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Actions Needed to Address Implementation Challenges and Bolster 
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Report to the Congress: 

United States Government Accountability Office: GAO: 

May 2010: 

Recovery Act: 

States' and Localities' Uses of Funds and Actions Needed to Address 
Implementation Challenges and Bolster Accountability (Appendixes): 

GAO-10-605SP: 

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 sixth of its bimonthly 
reviews of American Recovery and Reinvestment Act of 2009 (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 four specific program areas--education, justice, clean 
water and drinking water, and public housing--funded under the 
Recovery Act. We selected these program areas primarily because they 
have received and are in the process of obligating Recovery Act funds. 
Our work focused on the status of the program area's funding, how 
funds are being used, methods used by the programs to monitor projects 
to ensure proper use and safeguarding of Recovery Act funds, and 
issues that are specific to each program area. (For descriptions and 
requirements of the programs we covered, see appendix XVIII of GAO-10-
605SP.) For education programs, we spoke with Arizona Department of 
Education officials and visited a local educational agency (LEA). For 
the criminal justice programs, we spoke with the Arizona Criminal 
Justice Commission and visited two localities receiving criminal 
justice funds. For Clean Water and Drinking Water State Revolving 
Funds, we spoke with the Water Infrastructure Finance Authority of 
Arizona and visited five clean water and drinking water projects. As 
part of our review of public housing, we met with five public housing 
agencies. Our work in Arizona also included monitoring the state's 
fiscal situation and visiting the cities of Mesa and Flagstaff to 
review their use of Recovery Act funds. We chose to visit Mesa and 
Flagstaff because they represent different sized cities that are both 
facing budget shortfalls due to declines in state funding for 
programs, tax revenues, and fees. 

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), the Maricopa County Housing Authority, and the Mesa 
Unified School District 4. Further, we spoke with 19 state and local 
agencies in the accountability community that have oversight 
responsibilities for Recovery Act funds. 

What We Found: 

* Education. The U.S. Department of Education has made approximately 
$1.2 billion in Recovery Act funds available to Arizona for the State 
Fiscal Stabilization Fund (SFSF); grants under the Individuals with 
Disabilities Education Act (IDEA), as amended, Part B; and grants 
under Title I, Part A of the Elementary and Secondary Education Act of 
1965 (ESEA), as amended. A large percentage of these funds are being 
used to pay employee salaries. Existing monitoring programs for non-
Recovery Act funds have identified problems with LEAs' use of funds; 
these illustrate the importance of closely monitoring Recovery Act 
funds, but the responsible monitoring groups face staffing issues that 
affect the amount of coverage they can provide. 

* Department of Justice grants. The U.S. Department of Justice's 
Bureau of Justice Assistance has awarded about $25 million directly to 
Arizona in Recovery Act Edward Byrne Memorial Justice Assistance Grant 
program funding. The Arizona Criminal Justice Commission, which 
administers the grants, said they passed through about $18.7 million 
to localities to support the state's drug task forces and tandem 
prosecution projects, about $4.2 million for statewide criminal 
justice projects, and retained about $2 million for administrative 
purposes. In addition, 13 local governments received a total of about 
$12.6 million in Recovery Act Community Oriented Police Services 
Hiring Grants and will use the funding to pay salaries and benefits 
for 56 police officers for fiscal years 2009-2011. 

* Clean Water and Drinking Water State Revolving Funds. Arizona 
received a total of approximately $82 million in Recovery Act funding 
for its clean water and drinking water projects, which the Water 
Infrastructure Finance Authority of Arizona (WIFA) used to help 
finance 46 projects. WIFA has had difficulties monitoring its Recovery 
Act funded-projects, but WIFA is taking steps to strengthen its 
monitoring. 

* Public Housing Capital Fund. Arizona has 15 public housing agencies 
that received a total of $12.1 million in Recovery Act funds. All 15 
housing agencies obligated 100 percent of their funds by the March 17, 
2010, deadline. However, the Department of Housing and Urban 
Development (HUD) field office had to work extensively with the 
state's two troubled housing agencies to obligate their funds in time. 
According to HUD field office officials, they are anticipating new 
monitoring requirements; however they do not know the potential impact 
of this new monitoring on their capacity to carry out those 
requirements. 

* Arizona's fiscal condition. Despite receiving about $1.3 billion in 
Recovery Act funds in fiscal year 2010, Arizona faced a $2 billion 
shortfall, which was resolved with spending reductions and by 
acquiring additional debt. Facing continuing economic problems, 
Arizona's fiscal year 2011 budget was balanced with reductions in 
education, health, and other programs and a voter-approved 1-cent 
temporary increase in the state's sales tax. Economic forecasters 
estimate Arizona's revenue will not recover to the 2007 level until 
2015. 

* Cities' use of Recovery Act funds. Of the $57.5 million in Recovery 
Act funds awarded to Mesa, federal agencies provided approximately 
$16.5 million directly, while the remainder was awarded to state 
agencies that in turn passed the funds to the city. Flagstaff received 
approximately $2.6 million directly from federal agencies and the 
remainder of the total $4 million through state agencies. Officials in 
both Mesa and Flagstaff said that Recovery Act funds have helped to 
deliver services they otherwise would have been unable to fund, as 
well as employing local workers. Additionally, the funds are expected 
to provide long-term benefits to the cities. 

* Accountability. State agencies recognize the importance of 
monitoring Recovery Act funds to protect against fraud, waste, and 
abuse, but current practices vary significantly, sometimes due to 
staffing shortages. Comprehensive audit activities just began in 2010 
because most entities had expended only a fraction of the Recovery Act 
funds in 2009. The Single Audit is a significant tool used to oversee 
expenditures of Recovery Act funds. The results of the Arizona Auditor 
General's fiscal year 2010 Single Audit, scheduled to be released in 
2011, will be a more comprehensive first look at Recovery Act funding. 
Some local governments are also conducting their own audits specific 
to Recovery Act funds. 

Educational Institutions Are Using Recovery Act Funds Primarily to Pay 
Teachers and Other Staff; Resource Constraints Pose Challenges for 
Monitoring To Ensure Proper Use and Safeguarding of Funds: 

The U.S. Department of Education has made approximately $1.2 billion 
in Recovery Act funds available to Arizona for SFSF education 
stabilization funds, IDEA, Part B and ESEA Title I, Part A grants. 
Table 1 shows the amounts that have been made available to, and drawn 
down by Arizona, for these three grants. 

Table 1: Funds Made Available to Arizona for SFSF education 
stabilization funds; IDEA, Part B; and ESEA Title I, Part A Grants: 

SFSF education stabilization; 
Made available to Arizona: $831,869,331; Drawn down by Arizona: 
$505,603,597; Percent drawn down of amount made available: 61%. 

IDEA, Part B; 
Made available to Arizona: $184,178,924; Drawn down by Arizona: 
$57,061,531; Percent drawn down of amount made available: 31%. 

ESEA Title I; 
Made available to Arizona: $195,087,321; Drawn down by Arizona: 
$64,736,366; Percent drawn down of amount made available: 33%. 

Total; 
Made available to Arizona: $1,211,135,576; Drawn down by Arizona: 
$627,401,495; Percent drawn down of amount made available: 52%. 

Source: U.S. Department of Education, as April 16, 2010. 

[End of table] 

SFSF funds were provided to the Governor's office, while both the ESEA 
Title I, Part A and IDEA, Part B grants were provided to the Arizona 
Department of Education (department), which is the state education 
agency. The Governor's office has drawn down nearly $506 million of 
the $832 million in SFSF education stabilization funds for LEAs and 
institutions of higher education. The department has drawn down 33 
percent and 31 percent of its ESEA Title I, Part A and IDEA, Part B 
funds, respectively. The lower draw down rates for these latter two 
programs to date are due, in part, to the LEAs having begun expending 
funds over time, rather than in a lump sum, as was the case for SFSF 
funds. States have until September 2011 to obligate ESEA Title I, Part 
A and IDEA, Part B funds.[Footnote 3] 

LEAs are using the largest percentage of funds they receive[Footnote 
4] for teacher and other staff salaries; and, lesser amounts for 
professional services--such as professional development and hiring 
occupational and speech therapists--and purchasing supplies and other 
services, such as instructional software and other school materials 
and supplies. 

Arizona Plans to Meet SFSF Maintenance of Effort Requirements with New 
Revenue from a Voter-Approved State Sales Tax Increase: 

In order to meet maintenance-of-effort (MOE) requirements under SFSF, 
a state must maintain state support for kindergarten through 12th 
grade education and institutions of higher education at least at 
fiscal year 2006 levels in fiscal years 2009, 2010, and 2011.[Footnote 
5] For fiscal years 2009 and 2010, Arizona's budget provided funding 
for kindergarten through 12th grade and higher education at least at 
2006 levels--$3.46 billion and $987 million, respectively--as required 
to meet MOE requirements for SFSF under the Recovery Act. Facing an 
estimated $2.58 billion shortfall in the state budget for fiscal year 
2011, Arizona plans to maintain education funding at the 2006 level to 
meet MOE requirements through new revenue from a voter-approved 1-cent 
increase in state sales tax. The added tax is estimated to generate 
total revenue of about $918 million in fiscal year 2011. 

Agency Past Monitoring Efforts Demonstrate the Importance of 
Oversight, but There Are Challenges to Increasing Coverage: 

The Arizona Department of Education is responsible for monitoring the 
use of federal funds it receives from the IDEA, Part B and ESEA 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, Part B program 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. The Audit Unit has not begun monitoring Recovery 
Act funds because selections for fiscal year 2010 were made using end 
of year completion reports for fiscal year 2008 and, at that time, 
LEAs had not received any Recovery Act funds. It plans to begin 
monitoring these funds July 1, 2010, and will incorporate added 
requirements of the Recovery Act into its monitoring guidelines, such 
as prevailing wage rates and Buy American provisions.[Footnote 6] The 
Title I Office officials said that they had not performed on-site 
monitoring and have not yet modified their monitoring protocols to 
reflect Recovery Act requirements. Officials plan to modify the 
protocols before the beginning of the next school year and will begin 
monitoring Recovery Act funds when the school year begins. 

The Audit Unit and the Title I Office's monitoring programs in prior 
years have disclosed important internal control weaknesses at some 
LEAs over IDEA, Part B and ESEA Title I, Part A funds. These findings 
illustrate the importance of closely monitoring Recovery Act funds. 
The monitoring conducted by these offices to date on LEAs' use of non- 
Recovery Act funds has identified several areas in which some LEAs did 
not meet requirements, such as inadequate inventory controls over 
fixed assets or improper uses of funds. Table 2 shows the number of 
LEAs that did not meet requirements in one or more of the areas 
reviewed. 

Table 2: Number of LEAs Visited by the Audit Unit for Monitoring IDEA 
Funds and Title I Office Staff for Monitoring ESEA Title I Funds, and 
Compliance Results: 

Audit Unit[B]; 
Number visited: 32; 
Met requirements: 11; 
Did not meet requirements: 21; 
Percentage meeting requirements: 34%; Percentage not meeting 
requirements[A]: 66%. 

Title I Office[C]; 
Number visited: 72; 
Met requirements: 33; 
Did not meet requirements: 39; 
Percentage meeting requirements: 46%; Percentage not meeting 
requirements[A]: 54%. 

Total; 
Number visited: 104; 
Met requirements: 44; 
Did not meet requirements: 60; 
Percentage meeting requirements: 42%; Percentage not meeting 
requirements[A]: 58%. 

Source: GAO Summary of Arizona Department of Education records. 

[A] Actions have been taken or are underway to address these 
deficiencies. 

[B] Data for the Audit Unit are cumulative since it began performing 
monitoring for the ESS Unit and includes results of findings at six 
LEAs whose reports have not been issued as of March 25, 2010. 

[C] Data for Title I Office staff are for fiscal years 2009 and 2010 
and for what had been entered into its monitoring system as of April 
8, 2010. 

[End of table] 

Many of the findings of the Audit Unit and Title I Office identify the 
need for LEAs to strengthen their internal controls over fund use. For 
example, Audit Unit monitors found that one LEA had incurred about 
$39,000 of disallowed expenses because the LEA was unable to produce 
the required supporting documentation for payroll and procurement of 
supplies. The LEA is reimbursing the Arizona Department of Education 
for these expenses. 

Monitoring of Funds for All Three Grants Faces Coverage Challenges 
Because of Limited Staff: 

Both the Audit Unit and Title I Office expressed concerns over their 
ability to provide adequate monitoring given current staffing levels. 
The Audit Unit's monitoring program is designed to primarily cover 
several LEAs that receive the largest amount of grant funds each year 
to ensure a large percentage of the grant award is reviewed over a 5- 
year period. In addition, it selects a smaller grouping of LEAs to 
monitor from among (1) rural districts and nearby charter schools, (2) 
smaller urban districts and large urban charters, and (3) potentially 
troubled districts and charters identified in audit reports. The Audit 
Unit has two auditors to perform on-site fiscal monitoring, and they 
are reviewing 24 that expended about $44 million of the nearly $153 
million expended by all 445 LEAs in IDEA, Part B funding for fiscal 
year 2008. The Title I Office's monitoring program is designed to 
perform on-site monitoring of a group of LEAs each year and to ensure 
that all LEAs will have had an on-site visit at the completion of 6 
years. A total of 401 LEAs expended about $259 million in fiscal year 
2009 ESEA Title I, Part A funding. Officials for this program informed 
us that the office has 10 staff who are monitoring 62 of these LEAs, 
which account for about $35 million of these total funds.[Footnote 7] 
Title I Office officials said the office could use 20 staff for 
monitoring, but has not been able to fill several vacancies or hire 
additional staff due to budgetary constraints. 

OER is responsible for monitoring the use of SFSF funds, and OER 
officials informed us that they plan to use the office's existing 
staff of ten to perform monitoring responsibilities along with their 
other responsibilities of coordinating and assessing accountability 
over Recovery Act funds at state agencies. Officials stated that OER 
will implement a risk-based monitoring plan for selecting recipients 
to monitor. This plan, which is currently under review by the U.S. 
Department of Education,[Footnote 8] places SFSF fund recipients in 
the categories of high, moderate, and low risk based on factors such 
as expenditure amounts and prior audit results. Until this risk-based 
system is developed, OER will monitor recipients that receive $500,000 
or more of SFSF funds and those that receive federal funding for the 
first time. OER has determined that 125 recipients comprising 110 
LEAs, 11 community colleges, 3 universities, and 1 Teach for America 
[Footnote 9] contract meet the $500,000 threshold for fiscal years 
2009 and 2010. As of April 2010, OER was awaiting the Arizona 
Department of Education's information on the LEAs that are first-time 
recipients. From the list of 125 recipients and the list of first-time 
recipients, OER will select 36 for on-site visits to be completed by 
December 2010. OER officials said that the office was in the process 
of hiring additional staff and until these staff are hired, it will 
perform 4 on-site visits per month beginning in April 2010 to complete 
the 36 recipient on-site visits. The number of recipients it will 
monitor, however, could change once the risk-based plan mentioned 
above is developed. 

Recovery Act Department of Justice Grants in Arizona Are Supporting 
Drug Task Forces and Increased Police Forces and Are to Be Subject to 
Long-Standing Monitoring Processes: 

Recovery Act Edward Byrne Memorial Justice Assistance grants (JAG) 
awarded to the Arizona Criminal Justice Commission (ACJC)--the state 
agency that coordinates, monitors, and reports on Arizona's criminal 
justice programs--totaled about $25 million. These funds were intended 
to help ACJC with its work supporting 16 multi-jurisdictional[Footnote 
10] drug task forces and prosecution projects. To reduce budget 
deficits in the state, the Arizona Legislature has cut about $24.6 
million in state funds planned to support the ACJC's mission, 
including the 16 drug task forces and prosecution projects from fiscal 
years 2008 through 2011. Because of the Recovery Act JAG monies, ACJC 
was able to pass funds to localities to support the drug task forces 
and prosecution projects at a level similar to what it had been before 
the legislature reduced ACJC's budget. According to ACJC officials, 
had they not received Recovery Act funds, they would have had to 
severely reduce or discontinue at least half of the projects funded 
with JAG monies. ACJC has financial and performance monitoring 
mechanisms in place for pass-through recipients of JAG monies, and has 
continued using those existing mechanisms to monitor Recovery Act JAG 
funds. In addition to JAG funds, another Recovery Act Department of 
Justice grant for Community Oriented Police Services (COPS) awarded 13 
localities in Arizona a total of about $12.6 million in funding for 
hiring or retaining police officers. 

Localities Are Using Recovery Act JAG Funds to Support Public Safety 
Projects: 

Of the approximately $25 million in federal funds allocated to ACJC, 
officials told us ACJC has passed through about $18.7 million to 
localities to support the existing task forces and tandem prosecution 
projects which are continuing their work at the pre-Recovery Act 
levels and about $4.2 million to the state Attorney General's Office 
and the Arizona Department of Public Safety for statewide criminal 
justice projects such as prosecution and forensics. These drug task 
forces that received the Recovery Act JAG funds accounted for seizures 
of 847,665 grams of cocaine; 49,586 grams of heroin; 206,713 grams of 
methamphetamine; and 305,082 pounds of marijuana in 2008. As of 
February 1, 2010, local pass-through recipients of Recovery Act JAG 
funds have expended about 23.5 percent of the $18.7 million they 
received from ACJC and state agencies have expended about 31 percent 
of the $4.2 million they received from ACJC, as illustrated in Figure 
1. 

Figure 1: Recovery Act JAG Pass-Through Funds in Arizona: 

[Refer to PDF for image: horizontal bar graph] 

Funds passed through to localities: 
Expended: $4,649,485; 
Awarded: $18,742,590. 

Funds passed through to the state: 
Expended: $1,305,603; 
Awarded: $4,246,732. 

Source: GAO analysis of ACJC data. 

[End of figure] 

ACJC retained about $2 million for administrative uses over the 3-year 
grant period between fiscal years 2009 and 2011, which it uses to 
monitor the expenditures of Recovery Act funds, track performance, and 
offer guidance to recipients of the pass-through funds. 

ACJC Plans to Continue to Use Its Longstanding Practices, with Some 
Modifications to Simplify Reporting, to Monitor JAG Funds: 

ACJC uses a variety of approaches to track the funds it provides to 
localities, both for the JAG funds it receives and for the more recent 
Recovery Act JAG funds. These approaches include the use of the Bureau 
of Justice Assistance required performance measurement tool to monitor 
performance metrics and long-term benefits achieved, as well as on-
site visits and communication with pass-through recipients. To collect 
information for the performance measurement tool, ACJC sends an online 
survey to all pass-through recipients. The financial and performance 
measures monitored in the online survey are tailored to each 
recipient, but all recipients are required to include Recovery Act 
recipient reporting metrics such as jobs created and retained. The 
survey also includes other performance measures, such as the 
percentage of the project completed, as well as descriptions of the 
project's activities. 

