Act funds and cost cutting measures 
to balance the state's budget. Over the 3 years ending September 30, 
2011, Michigan expects to use $4.2 billion for budget stabilization, 
including approximately $2.6 billion of state funds made available as 
a result of the increased FMAP, and Recovery Act funds of $1.3 billion 
in SFSF education stabilization funds, and $290 million in SFSF 
government services funds.[Footnote 31] According to state budget 
officials, as of July 16, 2010, expenses of Michigan state entities 
totaled about $7.0 billion of the approximately $7.4 billion in 
Recovery Act funds it has been awarded.[Footnote 32] Recovery Act 
funding has been used for various programs including Medicaid, 
education, workforce training, and transportation. 

Additional Actions Needed to Address Budget Gaps: 

As of June 30, 2010, slippage in revenue estimates leaves the state 
with a projected General Fund shortfall of approximately $200 million 
for the fiscal year ending September 30, 2010.[Footnote 33] Officials 
are seeking solutions to this shortfall while addressing the projected 
General Fund budget gap for fiscal year 2011. 

According to state budget officials, Michigan has a balanced School 
Aid Fund budget for fiscal year 2011.[Footnote 34] However, as of 
August 10, 2010, Michigan did not have an approved General Fund budget 
for fiscal year 2011. The Governor's originally proposed budget 
estimated a shortfall of approximately $1.1 billion.[Footnote 35] To 
partially address the projected shortfall, the Governor's proposed 
budget assumed that Congress would extend the increased FMAP provided 
by the Recovery Act--which was to end on December 31, 2010--to June 
30, 2011. On August 11, 2010, state budget officials told us that 
based on recent federal action extending the increased FMAP, Michigan 
estimates it will receive approximately $300 million. 

State officials explained that because state law requires the budget 
to be balanced, the Governor advanced, as part of the fiscal year 2011 
Executive budget, a number of options to address the estimated $1.1 
billion budget gap. For example, the Governor proposed corrections 
reforms to reduce prisoner population and allow for closure of up to 
five prison facilities; and state employee benefit reforms, including 
pension reforms.[Footnote 36] Additionally, state officials described 
to us a law enacted in May 2010 reforming the Michigan Public School 
Employees' Retirement System benefits under which, among other 
changes, teachers will be required to contribute 3 percent of their 
salary for retiree health care benefits.[Footnote 37] They explained 
that this change does not affect the state's budget, as all Michigan 
school teachers are local government employees, but will provide 
savings to local governments. State officials estimate that this 
savings in fiscal year 2011 will be $515 million, which officials 
anticipate will enable the districts to retain staff. In addition, 
state officials explained that the legislation included incentives for 
early retirement of school teachers and through June 30, 2010, over 
17,000 teachers statewide have retired.[Footnote 38] The 
administration has proposed similar changes for state employee 
pensions, estimating that these reforms will affect the state budget 
by a reduction of expenses totaling approximately $98 million in 
fiscal year 2011.[Footnote 39] The proposal for changes to the State 
Employee Pension Plan also included incentives for early retirement. 
Further, on August 25, 2010, state budget officials told us that based 
on recent federal action Michigan will receive approximately $318.1 
million from the federal government from the Education Jobs Funds. 
Officials told us that at least ninety-eight percent of the award 
($311.8 million) would be distributed to LEAs and up to $6.3 million 
may be set aside for administration of the program.[Footnote 40] 
Officials also told us that the method by which LEAs would receive the 
funding has yet to be determined. 

Michigan Continues to Face Significant Economic Challenges and 
Officials Are Concerned about the "Cliff Effect" When Recovery Act 
Funds Diminish: 

Michigan continues to face significant economic challenges. State 
officials told us that over the last decade Michigan has lost nearly 
850,000 jobs; much of the job loss due to the changes that have 
occurred throughout the auto industry, the mainstay of its economy. 
Its unemployment rate of 13.1 percent as of June 2010, is one of the 
highest in the nation.[Footnote 41] Projected state revenues for the 
fiscal year ended September 30, 2011 of $17.9 billion are 
approximately 14 percent below revenues of $20.9 billion for the year 
ended September 30, 2008. State officials expressed continuing concern 
about Michigan's long-term fiscal prospects. They told us they are 
aware of the upcoming "cliff effect" in fiscal year 2012, when 
Recovery Act funds diminish and they are working to devise solutions 
to address the potential budget shortfall. 

According to state officials Michigan took a number of cost-cutting 
measures over the last several years. For example, during fiscal years 
2009 and 2010, Michigan closed various state facilities, including 
eleven correctional facilities and prison camps, a state psychiatric 
hospital, and six juvenile facilities; mandated furlough days for 
state employees; and increased the rate of contribution by state 
employees for health insurance. 

The Governor's proposed budget also indicates that the state may 
forego up to $528 million in federal aid--largely for transportation--
due to an inability to provide required matching funds. State budget 
officials told us that the legislature is considering ways to meet the 
matching requirements, but as of August 10, 2010, no decisions have 
been made.[Footnote 42] 

Farmington Hills: 

As we previously reported, local governments we visited in Michigan 
are facing the pressure of balancing budgets in the midst of declining 
revenues. Although Recovery Act funds have offered some temporary 
assistance, local officials noted that these funds do not directly 
alleviate local fiscal pressures. Our work for this report included 
visiting the city of Farmington Hills to better understand these 
pressures and the Recovery Act's impact on the community. Table 1 
provides recent population and unemployment data. 

Table 1: Background on Farmington Hills: 

Population: 78,675; 
Locality type: City; 
Unemployment rate: 11.0%. 

Source: U.S. Census Bureau and U.S. Department of Labor, Bureau of 
Labor Statistics (BLS), Local Area Unemployment Statistics (LAUS) data. 

Notes: Population data are from the latest available estimate, July 1, 
2009. Unemployment rates are preliminary estimates for June 2010 and 
have not been seasonally adjusted. Rates are a percentage of the labor 
force. Estimates are subject to revisions. 

[End of table] 

Through July 31, 2010, Farmington Hills had been awarded a total of 
$965,535 in Recovery Act funds through three grants. Farmington Hills 
officials provided us with the following information on Recovery Act 
spending through July 31, 2010. 

* EECBG: The city had spent approximately $240,548 of its $791,300 
award--roughly 30 percent--on items such as a solar hot water heater, 
solar panels, and lighting improvements for a municipal building. 

* Edward Byrne Memorial Justice Assistance Grant: The city had spent 
approximately $47,000 of its $74,068 award--roughly 63 percent--on 
purchasing new equipment, including police communication devices and a 
digital video file storage and transfer device. 

* Community Development Block Grant: The city had spent its entire 
$100,169 award on rehabilitating 12 single-family, owner-occupied 
homes for low-to-moderate-income families. 

In addition to these grants, city officials told us that Farmington 
Hills had also benefited from Recovery Act funds--totaling 
approximately $2.7 million that are administered by the Michigan 
Department of Transportation--for repairing, resurfacing, and 
rehabilitating two roads in the city. City officials told us that as 
of July 31, 2010, a total of approximately $1.4 million had been spent 
on the road projects. 

City officials said that Recovery Act funds had allowed the city to 
undertake projects and purchase equipment it otherwise would not have 
been able to, but that these funds have not had an impact on the 
city's fiscal stability. Given that the city plans to spend nearly all 
of its Recovery Act funds on one-time projects or acquisitions, 
officials do not foresee having to deal with a "cliff effect" once 
Recovery Act funds are expended. 

City officials told us that Farmington Hills has continued to 
experience significant fiscal pressure due to a steady decline in its 
property tax and state shared revenue--its largest sources of income. 
[Footnote 43] The City's fiscal year ends June 30, 2011, and its 
general fund budget amounts to approximately $46.6 million, which 
represents a decrease of 12 percent from its fiscal year 2010 general 
fund budget of about $53 million. To address their fiscal situation, 
city officials plan to aggressively apply for grants, continue to cut 
expenditures, and tap into their reserves. The city also plans to 
reduce the number of full-time staff by approximately 50--or 13 
percent--during fiscal year 2011 through a combination of retirements, 
not filling vacant positions, and layoffs. 

State and Locality Comments on This Summary: 

We provided the Governor of Michigan with a draft of this appendix, 
and staff in the Michigan Economic Recovery Office reviewed the draft 
appendix and responded on August 16, 2010. We also provided relevant 
excerpts to officials from the localities we visited. They agreed with 
our draft and provided clarifying or technical suggestions that were 
incorporated, as appropriate. 

GAO Contacts: 

Susan Ragland, (202) 512-8486 or raglands@gao.gov: 

Staff Acknowledgments: 

In addition to the contacts named above, Robert Owens, Assistant 
Director; Ranya Elias, analyst-in-charge; Patrick Frey; Henry Malone; 
Giao N. Nguyen; Laura Pacheco; Tejdev Sandhu; Regina Santucci; and Amy 
Sweet made major contributions to this report. 

[End of section] 

Appendix X Footnotes: 

[1] Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009). 

[2] Single Audits are prepared to meet the requirements of the Single 
Audit Act, as amended, (31 U.S.C. §§ 7501-7507) and provide a source 
of information on internal control weaknesses, noncompliance with laws 
and regulations, and the underlying causes and risk. 

[3] The Michigan Public Educational Facilities Authority is a 
separately audited component unit of the state. 

[4] The Recovery Act initially provided eligible states with an 
increased FMAP for 27 months from October 1, 2008, to December 31, 
2010. Recovery Act, div. B, title V, § 5001, Pub. L. No. 111-5, 123 
Stat. at 496. On August 10, 2010 federal legislation was enacted 
amending the Recovery Act and providing for an extension of increased 
FMAP funding through June 30, 2011, but at a lower level. See Pub. L. 
No. 111-226, § 201, 124 Stat. 2389 (Aug. 10, 2010). 

[5] The total allocation for Michigan includes $1.4 million to 12 
direct grantees which are tribal governments. 

[6] Section 1605 of the Recovery Act imposes a Buy American 
requirement on Recovery Act funding, subject to certain exceptions. 
Recovery Act, div. A, § 1605, 123 Stat. 303. 

[7] The team includes representatives from the county's Departments of 
Purchasing, Facilities Management, and Fiscal Services (for accounting 
and budget issues), and the county Administrator's Office. 

[8] The Recovery Act's Davis-Bacon provisions are located at section 
1606 of the act. Recovery Act, div. A, § 1606, 123 Stat. 303. 

[9] Recovery Act, div. A, title XV, § 1512(c). 

[10] OMB Memorandum, M-10-08, Updated Guidance on the American 
Recovery and Reinvestment Act - Data Quality, Non-Reporting 
Recipients, and Reporting of Job Estimates (Dec. 18, 2009), among 
other things, standardized the period of measurement of jobs created 
or retained as one quarter. 

[11] The state's administration will change with upcoming elections 
because Michigan's governor is term limited. 

[12] Generally, recipients are to submit reports to OMB's 
federalreporting.gov 10 days after the quarter ends. OMB extended this 
quarter's reporting period deadline to July 14, 2010. 

[13] Recipients of EECBG funds are required to report quarterly to DOE 
on three categories of activity and results metrics, including jobs 
created or retained, using DOE's PAGE system. 

[14] OMB's December 2009 guidance states that recipients are to 
include jobs funded from subrecipients and vendors in their quarterly 
reports to the maximum extent practicable. See OMB Memorandum, M-10-
08, December 18, 2009. 

[15] Of the $11.4 million of Recovery Act funding allocated to the 
Detroit Michigan Works! Agency, DWDD retained $8.3 million for youth 
payroll and internal administration and used $3.1 million to contract 
with a vendor that administered the summer youth employment program. 
In total, DELEG allocated $62.9 million to the 25 Michigan Works! 
Agencies for their Workforce Investment Act Summer Youth Programs. 

[16] We noted in our May report that officials from ERO, the Michigan 
Department of Technology, Management & Budget, and MDE should consider 
what actions might be taken to ensure that jobs that are paid for with 
Recovery Act SFSF education stabilization funds are being reported 
consistently and on time. 

[17] Single Audits are prepared to meet the requirements of the Single 
Audit Act, as amended, (31 U.S.C. §§ 7501-7507) and provide a source 
of information on internal control and compliance findings and the 
underlying causes and risks. The Single Audit Act requires that 
states, local governments, and nonprofit organizations expending 
$500,000 or more in federal awards in a year to obtain an audit in 
accordance with the requirements set forth in the act. A Single Audit 
consists of (1) an audit and opinions on the fair presentation of the 
financial statements and the Schedule of Expenditures of Federal 
Awards; (2) gaining an understanding of and testing internal control 
over financial reporting and the entity's compliance with laws, 
regulations, and contract or grant provisions that have a direct and 
material effect on certain federal programs (i.e., the program 
requirements); and (3) an audit and an opinion on compliance with 
applicable program requirements for certain federal programs. 

[18] The Recovery Act's wage rate provisions are located at section 
1606 of division A of the act. 

[19] The OAG issued Single Audit reports on June 30, 2010 for the 
Departments of Community Health, Education, Military and Veterans 
Affairs, Natural Resources, Environmental Quality, and State Police; 
June 15, 2010 for the Department of Corrections; and May 21, 2010 for 
the Michigan Public Educational Facilities Authority, a discreetly 
presented component unit of the state. The Federal Audit 
Clearinghouse, which is responsible for receiving and distributing 
Single Audit results, received these audits by June 30, 2010. 

[20] In comparison, Michigan's audited consolidated financial 
statements for the two fiscal years ended September 30, 2009 report 
total expenses of $88.3 billion. 

[21] The OAG defined a significant deficiency in internal control over 
federal program compliance as a control deficiency, or combination of 
control deficiencies, that adversely affects the entity's ability to 
administer a federal program such that there is more than a remote 
likelihood that noncompliance with a type of compliance requirement of 
a federal program that is more than inconsequential, will not be 
prevented or detected. 

[22] Title I, Part A of the Elementary and Secondary Education Act of 
1965, as amended. 

[23] The OAG defined known questioned costs as questioned costs that 
are specifically identified by the auditor. 

[24] The OAG reported that the $4.4 billion known and likely 
questioned costs were based on documentation provided to them during 
the audit; however, it is possible that DCH could obtain additional 
documentation that would reduce the amount of questioned costs. 

[25] The OAG defined likely questioned costs as the auditor's 
estimate, based on the known questioned costs, of total questioned 
costs. 

[26] Under the Recovery Act, states are not eligible to receive the 
increased FMAP for certain claims for days during any period in which 
that state has failed to meet the prompt payment requirement under the 
Medicaid statute as applied to those claims. See Recovery Act, div. B, 
title V, §5001(f)(2). Prompt payment requires states to pay 90 percent 
of clean claims from health care practitioners and certain other 
providers within 30 days of receipt and 99 percent of these claims 
within 90 days of receipt. See 42 U.S.C. §1396a(a)(37)(A). 

[27] According to the OAG, a cluster is a grouping of closely related 
federal programs that have similar compliance requirements. The 
programs within a cluster may be administered as separate programs, 
but are treated as a single program for purposes of meeting the audit 
requirements of OMB Circular, A-133, Audits of States, Local 
Governments, and Non-Profit Organizations. 

[28] The eight programs selected for review are the: (1) ESEA Title I 
grants, (2) Individuals with Disabilities Education Act (IDEA), Part B 
grants, (3) School Improvement Grants, (4) Clean Water/Drinking Water 
Revolving Funds, (5) Weatherization Assistance Program, (6) Workforce 
Investment Act of 1998, (7) State Energy Program, and (8) Byrne 
Justice Assistance Grant. 

[29] In September 2009 we reported that DELEG should work with the 
Detroit WIA program to implement internal controls to address 
weaknesses with the program's payroll preparation and distribution 
process as well as program eligibility determinations. We also noted 
that the Michigan Department of Education, in coordination with 
Detroit Public Schools, will need to consider implementing procedures 
to provide reasonable assurance that Recovery Act funds are reported 
accurately and timely and used only for allowable purposes. GAO-09-
1017SP. 

[30] GAO, Recovery Act: States' and Localities' Uses of Funds and 
Actions Needed to Address Implementation Challenges and Bolster 
Accountability (Appendixes), [hyperlink, 
http://www.gao.gov/products/GAO-10-605SP] (Washington, D.C.: May 2010). 

[31] As previously reported, in fiscal year 2009, Michigan had 
expended almost all of its government services funds (approximately 
$288 million) for public safety programs, including the Michigan State 
Police and Department of Corrections. 

[32] According to State Budget Office officials, the amount of 
Recovery Act funding awarded is defined as the amount appropriated by 
the Michigan legislature as of July 16, 2010. 

[33] At September 30, 2009, Michigan's audited financial statements 
reflect a General Fund balance of $177.2 million and the School Aid 
Fund had a fund balance of $251.1 million. 

[34] In July 2010, Michigan enacted a state school aid budget 
appropriations bill for fiscal year 2011, wherein the state 
appropriated approximately $10.9 billion from the school aid fund and 
approximately $184 million in Recovery Act funds to public schools and 
other state educational programs. 

[35] Officials from the state budget office told us that the $1.497 
billion estimated shortfall is made up of a $1.1 billion shortfall in 
the General Fund and a $0.4 billion shortfall in the School Aid Fund. 

[36] On August 18, 2010, the Governor detailed her recommendations-- 
including a 3 percent administrative reduction (for fiscal year 2011) 
in all state agency spending and other spending and revenue proposals--
to address the budget shortfalls for fiscal years 2010 and 2011. 

[37] 2010 Mich. Pub. Acts 75. 

[38] State officials told us that they had not estimated what, if any, 
portion of the total retirees were a result of the early out 
provisions of the legislation; they noted that for the most recent 
fiscal year ended September 30, 2009, 6,000 teachers had retired. 

[39] State officials told us that total savings in fiscal year 2011 as 
a result of the Governor's proposed reforms to the Michigan's State 
Employee Retirement System are estimated to total $253 million. 
Estimated general fund savings to the state would amount to $98 
million. State officials also estimate that the reforms will result in 
reduced expenditures of $155 million, a portion of which is 
reimbursable by the federal government, and as a result federal and 
other state restricted revenues would in turn be reduced by $155 
million. 

[40] Section 101 of Public Law 111-226, enacted on August 10, 2010, 
provides $10 billion for the new Education Jobs Fund to retain and 
create education jobs nationwide. The Fund will generally support 
education jobs in the 2010-2011 school year and be distributed to 
states using a formula based on population figures. States can 
distribute their funding to school districts based on their own 
primary funding formulas or districts' relative share of federal ESEA 
Title I funds. 

[41] GAO analysis of U.S. Department of Labor, Bureau of Labor 
Statistics (BLS) data. Unemployment rates are preliminary estimates 
for June 2010 and have not been seasonally adjusted. Rates are a 
percentage of the labor force. Estimates are subject to revisions. 

[42] Officials told us that Michigan would need to provide an 
additional $84 million in fiscal year 2011 to meet federal matching 
requirements. 

[43] Tax revenue--estimated to be approximately $26.9 million--and 
state shared revenue--estimated to be about $5.5 million--represents 
about 70 percent of the City's general fund estimated revenues for 
fiscal year 2011. 

[End of Appendix X] 

Appendix XI: Mississippi: 

Overview: 

[End of section] 

The following summarizes GAO's work on the seventh of its bimonthly 
reviews of American Recovery and Reinvestment Act (Recovery Act) 
spending in Mississippi[Footnote 1]. The full report on all of our 
work, which covers 16 states and the District of Columbia, is 
available at http://www.gao.gov/recovery. 

What We Did: 

We obtained information on four programs funded under the Recovery 
Act--Public Housing Capital Fund Formula Grants, Public Housing 
Capital Fund Competitive Grants, the Tax Credit Assistance Program 
(TCAP), and the Grants to States for Low-income Housing Projects in 
Lieu of Low-income Housing Credits Program under Section 1602 of 
division B of the Recovery Act (Section 1602 Program). Our work 
focused primarily on the status of program funding and the use of 
funds. As part of our review of public housing, we visited three 
public housing authorities, located in Meridian, Gulfport, and 
Picayune. Our work with TCAP and the Section 1602 Program included 
visits to the Mississippi Home Corporation located in Jackson and two 
housing projects, one in Pickens and the other in Pascagoula. For 
descriptions and requirements of the covered programs, see appendix 
XVIII of GAO-10-1000SP. 

Our work in Mississippi also included meeting with Tupelo city 
officials to determine the amount of Recovery Act funds the city had 
received or will receive directly from federal agencies and to learn 
how those funds are being used. We chose to visit Tupelo because its 
unemployment rate was above the state's average and it is one of the 
largest cities in Mississippi. 

Finally, we updated information we previously reported on 
Mississippi's fiscal condition and on the efforts that the state has 
undertaken to ensure accountability of the Recovery Act funds that it 
has received. 

What We Found: 

* Public housing. The Meridian Housing Authority (MHA) received an 
$8.5 million Recovery Act Public Housing Capital Fund Competitive 
Grant. MHA plans to use this grant to help renovate a 113-unit public 
housing development. As of August 7, 2010, MHA had obligated $520,356 
and drawn down $335,134 of the obligated funds. Also as of August 7, 
the Mississippi Regional Housing Authority Number VIII (MRHA-8), which 
is located in Gulfport, Mississippi, had received a $3,783,351 
Recovery Act Public Housing Capital Fund Formula Grant and had 
expended a total of $1,168,969. MRHA-8 is using the funds to remodel 
the office space at one housing development, re-roof 73 housing 
authority buildings, and conduct various renovations in 140 individual 
housing units. The Picayune Housing Authority (PHA) received a total 
of $697,630 in Recovery Act funds from the Public Housing Capital Fund 
Formula Grant, and as of August 7, 2010, it had expended the full 
amount. PHA used the funds to renovate the bathrooms and kitchens in 
22 units, as well as to replace the heating, ventilation, and air 
conditioning systems in another 92 units. 

* TCAP and the Section 1602 Program The Recovery Act established two 
funding programs that provide capital investments in Low-income 
Housing Tax Credit (LIHTC) projects: (1) TCAP administered by the U.S. 
Department of Housing and Urban Development (HUD) and (2) the Section 
1602 Program administered by the U.S. Department of Treasury 
(Treasury)[Footnote 2]. Before the credit market was disrupted in 
2008, the LIHTC program provided substantial financing in the form of 
third-party investor equity for affordable rental housing units 
[Footnote 3]. As the demand for tax credits declined, so did the 
prices investors were willing to pay for them, which created funding 
gaps in projects that had received tax credit allocations in 2007 and 
2008. TCAP and the Section 1602 Program were designed to fill 
financing gaps in planned tax credit projects and jump-start stalled 
projects. 

HUD awarded the Mississippi Home Corporation (MHC) $21,881,803 in TCAP 
Recovery Act funding, and Treasury awarded MHC $29,664,458 in Section 
1602 Program funds. In turn, MHC awarded all TCAP and Section 1602 
Program funds to 32 projects, with 15 receiving TCAP funds, 4 
receiving Section 1602 Program funds, and 13 receiving a combination 
of TCAP and Section 1602 Program funds. According to HUD data, as of 
August 1, 2010, MHC had disbursed $4,606,010 or 21 percent of the 
awarded TCAP funds. In addition, according to HUD data, as of July 31, 
2010, MHC had not disbursed any Section 1602 Program funds. 

MHC officials indicated that they are not concerned about disbursing 
seventy-five percent of TCAP funds by the February 2011 deadline. 
However, because of delays, MHC officials told us that project owners 
receiving Section 1602 Program funds may not meet the requirement of 
spending thirty percent of eligible project costs by the December 31, 
2010 deadline. If a project owner fails to meet this deadline, then 
MHC must stop disbursing any additional Section 1602 Program funds to 
the project owner. MHC expects that it will not begin disbursing 
Section 1602 Program funds to projects until mid-to late-August. 

* Tupelo's use of Recovery Act funds. Tupelo received six Recovery Act 
grants which totaled $6,355,279. According to city officials, funds 
provided by the Recovery Act benefited the city. However, the 
officials told us that the city did not apply for some funds that 
would have helped the city meet its critical needs. Although officials 
identified water and sewer line improvements as a critical city need, 
Tupelo did not apply for Recovery Act funds for such improvements that 
were available through the Mississippi Clean Water and Drinking Water 
State Revolving Funds. According to a city official, the city chose 
not to apply for the funds because the city did not have 1) shovel-
ready projects that met the objectives of the fund or 2) the resources 
to devote to quickly developing a project. 

* State fiscal condition. Mississippi continues to experience 
significant fiscal challenges due to a decline in state revenues. Tax 
revenue collections for fiscal year 2010 were $404 million, or 8.2 
percent below expectations. The Governor stated that while preparing 
the fiscal year 2011 budget was a difficult process because of 
declining revenue, fiscal year 2012 will be even more challenging 
because federal stimulus funding will have ended. 

* Accountability. The Mississippi Office of the State Auditor (OSA) 
and the Department of Finance and Administration (DFA) have contracted 
with national accounting firms to monitor and oversee Recovery Act 
funds. Through April 2010, BKD, the firm contracted by OSA, has tested 
80 grants received by 34 grant recipients and reported a total of 101 
instances where recipients did not comply with Recovery Act 
requirements. The greatest lack of compliance was with quarterly 
recipient reporting. KPMG, the firm contracted by DFA, is assessing 
selected state agencies for their compliance with Recovery Act 
provisions. As of June 30, 2010, KPMG had completed site visits at 12 
state agencies and reviewed approximately 39 different grants. 
Similarly to BKD, KPMG found compliance problems with recipient 
reporting requirements. 

Obligation of Mississippi's Sole Public Housing Competitive Grant 
Begins as the State's Formula Grants Continue to Be Expended: 

HUD awarded Recovery Act Public Housing Capital Fund competitive grant 
dollars meant to improve the physical condition of housing authority 
properties to only one of Mississippi's 52 public housing agencies-- 
MHA. MHA received approximately $8.5 million and as of August 7, 2010, 
had obligated $520,356. Also as of August 7, MHA had drawn down 
$335,134 of the obligated funds. 

According to officials, MHA will use its Recovery Act competitive 
grant to help renovate a 113-unit public housing development, known as 
Frankberry Court. Each unit in this public housing development, which 
was originally constructed in 1939, will receive a number of 
improvements, including central heat and air conditioning units, new 
energy efficient windows, entry doors, roofs, and vinyl siding, as 
well as new baths and kitchens; energy star appliances; interior paint; 
and tile or carpeted floors. The existing on-site clubhouse will also 
be refurbished to accommodate tenant community services and a resident 
business center. Figure 1 shows the Frankberry Court development as it 
stands today, prior to renovation, as well as a newly built 
"affordable housing" development in Meridian that was constructed by 
the same developer and that serves as the model for the Frankberry 
Court renovation. 

Figure 1: Frankberry Court Development, Prior to Renovation, and Model 
"Affordable Homes" in Meridian, Mississippi by the Same Developer: 

[Refer to PDF for image: 4 photographs] 

The two pictures on the left (top and bottom) show the exteriors of 
the (1) individual housing units and (2) community center of a housing 
development to be renovated using Recovery Act Public Housing 
Competitive Grant funding. The two pictures on the right (top and 
bottom) show the exteriors of the (1) individual housing units and (2) 
community center of a recently renovated housing development, which 
serves as the model community for the housing development featured on 
the left. The photographs on the left reflect the necessity of the 
Recovery Act-funded renovations in that the housing units and 
community center appear cold and unwelcoming to those who may reside 
there, whereas the photographs on the right reflect a modern, more 
welcoming place to call home. For example, in the top, left photo, the 
public housing building has graffiti to the left of the middle windows 
on the first floor, whereas the public housing building, in the top, 
right photo, has the aesthetics of an upscale apartment community. In 
addition, the community center in the bottom, left picture is 
surrounded by a chain link fence and there is no playground equipment 
for children, whereas the community center in the bottom, right 
picture, has a beautiful wooden fence and new playground equipment. 

Source: GAO. 