In addition, ACJC officials are developing a system to integrate the 
performance data with financial and programmatic information to ease 
recipients' Recovery Act reporting obligations and simplify recipient 
reporting for ACJC. According to ACJC officials, in large part because 
of ACJC's efforts to align Recovery Act reporting requirements with 
state reporting requirements, they have not experienced any recipient 
reporting problems. ACJC staff also plan on visiting each pass-through 
recipient at least one time over the course of the 3-year JAG grant to 
ensure that the program funds are being expended in accordance with 
the grant guidelines. 

Recovery Act JAG pass-through funds are generally a continuation of 
the existing JAG program, and the funds are going to the same 
recipients for the same purposes as in the past. ACJC, therefore, 
considers the pass-through funds to be a low risk for fraud, waste, 
and abuse problems because past monitoring efforts have indicated to 
ACJC which pass-through recipients have been problematic, and those 
recipients with a history of conscientious program management have 
been the recipients of ACJC Recovery Act funds. 

According to ACJC officials, they are beginning to plan for the end of 
Recovery Act funding, beginning in 2012. ACJC has begun notifying all 
pass-through recipients that they will need to begin to contribute to 
the task force funding starting in fiscal year 2012. 

Arizona Has Expanded Community-Based Policing as a Result of 
Additional Police Staff Hired with Recovery Act COPS Funds and Expects 
Tracking of Those Funds Will Not be Problematic, Although Paying for 
Officers Beyond 2012 May Present a Challenge: 

Across Arizona, 13 local governments--including Mesa and Flagstaff-- 
received a total of about $12.6 million in COPS Hiring Recovery 
Program (CHRP) funding from the U.S. Department of Justice and plan to 
use it to directly pay for the salaries and benefits for 56 police 
officers for fiscal years 2009 through 2011. Those 13 local 
governments, as part of their CHRP applications, are required to use 
their own funding to pay for each newly-hired or retained officer for 
1 additional year, through fiscal year 2012. We spoke with officials 
in Mesa and Flagstaff about their ability to pay these costs and 
neither foresaw having trouble paying for the fourth year. However, 
both cities' officials said they are counting on an economic recovery 
to build the general funds and pay for the salaries and benefits for 
the officers hired with CHRP funds beyond 2012. 

The city of Mesa--the only one of the 13 recipients with a population 
greater than 150,000--applied for and received funding for the hiring 
of 25 of the 56 total officers, or about 45 percent. These 25 officers 
represent about a 3 percent addition to the total police force in 
Mesa, which is about 800 officers. However, subsequent to their 
application approval, the Mesa police department was asked to present 
a plan to reduce its budget by 5 to 10 percent. Because of this, Mesa 
is researching the possibility of requesting a grant modification so 
that it can use the funds to retain 25 officers rather than hire 25 
new ones. 

Flagstaff applied for and received CHRP funding for six police 
officers. As of February 1, 2010, three officers had begun duty on the 
Flagstaff police force and three were at the police academy. According 
to Flagstaff city officials, the CHRP funds saved the Drug Abuse 
Resistance Education program[Footnote 11] in Flagstaff, which the city 
would have otherwise eliminated, and allowed the city to use one of 
the officers to continue expanding its real-time crime analysis 
program. 

In terms of tracking the Recovery Act COPS funds, officials in both 
Mesa and Flagstaff reported that they assign the Recovery Act funds 
separate accounting codes to facilitate tracking of expenditures and 
have not experienced any problems with recipient reporting. 

Arizona Met the Recovery Act Deadline to Have Its Water Funds Under 
Contract and Is Strengthening Its Monitoring to Safeguard Recovery Act 
Funds: 

The Recovery Act required the U.S. Environmental Protection Agency 
(EPA) to allocate $4 billion to states to help communities with water 
quality and wastewater infrastructure needs and $2 billion for 
drinking water infrastructure needs, with part of the funding targeted 
toward green projects.[Footnote 12] EPA provided these funds to the 
Clean Water and Drinking Water State Revolving Funds (SRF) in each 
state and Puerto Rico and as direct grants to the District of Columbia 
and other U.S. territories. 

WIFA, an independent Arizona state agency, is authorized to finance 
eligible high-priority water infrastructure projects through the 
state's Clean Water and Drinking Water SRFs. WIFA loans SRF funds to 
communities and recycles the loan repayments back into the revolving 
funds to finance future water projects. Generally, WIFA offers 
borrowers below-market interest rates on loans for eligible project 
costs. The Recovery Act required WIFA to provide additional 
subsidization on its Recovery Act-funded SRF loans, which WIFA gave to 
its borrowers in the form of principal forgiveness.[Footnote 13] WIFA 
reimburses borrowers, or subrecipients, for eligible costs of work 
completed on projects as the subrecipients request draws from the 
agency's two SRFs. 

Arizona had all of its Recovery Act funds awarded to projects that 
were under contract by the February 17, 2010, deadline. Additionally, 
WIFA established its own state-specific requirement that all projects 
begin construction by that date. The state received approximately $82 
million in Recovery Act funding for its two SRFs and used 
approximately $76 million to help finance 46 projects.[Footnote 14] 
The Drinking Water SRF used $50.6 million to help finance 29 projects, 
and the Clean Water SRF used $25.4 million to help finance 17 
projects. Additionally, Arizona exceeded the Recovery Act's green 
reserve requirement, providing $12.7 million (23 percent) of the 
Drinking Water funding for improvements such as replacing leaking 
pipelines (see Figure 2) and approximately $12.4 million (47 percent) 
of the Clean Water funding for improvements such as reclaiming treated 
water for use in irrigation. None of the 46 projects, with expected 
costs totaling approximately $182 million, were funded completely with 
Recovery Act funds. Other funding sources included WIFA's SRF base 
program (i.e. non-Recovery Act) funds and subrecipients' own funds. As 
of May 1, 2010, subrecipients had drawn down almost $47.7 million, or 
63 percent of the Recovery Act funding. 

Figure 2: Existing Pipeline to be Repaired as Part of the Town of 
Payson's Recovery Act-Funded Drinking Water Project: 

[Refer to PDF for image: photograph] 

Source: Salt River Project photo provided by Town of Payson. 

Note: The Town of Payson is partnering with the Salt River Project to 
repair and extend this pipeline to provide the town a renewable 
surface water supply. The Salt River Project is one of Arizona's 
largest water suppliers and provides power to customers throughout 
central Arizona. 

[End of figure] 

To review the progress of projects supported with Recovery Act funds, 
we chose the following five projects to visit, based on geographic 
diversity, type and amount of financing, and green component (see 
table 3). Because Arizona received more than twice as much money for 
its Drinking Water SRF, we emphasized Drinking Water projects over 
Clean Water projects. 

Table 3: Clean Water and Drinking Water Site Visit Locations: 

Location: Buckeye; 
SRF: Clean water; 
Project description: Wastewater treatment plant upgrades and 
expansion[A]; Amount funded (Recovery Act): $6,372,285; Amount funded 
(base SRF funds): $5,627,715; Total amount funded by WIFA: 
$12,000,000; Project status: Construction started. 

Location: Eloy; 
SRF: Drinking water; 
Project description: Water distribution improvements, including new 
water meters with remote monitoring and new water main with storage 
tank and booster station[A]; Amount funded (Recovery Act): $2,800,000; 
Amount funded (base SRF funds): $1,200,000; Total amount funded by 
WIFA: $4,000,000; Project status: Completed. 

Location: Flagstaff; 
SRF: Drinking water; 
Project description: Connect new well and expand well building[A]; 
Amount funded (Recovery Act): $542,500; Amount funded (base SRF 
funds): $232,500; Total amount funded by WIFA: $775,000; Project 
status: Completed. 

Location: Mesa; 
SRF: Drinking water; 
Project description: Replace aging water lines in downtown Mesa; 
Amount funded (Recovery Act): $1,144,000; Amount funded (base SRF 
funds): $286,000; Total amount funded by WIFA: $1,430,000; Project 
status: Completed. 

Location: Payson; 
SRF: Drinking water; 
Project description: Surface water project-pipeline repair and 
extension[A]; Amount funded (Recovery Act): $4,000,000; Amount funded 
(base SRF funds): $6,585,000; Total amount funded by WIFA: 
$10,585,000; Project status: Construction started. 

Source: GAO summary of WIFA data. 

[A] Projects contained a green component. In the cases of Buckeye and 
Payson, 100 percent of their Recovery Act funding was identified as 
green infrastructure. 

[End of table] 

In Light of the Recovery Act and other Requirements, WIFA Recognized 
the Need to Take Steps to Strengthen Its Monitoring: 

According to WIFA officials, they used two methods to monitor project 
compliance with Recovery Act requirements. First, they followed 
existing agency policies that require WIFA staff to conduct an on-site 
project observation when more than 50 percent of its WIFA funding is 
drawn and again when more than 85 to 95 percent is drawn. These on-
site visits are intended to enable WIFA to make certain that 
subrecipients adhere to the approved schedule, plans, specifications, 
and financial assistance agreement for the loan, as well as that 
construction is of sufficient quality to ensure a useful life greater 
than the loan repayment period. According to WIFA's policies, however, 
the subrecipients are still responsible for providing adequate on-site 
inspection and engineering review to determine acceptability of the 
work and contract compliance. 

Under the second method, WIFA officials rely on subrecipients to self- 
certify that contractors adhere to Recovery Act requirements, 
including the Recovery Act's Davis-Bacon wage rates and Buy American 
provisions. According to WIFA officials, subrecipients are required to 
certify in their project applications and loan documents that they 
understand their responsibilities for complying with Recovery Act 
requirements. Further, the officials said they also informed 
subrecipients that they must maintain all documentation used to meet 
these requirements at the project site for potential EPA audits or 
other inspections. WIFA provided subrecipients written guidance on the 
Davis-Bacon wage rates and Buy American provisions for subrecipients 
and contractors, and EPA trained them through in-state seminars and 
Webcasts. 

We found a shortcoming in these methods, however. For example, the on- 
site project observations, which are triggered by a project's schedule 
for drawing down funds, were not always completed when expected 
because projects did not draw funds at the same rate construction was 
completed. We found projects at Mesa and Eloy, which were completed or 
nearly completed, and yet had not been inspected because they had not 
drawn 50 percent of their loan from WIFA. When we discussed this with 
WIFA officials, they said that in their review of documentation, they 
had identified two other projects that had already been completed 
without any funds being drawn. 

A mid-point on-site project observation visit was especially critical 
for Eloy, where we found the contractor had installed some water 
meters that were not made in the United States. We brought this to the 
attention of Eloy city officials, who assessed how extensive the 
problem was and found more than 100 meters that needed to be replaced 
with American-made products at the contractor's expense. WIFA 
immediately sent an alert to all subrecipients to make them aware of 
potential problems with water meters. In the cases above, WIFA did not 
have a working "trigger" to let it know that these projects were 
nearly complete and to require an inspection for compliance with 
Recovery Act provisions and other loan requirements. 

WIFA Is Taking Actions to Strengthen Its Monitoring Efforts: 

In our discussions with WIFA officials, they recognized the need to 
take immediate actions to strengthen their monitoring program because 
of weaknesses in their existing processes. The officials also 
acknowledged that subrecipients' self-certification cannot always be 
relied on and that they will need to perform more detailed checks when 
conducting their inspections. Previously, according to these 
officials, staff had been spot-checking projects and borrowers' 
certifications of Recovery Act requirements but not reviewing the 
documentation to support those requirements. 

On March 11, 2010, EPA provided Arizona an inspection checklist to 
assist in evaluating subrecipients' compliance with Recovery Act 
requirements during WIFA on-site reviews or other inspections. WIFA 
forwarded the checklist to all subrecipients and scheduled site visits 
to familiarize the subrecipients with the new checklist requirements. 
A senior loan officer is also assessing all 46 projects against the 
new checklist through June. Furthermore, although EPA officials told 
us that using this checklist is voluntary, WIFA's executive director 
is making it mandatory and has revised its monitoring process so that 
inspectors will use the checklist during on-site project observations. 

To address the issue of subrecipients not drawing down their funds in 
a timely manner, the executive director has begun contacting project 
officials. The WIFA officials said they were surprised that 
subrecipients were not approaching them earlier to draw on their 
Recovery Act funding since the subrecipients had to pay their 
contractor invoices and would soon be paying interest on their WIFA 
loans. Further, according to these officials, with a bond issue 
approaching, they needed to have a general idea of their expected cash 
flow so that they could determine their bond request.[Footnote 15] 
While the steps WIFA has taken to strengthen its monitoring of 
Recovery Act funds appear to address the issues we identified, because 
these monitoring changes are still new, it was too early for us to 
evaluate their effectiveness. 

All Arizona Public Housing Agencies That Received Funds Have Obligated 
Them, but Monitoring Requirements Could Pose Workload Capacity 
Challenges: 

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. These grant funds were provided to the agencies to 
improve the physical condition of their properties. As of March 17, 
2010, the recipient public housing agencies had obligated 100 percent 
of the $12.1 million. Also, 13 of the recipient agencies had drawn 
down a cumulative total of almost $6.6 million from the obligated 
funds, as of May 1, 2010 (see figure 3). We visited five housing 
agencies to determine the progress of their projects: the Flagstaff, 
Nogales, Pinal County, and South Tucson Housing Authorities and the 
Tucson Housing and Community Development Department. 

Figure 3: Percentage of Public Housing Capital Fund Formula Grants 
Allocated by HUD That Have Been Obligated and Drawn Down in Arizona as 
of May 1, 2010: 

[Refer to PDF for image: pie-charts and horizontal bar graph] 

Funds obligated by HUD: 100% ($12,068,449); Funds obligated by public 
housing agencies: 100% ($12,068,449); Funds drawn down by public 
housing agencies: 54.5% ($6,580,319). 

Number of public housing agencies: 
Were allocated funds: 15; 
Obligated 100% of funds: 15; 
Have drawn down funds: 13. 

Source: GAO analysis of data from HUD's Electronic Line of Credit 
Control System. 

[End of figure] 

Agencies Met Deadline for Obligating Funds after HUD Assisted Two 
Troubled Housing Agencies: 

The Recovery Act requires that housing agencies obligate 100 percent 
of their funds within 1 year from when the funds become available; all 
15 housing agencies met the March 17, 2010, deadline. However, the HUD 
field office worked extensively with the state's two troubled housing 
agencies, Eloy and South Tucson, to obligate their funds in time. 
Under the Public Housing Assessment System,[Footnote 16] troubled 
agencies are required to comply with a memorandum of agreement to 
resolve identified deficiencies by certain target dates. According to 
officials in the HUD field office, Eloy has been designated a troubled 
housing agency for more than 4 years due to long-standing management 
capacity problems, while South Tucson has been designated a troubled 
housing agency for the past 3 years because their HUD-mandated annual 
audits--which are included as part of the city's audit--have been 
late. [Footnote 17] Further, any troubled housing agency eligible to 
receive Recovery Act capital fund formula grants was evaluated to 
determine its level of risk, and both Eloy and South Tucson were 
classified as medium risk. In accordance with its monitoring strategy, 
HUD required its field office staff to review and approve all award 
documents--such as solicitations, contracts, or board resolutions, 
where applicable--prior to the troubled housing agency soliciting bids 
for any work, obligating Recovery Act funds, or requesting to draw 
down funds. [Footnote 18] In addition, a team composed of one HUD 
field office staff member and three expert level staff members from 
other HUD field offices conducted remote and on-site reviews of the 
two troubled housing agencies, providing technical assistance during 
their reviews. As a result, both troubled housing agencies met the 
obligation deadline in March. 

Housing Agencies Are Completing Projects, and Officials Said Lower- 
Than-Expected Bids Make Funds Go Further: 

The housing agencies we visited were continuing to make progress with 
Recovery Act funds. The agencies had completed paving projects in 
Nogales; remodeling of unit interiors with new cabinets, hot water 
heaters, and plumbing fixtures in Tucson; and window, appliance, and 
furnace replacements in Flagstaff. Ongoing Recovery Act projects 
include heating, ventilation, and air conditioning system upgrades or 
replacements and interior rehabilitation work, such as kitchen and 
bathroom renovations. Tucson's housing agency, for example, estimates 
its project costs will range from $12,890 for new plumbing fixtures 
and painting and patching of all interior walls at one single-family 
house to more than $190,000 for installation of a new chilling tower 
at a 74-unit building. 

Officials from four of the five housing agencies we visited stated 
that they received bids that were lower than expected in part due to 
economic conditions. Contractors have little work, so they are 
submitting lower bids in order to have projects and keep their staff 
employed. As a result, housing agencies were able to add projects 
eligible for Recovery Act funds before the obligation deadline. For 
example, the Nogales Housing Authority was able to add projects to 
install security fencing and cameras, replace lighting with more 
efficient bulbs in more than 200 units, and repave some damaged 
parking lots, and the Flagstaff Housing Authority was able to include 
window replacements in its administrative building renovation. 

HUD Field Office Staff Have Met Monitoring Requirements to Date but 
Future Monitoring Could Test Staff Capacity: 

In addition to issuing frequent reminders as the March 17, 2010, 
obligation deadline approached, the HUD field office also completed 
HUD-mandated on-site and remote reviews of each housing agency that 
received the Recovery Act formula grants to determine if it was 
administering the program in accordance with all applicable 
requirements under the Recovery Act. Field office staff used 
checklists that HUD headquarters had developed for these reviews of 
both troubled and nontroubled housing agencies. All 15 housing 
agencies received a remote review and 8 of those also received an on-
site review. According to officials in the HUD field office, these 
systematic reviews across the state identified potential issues and 
enabled HUD to provide better guidance to housing agencies on 
procurement policies, among other topics. For example, the reviewers 
found that many housing agencies needed to amend their written 
procurement policies to facilitate the use of Recovery Act funds and 
had questions about the Buy American provisions. Following the 
reviews, HUD field office staff provided housing agencies written 
summaries with deficiencies on noncompliant items and required the 
housing agencies to submit documentation to resolve identified 
problems. 