[End of figure] 

MHA officials told us that the scope and estimated cost of the 
Frankberry project has remained consistent since MHA filed its 
Recovery Act competitive grant application. However, the timeline has 
slipped due to a delay in financing. Because the Recovery Act requires 
that housing agencies obligate competitive grant funds within one year 
of the funds becoming available to them, MHA officials originally 
hoped to complete this task by January 1, 2010, well in advance of 
their September 23, 2010 deadline. Although MHA still plans to 
obligate its funds in advance of the mandated deadline, it does not 
plan to do so until September 9, 2010. The nearly $11.9 million 
project will be partially financed through the sale of $5.5 million in 
bonds and $2.8 million in tax credits. The proceeds from the bonds 
will then provide a construction loan that MHA will eventually pay 
using $4.9 million in Recovery Act funding and $648,910 in low-income 
housing tax credit equity. As of August 4, 2010, MHA had a letter of 
agreement from a bank to both purchase the bonds and provide the 
construction loan and a letter from an equity fund agreeing to 
purchase the low-income housing tax credits. Officials at the HUD 
Mississippi Field Office stated that MHA might face some challenges 
due to today's weak economy, especially since the equity fund is to 
purchase tax credits in four installments based upon the progression 
of the project. 

MHA officials expect that they will meet the requirement to expend 60 
percent of their Recovery Act funds within 2 years of the date that 
the funds became available for obligation. The officials told us that 
20 percent of their project funds will be automatically expended once 
HUD provides final project approval in late August and Recovery Act 
funds are transferred to an escrow account as collateral for the 
project's bond issue. The remaining project funds will then be drawn 
down monthly and invested as collateral for the bonds. Currently, 
officials believe they will meet the 60 percent expenditure deadline 
by April 2011, which is well in advance of their mandated September 
23, 2011, deadline. Officials also added that they will continue to 
assess their progress in obligating and expending Recovery Act funds 
during weekly telephone conversations with their project staff and 
with HUD representatives at the Mississippi Field Office. 

Housing Authorities Expend Recovery Act Public Housing Capital Fund 
Formula Grants for a Variety of Projects: 

Collectively, HUD provided Mississippi's 52 public housing agencies 
with approximately $32.4 million in Recovery Act Public Housing 
Capital Fund formula grants. Similar to Public Housing Capital Fund 
Competitive Grants, HUD provides formula grant funds to housing 
authorities to improve the physical condition of their properties. As 
of August 7, 2010, the recipient public housing agencies had not only 
obligated the total $32.4 million, but had also drawn down a 
cumulative total of about $23.7 million of the obligated funds. 

We visited two housing authorities that received Recovery Act Public 
Housing Capital Fund formula grants--MRHA-8 located in Gulfport, 
Mississippi and PHA in Picayune, Mississippi--both of which we 
previously visited and reported on in July and December 2009[Footnote 
4]. Based on its 2008 formula, HUD allocated $3,783,351 in Recovery 
Act funds to MRHA-8 and as of August 7, 2010, the housing authority 
had expended a total of $1,168,969. The projects and their value are 
shown in table 1. Officials told us that the remaining $453,450 of 
Recovery Act funding has been obligated to help cover replacement 
decking for the Dan Stepney re-roofing project, architectural and 
engineering services, and administrative expenses. The administrative 
expenses include salaries for three years for an assistant and an on-
site inspector, as well as the cost for three years of the authority's 
telephone, fuel, training, travel, and insurance costs. HUD also 
provided PHA with $697,630 in Recovery Act funds, which as of August 
7, 2010, had been completely expended. 

Table 1: Projects MRHA-8 Funded with Its Public Housing Capital 
Formula Grant: 

Housing development: H.C. Patterson; 
Work funded by the Recovery Act: Office Remodel; 
Contract award amount: $228,600. 

Housing development: Pecan Circle; 
Work funded by the Recovery Act: Re-roof 38 buildings and install 
solar-powered attic fans; 
Contract award amount: $305,000. 

Housing development: Pecan Circle; 
Work funded by the Recovery Act: Kitchen and Bath Renovation of 72 
units; 
Contract award amount: $1,135,516. 

Housing development: Dan Stepney; 
Work funded by the Recovery Act: Re-roof 35 buildings and install 
solar-powered attic fans; 
Contract award amount: $287,785. 

Housing development: Dan Stepney; 
Work funded by the Recovery Act: Miscellaneous Renovation of 68 units; 
Contract award amount: $1,373,000. 

Housing development: Total; 
Contract award amount: $3,329,901. 

Source: MRHA-8. 

[End of table] 

The renovation of the office and community common area at the H.C. 
Patterson Housing Development in Poplarville, Mississippi is part of 
the MRHA-890 HUD-approved five year plan. The renovation includes the 
installation of a gas log fireplace, oak moldings, and oak built-in 
shelving, as well as ceramic tile floors. Figure 2 shows the 
improvements being financed with Recovery Act funds in comparison to 
the interior of another development's office space that has yet to 
undergo renovation. 

Figure 2: Columbia, Mississippi's Dan Stepney Housing Development 
Office, Prior to Renovation, and the Recovery Act-Financed Interior 
Improvements at the Poplarville H.C. Patterson Housing Development 
Office: 

[Refer to PDF for image: 4 photographs] 

The two pictures on the left (top and bottom) show the interior office 
space of a housing development yet to undergo renovation, including 
the (1) workspace of the public housing development staff and (2) 
community common area for public housing resident use. The two 
pictures on the right (top and bottom) show the interior office space 
of a housing development renovated using Recovery Act Public Housing 
Capital Formula Grant funding, including the (1) entry door and 
flooring of the workspace for staff of the public housing development 
and (2) community common area for public housing resident use. The 
photographs on the left reflect a dated, unwelcoming staff office 
space and resident common area, whereas the photographs on the right 
reflect a modern, more welcoming environment. For example, in the top, 
left photo, the staff offices are surrounded by cement block walls and 
the flooring consists of old and dirty carpeting, whereas the staff 
offices, in the top, right photo, has the aesthetics of an upscale 
apartment community, including such features as a solid oak door and 
ceramic tile floors. In addition, the resident common area in the 
bottom, left picture has cement, stark white block walls and laminate 
flooring, whereas the resident common area in the bottom, right 
picture, has beautiful, solid oak shelving, warm and neutral paint, as 
well as a gas log fireplace. 

Source: GAO. 

[End of figure] 

Although MRHA-8 planned to complete the H.C. Patterson renovation by 
April 2010, the contract administrator for this project told us that 
MRHA-8 now plans to close the contract without all work being 
completed. The contract administrator told us that the contractor not 
only performed substandard work but also failed to complete some work 
entirely. He also said that MRHA-8 officials plan to charge the 
contractor an amount equal to the cost of having another contractor 
repair the substandard work and complete the unfinished work, as well 
as require the contractor to pay liquidated damages. According to the 
contract administrator, MRHA-8 will then decide whether to use its own 
staff to complete the project, hire another contractor to complete it, 
or implement another remedy that is allowed under procurement rules. 

MRHA-8 is also making miscellaneous renovations to all 68 units of its 
Dan Stepney Housing Development in Columbia, Mississippi. These 
renovations include the replacement of single pane windows with energy 
efficient double pane windows; installation of solar-assisted hot 
water heaters; new cabinets, energy efficient refrigerators, and 
stoves in each unit's kitchen; and new bathtubs, water saving toilets, 
vanities, mirrors, lights, fans, and receptacles in each unit's 
bathroom. Figure 3 shows the windows at the Dan Stepney Housing 
Development as they existed before renovation and the windows after 
replacement. 

Figure 3: Dan Stepney Housing Development's Window Replacement: 

[Refer to PDF for image: 2 photographs] 

The picture on the left shows the exterior of a public housing unit 
where the single pane windows have yet to be replaced with new and 
energy efficient double pane windows. However, the picture on the 
right shows the exterior of a public housing unit, in the same 
development, where the single pane windows have been replaced with new 
and energy efficient double pane windows paid for with Recovery Act 
Public Housing Capital Formula Grant funding. The photograph on the 
left reflect dated windows that do not look as thick or secure as the 
windows featured in the photograph to the right. 

Source: GAO. 

[End of figure] 

As we previously reported, PHA officials used Recovery Act funds to 
renovate bathrooms and kitchens in 22 units, as well as to replace the 
heating, ventilation, and air conditioning (HVAC) systems in another 
92 units[Footnote 5]. The interior and exterior components of these 92 
new HVAC systems are shown in Figure 4. 

Figure 4: New HVAC Systems Financed with a Public Housing Capital Fund 
Formula Grant and Installed at a Picayune, Mississippi Housing 
Development: 

[Refer to PDF for image: 2 photographs] 

The photograph on the left shows the interior component and the 
picture on the right shows the exterior component of a public housing 
unit’s new heating, ventilation, and air conditioning system paid for 
with Recovery Act Capital Formula Grant Funds. Prior to the 
installation of these units, the residents of this particular public 
housing development did not have air conditioning. 

Source: GAO. 

[End of figure] 

Field Office Believes Recovery Act Funds Have Improved Monitoring 
Efforts: 

The HUD Mississippi field office Director told us that Recovery Act 
funds have enabled HUD headquarters to provide her office with the 
financial resources needed to conduct both remote and on-site reviews. 
In particular, the field office conducted "quick look" reviews of five 
Mississippi housing authorities that had obligated less than 90 
percent of their Recovery Act formula funds as of February 26, 2010. 
The field office found deficiencies at only one of the housing 
authorities reviewed, the Brookhaven Housing Authority. Field office 
officials told us that its policy committee considered Brookhaven's 
use of funds for a security contract to be an improper use of funds. 
In addition, the officials said that Brookhaven replaced existing 
funding for the contract with Recovery Act funds, an action known as 
supplanting, which the Recovery Act does not allow. At this time, HUD 
plans to recapture $153,787.64 in funding. 

The field office Director also explained that her office both assists 
and provides guidance to housing authorities in their preparation of 
recipient reports required by the Recovery Act. The director told us 
that the field office reminds the housing authorities of upcoming 
deadlines, keeps track of the housing authorities that have reported, 
and provides support for technical problems. However, while the field 
office will question officials at a public housing authority if the 
officials observe discrepancies in the authorities' reported jobs 
data, the field office does not review the integrity of the data as 
all data quality reviews are conducted at HUD headquarters. 

Housing Authorities Confirm Jobs Data in Different Ways: 

We spoke with officials from two housing authorities about their 
method of confirming the jobs data that they report. A PHA official 
told us that she asks PHA's on-site modification coordinator to verify 
the accuracy of the number of jobs that contractors report as created 
and retained. The coordinator compares the employees on the 
contractor's weekly time sheet with the information documented in the 
coordinator's daily on-site reports. An MRHA-8 official explained that 
he accepts the jobs data that his contractors certify and report to 
him in writing. In addition, officials from MRHA-8's contracting 
office verify this information by checking it against the contractor's 
certified payroll. 

TCAP and Section 1602 Program Provide Needed Project Financing but 
Create Financial Burden for Mississippi Home Corporation: 

The Recovery Act established two funding programs that provide capital 
investments in LIHTC projects: (1) TCAP administered by HUD and (2) 
the Section 1602 Program administered by Treasury[Footnote 6]. Before 
the credit market was disrupted in 2008, the LIHTC program provided 
substantial financing in the form of third-party investor equity for 
affordable rental housing units. As the demand for tax credits 
declined, so did the prices investors were willing to pay for them, 
which created funding gaps in projects that had received tax credit 
allocations in 2007 and 2008. TCAP and the Section 1602 Program were 
designed to fill financing gaps in planned tax credit projects and 
jump-start stalled projects. 

Housing Finance Agencies and Project Owners Must Meet Disbursement and 
Expenditure Guidelines: 

Under the Recovery Act, housing finance agencies (HFAs) responsible 
for administering TCAP projects must disburse 75 percent of the funds 
that they receive by February 2011; project owners must expend the 
TCAP funds that they receive by February 2012. The Recovery Act 
requires that all Section 1602 Program awards be made by December 
2010, or the HFA must return the unawarded funds to Treasury. 
Treasury's deadline for HFAs to disburse all Section 1602 Program 
funds is December 31, 2011. However, Treasury requires that individual 
project owners spend 30 percent of their eligible project costs by 
December 31, 2010 in order to continue receiving Section 1602 Program 
funds in 2011[Footnote 7]. 

MHC Concerned that Projects Funded by the Section 1602 Program May 
Have Difficulty Meeting Spending Deadline: 

HUD awarded the MHC $21,881,803 in TCAP Recovery Act funds and 
Treasury awarded MHC $29,664,458 in Section 1602 Program funds. In 
turn, MHC awarded all TCAP and Section 1602 Program funds to 32 
projects, with 15 receiving TCAP funds, 4 receiving Section 1602 
Program funds, and 13 receiving a combination of TCAP and Section 1602 
Program funds. According to HUD data, as of August 1, 2010, MHC had 
disbursed $4,606,010 or 21 percent of the awarded TCAP funds. In 
addition, according to HUD data, as of July 31, 2010, MHC had not 
disbursed any Section 1602 Program funds. 

MHC officials indicated that they are not concerned about disbursing 
seventy-five percent of TCAP funds by the February 2011 deadline. 
However, because of delays, MHC officials told us that project owners 
receiving Section 1602 Program funds may not meet the requirement of 
spending thirty percent of eligible project costs by the December 31, 
2010 deadline. If a project owner fails to meet this deadline, then 
MHC must stop disbursing any additional 1602 Program funds to the 
project owner. MHC expects that it will not begin disbursing Section 
1602 Program funds to projects until mid-to late-August. MHC noted 
several reasons for this delay. First, MHC officials told us that 
MHC's board delayed its request for Section 1602 Program funds to 
Treasury until February 2010, while the board assessed program risks 
related to Treasury's requirements for recapture of funds. This 
included an assessment of the requirement that makes MHC responsible 
for returning Section 1602 Program funds to Treasury if a project 
owner fails to complete the project or meet LIHTC 
requirements[Footnote 8]. Further, MHC explained that delays in the 
approval of legal documents by investors and lenders prevented MHC 
from disbursing funds to the projects and delayed most Section 1602 
Program development loan closings until mid-to late August. 

Additional TCAP and Section 1602 Program Responsibilities Create 
Burden for MHC: 

For the TCAP and Section 1602 Program, HUD and Treasury require state 
Housing Finance Agencies (HFA) to exercise more management of projects 
than the agencies exercise under the standard LIHTC program. Normally 
IRS requires HFAs to review LIHTC projects at least annually to 
determine project owner compliance with rent and income limits and 
with tenant qualifications. Additionally, every three years the Agency 
must conduct on-site inspections of all LIHTC buildings, which 
includes inspecting at least 20 percent of the LIHTC units and the 
resident files associated with those units. Under the TCAP and Section 
1602 programs, however, HFAs are obligated to perform asset 
management, which imposes ongoing responsibilities on the HFAs for the 
long-term viability of each project. For example, an HFA's asset 
management may include monitoring current financial and physical 
aspects of project operations, such as conducting analyses or 
approving operating budgets, developing cash flow trends, and 
monitoring reserve accounts, as well as performing physical 
inspections. Asset management activities will also examine long-term 
issues related to plans for addressing a project's capital needs and 
changes in market conditions, as well as recommending and implementing 
plans to correct troubled projects. In addition, HFAs will ensure 
compliance with LIHTC requirements as part of its asset management 
activities. Further, HFAs are responsible for returning TCAP and 
Section 1602 Program funds to HUD and Treasury, respectively, if a 
project fails to comply with LIHTC requirements[Footnote 9]. 

MHC told us that they are taking a number of actions to meet the asset 
management requirements of the TCAP and the Section 1602 Program. 
Foremost, MHC requires program owners of all TCAP and Section 1602 
Program funded projects to have investors. MHC is required to repay 
funds to HUD and Treasury in accordance with their respective 
guidelines if a project owner fails to meet LIHTC requirements during 
the 15-year compliance period. MHC believes that its risk of repayment 
is further reduced because investors often provide additional 
oversight and monitoring to ensure that LIHTC requirements are met. 

In addition to requiring the involvement of investors, MHC is hiring 
additional staff, consultants and purchasing equipment, vehicles, and 
storage space. MHC will hire additional employees to carry out asset 
management tasks, and it is increasing its use of environmental 
consultants and lawyers to handle the additional environmental and 
legal reviews required by TCAP and the Section 1602 Program. MHC has 
also modified existing software and purchased scanners to handle the 
added paperwork generated by the programs. Last of all, MHC plans to 
purchase additional vehicles so that it can increase the number of 
site visits to projects and to purchase additional space to store 
program documents. 

MHC projects that these asset management activities will cost $500,000 
in the first year and an additional $1,000,000 over the next 5 years. 
However, MHC has not increased fees charged to project owners because 
it believes that project owners are already burdened in a depressed 
market, and adding fees would only serve to further hinder recovery of 
the LIHTC market. However, MHC officials told us that it was necessary 
to adjust the fiscal year 2010 and 2011 budgets because of increased 
costs. For example MHC told us that it does not plan on funding any 
Habitat for Humanity loans, which it has funded in the past. 

Paying Prevailing Wage Rates May Create Burden for Project Owners: 

According to MHC officials, project owners consider the Recovery Act's 
requirement that laborers and mechanics working on TCAP projects be 
paid prevailing wages to be burdensome. Some developers told us that 
the prevailing wage standards can add to overall costs in certain 
markets. For example, the project owner of one project that we visited 
told us that the requirement to pay prevailing wages increased the 
project's overall cost by 15 to 20 percent. 

Low Income Housing Tax Credit Program in Mississippi Attracting Fewer 
Investors and Projects Experience Financing Gaps: 

According to MHC officials, investors look at every project in 
Mississippi as rural and expect that project income will be very low 
or non-existent. As a result, investors scrutinize the financials on 
Mississippi projects. MHC officials said that in a market that is 
still stabilizing, a state like Mississippi is slow to rebound and 
investor interest is low. 

Until the Recovery Act provided TCAP and Section 1602 Program funding, 
project owners said many projects were stalled. To restart the 
projects, project owners sought funds from several sources. Some 
projects that we reviewed included financing provided by investors, 
construction loans, the Section 1602 Program, TCAP, or both the 
Section 1602 Program and TCAP. Often all funding sources had to be 
pulled together simultaneously, because if one source of funding was 
not in place, it was difficult to acquire other sources. In 
particular, investors wanted the assurance that Section 1602 Program 
funding provided, as well as the increased equity that the funds 
brought to the project. For example, one project owner told us that 
TCAP provided the gap financing to proceed with the project. He said 
that without TCAP financing he would have been unable to complete the 
project. 

Another project's owner told us that the current market conditions 
forced some syndicators out of business. The project owner said that 
within the last 3 years, the original syndicator for this project 
defaulted, which forced him to seek additional investors. He told us 
that he would not have been able to attract additional investment 
without the Section 1602 Program because investors want to be sure 
before committing funds that the funding from all sources will be 
sufficient to complete the project. 

Recipient Reporting Requirements Apply Only to TCAP and Not Section 
1602: 

Section 1512 of the Recovery Act describes recipient reporting 
requirements, including the requirement to estimate the number of jobs 
created and retained; but the requirements apply only to programs 
under division A of the Recovery Act, which includes TCAP. The Section 
1602 Program is under division B of the Recovery Act, and, therefore, 
not subject to section 1512 requirements. Section 1512 requires 
recipients to file quarterly reports on the number of full-time 
equivalent jobs created or retained by funds spent through programs 
funded by division A of the Recovery Act during that quarter. Jobs are 
to be counted in accordance with methodology provided by the Office of 
Management and Budget (OMB). 

In contrast, Treasury collects its own project information through 
quarterly performance reports submitted to Treasury by HFAs. HFAs are 
required to make only one report of jobs created or retained by 
Section 1602 Program funds. HFAs submit estimated information on the 
number of full-time equivalent jobs to be created or retained by the 
entire project with the first quarterly report for each project. The 
number of jobs reported to Treasury need not be reduced to reflect 
parts of the project not funded under the Section 1602 program. 

MHC officials told us that MHC is responsible for recipient reporting 
for projects that receive TCAP funds. However, through June 2010, the 
officials said that they had not disbursed any TCAP funds and, 
therefore, had not reported that any jobs were created or retained 
with TCAP funds. The officials also told us that they anticipate that 
they will disburse TCAP funds during the next quarter and report jobs 
for the first time in the September 2010 quarterly report. MHC 
officials told us that they will rely on project owners to report 
accurate jobs information, but they plan to cross check the number of 
jobs reported with the payroll information that project owners must 
provide to ensure prevailing wages are paid to laborers. 

HUD issued general guidance on how to report the jobs for TCAP 
projects that are partially funded with Recovery Act funds and MHC 
provided the guidance to the project owners. In one instance, MHC also 
contacted HUD for guidance on how to report jobs for projects that 
were completed prior to receiving TCAP funds. In addition, a project 
owner told us that MHC is to provide job reporting guidance when he 
closes on his TCAP funding. 

MHC is also responsible for reporting the jobs that are created and 
retained when a project is financed with Section 1602 Program funds. 
MHC said it had not disbursed any Section 1602 Program funds as of the 
end of June 2010, and it had not reported that any jobs had been 
created or retained. MHC officials told us that they expect to 
disburse Section 1602 Program funds during the next quarter, and the 
officials indicated that jobs reported will be based on data provided 
by project owners. Although Treasury guidance requires that HFAs 
report to Treasury on awards of Section 1602 Program funds made to 
project owners, the guidance does not discuss how to compute full-time 
equivalent positions for job reporting. MHC also said that it cannot 
rely on OMB guidance regarding the calculation of full-time equivalent 
positions because OMB guidance does not apply to Treasury's Section 
1602 Program. Further, Treasury's guidance does not require HFAs to 
prorate the number of jobs created or retained by a project when the 
project is only partially funded by the Section 1602 Program. 

Recovery Act Funds Benefit the City of Tupelo: 

We visited the City of Tupelo to assess the impact of Recovery Act 
funding on a local government. Tupelo is located in northeastern 
Mississippi and is the seventh largest city in the state in terms of 
population. According to a 2008 U.S. Census Bureau estimate, the 
city's population was 35,270, which was a slight increase over the 
2000 population estimate of 34,211. According to the last complete 
census, about 70 percent of Tupelo's citizens are white and about 29 
percent are African-American, with the remaining 1 percent made up of 
various other races. The 2008 census data also showed that the city's 
median household income was $39,528, which is lower than the U.S. 
median household income of $52,175. 

According to city officials, the city's leading industry is furniture 
manufacturing. However, the recession prompted a number of 
manufacturers to relocate operations overseas in order to save costs. 
City officials told us that the local furniture industry is now 
showing signs of improvement and a number of manufacturers that had 
left may be returning to the area, causing officials to be optimistic 
that the local economy will soon improve. Additionally, on June 17, 
2010, Toyota announced plans to resume construction of a vehicle 
manufacturing plant located near Tupelo whose construction had been 
postponed due to economic conditions. The facility will employ 
approximately 2,000 people and, according to city officials, will also 
create more than 3,000 indirect jobs. 

City officials told us that the city first began to feel the impact of 
the recession in 2008. Between 2008 and 2009, as shown in table 2, the 
unemployment rate rose and sales tax revenues, which are a major 
source of the city's operating funds, dropped almost 6 percent. 

Table 2: Tupelo Unemployment Rates and Tax Revenues: 

Fiscal year: 2007; 
Unemployment rate: 6.4; 
Percentage change: Not applicable; 
Sales tax revenues: $16,776,574; 
Percentage of increase/(decrease) in revenues: Not applicable. 

Fiscal year: 2008; 
Unemployment rate: 7.4; 
Percentage change: 1.0; 
Sales tax revenues: $17,049,934; 
Percentage of increase/(decrease) in revenues: 1.63. 

Fiscal year: 2009; 
Unemployment rate: 11.3; 
Percentage change: 3.9; 
Sales tax revenues: $16,089,272; 
Percentage of increase/(decrease) in revenues: (5.63). 

Fiscal year: 2010; 
Unemployment rate: 12.3[A]; 
Percentage change: 1.0; 
Sales tax revenues: $16,439,272[B]; 
Percentage of increase/(decrease) in revenues: 2.18. 

Source: Department of Labor (unemployment data); City of Tupelo (sales 
tax data). 

[A] Preliminary. 

[B] Projected. 

[End of table] 

However, despite the recession and its impact on the city's 
manufacturing base, city officials have kept Tupelo's financial 
condition stable. The city develops its budget on a "pay-as-you-go" 
basis. That is, the city bases its expenditures on the revenues that 
it expects to collect without drawing on the city's rainy day fund 
unless absolutely necessary. City officials review revenues monthly, 
and, if warranted, adjust revenue projections, which can precipitate 
adjustments to the expenditure budget. One indication of the city's 
financial strength is the high bond rating of Aa3 that Moody's 
Investor Service has given Tupelo's General Obligation Bonds[Footnote 
10]. 

Recovery Act Dollars Helped Tupelo Meet Some Needs: 

Tupelo received six Recovery Act grants, which totaled $6,355,279. The 
funding agencies for the grants were the U.S. Department of 
Transportation (DOT), the U.S. Department of Justice (DOJ), the 
Environmental Protection Agency (EPA), the U.S. Department of Energy 
(DOE), and the U.S. Army Corps of Engineers. Table 3 presents the 
Recovery Act grants that the City of Tupelo received from the various 
federal agencies, the amount of each grant, and the specific purpose 
for which each grant was used. 

Table 3: City of Tupelo Recovery Act Award Summary: 

Recipient Entity: City of Tupelo; 
Funding agency: DOT; 
Funding program: Highway Infrastructure Investment Grant; 
Award amount: $1,227,688.00; 
Use of funds: Construction of a new bridge. 

Recipient Entity: City of Tupelo; 
Funding agency: DOJ; 
Funding program: Justice Assistance Grant; 
Award amount: $91,005.00; 
Use of funds: Purchase of law enforcement equipment. 

Recipient Entity: City of Tupelo; 
Funding agency: EPA; 
Funding program: Clean Water State Revolving Fund; 
Award amount: $503,875.00; 
Use of funds: Construction of replacement sewer lines. 

Recipient Entity: City of Tupelo; 
Funding agency: DOE; 
Funding program: Energy Efficiency and Conservation Block Grant; 
Award amount: $146,000.00; 
Use of funds: Retrofitting the lighting system at a local baseball 
field with a higher efficiency system. 

Recipient Entity: City of Tupelo; 
Funding agency: DOE; 
Funding program: Energy Efficiency and Conservation Block Grant; 
Award amount: $35,200.00; 
Use of funds: Replacement of the city's existing computer servers with 
high-efficiency servers. 

Recipient Entity: City of Tupelo; 
Funding agency: U.S. Army Corps of Engineers; 
Funding program: Civil Program Financing-Operation and Maintenance; 
Award amount: $4,351,511.00; 
Use of funds: Major drainage improvements. 

Source: City of Tupelo. 

[End of table] 

Tupelo Did Not Apply for Some Available Recovery Act Funds: 

Although the Recovery Act provided funds for needed projects, city 
officials identified infrastructure improvements as their city's most 
critical need. The officials told us water and sewer lines and 
drainage lines need to be improved, work is needed on a number of city 
roads and bridges, and the city has blighted areas that it wants to 
improve where abandoned and structurally deteriorating buildings 
attract criminal activity. 

Although water and sewer line improvements were identified as a 
critical city need, officials decided not to apply for Recovery Act 
funds that were available for such improvements through the 
Mississippi Clean Water and Drinking Water State Revolving Funds. 
According to the City of Tupelo's grant administrator, the city chose 
not to apply for the funds for two main reasons--(1) the city did not 
have shovel-ready projects that met the objectives of the fund and (2) 
it did not have the resources to quickly devote to developing a 
project. At the time that the Mississippi Department of Environmental 
Quality requested proposals for Recovery Act projects, the city's 
Water & Light Department was in the process of finishing up a major 
wastewater treatment project, carrying out day-to-day departmental 
work, and completing some smaller special projects. In addition, the 
department was devoting all available planning personnel to 
negotiating, engineering, and acquiring easements on the Toyota water 
and sewer project, which crossed city and county lines and required an 
extraordinary amount of personnel. With all of these projects under 
way, the city lacked the resources to quickly develop another project 
in time to apply for the funding. 