Conducting these remote and on-site reviews, following up with housing 
agency officials on the deficiencies, and continuing coordination 
between the field office and the housing agencies have been 
challenging. According to the officials, they would have preferred to 
have all issues resolved before funds were fully obligated but were 
unable to do so, and they did not know what impact this might have. 
The officials told us that normally one person in their office 
conducts all housing agency reviews. However, to manage the workload 
required to meet Recovery Act requirements, the program coordinator 
has involved six of the office's eight staff members in conducting and 
following up on these reviews. 

Addressing remaining issues from the reviews and new monitoring 
requirements could pose challenges. For example, the checklists being 
used to perform the reviews prior to the obligation deadline are more 
detailed than past checklists and require HUD to collect more 
documents than it normally requests. In addition, the officials said 
that their headquarters is in the process of developing a new 
monitoring strategy for after the obligation deadline. They anticipate 
new checklists and the responsibility for reviewing expenditures, but 
do not yet know the expected scope and depth of the review for Arizona 
or its potential impact on their capacity to carry out those 
requirements. 

Despite Recovery Act Funds, Arizona has Reduced State Spending and 
Asked Voters to Increase State's Sales Tax to Address Budget 
Shortfalls: 

A goal of the Recovery Act is to help stabilize states during the 
current recession. According to officials in the Governor's office, 
Recovery Act funds are supporting Arizona through difficult budget 
deficits as economic forecasts by the state legislature's finance 
advisory committee project Arizona state revenue will not return to 
2007 levels until 2015. 

For fiscal year 2010, Arizona faced a shortfall of about $3.3 billion 
in its $9.7 billion budget. Recovery Act funds for fiscal 2010 totaled 
$1.3 billion, reducing the shortfall to about $2 billion. The 
legislature met in several special sessions and finally closed the 
shortfall in March by significantly reducing spending, acquiring 
additional debt, and "sweeping" surpluses from state funds. 

According to a Joint Legislative Budget Committee analysis, Arizona 
anticipates receiving $579.4 million of Recovery Act funds for 
education and the increased Federal Medical Assistance Percentage for 
Medicaid.[Footnote 19] These Recovery Act funds will help alleviate 
strains on the state budget, but even with these funds the state faced 
an estimated shortfall of $2.58 billion in fiscal year 2011. 
Legislators enacted a balanced state budget through spending 
reductions totaling about $876 million and new revenue of about $1.7 
billion. The spending reductions were largely in education[Footnote 
20] and health care,[Footnote 21] according to a Joint Legislative 
Budget Committee staff analysis. The largest source of new revenue is 
coming from a voter-approved temporary 1 cent increase to the state 
sales tax, effective June 1, 2010. This tax is estimated to produce 
approximately $918 million in new revenue in fiscal year 2011, and is 
dedicated to health and human services, public safety , and basic 
state aid for education. 

Arizona's Governor Plans to Use SFSF Government Services Funds to 
Continue Providing Some State Services in Corrections, as well as 
Health and Children's Services: 

The Recovery Act grants states' governors 18.2 percent of the state's 
total SFSF allocation to use for public safety and other government 
services-this grant is referred to as government services funds. 
Arizona's Governor has committed approximately $110 million of 
Arizona's $185 million in government services funds as of May 4, 2010, 
to fund programs that had been reduced or eliminated in the 
legislature's budget balancing efforts for fiscal years 2010 and 2011. 
Of the $110 million, the Arizona's Governor has committed 
approximately $43.3 million to the Arizona Department of Economic 
Security for child protective services, adoption, autism services, and 
home and community based services for children with developmental 
disabilities. The state's funding for these programs was reduced or 
eliminated in fiscal year 2010 and was not restored in the fiscal year 
2011 enacted budget, according to Joint Legislative Budget Committee 
staff analyses. Arizona Department of Economic Security officials 
estimate this funding provides services for approximately 5,733 
persons with developmental disabilities or autism. In addition, the 
Governor has committed $11.6 million for state subsidies to community 
health centers that provide medical and dental visits for the 
uninsured. Funding for this program had been substantially reduced in 
the fiscal year 2010 state budget, in addition to the reductions to 
state heath services discussed above, and was not restored in the 
enacted fiscal year 2011 budget, according to Joint Legislative Budget 
Committee staff analyses. As of April 16, 2010, the state has drawn 
down approximately $72.6 million of the SFSF government services 
funds, including $50 million to partially fund 1,305 Arizona 
Department of Corrections officers' salaries over five pay periods. 

OER Plans to Monitor Subrecipients Use of Funds: 

The SFSF government services funds will be monitored in Arizona by 
OER. As requested, Arizona provided the U.S. Department of Education 
with a draft monitoring plan for SFSF, including the government 
services funds, on March 12, 2010, for review. Because much of the 
government services funds are funding existing programs such as those 
operated by the Arizona Department of Health Services and the Arizona 
Department of Economic Security, OER plans to have those agencies 
continue monitoring the subrecipients and has begun to review those 
agencies' monitoring systems. 

Recovery Act-Funded Projects in Mesa and Flagstaff Deliver Services as 
well as Employ Local Workers and Are Expected to Provide Long-Term 
Benefits: 

With local governments in Arizona facing declining revenues and steep 
budget reductions, we spoke with two cities, Mesa and Flagstaff, about 
their receipt and use of Recovery Act funds. Budget managers we met 
with in both cities said that they are facing budget shortfalls this 
fiscal year due to declines in state funding for programs, tax 
revenues, and fees. Figure 4 highlights demographic and budget 
information about the two local governments we visited. 

Figure 4: Demographic and Budget Profile for Flagstaff and Mesa: 

[Refer to PDF for image: Illustrated table] 

Population: 
Flagstaff: 60,222; 
Mesa: 463,552. 

Unemployment rate: 
Flagstaff: 5.8%; 
Mesa: 8.0%. 

General Fund revenues, FY10: 
Flagstaff: $44,447,352; 
Mesa: $328,040,000. 

Change from budget, FY09: 
Flagstaff: ($6,007,544); 
Mesa: $23,844,475. 

State-share revenue, FY10: 
Flagstaff: $19,703,503; 
Mesa: $140,346,000. 

Change from FY09: 
Flagstaff: ($2,928,893); 
Mesa: ($27,031,000). 

City employees, FY10: 
Flagstaff: 819; 
Mesa: 3,776. 

Change from FY09: 
Flagstaff: (268); 
Mesa: (88). 

Sources: GAO analysis of U.S. Census Bureau and U.S. Department of 
Labor, Bureau of Labor Statistics (BLS), Local Area Unemployment 
Statistics (LAUS) and cities of Mesa and Flagstaff. 

Note: City population data are from the latest available estimate, 
July 1, 2008. Unemployment rates are preliminary estimates for March 
2010 and have not been seasonally adjusted. Rates are a percentage of 
the labor force. Estimates are subject to revisions. In Mesa, the 
General Fund includes selected federal grants. Also in Mesa, state 
shared revenues are comprised of sales tax, income tax, and auto-in-
lieu (which go into the General Fund) and highway user tax and lottery 
funds (which go into separate funds). In Flagstaff, state shared 
revenues from sales and income taxes go into the General Fund while 
shared revenues from highway user taxes go into the Highway User 
Revenue Fund. City employees refer to budgeted authorized personnel, 
both full-time equivalents and temporary workers. 

[End of figure] 

According to grant personnel in Mesa and Flagstaff, both cities 
actively pursued Recovery Act funds. For example, Mesa secured the 
services of a private firm to learn about grant opportunities. Table 4 
presents the federal grants that both cities manage, including 
Recovery Act funds. 

Table 4: Federal Grants that Mesa and Flagstaff Manage, Including 
Recovery Act Funds: 

Local government: Recovery Act funds awarded (number of programs); 
Mesa: $57,507,708 (14); Flagstaff: $4,038,194 (8). 

Local government: All federal grants currently managed by the city, 
including Recovery Act funds (budgeted); Mesa: $80,110,000; Flagstaff: 
$10,761,479. 

Source: Cities of Mesa and Flagstaff data. 

Note: Data presented in this table reflect figures as of fiscal year 
2010, ending June 30, 2010, in both cities. Funds awarded to tribal 
nations are not included among Recovery Act funds. 

[End of table] 

Of the $57.5 million in Recovery Act funds awarded to Mesa, federal 
agencies provided approximately $16.5 million directly, while the 
remainder was awarded to state agencies, which in turn passed the 
funds onto the city. Flagstaff received approximately $2.6 million in 
Recovery Act funds directly from federal agencies and the remainder of 
the $4 million through state agencies. 

Both Cities Sought Funds to Support Short-Term Projects That Use 
Partners to Deliver Services: 

Both Mesa and Flagstaff sought funds to support short-term projects 
that were of high priority but lacked resources. In both cities, 
officials prepared a list of priority projects that were shovel ready, 
would benefit from Recovery Act funding, and would be complete within 
the term of the grant, with the exception of COPS funds,[Footnote 22] 
which require an additional year of funding. The formula grants the 
cities received support community development, emergency shelter, 
health centers, capital improvements, transportation, and criminal 
justice operations, while competitive grant awards fund hiring and 
retention of law enforcement officers, construction of fire stations, 
and hazardous substance cleanup. In partnership with local nonprofit 
organizations, community organizations, and other government agencies, 
both cities are delivering services to a wider population of the 
community than would otherwise have been possible. 

For example, in Mesa, the city used Recovery Act Community Development 
Block Grant funds on a capital improvement project that would upgrade 
a homeless shelter for men, as presented in figure 5. 

Figure 5: City of Mesa's Use of Recovery Act Funds: 

[Refer to PDF for image: photograph and accompanying information] 

Living quarters at the shelter: a bed, shelf, closet rod, and quilt 
for each resident. 

Case in Point: Mesa’s Community Development Block Grant: 

New Leaf operates the East Valley Men’s Shelter, an 84-bed 
transitional facility serving homeless men. It has a 100 percent 
occupancy rate and a 120-day tenancy policy—a homeless man that agrees 
to a bed space in the facility will move out after 120 days. During 
that period, he will agree to work, save 85 percent of his earnings, 
and be drug and alcohol free. Recovery Act funds will support a 
capital improvement—adding 10 more beds, a new kitchen, renovated and 
expanded bathroom facilities, a physical fitness area, and a storage 
area for supplies. 

Source: A New Leaf. 

[End of figure] 

The one-time expansion will allow the facility to serve 30 more 
homeless men every year. Mesa partnered with New Leaf, a nonprofit 
human services agency, to upgrade the men's shelter, thereby serving 
more of its homeless population than the city could reach alone. 

Flagstaff officials also said that the city chose to use many grants 
to support one-time investments. Figure 6 describes an example of the 
Energy Efficiency and Conservation Block Grant awarded to the city to 
support previously identified priorities through one-time energy and 
water efficient improvements in Flagstaff homes. 

Figure 6: City of Flagstaff's Use of Recovery Act Funds: 

[Refer to PDF for image: photograph and accompanying information] 

The grant will be used to fund retrofits that will result in reduced 
energy consumption and water use in the home. 

Case in Point: Flagstaff’s Energy Efficiency and Conservation Block 
Grant (EECBG): 

Flagstaff residents can reduce energy and water consumption in their 
homes under a residential energy efficiency program developed by the 
city. The program offers basic home improvements performed by a 
licensed contractor, such as insulation of a hot water heater line, 
installation of a high efficiency water fixture, and air leak and duct 
sealing, along with conservation education and consumption monitoring 
and verification. Residents pay a fee, based on household income, for 
the service performed in the home. Recovery Act funds will be 
leveraged against these fees to subsidize the participants’ costs and 
increase the total number of retrofits provided. Ultimately, the 
program aims to change the behavior of Flagstaff citizens to reduce 
water and energy consumption in their homes by enabling residents to 
track their energy usage. 

Source: City of Flagstaff. 

[End of figure] 

According to officials, the program was designed in concert with 
neighborhood-based groups, universities, vendors, and contractors and 
developed in partnership with Coconino County to leverage funds, 
staffing, advertising, and outreach. These partnerships allow the 
program to reach more members of the community--including county 
residents and selected neighborhood associations--than would have 
otherwise been possible. 

Recovery Act Funded Projects Employ Local Workers; Audits and 
Performance Measurement Data Will Help to Demonstrate the Recovery 
Act's Long-Term Benefits: 

Officials in both Mesa and Flagstaff said that Recovery Act funds are 
expected to create jobs and have long-term benefits. Over time, data 
on these outcomes, as well as fiscal audits of the grants, will become 
available. For example, Recovery Act Community Development Block Grant 
funds--which will support the expansion of the East Valley Men's 
Shelter in Mesa--are expected to create construction-related jobs in 
fiscal year 2010. As for long-term benefits, the shelter's increased 
capacity will serve more homeless men in their efforts to be fully 
employed. Table 5 presents examples of expected short-and long-term 
outcomes of Recovery Act supported programs. 

Table 5: Examples of Expected Short-and Long-Term Outcomes of Recovery 
Act Funded Programs: 

City: Mesa; 
Funds[A]: Community Development Block Grant; Short-term outcome 
(number of jobs paid for with Recovery Act funds): 15; Long-term 
outcome (expected): Increased number of beds and helping homeless men 
that return to work. 

City: Mesa; 
Funds[A]: Fire station construction; 
Short-term outcome (number of jobs paid for with Recovery Act funds): 
160; Long-term outcome (expected): Reduced response times and 
increased public safety. 

City: Flagstaff; 
Funds[A]: WIFA loan: Sinagua well construction[B]; Short-term outcome 
(number of jobs paid for with Recovery Act funds): 8; Long-term 
outcome (expected): Reliable drinking water source. 

City: Flagstaff; 
Funds[A]: Energy Efficiency and Conservation Block Grant; Short-term 
outcome (number of jobs paid for with Recovery Act funds): 8-12; Long-
term outcome (expected): Energy and water resource savings, household 
utility cost savings, and reduced greenhouse gas emissions. 

Source: Cities of Mesa and Flagstaff data. 

[A] Details of these Recovery Act funds are described in Appendix V. 

[B] Details of the Water Infrastructure Finance Authority-funded 
program are described on page AZ-15. 

[End of table] 

In addition, officials with the Flagstaff Sustainability Program 
expect to see data on utility cost savings (dollars per year), energy 
savings (kilowatt hours per year), and water savings (gallons per 
year) once homes are retrofitted.[Footnote 23] With these data, the 
city will be able to tell if the program is meeting intended targets 
and if the program's educational material is working to result in 
behavioral change of the city's population to conserve energy and 
water. 

Along with performance monitoring, Recovery Act funded projects are 
subject to fiscal oversight during each city's annual Single Audit 
[Footnote 24] of federal funds received. Audits are performed to check 
that the systems in place, or internal controls, ensure that the funds 
are spent properly. Most of the Recovery Act funds will be examined 
during each city's fiscal year 2010 Single Audit, since most of the 
funds were or will be expended during this year. The results of these 
audits are expected by December 2010. Officials in both cities 
reported that prior Single Audits did not find any problems in the 
programs or with the entities that are using Recovery Act funds, so 
the officials expect that the funds are a low risk for fraud, waste, 
abuse, or mismanagement. 

State and Local Agencies in Arizona Are Just Beginning to Audit 
Recovery Act Funds Because Few Funds Were Spent in Fiscal Year 2009: 

State agencies, local governments, and program managers monitor, to 
varying degrees, the use of Recovery Act funds; however, formal 
auditing of the funds is important to ensure that the funds are used 
in compliance with the provisions of the Recovery Act and federal 
agency requirements. We found that the 19 state and local agencies 
[Footnote 25] we spoke with in Arizona that have oversight 
responsibilities for Recovery Act funds will be undertaking a range of 
activities, including both monitoring and auditing. However, because 
most entities had expended only a fraction of Recovery Act funds in 
2009, they have just started comprehensive audit activities in 2010. 

The Single Audit is a significant tool used to oversee expenditures of 
Recovery Act funds and ensure accountability of the federal awards. In 
Arizona, the Auditor General will be responsible[Footnote 26] for 
ensuring that Recovery Act funds granted to state agencies and 
universities are included under the state's annual Single Audit. Each 
community college and county has its own Single Audit, conducted 
either by the Auditor General or by firms contracting with the Auditor 
General. School districts will be responsible for their own Single 
Audits, generally contracting with independent auditing firms to 
conduct the audits. Officials in the Auditor General's office pointed 
out that since only a fraction of Recovery Act funds were spent during 
fiscal year 2009, most of the funds will be subject to the fiscal year 
2010 audit. 

In addition to the Single Audit, some local governments have conducted 
audits specific to Recovery Act funds. For example, the Phoenix city 
auditor reviewed departmental procedures for compiling data for its 
Recovery Act recipient reporting and found that the procedures are in 
place to ensure accuracy, completeness, and timeliness of the 
reporting.[Footnote 27] The city auditor is currently undertaking 
another audit that tests the accuracy and completeness of the data on 
reported use of funds. 

State agencies and local governments also monitor use of the Recovery 
Act funds. For example, the OER has developed a plan to oversee state 
agencies' use of Recovery Act funds and the Arizona Department of 
Education has monitoring programs in place. We will continue to review 
how agencies are safeguarding Recovery Act funds in our future work. 

State Comments on This Summary: 

We provided the Governor of Arizona with a draft of this appendix on 
May 5, 2010. The Director of the Office of Economic Recovery responded 
for the Governor on May 7 and 12, 2010. Also, on May 7, 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. 

[End of section] 

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] States must obligate at least 85 percent of their ESEA Title I, 
Part A funds by September 30, 2010, unless granted a waiver, and all 
of their funds by September 30, 2011. 

[4] LEAs and institutions of higher education must submit applications 
for their allocations of the grants, detailing how the funds will be 
used. The applications are reviewed by the department for IDEA, Part B 
and ESEA Title I, Part A and by OER for SFSF to determine if the 
intended uses are allowable and consistent with authorized purposes. 

[5] The Recovery Act authorizes the Secretary of Education to waive 
MOE requirements if a state demonstrates that it has funded education 
at the same or greater percentage of total state revenues than it did 
in the preceding year. Recovery Act, div. A, § 14012(c), 123 Stat. 286. 

[6] The Recovery Act requires that laborers and mechanics employed by 
contractors and subcontractors on projects funded by Recovery Act 
funds be paid specified prevailing wages. Recovery Act, div. A, § 
1606. In addition, none of the Recovery Act funds may be used for 
construction, alteration, maintenance, or repair of public buildings 
or work unless certain materials used are produced in the United 
States, with certain exceptions. Recovery Act, div. A, § 1605. 

[7] According to Title I Office staff, the timing of the on-site visit 
affects which expenditure records they will review. For example, if 
the visit was early in the school year, the records reviewed will be 
from prior year reports whereas if the visit was toward the end of the 
school year, they would review current expenditure records. In our 
example, we assumed that the records reviewed during fiscal year 2010 
visits cover fiscal year 2009 expenditures. 

[8] As requested, Arizona provided the U.S. Department of Education 
with a draft monitoring plan on March 12, 2010, for review. 

[9] Teach for America is an organization whose mission is to eliminate 
educational inequities by recruiting recent college graduates to teach 
for 2 years in urban and rural public schools in low-income 
communities. OER is funding this effort using SFSF government services 
funds. 

[10] These multi-jurisdictional task forces attempt to leverage state 
and federal funds to increase the effectiveness of collaborative 
enforcement efforts that address drug, gang, and violent crime 
problems throughout Arizona. 

[11] The Drug Abuse Resistance Education program is a program whose 
mission is to provide children with the skills they need to live drug 
and violence-free lives. To do this, the program establishes 
relationships between students and law enforcement. 

[12] The Recovery Act requires that at least 20 percent of funds 
provided to each state's State Revolving Funds be used to fund 
projects that include green infrastructure, water or energy efficiency 
improvements, or other environmentally innovative activities. Recovery 
Act, 123 Stat. 169. 

[13] The Recovery Act requires states to use at least 50 percent of 
their Recovery Act funds to provide additional subsidization in the 
form of principal forgiveness, negative interest loans, or grants. 
Recovery Act, 123 Stat. 169. 

[14] Arizona was allocated a total of $55.3 million for its Drinking 
Water SRF and $26.7 million for its Clean Water SRF, which included 
approximately $267,000 in funding for water quality management 
planning. States may set aside a portion of their SRF funds for 
administrative expenses, technical assistance, and other limited 
purposes. 

[15] WIFA operates as a bank with the authority to issue bonds on 
behalf of communities for basic water infrastructure projects. The 
officials told us that they approach their bond rating agencies in 
late May and that they will issue bonds in July. They need to know how 
much of their loans will be drawn by their borrowers before this time 
because the draws affect WIFA's collateral and cash flow in the coming 
year. 

[16] HUD developed the Public Housing Assessment System to evaluate 
the overall condition of housing agencies and to measure performance 
in major operational areas of the public housing program, including 
the financial condition, management operations, and physical condition 
of programs. Housing agencies that are deficient in one or more of 
these areas are designated as troubled performers by HUD and are 
statutorily subject to increased monitoring. 

[17] According to officials at the HUD field office, both Eloy and 
South Tucson are taking steps toward being removed from troubled 
status, but they will remain on the list until removed by HUD 
headquarters. The HUD Inspector General has closed out its findings 
for Eloy's previous report on management capacity; however, the 
remaining item from its Recovery Act report will not be closed out 
until Eloy's contract is completed and expenditures drawn down. South 
Tucson has arranged for an independent audit of its capital funds 
program so that it can meet future HUD annual deadlines. Any housing 
agency that was considered troubled when Recovery Act funding was 
allocated is considered troubled for the purposes of the Act. 

[18] The Recovery Act provided HUD the authority to decide whether to 
provide troubled housing agencies with Recovery Act funds. Although 
HUD determined that troubled housing agencies have a need for this 
funding, it acknowledged that troubled housing agencies would require 
increased monitoring and oversight in order to meet Recovery Act 
requirements. 

[19] 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--the 
Federal Medical Assistance Percentage--was increased temporarily by 
the Recovery Act. 

[20] According to Joint Legislative Budget Committee staff documents, 
$43 million of these cuts were made to supplemental education 
programs, such as support for gifted education and dropout prevention 
programs. The remaining reductions in funding for education were made 
to the state's formula funding provided to school districts to cover 
basic maintenance and operations costs. These reductions leave Arizona 
education funding above the 2006 level, as required under the Recovery 
Act State Fiscal Stabilization Fund provisions. 

[21] Arizona Medicaid officials reported that the reduction in program 
eligibility contained in the fiscal year 2011 budget would become 
effective on January 1, 2011. However, in May 2010, state legislation 
was enacted that restores these eligibility reductions if federal 
legislation to extend the temporary increase in the Federal Medical 
Assistance Percentage is enacted, providing an additional $394 million 
in Recovery Act funds for Arizona. 

[22] Details of COPS funds are described on page AZ-11. 

[23] Officials also noted that program outcomes are being studied by 
the Brookings Institution. 

[24] Single Audit is described in further detail on page AZ-29. 

[25] Our review focused on the state and local efforts; however, 
certain federal agencies--as well as inspectors general--also are 
responsible for programs funded by the Recovery Act. 

[26] For Arizona, the Auditor General serves as the state's auditor 
for the Single Audit; some of the audits are performed by the Auditor 
General directly while others are contracted out with independent 
accounting firms. 

[27] "American Recovery & Reinvestment Act Review, Citywide, Interim 
Report, Project Number: 1100071," City of Phoenix, Arizona, November 
2009. 

[End of Appendix I] 

Appendix II: California: 

Overview: 

This appendix summarizes GAO's work on the sixth 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, (see table 1), (2) the steps California agencies 
are taking to ensure accountability for these funds, and (3) the 
impacts that these funds have had on creating and retaining jobs. For 
descriptions and requirements of the programs we covered, see appendix 
XVIII of GAO-10-605SP. 

Table 1: Description of Selected Recovery Act Programs: 

Recovery Act program: Clean and Drinking Water State Revolving Funds 
(SRF); Selected Recovery Act program funding levels and program 
purposes: 
* The Environmental Protection Agency (EPA) allocated about $439 
million in Recovery Act capitalization grants for Clean and Drinking 
Water SRF programs to California; 
* These funds are to be used primarily for grants and loans to local 
governments and other entities for wastewater and drinking-water 
infrastructure projects and pollution projects intended to protect or 
improve water quality. 

Recovery Act program: COPS Hiring Recovery Program (CHRP); Selected 
Recovery Act program funding levels and program purposes: 
* The Department of Justice (DOJ) awarded approximately $211 million 
to 109 law enforcement agencies in California under CHRP; 
* CHRP is a competitive grant program that directly funds law 
enforcement agencies for hiring, rehiring, or filling previously 
unfunded career law enforcement positions and increasing community-
policing capacity and crime-prevention efforts. 

Recovery Act program: Edward Byrne Memorial Justice Assistance Grants 
(JAG); Selected Recovery Act program funding levels and program 
purposes: 
* DOJ awarded California with 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: Weatherization Assistance Program; Selected 
Recovery Act program funding levels and program purposes: 
* The Department of Energy (DOE) allocated approximately $186 million 
in total 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. 

Recovery Act program: Workforce Investment Act of 1998 (WIA) 
Dislocated Worker Program; Selected Recovery Act program funding 
levels and program purposes: 
* The U.S. Department of Labor (Labor) distributed about $222 million 
of the over $1billion provided under the Recovery Act for WIA 
Dislocated Worker Program activities to California; 
* The purpose of the program is to provide employment and training 
services to dislocated workers that increase their employment, 
retention, skills, and earnings. 

Source: GAO. 

[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 and 
subrecipients of Recovery Act funds in four local jurisdictions--the 
City of Los Angeles (Los Angeles), the County of Sacramento 
(Sacramento), the City and County of San Francisco (San Francisco), 
and the City of San Diego (San Diego). For the Clean and Drinking 
Water SRF programs, we selected five projects to conduct in-depth 
reviews: two Clean Water SRF projects and three Drinking Water SRF 
projects. These projects were chosen to capture a variety of 
characteristics, including green and not-green projects and projects 
serving disadvantaged and not-disadvantaged communities.[Footnote 2] 

To assess the steps taken by California agencies 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 state agencies 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 agencies 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 
quarterly report ending March 31, 2010. We also followed up with the 
California Department of Education (CDE) and 10 local educational 
agencies (LEA) on issues related to estimating and reporting jobs that 
we testified on before the Committee on Oversight and Government 
Reform, House of Representatives, on March 5, 2010.[Footnote 3] Our 
prior work has focused on three Recovery Act education programs with 
significant funds being disbursed--the State Fiscal Stabilization Fund 
(SFSF) and Recovery Act funds for Title I, Part A, of the Elementary 
and Secondary Education Act of 1965, as amended (ESEA), and the 
Individuals with Disabilities Education Act (IDEA), as amended, Part B. 

What We Found: 

California used Recovery Act funds to expand and preserve existing 
services. Several programs we reviewed experienced significant 
increases in funding as a result of the Recovery Act, which allowed 
California to expand those programs and services. Specifically, the 
Recovery Act more than doubled the program budgets for the JAG and 
Weatherization Assistance Programs and allowed recipients to increase 
capacity and provide additional services to California residents. This 
additional funding made available by the Recovery Act has affected the 
timing of spending for certain programs, as well as other factors such 
as the implementation of new activities and requirements. For example, 
since California received a significant increase in JAG funds through 
the Recovery Act, the California Emergency Management Agency (Cal 
EMA), the state agency administering these funds, needed time to 
define new program activities before awarding funds to local 
jurisdictions. Cal EMA officials told us that they wanted to carefully 
plan for the use of these funds and as a result the agency did not 
begin awarding funds until February 2010. Recovery Act funds have also 
helped preserve services, but budgetary gaps remain at the state and 
local level. The state used about $8 billion in Recovery Act funds to 
help balance its state fiscal year 2009-2010 budget, but state 
officials do not anticipate receiving this type of general budgetary 
relief from Recovery Act funds in the 2010-2011 state general fund 
budget, which faces a $21 billion shortfall. Local governments we met 
with used Recovery Act funds to preserve services, despite overall 
budgetary pressures. For instance, officials from two local 
governments we visited--Los Angeles and San Francisco--stated that 
CHRP grants were particularly useful in helping them maintain staffing 
levels within their law enforcement workforce. 

Since the Recovery Act was enacted in February 2009, California state 
audit and oversight entities have taken various actions to oversee the 
use of Recovery Act funds. In our previous reports on Recovery Act 
implementation, we discussed the oversight roles and activities of key 
entities in California for Recovery Act funds, including the Task 
Force, the Recovery Act Inspector General, and the State Auditor. 
State oversight entities, for example, have conducted risk assessments 
of internal control systems, provided guidance to recipients of 
Recovery Act funds, and issued reports highlighting concerns with the 
use of Recovery Act funds. For example, as of May 2010, the State 
Auditor has conducted reviews of 32 Recovery Act programs and 
published nine products with the results of these reviews. State 
agencies are also responsible for, and involved in, oversight and 
audits of Recovery Act programs. For example, WRCB officials told us 
it is using existing internal controls--which include regular contact 
with subrecipients, reviews of reimbursement requests, and a 
requirement for subrecipients to conduct financial statement audits--
and has also implemented new procedures, such as enhanced project 
inspections using a Recovery Act checklist recently developed by EPA. 

According to Recovery.gov, recipients of Recovery Act funds in 
California reported funding over 70,000 full-time equivalents (FTE) 
during the third reporting period; however, problems continue with 
CDE's reporting and review of jobs data, calling the reliability of 
California's FTE estimates into question. Of the FTEs reported, over 
46,000 were education-related jobs funded by Recovery Act education 
programs. However, as we reported in March 2010, LEAs awarded 
contracts using Recovery Act funds and either did not report or 
underreported vendor jobs associated with these contracts. For 
example, after we brought this to the attention of one LEA, it 
reported that its vendor jobs estimate increased from 12 to 79 when it 
recalculated the jobs associated with all Recovery Act contracts. CDE, 
as the prime recipient of Recovery Act education funds, has not issued 
detailed guidance to LEAs on collecting and reporting vendor jobs. 
According to CDE, it will provide clarifying guidance to LEAs when it 
communicates with them regarding the next reporting period. In 
addition, our review of 10 large LEAs found that CDE's data-
reliability strategies did not always identify questionable LEA FTE 
estimates. Until CDE issues more specific guidance to LEAs on vendor 
jobs and follows up with them to help ensure proper implementation; in 
addition to revising its approach to assessing the reasonableness of 
LEA job estimates, the reliability of California's overall jobs 
reporting will continue be in question. 

California Is Using Recovery Act Funds to Expand Programs and Preserve 
Services: 

Recovery Act Funds Allowed California to Expand Services for Some 
Programs: 

Overall, California expects to receive approximately $85 billion in 
Recovery Act funds, including approximately $55 billion for 
infrastructure and services such as public safety, education, and 
workforce training.[Footnote 4] The Recovery Act provided increased 
funding to existing programs such as JAG, Weatherization Assistance, 
WIA Dislocated Worker, and Clean and Drinking Water SRF, which allowed 
state and local agencies to expand services in these areas. For 
instance: 

* California state and local governments were allocated about $225 
million in JAG Recovery Act funds,[Footnote 5] a significant increase 
from the fiscal year 2008 JAG allocations of about $17 million. For 
example, Los Angeles received over $11 million in JAG Recovery Act 
funds. Los Angeles officials told us that the city was able to 
dedicate the additional JAG funds to support gang-reduction efforts 
and develop communications infrastructure. Table 2 shows how three 
localities we visited are planning to use these funds. 

Table 2: Planned Uses of JAG Recovery Act Funds in Los Angeles, San 
Francisco, and San Diego: 

Locality: Los Angeles; 
State pass-through allocation: $375,000; Locality allocation[A]: $11.1 
million; Planned uses: 
* Support gang-reduction efforts; 
* Develop regional communications infrastructure aimed at increasing 
response capabilities of law enforcement and crisis personnel; 
* Increase efforts of the Los Angeles Police Department's anti-human-
trafficking program through additional investigations to identify 
individuals involved in human trafficking. 

Locality: San Francisco; 
State pass-through allocation: $2.4 million; Locality allocation[A]: 
$3.0 million; Planned uses: 
* Provide drug treatment to offenders; 
* Raise awareness of human trafficking and increase the capacity of 
law enforcement to identify victims; 
* Develop a probation system using a risk-and needs-assessment 
approach; 
* Assess trends in drug-related crime and develop integrated 
strategies to suppress and prevent drug-related crime; 
* Support a regional approach to reducing methamphetamine production 
and distribution; 
* Provide a prosecutor to support complex cases; 
* Provide intensive supervision of probationers; 
* Implement a transitional housing voucher program for adults referred 
through drug court; 
* Expand case-management capacity to high-risk youth referred through 
juvenile drug court; 
* Provide outreach and crisis-response services; 
* Provide support to traumatized individuals, family members, and 
community members; 
* Partially fund the development of a shared criminal justice case-
management system. 

Locality: San Diego; 
State pass-through allocation (dollars): n.a.[B]; Locality 
allocation[A]: $3.1 million; Planned uses: 
* Provide 4-year salaries and benefits for six positions, including a 
crime intelligence analyst, a laboratory technician, a criminalist, a 
latent print examiner, a probations officer and a management analyst; 
* Procure communication equipment, such as cellular phone trackers and 
a secondary communication path for patrol vehicles. 

Source: GAO analysis of information provided by local law enforcement 
entities in Los Angeles, San Francisco, and San Diego. 

[A] Los Angeles was allocated $30.5 million in Recovery Act JAG funds. 
Of these funds, the city passed approximately $16.4 million to 77 
communities, including the cities of Beverly Hills, Long Beach, and 
Pasadena, because it served as a fiscal agent for those communities. 
Los Angeles used 10 percent (about $3.1 million) to administer the 
grant among the 77 communities and $11.1 million for Recovery Act JAG 
programs within Los Angeles. Similarly, San Diego received about $6.4 
million in Recovery Act JAG funds through the direct local allocation 
and retained $3.1 million for Recovery Act JAG programs while passing 
along the remaining amount to the other communities for which it 
served as fiscal agent. 

[B] n.a. = not applicable. As of March 30, 2010, San Diego had not 
been awarded any JAG state pass-through funds. 

[End of table] 

* California was allocated approximately $186 million in Recovery Act 
funds to be spent over a 3-year period for weatherization in 
California, a large increase over California's annually appropriated 
weatherization program, which received about $14 million for fiscal 
year 2009. The California Department of Community Services and 
Development (CSD)--the state agency responsible for administering the 
state's weatherization program--estimates that approximately 43,000 
homes will be weatherized with Recovery Act funds. By June 2009, 
California had received 50 percent--about $93 million--of its Recovery 
Act allocation. CSD retained approximately $16 million to support 
oversight, training, and other state activities and has begun 
distributing the remaining $77 million throughout its existing network 
of local weatherization service providers, including nonprofit 
organizations and local governments. Figure 1 shows improvements being 
made to a single-family home under the Weatherization Assistance 
Program with Recovery Act funds. 

Figure 1: Weatherization of a California Home Using Recovery Act Funds: 

[Refer PDF for image: 4 photographs] 

Measuring carbon monoxide levels at gas water heater in client's home; 

Installing new wall heater in client's home; 

Removing drywall, plaster and debris in client's home; 

Conducting blower door test to determine shell leakage in client's 
home. 

Source: Pacific Asian Consortium in Employment. 

[End of figure] 

* California's WIA Dislocated Worker Program received about $222 
million in Recovery Act funds, which increased its budget from $168 
million in program year 2008-2009.[Footnote 6] We visited two local 
workforce investment areas--the Los Angeles Community Development 
Department and the San Diego Workforce Partnership, Inc.--both of 
which provided more training programs using Recovery Act funds. Both 
agencies also directly awarded contracts to institutions of higher 
education, such as community colleges, under new authority provided by 
the Recovery Act. For instance, the San Diego Workforce Partnership, 
Inc. awarded contracts to 13 college campuses to provide training to 
adult and dislocated workers. Table 3 provides an overview of the 
planned uses of WIA Recovery Act funds for dislocated workers in the 
two areas we visited. 

Table 3: Planned Uses of WIA Dislocated Worker Program Recovery Act 
Funds in Los Angeles and San Diego: 

Locality: Los Angeles; 
Allocation: $12,922,336; 
Planned uses: 
* Serve an increased amount of customers through WorkSource Centers; 
* Vocational training; 
* High-growth initiatives; 
* Training through institutions of higher education. 

Locality: San Diego; 
Allocation: $8,967,124; 
Planned uses: 
* Job training, including high-growth and green jobs, much of which is 
through institutions of higher education in healthcare, bio-
technology, green/clean technology jobs, or infrastructure 
construction; 
* Training to earn industry-recognized credentials through on-the-job 
training, customized training, and individual training accounts. 

Source: GAO analysis of Los Angeles Community Development Department 
and the San Diego Workforce Partnership, Inc., information. 