Energy Efficiency and Conservation Block Grant Improves City Park and 
Computer System: 

As part of our visit to Tupelo we looked at the execution of one grant 
in particular. Tupelo received a Department of Energy Efficiency and 
Conservation Block Grant (EECBG) that totaled $181,200. As shown in 
table 3, the grant provided funding for two projects. The first 
provided $146,000 for the city to retrofit field lighting at a public 
sports field which is located in one of the city's most heavily used 
parks. The new lighting system is expected to be highly efficient and 
will reduce energy usage by removing halide lights and replacing them 
with a photometric system which automatically adjusts the field lights 
based on existing environmental light levels. The second grant 
provided $35,200 for the city to replace its existing computer server 
technology with high-efficiency virtual servers that reduce power 
consumption while increasing server capacity. City officials report 
that both projects are now complete and that 99.5 percent of the funds 
provided by the grant were obligated and expended. Because the 
lighting project was completed under budget, the city is returning the 
remaining $959.75 to DOE. 

City officials indicated that their Recovery Act reporting for the 
EECBG was consistent with the guidance provided by OMB. Four people 
from the city government provided routine oversight for each 
disbursement of the EECBG grant money by reviewing each transaction. 
Officials also stated they complied with Recovery Act provisions 
applicable to EECBG, such as the requirement to pay laborers and 
mechanics employed on Recovery Act projects the prevailing wage for 
the area and the requirement to purchase iron and steel for Recovery 
Act projects from American sources. 

Concerns over Recovery Act Compliance Limit Applications for Funds: 

City of Tupelo officials explained that the Recovery Act funding 
created a dilemma for the city. Officials knew that the funds could 
benefit the city, but felt the long-term cost could outweigh the short-
term benefit. For example, the Recovery Act requires that laborers and 
mechanics employed by contractors and subcontractors on projects 
funded by Recovery Act funds be paid prevailing wages[Footnote 11]. 
City officials felt this provision could create compliance hardships 
that could lead to increased indirect costs, such as higher wages paid 
to workers after the Recovery Act expires or the need to pay increased 
wages for work performed on non-Recovery Act projects. Such increases 
could raise the costs of local employers and the municipality. These 
concerns made the city reluctant to apply for a number of associated 
Recovery Act grants. Additionally, the city avoided becoming dependent 
on Recovery Act funding by selecting infrastructure-related, "stand- 
alone" projects with minimal or no ongoing costs that would obligate 
long-term financial support above and beyond what the city could 
adequately fund. For example, the city did not apply for DOJ grants 
for Community Oriented Police Services, which would have allowed the 
city to hire additional police officers, because it did not want the 
financial burden of the requirement to retain those police officers 
for at least one additional year after the Recovery Act grant expired. 
Instead the city applied for Justice Assistance Grants which enabled 
the city to purchase needed equipment. 

Additionally, the city's grant administrator characterized the 
administrative cost associated with Recovery Act grants as high. For 
example, the city spent approximately $300,000 of a $2.5 million grant 
it received for a bridge project on administrative costs, including 
environmental studies needed because the project was near wetlands. 
Furthermore, the grant administrator told us that it takes 2 weeks, or 
about 80 hours, to complete the recipient report required by section 
1512 of the Recovery Act each quarter, as well as the other reports 
required by the grantor agencies. 

Recovery Act Funds Helped Mississippi Address Decline in State 
Revenues: 

As shown in figure 5, from fiscal year 2008 through fiscal year 2011 
the Mississippi state budget is projected to decline from $5,709 
billion to $5,148 billion or more than $561 million. The primary 
reason for the decrease is a decline in state revenues. However, as 
figure 5 shows, the use of Recovery Act funds helped offset the 
decline in state funding. 

Figure 5: State Funding, Fiscal Years 2008 to 2011: 

[Refer to PDF for image: vertical bar graph] 

Fiscal year: 2008; 
State funding: $5.700 billion; 
Recovery Act funding: $0 million. 

Fiscal year: 2009; 
State funding: $5.567 billion; 
Recovery Act funding: $201 million. 

Fiscal year: 2010; 
State funding: $4.985 billion; 
Recovery Act funding: $554 million. 

Fiscal year: 2011; 
State funding: $5.148 billion; 
Recovery Act funding: $428 million. 

Source: Mississippi Department of Finance and Administration. 

Note: Recovery Act funding includes State Fiscal Stabilization Fund 
monies and Increased Federal Medical Assistance Percentage Funds. 

[End of figure] 

During fiscal year 2009 and fiscal year 2010 the state used more than 
$201 million and $553 million in Recovery Act funds, respectively, to 
help reduce the impact of declining state revenues. Likewise, the 
state plans to use more than $428 million in Recovery Act funds to 
offset revenue shortfalls in fiscal year 2011. 

In addition to Recovery Act funds, Mississippi also used its rainy day 
funds to reduce the impact of declining tax revenues[Footnote 12]. To 
help close out and balance the fiscal year 2009 budget, the state 
transferred almost $20 million of rainy day funds to the state general 
fund. Similarly, the state transferred $65.2 million of rainy day 
funds to the budget contingency fund to help cover a projected 
shortfall in the fiscal year 2010 general fund budget[Footnote 13]. An 
additional $80 million in rainy day funds was transferred to cover 
projected shortfalls in the fiscal year 2011 budget, leaving about $80 
million in rainy day funds for each of the fiscal years 2012 and 2013. 

Mississippi Expects Budget Problems Will Increase without Recovery Act 
Funds: 

While Mississippi experienced serious budget problems in 2010, the 
Governor expects future budget years will be even more difficult as 
the infusion of Recovery Act funds comes to an end and state revenues 
lag. As shown in figure 6, Mississippi incurred a revenue shortfall of 
$404 million for fiscal year 2010, which is 8.2 percent less than 
expected. Because state law requires a balanced budget, the Governor 
reduced spending for general fund and nonexempt agencies five times 
during fiscal year 2010 for a total of $466 million. However, because 
revenue collections were not as bad as initially feared when these 
budget cuts were imposed, initial projections are that the state is 
starting fiscal year 2011 with a surplus of approximately $50 million. 

Figure 6: Aggregate Revenue Shortfall for Fiscal Year 2010: 

[Refer to PDF for image: vertical bar graph] 

Fiscal year: 2008; 
State funding: $5.700 billion; 
Recovery Act funding: $0 million. 

Fiscal year: 2009; 
State funding: $5.567 billion; 
Recovery Act funding: $201 million. 

Fiscal year: 2010; 
State funding: $4.985 billion; 
Recovery Act funding: $554 million. 

Fiscal year: 2011; 
State funding: $5.148 billion; 
Recovery Act funding: $428 million. 

Source: Mississippi Department of Finance and Administration. 

[End of figure] 

According to the Governor, this surplus will be crucial in preparing 
the fiscal year 2012 budget and spending for future years, which he 
expects to be as financially difficult as fiscal years 2010 and 2009. 
The Governor stated that while preparing the fiscal year 2011 budget 
was a difficult process because of declining revenue, fiscal year 2012 
will be even more challenging because federal stimulus funding will 
end. The funds from the close of the current year can be used to help 
balance the budget in the difficult years to come as Mississippi copes 
with the budget cliff created as the infusion of Recovery Act funds 
ends and as the state weathers the effects of the recession. According 
to the National Governors Association, the most difficult budget years 
for a state occur two years after the national recession is declared 
over. 

Mississippi Monitoring and Oversight Activities: 

To ensure accountability and oversight over federal funds received by 
Mississippi, the OSA conducts on an annual basis a "Single Audit" that 
reports on internal controls over financial reporting and compliance 
with pertinent laws and regulations. According to data from the 
Federal Audit Clearinghouse, which is responsible for receiving and 
distributing single audit results, it received Mississippi's single 
audit reporting package for the year ending June 30, 2009, on March 
30, 2010. This was the first Single Audit for Mississippi that 
includes Recovery Act programs, and it included only 4 months of 
Recovery Act expenditures. Mississippi's Single Audit report for 
fiscal year 2009 identified 12 significant internal control 
deficiencies related to compliance with Federal Program requirements, 
of which 2 were classified as material weaknesses. 

The two material weaknesses occurred in the Special Supplemental 
Nutrition Program for Women, Infants, and Children (WIC) which is 
administered by the Mississippi Department of Health (MDH) and 
receives Recovery Act funding. OSA determined controls over a time 
study that MDH uses to allocate salaries and fringe benefits to its 
various programs, including the WIC program, were inadequate to ensure 
that the amounts entered were accurate and reliable. OSA also 
determined the MDH internal controls were not adequate to ensure that 
only obligations occurring during the funding period of the WIC grant 
are charged to the program. 

In addition to normal oversight of federally funded programs, 
Mississippi has undertaken several efforts to hold state recipients 
accountable for the Recovery Act funds that they receive. National 
accounting firms, under the auspices of the OSA and DFA, are carrying 
out two of these efforts. OSA has contracted with the firm BKD to 
conduct monitoring and oversight of Recovery Act funds. According to 
state officials, BKD is expected to audit such entities as local 
governments, not-for-profit organizations, community health centers, 
and school districts. DFA has contracted with KPMG, to monitor the 
internal controls of state agencies receiving Recovery Act funds. 

BKD has submitted two reports to OSA that detail the results of their 
monitoring efforts between January and April 2010. During this 4-month 
period, BKD tested 80 grants received by 34 grant recipients and 
reported a total of 101 instances where recipients did not comply with 
Recovery Act requirements. In each instance, BKD gave recipients 
specific recommendations for correcting existing errors in reporting 
and other documentation, along with recommendations for revisions to 
their internal control processes in order to improve future compliance. 

The on-site monitoring visits found the greatest lack of compliance 
with recipient reporting[Footnote 14]. Of the 101 compliance 
requirement findings, 30 were related to recipient reporting. BKD 
found that state agencies were not providing clear and consistent 
guidance on the recipient reporting requirements to grant 
subrecipients. According to BKD, agency guidance ranged from 
sophisticated Web-based input mechanisms to very informal guidance 
provided via e-mail. BKD reported that grant subrecipients expressed 
frustration over the reporting process, but all grant recipients 
appeared to be exerting their best efforts to provide accurate 
reporting information. In addition, BKD reported that there was some 
confusion on how to properly report the number of jobs created and/or 
retained. 

BKD monitors also found a number of problems related to other Recovery 
Act requirements. For example, BKD reported that the majority of 
entities visited were not aware that they should check to determine if 
vendors were suspended or debarred from doing business with the 
federal government. BKD also reported entities entered into contracts 
that did not contain the appropriate Buy American language and/or 
provide evidence that all required materials were compliant with the 
Buy American provisions of the Recovery Act. Additionally, the 
entities did not obtain the necessary waivers when the Buy American 
provision was not satisfied. 

DFA, with assistance from KPMG, began or completed 12 agency site 
visits and reviewed approximately 39 different grants between February 
8, 2010, and June 30, 2010. Examples of observations that KPMG 
reported after site visits include the observations that documentation 
supporting recipient reports was not always provided to agencies for 
review and some agencies misunderstood recipient reporting 
requirements. KPMG also reported other monitoring and compliance 
issues, which included observing that an agency's documented policies 
and procedures were not inclusive of Recovery Act specific processes 
and that agencies did not verify that vendors were not suspended or 
debarred from doing business with the federal government. 

Mississippi Initiated Several Noteworthy Efforts to Comply with 
Recovery Act Requirements: 

Mississippi has initiated several efforts to improve the state's 
response to the Recovery Act's transparency and accountability 
requirements. Both OSA and DFA have provided training sessions for 
prime recipients to explain how to respond to the act's requirements. 
In addition, OSA regularly communicates Recovery Act information to 
recipients through its Technical Assistance newsletter and has 
established a task force of governmental and non-governmental experts 
to assist recipients in complying with Recovery Act requirements. 
These experts include attorneys, engineers, project managers, 
educators, and accountants who are available to answer inquiries from 
Recovery Act recipients at no cost to the recipients or to the state. 

In addition to having KPMG monitor state agencies' compliance with 
Recovery Act requirements, DFA has identified leading practices 
utilized by agencies in meeting these requirements. For example, DFA 
told us that one state agency contacted other states to share 
knowledge and identify best practices for implementing federal 
mandates and requirements, and another agency created a template for 
subrecipients that allowed them to summarize key program data for use 
in preparing their recipient reports. 

State Comments on This Summary: 

We provided the Governor of Mississippi with a draft of this appendix 
on August 9, 2010. The General Counsel to the Governor, who serves as 
the stimulus coordinator, responded for the Governor on August 17, 
2010. The official provided technical suggestions that were 
incorporated, as appropriate. 

GAO Contacts: 

John K. Needham, (202) 512-52274 or needhamjk1@gao.gov: 

Norman J. Rabkin (202) 512-9723 or rabkinn@gao.gov: 

Staff Acknowledgments: 

In addition to the contacts named above, Barbara Haynes, Assistant 
Director, James Elgas, analyst-in-charge, Bill Allbritton; James Kim; 
Gary Shepard; and Erin Stockdale made major contributions to this 
report. 

[End of section] 

Appendix XI Footnotes: 

[1] Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17,2009). 

[2] State housing finance agencies allocate low-income housing tax 
credits to owners of qualified rental properties who reserve all or a 
portion of their units for occupancy for low income tenants. Once 
awarded tax credits, owners attempt to sell them to investors to 
obtain funding for their projects. Investors can then claim tax 
credits for 10 years if the property continues to comply with program 
requirements. 

[3] Many affordable housing tax credit projects rely on LIHTCs 
together with other forms of subsidies such as HOME Investment 
Partnerships Program funds (HOME), Community Development Block Grant 
(CDBG) funds, and state funds. 

[4] GAO, Recovery Act: States' and Localities' Current and Planned 
Uses of Funds While Facing Fiscal Stresses (Appendixes), [hyperlink, 
http://www.gao.gov/products/GAO-09-830SP] (Washington, D.C.: May 26, 
2010); and Recovery Act: Status of States' and Localities' Use of 
Funds and Efforts to Ensure Accountability (Appendixes), [hyperlink, 
http://www.gao.gov/products/GAO-10-232SP] (Washington, D.C.: December 
10, 2009). 

[5] Recovery Act: Status of States' and Localities' Use of Funds and 
Efforts to Ensure Accountability (Appendixes) [hyperlink, 
http://www.gao.gov/products/GAO-10-232SP]. 

[6] State housing finance agencies allocate low-income housing tax 
credits to owners of qualified rental properties who reserve all or a 
portion of their units for occupancy for low income tenants. Once 
awarded tax credits, owners attempt to sell them to investors to 
obtain funding for their projects. Investors can then claim tax 
credits for 10 years if the property continues to comply with program 
requirements. 

[7] Project owners must spend 30 percent of the project's adjustable 
basis for land and depreciable property by December 31, 2010. 

[8] GAO reported previously on the risks and responsibilities of 
recapture for HFAs under the TCAP and Section 1602 programs. See GAO, 
States' and Localities Uses of Funds and Actions Needed to Address 
Implementation Challenges and Bolster Accountability, [hyperlink, 
http://www.gao.gov/products/GAO-10-604] (Washington, D.C.: May. 26, 
2010). 

[9] In contrast, under the conventional LIHTC program, HFAs are not 
liable for recapturing funds if a project owner fails to comply with 
LIHTC requirements. Rather, their obligation is to report any 
noncompliance to the IRS, and the IRS takes any further actions with 
respect to recapture. GAO reported previously on the risks and 
responsibilities of recapture for HFAs under the TCAP and Section 1602 
Program. See [hyperlink, http://www.gao.gov/products/GAO-10-604], 
States' and Localities' Uses of Funds and Actions Needed to Address 
Implementation Challenges and Bolster Accountability, (Washington, 
D.C.: May. 26, 2010). 

[10] A bond rating represents a credit risk evaluation and an Aa3 
investment grade is indicative of bonds judged to be high quality by 
all standards. 

[11] The Recovery Act, requires all laborers and mechanics employed by 
contractors and subcontractors on projects funded directly by or 
assisted in whole or in part by and through the federal government 
with Recovery Act funds be paid wages at rates that are not less than 
those paid on local projects of a similar character as determined by 
the Secretary of Labor. Recovery Act div. A,§ 1606, 123 Stat. 303. 

[12] The Mississippi rainy day fund, normally called the Working Cash- 
Stabilization Reserve Fund, is intended, among other uses, to cover 
any projected deficits that may occur in the general fund at the end 
of a fiscal year as a result of revenue shortfalls. Miss. Code § 27-
103-203. 

[13] The Budget Contingency Fund was created in 2001 by the 
legislature to identify nonrecurring funding--such as funds received 
from a legal judgment--that the legislature could use in the budget 
process. The sources of funds deposited in the budget contingency fund 
can differ from special fund transfers to the general fund that are 
identified as nonrecurring. 

[14] Section 1512 of the Recovery Act requires that each recipient who 
receives funds from a federal agency during a calendar quarter submit 
a report to that agency for the quarter that includes, among other 
information, the amount of funds received, the projects and activities 
for which the funds were expended or obligated, the completion status 
of each project or activity and estimates of the number of jobs 
created and the number of jobs retained by the project or activity. 
Recovery Act div. A § 1512, 123 Stat. 115, 287-288. We refer to the 
reports required by section 1512 as recipient reports. 

[End of Appendix XI] 

Appendix XII: New Jersey: 

Overview: 

This appendix summarizes GAO's work on the seventh of its bimonthly 
reviews of American Recovery and Reinvestment Act of 2009 (Recovery 
Act)[Footnote 1] spending in New Jersey. The full report covering all 
of GAO's work in 16 states and the District of Columbia may be found 
at [hyperlink, http://www.gao.gov/recovery]. 

What We Did: 

We reviewed two specific programs funded through the Recovery Act: the 
Energy Efficiency and Conservation Block Grant (EECBG) program and the 
Public Housing Capital Fund. We selected the EECBG program because it 
was a program newly funded by the Recovery Act and selected the Public 
Housing Capital Fund to follow up on the status of projects reviewed 
in prior reports. (For descriptions and requirements of the programs 
we covered, see appendix XVIII of GAO-10-1000SP.) For both of these 
programs, we reviewed documentation on program requirements and 
interviewed federal, state, and local government officials, as 
appropriate, about the use of funds, challenges in implementation, and 
oversight and monitoring strategies. In particular, for the EECBG 
program, we discussed these issues with officials of three localities 
that were direct recipients of EECBG formula funds--the County of 
Morris (Morris County), the City of Jersey City (Jersey City), and 
Woodbridge Township. We selected these localities based on the level 
of funding received, expenditures incurred, and type of local 
government. We also conducted a site visit to the Newark Housing 
Authority to follow up on the status of its Public Housing Capital 
Fund competitive and formula grants reviewed in prior reports. 

In addition to the two program-specific reviews, we also continued to 
review state efforts to oversee and monitor the use of Recovery Act 
funds through interviews with officials from the state's 
accountability community, including the Office of the State Auditor 
and the Office of the State Comptroller. We also interviewed state and 
local budget officials about their use of Recovery Act funds, the 
impact of these funds on state and local budgets, and strategies for 
addressing the phasing out of Recovery Act funds. We selected one 
locality, Jersey City, to gain a deeper understanding about the use 
and impact of Recovery Act funds. This locality was selected based on 
its population, unemployment rate, and level and type of Recovery Act 
funds received. Finally, we reviewed information New Jersey recipients 
reported on www.recovery.gov (Recovery.gov) and interviewed officials 
from the Office of the Governor, as well as EECBG and housing 
recipients about their recipient reporting experiences. 

What We Found: 

* EECBG. The U.S. Department of Energy (DOE) allocated $75.5 million 
in EECBG formula funds to New Jersey. Approximately $14.4 million was 
awarded to the New Jersey Board of Public Utilities (NJBPU), the state 
regulatory authority responsible for administering the state's clean 
energy programs, and $61.1 million was directly awarded to 65 
municipalities and 10 counties in the state. NJBPU is allocating 71 
percent of its funds, or $10.2 million, to provide energy rebates to 
the 512 localities that did not qualify for EECBG formula funds. State 
and local officials with whom we spoke stated that vague and changing 
DOE guidance, as well as adhering to state and local requirements, has 
contributed to delays in implementing EECBG projects and expending 
funds. For example, according to Jersey City officials, two contracts 
were awarded that later had to be terminated because the contractors 
did not meet the city's required energy-efficiency standards. Although 
the state and localities have processes in place to routinely monitor 
and oversee EECBG funds, localities have not yet begun assessing the 
impact of the EECBG funds. 

* Public Housing Capital Fund. New Jersey public housing agencies 
continue to make progress in implementing their Recovery Act Public 
Housing Capital Fund projects. Of the 80 public housing agencies in 
New Jersey, 7 collectively received a total of $27 million in Public 
Housing Capital Fund competitive grants. Public housing agencies in 
New Jersey are primarily using these funds for the creation of energy- 
efficient, green communities. Public housing agencies are required to 
obligate 100 percent of these funds by September 2010. As of August 7, 
2010, $5 million, or 18 percent, of these funds had been obligated. 
Public housing agencies are also required to expend 60 percent of 
their Public Housing Capital Fund formula grants by March 17, 2011. As 
of August 7, 2010, 80 public housing agencies had drawn down about 62 
percent of the $104 million in funds received. To ensure that public 
housing agencies continue to meet obligation and expenditure 
deadlines, the U.S. Department of Housing and Urban Development (HUD) 
field office is conducting outreach through regular e-mail and phone 
communication, conducting remote reviews of all competitive grant 
recipients, and more closely monitoring formula fund grant recipients 
with low expenditure rates as deadlines approach. 

* Accountability. The New Jersey Office of the State Auditor, Office 
of the State Comptroller, and the New Jersey Recovery Accountability 
Task Force continue to monitor the state's Recovery Act funds. For 
example, the Office of the State Comptroller plans to audit program 
compliance and internal controls governing the administration and 
monitoring of both the fiscal and programmatic components of the EECBG 
grant in four localities. New Jersey's Single Audit report for fiscal 
year 2009 identified 45 significant internal control deficiencies 
related to compliance with federal program requirements, of which 38 
were material. Some of these deficiencies included Recovery Act funds. 

* Budget. New Jersey has received approximately $5.8 billion in 
Recovery Act funds as of July 21, 2010, and used these funds, in part, 
to increase and restore the state's portion of education aid to local 
educational agencies and to fill budget shortfalls. New Jersey enacted 
a $29.4 billion budget for fiscal year 2011 after closing a $10.7 
billion budget shortfall, primarily through the elimination or 
reduction of projected growth and reductions to the base budget. For 
example, the state deferred pension payments, cut funding from 
property tax rebates, and eliminated the special municipal aid 
program. Jersey City officials stated that the city has primarily used 
its $14 million in Recovery Act funds for nonrecurring projects. For 
example, the city used its Community Services Block Grant funds to 
provide nutrition services to low-income residents, among other things. 

* Recipient Reporting. New Jersey recipients reported funding over 
22,000 full-time equivalents (FTE) with Recovery Act funds during the 
fourth quarterly reporting period, which covers the period April 1, 
2010, to June 30, 2010. According to the New Jersey Office of the 
Governor, the recipient reporting process went smoothly for the fourth 
reporting period. However, EECBG recipients we met with did not use 
Office of Management and Budget (OMB) guidance to calculate FTEs. For 
example, an official from one locality stated that FTEs were 
calculated based on the total number of people that had been paid with 
EECBG funds, without taking into consideration the number of hours 
each employee had worked or prorating the FTEs based on the number of 
hours attributed to the Recovery Act. As a result, the total number of 
FTEs may have been overstated. 

New Jersey Has Experienced Delays in Implementing EECBG Projects and 
Expending Funds: 

New Jersey received $75.5 million in EECBG formula funds from DOE to 
develop, promote, implement, and manage energy-efficiency and 
conservation projects and programs. Approximately $14.4 million was 
awarded to NJBPU, the state regulatory authority responsible for 
administering the state's clean energy programs, and $61.1 million was 
directly awarded to 75 local government entities--65 municipalities 
and 10 counties in the state.[Footnote 2] Twelve of the 75 localities 
received grants over $1 million, accounting for a total of $35.7 
million, or almost 60 percent of the grant funds allocated to 
localities. State agencies are required to allocate at least 60 
percent of their formula funds to make subgrants to local government 
entities that were not eligible to receive formula funds directly from 
DOE. NJBPU is allocating 71 percent of its formula allocation, or 
$10.2 million, to provide up to $20,000 in energy rebates to 512 local 
government entities to supplement local government costs of those 
energy-efficiency improvements not already covered by existing state 
incentive programs.[Footnote 3] The remaining 29 percent, or $4.2 
million, will be allocated to the State's Office of Energy Savings to 
implement energy conservation measures at a state developmental center 
in New Lisbon. 

The three localities in our review--Morris County, Jersey City, and 
Woodbridge Township--collectively received about $7.5 million in 
direct EECBG formula funds. These localities plan to undertake a 
variety of activities with these funds. For example, Morris County 
plans to undertake a greenhouse gas inventory of county government 
buildings and vehicle operations for the purpose of reducing 
greenhouse gas emissions by 10 percent by 2015. Morris County and 
Jersey City both plan to use part of their grant funds to perform 
energy audits of local government buildings, whereas Woodbridge 
Township is using state funds to conduct energy audits and plans to 
use part of its EECBG funds to pay for energy-efficient retrofits to 
municipal buildings based on the results of the energy audits. Table 1 
summarizes the activities the state and the three localities we met 
with plan to undertake with their EECBG funds. 

Table 1: New Jersey's and Localities' Planned EECBG Activities and 
Funding Allocation: 

New Jersey's planned EECBG activities and funding allocation: 
NJBPU: Provide rebates to 512 eligible local governments to supplement 
existing clean energy programs; 
Amount: $10.2. 

NJBPU; 
Install energy conservation measures, including energy-efficient 
lighting, sensors, chillers and insulation, at the state's 35-building 
New Lisbon campus comprising 400,000 square feet of space; 
Amount: $4.2[A]. 

New Jersey's planned EECBG activities and funding allocation: Total: 
$14.4. 

Localities' planned EECBG activities and funding allocation: 

Morris County; 
* Develop energy master plan; 
* Undertake an energy benchmarking and greenhouse gas inventory of 
county government buildings and vehicle operations; 
* Conduct energy audits; 
* Provide energy retrofits to county buildings; 
* Upgrade lighting and building management systems; 
* Provide energy training for county employees; 
* Purchase hybrid vehicles for county vanpool; 
* Develop a mass transit awareness campaign; 
* Install smart vehicle routing system software for recycling routes; 
* Develop and implement recycling marketing strategy; 
Amount: $4.2. 

Jersey City; 
* Conduct energy audits of city buildings; 
* Replenish revolving loan fund for small businesses to improve energy-
efficiency and conservation; 
* Purchase solar trash cans; 
* Install energy-efficient street lighting; 
* Upgrade police communications center by developing a green roof to 
assist in storm water management and the cooling of the building; 
Amount: $2.3. 

Woodbridge Township; 
* Calculate carbon footprint and prepare a climate action plan[B]; 
* Provide energy-efficient retrofits to municipal buildings; 
* Install energy-efficient street lighting[C]; 
Amount: $0.9. 

New Jersey's planned EECBG activities and funding allocation: 
Total: $7.5[D]. 

Sources: NJBPU, Morris County, Jersey City, and Woodbridge Township. 

[A] NJBPU also plans to use $6 million in Recovery Act State Energy 
Program funds for this project. 