[End of table] 

* The Clean and Drinking Water SRF programs also received a 
significant increase in funding from prior years. EPA allocated 
approximately $439 million in Recovery Act SRF capitalization grants 
to California--about $280 million for the Clean Water SRF and about 
$159 million for the Drinking Water SRF. For fiscal year 2008, the 
base capitalization grants for the Clean and Drinking Water SRF 
programs were about $49 million and $66 million, respectively. 
Recovery Act Clean Water SRF funds have been awarded to 83 
subrecipients for a total of 109 projects--such as replacing septic 
systems with connections to the municipal sewer system--which WRCB 
reports are intended to support the federal goal of fishable, 
swimmable waters.[Footnote 7] Recovery Act Drinking Water SRF funds 
have been awarded to 48 subrecipients for a total of 51 projects that, 
according to CDPH, are aimed at helping water systems come into 
compliance with federal regulations--thus reducing public health 
exposure to contaminants--or install water meters to improve water 
conservation in the state. Of the 160 Recovery Act-funded SRF projects 
in California, 107 are serving recipients that had never received base 
SRF funding in the past from the SRF program that awarded them 
Recovery Act funds. We selected 5 of the 160 projects to review the 
uses of Recovery Act funds and the expected benefits of these projects 
(see table 4). 

Table 4: Selected Recovery Act Clean and Drinking Water SRF Projects 
and Their Potential Benefits: 

Project name: San Jerardo Cooperative Water System Improvements; 
Project type: Drinking Water; Estimated project cost: $5,049,030; 
Recovery Act award: $2,743,530; 
Project description: Install new well improvements, transmission 
pipeline, and water storage tanks, and demolish existing wells; 
Examples of potential benefits: 
* Provide reliable source of safe drinking water; 
* Replace existing wells from which untreated water contains excessive 
levels of nitrates and trichoropropane; 
* Save county expense of temporary filtration system. 

Project name: City of Sacramento Water Meter Retrofit Project; Project 
type: Drinking Water; Estimated project cost: $22,631,016; Recovery 
Act award: $20,000,000; 
Project description: Install 16,500 underground water meters; Examples 
of potential benefits: 
* Encourage water conservation by charging for actual use instead of 
flat rate; 
* Save energy because city will not need to treat and produce as much 
water at its plants. 

Project name: Herndon Town Water System Project; Project type: 
Drinking Water; Estimated project cost: $619,980; Recovery Act award: 
$619,978; 
Project description: Replace private water system with connections to 
city water system; Examples of potential benefits: 
* Provide reliable source of safe drinking water; 
* Replace existing 60-year-old, dilapidated, chloroform-contaminated 
private water system. 

Project name: Herndon Town and Cortland/Fountain Way Sewer Systems 
Project; Project type: Clean Water; Estimated project cost: $999,468; 
Recovery Act award: $865,386; 
Project description: Replace individual private septic systems with 
connections to city sewer system; Examples of potential benefits: 
* Decrease level of nitrates degrading and contaminating regional 
groundwater; 
* Residents will become city rate payers eligible for city services 
including maintenance and operation of sewer system. 

Project name: Tomales Bay Wetland Restoration and Monitoring Program; 
Project type: Clean Water; Estimated project cost: $2,010,500; 
Recovery Act award: $807,129; 
Project description: Integrate restoration of Giacomini Wetland with 
water quality monitoring; Examples of potential benefits: 
* Reduce pollutant loading to EPA-listed impaired water body; 
* Improve water quality for contact and noncontact recreation. 

Source: GAO analysis of information provided by Monterey County, the 
City of Fresno, the City of Sacramento, and the Tomales Bay Watershed 
Council Foundation. 

[End of table] 

For Certain Programs, Planning for Expanded Activities, Meeting 
Recovery Act Requirements, and Prioritizing Available Funding Has 
Impacted Spending Timelines: 

One year later state and local recipients of Recovery Act funds for 
certain programs had either not yet spent or expended only small 
percentages of funds. In some cases, this was because significantly 
increased funding levels allowed recipients to expand their 
capacities, which necessitated additional planning before spending 
funds. For example, the Recovery Act substantially increased JAG 
funding, and as of January 31, 2010, Cal EMA, the state agency 
responsible for administering JAG funds, had not awarded any of the 
share of $135 million in JAG funds that is to be passed through the 
state to localities, largely because it spent time developing two new 
program activities. According to Cal EMA officials, following the 
distribution of Recovery Act funds by DOJ, they spent about 3 months 
defining program strategies for 2 of the 10 targeted funding areas: 
the Intensive Probation Supervision Program and the Court Sanctioned 
Offender Drug Treatment Program. These two new program activities 
accounted for $90 million of the $135 million in state grant money 
available to local jurisdictions. Cal EMA officials stated that they 
took the time to initially plan these programs carefully as opposed to 
quickly awarding funds and having to fix problems later. As a result, 
applications for these funds were not accepted by Cal EMA until the 
end of October 2009 and, Cal EMA did not begin awarding funds to local 
jurisdictions until February 2010. The State Auditor recently raised 
concerns about the pace of awards by Cal EMA noting that as of 
February 22, 2010 only 4 subgrants had been awarded.[Footnote 8] Cal 
EMA subsequently reported that, as of March 11, 2010, it had awarded 
204 of the 226 JAG Recovery Act grants it planned to award local 
jurisdictions, for a total of about $117 million of the $135 million. 
Cal EMA officials told us that they anticipate JAG Recovery Act funds 
will be expended in 2 years, well before the 4 year spending period 
ends. 

In addition to planning for new activities, we also found that the 
state recipient for weatherization funds, CSD, took steps to ensure 
compliance with Recovery Act requirements before spending funds. As we 
previously reported, Labor determined the state's prevailing wage 
rates on September 3, 2009, or almost 3 months after CSD received 
funds from DOE. In addition, CSD requires service providers to adopt 
an amendment to their Recovery Act weatherization contracts to ensure 
that they comply with Recovery Act requirements, including certifying 
that they comply with Davis-Bacon provisions, before providing 
Recovery Act funds to them to weatherize homes. In February 2010, the 
State Auditor raised concerns about CSD's delays in weatherizing homes 
and management of the funds.[Footnote 9] Our prior work has also 
highlighted delays with the program. Since our last report, CSD 
reported that a total of 2,934 homes in California, as of March 31, 
2010, had been weatherized with Recovery Act funds, or approximately 
75 percent of the 3,912 homes targeted for the first quarter of the 
2010 calendar year. We plan to continue to follow California's 
progress in using Recovery Act weatherization funds, including CSD's 
progress in ensuring service areas have providers in place to continue 
weatherizing homes and that prevailing wage rates and other Recovery 
Act requirements are instituted. 

Lastly, for programs such as the WIA Dislocated Worker Program, 
concurrent spending timelines for regular and Recovery Act program 
funds have affected when recipients decided to use Recovery Act funds. 
Officials from the Employment Development Department (EDD), the state 
agency administering WIA funds, noted that as of December 31, 2009, 
about 59 percent of the Recovery Act WIA Dislocated Worker funds 
allocated to localities had been obligated ($78 million of the total 
$133 million allotted) and 23 percent of the funds ($31 million) had 
been expended. These officials told us that some local Workforce 
Investment Boards (WIB) had yet to spend about 90 percent of their WIA 
Dislocated Worker Recovery Act funds, including Los Angeles (91 
percent unspent). According to EDD officials, many local WIBs have 
been spending their regular program funding before Recovery Act funds 
or have been spending the funds concurrently without necessarily 
giving priority to Recovery Act funds. Regular WIA formula funds and 
WIA Recovery Act funds are both available for expenditure for the same 
time period--3 program years for the state and 2 program years for 
local areas. As of March 31, 2010, the two areas we visited, Los 
Angeles and San Diego, continued to obligate and spend Recovery Act 
funds. Los Angeles obligated 93 percent of its allocation (about $12 
million) and spent 19 percent ($2.4 million); and San Diego obligated 
75 percent (about $6.7 million) and spent 31 percent ($2.8 million). 
Both expect to expend 100 percent of their WIA Recovery Act funds 
before the June 30, 2011 deadline. 

While Budgetary Problems Persist at the State and Local Levels, 
Recovery Act Funds Have Helped Preserve Services: 

In fiscal year 2009-2010, California used Recovery Act funds to help 
balance the state budget and to continue to provide services that may 
have otherwise experienced large cuts.[Footnote 10] 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. The fiscal 
budget relief provided by Recovery Act funds to the state primarily 
came from an increase in the Medicaid Federal Medical Assistance 
Percentage (FMAP) that freed up state funds and over $5 billion in 
SFSF funds made available in part to help stabilize budgets by 
minimizing cuts in education and other government services. 
California's current long-term fiscal prospects remain of concern. In 
November 2009, the Legislative Analyst's Office (LAO) estimated the 
size of the 2009-2010 and 2010-2011 budget shortfall to be about $21 
billion.[Footnote 11] According to state officials, they do not 
anticipate receiving the same level of budgetary relief as a result of 
Recovery Act funds in the 2010-2011 state general fund budget as it 
did for the current fiscal year. 

Overall, officials we met with from four local governments--Los 
Angeles, Sacramento, San Diego, and San Francisco--reported that 
Recovery Act funds have helped to preserve services, but they still 
need to address budget deficits for the remainder of fiscal year 2010 
and next fiscal year. Officials in the localities we visited told us 
that they continue to face budgetary problems due to declines in state 
revenue and other local revenue sources such as sales and gas taxes 
and other fees. For example, San Francisco officials told us that they 
recently closed a deficit of about $53 million in fiscal year 2010, 
and face an estimated budget shortfall of approximately $483 million 
in fiscal year 2011. Los Angeles officials also told us that they 
expect the dire budget situation--a deficit of $220 million for the 
remainder of fiscal year 2010 and a projected deficit of $485 million 
for fiscal year 2011--to continue if structural changes to the city's 
operations do not occur. Los Angeles officials noted that the city has 
outlined a 3-year plan to address the deficit, which includes sound 
fiscal management, a focus on core services such as public works and 
safety, and exploring public-private partnerships. (Figure 2 
highlights selected information about the four local governments.) 

Figure 2: Information about Los Angeles, Sacramento, San Diego, and 
San Francisco: 

[Refer to PDF for image: illustration and accompanying information] 

Locality: Los Angeles; 
Estimated population (2008): 3,833,995; Unemployment rate, March 2010 
(percent): 13.5%; Budget fiscal year 2010 (dollars in billions): $6.9; 
Locality type: Metropolitan city. 

Locality: Sacramento; 
Estimated population (2008): 1,386,469; Unemployment rate, March 2010 
(percent): 13.1%; Budget fiscal year 2010 (dollars in billions): $4.3; 
Locality type: County. 

Locality: San Diego; 
Estimated population (2008): 1,279,329; Unemployment rate, March 2010 
(percent): 11.0%; Budget fiscal year 2010 (dollars in billions): $2.9; 
Locality type: Metropolitan city. 

Locality: San Francisco; 
Estimated population (2008): 808,976; Unemployment rate, March 2010 
(percent): 10.3%; Budget fiscal year 2010 (dollars in billions): $6.6; 
Locality type: City and County. 

Sources: U.S. Census Bureau and U.S. Department of Labor (demographic 
information); City of Los Angeles, County of Sacramento,City of San 
Diego, and City and County of San Francisco (funding information); and 
Map Resources (map); and GAO. 

Note: Population data are from 2008. Unemployment rates are 
preliminary estimates for March 2010 and have not been seasonally 
adjusted. Rates are a percentage of the labor force. Estimates are 
subject to revision. 

[End of figure] 

Recovery Act grants have helped local governments maintain services 
despite budget cuts. For example, officials in two of the local 
governments we visited--Los Angeles and San Francisco--told us that 
CHRP funds helped them maintain law enforcement services.[Footnote 12] 
In Los Angeles, police department officials told us that cuts were 
being made across-the-board to address the city's budget deficit-- 
public safety represents about 70 percent of the city's budget, which 
includes police, fire, and animal control. These officials stated that 
the department was facing a budget deficit of about $84 million with a 
hiring freeze for civilian personnel, and the receipt of approximately 
$16 million in CHRP funds helped mitigate the difficult budget 
situation. In particular, CHRP funds helped Los Angeles to hire 50 new 
officers, which would not have been funded this fiscal year without 
Recovery Act funds. San Francisco was also awarded about $16 million 
in CHRP funds to help maintain its law enforcement workforce by hiring 
50 new officers to fill vacancies caused by retirements and general 
attrition. Officials from the San Francisco Police Department said 
that without Recovery Act funds their department would not have been 
able to maintain the size of its workforce due to the local budget 
situation. 

For all of the local governments we visited, officials reported that 
Recovery Act grants helped to fund existing programs. For example, San 
Diego officials reported that the city had been awarded about $40 
million in Recovery Act grants including funding to continue the 
city's energy-efficiency improvement efforts. Table 5 shows the types 
of on-going programs funded by Recovery Act grants awarded to the four 
localities we visited. 

Table 5: Amount and Types of Recovery Act Grants Awarded to Selected 
Local Governments as of March 31, 2010: 

Local government: Los Angeles; 
Amount of Recovery Act grants awarded (dollars in millions): $596; 
Types of programs funded: Anticrime programs, community development 
projects, energy-efficiency projects, homelessness and foreclosure 
relief, purchases of buses, and public housing rehabilitation. 

Local government: Sacramento; 
Amount of Recovery Act grants awarded (dollars in millions): $88; 
Types of programs funded: Law enforcement programs such as gang 
suppression and prevention of Internet crimes against children, energy-
efficiency improvements, and airport security improvements. 

Local government: San Diego; 
Amount of Recovery Act grants awarded (dollars in millions): $40; 
Types of programs funded: Community development projects, homelessness 
prevention programs, energy-efficiency improvements, and law 
enforcement. 

Local government: San Francisco; 
Amount of Recovery Act grants awarded (dollars in millions): $437; 
Types of programs funded: Community development projects, workforce 
stabilization programs, improvements to local hospitals, energy-
efficiency improvements, public works projects, and airport 
improvements. 

Source: GAO analysis of information from the City of Los Angeles, the 
County of Sacramento, the City of San Diego, and the City and County 
of San Francisco. 

Note: Funding awards include both Recovery Act formula and competitive 
grants directly awarded to localities. 

[End of table] 

Various State Entities Are Conducting Oversight Activities to Help 
Ensure Appropriate Use of Recovery Act Funds: 

As California gained more experience in implementing the Recovery Act 
during the past year, state oversight entities have taken actions to 
evaluate and update controls and guidance related to Recovery Act 
funds. For example, the Task Force prepared and issued more than 30 
Recovery Act Bulletins to provide instructions and guidelines to state 
agencies receiving Recovery Act funds, on topics ranging from Recovery 
Act recipient reporting requirements to appropriate cash-management 
practices. The California Recovery Act Inspector General conducted 
several reviews aimed at determining if departments or local agencies 
properly accounted for and used Recovery Act funds in accordance with 
Recovery Act requirements and applicable laws and regulations. In 
addition, the Inspector General published an advisory on contractor 
monitoring, which included suggested steps to ensure that contractors 
perform in accordance with contract terms and to reduce the potential 
of fraud. The Inspector General also coordinated seven fraud 
prevention and detection training events throughout the state for 
state and local agencies and the service-provider community, with 
presentations from federal agencies on measures to avoid problems and 
prevent fraud, waste, and abuse. Over 1,000 state and local agency 
staff attended training events, which were also available through a 
"Webinar." 

As of May 2010, the State Auditor published nine letters or reports on 
the results of early testing or preparedness reviews, or both, 
conducted on 32 Recovery Act programs at 14 state departments that are 
administering multiple Recovery Act programs. These audit reports 
resulted in numerous recommendations to state agencies aimed at 
improving oversight of Recovery Act funds. Table 6 provides a summary 
of several of the State Auditor's findings related to Recovery Act 
programs that we have reviewed. Additionally, the State Auditor 
volunteered to participate in an OMB Single Audit Internal Control 
project. One of the goals of the project is to help achieve more 
timely communication of internal control deficiencies for higher-risk 
Recovery Act programs so that corrective action can be taken. The 
project is a collaborative effort between the states receiving 
Recovery Act funds that volunteered to participate, their auditors, 
and the federal government. Under the project's guidelines, 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 No. 
A-133 for Single Audits.[Footnote 13] Sixteen states volunteered for 
the project, including California, whose auditors issued their interim 
reports on internal control for selected major Recovery Act programs 
by December 31, 2009 and a corrective action plan to the appropriate 
federal agency by January 31, 2010.[Footnote 14] 

Table 6: State Auditor Reviews of Selected Recovery Act Programs: 

Recovery Act program: JAG; 
Administering state agency: Cal EMA; 
Selected State Auditor findings and recommendations: Cal EMA is 
moderately prepared to administer its JAG Recovery Act award; Cal EMA 
should take steps to promptly execute subgrant agreements; Cal EMA 
should also plan its monitoring activities to ensure it meets Recovery 
Act JAG program requirements; Cal EMA should develop procedures to 
ensure reporting requirements are met. 

Recovery Act program: Weatherization Assistance Program; Administering 
state agency: CSD; Selected State Auditor findings and 
recommendations: CSD needs to improve its controls over cash 
management for the program; CSD should develop and implement the 
necessary standards for performing weatherization activities and 
develop a plan for monitoring subrecipients. 

Recovery Act program: State Fiscal Stabilization Fund-Education 
Stabilization Funds; Administering state agency: CDE; Selected State 
Auditor findings and recommendations: CDE should implement adequate 
controls to ensure interest is appropriately remitted to the federal 
government. 

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

[End of table] 

California agency officials and internal auditors from state 
departments that manage public safety, workforce, and environmental 
programs, are engaged to various degrees in the oversight and auditing 
of Recovery Act funds. State agencies we met are using existing 
internal controls to monitor and oversee Recovery Act funds, but some 
also implemented new procedures specifically for Recovery Act-funded 
activities and projects. For instance, CDPH reported using existing 
monitoring activities for all SRF projects, which includes on-site 
inspections and reviewing reimbursement requests. In addition to 
CDPH's normal protocols for overseeing SRF projects, CDPH officials 
told us that new processes are in place for Recovery Act-funded 
projects including establishing new staff positions utilizing 
different administrative classifications for financial reviews of 
contracts and claims, periodic reviews of subrecipients' construction 
contracts, and additional staff added specifically to handle reporting 
and tracking for Recovery Act projects. Table 7 provides an overview 
of selected oversight and auditing activities of several of the 
agencies administering programs we reviewed. 

Table 7: Selected Oversight Activities by State Agencies: 

State agency: Cal EMA; 
Recovery Act program: JAG; 
Oversight activities: 
* Cal EMA plans to conduct extended-scope monitoring of approximately 
300 of the nearly 1,500 active subrecipients of JAG state awards 
passed through the state annually to local agencies; 
* Cal EMA has developed a targeted compliance questionnaire and plans 
to distribute it to a representative sample of subrecipients receiving 
Recovery Act funds to help ensure compliance with Recovery Act 
requirements. When fully staffed, the Monitoring Division has the 
capacity to review up to 1,400 targeted compliance questionnaires 
annually. 

State agency: CDPH; 
Recovery Act program: Drinking Water SRF; Oversight activities: 
* CDPH is following existing monitoring activities for Recovery Act 
projects. These activities include obtaining and compiling 
subrecipient reports, on-site inspections, and reviewing 
reimbursements; 
* CDPH implemented new processes including Recovery Act site reviews 
in addition to normal project inspections to ensure Recovery Act 
requirements have been addressed, utilizing staff positions at 
different administrative classifications for financial review of 
contracts and claims, periodic reviews of subrecipients' construction 
contracts, and additional staff added specifically to handle reporting 
and tracking for Recovery Act projects. 

State agency: EDD; 
Recovery Act program: WIA Dislocated Worker Program; Oversight 
activities: 
* Each local Workforce Investment Board is visited annually and 
reviewed for fiscal and program compliance. Visits include case 
reviews and participant interviews; 
* At the end of April 2010, EDD completed monitoring reviews of 46 of 
the 49 Local Workforce Investment Areas, with the remaining 3 to be 
completed in June 2010; 
* EDD established separate ledger accounts and cost codes for Recovery 
Act funds to ensure proper tracking and accountability. 

State agency: WRCB; 
Recovery Act program: Clean Water SRF; Oversight activities: 
* WRCB is following existing oversight and internal control processes 
for Recovery Act SRF projects including: communicating regularly with 
subrecipients, reviewing reimbursement requests, and requiring 
subrecipients to conduct financial statement audits and certify that 
their projects operate correctly or meet performance targets; 
* WRCB has implemented new monitoring activities including enhanced 
project inspections using a Recovery Act checklist recently developed 
by EPA, periodic site visits at various milestones, and review of key 
documents such as facilities planning, design, and bid documents. 

Source: GAO analysis of information provided by Cal EMA, CDPH, EDD, 
and WRCB. 

[End of table] 

California Reported over 70,000 Jobs for the Third Recipient Report, 
but Questions Remain about Education Job Estimates: 

According to Recovery.gov, as of April 30, 2010 California recipients 
reported funding 70,382 FTEs with Recovery Act funds during the third 
quarterly reporting period, which covers the period January 1, 2010, 
to March 31, 2010; however, problems identified with the reporting and 
review of the jobs data by CDE call into question the reliability of 
the data. Recipients are to report the total amount of Recovery Act 
funds received, the amount of funds expended or obligated to projects 
or activities, a detailed list of these projects or activities, and 
estimated job numbers, among other things for any quarter in which 
they receive Recovery Act funds directly from the federal government. 
The Task Force established a centralized reporting system for Recovery 
Act funds received through state agencies, while other recipients that 
receive Recovery Act funds directly from federal agencies report 
through the national database, FederalReporting.gov.[Footnote 15] 
Figure 3 provides further details on the number of FTEs selected state 
departments reported. According to the Task Force, it performs data 
quality checks on information reported by state agencies every 
quarter, such as identifying reports in which FTEs were reported with 
no expenditures or instances in which expenditures divided by FTEs 
yielded unreasonable costs per FTE. The Task Force works with state 
agencies to correct any errors found by these data quality checks. 
During the most recent reporting period, the Task Force migrated the 
reporting tool it had been using to collect state agency data--the 
California ARRA Accountability Tool (CAAT)--to a new platform to 
better meet Recovery Act recipient reporting and other federal and 
state requirements. Task Force officials stated that the new platform 
allowed the state to collect additional information from recipients 
and helped reduce human entry errors with features, such as 
prepopulated pull-down menus and locks on data fields (e.g., D-U-N-S 
numbers). According to Task Force officials, the third reporting 
period, using the new platform, went more smoothly than prior periods. 

Figure 3: FTEs Reported by California State Program Agencies as 
Recipients of Recovery Act Funding as of April 30, 2010: 

[Refer to PDF for image: pie-chart] 

Department of Community Services and Development (1,141 FTEs): 1.6%; 
Department of Transportation (1,516): 2.1%; Employment Development 
Department (2,159): 3.1%; Other[A] (19,126): 27.2%; Department of 
Education and Governor’s Office of Planning and Research[B] (46,440): 
66.0%. 

Total FTEs reported: 70,382. 

Source: Recovery.gov. 

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

[A] Other includes other state agencies, such as the California Tax 
Credit Allocation Committee, CDPH, and WRCB, and recipients that 
received Recovery Act funding directly from federal agencies. 

[B] 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] 

Concerns remain about the number of education-related jobs being 
reported by CDE, in part, because some LEAs are underreporting vendor 
jobs. As we reported on March 5, 2010, seven LEAs we met with awarded 
contracts using Recovery Act funds. However, five of the LEAs either 
did not report or underreported vendor jobs associated with these 
contracts. For example, an official from one of these LEAs reported 
that, for the second quarterly report, the number of vendor jobs they 
reported increased from 12 to 79 when they recalculated their numbers 
after they learned that job estimates needed to be collected from all 
vendors awarded Recovery Act contracts.[Footnote 16] According to LEAs 
we met with, they received reporting guidance from CDE, but did not 
receive clear guidance on calculating and reporting vendor jobs funded 
by the Recovery Act. Although CDE has issued several letters to LEAs 
with reporting guidance--including stating that jobs counted should 
include jobs created or retained by other entities such as sub-
awardees and vendors--and has posted these correspondences to its Web 
page, LEAs we met with since our last report continue to be confused 
by vendor reporting requirements. We met with one LEA that told us 
that it was not aware of the requirement to report vendor jobs and 
therefore did not report these jobs despite awarding Recovery Act 
contracts to vendors for an estimated $3 million, many of which are 
for services. According to officials from the LEA, they never received 
specific guidance stating reporting vendor jobs was required, or any 
guidance describing how to gather the information or what criteria to 
use. Another LEA told us it did not report any jobs associated with 
certain IDEA Recovery Act-funded contracts because, according to CDE 
guidance, the contractors are considered subrecipients, not vendors, 
and therefore the LEA thought the jobs were not required to be 
reported. CDE officials stated that, while most of these contractors 
would be considered subrecipients rather than vendors, the jobs funded 
by them should be reported in either case. 

CDE plans to issue additional guidance to LEAs on vendor jobs 
reporting. In a letter to the House of Representatives Committee on 
Oversight and Government Reform dated April 2, 2010, addressing our 
concern on inconsistency of vendor jobs reporting, among other issues, 
CDE noted that it will revise its guidance accordingly. CDE stated 
that it will provide clarifying guidance when it communicates with 
LEAs in May 2010 regarding the next reporting period. In particular, 
CDE plans to include language specifying that all vendor jobs must be 
reported, not just the jobs of vendors receiving more that $25,000. 
[Footnote 17] It is important for CDE, as the prime recipient of 
Recovery Act education funds, to review its existing guidance, provide 
detailed information to LEAs on vendor jobs reporting prior to the 
beginning of the next reporting cycle, and follow up with LEAs on the 
proper implementation of its guidance to help ensure California's 
overall job estimates are accurate. 

Additionally, data reliability strategies used by CDE to review 
information submitted by LEAs did not always identify questionable LEA 
job estimates. According to CDE officials, they use a variety of data 
checks to monitor the accuracy of the Recovery Act information 
submitted by LEAs. These strategies included checking LEA jobs data 
for reasonableness. For example, CDE reported that it compared the 
number of FTEs reported by an LEA to the amount of the LEA's grant 
award, using $50,000 as a reasonable amount to fund 1 FTE. According 
to CDE, if questionable data were identified, CDE called LEAs to 
follow up. However, when we reviewed data reported by several large 
LEAs, we found that one LEA--that received over $35 million in 
Recovery Act funds and expended over $15 million by the end of the 
third reporting period--reported no teacher or administrative jobs. 
According to officials from this LEA, although they used Recovery Act 
funds for teacher and administrative jobs, they did not report these 
jobs because they believed the state would have provided funding for 
those jobs if the Recovery Act had not. Therefore, they concluded that 
no jobs were created or retained, which is not consistent with OMB's 
December 18, 2009 guidance that directs recipients to report the total 
number of jobs that were funded in the quarter by the Recovery Act. 
[Footnote 18] Subsequent to our meeting with the LEA, CDE officials 
contacted the LEA to provide them with guidance. According to CDE 
officials, they did not instruct the LEA to correct its jobs estimate 
at that time, because the third-quarter reporting system had 
closed.[Footnote 19] CDE advised the LEA to use the correct jobs 
methodology for the fourth round of reporting and worked with the LEA 
to correct the round three jobs data. However until CDE makes 
appropriate changes to its data-reliability process, it will not be in 
a position to identify this and other types of job estimate errors in 
future reporting periods. One approach CDE could pursue would be to 
review the reporting data and methodologies of the 10 largest LEAs, 
which would account for a large portion of Recovery Act funding, and 
could help CDE uncover systemic reporting problems. According to CDE, 
it will continue to work on improving its review techniques, including 
applying a data check to LEA vendor jobs and placing more focus on 
data checks of its 10 largest LEAs. 

Finally, during the third reporting cycle, CDE updated its second 
quarterly report during the corrections period that ended on March 15, 
2010, by instructing LEAs to use OMB revised guidance on calculating 
FTEs for job estimates. As we reported in March 2010, CDE's job 
estimates for the second quarter recipient-reporting cycle had not 
been calculated using OMB's December 18, 2009, guidance. After the 
correction period, CDE's FTE estimates for the second reporting period 
increased from 49,887 to 50,973. Task Force officials did not report 
any challenges with CDE's ability to obtain and update the job 
estimates. In addition to the one LEA noted above, we met with four 
other LEAs to discuss their job calculation process and none of them 
reported difficulties understanding and implementing OMB's new 
guidance to revise their second reporting period estimates for 
nonvendor jobs. 

State Comments on This Summary: 

We provided the Governor of California with a draft of this appendix 
on May 7, 2010. 

In general, California state officials agreed with our draft and 
provided some clarifying information, which we incorporated, as 
appropriate. 

GAO Contacts: 

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

Staff Acknowledgments: 

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

[End of section] 

Footnotes: 

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

[2] The Recovery Act requires states to reserve at least 20 percent of 
their capitalization grants under these programs to fund "green" 
projects that address green infrastructure, water or energy-efficiency 
improvements, or other environmentally-innovative activities. In 
addition, both the State Water Resources Control Board (WRCB), which 
administers the Clean Water SRF program, and the California Department 
of Public Health (CDPH), which administers the Drinking Water SRF 
program, define disadvantaged community as a community with an annual 
median household income that is less than 80 percent of the statewide 
median household income. 

[3] GAO, Recovery Act: California's Use of Funds and Efforts to Ensure 
Accountability, [hyperlink, http://www.gao.gov/products/GAO-10-467T] 
(Washington, D.C.: Mar. 5, 2010). 

[4] The other $30 billion in Recovery Act funds California expects to 
receive goes directly to individuals and businesses for tax relief. 

[5] Of the approximately $225 million in JAG Recovery Act funds, about 
$135 million has been allocated to the state, part of which is passed 
onto localities. The remaining amount, approximately $90 million, was 
allocated directly to local governments. The minimum percentage of 
Recovery Act JAG funds that the state of California is required to 
pass through to local governments, referred to as "state pass-through 
funds" in this appendix, is 67 percent. 

[6] The Workforce Investment Act program operates on a program year 
rather than a fiscal year basis. The program year for 2009 began on 
July 1, 2009 and will end on June 30, 2010. 

[7] In this report we use the word "project" to mean an assistance 
agreement, that is, a loan or grant agreement made by the state SRF 
program to a subrecipient for the purpose of a Recovery Act project. 

[8] 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). Findings and recommendations from 
this review are described on page CA-16 of this appendix in table 6. 

[9] 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). In CSD's 60-day update to 
the State Auditor, CSD reported that it had made considerable progress 
since the audit was conducted. 

[10] The California state government fiscal year is July 1 to June 30. 

[11] Included in the estimated $21 billion budget shortfall is an 
estimated $6.3 billion general fund deficit at the end of 2009-2010. 

[12] While Sacramento and San Diego applied for CHRP grants, neither 
locality was awarded a grant through DOJ's competitive grant process. 

[13] Single Audits are prepared to meet the requirements of the Single 
Audit Act, as amended, 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. 

[14] In addition to California, the following states volunteered to 
participate in the project: Alaska, Colorado, Florida, Georgia, 
Louisiana, Maine, Missouri, Nevada, North Carolina, Ohio, Oklahoma, 
South Dakota, Tennessee, Texas, and Virginia. 

[15] Through the Task Force's reporting system, 35 California state 
agencies reported funding a total of over 53,000 FTEs during the third 
quarterly reporting period. 

[16] On March 5, 2010, we testified that some LEAs did not collect and 
report job estimates from vendors with payments of less than $25,000 
because they erroneously applied CDE's guidance on vendor 
identification to determine which vendor jobs to report. 

[17] 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 sub-award. 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 regarding vendors are to be limited to direct job impacts 
and not include "indirect" or "induced" jobs. 

[18] 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). 

[19] Although the reporting deadline had passed, the nationwide data 
system, FederalReporting.gov, was reopened for a period for 
corrections--for the third reporting cycle the period is from May 3 
through June 14, 2010. 

[End of Appendix II] 

Appendix III: Colorado: 

Overview: 

This appendix summarizes GAO's work on the sixth 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 several programs that we 
have been reviewing on an ongoing basis, including the State Fiscal 
Stabilization Fund (SFSF); Highway Infrastructure Investment; 
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. We also added two new programs to our review--
the Clean Water and Drinking Water State Revolving Funds (SRF)--
because the state received a sizable amount of funding for these 
programs and SRF projects have already been selected and are under 
construction. For descriptions and requirements of the programs we 
covered, see appendix XVIII of GAO-10-605SP. 

As a result of past work determining that the state's system of 
internal controls is largely decentralized, we continued our efforts 
to understand state agencies' controls over Recovery Act funds. We 
reviewed controls over the IDEA Part B, and ESEA Title I, Part A 
programs, which are managed by the Colorado Department of Education 
(CDE); the Clean Water and Drinking Water SRFs, which are managed 
jointly by the Colorado Department of Public Health and Environment 
(CDPHE), the Colorado Water Resources and Power Development Authority 
(Authority), and the Department of Local Affairs; and the SFSF funds, 
which are managed by the Office of the Governor. We also asked state 
and local accountability organizations about their efforts to audit 
and review Recovery Act programs in the state. 

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, in part because of 
these localities' size, location, and unemployment rates. 
Specifically, we selected the city of Fort Collins because it has an 
unemployment rate lower than the state's average of 8.4 percent and it 
is a small city in north central Colorado. We also selected Grand 
Junction, a small city in western Colorado, because it has an 
unemployment rate of 10.3 percent, higher than the state average. 

What We Found: 

State Fiscal Stabilization Fund. Colorado has targeted most of the 
$760.2 million in SFSF funds it was allocated to programs that have 
had significant reductions in state funding, in particular, higher 
education and corrections. To date, most of the funds have been used 
to pay for staff at the state's institutions of higher education (IHE) 
and its corrections institutions. To receive the full amount of SFSF 
funds, the state was required to meet a set of education reform 
assurances and to gather certain data to show progress toward these 
reform areas. Because the state has identified problems with the data 
collection systems that CDE will use to gather the data, it may not 
have adequate systems in place to efficiently gather and report this 
data. The state's plan to update its data collection systems and 
improve their efficiency hinges in part on the state receiving an 
additional $400,000 in federal or private funds. 

Highway Infrastructure Investment. As of the Recovery Act deadline of 
March 2, 2010, the Federal Highway Administration (FHWA) had obligated 
the state's apportionment in highway infrastructure funds. Colorado 
was apportioned $403.9 million of Recovery Act highway funds, of which 
$18.6 million was transferred from FHWA to the Federal Transit 
Administration (FTA) for transit projects in the state. As of May 3, 
2010, the state had been reimbursed $127.7 million for work on its 
projects. The state has 102 projects for which bids have been 
advertised, and out of these projects, 92 contracts had been awarded 
as of March 31, 2010. The state has used the funds to replace seven 
bridges; construct or reconstruct about 90 miles of road; and 
resurface about 200 miles of highway. 

Education programs. Spending of IDEA Part B, and ESEA Title I, Part A 
funds by local educational agencies (LEA) in Colorado has increased 
since we last reported in December 2009.[Footnote 2] As of April 1, 
2010, Colorado had distributed 22 percent (more than $32.7 million) of 
IDEA Part B program funds and 20 percent ($22 million) of ESEA Title 
I, Part A funds to LEAs, as compared with 3 percent and 0.25 percent, 
respectively, distributed as of November 13, 2009. As they have been 
spending the Recovery Act funds, the LEAs are paying for teachers and 
training, among other costs. 

Clean Water and Drinking Water State Revolving Funds. Colorado is 
using $32.3 million to fund drinking water projects and another $30.1 
million to fund clean water projects throughout the state. A total of 
34 water projects--22 drinking water projects and 12 clean water 
projects--are expected to improve water quality and assist multiple 
disadvantaged communities in the state. Eighteen of these projects are 
considered "green" projects and are expected to lead to increased 
water and energy efficiencies, largely through replacing leaky 
distribution pipelines and installing more efficient drives to control 
water processing at wastewater treatment plants. Colorado's SRF 
programs met the Recovery Act deadline of having all projects under 
contract by February 17, 2010, and exceeded it by having all projects 
under construction by that date as well. 

State and local use of Recovery Act funds. The state has used Recovery 
Act funds to help balance its general fund budget after cutting $1.5 
billion in expenditures in fiscal year 2010. As the funds run out in 
fiscal year 2011, however, state officials said they face challenges 
in managing the decline in funding. The two local governments we 
visited, Fort Collins and Grand Junction, experienced different 
degrees of assistance from the Recovery Act. Fort Collins received 
$28.6 million in grants, which is primarily allowing it to continue 
pursuing its energy efficiency goals. Grand Junction received $1.9 
million, although it applied for $39.3 million in grants. Grand 
Junction officials said that they thought they received limited 
funding because grant applications requested unemployment data for 
2007 to 2008, a period when the city's unemployment rate was 
significantly lower than it was when it applied for the grants in 2009. 