[B] The climate action plan included three potential initiatives for 
reducing energy consumption: wind power, a buy local campaign, and 
guidelines for green redevelopment, including initiatives to attract 
green technology and service providers. The wind power study has since 
been modified to a study of an energy cluster at the green technology 
park. 

[C] Woodbridge Township is no longer using EECBG funds for this 
activity because the local utility company is installing energy- 
efficient streetlights. The township plans to use the funds for the 
energy retrofits. 

[D] Total may not add up due to rounding. 

[End of table] 

NJBPU and Localities Have Experienced Delays in Implementing EECBG 
Projects: 

State officials with whom we spoke told us that vague and changing DOE 
program guidance contributed to delays in implementing EECBG projects, 
including the energy rebates project. For example, according to NJBPU 
officials, the program guidance they received from DOE was, at times, 
duplicative and unclear. At other times, DOE guidance was reversed 
after the state had put in place procedures to implement the guidance. 
For example, according to NJBPU, early DOE guidance on Davis-Bacon 
provisions was reversed after the state had put in procedures to 
implement the initial guidance. According to NJBPU officials, 14 of 
the 512 eligible localities have applied for an energy rebate as of 
August 31, 2010, and the state has not yet obligated any funds for its 
energy conservation project. The DOE project officer responsible for 
overseeing some of New Jersey's grant recipients agreed that DOE 
guidance provided to recipients has been overwhelming and sufficient 
guidance on the various reporting requirements was not provided to 
recipients in a timely manner. As a result, recipients were not 
comfortable moving forward with projects. 

Local officials also stated that long DOE project approval processes, 
as well as adhering to state and local requirements, led to delays in 
implementing EECBG projects and expending funds. For example: 

* A Morris County official stated that the county submitted its EECBG 
application package to DOE in June 2009 and was awarded the EECBG 
grant about a month later. However, the county did not receive final 
approval from DOE on its planned EECBG activities until March 2010, at 
which time county departments with approved activities were notified 
to begin work on their projects. As of July 1, 2010, Morris County had 
obligated $106,000 of its $4.2 million in EECBG funds, and two 
construction projects for lighting upgrades were out for bid. 

* According to Woodbridge Township officials, state requirements 
contributed to delays in implementing EECBG projects. Specifically, 
Woodbridge Township officials told us that state procurement 
procedures delayed the energy retrofits project. The township plans to 
use funds from one of the state's clean energy programs and EECBG 
funds to complete energy retrofits at 10 of its municipal buildings. 
Since the township was using state funds for the energy retrofits, it 
had to first conduct energy audits at each of the buildings using a 
state-approved firm. According to Woodbridge Township officials, the 
state required the township to issue a request for proposal to each of 
the state-approved firms and, once a firm was selected, have the 
contract reviewed by NJBPU, as well as the state's contract reviewer. 
Once the initial energy audit was completed, Woodbridge Township staff 
identified errors in the audit, which required some aspects of the 
audit to be redone by NJBPU. The township's energy audit was therefore 
not completed until December 2009, at which time the township was able 
to proceed with the state's retrofit program. However, the township 
did not receive its EECBG award until June 2010, 6 months after it 
anticipated receiving the grant. The township has expended about 
$200,000 of its approximately $900,000 in EECBG funds, primarily for 
planning purposes. 

* Jersey City officials stated that local requirements have 
contributed to delays of some EECBG projects. In particular, Jersey 
City awarded two contracts for the police communications center 
upgrades that later had to be terminated because the contractors did 
not meet the energy-efficiency standards the city required, according 
to officials. As of July 1, 2010, Jersey City had expended about 
$800,000 of its EECBG funds, but expects to obligate all of its $2.3 
million in funds by September 2010. Jersey City officials stated that 
they have felt pressure from DOE to spend funds more quickly but 
maintained that internal procedures and reviews are necessary to 
ensure that grant funds are properly administered. According to the 
DOE project officer, DOE has pressured recipients to spend funds more 
quickly, which could result in grant recipients having to pay back 
funds if contracts are awarded that are not in compliance with 
Recovery Act requirements.[Footnote 4] According to an August 2010 DOE 
Inspector General report, DOE has developed plans to obligate Recovery 
Act funds, including EECBG funds, to meet federal statutory deadlines. 
[Footnote 5] However, the report identified several challenges to 
meeting the obligation deadlines, including the inability of 
recipients to meet terms and conditions placed on awards to meet 
federal statutory requirements, which could result in the cancellation 
of awards or cause delays in spending. The Inspector General has also 
previously reported that any effort to disburse massive additional 
funding and to expeditiously initiate and complete projects increases 
the risk of fraud, waste, and abuse.[Footnote 6] 

Although NJBPU officials stated that changing and duplicative DOE 
guidance led to delays in implementing EECBG projects, officials also 
stated that DOE has amended program guidance in response to feedback 
provided, has made extensive Web libraries and knowledge bases 
available to states, and has hosted many Web-based seminars to help 
states understand their EECBG program responsibilities. Officials from 
all of the localities we met with also stated that they have been 
satisfied with the level of support and communication provided by 
their DOE project officer. 

NJBPU and Localities Have Plans in Place to Routinely Monitor and 
Oversee EECBG Funds: 

Although the state and localities have not yet conducted any 
monitoring of EECBG grant projects, officials of NJBPU and the 
localities we met with all plan to conduct routine oversight and 
monitoring of EECBG funds. For example, NJBPU is in the process of 
developing standard operating procedures--including both quality 
control and quality assurance checklists--that will be used as part of 
its monitoring efforts, which will incorporate random contract file 
reviews and project site inspections. In addition to the checklists, 
the state also plans to track the energy rebate projects separately 
from its clean energy programs using its existing Information 
Management System (IMS). According to NJBPU officials, the IMS 
addresses data quality verification through automated checks, checks 
file formats for conformance and the inclusion of mandatory data, and 
has built-in validation checks to flag outstanding items. The contract 
manager for the state's clean energy program will conduct manual 
reviews of the files, and the system administrator can generate 
reports to identify anomalies. State officials told us that they do 
not believe they will have any challenges or obstacles with regard to 
management controls and monitoring of EECBG projects. Although the 
rebates activity will likely be more vulnerable to management control 
issues due to the potentially high volume of applications, officials 
believe that the IMS is capable of handling the extra workload. 

The localities we visited also have plans to conduct routine oversight 
of EECBG grant funds, including collecting information to monitor 
project expenditures and performing on-site reviews. For example, 
Morris County plans to use a DOE data collection form to oversee 
project expenditures to ensure the activities stay within planned 
budgets and project objectives have been met. In addition, the county 
plans to complete progress reports and review and approve invoices to 
verify hours worked prior to releasing funds for each of its ten 
planned EECBG activities. The Morris County Treasurer's Office has 
also set up a separate account to track and conduct quarterly audits 
of EECBG fund activities. Woodbridge Township plans to separately 
track EECBG funds, revenues, and appropriations. Additionally, 
Woodbridge Township officials told us that the person responsible for 
fulfilling the purpose of the grant is directly responsible for 
overseeing the expenses charged to the grant and for ensuring that 
vendors are completing contracts on time, efficiently, and in 
compliance with Davis-Bacon and Buy American provisions. Although 
Jersey City has not yet developed a written monitoring plan for the 
use of EECBG funds, all written guidance from DOE has been 
disseminated to project managers and monitors in the field who will 
perform routine oversight of EECBG expenditures and conduct on-site 
reviews once the projects are under way. However, officials from 
Jersey City stated they do not have processes in place to ensure 
compliance with Davis-Bacon wage provisions. 

NJBPU and Localities Have Not Yet Reported on Outcomes of EECBG 
Projects: 

Recipients of EECBG formula funds are required to report quarterly to 
DOE through its Performance and Accountability for Grants Energy 
(PAGE) system on jobs created and retained; programmatic measures, 
such as program obligations and expenditures; and applicable critical 
measures that will allow DOE to assess the impact of project 
activities on energy savings, energy cost savings, renewable energy 
generation, and emissions reductions. In addition, recipients of grant 
funds greater than $2 million are required to report to DOE on a 
monthly basis on a subset of the quarterly metrics described above. 

State and local officials we met with submitted their required 
quarterly and monthly reports to DOE and stated that they have 
identified critical measures to assess the impact of their EECBG 
projects. However, officials stated they have not yet begun to assess 
the impact of EECBG funds because projects are just getting under way. 
For example, officials from NJBPU stated that they have programmed 
applicable DOE critical metrics in the IMS and plan to track and 
measure project-related information on energy savings and carbon 
dioxide emissions monthly and annually. The system can also perform 
impact studies on the back end (i.e., a year later) to assess the 
impact of the EECBG program on energy-efficiency and conservation. 
Officials from Woodbridge Township stated that they plan to use the 
climate action plan they are developing to measure, monitor, and 
evaluate the township's energy goals. The plan is currently in draft 
form and outcomes will be measured once projects are implemented. 
Similarly, Morris County plans to use its benchmarking study to assess 
emissions reductions and also expects to see reductions in utility 
costs as a result of its energy retrofit projects. Jersey City also 
plans to measure fossil fuel emissions on a monthly basis to assess 
progress in reducing the city's carbon footprint. Although local 
officials we visited identified measures to assess the outcomes of 
their EECBG projects, an official from Morris County stated that it 
was unclear where and how to report this information to DOE. The 
official stated that updates would likely be provided through the 
quarterly PAGE report. The official further stated that the number of 
Web sites to which the county must report is overwhelming and 
understanding the various reporting requirements would require one 
full-time staff member. 

New Jersey Public Housing Agencies Continue to Make Progress 
Implementing Public Housing Capital Fund Projects: 

Of the 80 public housing agencies in New Jersey, 7 collectively 
received $27 million in Public Housing Capital Fund competitive grants 
(competitive grants) under the Recovery Act. These grant funds were 
provided to the agencies based on competition for priority 
investments, including investments that leverage private sector 
funding or financing for renovations and energy conservation 
retrofitting. As of August 7, 2010, the recipient public housing 
agencies had obligated about $5 million or 18 percent of the $27 
million. Also, five of the recipient agencies had drawn down a 
cumulative total of about $309,000 or 1 percent from the obligated 
funds, as of August 7, 2010 (see figure 1). 

Figure 1: Percentage of Public Housing Capital Fund Competitive Grants 
Allocated by HUD that Have Been Obligated and Drawn Down in New 
Jersey, as of August 7, 2010: 

[Refer to PDF for image: 3 pie-charts, 2 horizontal bar graphs] 

Funds obligated by HUD: $27,113,062 (100%); 
Funds obligated by public housing agencies: $4,925,979 (18.2%); 
Funds drawn down by public housing agencies: $403,408 (1.1%). 

Number of grants: 
Awarded by HUD: 11; 
Obligated funds: 7; 
Drawing down funds: 5. 

Number of public housing agencies:
Awarded by HUD: 7; 
Obligated funds: 6; 
Drawing down funds: 5. 

Source: GAO analysis of data from HUD's Electronic Line of Credit 
Control System. 

[End of figure] 

Public Housing Agencies Received Competitive Grants Primarily to 
Create Green Communities: 

In September 2009, HUD awarded competitive grants to states in four 
categories: (1) improvements addressing the needs of the elderly or 
persons with disabilities, (2) public housing transformation, (3) gap 
financing for projects that are stalled due to financing issues, and 
(4) creation of energy-efficient communities, both for substantial 
rehabilitation or new construction and for moderate rehabilitation. In 
New Jersey, 9 of the 11 grants were awarded for creating energy- 
efficient, green communities. For example, the Newark Housing 
Authority (Newark) received the largest competitive grant of about $11 
million for energy-efficient improvements.[Footnote 7] The Housing 
Authority of the City of Camden received two grant awards for projects 
in two separate categories, including one $10 million grant to finance 
a project that was stalled due to financial issues and a $1 million 
grant to address the needs of the elderly or persons with disabilities. 

Newark is using the entirety of its $11 million competitive grant to 
finance energy-efficient components, such as integrating water 
conserving fixtures and efficient lighting, for the renovation of the 
Baxter Park South community. According to the project's budget, the 
first phase includes about $40 million in mixed financing from private 
and public funds. The Newark official responsible for managing the 
grant told us the first phase involves replacing the seven existing 
buildings with two mid-rise four-story buildings and an adjacent 
triangular green space. The official said that the complex will 
include 90 rental housing units for both public and tax credit 
eligible households, a leasing office, and commercial space. According 
to the Newark official, there have been no modifications to the 
project plan and the project is on schedule to be completed by the 
fall of 2012. At the time of our interview on June 29, 2010, Newark 
was demolishing the pre-existing buildings in preparation for 
construction (see figure 2). 

Figure 2: Demolition of Buildings at Baxter Park South: 

[Refer to PDF for image: photograph] 

This is a photograph taken by the Newark Housing Authority one of the 
five buildings being demolished at the Baxter Park South project. The 
five buildings will be replaced by the construction of two mid-rise 
four-story buildings and a green space. 

Source: Newark Housing Authority. 

Note: Funds from the competitive grant were not used during the 
demolition of buildings at Baxter Park South. 

[End of figure] 

Public Housing Agencies Are Working toward Meeting the September 2010 
Obligation Deadlines for Competitive Grants: 

Public housing agencies are required to have 100 percent of their 
competitive grants obligated by September 2010.[Footnote 8] New 
Jersey's public housing agencies had obligated about $5 million or 18 
percent of the $27 million in competitive grants as of August 7, 2010. 
Of the 11 grants awarded, 5 were 100 percent obligated, 4 grants had 
no funds obligated, and 2 others were less than 10 percent obligated. 
Despite the low obligation rates, officials from the HUD field office 
told us that they anticipate all of the public housing agencies will 
meet the September 2010 deadlines because most of the award amounts 
were small and, therefore, manageable by public housing agency staff. 
In addition, they said that because the projects selected were already 
in public housing agencies' required 5-year capital plans, several 
preliminary project planning steps had already occurred and the 
projects were ready to proceed. 

Although HUD field office officials told us that they anticipate all 
of the public housing agencies will meet the September 2010 deadlines, 
they told us that they are concerned that Newark has not yet secured 
all the funding it needs for the construction of Baxter Park South, 
which must occur before they can obligate the competitive grant for 
the energy-efficient components. Specifically, Newark is relying on a 
4 percent low-income housing tax credit to pay for about $10 million 
of the $40 million cost for the first phase of the project. The 4 
percent tax credit is contingent on the state selling tax-exempt 
bonds, and according to HUD field office officials, the state's 
financial situation has so far prevented the housing agency from 
securing the tax credit. However, HUD officials said that they were 
hopeful that the new state fiscal year would result in the tax credit 
being available to Newark. The New Jersey Housing and Mortgage Finance 
Agency sent the commitment letter for the tax exempt bonds, which will 
carry the right to use the tax credits, to the developer of the Baxter 
Park South project on August 5, 2010.[Footnote 9] A Newark official 
told us that after they submit their final paperwork to HUD, which 
they anticipate doing on or before September 18, 2010, HUD considers 
the grant to be 100 percent obligated and the obligation deadline will 
be met. As of August 7, 2010, $45,000, or less than 1 percent, of the 
total grant had been obligated. 

Public Housing Agencies Continue to Expend Public Housing Capital Fund 
Formula Grants to Rehabilitate Housing Units: 

New Jersey's 80 public housing agencies collectively received $104 
million in Public Housing Capital Fund formula grants (formula grants) 
under the Recovery Act. These grant funds were provided to the 
agencies to improve the physical condition of their properties; 
develop, finance, and modernize public housing developments; and 
improve management. As we previously reported, all public housing 
agencies met the 1-year obligation deadline to have 100 percent of 
their formula grants obligated by March 17, 2010.[Footnote 10] Public 
housing agencies are further required to expend at least 60 percent of 
their formula funds by March 17, 2011. As of August 7, 2010, 80 of the 
public housing agencies had drawn down a cumulative total of about $64 
million, or 62 percent. Of the 80 public housing agencies, 62 had 
already met the March 2011 requirement to have least 60 percent of 
their formula funds expended and 28 of those housing agencies had 
already expended all of their funds. 

We previously reported that public housing agencies in New Jersey are 
using their formula grants for a number of activities such as 
rehabilitating units; repairing sidewalks and doors; 
replacing aging exteriors, roofs, and boilers; and installing intercom 
and fire alarm systems.[Footnote 11] For example, Newark planned to 
use its $27 million formula grant for 14 projects, which included 
rehabilitating 422 vacant housing units.[Footnote 12] Newark officials 
provided us with an update of their formula grant projects. 
Specifically, they told us that bids for contracts for the 14 projects 
were lower than state cost estimates, which enabled them to increase 
the amount of funding allotted to each project and rehabilitate an 
additional 71 vacant housing units. Figure 3 shows an example of the 
rehabilitation done at one of Newark's vacant housing units. Of the 
$27 million in formula grants that Newark was awarded, it has expended 
about $10 million, or 36 percent, of its funds. Newark officials said 
they fully expect to meet the deadline to have 60 percent of their 
funds expended by March 17, 2011. 

Figure 3: Newark Housing Authority Rehabilitations with Recovery Act 
Funds, Before and After: 

[Refer to PDF for image: 4 photographs] 

These are photographs taken by the Newark Housing Authority of the 
renovation of a public housing unit located at their Betty Shabazz 
project to depict renovations that are funded through the Recovery Act’
s Public Housing Capital Formula grant funds. The picture at the upper 
left is of the public housing unit’s kitchen before the renovation and 
the picture located in the upper right is of the same kitchen after 
the renovation. The picture at the lower left side is of the public 
housing unit’s closet that contained the unit’s hot water heater 
system before the renovation and the picture at the lower right side 
is a picture after the renovation of the same closet, showing the 
installation of a new and energy-efficient hot water heater system. 

Source: Newark Housing Authority. 

Note: These photos illustrate rehabilitation of a kitchen and the hot 
water heating system at a building managed by the Newark Housing 
Authority. 

[End of figure] 

HUD Provides Assistance and Oversight to Public Housing Agencies to 
Ensure They Meet All of Their Public Housing Capital Fund Deadlines: 

HUD officials told us that they provide public housing agencies with 
ongoing communication and assistance to ensure that public housing 
agencies meet their deadlines to obligate and expend their Public 
Housing Capital Fund grants. These officials told us that they provide 
information and answer questions through e-mail and phone 
conversations. For example, a Newark official told us that they 
receive ongoing e-mail communication and on-site visits from the HUD 
field office about both their competitive grant for the Baxter Park 
South project and their formula grant projects. 

Additionally, HUD field offices are required to monitor competitive 
and formula grants based on guidance developed by HUD headquarters. 
For competitive grant recipients, HUD field offices are required to 
conduct remote reviews of all recipients by August 20, 2010, using a 
checklist to review the grant status to highlight any deficiencies. As 
of July 20, 2010, HUD field office officials told us they had 
conducted 1 of the 11 grant reviews and they did not find any 
deficiencies. They also said that they did not foresee any challenges 
to meeting the deadline for completing the remaining grant reviews. 
[Footnote 13] For formula grant recipients, HUD field offices were 
required to conduct reviews of public housing agencies that had 
obligated less than 90 percent of their funds as of March 1, 2010. HUD 
field office officials provided us with the reviews their staff 
conducted of the 19 public housing agencies that met this criterion. 
The reviewers found each of the public housing agencies to be "on 
track." A HUD official told us that all of the public housing agencies 
reviewed subsequently met the March 17, 2010, obligation deadline. In 
addition to the monitoring strategy for formula grants developed by 
HUD headquarters, HUD field office officials told us they are closely 
monitoring the public housing agencies that have expended 50 percent 
or less of their formula grant funds and are conducting follow-up 
phone calls with these agencies. As of July 20, 2010, a HUD field 
office official said that there were 19 housing agencies that met this 
criterion. 

New Jersey's Accountability Community Continues to Monitor and Oversee 
Recovery Act Funds: 

The Office of the State Auditor, Office of the State Comptroller, and 
the New Jersey Recovery Accountability Task Force continue to monitor 
and oversee Recovery Act funds in New Jersey. As we previously 
reported, the Office of the State Auditor issued its audit report on 
eligibility issues related to the Weatherization Assistance Program in 
March 2010.[Footnote 14] The office continues to audit other aspects 
of the weatherization program, including the administration of 
contracts and program expenditures, and may also include homes that 
have received weatherization services in the scope of its review. The 
Office of the State Auditor issued a report on the Trenton Board of 
Education on July 13, 2010, which included a review of controls over 
Recovery Act funds for the Wired for Learning program.[Footnote 15] 
The audit found that controls were in place for this program. In 
addition, the Office of the State Auditor issued a report on August 9, 
2010, on the Division of Criminal Justice within the Department of Law 
and Public Safety.[Footnote 16] The audit included the state's Edward 
Byrne Memorial Justice Assistance Grant program funds provided under 
the Recovery Act.[Footnote 17] The audit concluded that costs charged 
to Recovery Act projects were allowable and separately accounted for 
in the state's accounting system and that adequate controls are in 
place to assure the effective cash management and accurate and timely 
reporting of Recovery Act funds. Other programs and agencies that 
received Recovery Act funds that are currently being audited by the 
Office of the State Auditor include bridge maintenance contracts and 
the cash management system at the Department of Human Services, which 
includes the state's Federal Medical Assistance Percentage (FMAP) 
funds. These audits are expected to conclude during the late summer 
and early fall.[Footnote 18] 

Since it issued its audit report on the administration and monitoring 
of Workforce Investment Act of 1998 Youth Program Recovery Act funds 
in April 2010, the Office of the State Comptroller has initiated 
audits of Recovery Act EECBG and day care funds. The State Comptroller 
had planned to audit program compliance and internal controls 
governing the administration and monitoring of both the fiscal and 
programmatic components of the EECBG grant in four localities that 
received formula funds. However, the Office of the State Comptroller 
suspended the audit in May 2010 for 4 to 6 months due to lack of 
program expenditures and plans to restart the audit once additional 
funds have been spent. The day care audit was initiated in July 2010 
and will examine internal controls over eligibility, payments, and 
health and safety. Finally, New Jersey's Recovery Accountability Task 
Force, which has primary responsibility for oversight of the state's 
Recovery Act funds, continues to hold monthly meetings to discuss 
issues related to the oversight of Recovery Act funds. For example, 
the task force uses the New Jersey Office of Management and Budget's 
(NJOMB) weekly grant award report to discuss the status of Recovery 
Act expenditures in the state and asks state agencies to discuss 
reasons for low expenditure rates. 

In addition to the audit activities of the State Auditor and State 
Comptroller, New Jersey uses the state's Single Audit to ensure that 
state agencies receiving federal funds are in compliance with the 
federal requirements of those funds.[Footnote 19] The audit also 
identifies internal control deficiencies that could impact state 
agencies' compliance with federal laws, regulations, contracts, and 
grants applicable to federal programs. According to data from the 
Federal Audit Clearinghouse, which is responsible for receiving and 
distributing Single Audit results, it received New Jersey's Single 
Audit reporting package for the year ending June 30, 2009, on April 
27, 2010. This was almost 1 month after the deadline specified by the 
Single Audit Act and almost 10 months after the period the audit 
covered. This was the first Single Audit for New Jersey that includes 
Recovery Act programs and it identified 45 significant internal 
control deficiencies over compliance, of which 38 were material 
weaknesses.[Footnote 20] This is a decrease over the Single Audit 
report for fiscal year 2008, which identified 48 significant internal 
control deficiencies over compliance, of which 42 were material 
weaknesses. Some of the internal control deficiencies identified in 
the Single Audit report for fiscal year 2009 include Recovery Act 
funds. For example, for the Weatherization Assistance Program, the 
Single Audit report identified that the Department of Community 
Affairs did not have adequate policies or controls in place to ensure 
that its federal financial report is properly completed, supported by 
adequate documentation, and reviewed by a supervisor prior to 
submission. As a result, the state understated its unliquidated 
obligations for this program for two consecutive quarters. In response 
to this finding, the Department of Community Affairs stated that the 
reconciliation process using the department's underlying financial 
records was strengthened during fiscal years 2009 and 2010 and that 
the weatherization program now has an accurate mechanism to ensure 
that federal financial reports are prepared based on reconciled 
totals. The department amended and resubmitted the erroneous financial 
reports identified in the Single Audit report for fiscal year 2009 to 
the U.S. Department of Health and Human Services. 

New Jersey Used Recovery Act Funds to Fill Budget Shortfalls in Fiscal 
Year 2010, but the State Faces Continued Fiscal Challenges in Fiscal 
Year 2011: 

New Jersey has received approximately $5.8 billion in Recovery Act 
funding as of July 21, 2010. NJOMB officials noted that the largest 
increases in Recovery Act funds since our May 2010 report have come 
from increased FMAP and Temporary Assistance for Needy Families 
Emergency funds. The state also received Recovery Act funding for 
energy programs for the first time in June 2010. For example, New 
Jersey received $8 million for the energy-efficient appliance rebate 
program and $14 million for the EECBG program. 

Recovery Act funds directly affected New Jersey's stability in fiscal 
year 2010. For example, New Jersey included $1.2 billion in State 
Fiscal Stabilization Funds (SFSF) monies in its 2010 budget, along 
with about $1 billion in increased FMAP funds. New Jersey used the 
SFSF funds to help restore and increase the state's portion of 
education aid to local educational agencies and to fill budget 
shortfalls. However, the state disbursed all of its SFSF funds in 
fiscal year 2010. New Jersey enacted a $29.4 billion budget for fiscal 
year 2011 on July 1, 2010, after closing a $10.7 billion shortfall. 
The fiscal year 2011 appropriation is $626 million less than the 
previous year. Income taxes account for the largest source of the 
state's revenues, whereas aid to school districts accounts for over a 
third of the state's expenditures. About $1 billion in increased FMAP 
funds are included in the fiscal year 2011 budget, including Recovery 
Act funds.[Footnote 21] Figure 4 illustrates the state's major revenue 
sources and expenditures. 

Figure 4: New Jersey's Major Revenue Sources and Expenditures, Fiscal 
Year 2011 Budget: 

[Refer to PDF for image: horizontal bar graph] 

Major revenue sources: 
Other[A]: $8.36 billion; 
Recovery Act funding: $1.03 billion; 
Corporate business tax: $2.15 billion; 
Sales tax: $7.83 billion; 
Income tax: $9.86 billion. 

Major expenditures: 
Aid to school districts[B]: $10.31 billion; 
State departments: $3.4 billion; 
Other aid and grants[C]: $3.221 billion; 
Medicaid: $3.1 billion; 
Higher education: $2.1 billion; 
Rent, utilities, and employee benefits: $2.0 billion; 
Debt payments: $1.9 billion; 
Aid to cities and towns: $1.5 billion; 
Hospital funding: $0.868 billion; 
Judiciary: $0.656 billion; 
Property tax rebates: $0.268 billion; 
Legislature: $0.074 billion. 

Source: New Jersey Fiscal Year 2011 Budget. 

Note: Total major revenues do not equal $29.4 billion because there 
was a drawdown of the opening fund balance of $200 million to cover 
the shortfall of revenue versus spending. The opening fund balance is 
estimated at $505 million and the closing estimate is $303 million. 

[A] Includes gas, cigarette, real estate transfer, motor vehicle 
registrations and licensing fees, casino taxes, and other fees. 

[B] Includes debt payments on schools. 

[C] Includes health, human services, economic development, arts, 
transit, welfare, and other programs. 

[End of figure] 

New Jersey took a number of actions to close the budget shortfall 
primarily by eliminating and reducing projected growth and reducing 
the base budget. For example, the state deferred over $3 billion in 
pension payments; cut $848 million in funding from property tax 
rebates; and did not provide state funds for fiscal year 2011 in place 
of the SFSF funding school districts received in 2010, meaning that 
total aid to New Jersey's school districts will decrease by about $829 
million. NJOMB officials stated that New Jersey school districts are 
now feeling the effects of steep cuts in their budgets. The state also 
eliminated the $334 million special municipal aid program, which 
provided funds to municipalities with structural deficits, and 
replaced it with a new transitional aid program. The transitional aid 
program was funded at a lower level and will be provided to localities 
using a competitive process. The criteria for this program have not 
yet been established. Finally, the 2011 budget transferred funds from 
a variety of programs to help close the budget gap. For example, the 
budget transferred about $42.5 million out of the $453 million 
budgeted for NJBPU's clean energy programs to pay for state utility 
costs. 

Recovery Act Funds Allowed Jersey City to Meet Immediate Needs and Pay 
for One-Time Projects, but the City Faces Fiscal Challenges in Fiscal 
Year 2011: 

Jersey City is New Jersey's second largest city with an estimated 
population of 242,503 residents and an unemployment rate of 11.5 
percent, which is above the statewide level of 9.5 percent.[Footnote 
22] As of June 30, 2010, Jersey City officials stated that the city 
received about $14 million in Recovery Act formula funds for a variety 
of nonrecurring projects.[Footnote 23] These projects include an 
emergency shelter, homelessness prevention, and energy-efficiency 
programs. Table 2 summarizes the Recovery Act grants the city 
received. In addition to the projects listed below, the city plans to 
apply for and partner with the New Jersey City University and the 
Jersey City Economic Redevelopment Corporation for a competitive green 
job grant, to train youth, adults, and dislocated workers in green 
industries and related occupations such as hybrid/electric auto 
technicians, weatherization specialists, wind and energy auditors, and 
solar panel installers. 

Table 2: Amount and Types of Recovery Act Grants Awarded to Jersey 
City: 

Jersey City projects: Department of Housing and Urban Development-- 
emergency shelter grants and homelessness prevention; 
Recovery Act funds: $2,676,991. 

Jersey City projects: Department of Energy, EECBG--various energy 
projects, including energy upgrades to municipal buildings and street 
light improvements; 
Recovery Act funds: $2,329,500. 

Jersey City projects: Department of Housing and Urban Development-- 
neighborhood stabilization; 
Recovery Act funds: $2,153,431. 

Jersey City projects: Department of Justice, Edward Byrne Memorial 
Justice Assistance Grant--police overtime; 
Recovery Act funds: $1,834,580. 

Jersey City projects: Department of Housing and Urban Development, 
Community Development Block Grant--site improvements to housing 
projects, ADA compliance, sidewalk replacement, and vacant property 
demolition; 
Recovery Act funds: $1,749,827. 

Jersey City projects: Department of Labor, Workforce Investment Act-- 
training for adults and dislocated workers and youth activity programs; 
Recovery Act funds: $1,743,716. 

Jersey City projects: Department of Health and Human Services, 
Community Services Block Grant--provide employment, financial 
education, housing, health care, and nutrition services; 
Recovery Act funds: $1,596,740. 

Jersey City projects: Total Recovery Act funds; 
Recovery Act funds: $14,084,785. 

Sources: Jersey City and Recovery.gov. 

Note: Recovery Act fund total does not include $7.8 million directly 
allocated to the Jersey City Housing Authority and $4.5 million in 
highway funds suballocated from the New Jersey Department of 
Transportation. 

[End of table] 

While the Recovery Act funds did not affect the city's budget, the 
funds allowed the city to meet immediate needs and complete priority 
projects. For example, the city used the Edward Byrne Memorial Justice 
Assistance Grant to pay for police overtime costs, while the Community 
Services Block Grant funds were used to provide employment, financial 
education, housing, health care, and nutrition services to low-income 
residents. The EECBG funds will allow the city to make energy-
efficient upgrades to municipal buildings and street and traffic 
lights, among other things. In addition, the Community Development 
Block Grant (CDBG) was used to begin four projects to (1) improve 
sites for a 63-unit mixed-income rental housing project; (2) install 
curb cuts for Americans with Disabilities Act compliance citywide; (3) 
replace sidewalks in low-and moderate-income areas throughout the 
city; and (4) demolish vacant properties to create mixed-income or low-
to moderate-income housing.[Footnote 24] When the Recovery Act funds 
are phased out, officials stated that only this block grant program 
will continue. 

Jersey City officials said that the poor economy and the fiscal 
condition of the state have adversely impacted the city's budget and 
finances. For example, because the state budget eliminated the special 
municipal aid program and cut funding to the state's Consolidated 
Municipal Property Tax Relief Aid (CMPTRA) program, Jersey City 
officials stated that the city will face major reductions in 
funding.[Footnote 25] Jersey City received $14 million in special 
municipal aid from the state in fiscal year 2010, and in fiscal year 
2011, the city is anticipating zero dollars. Officials also anticipate 
further reductions in CMPTRA, which was recently reduced by $13.5 
million. As a result of cuts in state funding, as well as revenues 
being lower than projected, the city faces an $80 million shortfall in 
fiscal year 2011. However, according to officials, the city is 
required by statute to have a balanced budget. To address the 
projected shortfall, Jersey City officials told us they laid off 300 
seasonal and provisional employees in February 2010 out of the city's 
approximately 2,000 staff, which saved about $2 million. In addition, 
with the exception of police and firefighters, city employees took 12 
unpaid furlough days between December 2009 and June 2010. The city 
also plans to lay off permanent employees in fiscal year 2011 and have 
12 unpaid furlough days to address a portion of the 2011 budget 
shortfall. Although the city's 2010 fiscal year ended on June 30, 
2010, the city council adopted a temporary budget of $168.1 million 
for fiscal year 2011 until the budget is introduced and approved, 
allocating $106.6 million for operating expenses and $61.5 million for 
debt service. Jersey City officials stated that the city is restricted 
by statute from allocating more than 26.25 percent of its $476 million 
fiscal year 2010 budgetary appropriations for the 2011 temporary 
budget.[Footnote 26] Officials stated that an estimate for the fiscal 
year 2011 budget has not yet been determined and the final fiscal year 
2011 budget will not be adopted until next year. 

New Jersey Reported Over 22,000 Jobs for the Fourth Recipient Report, 
but EECBG Recipients We Met With Did Not Use OMB Guidance to Calculate 
and Report FTEs: 

According to Recovery.gov, as of July 30, 2010, New Jersey recipients 
reported funding 22,885 FTEs with Recovery Act funds during the fourth 
quarterly reporting period, which covers the period April 1, 2010, to 
June 30, 2010. The New Jersey Department of Education reported the 
largest number of FTEs, accounting for 77 percent of the total FTEs 
reported. According to the Governor's Policy Advisor on the Recovery 
Act, recipient reporting in the fourth quarterly reporting period went 
very smoothly, with all state agencies reporting on time. The official 
stated that the biggest challenge reported by state agencies was 
ensuring that the data entered into Federalreporting.gov was captured 
by the reporting deadline. According to the official, many agencies 
wait until the deadline to report their data, which causes a backlog 
in Federalreporting.gov. 

OMB guidance requires recipients to calculate FTEs by adding up the 
total number of hours worked in the quarter using Recovery Act funds 
and dividing it by the total number of hours in a full-time schedule 
for that quarter.[Footnote 27] However, the local EECBG recipients we 
met with--Morris County, Jersey City, and Woodbridge Township--did not 
use OMB guidance to calculate FTEs. For example, an official from one 
locality told us that four FTEs were reported for the quarter based on 
the total number of people that had been paid with EECBG funds for the 
quarter without taking into consideration the number of hours each 
employee had worked or prorating the FTEs according to the number of 
hours attributed to the Recovery Act. As a result, the total number of 
FTEs reported may have been overstated. Officials from another 
locality we met with stated that they used an estimate developed by 
the Council on Economic Advisors to determine the total FTEs worked 
for the quarter. Specifically, officials calculated FTEs using the 
assumption that for every $92,000 in direct federal spending, one job 
is created for 1 year. The FTEs were attributed to three consultants 
that had been working on the project part time. According to the 
consultants, they are not paid on an hourly basis and, therefore, 
chose to use the spending estimate to calculate FTEs. DOE also 
requires EECBG recipients to report FTE information through the PAGE 
quarterly report, using the same formula to calculate FTEs as defined 
in OMB guidance. In addition, recipients are required to report on the 
number of jobs attributed to nonfederal funding sources. Given that 
EECBG recipients did not use OMB guidance to calculate FTEs reported 
on Recovery.gov, it is likely that recipients also did not use DOE 
guidance to calculate and report FTEs in PAGE. 

EECBG recipients we met with stated that while they were aware of the 
OMB guidance, they did not use the guidance to calculate FTEs because 
the FTEs reported to date are mostly for consulting services. 
Officials from the localities stated that once projects are under way 
and contracts are awarded, they will use the OMB guidance to calculate 
and report FTEs. Officials from two of the localities stated that they 
have not yet determined how they will verify the accuracy of the jobs 
information submitted, but stated that they would likely review 
certified payrolls. An official from the third locality stated that 
there are currently no quality review steps in place to ensure the 
accuracy of the jobs data reported. 

Lastly, the Newark Housing Authority reported 16 FTEs for its formula 
grant in the fourth quarter recipient reporting period, down from the 
20 FTEs reported in the January to March 2010 reporting period, 
according to Recovery.gov. A senior housing official attributed the 
decrease to challenges in obtaining city permits in a timely manner 
and a state-imposed wage increase for unskilled labor. The official 
stated that the housing agency applied for a waiver from the wage 
increase, which it did not receive. According to the official, the 
wage increase will have a significant impact on moving forward with 
public housing projects because fewer people can be hired at the 
higher wage. A Newark housing official also told us that no jobs will 
be reported for the competitive grant until the agency meets its 
financial closing, at which time construction can begin. To verify the 
accuracy of the jobs information provided to them by contractors, 
officials stated they collect payrolls and conduct random spot-
checking at job sites to ensure they are correct. Officials stated 
that recipient reporting has become easier each round and they have 
not experienced any issues during this most recent round. 

State Comments on This Summary: 

We provided the Governor of New Jersey with a draft of this appendix 
on August 9, 2010. On behalf of and in concert with the Governor's 
Deputy Chief of Staff, who serves as co-chair for the Governor's 
Recovery Accountability Task Force, the Governor's Policy Advisor for 
Recovery Act matters responded for the Governor on August 12, 2010. 
The official provided technical comments that were incorporated, as 
appropriate. 

GAO Contacts: 

David Wise, (202) 512-2834 or wised@gao.gov: 

Gene Aloise, (202) 512-6870 or aloisee@gao.gov: 

Staff Acknowledgments: 

In addition to the contacts named above, Diana Glod, Assistant 
Director; Nancy Lueke, analyst-in-charge; 
Kisha Clark; 
Anne Doré; 
Alexander Lawrence Jr.; 
and Tarunkant Mithani made major contributions to this report. 

[End of section] 

Appendix XII Footnotes: 

[1] Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009). 

[2] DOE established weighted formulas for allocating grants to states, 
units of local government, and Indian tribes and used population data 
and other criteria, such as energy consumption, to allocate funds 
under the formulas. 

[3] New Jersey's Clean Energy Program provides financial incentives 
through various programs for residential, commercial, and municipal 
customers to promote increased energy efficiency and the use of 
renewable sources of energy. Localities applying for energy rebates 
can use the EECBG funds to cover portions of the costs not covered by 
NJBPU's Direct Install, Pay for Performance, or SmartStart Buildings 
programs. 

[4] Recipients of EECBG formula funds must obligate the funds within 
18 months of receiving the EECBG award and expend the funds within 36 
months of receiving the award. 

[5] U.S. Department of Energy, Office of Inspector General, Office of 
Audit Services, Special Report: Review of the Department of Energy's 
Plan for Obligating Remaining Recovery Act Contract and Grant Funding, 
OAS-RA-10-15 (Aug. 4, 2010). 

[6] U.S. Department of Energy, Office of Inspector General, Office of 
Audit Services, Special Report: Selected Department of Energy Program 
Efforts to Implement the American Recovery and Reinvestment Act, OAS- 
RA-10-03 (Dec. 7, 2009). 

[7] In addition to Newark, five public housing agencies received eight 
competitive grants for creating energy-efficient communities. These 
public housing agencies included the Elizabeth Housing Authority, the 
Jersey City Housing Authority, the Bayonne Housing Authority, the 
Vineland Housing Authority, and the Brick Housing Authority. 

[8] The actual obligation deadlines vary during September 2010 
depending on the category for which the competitive grant was awarded. 
Competitive grants for public housing transformation must be obligated 
by September 8, 2010. Competitive grants for energy-efficient, green 
communities involving substantial rehabilitation or new construction 
must be obligated by September 22, 2010. Competitive grants for gap 
financing and for moderate green rehabilitation must be obligated by 
September 23, 2010, and competitive grants used for addressing the 
needs of the elderly must be obligated by September 27, 2010. 

[9] The New Jersey Housing and Mortgage Finance Agency is responsible 
for the administration of the federal low-income housing tax credit on 
behalf of the U.S. Internal Revenue Service. Investors purchase these 
tax credits and the revenue from the sale raises equity for New 
Jersey's affordable housing market. There are two tax credits 
available to public housing agencies. One is a 9 percent tax credit, 
which is administered on a competitive basis; the other is a 4 percent 
tax credit, which is administered on a noncompetitive basis, and is 
awarded to projects automatically if they meet certain eligibility 
requirements. 

[10] GAO, Recovery Act: States' and Localities' Uses of Funds and 
Actions Needed to Address Implementation Challenges and Bolster 
Accountability (Appendixes), [hyperlink, 
http://www.gao.gov/products/GAO-10-605SP] (Washington, D.C.: May 26, 
2010). 

[11] GAO, Recovery Act: States' and Localities' Current and Planned 
Uses of Funds While Facing Fiscal Stresses (Appendixes), [hyperlink, 
http://www.gao.gov/products/GAO-09-830SP] (Washington, D.C.: July 8, 
2009). 

[12] [hyperlink, http://www.gao.gov/products/GAO-09-830SP]. 

[13] According to a senior HUD official, all of the remote reviews 
were completed by August 20, 2010. 

[14] [hyperlink, http://www.gao.gov/products/GAO-10-605SP]. 

[15] New Jersey Office of Legislative Services, Office of the State 
Auditor, Trenton Board of Education, July 1, 2007 to February 28, 2010 
(Trenton, N.J., 2010). 

[16] New Jersey Office of Legislative Services, Office of the State 
Auditor, Department of Law and Public Safety, Division of Criminal 
Justice and Office of the State Medical Examiner, July 1, 2007 to 
April 30, 2010 (Trenton, N.J., 2010). 

[17] A total of $34.6 million in Recovery Act grants were awarded to 
the Division of Criminal Justice in fiscal year 2009, of which $29.8 
million were awarded for the Edward Byrne Memorial Justice Assistance 
Grant program. 

[18] In addition to these ongoing audits, the Office of the State 
Auditor also initiated audits at the New Jersey Department of 
Agriculture, which is using Recovery Act funds to purchase school 
equipment; South Woods State Prison, which received Recovery Act 
public safety funds; and of the New Jersey Department of Education's 
formula for allocating funds to school districts. 

[19] The Single Audit Act of 1984, as amended (31 U.S.C. §§ 7501-
7507), requires that each state, local government, or nonprofit 
organization that expends at least a certain amount per year in 
federal awards--currently set at $500,000 by OMB--must have a Single 
Audit conducted for that year subject to applicable requirements, 
which are generally set out in OMB Circular No. A-133, Audits of 
States, Local Governments and Non-profit Organizations (revised June 
27, 2003 and June 26, 2007). If an entity expends federal awards under 
only one federal program and when federal laws, regulations, or grant 
agreements do not require a financial statement audit of the entity, 
the entity may elect to have an audit of that program. 

[20] KPMG, State of New Jersey Single Audit Report, Year Ended June 
30, 2009, Independent Auditors' Report on Schedule of Expenditures of 
Federal Awards (Princeton, N.J., Apr. 16, 2010). The Single Audit did 
not include an opinion on the state's compliance with the requirements 
of its Medicaid programs, including Recovery Act programs, because the 
auditors did not have sufficient documentation supporting the 
compliance of the state regarding activities allowed or unallowed, 
allowable costs/cost principles, and eligibility. 

[21] The Recovery Act initially provided eligible states with an 
increased FMAP for 27 months from October 1, 2008, to December 31, 
2010. Recovery Act, div. B, title V, § 5001, Pub. L. No. 111-5, 123 
Stat. at 496. On August 10, 2010, federal legislation was enacted 
amending the Recovery Act and providing for an extension of increased 
FMAP funding through June 30, 2011, but at a lower level. See Pub. L. 
No. 111-226, § 201, 124, Stat. 2389 (Aug. 10, 2010). 

[22] Population data are from the latest available U.S. Census Bureau 
estimate as of July 1, 2009. Unemployment rates are preliminary 
estimates from the U.S. Department of Labor, Bureau of Labor 
Statistics, Local Area Unemployment Statistics for June 2010 and have 
not been seasonally adjusted. Rates are a percentage of the labor 
force. Estimates are subject to revisions. 

[23] The Recovery Act fund total does not include $7.8 million 
directly allocated to the Jersey City Housing Authority and $4.5 
million in highway funds suballocated from the New Jersey Department 
of Transportation. 

[24] The HUD Office of the Inspector General issued an audit report of 
Jersey City's CDBG funds received under the Recovery Act in February 
2010. The audit found that the city generally had adequate controls 
and staff capacity to administer its CDBG funds, but needed to 
strengthen its controls to ensure that it would be able to effectively 
administer the funds and comply with applicable requirements. The city 
generally disagreed with the findings. 

[25] CMPTRA is a formula grant program through which the state 
annually provides localities with funds to help offset property tax 
losses. 

[26] N.J. Stat. Ann. § 40A:4-19. 

[27] OMB Memorandum, Updated Guidance on the American Recovery and 
Reinvestment Act - Data Quality, Non-Reporting Recipients, and 
Reporting Job Estimates, M-10-08 (Dec. 18, 2009). 

[End of Appendix XII] 

Appendix XIII: New York: 

Overview: 

This appendix summarizes GAO's work on the seventh bimonthly review of 
American Recovery and Reinvestment Act of 2009 (Recovery Act)[Footnote 
1] spending in New York. The full report on all of GAO's work in 16 
states and the District of Columbia may be found at [hyperlink, 
http://www.gao.gov/recovery/]. 

What We Did: 

We reviewed six programs funded by the Recovery Act--three education 
programs and three energy programs. The three education programs we 
reviewed were (1) the State Fiscal Stabilization Fund (SFSF); (2) 
Title I, Part A of the Elementary and Secondary Education Act of 1965, 
as amended (ESEA); and (3) the Individuals with Disabilities Education 
Act, as amended (IDEA), Part B. All three of these programs are 
administered by the U.S. Department of Education (Education). The 
three energy programs we reviewed were the State Energy Program (SEP), 
the Energy Efficiency and Conservation Block Grant (EECBG), and the 
Weatherization Assistance Program (Weatherization). All three of these 
programs are administered by the U.S. Department of Energy (DOE). 
These programs were selected primarily because they are receiving 
significant amounts of Recovery Act funds, recently began disbursing 
funds to states, or both. We focused on how funds were being used, how 
safeguards were being implemented, and how results were being 
assessed. For descriptions and requirements of the programs we 
covered, see appendix XVIII of GAO-10-1000SP. 

Our work in New York also included understanding the state's fiscal 
condition, visiting one locality--the Town of Brookhaven--to gain 
insight into its use of Recovery Act funds, and obtaining an update on 
the fiscal condition of one of the localities we visited for our 
December 2009 report--Steuben County.[Footnote 2] We chose the local 
governments in order to visit a range of communities based on locality 
type, population size, and unemployment rates. Specifically, we 
visited the Town of Brookhaven because it is a suburban town and its 
unemployment rate is below the state's rate.[Footnote 3] We followed 
up with Steuben County because it is a rural county with an 
unemployment rate above the state's rate. Finally, we reviewed the 
work being done by the accountability community to oversee the use of 
Recovery Act funds. 

What We Found: 

Funds from the programs we reviewed have helped New York prevent 
reductions in education and health care funding and improve the energy 
efficiency of public buildings and private residences. Recovery Act 
funds are also stimulating infrastructure development and expanding 
existing programs. The following summarizes findings for the areas we 
examined. 

* Education programs. Education allocated $4.98 billion in SFSF, ESEA 
Title I, Part A, and IDEA, Part B funds to New York, of which the 
state has made $3.9 billion available to local educational agencies 
(LEA). As of July 16, 2010, New York had drawn down about 48 percent 
of available funds. In examining the efforts of the Syracuse City 
School District (SCSD) and the New York State Education Department 
(NYSED) to safeguard this funding, we found that SCSD reduced its 
local spending on IDEA, Part B for the 2009-2010 school year despite 
being ineligible to do so. After we alerted SCSD officials to this 
maintenance-of-effort (MOE) issue, SCSD restored its local spending to 
the correct level. We also found that SCSD generally followed its 
procurement procedures in a sample of Recovery Act transactions. In 
addition, NYSED is continuing its monitoring of 30 high-risk LEAs. 

* SEP. On July 2, 2009, DOE approved New York's plan for SEP and 
allocated it $123.1 million in Recovery Act funds. The New York State 
Energy and Research Development Authority (NYSERDA)--the agency that 
administers SEP in New York--also elected to use $2.5 million from 
EECBG to augment one of its SEP programs.[Footnote 4] As of June 30, 
2010, NYSERDA had obligated $109.2 million of its total allocation and 
had expended $3.2 million to fund SEP activities under the Recovery 
Act. NYSERDA is distributing most of these funds to subrecipients in 
the state to pay for energy efficiency and renewable energy projects 
ranging from the retrofitting of street lights with more energy- 
efficient bulbs to the installation of solar photovoltaic systems in 
homes and businesses. NYSERDA is generally using its established 
procedures to track and monitor these projects with an increased 
emphasis on reporting and impact evaluation requirements. 

* EECBG. New York was allocated over $175 million in formula-based 
Recovery Act EECBG funds. Some of the allocations went directly to 
local recipients, while those for smaller recipients went through the 
state. In New York, the funds for smaller recipients went through 
NYSERDA. We examined how NYSERDA and two direct-recipient localities-- 
Orange County and the Town of Brookhaven--planned to use their EECBG 
funds, as well as their monitoring and reporting efforts. NYSERDA, 
Orange County, and the Town of Brookhaven received about $30 million, 
about $3.5 million, and about $4 million, respectively. As of June 15, 
2010, NYSERDA reported that it had obligated 100 percent of its funds. 
As of June 30, 2010, Orange County reported that it had obligated 
about $19,000 (about 0.5 percent of its funds), and the Town of 
Brookhaven reported that it had obligated about $49,000 (about 1.2 
percent of its funds). However, we found that both of these recipients 
initially underreported their obligations by over $500,000 combined 
but later corrected their reports. The recipients plan to use the 
funds for a variety of projects to improve the energy efficiency of 
public buildings and private homes and plan to evaluate program 
outcomes by tracking energy-savings metrics over time. 

* Weatherization. DOE allocated $394.7 million in Recovery Act funds 
to New York in March 2009 for Weatherization. In New York, these funds 
are administered by the Division of Housing and Community Renewal 
(DHCR). Through June 30, 2010, New York had weatherized almost 4,000 
units--nearly three times the number it reported as of March 31, 2010, 
and about 8.5 percent of its goal of 45,000 units. DHCR officials said 
they believe this increase was the result of more multifamily projects 
working their way through the production process. These officials also 
believe similar jumps in production numbers will occur in future 
reporting periods because work on over 14,100 units was currently 
under way and energy audits--which are required before weatherization 
can begin--of over 19,200 additional units had been completed. Once 
work on these over 33,300 units is finished, New York will have 
completed about 82.7 percent of the units needed to meet its goal. 
DHCR officials believe the state will meet its goal by March 31, 2012. 

* Accountability. The Stimulus Oversight Panel and Office of the State 
Comptroller (OSC) continue to actively monitor Recovery Act funds. 
[Footnote 5] Since our May report, the New York State Inspector 
General (NYSIG) has completed a review of the Recovery Act Clean Water 
and Drinking Water State Revolving Funds (SRF). It has also continued 
to investigate complaints received through the Stimulus Complaint 
intakes. According to a NYSIG official, NYSIG has received 
approximately 25 allegations of waste, fraud, or abuse related to 
Recovery Act funds, predominately in the area of Weatherization. NYSIG 
expects to report on a number of substantiated claims in September. 
OSC's Local Government and School Accountability Division has 
completed its audits of transportation procurement procedures in 51 
municipalities, with no significant findings, and has begun looking at 
how transportation claims are audited and paid for by local 
governments. OSC's Division of State Government Accountability has 
begun an audit of the Metropolitan Transportation Authority (MTA) that 
will examine, among other items, the systems and controls in place to 
ensure that Recovery Act funds are used for the proper purpose and to 
monitor waste, fraud, and abuse. 

* State and localities' use of Recovery Act funds. According to state 
budget officials, the receipt of Recovery Act funds has greatly 
affected the state's fiscal stability as it has prevented cuts in 
education and health care funding and helped the state address budget 
gaps over 3 fiscal years. The localities we visited plan to or are 
using Recovery Act funds for financing Medicaid, energy programs, and 
community development, among other things. 

New York Has Drawn Down Recovery Act Education Funds at an Increased 
Rate; NYSED's Monitoring of High-Risk LEAs Did Not Identify a MOE 
Compliance Issue: 

For this report, we examined the efforts of SCSD and NYSED to ensure 
appropriate use of the funding for three Recovery Act education 
programs--SFSF; ESEA Title I, Part A; 
and IDEA, Part B--the largest Recovery Act-funded education programs 
in New York. As the fifth largest LEA in New York, SCSD has about 
21,000 students in 33 schools. It has a total operating budget of 
approximately $425 million and employs more than 4,000 staff. We chose 
to review SCSD because of its size, large Recovery Act award, and 
multiple findings by independent auditors in past reports regarding 
its use of federal funds and internal controls.[Footnote 6] SCSD 
officials estimated that the district was allocated approximately 
$34.4 million in SFSF, ESEA Title I, and IDEA, Part B Recovery Act 
funds. The school district planned to use these funds over 2 years 
with about 61 percent of these funds planned for use in the 2009-2010 
school year and about 39 percent in the 2010-2011 school year. The 
district planned to use approximately 96 percent of the $34.4 million 
for salaries. SCSD officials said that as of June 30, 2010, 
approximately 284 full-time equivalents (FTE) have been retained using 
Recovery Act funds. Overall, NYSED officials reported that Recovery 
Act education funds saved or created approximately 30,000 FTEs 
throughout the state in the quarterly reporting round that ended June 
30, 2010. 

In 3 Months, New York Almost Doubled Its Draw Down Rate of Recovery 
Act SFSF; ESEA Title I, Part A; and IDEA, Part B Funds, although Its 
Average Rate Still Lags behind that of Other States in Our Study: 

Education allocated $4.98 billion to NYSED for the three Recovery Act 
education programs we reviewed. Of this funding, NYSED has made 
approximately $3.9 billion available to LEAs, and as of July 16, 2010, 
New York had drawn down about $1.9 billion, or about 48 percent of the 
total amount, up from 27 percent of the total amount as of April 16, 
2010. However, the state continues to draw down these funds more 
slowly than other states because of administrative delays, as 
previously reported.[Footnote 7] As of July 16, 2010, New York's 48 
percent draw down rate was lower than the average rate of 64 percent 
among the 16 states and the District of Columbia included in our 
review. 

SCSD Reduced Its Local Spending on Special Education, despite Being 
Ineligible to Do So, but Subsequently Corrected Its Error: 

IDEA requires that an LEA maintain local funding for special education 
at the previous year's level, referred to as MOE, except under certain 
circumstances. To be eligible to reduce its IDEA funding, an LEA must 
meet the requirements of IDEA, including meeting certain performance 
indicators defined by the state educational agency.[Footnote 8] (See 
figure 1 for an illustration of this concept). 