Recipient reporting. Colorado's Recovery Act recipients reported 
roughly 10,300 jobs, by full-time equivalent (FTE) positions, paid for 
with Recovery Act funds during January through March 2010. The state 
reports centrally for state agencies, but not for local, private, or 
other entities in the state.[Footnote 3] While we noted some 
inconsistencies in the FTE figures for some of the agencies we 
reviewed, state officials said that they have taken steps to improve 
their data in subsequent rounds. However, officials are concerned that 
continued changes to the recipient reporting process--specifically, 
limiting the period for state review of data--will potentially 
decrease the state's ability to ensure the quality of the data it 
reports. 

Accountability. In addition to our work reviewing Recovery Act funds, 
the accountability community in Colorado has identified weaknesses in 
internal controls over some Recovery Act programs in the state. In 
particular, the State Auditor recently identified significant internal 
control deficiencies at the Colorado Department of Human Services' 
Colorado Child Care Assistance Program.[Footnote 4] Specifically, the 
audit found errors on expenditure statements because the program 
lacked adequate written procedures and supervisory review, and did not 
provide adequate training. The department agreed with the results and 
has taken steps to correct the deficiencies. 

Colorado Is Using State Fiscal Stabilization Fund for Higher Education 
and Corrections Staff, but May Not Have Adequate Systems to 
Efficiently Report Education Reform Data: 

The Recovery Act created the SFSF in part to help state and local 
governments stabilize their budgets by minimizing budgetary cuts in 
education, public safety, and other essential government services. In 
Colorado, the state is using all of its education stabilization funds 
for IHEs and most of its government services funds for the Department 
of Corrections, both of which have seen significant reductions in 
state funding. To more effectively manage and control the SFSF funds, 
the Office of the Governor is developing internal controls, including 
tracking these funds separately. CDE's existing data system may not be 
adequate, however, to efficiently gather and report data on SFSF 
education reform measures. 

Colorado Is Using State Fiscal Stabilization Fund Primarily for Higher 
Education and Corrections Staff: 

Colorado has targeted the SFSF funds it was allocated primarily to 
programs that have had significant reductions in state funding, in 
particular higher education and corrections. The state was allocated a 
total of $760.2 million in SFSF funds, $621.9 million of which are 
education stabilization funds and $138.3 million of which are 
government services funds. As we have previously reported, Colorado is 
disbursing all of the SFSF education stabilization funds it is 
receiving to its IHEs. It now plans to use the majority of its SFSF 
government services funds for the Department of Corrections. 

As of April 30, 2010, Colorado planned to disburse the $621.9 million 
in SFSF education stabilization funds to its IHEs across 3 fiscal 
years: $150.7 million in fiscal year 2009, $382.0 million in fiscal 
year 2010, and the remaining $89.2 million in fiscal year 2011. The 
funds are largely being used to pay for faculty at the state's IHEs. 
Since we reported in December 2009, the state has learned of 
additional reductions in fiscal year 2010 projected revenues and has 
had to take further steps to decrease the fiscal year 2010 budget for 
higher education. This increased the share of SFSF funds it had 
planned to disburse in fiscal year 2010 by about $5 million, from $377 
million to the current planned amount, $382 million. 

Table 1 shows the planned uses of the $138.3 million in SFSF 
government services funds allocated to the state. As of April 30, 
2010, Colorado officials had allocated $113.6 million of the SFSF 
government services funds to the Department of Corrections: $24.6 
million in fiscal year 2009 and $89.0 million in fiscal year 2010. 
These funds are largely being used to fund a portion of security and 
housing staff responsible for supervising and managing offenders at 
the state's 21 correctional institutions. 

Table 1: Colorado's Planned Uses of SFSF Government Services Funds: 

Public safety (Department of Corrections); Allocation: $113.6 million. 

Elementary and secondary education; 
Allocation: $8.1 million. 

Life safety and economic capital construction[A]; Allocation: $6.7 
million. 

Recovery Act oversight administrative costs; Allocation: $6.3 million. 

Other; 
Allocation: $3.6 million. 

Total; 
Allocation: $138.3 million. 

Source: GAO analysis of state data. 

[A] Life safety construction is done to address urgent and critical 
health and safety issues. 

[End of table] 

With the remaining government services funds, Colorado plans to fund 
particular projects to repair state facilities with urgent or critical 
health and safety issues, fund economic development in a rural part of 
the state, and help the state fund education reform measures. While 
state officials also set aside $6.3 million of government services 
funds to cover expenses related to administering the Recovery Act, 
these funds might be freed up for other uses if (1) the state is able 
to fully, or even partially, recover administrative costs under its 
supplemental statewide cost allocation plan for Recovery Act costs and 
(2) actual administrative costs do not exceed projections.[Footnote 5] 
Colorado has had difficulty recovering these costs from some federal 
agencies, including the Department of Health and Human Services and 
the Department of Education, in part because of federal limits on the 
availability of funds for administrative purposes. As of April 30, 
2010, according to state officials, Colorado has received 
approximately $2.2 million of the $4.7 million it has calculated as 
its statewide indirect costs over 3 years.[Footnote 6] State officials 
also said that ultimately the state will come up short on recouping 
administrative costs, and that having to use government services funds 
to make up the difference will reduce the Governor's opportunities to 
use them for other program needs, undermining some of their impact. 

Governor's Office Is Developing Accountability Controls over SFSF 
Funds, but State May Not Have Adequate Systems to Efficiently Report 
Education Reform Data: 

The Governor's office is responsible for managing and controlling 
SFSF, which was a new program without existing controls at the time 
the program was created. While the Governor's office staff have 
subsequently developed new controls over these funds, including 
tracking these funds separately and maintaining separation of duties 
over funds, they have not yet implemented a monitoring plan for the 
entities receiving the $476 million of education stabilization funds 
and government services funds that had been expended as of March 31, 
2010. According to state officials, most of the funds have gone to 
uses with well-established financial reporting processes (paying for 
staff at IHEs and the Department of Corrections). The Governor's 
office submitted its proposed monitoring plan for these funds to 
Education in the first week of March 2010. The officials said that 
although Education had notified the states in August 2009 that they 
would need to submit monitoring plans for review, Education did not 
provide guidance on how to develop the monitoring plans until February 
2010. According to state officials, the guidance would have been more 
useful if it had been more specific and had been issued earlier. Given 
that, as of April 30, 2010, Colorado had not received feedback on its 
plan, state officials said that they were moving ahead with 
implementing the plan. 

As a condition of accepting SFSF funds, Colorado was required to meet 
four education reform assurances and has until September 2011 to begin 
reporting data that shows progress toward the assurances.[Footnote 7] 
To measure performance against the four assurances, Education created 
a set of data points, referred to as indicators and descriptors, which 
the recipients of SFSF funds are required to submit. CDE is 
responsible for collecting and reporting the SFSF indicators and 
descriptors required by Education, even though the LEAs overseen by 
CDE did not receive SFSF funds. Colorado developed a plan describing 
its ability to collect and publicly report specific indicators and 
descriptors. For the 11 indicators and descriptors the state currently 
does not collect, the plan includes details on how it will gather the 
information it needs in order to fulfill its commitments. 

The efficiency of the state's data collection plan hinges in part on 
the state receiving additional federal funding. A 2007 review of CDE's 
data collection and reporting system highlighted problems that could 
affect the efficiency of the state's collection and reporting of SFSF 
data.[Footnote 8] The review revealed that CDE's data collection 
process, consisting of a set of automated systems, is fragmented, 
contains redundancies across data collection efforts, and does not 
involve the stakeholders. While the reviewers said that the data 
collection systems are working as designed and being maintained as 
well as could be expected given the resources available, CDE officials 
said that the process will not serve the state's future collection and 
reporting needs. Without the infusion of new funds, CDE officials said 
they will continue to use the current system for the department's data 
collection efforts, despite recognizing the shortcomings of the 
system. As the current process is not as efficient and effective as it 
could be, it will take longer to collect the data, and further, 
according to a CDE official, the quality of the reporting outputs may 
suffer as a result of no new monies. With additional funding, the 
development of a new data collection and reporting system could, among 
other things, provide the framework for exchanging data between 
separate systems that ensure data quality, with data quality checks 
occurring at both the local and state levels, according to the 2007 
data review report. 

According to CDE officials, they are planning to develop a new data 
collection and reporting system using a portion of Race to the Top 
funds or State Longitudinal Data System grants, but the likelihood of 
such funding is uncertain because these are competitive grants. 
Without this funding, the state may require additional investments to 
meet its planned schedules and the September 2011 deadline. CDE 
estimated it will cost approximately $1.3 million to collect data and 
report on two of the indicators: developing an educator identification 
system that will link student data to teachers and providing teacher 
impact reports on student achievement on reading/language arts and 
mathematics assessments. According to CDE officials, the state already 
has $900,000 of the total cost on hand. However, the remaining funding 
is anticipated to come from either a State Longitudinal Data System 
grant or a Race to the Top grant, both competitive grants. In March 
2010, the state was notified that it was not selected as a first-round 
recipient for Race to the Top funds. CDE officials said the state is 
planning on reapplying for round two of Race to the Top in June, and 
is currently awaiting word on approval of the State Longitudinal Data 
System grant. According to officials, if the federal funding does not 
materialize, the state would likely turn to private sources to make up 
the gap, a course of action that may be difficult in the current 
economic climate. Whether or not the state receives federal funding, 
it is important that the state's data systems be integrated and 
capable of efficiently and effectively providing useful data. 

Colorado Is Using Highway Infrastructure Investment Funds to Improve 
Roads and Bridges: 

Colorado was apportioned more than $403.9 million of Recovery Act 
highway infrastructure investment funds and is using those funds for 
various projects throughout the state, including highway resurfacing, 
construction and reconstruction, and bridge replacements. The federal 
government obligated the state's apportionment by the 1-year deadline, 
March 2, 2010.[Footnote 9] Between March 2 and April 26, 2010, FHWA 
deobligated $5.5 million of these funds as the state continued to 
award contracts at a lower price than the state's cost estimate. As of 
May 3, 2010, FHWA had reimbursed the state almost $127.7 million. The 
state has 102 projects for which bids have been advertised, and out of 
these projects, 92 contracts had been awarded as of March 31, 2010. 
[Footnote 10] Table 2 shows the status of Recovery Act efforts by the 
Colorado Department of Transportation (CDOT). 

Table 2: Status of CDOT's Use of Recovery Act Funds for Highway 
Infrastructure Projects as of March 31, 2010: 

Planned: 102; 
Funded: 102; 
Advertised for bid: 102; 
Awarded contracts: 92; 
Construction under way: 50; 
Completed: 18. 

Source: GAO analysis of CDOT data. 

[End of table] 

According to Colorado highway officials, the Recovery Act has and is 
expected to result in specific highway infrastructure improvements, 
several of which are readily measurable and others that are less easy 
to quantify. While the Recovery Act funds were a much-needed 
supplement to the state's 2009 construction program and stimulated its 
overall construction program (increasing its construction budget from 
about $306 million to more than $691 million), officials said the 
funds did not, for the most part, enable CDOT to address underfunded 
programs or systems that are experiencing deteriorating 
infrastructure. CDOT officials said they use a statewide measure to 
assess the quality of roads and typically do not connect individual 
projects or funding sources to long term system-wide metrics. For this 
reason, they said that they do not typically collect project-specific 
data on performance, but were able to identify certain metrics that 
could be tracked against Recovery Act funded projects within the 
existing system or with modifications to its existing software. As of 
April 30, 2010, CDOT officials said the Recovery Act partially or 
fully funded highway projects that constructed or reconstructed about 
90 miles of road, resurfaced about 200 miles of highway, and replaced 
seven bridges that were rated in poor or fair condition. CDOT 
officials explained that it would be difficult to identify system-wide 
benefits of Recovery Act funding, but estimated that about 2 percent 
of the state's roads were improved (measured by centerline miles) and 
about 0.16 percent of bridges (measured by deck area) repaired to good 
or fair condition. 

Furthermore, in Colorado, CDOT has realized $45.9 million in savings, 
including $39 million resulting from lower than anticipated contract 
costs. Contract award cost savings generally resulted from 
construction contracts being awarded for amounts less than the 
engineers' estimates that were used to obligate funds, while the 
remaining savings were the result of other project related savings. 
According to Colorado officials, Recovery Act funding is currently the 
largest source of money for heavy highway construction in the state 
and 48 percent of the bids for Recovery Act projects were more than l0 
percent lower than the state engineers' estimates. They said that 
because of the state of the economy, Colorado is seeing a larger 
number of contractors submitting bids for these projects, and as a 
result of this increased competition, bids are coming in lower than 
anticipated. This situation has resulted in CDOT being able to award 
contracts at costs lower than the engineers' estimates. CDOT applied 
the total savings, including the contract award savings, to 23 
projects, including existing and new projects. To increase 
transparency of information related to how project savings are used, 
OMB recently issued guidance instructing agencies to report on their 
Web sites how those funds are used. Although they had not yet done so, 
CDOT officials said they could easily provide such information on 
their Web site, an action we encourage. 

Colorado's Governor recently certified a new maintenance-of-effort 
amount--totaling $994.6 million--a large increase from the original 
certification of $132.8 million.[Footnote 11] The Recovery Act 
required that the governor of each state certify that the state will 
maintain the level of spending for the types of transportation 
projects funded by the Recovery Act that it planned to spend the day 
the Recovery Act was enacted. As part of this certification, the 
governor of each state was required to identify the amount of state 
funds planned to be expended on transportation infrastructure projects 
during the period of February 17, 2009, through September 30, 2010. 
States will be prohibited from participating in the redistribution of 
federal aid highway obligation authority that will occur after August 
1, 2011, if they are not able to maintain the certified level of 
effort.[Footnote 12] According to CDOT officials, they initially used 
projects planned for February 2009 through September 2010 to calculate 
the amount of state funds, less any debt service payments, for their 
first maintenance-of-effort certification. However, FHWA determined 
that the state's maintenance-of-effort calculation had to include a 
broader range of planned expenditures than originally included. 
Specifically, FHWA included expenditures for local projects and 
expenditures on projects under contract in the new certification, 
requiring CDOT to recalculate its certification using expenditures for 
all projects under way during the February 2009 to September 2010 
period. According to CDOT officials, the state has reported 
expenditures of $669.4 million as of March 31, 2010, toward its 
certification amount of $994.6 million. While CDOT has posted copies 
of its initial and revised certification letters on its Web site, it 
has not explained the significance of the certifications or provided 
an explanation for the substantial increase in the newly certified 
amount. Although FHWA does not require states to provide an 
explanation of certification changes, given the large increase in the 
amount and complexity of the process, a narrative description of the 
process and certification calculations could be included on the state 
and CDOT Web sites to better inform the public and provide greater 
transparency of the state's efforts to meet Recovery Act requirements. 
CDOT officials said that providing this information on their Web site 
would not be difficult. 

Education Spending Has Increased as LEAs Pay for Teachers and Training: 

The Recovery Act provided supplemental funding for education programs 
authorized under IDEA Part B, a major federal program that supports 
early intervention and special education for children and youth with 
disabilities, and under ESEA Title I, Part A, which provides funding 
to help educate disadvantaged youth. Spending for the IDEA Part B 
program and the ESEA Title I, Part A program has increased since we 
reported in December 2009. As of April 1, 2010, according to 
officials, CDE had distributed to LEAs more than $32.7 million (22 
percent) for IDEA Part B, and $22 million for ESEA Title I, Part A (20 
percent).[Footnote 13] Most of these amounts were used to reimburse 
activities in fiscal year 2010, with just over $5 million used for 
activities in fiscal year 2009. 

Colorado LEAs are generally using IDEA Part B, and ESEA Title I, Part 
A funds to hire staff, upgrade technology, and provide professional 
development opportunities for teachers, according to officials. For 
example, the Jefferson County School District plans to use its IDEA 
Part B funding to enhance professional development of K-12 special 
education staff by providing access to reading resources that support 
systematic, explicit, research-based instruction for students 
identified as needing special education services. The schools in the 
district will continue to increase the instructional intervention 
opportunities for these special needs students based on assessed needs 
and progress. In another example, the Adams 12 Five Star School 
District is using its ESEA Title I, Part A funds to put a full-time 
"technology integration specialist" in each Title I school to help 
coach teachers on how to enhance instruction using technology to 
improve instruction and interventions in early literacy development. 

CDE officials stated the agency has a number of internal controls in 
place to manage funding received for IDEA Part B, and ESEA Title I, 
Part A under the existing programs and has put safeguards in place 
specifically addressing Recovery Act funds. In addition to its 
existing program controls, CDE issued supplemental guidance on the 
separate application process for Recovery Act funds, approvable types 
of projects, waivers from Recovery Act requirements, and reporting 
requirements under the Recovery Act.[Footnote 14] For example, CDE 
summarized federal guidance to assist LEAs as they developed their 
applications for the IDEA Part B and ESEA Title I, Part A programs 
separately from their applications for funds under the normal 
programs. In this summary, the state informed the LEAs that they 
should consider the extent to which their proposed use of Recovery Act 
funds would address five areas, including, for example, improving 
results for students in poverty, increasing educators' long-term 
capacity to improve results, accelerating reform and school 
improvement plans, and fostering continuous improvement through 
measurement of results. Further, the guidance explicitly directed LEAs 
to use the funds in ways that avoided creating recurring costs that 
they were unprepared to assume after the Recovery Act funds run out. 

CDE used existing controls to approve Recovery Act funding for IDEA 
Part B, and ESEA Title I, Part A. First, CDE reviewed Recovery Act 
IDEA Part B funds separately from non-Recovery Act program funds, but 
officials stated that they reviewed applications for Recovery Act and 
non-Recovery Act ESEA Title I, Part A funds together because the 
programs are closely tied. Second, CDE required that its officials 
substantially approve LEA applications before LEAs could obligate 
funds and finally approve applications before LEAs could request and 
receive reimbursements. Third, CDE required that narratives in the 
applications must include, among other things, program objectives, 
activities, and evaluation plans. For example, as part of the IDEA 
Part B and ESEA Title I, Part A applications, LEAs were asked to 
specifically address the five areas in CDE's guidance noted above, as 
required by Education. Finally, CDE required each application to 
contain detailed budget information that the staff can then use to 
compare with expenditure requests during the year. For example, the 
ESEA Title I, Part A applications included narrative to describe 
educational programs, evaluation plans, professional development, and 
parental involvement, as well as related budgets for each of these 
areas. 