Figure 1: Hypothetical Example of an Eligible LEA Reducing Its MOE by 
the Maximum Allowable Amount: 

[Refer to PDF for image: vertical bar graph] 

Year: 2008; 
Federal IDEA allocation: $20 million; 
Local IDEA allocation: $1 million; 
Total: $21 million. 

Year: 2009; 
Federal IDEA allocation: $19.5 million; Local allocation decreased by 
$500,000 (50 percent of $1 million federal allocation increase); 
Local IDEA allocation: $2 million; Federal allocation increased by $1 
million; 
Total: 21.5 million. 

Source: GAO analysis. 

[End of figure] 

SCSD officials told us in March 2010 that they reduced the district's 
local spending on special education in the 2009-2010 school year. 
However, we determined, and SCSD officials subsequently agreed, that 
SCSD was not eligible for the MOE reduction in the 2009-2010 school 
year because it was not meeting performance indicators related to 
graduation and dropout rates among disabled students and it had a 
significantly high percentage of students with disabilities being 
suspended for more than 10 days, among other indicators. After we 
notified SCSD officials that the district was ineligible to reduce its 
MOE, SCSD restored its local IDEA spending to meet MOE requirements. 

In March 2010, GAO also notified NYSED of the issue, and as a result, 
NYSED's IDEA program office asked the SCSD officials to return the 
funds to SCSD's special education budget. NYSED officials said that 
SCSD should have known of its ineligibility, because the NYSED 
officials had corresponded multiple times with SCSD on the subject. 
[Footnote 9] 

NYSED monitors MOE by requiring an LEA's annual application for IDEA 
funds to include the local funding amount of special education for the 
previous 2 years and an estimate of the local spending on special 
education for the application year. The application requires each 
district to certify that its MOE requirements are met or to provide an 
explanation for why it is eligible to reduce its MOE. Because of a 
reporting error on the SCSD 2009-2010 application, NYSED was unaware 
that the LEA reduced its MOE. In June 2009, SCSD submitted an 
application to NYSED for federal IDEA funds that we found to contain 
incorrect information through our review of local budget documents. 
While SCSD's application to NYSED for IDEA funds reported an increase 
of $125,793 in local spending from the 2008-2009 through 2009-2010 
school years, it had actually reduced its local spending by about $2.3 
million.[Footnote 10] When we notified SCSD officials during our visit 
in March 2010 of the error and SCSD's ineligibility to reduce its MOE 
by approximately $2.3 million, they attributed the error to 
miscommunication among staff in the special education and finance 
offices and a misunderstanding of the eligibility rules for reducing 
MOE. 

NYSED officials said that if GAO had not discovered the error, it 
would have likely been discovered in the annual Single Audit that 
occurs after the award year ends.[Footnote 11] If the error had not 
been detected until then, NYSED officials said it is possible that 
they then would have had to take steps to recover the funds or 
withhold them from SCSD's next federal IDEA allocation and 
redistribute them to other recipients. We have previously reported 
that the reduction of MOE by LEAs in all states could affect future 
spending on special education because, when an LEA is allowed to 
reduce local MOE in one year, it lowers the level of local spending 
that the LEA must maintain in subsequent years for the special 
education population.[Footnote 12] 

SCSD Generally Followed Its Procedures for Purchasing Goods and 
Services with Recovery Act Funds: 

During our site visit, to assess the extent to which SCSD followed its 
procedures, we reviewed a nonstatistical sample of 26 expenditures of 
Recovery Act funds for goods, services, and salaries under the SFSF; 
ESEA Title I, Part A; 
and IDEA, Part B programs and interviewed finance and program 
officials regarding use of Recovery Act education funds, procurement 
procedures, and inventory controls. As of December 22, 2009, SCSD had 
expended approximately $4.8 million in Recovery Act funds for these 
three programs.[Footnote 13] We reviewed a selective sample of 
transactions, which totaled $122,733. Forty-three percent of this 
amount represented salary expenses. Our review of these transactions 
found that SCSD officials had generally followed its procedures for 
review and approval of these expenditures. 

NYSED Continues Recovery Act Monitoring of 30 LEAs: 

NYSED's Office of Audit Services continues to perform site visits to 
high-risk LEAs, with a goal of visiting 30 of 68 LEAs that it 
identified as high risk, as we reported in May 2010.[Footnote 14] The 
objectives of the audits include reviewing the use of Recovery Act 
funds, determining whether a reasonable internal control system 
exists, and checking for compliance with specific federal requirements 
over the use of federal funds. As of July 30, 2010, NYSED has 
published reports on 4 more LEAs selected for site visits, bringing 
the total to 8.[Footnote 15] NYSED published a report on SCSD in June 
2010, but did not review SCSD's MOE compliance. NYSED officials told 
us that the major findings among the LEAs as of June 16, 2010, were as 
follows: 

* Unique accounting codes for Recovery Act funds were needed to ensure 
accountability. 

* Time and effort certifications were incomplete.[Footnote 16] 

* LEAs were typically unaware of federal cash management regulations 
and lacked a process for ensuring compliance with them. 

* LEA quarterly reporting under Recovery Act section 1512 had been 
relatively accurate with some minor discrepancies. 

To respond to the federal cash management findings, NYSED has held 
presentations for six groups of LEA officials across the state to 
educate them on developing processes for complying with the 
requirements. 

New York's Recovery Act SEP Is Funding Energy Efficiency and Renewable 
Energy Projects: 

The Recovery Act appropriated $3.1 billion to SEP to be administered 
by DOE and spent over a 3-year period by the states, U.S. territories, 
and the District of Columbia. SEP provides funds through formula 
grants to achieve national energy goals such as increasing energy 
efficiency and decreasing energy costs. Created in 1996, SEP has 
typically received under $50 million per year. As such, the Recovery 
Act provided a substantial increase in funding for this program. 

Upon DOE's approval of New York's plan for SEP on July 2, 2009, New 
York was allocated $123.1 million in Recovery Act SEP funds. NYSERDA-- 
the agency that administers SEP in New York--also elected to use $2.5 
million from EECBG to augment one of its SEP programs. Through June 
30, 2010, NYSERDA has obligated $109.2 million of its total allocation 
and has expended $3.2 million to fund SEP activities under the 
Recovery Act. NYSERDA officials were confident that NYSERDA would meet 
DOE's deadline for obligating these Recovery Act funds, which is 
January 2, 2011 (18 months from the day the State Plan was approved). 

NYSERDA chose to use the Recovery Act SEP funding to develop four new 
programs instead of expanding funding for established programs. 
Officials felt this strategy would minimize the budgetary impact on 
their existing programs once Recovery Act funding is expended. The 
four Recovery Act SEP-funded programs in New York are described in 
table 1. 

Table 1: NYSERDA Recovery Act SEP Programs: 

Energy Efficiency Program: Provides funding to promote energy 
efficiency among municipalities, schools, hospitals, public colleges 
and universities, and non-profit organizations; 
Amount allocated: $82.6 million. 

Renewable Energy Program: Provides financial support to encourage the 
development of alternative renewable energy sources within the state, 
such as solar photovoltaic, solar thermal, wind, and biomass systems; 
Amount allocated: $31.0 million. 

Clean Fleet Program: Provides financial support to accelerate the 
introduction of light, medium, and heavy-duty alternative fuel 
vehicles and other advanced vehicle technologies into local community 
fleets; 
Amount allocated: $4.6 million. 

New York Energy Codes Program: Provides technical assistance to local 
code officials to achieve a high level of compliance with the Energy 
Conservation Construction Code of New York. NYSERDA's goal is to have 
the state reach 90 percent compliance with this code within 10 years. 
NYSERDA is coordinating this effort with the New York Department of 
State, which has administrative oversight of building codes in New 
York; 
Amount allocated: $4.8 million[A]. 

Total; 
Amount allocated: $123.1 million[B]. 

Sources: NYSERDA officials and documentation. 

[A] In addition to the $4.8 million in Recovery Act SEP funds 
allocated to the New York Energy Codes Program, NYSERDA also allocated 
$2.5 million in Recovery Act EECBG funds to augment the services 
provided through this program. 

[B] The totals for each program include administrative costs. In 
total, NYSERDA allocated $3,788,751 (3.07 percent) for Recovery Act 
SEP administrative costs. Numbers in table do not add to total because 
of rounding. 

[End of table] 

NYSERDA issued program opportunity notices (PON) and a series of 
requests for proposals (RFP) to implement its Recovery Act SEP 
programs. First, NYSERDA issued a PON to fund energy conservation 
studies. According to officials, through this PON, NYSERDA awarded $5 
million to fund 216 energy conservation studies, many of which formed 
the basis for proposals submitted in response to subsequent RFPs 
issued by NYSERDA to select projects to fund using Recovery Act SEP 
funds. 

We spoke to NYSERDA officials, who shared the following information 
about the awarding of Recovery Act SEP funds. NYSERDA elected to award 
the implementation funding for the Energy Efficiency, Renewable 
Energy, and Clean Fleet programs through one RFP but in several 
evaluation and funding "rounds" rather than all at once. The first 
round closed on August 24, 2009, and awarded $24.9 million to 87 
projects. Another $40.1 million was awarded to 118 projects selected 
in Round 2, which closed on November 27, 2009. The third round for 
funding requests closed on April 7, 2010, and awarded 44 projects $9 
million. To ensure that the funds were distributed statewide, NYSERDA 
divided the state into seven regions and separately evaluated and 
awarded funding requests from each region. NYSERDA issued another PON 
for a separate component of the Renewable Energy Program and selected 
five contractors that were awarded $10 million to install solar 
photovoltaic systems in homes and businesses throughout the state. 
Other Renewable Energy Program funding will be provided to the Long 
Island Power Authority to help finance infrastructure improvements 
needed to facilitate the purchase of electricity produced from solar 
energy and incorporate it into the power grid. The New York Energy 
Codes Program funds were awarded through two RFPs, with five awards 
made in total. 

Officials further explained the following details. With the exception 
of the funding for the Long Island Power Authority under the Renewable 
Energy Program, the grants and contracts were awarded through a 
competitive evaluation process. A panel that included both outside 
experts and NYSERDA staff reviewed, evaluated, and ranked each 
application. Then, a multidisciplinary, NYSERDA-staffed committee 
reviewed the rankings and made a recommendation on which projects to 
fund to NYSERDA's senior management. Once funds are awarded, NYSERDA 
enters into a contract with each subrecipient. 

NYSERDA Plans to Use Established Procedures to Track and Monitor SEP 
Funds with an Increased Emphasis on Evaluating and Reporting Impact: 

NYSERDA officials did not anticipate any special problems with 
tracking and monitoring Recovery Act funds. The officials told us that 
they are using existing procedures and internal controls to oversee 
Recovery Act funds. For example, the staff who manage the contracts 
are separate from those who approve payments under the contracts, and 
NYSERDA conducts site visits on a regular basis to monitor each 
project. In addition, NYSERDA has hired an independent firm to assist 
it in managing, overseeing, and monitoring its Recovery Act programs 
and to aid in recipient reporting. 

NYSERDA plans to measure predicted energy savings from these projects. 
For example, its initial estimate of annual energy savings resulting 
from the $74 million awarded to date under the Energy Efficiency, 
Renewable Energy, and Clean Fleet Programs is $18.7 million. It plans 
to use measures such as energy saved and the resultant energy cost 
savings, the capacity of renewable energy installed, and the reduction 
of greenhouse gas emissions to evaluate the projects. According to 
officials, each contract requires subrecipients to comply with 
NYSERDA's methodology for evaluating the impact of individual 
projects. NYSERDA is paying for the cost of the evaluation process 
using Recovery Act funds and will be responsible for its 
implementation and oversight. 

NYSERDA is also participating in DOE's national evaluation of the 
Recovery Act SEP. DOE has issued a best practices guide to evaluate 
the program, and NYSERDA is following this guide as well as its normal 
processes. 

SEP Reporting and Accountability Activities Are under Way: 

For the reporting period ending June 30, 2010, NYSERDA reported that 
Recovery Act SEP funds had funded 46.5 FTEs. NYSERDA officials said 
that they established a procedure to manage the reporting process and 
did not feel that the Recovery Act reporting requirements presented 
any problems. An internal audit by NYSERDA determined that the 
authority had good internal controls in place to provide oversight to 
the reporting process. 

The Recovery Act programs will be included in both NYSERDA's annual 
financial audit and in the state's Single Audit. An official with 
NYSERDA's Internal Audit division indicated that he does not have any 
specific plans to audit Recovery Act SEP funds at this time. He may 
conduct a review in the future, however, depending on the results of 
his annual risk assessment. Currently, he is conducting an audit of a 
program that is being funded with Recovery Act funds that are not part 
of SEP--NYSERDA's Energy Efficient Appliance Rebate Program.[Footnote 
17] 

Recipients Plan to Use Recovery Act EECBG Funds to Improve the Energy 
Efficiency of Public and Private Buildings in New York; Reporting 
Challenges Exist: 

EECBG, which was funded for the first time by the Recovery Act, 
[Footnote 18] provides funds through competitive and formula grants to 
cities, counties, states, territories, and Indian tribes to develop 
and implement projects to improve energy efficiency and reduce energy 
use and fossil fuel emissions in their communities. The Recovery Act 
provided $3.2 billion for EECBG. Of that total, approximately $2.7 
billion was awarded on a formula basis and up to $454 million will be 
awarded on a competitive basis. Our Recovery Act EECBG work in New 
York focused on the formula-driven funds. 

As of August 20, 2010, New York had been allocated over $175 million 
in formula-based Recovery Act EECBG funds. Some of the allocations 
went directly to local recipients, while those for smaller recipients 
went through the state. In New York, the funds for smaller recipients 
went through NYSERDA. We examined how NYSERDA and two direct-recipient 
localities--Orange County and the Town of Brookhaven--planned to use 
their EECBG funds, as well as their monitoring and reporting efforts. 
We selected Orange County and the Town of Brookhaven because, at the 
time we made our selection, they were the county and municipality 
(other than New York City) that received the most funds and had 
already begun to outlay funds. We did not select New York City because 
another oversight entity is conducting work there. 

A Lack of Understanding of the Term "Obligate" Led Two Localities to 
Initially Underreport the Amount of Funds Obligated, but They Later 
Corrected Their Reports: 

Of the over $175 million in Recovery Act EECBG funds allocated to New 
York as of August 20, 2010, the three entities we visited received 
over $37 million (about 21 percent) of these funds. NYSERDA was 
awarded almost $30 million, while the Town of Brookhaven was awarded 
over $4 million and Orange County was awarded over $3.5 million. 

DOE required grantees to obligate all funds within 18 months of the 
effective date of the award and encouraged grantees to have at least 
90 percent of their funds under contract and obligated by June 25, 
2010.[Footnote 19] NYSERDA was the only entity we examined that met 
the June 25, 2010, goal. As of June 15, 2010, NYSERDA reported that it 
had obligated 100 percent of its funds. As of June 30, 2010, Orange 
County reported that it had obligated $18,813.76 (about 0.5 percent of 
its funds), and the Town of Brookhaven reported that it had obligated 
$48,999.59 (about 1.2 percent of its funds). However, we found that 
these two localities initially underreported their obligations by over 
$500,000 combined. For example, in our meeting with Orange County, an 
official said that $200,000 had been obligated for its energy audits 
contract, but in its second quarter 2010 report to DOE, the county 
initially only reported that $18,813.76 of its Recovery Act EECBG 
funds had been obligated. The Town of Brookhaven had a similar issue. 
In Brookhaven, an official reported that the town had entered into a 
contract for the Parks Administration building (for which $383,878 in 
Recovery Act EECBG funds has been allocated), but in its second 
quarter 2010 report to DOE, the town initially only reported that 
$48,999.59 of its Recovery Act EECBG funds had been obligated. When we 
raised this issue with officials from both the county and the town, we 
were told that the officials had misunderstood the definition of 
"obligate" thinking that the term applied to funds that had already 
been expended but not also those that were under contract. An official 
from each entity told us that they subsequently corrected and 
resubmitted their reports to DOE. 

Recipients Plan to Use Most Recovery Act EECBG Funds to Improve the 
Energy Efficiency of Public Buildings and Private Residences: 

NYSERDA is using the majority--about 81 percent--of its Recovery Act 
EECBG funds for a competitive grant program for small municipalities 
(i.e., those that did not receive direct funding) to perform 
activities similar to those that were funded under the EECBG program 
for large municipalities. NYSERDA's Recovery Act EECBG projects are 
described in table 2. 

Table 2: NYSERDA Recovery Act EECBG Projects: 

Project description: Project Implementation Funding for Small 
Municipalities: Allocated funds for a competitive grant program for 
small municipalities in New York. The eligible activities for funding 
under this grant program mirror those of EECBG direct funding for 
large municipalities; 
Amount allocated: $24,069,789. 

Project description: Advanced Code Compliance: Added to SEP to assist 
municipalities with meeting advanced energy code compliance; 
Amount allocated: $2,500,000. 

Project description: Evaluation and Implementation Contractors: 
Allocated for evaluation and implementation contractors; 
Amount allocated: $2,274,918. 

Project description: Administrative costs; 
Amount allocated: $915,893. 

Project description: Total; 
Amount allocated: $29,760,600. 

Source: NYSERDA officials. 

[End of table] 

Orange County is using its funds for building energy audits and 
retrofits of public buildings and for a financial incentive program 
for municipalities and school districts in the county. These efforts 
are described in table 3. 

Table 3: Orange County Recovery Act EECBG Projects: 

Project description: Performance Audit: Allocated for energy audits of 
10 county buildings and facilities. The audits will be used to develop 
a list of projects for each site that could be undertaken to improve 
the energy efficiency of those sites. The selection of these sites was 
based, primarily, on those facilities with the largest utility bills 
with some exceptions. For example, the waste treatment plant was not 
included; 
Amount allocated: $200,000. 

Project description: Building Retrofit: Allocated for undertaking 
various improvements recommended in the energy audits of the 10 sites 
conducted under the performance audit project. Specific improvements 
will be selected based on feasibility and payback in terms of energy 
savings; 
Amount allocated: $2,717,399. 

Project description: Municipal Incentives Financing: Allocated for a 
competitive grant program for local governments and school districts 
in the county to fund various activities, such as energy audits, 
feasibility studies, Property Assessed Clean Energy (PACE) programs, 
and training. These funds cannot be used for capital improvements or 
projects; 
Amount allocated: $430,000. 

Project description: Administrative costs; 
Amount allocated: 169,301. 

Project description: Total; 
Amount allocated: $3,516,700. 

Source: Orange County officials. 

[End of table] 

The Town of Brookhaven is using its funds for at least one public 
building and two financial incentive programs for residents--one 
called Green Homes for energy audits and retrofits to private homes 
and one called Go Solar for solar photovoltaic or solar thermal (hot 
water) generation panels on private homes. Both programs have a 
revolving loan component that requires the homeowner to contribute 
about 30 percent of the project's cost. For the Green Homes project, 
this loan is to be paid through an interest-free benefit assessment 
applied to the homeowner's tax bill. The town's projects are described 
in table 4. 

Table 4: Town of Brookhaven Recovery Act EECBG Projects: 

Project description: New Parks Administration Building: Allocated for 
energy efficiency features in the new Parks Administration building 
that the town plans to start building in fall 2010; 
Amount allocated: $383,878. 

Project description: Old Town Hall: Allocated for an energy efficiency 
rehabilitation of the old Town Hall. However, that project is on hold 
at least until next year and may be canceled. If that happens, the 
town would reallocate the funds among the other three projects; 
Amount allocated: $479,822. 

Project description: Go Solar: Allocated for the installation of solar 
panels on 50 to 100 single family homes. To select participants, the 
town conducted a lottery in which it drew names for about 150 homes. 
The town has assigned the first 34 homes to contractors, which are 
analyzing the homes for favorable solar applications. The town 
requires each home to have an energy audit (at the homeowner's 
expense) and some level of energy efficiency before it can qualify for 
solar installation. If the energy audit does not show that the home 
has the required level of efficiency, the homeowner can choose to stay 
in the program by bringing the home into compliance at his/her own 
cost. There is a $50,000 cap per household for this program; 
Amount allocated: $1,535,220. 

Project description: Green Homes: Allocated for energy audits of and 
retrofits to 250 to 300 single family homes. The participants were 
selected on a first come, first served basis. The town received about 
335 applications overall, and 256 of these were postmarked on the 
first available date. The town Ethics Commissioner and an independent 
auditing firm selected the participants from these applicants. 
Contractors will perform energy audits and retrofits. There is a 
$10,000 cap per household for this program; 
Amount allocated: $1,535,220. 

Project description: Administrative costs; 
Amount allocated: $207,060. 

Project description: Total; 
Amount allocated: $4,141,200. 

Source: Town of Brookhaven officials. 

[End of table] 

None of the Recipients Reviewed Reported Internal Controls Challenges 
regarding Recovery Act EECBG Funds, but One Recipient May Have a 
Conflict of Interest Issue regarding Management and Oversight of Its 
Recovery Act EECBG Funds. 

None of the three recipients we reviewed reported challenges regarding 
their internal controls and processes to monitor the use of Recovery 
Act EECBG funds. However, we found that in the Town of Brookhaven, 
there may be a conflict of interest issue regarding management and 
oversight of its EECBG funds. The town's Senior Auditor initially 
managed the programs funded by Recovery Act EECBG funds and now 
advises the staff managing these programs. In addition, he is 
responsible for reporting to DOE and OMB and oversees the creation and 
gathering of information for these reports. Professional standards for 
internal auditors that have been set forth by the Institute of 
Internal Auditors (IIA) state that "internal auditors must have an 
impartial, unbiased attitude and avoid any conflict of interest." 
[Footnote 20]A practice advisory to the IIA's standards states that 
"internal auditors are not to accept responsibility for non-audit 
functions or duties that are subject to periodic internal audit 
assessments. If they have this responsibility, then they are not 
functioning as internal auditors."[Footnote 21] In addition, the 
practice advisory states that "when the internal audit activity, chief 
audit executive (CAE), or individual internal auditor is responsible 
for, or management is considering assigning, an operational 
responsibility that the internal audit activity might audit, the 
internal auditor's independence and objectivity may be impaired." As 
we have previously reported, having responsibility for both managing 
and auditing an activity creates an inherent conflict of interest that 
potentially weakens the integrity of the organization's oversight. 
[Footnote 22] 

When we raised this issue with the Town of Brookhaven, an official 
said that the town considers the activities performed by the Senior 
Auditor to be consistent with the functioning of its Finance 
Department and the requirements of the programs. The official also 
stated that the town and the professionals in the Finance Department 
are aware of the need for proper internal controls and have 
established levels of approval and review that assure such controls. 
The official said that, if the town did an internal audit of any 
Recovery Act programs, the town's Supervisor, Board, Audit Committee, 
or Commissioner of Finance would have to initiate the audit and the 
Senior Auditor would have to recuse himself from participating in the 
audit. 

Recipients Plan to Monitor Program Outcome Metrics, but Do Not Have 
Plans to Undertake Program Audits of Recovery Act EECBG Activities: 

All three of the recipients we reviewed have plans to monitor the 
outcomes of the projects funded with Recovery Act EECBG funds. 
According to officials, for NYSERDA's Project Implementation Funding 
for Small Municipalities, a standard component of the contract 
requires subrecipients to comply with NYSERDA's methodology for 
evaluating the impact of individual projects. NYSERDA's Energy 
Analysis department will also conduct an additional third-party 
independent evaluation of its metrics. 

Orange County plans to track outcome metrics related to national 
energy goals, such as reducing fossil fuel emissions, throughout the 
payback period of the projects. It is using a contractor to develop 
the process for monitoring the metrics. 

The Town of Brookhaven is collecting information that would allow for 
longer-term monitoring of the impact of its Green Homes and Go Solar 
Programs on energy savings and emissions of four greenhouse gases. 
Both programs will employ baseline and exit audits of participants' 
homes, in conjunction with audits of their electric, natural gas, and 
oil bills, to verify projected outcomes. Each homeowner participating 
in the program has agreed to provide utility bills for 1 year prior to 
and 5 years after the project, which the town will use to monitor 
changes in homes' energy efficiency, environmental impact, and 
expected payback cycles. The town emphasized, though, that it may not 
have the resources needed to conduct the longer-term monitoring itself 
and is seeking to partner with a local university to conduct the 
analysis. 

NYSERDA's Internal Audit department may conduct a program audit of 
NYSERDA's Recovery Act EECBG activities. Neither Orange County nor 
Brookhaven planned to undertake program audits of their Recovery Act 
EECBG activities, but the use of funds may be audited through their 
annual financial audits or federal Single Audits. 

Although the Recipients Reported Excellent Working Relationships with 
Their DOE Project Officers, Two Recipients Had Difficulties in 
Implementing Reporting Guidance: 

EECBG recipients must submit quarterly reports on jobs, expenditures, 
and a variety of other programmatic information through 
www.federalreporting.gov and DOE's PAGE system. In addition, 
recipients of grants greater than $2 million must report to DOE on a 
subset of key metrics on a monthly basis. 

Each of the entities we reviewed praised DOE's collaboration and was 
generally positive about DOE's guidance, yet our review revealed that 
officials in both Orange County and the Town of Brookhaven did not 
fully understand some of the guidance. For example, as previously 
detailed, it appears that both Orange County and Brookhaven did not 
report obligations in accordance with the guidance. In addition, 
Orange County underreported the number of jobs created or retained 
because it did not report all FTEs funded with Recovery Act funds as 
required by OMB. Under OMB's December 18, 2009, guidance, recipients 
should report all jobs funded with Recovery Act funds; recipients are 
not required to make subjective judgments on whether jobs were created 
or retained as a result of the Recovery Act.[Footnote 23] Although a 
county official reported that a contractor is conducting work under a 
Recovery Act contract, the county initially did not report any FTEs in 
its most recent quarterly report to OMB. The official said that she 
did not think the contractor had any documented jobs created or saved 
and sought clarification from DOE on how to report the FTEs. DOE 
instructed the county to report based on all of the hours worked by 
the contractor and its subcontractors that are paid with Recovery Act 
funds. The county will correct its report. 

New York's Use of Recovery Act Weatherization Funds Has Increased 
Significantly since March 2010: 

The Recovery Act appropriated $5 billion for Weatherization, which DOE 
is distributing to each of the states, the District of Columbia, and 
seven territories and Indian tribes, to be spent by March 31, 2012. 
This program enables low-income families to reduce their utility bills 
by making long-term energy-efficient improvements to their homes by, 
for example, installing insulation or modernizing heating or air 
conditioning equipment. 

According to OSC data, through June 30, 2010, just over 12 months 
after DOE approved New York's weatherization assistance plan, DHCR had 
obligated $259.3 million of its total allocation of $394.7 million in 
Recovery Act Weatherization funds. At that time, OSC also reported 
that DHCR had disbursed $87.3 million to fund weatherization 
activities under the Recovery Act. Actual production numbers reported 
by DHCR as of June 30, 2010, showed a sharp increase from those 
reported as of March 31, 2010, as shown in table 5. 

Table 5: Comparison of Production Numbers in the New York State 
Weatherization Program from March 31, 2010 through June 30, 2010: 

Units weatherized; 
Production as of March 31, 2010: 1,309; 
Production as of June 30, 2010: 3,843; 
Percentage increase: 193.6%; 
Percentage of goal: 8.5%. 

Units with work in progress; 
Production as of March 31, 2010: 10,546; 
Production as of June 30, 2010: 14,134; 
Percentage increase: 34.0%; 
Percentage of goal: [Empty]. 

Units with completed energy audits; 
Production as of March 31, 2010: 14,008; 
Production as of June 30, 2010: 19,232; 
Percentage increase: 37.3%; 
Percentage of goal: [Empty]. 

Total; 
Production as of March 31, 2010: 25,863; 
Production as of June 30, 2010: 37,209. 

Sources: DHCR officials and documentation. 

[End of table] 

DHCR officials stated that they believe the increases shown in table 5 
are partly a result of multifamily projects working their way through 
the production process. Multifamily projects, which account for over 
half of the estimated number of units to be weatherized in New York 
using Recovery Act funds, take longer to get under way and complete 
than single family homes for a variety of reasons. These include more 
complicated energy audits and, in many cases, the requirement for 
owner participation in the cost of the project, which must be 
negotiated before work can begin. Further, according to state 
officials, units in a multifamily project cannot be counted as 
completed until all work on each unit is finished and the project has 
been inspected and accepted by the local weatherization agency. DHCR 
officials believe similar jumps in production numbers will occur in 
future reporting periods. Once the 33,366 units in progress or with 
completed energy audits are completed, New York will have completed 
82.7 percent of the units needed to meet its goal of weatherizing 
45,000 units using Recovery Act funds. DHCR officials were confident 
that New York would meet its goal by March 31, 2012. 

Weatherization in New York Has Been Closely Monitored by Outside 
Agencies: 

The use of Recovery Act funds in Weatherization continues to be 
reviewed by independent auditors. For example, in June 2010, DOE 
issued a report on its monitoring of the program in New York and 
reported no findings. Meanwhile, NYSIG has conducted reviews related 
to the Recovery Act Weatherization program. It has also investigated 
complaints received through the Stimulus Complaint intakes--some of 
which, according to a NYSIG official, relate to allegations of 
collusion at the local agency level of the Recovery Act Weatherization 
program. NYSIG expects to report on a number of substantiated claims 
in September 2010. In addition, New York's Single Audit for this year 
will include Weatherization. Because of the high level of oversight of 
the Recovery Act Weatherization program by outside agencies, DHCR's 
own internal audit efforts have been directed toward other programs 
within the agency that have received Recovery Act funds. For example, 
DHCR has initiated a compliance review of the use of Recovery Act 
funds in the Tax Credit Assistance Program. 

DHCR Reported that the Most Recent Recipient Reporting Process Went 
Smoothly: 

For the reporting period ending June 30, 2010, DHCR reported that 
Recovery Act Weatherization funds had created 765 FTEs. DHCR officials 
said that the reporting process went fairly smoothly, since this was 
the first quarter in which DOE, OMB, or both had not significantly 
changed the rules for producing the reports. DHCR conducted an 
internal audit of the recipient reporting process that determined that 
adequate internal controls were in place to provide oversight of the 
reporting process. 

New York's Accountability Community Has Completed a Number of Recovery 
Act Audits; NYSIG Expects to Report on Substantiated Recovery Act 
Complaints in September 2010: 

In New York, the Stimulus Oversight Panel,[Footnote 24] Economic 
Recovery and Reinvestment Cabinet (headed by the Governor's office), 
and OSC are primarily responsible for statewide oversight of Recovery 
Act funds.[Footnote 25] In addition, an estimated 90 percent to 95 
percent of the state's Recovery Act funding will be part of the 
state's Single Audit. To date, these oversight entities have completed 
audits of a number of Recovery Act programs and reviewed crosscutting 
Recovery Act issues, such as civil rights compliance and recipient 
reporting.[Footnote 26] Since we last reported in May 2010,[Footnote 
27] the Stimulus Oversight Panel and OSC have continued to actively 
monitor Recovery Act activities. 

The Stimulus Oversight Panel has continued to hold biweekly meetings 
with the state agencies that received Recovery Act funds. Through June 
2010, a NYSIG official reported that 14 of the 22 agencies that 
received funds had appeared before the panel. The individual panel 
members are also undertaking activities in their areas of expertise. 
For example, the Medicaid Inspector General has planned several 
reviews and NYSIG has conducted reviews related to Weatherization and 
the Clean Water and Drinking Water SRFs. Related to the SRFs, 
according to a NYSIG official, NYSIG has visited six Recovery Act 
funded projects throughout the state and found the SRFs to be well 
managed by Environmental Facilities Corporation (EFC). NYSIG also 
found that responsibility rests with the locality, not the relevant 
state agencies, to oversee the entire bidding process and, because few 
rural localities have encountered such large-scale water projects, 
they may be more susceptible to waste, fraud, and abuse. According to 
a NYSIG official, NYSIG has worked with EFC to promote greater 
oversight of the local projects, particularly in the bidding process, 
and has provided anti-fraud awareness training and materials. NYSIG 
has also continued to investigate complaints received through the 
Stimulus Complaint intakes. According to a NYSIG official, NYSIG has 
received approximately 25 allegations of waste, fraud, or abuse 
related to Recovery Act funds, and although a good number have proven 
unsubstantiated, NYSIG expects to report on a number of substantiated 
claims in September. 

Since our last report in May 2010, OSC's Division of Local Government 
and School Accountability has completed its audits of procurement 
procedures for Recovery Act-related highway projects. In total, OSC 
completed five audits of transportation procurements that covered 51 
municipalities. OSC did not have any significant findings from those 
audits. OSC is now in the process of looking at how transportation 
claims are audited and paid for by local governments. OSC issued its 
first report on this, which covered 10 municipalities in the capital 
region (around Albany), in August 2010 and found that each local 
government had systems in place and followed adequate claims 
processing procedures. In addition, with limited exceptions, OSC found 
that Recovery Act payments were made according to contract and project 
bid specifications, and related expenditures were reasonable, 
accurate, and supported. OSC is planning to conduct another audit of 
this type of 8 to10 units of local government probably in western New 
York (either Buffalo or Rochester). OSC plans to start this audit in 
late summer. 

OSCís Division of State Government Accountability is undertaking an 
audit of one of the two agencies it has deemed most at riskóthe MTA. 
This audit will examine the: 

According to data from the Federal Audit Clearinghouse, which is 
responsible for receiving and distributing Single Audit results, it 
received New York's Single Audit reporting package for the year ending 
March 31, 2009, on December 23, 2009. This was the first Single Audit 
for New York that includes Recovery Act programs and it identified 39 
significant internal control deficiencies related to compliance with 
federal program requirements, of which 32 were classified as material 
weaknesses. As we reported in May, some of these material weaknesses 
and significant deficiencies occurred in programs that included 
Recovery Act funds. 

Recovery Act Funds Have Allowed Localities to Address Infrastructure 
Needs and Pursue Energy Efficiency Opportunities; However, the State 
and Its Localities Continue to Face Budget Pressures: 

Recovery Act funds have helped New York stabilize state finances to a 
great extent and have prevented reductions in education and health 
care funding, according to state budget officials. New York State used 
about $10.6 billion in Recovery Act SFSF funds and funds made 
available as a result of the increased Medicaid FMAP to address budget 
gaps across 3 fiscal years.[Footnote 28],[Footnote 29] Budget 
officials confirmed that the state's fiscal challenges remain the same 
as those identified in our May report. State officials forecast a $8 
billion budget gap for fiscal year 2011-2012 and report that the state 
will address the phasing out of Recovery Act funds this fall when next 
year's budget is developed. 

We visited the Town of Brookhaven and followed up with Steuben County 
to add to our understanding of New York's localities' use of Recovery 
Act funds, current fiscal conditions, and preparation for phasing out 
of Recovery Act funds.[Footnote 30] (See table 6 for locality 
background information.) 

Table 6: Background on Selected Local Governments: 

Local government: Town of Brookhaven; 
Population: 490,416; 
Type of local government: Town; 
Unemployment rate: 6.9%; 
Fiscal year 2010 operating budget: $151.2 million. 

Local government: Steuben County; 
Population: 96,552; 
Type of local government: County; 
Unemployment rate: 9.0%; 
Fiscal year 2010 operating budget: $183.3 million. 

Sources: U.S. Census Bureau and U.S. Department of Labor, Bureau of 
Labor Statistics, Local Area Unemployment Statistics data. Operating 
budget detail obtained from the Town of Brookhaven 2010 Adopted Budget 
and Steuben County's 2010 Adopted Budget Summary. 

Notes: Population data are from the latest available estimate, July 1, 
2009. Unemployment rates are preliminary estimates for June 2010 and 
have not been seasonally adjusted. Rates are a percentage of the labor 
force. Estimates are subject to revisions. 

[End of table] 

Town of Brookhaven: 

The Town of Brookhaven has received a total of $9.9 million in 
Recovery Act funds. It has also been allocated $46.5 million in 
Recovery Zone Bonds ($18.6 million for Recovery Zone Economic 
Development Bonds and $27.9 million for Recovery Zone Facility Bonds). 
[Footnote 31] The town expects to use $5.2 million of the Recovery Act 
funds to construct a new energy-efficient wastewater treatment plant. 
It also received $4.1 million in EECBG funds and $609,000 in Community 
Development Block Grant funds that it is using for rehabilitation of 
homes and construction of curbs and sidewalks.[Footnote 32] In 
addition, there are 10 proposed projects to be financed by Recovery 
Zone Economic Development Bonds; the four largest proposed projects 
are a building purchase for $4.2 million; sewer lines for $3.5 million; 
and two different sidewalk projects for $1.6 million and $1.2 million, 
respectively. Brookhaven officials stated that as of July 21, 2010, 
additional projects financed by the $2.1 million in Recovery Zone 
Economic Development Bonds remain under consideration. Officials 
reported that the issuance of Recovery Zone Facility Bonds is 
controlled by the town's Industrial Development Agency and that agency 
is currently reviewing funding proposals. 

Brookhaven officials reported that the town applied to the Recovery 
Act Retrofit Ramp-Up program as part of a consortium with the 
Community Development Corporation of Long Island and seven other 
communities. Officials stated that although the $20 million 
application was denied, the consortium may receive funds from NYSERDA 
to fund a portion of this program. Finally, town officials noted that 
there are currently no Recovery Act grant awards awaiting decision and 
one official stated that all of the town's Recovery Act grants were 
received through formula, not competitive, grants. 

The town's revenues have decreased during the economic downturn 
because of reductions in mortgage tax revenues, landfill fees, and non-
property tax revenues. An official reported that, similar to other 
localities, Brookhaven is under budgetary pressure. To deal with the 
downturn and anticipated impact of state budget actions, town 
officials reported that Brookhaven applied $13 million of reserves 
toward its fiscal year 2010 budget and implemented austerity measures 
to stabilize expenditures.[Footnote 33] The town plans to use 
approximately 5 percent of the EECBG funds to cover program 
administrative expenses and believes any future administrative costs 
will depend on continued reporting requirements. Because only a small 
portion of these funds is being used for administrative costs, 
officials said that Recovery Act funds have minimally affected the 
town's fiscal stability. 

Steuben County: 

Since our December 2009 report,[Footnote 34] Steuben County has 
received a total of two Recovery Act competitive grants and received 
additional Recovery Act funds for several programs in its fiscal year 
2010 operating budget.[Footnote 35] The additional Recovery Act 
funding received since our December 2009 report includes $76,726 for a 
state energy program grant; $4.2 million in Medicaid; 
and $53,034 for foster care, food stamps, and adoption. Medicaid and 
highway infrastructure investment continue to be the county's largest 
amount of Recovery Act funds awarded. As of July 14, 2010, the county 
had received about $8 million in Recovery Act funds. Steuben County 
officials reported applying six times for five competitive grants--one 
grant had two application rounds. Of these, the county was awarded two 
grants, denied three, and awaits the disposition of another. 

Steuben County, along with five other counties in the region, 
partnered with the Southern Tier East and Southern Tier Central 
Planning Development Boards to develop a proposal for the Broadband 
Technology Opportunities Program funded by the Recovery Act. This 
application, currently awaiting decision, requested approximately $24 
million in funds and will benefit organizations such as hospitals, 
public safety entities (e.g., police and fire stations), school 
districts, colleges, and municipal organizations. County officials 
stated that the six counties will contribute $6 million in matching 
funds. Steuben County committed $1.2 million in matching funds for the 
130 miles of fiber that will be installed in the county. In addition, 
a county official confirmed that the development boards secured a 
partnership with Corning, Inc., to supply slightly over $1 million in 
fiber optic cabling. 

Steuben County officials reported that Recovery Act funds have 
moderately affected the county's fiscal stability. However, officials 
added that with slight declines in sales tax receipts, potentially 
severe cuts pending from the state, and an increase in retirement 
costs, the county's fiscal situation could decline. Furthermore, with 
the increased Medicaid funds expiring, the county will need to fill 
approximately a $2.9 million gap annually starting in fiscal year 
2011. County officials are developing a plan to address the phasing 
out of Recovery Act funds. Part of this plan will include a staff 
reduction of 6 to 11 percent, a tax increase, and use of reserve 
funds. Officials stated that they hope to ease any staff reductions 
through retirement incentives and increase efficiencies through the 
consolidation of services. 

State Comments on This Summary: 

We provided the Governor of New York with a draft of this appendix on 
August 18, 2010. A representative from the Governor's office responded 
on August 23, 2010. We also provided various state agencies and local 
officials with the opportunity to comment. In general, they agreed 
with our draft and provided some clarifying and technical suggestions 
that were incorporated as appropriate. 

GAO Contacts: 

Susan Fleming, (202) 512-4431 or flemings@gao.gov: 

Dave Maurer, (202) 512-9627 or maurerd@gao.gov: 

Staff Acknowledgments: 

In addition to the contacts named above, Ronald Stouffer, Assistant 
Director; Tiffany Mostert, analyst-in-charge; Colin Fallon; 
Christopher Farrell; Kendall Helm; Sarah McGrath; Joshua Ormond; 
Summer Pachman; Frank Putallaz; and Kimberly Young made major 
contributions to this report. 

[End of section] 

Appendix XIII Footnotes: 

[1] Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009). 

[2] GAO, Recovery Act: Status of States' and Localities' Use of Funds 
and Efforts to Ensure Accountability (Appendixes), [hyperlink, 
http://www.gao.gov/products/GAO-10-232SP] (Washington, D.C.: December 
2009). 

[3] The U.S. Department of Labor's Bureau of Labor Statistics reported 
an 8.2 percent unemployment rate for New York State for June 2010. 
This rate is preliminary and has not been seasonally adjusted. 

[4] NYSERDA is a public benefit corporation created in 1975. Its goal 
is to help New York meet its energy goals by reducing energy 
consumption, promoting the use of renewable energy sources, and 
protecting the environment. Currently, NYSERDA is primarily funded by 
state rate payers through a systems benefit charge. 

[5] In July 2009, the Governor created a Stimulus Oversight Panel 
chaired by the New York State Inspector General (NYSIG) with the state 
Division of Human Rights Commissioner, Metropolitan Transportation 
Authority (MTA) Inspector General (IG), and Medicaid IG as members. 
The panel meets on a biweekly basis to examine the use of Recovery Act 
funds by each of the 22 New York State agencies designated to receive 
them, to develop coordination with other state and federal law 
enforcement partners responsible for the oversight of Recovery Act 
funds, to discuss the progress of investigations whose allegations 
were received through the Stimulus Complaint intakes, and to initiate 
proactive reviews when deemed necessary. State program departments and 
agencies also have internal audit departments that review Recovery Act 
funds, and localities and transit or housing authorities play a role 
in managing some Recovery Act funds that do not pass through state 
offices. 

[6] The Office of the New York State Comptroller reported on a number 
of internal control problems in November 2009 in Syracuse City School 
District, Internal Controls Over Selected Financial Operations. In 
addition, in 2010, NYSED determined the LEA to be one of its high-risk 
LEAs based on a number of indicators related to fiscal condition, 
timeliness of reporting, and results of external audits. The SCSD 
Single Audit for school year 2008-2009 found deficiencies in the 
controls over purchasing and accounting related to some federal grant 
funds, among other things. SCSD has taken multiple actions to address 
these findings, including the recent purchase of a new accounting 
software system. 

[7] GAO, Recovery Act: States' and Localities' Uses of Funds and 
Actions Needed to Address Implementation Challenges and Bolster 
Accountability (Appendixes), [hyperlink, 
http://www.gao.gov/products/GAO-10-605SP] (Washington, D.C.: May 2010). 

[8] IDEA allows an LEA that has received an increase in federal funds 
to reduce its local MOE by 50 percent of the amount of the increase, 
as long as it spends the amount saved on activities authorized under 
ESEA. In addition, an LEA is eligible to reduce its MOE if the 
reduction is attributable to certain circumstances, such as a decrease 
in the enrollment of students with disabilities. 

[9] On May 15, 2009, prior to SCSD's submission of its IDEA 
application on June 22, 2009, NYSED issued a letter to SCSD detailing 
the potential IDEA award allocation for the 2009-2010 school year. In 
bold and underlined text, it described that SCSD was not eligible for 
a reduction in its MOE. The IDEA application itself also explains 
eligibility for MOE reduction. In addition, on June 29, 2009, NYSED 
issued another letter to SCSD explaining its status on state 
performance plan performance indicators and the resulting consequences. 

[10] GAO did not attempt to verify the accuracy of the data source 
used to calculate the local spending on special education. Previous 
audits, as mentioned above, found internal control flaws in the SCSD 
financial accounting system, including a lack of controls over 
revenues, accounts receivable, and accounts payable. 

[11] Single Audits are prepared to meet the requirements of the Single 
Audit Act, as amended, (31 U.S.C. §§ 7501-7507) and provide a source 
of information on internal control and compliance findings and the 
underlying causes and risks. The Single Audit Act requires states, 
local governments, and nonprofit organizations expending $500,000 or 
more in federal awards in a year to obtain an audit in accordance with 
the requirements set forth in the act. A Single Audit consists of (1) 
an audit and opinions on the fair presentation of the financial 
statements and the Schedule of Expenditures of Federal Awards; (2) 
gaining an understanding of and testing internal control over 
financial reporting and the entity's compliance with laws, 
regulations, and contract or grant provisions that have a direct and 
material effect on certain federal programs (i.e., the program 
requirements); and (3) an audit and an opinion on compliance with 
applicable program requirements for certain federal programs. The 
Office of Management and Budget (OMB) Circular A-133 compliance 
supplement requires auditors to review compliance with matching, level 
of effort, and earmarking for IDEA, Part B programs. 

[12] [hyperlink, http://www.gao.gov/products/GAO-10-232SP]. 

[13] We reviewed Recovery Act expenditures up to December 22, 2009, 
because that was the cutoff for the latest request for reimbursement 
by SCSD to NYSED. The objective of this was to compare the total of 
Recovery Act SFSF; ESEA Title I, Part A; and IDEA, Part B 
disbursements provided by SCSD to the total of reimbursements the 
district requested from NYSED to ensure that we had a complete list of 
transactions from which to draw a sample. 

[14] [hyperlink, http://www.gao.gov/products/GAO-10-605SP]. 

[15] NYSED's Office of Audit Services has published these reports on 
its Web site at 
http://www.oms.nysed.gov/oas/Audit_Report/SchoolDistricts/SchoolDistrict
s.html. The school districts reviewed include Saratoga Springs City, 
Saranac Central, Malone Central, Hamburg Central, Eden Central, 
Brentwood Union Free, Syracuse City, and Connetquot Central. 

[16] OMB Circular A-87 (codified at 2 C.F.R. Part 225) establishes 
principles and standards for state and local governments in 
determining allowable costs for federal awards, including grants, and 
requires grantees to support salaries and wages charged to grant funds 
by payrolls, time and effort certifications, or other supporting 
documentation. 

[17] Under the Recovery Act, NYSERDA was allocated $18.7 million to 
provide cash rebates to New York residents who purchase high-
efficiency appliances. 

[18] The EECBG program was authorized in Title V, Subtitle E, of the 
Energy Independence and Security Act that was signed into law on 
December 19, 2007. 

[19] According to DOE guidance, "obligation" in this context means the 
binding commitment of Recovery Act funds by the recipient to other 
entities for the execution of projects. This figure is inclusive of 
funds already spent (i.e. outlays) and commitments outstanding but not 
invoiced or otherwise liquidated. 

[20] IIA, International Standards for the Professional Practice of 
Internal Auditing, 1120, Individual Objectivity. IIA defines conflict 
of interest as "any relationship that is, or appears to be, not in the 
best interest of the organization." 

[21] IIA Practice Advisory 1130.A2-1, Internal Audit's Responsibility 
for Other (Non-audit) Functions. 

[22] GAO, Recovery Act: Funds Continue to Provide Fiscal Relief to 
States and Localities, While Accountability and Reporting Challenges 
Need to Be Fully Addressed (Appendixes), [hyperlink, 
http://www.gao.gov/products/GAO-09-1017SP] (Washington, D.C.: 
September 2009). 

[23] OMB, Memorandum M-10-08, Updated Guidance on the American 
Recovery and Reinvestment Act--Data Quality, Non Reporting Recipients, 
and Reporting of Job Estimates (Washington, D.C., Dec. 18, 2009). 

[24] The NYSIG, the state Division of Human Rights Commissioner, MTA 
IG, and Medicaid IG constitute the Stimulus Oversight Panel. 

[25] OSC is responsible for tracking and monitoring the progress of 
Recovery Act funding and ensuring that the funding meets established 
internal controls. OSC also must review and approve all contracts over 
$50,000; OSC does not have pre-approval authority over contracts 
awarded by local governments. 

[26] The following programs have been audited: Weatherization 
Assistance Program, Community Services Block Grants, Highway 
Infrastructure Investment Program, Unemployment Insurance, Workforce 
Investment Act of 1998 (WIA) Adult Program, WIA Youth Activities, WIA 
Dislocated Workers, and Medical Assistance Program (Medicaid). 

[27] [hyperlink, http://www.gao.gov/products/GAO-10-605SP]. 

[28] New York State operates on an April 1 through March 31 fiscal 
year. 

[29] The Recovery Act initially provided eligible states with an 
increased FMAP for 27 months from October 1, 2008, to December 31, 
2010. Recovery Act, div. B, title V, § 5001, Pub. L. No. 111-5, 123 
Stat. at 496. On August 10, 2010, federal legislation was enacted 
amending the Recovery Act and providing for an extension of increased 
FMAP funding through June 30, 2011, but at a lower level. See Pub. L. 
No. 111-226, § 201, 124 Stat. 2389 (Aug. 10, 2010). 

[30] The Town of Brookhaven and Steuben County are not responsible for 
the operations of their school districts. The Town of Brookhaven is 
also not responsible for administering its Medicaid Program, which is 
managed by Suffolk County. 

[31] Recovery Zone Economic Development Bonds are a type of direct 
payment Build America Bond (BAB) created under the Recovery Act and 
administered by the Internal Revenue Service. Direct payment BABs 
allow issuers the option of receiving a federal payment instead of 
allowing a federal tax exemption on the interest payments. 

[32] For more information on the Town of Brookhaven's EECBG funding, 
see the EECBG section of this appendix. 

[33] The Town of Brookhaven operates on a January 1 to December 31 
fiscal year. 

[34] [hyperlink, http://www.gao.gov/products/GAO-10-232SP]. 

[35] Steuben County operates on a January 1 to December 31 fiscal year. 

[End of Appendix XIII] 

Appendix XIV: North Carolina: 

Overview: 

The following summarizes GAO's work for the seventh of its bimonthly 
reviews of the American Recovery and Reinvestment Act of 2009 
(Recovery Act)[Footnote 1] spending in North Carolina. The full report 
covering all of our work in 16 states and the District of Columbia is 
available at [hyperlink, http: http://www.gao.gov/recovery]. 

What We Did: 

Our work in North Carolina focused on gathering information about 2 
programs funded under the Recovery Act--the Early Head Start Program 
and the Public Housing Capital Fund. We also reviewed the use of 
Recovery Act funds for budget stabilization in one local community and 
at the state level, and monitoring and reporting within the 
accountability community. For descriptions and requirements of the 
programs we covered, see appendix XVIII of GAO-10-1000SP. 

* For the Early Head Start program, we visited two grantees--Guilford 
Child Development (GCD) and Johnston-Lee-Harnett Community Action, 
Incorporated (JLHCA). We selected GCD, which is expanding an existing 
Early Head Start program, because it received the largest amount of 
Early Head Start Recovery Act funds in North Carolina and the largest 
amount of Recovery Act funds for the renovation or construction of 
facilities. We selected JLHCA because it was using Early Head Start 
Recovery funds to implement a new Early Head Start program. During our 
visits, we spoke with senior program and fiscal officials about how 
they were spending their Early Head Start Recovery Act funds. We also 
reviewed a selection of each program's Early Head Start files to 
assess how the grantees documented enrollment, eligibility, and 
certain required health screenings. 

* For the Public Housing Capital Fund we visited two public housing 
agencies--Charlotte Housing Authority (CHA) and Beaufort Housing 
Authority (BHA)--to determine how funds were being used. We selected 
CHA because it received the largest capital grant allocation. We 
selected BHA because it received one of the smallest grant allocations 
in North Carolina. We interviewed the housing officials and performed 
testing of expenditures and examined accounting records and external 
audit documentation. Additionally, we interviewed Department of 
Housing and Urban Development (HUD) officials in Greensboro, North 
Carolina, regarding their oversight of Recovery Act funds and their 
procedures for assisting and monitoring public housing agencies in 
administering these funds. 

* We interviewed state budget officials in North Carolina's Office of 
State Budget and Management (OSBM) to gather information about the 
state's use of Recovery Act funds and fiscal condition, including 
challenges to future economic recovery. We selected the City of 
Wilmington for a local budget review in order to assess the impact 
Recovery Act funds are having at the local government level. Located 
in the southeastern section of the state, Wilmington is one of the 
largest cities in North Carolina and its unemployment rate is below 
the state's average. We asked both state and local officials to 
discuss: (1) the amount of Recovery Act funds its entity is expected 
to receive, (2) how the funds are being used and their potential 
impacts, and (3) whether the officials have plans for when Recovery 
Act funds are no longer available. 

* To obtain an update on the monitoring of Recovery Act funds by North 
Carolina's accountability community since our last report, we 
interviewed senior administrators with the North Carolina Office of 
the State Auditor (OSA), Office of Economic Recovery and Investment 
(OERI), and OSBM's Office of Internal Audit (OIA). 

What We Found: 

* Early Head Start. Nineteen Early Head Start grantees in North 
Carolina received about $24.2 million in Early Head Start Recovery Act 
expansion funds for the first year of a 2-year grant period. Overall, 
while both grantees are spending their Recovery Act funds, we found 
that they were at risk of not spending their entire first-year grants 
by the end of fiscal year 2010, as required. GCD's senior officials 
reported that they would have an estimated $336,882 of unspent funds 
this year due to delays with construction and hiring. Senior officials 
for JLHCA reported that a delay in receiving the grant award would 
leave them with about $75,000 to $100,000 of unspent personnel funds. 
Officials representing both grantees reported that they will request 
that OHS approve a carryover of the unspent funds into fiscal year 
2011. Despite the delays, GCD and JLHCA officials reported having 
created jobs with their Early Head Start Recovery Act funds for the 
reporting period April 1, 2010, to June 30, 2010. 

* Public Housing Capital Fund. We found internal control weaknesses 
related to procurement practices using Recovery Act funds at both PHAs 
we visited. We also found that one of the two PHAs we visited did not 
maintain proper documentation of its use of Recovery Act funds. 
Specifically, at CHA we found that officials did not follow their 
procedures for reconciling and approving monthly purchase card 
transactions, including documenting reviews of statements by approving 
officials and providing training to card holders. We also found that 
BHA did not maintain proper documentation of its use of Recovery Act 
funds. Although BHA received a Recovery Act public housing capital 
fund formula grant of approximately $201,000, we were unable to 
determine how those funds were used. BHA officials did not provide a 
general ledger or properly track the use of Recovery Act funds. In our 
review of the documentation supporting the external audit, we found 
significant departures from auditing standards. In addition, we found 
that the BHA board's oversight practices did not meet its own 
standards. 

* State and local budget stabilization. As state officials begin to 
work on the 2011-2013 biannual budget, state budget officials project 
nearly a $3 billion budget shortfall that will likely have to be dealt 
with through budget cuts or revenue enhancements. Wilmington officials 
told us that $8.1 million in Recovery Act grants it received provided 
much needed extra funding for some city projects and services, but did 
not affect many other departments that had budget reductions. 
Wilmington officials raised property taxes and used the city's fund 
balance to balance its budget. 

* Accountability. We learned that in addition to Single Audits, North 
Carolina's oversight entities--OSA, OERI and OIA--conduct a range of 
work to ensure recipients' compliance with applicable laws and 
regulations. For example, since our May 2010 report, OSA completed a 
review related to the North Carolina Department of Environment and 
Natural Resource's compliance with Davis-Bacon provisions of the 
Recovery Act. OERI officials reported working with state agencies to 
implement their corrective action plans in response to OSA findings in 
reports issued in 2010 as well as monitoring compliance among the 
state's recipients and subrecipients of Recovery Act funds with 
Recovery Act and OERI requirements related to procurement. Finally, 
since our May 2010 report, OIA issued a report on several state 
agencies' compliance with state and federal regulations applicable to 
the Recovery Act State Fiscal Stabilization Fund (SFSF) and issued 
risk assessments of Recovery Act programs in three agencies. 

North Carolina Grantees are Spending Early Head Start Recovery Act 
Expansion Funds, but Also Report Spending and Implementation Delays: 

The Office of Head Start (OHS), a part of the U.S. Department of 
Health and Human Services' (HHS) Administration for Children and 
Families awarded 19 Early Head Start grantees in North Carolina about 
$24.2 million in Early Head Start expansion funds provided under the 
Recovery Act for the first year of a 2-year grant period.[Footnote 2] 
For the second year of funding, OHS has committed an estimated $19.4 
million in Recovery Act funds to North Carolina's 19 grantees 
receiving Recovery Act funds.[Footnote 3] The Recovery Act 
appropriated these funds for the costs to expand the number of 
families served by Early Head Start. The allowable expenditures 
include salaries for new staff, renovation and construction of 
facilities, and training and technical assistance for new and existing 
Early Head Start staff. For the 2-year period, Recovery Act funds are 
to support Early Head Start services for up to 1,556 infants, 
toddlers, and pregnant women in the state. 

In June 2010, we visited two grantees--Guilford Child Development 
(GCD) and Johnston-Lee-Harnett Community Action, Incorporated (JLHCA)--
to review Early Head Start Recovery Act spending. At both programs, we 
spoke with senior program and fiscal officials responsible for the 
implementation of the Early Head Start expansion activities. We also 
reviewed each program's Early Head Start files to assess how the 
grantees documented enrollment, eligibility, and certain required 
health screenings.[Footnote 4] We selected GCD, which is expanding an 
existing Early Head Start program, because it received the largest 
amount of Early Head Start Recovery Act funds in North Carolina and 
the largest amount of Recovery Act funds for the renovation or 
construction of facilities. We selected JLHCA because it was using 
Early Head Start Recovery Act funds to implement a new Early Head 
Start program. 

Overall, officials representing both grantees told us that they were 
spending their first-year Recovery Act funds to expand Early Head 
Start services through the renovation or construction of new 
facilities, hiring staff, and training the newly hired staff. However, 
at the time of our visits, neither grantee anticipated spending their 
entire first year Early Head Start Recovery Act grant award by the end 
of fiscal year 2010, as required by OHS. Both grantees also identified 
other challenges in implementing their Early Head Start programs 
funded under the Recovery Act programs. Finally, both grantees 
reported having created jobs for the April 1 through June 30, 2010, 
recipient reporting period. 

Construction Challenges Delay Guilford Child Development's 
Implementation of Center-Based Program: 

GCD received about $3.2 million in Early Head Start Recovery Act funds 
for its first year. HHS designated these funds for GCD to provide 
services to an additional 104 infants, toddlers, and pregnant women in 
Guilford County, which includes the cities of High Point and 
Greensboro.[Footnote 5] GCD officials told us they used these funds to 
renovate one child care center, build another child care center, and 
provide professional development training and salaries for staff, and 
for other purposes. At the time of our visit, GCD officials reported 
that work was incomplete for both centers. The Bristol center, 
designated for 32 children in the Greensboro area, should open by 
September 2010, according to GCD officials. Construction of the 
Arlington center should serve 48 children, also in the Greensboro 
area. Program officials told us that the Arlington Center has faced 
significant delays and is not scheduled to open until September 2011. 
GCD officials attributed some of the delays in the Arlington center to 
problems in securing the original sites identified in the spending 
proposal submitted to OHS and the process for receiving approvals for 
the change in facility location from OHS.[Footnote 6] Regional OHS 
officials confirmed that the delay for the Arlington center was due to 
GCD's challenges in securing sites and attributed the delay in the OHS 
approval process to having to wait for GCD's contractors to provide 
documentation needed by OHS to complete the review and grant approval. 

GCD officials also reported to us that while waiting for the two 
Recovery Act-funded centers to open, they implemented a temporary home-
based program for children receiving services[Footnote 7]. They also 
told us they have delayed hiring staff for the Arlington center. 
According to these officials, the lower costs associated with the home-
based program and unspent personnel and benefits funds primarily due 
to the construction delays may leave $336,882 of unspent funds at the 
end of fiscal year 2010.[Footnote 8] These officials told us that they 
are seeking approval from OHS to use these unspent funds to cover 
additional construction costs on the Bristol center and "green" 
improvements, such as solar panels and energy efficient windows, to 
both the Bristol and Arlington centers. Alternatively, GCD officials 
said that if they do not receive approval to reallocate the funds so 
that they can spend all of the fiscal year 2010 funds, they will 
request approval from OHS to carry over the funds into fiscal year 
2011. In July 2010, regional OHS officials told us that staff in OHS's 
headquarters would make decisions about procedures for carryover 
requests related to the Recovery Act funds but that such procedures 
had not yet been determined. 

GCD officials reported that the temporary home-based program for 
infants and toddlers is new for their organization, and while they 
have operated other home-based programs, implementation of the new 
program has presented some challenges. These senior program and fiscal 
officials said they anticipated using the home-based option for the 
Bristol center for 5 months, instead of the estimated 7 months, until 
the center opens in September 2010. As previously mentioned, the 
Arlington center is not scheduled to open until the end of the grant 
period--September 2011. As a result, any children waiting to use the 
Arlington center will spend the entire Recovery Act grant period 
receiving home-based services rather than the intended center-based 
services.[Footnote 9] GCD officials said the primary challenge they 
faced in using the home-based program for such a length of time is 
that families in the communities it serves are not interested in home-
based child care services. These officials attributed the lack of 
interest to the requirement that parents be present in the home for 
weekly visits, which is difficult for working families. As a result, 
GCD officials told us, some families have opted to remain on a waiting 
list until the centers open, but other families have dropped out of 
the program. 

GCD also faced challenges developing timely policies and procedures 
for the home-based program and consistently including documentation 
related to enrollment and health screenings in its files. GCD 
officials told us that their organization's governing board did not 
approve formal policies and procedures on such issues as documenting 
or determining attendance for its home-based program until June 2010, 
several months after the program had been operating. Prior to the 
formalization of these policies, GCD said its staff used different 
methods for documenting attendance during the weekly home visits. 
Further, while we observed that all of the files we reviewed had 
verification, with two staff signatures, of income eligibility, the 
inclusion of clear documentation in the files to show date of 
enrollment and some of the required health screenings was inconsistent 
among the files we reviewed[Footnote 10]. For example, we did not see 
clear documentation noting enrollment dates (with which to compare to 
the monthly enrollment data) in any of the files we reviewed. Rather, 
GCD officials said that the date a family completed an enrollment 
packet comprised of selected health and parental agreement documents 
[Footnote 11] and the inclusion of these documents in three colored 
folders represented enrollment.[Footnote 12] However, given the range 
of documents needed to establish an enrollment date, we did not 
attempt to assess the completeness of the files or whether or not an 
enrollment date could be determined. In 7 of the 23 files we reviewed, 
we did not see documentation of at least one of the three required 
health screenings within the 45-day time period. We also observed 
inconsistencies in the inclusion of documents related specifically to 
home visits, such as a home visitation agreement, in the files we 
reviewed.[Footnote 13] GCD officials said that some home visitors 
retain the home visitation agreements in their offices while others 
include the forms in the child's file. GCD officials acknowledged the 
inconsistencies in the inclusion of documents in the files and told us 
that while they had met the requirements, they had already begun to 
implement more consistent administrative practices for documentation 
related to their home-based program. 

Johnston-Lee-Harnett Community Action, Incorporated Reports Challenges 
in Implementation of New Early Head Start Program: 

JLHCA received about $1.5 million in Early Head Start Recovery Act 
funds for its first year of funding. HHS designated these funds for 
JLHCA to create a new Early Head Start program that would serve 80 
infants, toddlers, and pregnant women in Johnston, Lee, and Harnett 
counties.[Footnote 14] According to officials, JLHCA used these funds 
to lease and renovate three day care centers,[Footnote 15] for staff 
professional development such as curriculum and skills training, and 
for salaries and resource materials. JLHCA did not receive Recovery 
Act funds specifically for construction and renovation of facilities. 
[Footnote 16] Therefore, JLHCA officials told us that they were using 
$443,200 from their Recovery Act start-up budget to renovate one 
center in each of the three counties the organization serves, an 
allowable use of the funds. At the time of our visit, JLHCA had been 
delivering Early Head Start services in Johnston County since April 
2010 and in Lee County since May 2010. It was awaiting the completion 
of roof repairs and kitchen renovations in a center in Harnett County, 
which opened in August 2010. Regional OHS officials with knowledge of 
JLHCA's implementation progress attributed delays in Harnett County to 
JLHCA having had limited experience with providing services in the 
county. At the time of our visit, JLHCA was not yet providing Early 
Head Start services to children in Harnett County and officials 
attributed the delay to the slow process for obtaining facility 
permits, and receiving their grant award later than expected. JLHCA 
officials said that while they had expected to receive notification of 
their grant in October 2009, the organization did not receive grant 
award notification from OHS until the end of December 2009. 
Additionally, while their budget included salaries for staff from 
December to February, the officials did not begin hiring staff for all 
centers until March 2010. These officials reported that, due to the 
delay in the grant award, an estimated $75,000 to $100,000 in 
personnel, benefits, and indirect costs for the 3-month period could 
go unspent by the end of the fiscal year. JLHCA officials told us that 
they were seeking approval from OHS to transfer these funds from their 
operating account into their supplies account so that they could use 
the funds for such items as diapers and formula or to make 
improvements to the playground areas of the Recovery Act-funded 
centers. JLHCA officials reported that they will also apply for OHS 
approval to carry over the funds into fiscal year 2011. 

In addition to the delays in receipt of the grant award and opening of 
one of its facilities, JLHCA officials also reported challenges in 
recruiting pregnant women for their Early Head Start program and 
expressed concerns over sustaining the program once Recovery Act funds 
end. JLHCA officials told us that while there is a waiting list for 
children, the organization has been slow in meeting its funded slots 
for pregnant women due to a lack of familiarity with and interest in 
the program among this population. As a result, at the time of our 
interview JLHCA had recruited 8 pregnant women for its funded 20 slots 
for this portion of its Early Head Start Recovery Act program. 
Although JLHCA is spending 29 percent of its first year grant on the 
lease and renovation of the three facilities, we found that JLHCA did 
not have a plan in place for sustaining its Early Head Start program 
once Recovery Act funds end in 2011. JLHCA officials said that without 
additional Recovery Act funds or local or state funding they would 
have to close the three Early Head Start programs. While officials 
reported to us several alternatives for retaining the facilities--such 
as using the facilities for Head Start or for-profit child care 
centers--they did not provide alternatives for maintaining the 
services for infants and toddlers created with Recovery Act funds. 

Our file review did not reveal any deficiencies in how JLHCA documents 
enrollment, income eligibility, and the three required health 
screenings we reviewed. 

Grantees Report Job Creation with Early Head Start Recovery Act Funds: 

GCD and JLHCA senior program and fiscal officials reported having 
funded jobs with their first year Early Head Start Recovery Act funds. 
GCD officials said that for the April 1, 2010, to June 30, 2010, 
reporting cycle, they reported 9.86 new full-time equivalents. These 
positions include 7 teachers, a center director, a nurse home visitor, 
and a family advocate. GCD also reported 1.5 full-time equivalents for 
construction on its Bristol center. JLHCA officials said that they 
reported 5 new full-time equivalents. They told us that these 
positions include 1 center director, 3 teachers, 1 family service 
worker, and 1 custodian.[Footnote 17] GCD and JLHCA officials also 
said that they did not experience any problems with the recipient 
reporting process. 

Internal Control and Oversight Weaknesses Increase Risk of 
Mismanagement of Recovery Act Public Housing Funds: 

North Carolina's 99 public housing agencies (PHA) received 
approximately $83.4 million from the Recovery Act public housing 
capital formula grant--the federal government provides these funds 
directly to local PHAs. HUD oversight of these programs is carried out 
by its field offices. We visited 2 PHAs in North Carolina--Beaufort 
Housing Authority (BHA) and Charlotte Housing Authority (CHA) ---to 
determine how they were planning to use these funds. At each PHA, we 
interviewed officials about procurement practices with respect to 
Recovery Act funds and performed expenditure testing. The testing 
included a review of accounting records and the sufficiency of 
supporting documentation, including invoices. We also attempted to 
review the appropriateness of the expenditures at BHA based on the 
grant agreements and applicable laws and regulations. We selected CHA 
because it received the largest Recovery Act capital fund grant 
allocation--about $7.5 million--in North Carolina and BHA because it 
received one of the smallest allocations--about $201,000. We also 
interviewed HUD officials about their procedures for assisting and 
monitoring PHAs management and use of the funds. As of August 2010, 
BHA had drawn down its entire award. As of August 7, 2010 CHA had 
obligated its entire $7.5 million award.[Footnote 18] 

Housing authority officials at both PHAs told us they planned to use 
Recovery Act funds for a variety of housing rehabilitation projects 
and security enhancements. During our initial visit in October 2009 to 
CHA, officials told us they planned to use Recovery Act funds to 
rehabilitate 609 units by replacing 522 water heaters and appliances 
and improve security by installing site-security poles and Internet 
cameras at 22 sites. During our October 2009 visit, BHA officials told 
us they rehabilitated 4 units and a community center with the Recovery 
Act funds they were allocated. 

We found internal control weaknesses related to procurement practices 
using Recovery Act funds at both of the PHAs we visited. We also found 
that one of the two PHAs we visited did not maintain proper 
documentation of its use of Recovery Act funds. In addition, the HUD 
Office of Inspector General (OIG) has found that a third PHA in North 
Carolina failed to comply with procurement and financial management 
requirements in its administration of Recovery Act funds. As a result, 
the HUD OIG concluded the third PHA could not provide assurance that 
it properly awarded more than $2.4 million for contracts or that it 
had the capacity to administer funds in accordance with the grant and 
Recovery Act requirements. 

Charlotte Housing Authority Internal Controls Could Be Strengthened to 
Prevent Abuse: 

CHA procurement office officials told us they had designed strong 
internal controls to prevent and detect fraud, waste, and abuse from 
occurring in the PHA's credit card program. However, we identified 
internal control weaknesses that left Recovery Act and other federal 
funds vulnerable to fraud, waste, and abuse. 

According to CHA officials, CHA has put in place several requirements 
to ensure proper use of purchase cards by CHA employees. For example, 
CHA officials said that each month cardholders are responsible for 
reconciling their monthly purchase card statement with a purchase 
order that should have been approved prior to the purchases being 
made. Cardholders must also ensure individual transactions are charged 
to the applicable grant account, according to CHA officials. 
Cardholders are required to submit their reconciled statement with all 
supporting documentation to the purchase card administrator office for 
approval. CHA cardholders are also required to meet in person with a 
procurement official for a review of the purchase card statement and 
supporting documentation. During this review, each transaction on the 
statement is to be matched to original receipts and an item-by-item 
match is made with an approved purchase order, according to CHA 
officials. CHA officials also reported that CHA's policies and 
procedures state that it is the responsibility of the approving 
official to review the transactions of those purchase card holders who 
directly report to them and report irregularities to the procurement 
office. 

However, during our review of the purchase card documentation, we did 
not find any evidence that transactions had been reviewed by approving 
officials, and therefore could not verify that the reviews had been 
conducted. CHA's Acting Chief Operating Officer agreed that there is a 
need for approving officials to document their review of purchase card 
transactions. In addition, one of the purchase card administrators 
told us all cardholders and approving officials are required to take a 
purchase card training course before they receive a purchase card. 
However, one purchase card holder stated she had not received purchase 
card training and no one told her what she could or could not buy with 
the card. 

Beaufort Housing Authority Officials Provided False Information to GAO 
Auditors: 

BHA received a Recovery Act public housing capital fund formula grant 
of approximately $201,000. We interviewed BHA senior officials and 
staff and examined BHA bank records to determine how the PHA used 
Recovery Act funds. However, because BHA officials did not provide a 
general ledger or properly track the use of Recovery Act funds, we 
were unable to determine how those funds were used. BHA officials also 
failed to provide us sufficient documentation related to the 4 housing 
units and one community center they claimed were rehabilitated with 
Recovery Act funds. Additionally, BHA officials provided documents to 
us during our review that we later learned were false. As a result, we 
have serious concerns about the possibility that Recovery Act funds 
were misused and have referred this matter to the HUD OIG. 

When we met with BHA officials, we were told that approximately 
$191,000 of the grant funds had been paid to one contractor to perform 
renovation work on four housing units and a community center. We were 
also told the contract for this work was awarded after a competition 
in which BHA officials solicited bids from several contractors. As 
support for these assertions, BHA officials provided us with 
solicitations purportedly sent by BHA to seven contractors. However, 
upon further inquiry we learned that the solicitations were 
fictitious: we learned they were never sent out but were created for 
the purpose of misleading GAO auditors into believing that they were 
evidence of a competition. 

The bank records of BHA also contain information that raises serious 
concerns about misuse of Recovery Act funds. For example, on two 
occasions after Recovery Act funds were deposited into the BHA 
account, the Executive Director of BHA prepared and signed several 
checks made payable to her, which appear to be diversions of BHA funds 
for personal use. We are working with the HUD OIG to assist in a full 
investigation of this matter.[Footnote 19] 

Insufficient Oversight May Have Contributed to Weak Control 
Environment: 

BHA's annual external audit, its Board of Commissioners, and HUD are 
the key components of the oversight structure for BHA's fiscal 
management. However, in our review of the documentation supporting the 
external audit we found significant departures from auditing 
standards. We also found that the board's oversight practices did not 
meet its own standards. For its part, HUD field office conducted on-
site reviews of BHA in 2006, 2007, 2009, and 2010. Some of those 
reviews identified deficiencies in management. 

Departures from Professional Standards Identified in Review of 
External Audits: 

Due to the significant internal control weaknesses we identified in 
BHA's disbursement of and procurement processes over Recovery Act 
funds discussed above, we reviewed the audit reports and supporting 
documentation for BHA's fiscal year 2006, 2007, and 2008 financial 
statement audits. During those years, BHA received federal funds and 
two of the auditor reports identified internal control issues similar 
to the issues we identified in our review of Recovery Act funds. Our 
review of the prior years' audit reports and supporting audit 
documentation identified substantive issues in the quality of the 
audit documentation and the extent to which the documentation 
satisfactorily complied with applicable audit standards.[Footnote 20] 
These departures from auditing standards significantly weakened the 
ability of BHA's Board of Commissioners, and ultimately HUD, to ensure 
that the BHA maintained an effective control environment to reduce the 
risk of fraud, waste, or abuse over the expenditure of federal funds, 
including Recovery Act funds. We identified six areas of concern, that 
in our opinion, BHA's external auditor departed from generally 
accepted government auditing standards (GAGAS)[Footnote 21] and 
standards promulgated by the American Institute of Certified Public 
Accountants (AICPA)[Footnote 22]: 

* Insufficient Evidence to Support Closing of Prior Year Findings: 

* Insufficient Evidence to Support Adequate Consideration of Fraud: 

* Insufficient Audit Documentation: 

* Lack of Supervisory Review: 

* Inadequate Analytical Procedures: 

* Insufficient Disbursement Testing to Support Auditor's Conclusions: 

The fiscal year 2006, 2007, and 2008 BHA financial statement audits 
were performed by the same auditor. On August 18, 2010, we formally 
transmitted the results of our review of the work of BHA's external 
auditor to the North Carolina State Auditor for consideration of 
further action. We discuss the six areas in which we identified 
concerns in greater detail below. 

* Insufficient Evidence to Support Closing of Prior Year Findings. We 
found that all of the fiscal year 2006 findings were reported as 
closed without explanation in BHA's 2007 audit report. Based upon our 
subsequent review of the auditor's fiscal year 2007 audit 
documentation, we concluded that there was insufficient evidence to 
support the closing of the fiscal year 2006 audit findings in several 
instances.[Footnote 23] For example, we found insufficient evidence in 
the fiscal year 2007 audit documentation to support the closing of the 
fiscal year 2006 audit finding related to the violation of procurement 
policy. According to BHA officials, contracts over $100,000 should be 
performed by a sealed bid process. In his fiscal year 2006 audit 
report, the auditor stated that he found no evidence that this sealed 
bid process was followed for a capital fund improvement contract. 
However, the auditor reported this finding as closed in the fiscal 
year 2007 audit report, based on management's response that "the 
Authority realizes the significance of following the provisions of the 
procurement policy and is committed to doing so in the future" and the 
auditor's conclusion that there were no contracts over $100,000 in 
fiscal year 2007. No evidence was in the audit documentation to 
support the auditor's conclusion. 

Further, we question the closing of another finding related to the 
incomplete and inaccurate tenant file documentation without sufficient 
evidence. Tenant file documentation for public housing should include 
income verification, apartment inspection, rent calculation, security 
deposit information, a signed lease, and certain forms required by 
HUD. The auditor, in the fiscal year 2006 audit report, recommended 
that BHA should (1) make certain personnel responsible for the tenant 
files receive adequate training, (2) hire a specialist to review all 
the tenant files to make appropriate corrections, and (3) develop a 
system to ensure accurate information for the future. Our review of 
the fiscal year 2007 audit documentation found the recommendation was 
closed because BHA hired a new employee who would be responsible for 
tenant files. However, BHA had not trained or scheduled training or 
hired a specialist to perform on-site file reviews and training. 
Notably, in the fiscal year 2008 audit report, inadequate tenant 
documentation was again identified as a finding with the 
recommendation that management ensure those responsible for tenant 
applications be adequately trained. The auditor, in the fiscal year 
2008 audit report, further recommended that BHA contract with a 
consultant or other public housing authority to provide initial 
training. 

* Insufficient Evidence to Support Adequate Consideration of Fraud. We 
found insufficient evidence to support adequate consideration of fraud 
in the audit. During our May 2009 visit, the BHA Executive Director at 
that time told us that she was hired to replace the former BHA 
Executive Director, who had resigned and was subsequently charged in 
July 2006 with embezzlement of BHA property.[Footnote 24] The AICPA 
Statements on Auditing Standards, AU Section 316, Consideration of 
Fraud in a Financial Statement Audit, require the auditor to obtain 
information needed to identify risks of material misstatement due to 
fraud by: (1) inquiring of management and others within the entity 
about the risks of fraud; (2) considering the results of the 
analytical procedures performed in planning the audit; (3) considering 
fraud risk factors; and (4) considering certain other information. 
Among other things, the auditor should inquire whether management has 
knowledge of any fraud or suspected fraud affecting the entity and the 
monitoring of programs and controls which have been established to 
mitigate specific fraud risks the entity has identified, or that 
otherwise help to prevent, deter, and detect fraud. Auditing standards 
also require auditors to perform audit procedures in response to 
identified risks of material misstatements due to fraud, and the 
auditor's responses to address identified risks of material 
misstatement due to fraud may include changing the nature, timing, and 
extent of audit procedures. Further, the auditor is required to 
document a description of the auditor's responses to those identified 
risks. In addition, the auditor should also design audit procedures to 
further address the risk of management override of controls and then 
document the results of the procedures that were performed. 

The audit documentation prepared by BHA's external auditor during the 
fiscal year 2008 audit showed he interviewed the BHA Executive 
Director at that time about fraud. His interview notes stated she was 
unaware of any instances of fraud and everything was in order because 
it all ultimately comes to her. The auditor's documentation also 
reported that the then BHA Executive Director said everyone was aware 
of the embezzlement by the previous Executive Director. The audit 
documentation indicated the auditor interviewed another employee, the 
then assistant to the Executive Director.[Footnote 25] The interview 
notes stated that the then assistant was not aware of any instances of 
fraud and did not suspect any fraud. According to his fraud risk 
inquiries form, which lists the names of these two individuals he 
interviewed about fraud, there is no evidence that the auditor 
interviewed the Board of Commissioners about the risks of fraud and 
whether they had an active role in the oversight of BHA's assessment 
of the risks of fraud and the programs and controls established to 
mitigate those risks. Further, this documentation did not contain any 
identified fraud risks associated with his discussions. In our 
opinion, due to the auditor's knowledge of the past embezzlement at 
the BHA, his professional skepticism as an auditor should have been 
heightened to, at a minimum, perform procedures to address the risk of 
management's override of controls. 

* Insufficient Audit Documentation. In general, the audit 
documentation was not sufficient to enable an experienced auditor, 
having no previous connection to the audit, to understand the work 
performed, the audit evidence obtained, and the conclusions reached. 
Under AICPA standards and GAGAS paragraph 4.19,[Footnote 26] auditors 
must prepare audit documentation in connection with each audit in 
sufficient detail to provide a clear understanding of the work 
performed (including the nature, timing, extent, and results of audit 
procedures performed), the audit evidence obtained and its source, and 
the conclusions reached. Furthermore, the AICPA Statement on Auditing 
Standards, AU Section 339.18, states that auditors should record who 
performed the audit procedures and when such work was completed. 

In addition to the lack of supervisory review, discussed below, most 
of the audit documentation that we reviewed for the audits of both 
fiscal year 2007 and fiscal year 2008 was missing at least one of the 
following key elements of an audit document: the preparer of the 
document, the date the work was performed, or the conclusion reached. 
Further, none of the audit documentation that we reviewed indicated 
the auditor's purpose in preparing the document, and few documents 
indicated the source of the work, making it difficult to determine why 
the work was performed or the origin of the audit evidence. Without 
this documentation, the nature, timing, extent, and results of audit 
procedures performed cannot be determined, as required by GAGAS. 

* Lack of Supervisory Review. In the audit documentation that we 
reviewed for audits of both fiscal year 2007 and 2008, there was no 
evidence of supervisory review. According to GAGAS paragraph 4.20, 
[Footnote 27] auditors should document, before the audit report is 
issued, evidence of supervisory review of the work performed that 
supports findings, conclusions, and recommendations contained in the 
audit report. The external auditor did not document his justification 
or rationalization for this departure from GAGAS, nor did he document 
how the alternative audit procedure he performed was sufficient to 
achieve the intent of a supervisory review of the audit documentation. 

* Inadequate Analytical Procedures. The external auditor employed 
inadequate analytical procedures for the fiscal year 2008 audit. 
According to AICPA standards, AU section 329, the objective of 
analytical procedures, used in the overall review stage of the audit, 
is to assist the auditor in assessing the conclusions reached and in 
the evaluation of the overall financial statement presentation. This 
review includes considering any unusual or unexpected balances that 
were not previously identified. Results of an overall review may 
indicate that additional evidence may be needed. However, the audit 
documentation we reviewed did not include any record of management's 
response to the unusual or unexpected balances or an assessment of the 
adequacy of such a response. Further, the audit documentation did not 
include an assessment that additional evidence was needed or 
additional audit procedures were considered. 

The external auditor issued a concluding letter, dated June 10, 2009, 
regarding the audit of the BHA fiscal year 2008 financial statements 
addressed to the BHA Board of Commissioners. In this letter, he stated 
that when comparing the fiscal year ended September 30, 2008, actual 
expenditures to those in the approved budget, there was an unfavorable 
varianc