Further, CDE officials stated they plan to use existing controls 
during the review of Recovery Act expenditures. Once an LEA's 
application is approved, that LEA determines when it uses Recovery Act 
funds and when it requests reimbursement from the state. Controls 
include annual financial reviews for ESEA Title I, Part A funds and 
end-of-year reviews for IDEA Part B funds, both of which involve the 
staff comparing actual expenditures with amounts in the approved 
budgets in the LEA applications. According to officials, expenditures 
for both programs are tracked separately for Recovery Act and non-
Recovery Act efforts. CDE had not completed its 2009 annual financial 
reviews for the 6 LEAs that expended Recovery Act funds for the ESEA 
Title I, Part A program in that year, nor had it completed the end-of-
year reviews for the 11 LEAs that spent Recovery Act IDEA Part B funds 
in fiscal year 2009. CDE officials said that they usually perform 
their reviews several months after the end of the school year but have 
not completed the 2009 reviews because of the increased workload 
associated with reviewing, approving, and monitoring Recovery Act 
applications and budgets. Officials said that their review of the LEA 
applications for fiscal year 2010 provides assurance that Recovery Act 
funds will be spent appropriately; if the applications do not contain 
such assurances, officials said that they can reject payment for 
inappropriate expenditures. 

CDE officials also stated that controls include monitoring site 
visits, end-of-year performance reporting by LEAs that feed into the 
overall evaluation of programs, reporting on school improvements, and 
using results from Single Audit Act reports for the monitoring 
program.[Footnote 15] CDE officials conduct both desk reviews, which 
can consist of comparing applications, budgets, and expenditures 
against supporting documentation submitted by LEAs, and site visits to 
monitor IDEA Part B, and ESEA Title I, Part A programs. A site visit 
involves officials reviewing documentation and interviewing officials 
at an LEA. Specifically, CDE officials said that they schedule one 
site visit for each LEA receiving ESEA Title I, Part A funds during a 
5-year period. On the other hand, CDE staff conduct site visits for 
LEAs receiving IDEA Part B funds as issues are identified on an as-
needed basis. 

Although we did not review CDE's internal controls over its own use of 
Recovery Act funds, a February 2010 audit by Education's Office of 
Inspector General raised concerns about the appropriateness of CDE's 
methods for charging costs.[Footnote 16] Specifically, the report 
found that CDE based employees' time charges to federal education 
grants on predetermined allocations of time rather than on actual time 
spent on the programs, which does not fully comply with OMB guidance. 
The Inspector General reported that as a result, it was unable to 
determine whether nearly $24 million in personnel costs charged to 
Education grants for two fiscal years were allowable. CDE generally 
agreed with the report's findings and recommendations and has taken 
steps to address them. In particular, the state has, as of March 2010, 
implemented a new system for allocating and reporting time and effort 
charges. In addition, officials said they have reconciled and verified 
all but $600,000 of the $24 million in personnel costs questioned by 
the Inspector General. 

Colorado Is Using Clean Water and Drinking Water State Revolving Funds 
to Help Disadvantaged Communities and Improve Water Quality across the 
State: 

The Recovery Act appropriated $6 billion in capitalization grants for 
Clean Water and Drinking Water SRFs--$4 billion for clean water and $2 
billion for drinking water nationwide. This represents a significant 
increase over the regular annual appropriations for SRF programs-- 
referred to as the base programs. The Environmental Protection Agency 
(EPA) distributed more than $65 million to Colorado to make loans and 
grants to local governments for eligible wastewater and drinking water 
infrastructure projects and "nonpoint source" pollution projects 
intended to protect or improve water quality.[Footnote 17] This 
represents a threefold increase over the approximately $20 million in 
funding the state received for the base programs for fiscal year 2009. 
In addition to providing increased funds, the Recovery Act included 
additional requirements for states, including prioritizing funds for 
projects that are ready to proceed to construction within 12 months of 
enactment of the act (by February 17, 2010). The Recovery Act also 
required each state to use at least 50 percent of its capitalization 
grants to provide additional subsidization to eligible recipients in 
the form of principal forgiveness, negative interest loans, or grants. 
Furthermore, states were required to reserve at least 20 percent of 
their capitalization grants to fund "green" projects--green 
infrastructure, water or energy efficiency improvements, or other 
environmentally innovative activities--to the extent there were 
sufficient and eligible project applications. 

Colorado's SRF programs met the Recovery Act deadline of having all 
projects under contract by February 17, 2010, and exceeded it by 
having all projects under construction by that date as well.[Footnote 
18] In fact, Colorado set early deadlines for localities--it required 
them to have all projects under contract by September 30, 
2009.[Footnote 19] The state is using $32.3 million to fund 22 
drinking water projects and $30.1 million to fund 12 clean water 
projects. One effect of implementing an aggressive deadline was that 
Colorado had time to reallocate excess funds that approved projects 
did not or could not use. In particular, one city's charter limited 
the amount of debt it could take on and the city had to turn back 
almost $6 million in approved loans. Colorado reallocated these funds 
to 4 projects, and as a result, increased its number of funded 
drinking water projects from 19 to 22 and increased the funding of 1 
of its clean water projects. As of April 30, 2010, Colorado SRF 
officials stated that 2 projects are complete: the drinking water 
project at Blanca that installed new water meters and the Bayfield 
clean water project that consolidated two wastewater treatment 
facilities. They expect most of the remaining projects will be 
completed by December 2010. 

Colorado Is Using Funds to Help Disadvantaged Communities and Improve 
Water Quality: 

Recovery Act SRF funds are helping disadvantaged Colorado communities 
undertake essential capital improvements that they could not otherwise 
afford while maintaining current user rates. Of the total Clean Water 
and Drinking Water SRF projects, 15 projects received no-interest 
loans, while 25 projects received almost $33 million in principal 
forgiveness, which the state capped at $2 million per subrecipient, 
primarily to allow for more projects to receive funding under the act. 
[Footnote 20] In addition, of the 34 SRF Recovery Act projects, 28 are 
being undertaken by new SRF loan recipients and 10 are in 
disadvantaged communities. Moreover, the subrecipients we interviewed 
reported that the Recovery Act funds are enabling them to complete 
large, necessary projects that their communities were otherwise unable 
to afford. For example, Manitou Springs is replacing 4.5 miles of old 
water lines throughout the city because of serious problems with water 
main breaks. It is also installing pressure reducing valves to address 
water pressure problems. City officials reported that the project 
would have taken 20 years to complete without Recovery Act funds, and 
would have involved increases to user rates and a piecemeal, emergency-
based approach that would have required the community to make repairs 
on the earlier improvements by the time the final improvements were 
made. 

Recovery Act funds are also expected to help Colorado increase energy 
and water efficiencies and improve water quality across the state. 
Colorado funded a number of projects with the SRF green reserve to 
replace leaking water distribution pipelines, consolidate existing 
wastewater treatment facilities, and replace and upgrade conventional 
equipment with more efficient green technologies. Specifically, 7 of 
the 13 drinking water projects included as green (which represent 90 
percent of the drinking water green reserve funding) were projects to 
replace leaking water distribution pipelines. The SRF officials 
estimated that replacing these pipes will lead to increased water 
efficiencies, saving more than 43 million gallons of water every year, 
an important benefit for an arid state. In addition, the SRF projects 
are anticipated to improve energy efficiency at the water systems: 5 
projects proposed to employ hydroelectric, wind or solar power on 
site, and 5 projects plan to use energy-efficient drives to control 
water processing at treatment plants, known as variable frequency 
drives (VFD). Including VFDs in a wastewater system allows the system 
to increase or reduce water pump activity proportionally to increased 
or reduced water flows, which could generate significant energy 
savings. Further, the SRF projects are expected to help address water 
quality. For example, 9 clean water projects are expected to help the 
systems maintain or achieve compliance with federal requirements and 3 
are expected to help threatened or impaired bodies of water. 

Although SRF officials have been able to identify environmental 
benefits associated with these projects, it may be difficult to 
isolate the Recovery Act benefits over the long run. Some projects 
receive funding from multiple sources, including the Recovery Act, one 
of the base SRF programs, or other sources such as Community 
Development Block Grants, over multiple years. For example, projects 
at the Pagosa Area Water and Sanitation District (Pagosa Area), the 
Town of Erie, and the City of Lamar are currently funded by both 
Recovery Act and base program funds. Further, other projects received 
Recovery Act funding for some components but are waiting to receive 
funding for additional components to complete the project in the 
future. For example, the Town of Georgetown and the Town of Kremmling 
received Recovery Act funds for projects in their areas but need 
additional funding to complete the projects. 

Colorado Exceeded the Act's Green Reserve Requirement, Selecting 
Projects Largely Based on Priorities Dictated by the Clean Water Act 
and the Safe Drinking Water Act: 

Colorado exceeded the 20 percent green reserve requirement by 
dedicating 29 percent of the Drinking Water SRF award and 25 percent 
of the Clean Water SRF award to 18 green projects. In selecting which 
projects would receive Recovery Act funds, Colorado SRF officials 
explained they largely followed the priority-setting process in place 
for its base programs, as identified in state rules.[Footnote 21] The 
state then modified its process somewhat to comply with the 
requirements of the Recovery Act, for example, to satisfy the green 
reserve requirement. This process involved, for each SRF, identifying 
and categorizing potential projects and then creating a list of 
eligible projects prioritized largely according to requirements in the 
Safe Drinking Water Act (for the Drinking Water SRF) and the Clean 
Water Act (for the Clean Water SRF). Categories of eligible projects 
for Recovery Act funds ranged from category 1 to category 6, with 1 
being the highest-priority category. For Drinking Water SRF projects, 
category 1 includes projects that the state has identified as having 
an "acute health hazard," which may be a continuous violation of 
federal requirements; for Clean Water SRF projects, category 1 
includes projects that improve or benefit public health or that will 
remediate a public health hazard. The SRF officials explained they 
then selected projects to receive Recovery Act funds from these 
eligibility lists starting at the top, with projects in the most 
critical category 1, and generally worked their way down each list, 
with some variation. For example, if a project was not able to meet 
the state's deadlines, it did not receive Recovery Act funding. In two 
cases, the state bumped up projects from farther down the clean water 
list and awarded them funding because they contained green components 
that helped the state meet its green reserve requirement. 

Although EPA identified "environmentally innovative" as a category of 
green projects for states to fund, just 1 of Colorado's 18 green 
projects contained components of this type; the rest were considered 
water efficiency and/or energy efficiency.[Footnote 22] According to 
Colorado SRF officials, it was difficult for them to include 
environmentally innovative projects in the green reserve for several 
reasons. For example, they stated that EPA's guidance was unclear and 
kept evolving, a sentiment echoed by the EPA Office of Inspector 
General in a recent report on EPA's green guidance.[Footnote 23] As a 
result, state SRF officials told us they adopted a conservative 
approach, staying with those projects that were obviously consistent 
with EPA's guidance. In addition, state SRF officials said that the 
state requires that every technology included in projects on the 
state's priority funding list be an already approved, demonstrated 
technology, having already undergone a new technology review by 
Colorado, or be an approved technology in another state. Further, 
given that the state's priority for drinking water projects is to 
address serious health hazards first and foremost, according to state 
officials, advancing unproven, innovative technologies is not 
appropriate for a project that is addressing an already acute health 
problem. Finally, the state was able to meet its drinking water green 
reserve largely through funding multiple pipeline replacement projects 
that both qualified for the green reserve and were at the top of the 
priority list because they addressed potential health hazards. As a 
result, the state did not solicit for additional projects, some of 
which may have incorporated more innovative components. 

Moving forward, Colorado SRF officials stated that they would like 
greater flexibility to fund a wider range of water projects under the 
SRFs, which could include more innovative approaches. Specifically, 
they explained that they plan to revise the state's priority system to 
ensure more green and environmentally innovative projects are able to 
compete more effectively for funding. According to state officials, 
the relative flexibility of the state's clean water priority system, 
which is less focused on addressing acute health hazards, provides 
greater opportunities for this than the drinking water system. 
Changing the state's clean water priority system would enable it to 
more easily include projects that benefit watersheds or address 
nonpoint source pollution, which would enable the state to focus 
resources more effectively on those water bodies with the most 
significant water quality problems. In seeking to increase the 
flexibility of its priority systems, the state would be able to 
consider a broader range of project options for the SRFs, an action we 
encourage. 

Colorado Entities Added New Controls for Recovery Act Funded State 
Revolving Fund Loans: 

Three separate entities in Colorado have distinct roles in the 
management of the SRF programs; each has established safeguards and 
controls to help ensure that Recovery Act funds are spent in 
accordance with the act's provisions and that the communities 
receiving the funds are accountable for their use. The Authority is 
the grant recipient and is the primary entity that lends funds to 
local governments--the subrecipients--to build SRF projects. CDPHE 
coordinates with the communities to ensure they complete necessary 
planning, design, and construction activities, and provides general 
oversight, monitoring, and guidance to the subrecipients on how to 
report their use of Recovery Act funds. The Department of Local 
Affairs provides outreach to local communities and conducts financial 
analyses of potential and existing subrecipients. 

These entities have added controls at various points in the loan 
process. Prior to Recovery Act funds being loaned to local 
communities, CDPHE assigned a manager and engineer to each project. 
These officials reviewed all plans and construction submissions for 
the projects, and the CDPHE engineer also reviewed the business cases 
for green reserve components. The Department of Local Affairs did a 
credit review on every community that applied for funds to assess the 
risk of accumulating debt levels and ability to repay the loans. The 
Authority then used the results of these reviews to craft the loan 
agreements, and CDPHE incorporated them into broader technical, 
managerial, and financial capacity assessments it conducted of 
proposed Drinking Water SRF subrecipients.[Footnote 24] 

Once the Recovery Act SRF funds were loaned out, Authority officials 
used existing procedures to track Recovery Act loans. CDPHE officials 
also explained that they have the following procedures in place to 
track Recovery Act projects and expenditures: they (1) keep Recovery 
Act funds separate from base funds, (2) use a spreadsheet to track 
each Recovery Act project and its compliance with requirements, and 
(3) review every payment request to determine that it is within the 
scope of work and the terms of the loan agreement. Finally, CDPHE 
conducts inspections of each Recovery Act project quarterly during 
construction. These inspections, conducted by the project manager and 
engineer, are used to assess the work being conducted and assist the 
subrecipients with identifying potential gaps in compliance with the 
requirements of the act. The inspections are conducted on site and 
include photos to verify work underway and a file review. CDPHE 
increased the frequency of these inspections to better ensure 
compliance with Recovery Act requirements. Generally, for its base SRF 
programs, while CDPHE conducts a final site inspection for each 
project, it does not conduct inspections during project construction 
unless it becomes clear that the project is experiencing problems, 
indicated for example, by multiple change orders. According to CDPHE, 
its staff began conducting inspections of Recovery Act projects in 
January 2010 and has completed the first round of inspections of all 
but seven projects. 

Officials responsible for the Recovery Act funded water projects we 
reviewed--at the Town of Georgetown, the City of Manitou Springs, and 
Pagosa Area--stated that they also have safeguards and controls in 
place for Recovery Act funds to ensure compliance with Davis-Bacon and 
Buy American provisions. For example, according to Georgetown 
officials, the town hired a coordinator to oversee the use of Recovery 
Act funds; this person reviews payrolls, conducts interviews with 
employees, and completes the Buy American paperwork. Manitou Springs 
officials told us that the city has a person on site at all times to 
inspect construction, verify that materials meet Buy American 
requirements, and interview the contractors' employees to ensure they 
are receiving proper wages. Finally, Pagosa Area officials stated that 
they keep track of all the contractors' expenditures using separate 
cost codes for Recovery Act work. 

An additional accountability mechanism over SRF funds is the Single 
Audit Act audit of the Authority. The 2009 Single Audit report 
identified a deficiency in the Authority's internal controls over the 
SRF programs.[Footnote 25] According to the audit report, the 
Authority did not determine whether its subrecipients had valid 
Central Contractor Registration certifications on file before issuing 
the SRF loans, a requirement under the Recovery Act and accompanying 
regulations. The Authority concurred with the finding and stated that 
it was unaware of the requirement--which was one among several new 
requirements associated with the Recovery Act--until EPA provided a 
Recovery Act training manual in September 2009. By that time, the 
majority of the loans had been executed. According to the report, once 
the Authority and CDPHE officials learned of the requirement, CDPHE 
notified all subrecipients, and by December 31, 2009, all 
subrecipients had complied. Responsible officials stated they would 
verify that appropriate procedures are in place for future subawards. 

Recovery Act Funds Helped Stabilize the State Budget, but Local 
Governments Experienced Varying Degrees of Assistance: 

According to state officials, Recovery Act funds clearly have had a 
significant positive impact on the state's budget condition for fiscal 
year 2010. As it developed its fiscal year 2010 budget, Colorado 
reduced general fund expenditures by $1.5 billion through a series of 
cuts and used Recovery Act funds to help stabilize the budget. The 
budget cuts were necessary because the state continued to project 
declining revenues until March 2010, when the revenue forecast 
projected increased revenues relative to the December 2009 forecast-- 
the first positive revenue forecast after eight quarters of continuing 
revenue declines. Using $802 million in Recovery Act funds allowed the 
state to make up for slightly more than 50 percent of these 
reductions.[Footnote 26] In addition to budget cuts, Colorado used 
other measures to balance its budget, including increasing revenues by 
an estimated $530 million through actions such as suspending or 
repealing tax exemptions. 

While Recovery Act funds have helped the state balance its fiscal year 
2010 budget, the state faces challenges as those funds run out, 
beginning in fiscal year 2011. First, Colorado accelerated its use of 
SFSF funds in fiscal year 2010, thereby reducing the amount available 
for fiscal year 2011. As a result, the state--and particularly IHEs 
that have received the majority of the funding--will face a steep drop 
in funding as the funds are completely spent in fiscal year 2011. 
State officials said that they made multiple state funding cuts in 
higher education during fiscal year 2010 because of multiple downward 
revisions to revenue estimates. This required them to use more federal 
funds to fill the funding gap created by funding cuts. Second, 
Colorado plans to spend all but approximately $4.6 million of its 
$138.3 million in SFSF government services funds by the end of fiscal 
year 2010. As a result, agency officials said that they have less in 
Recovery Act funds to fill in any budget gaps created in fiscal year 
2011. Third, the Governor's proposed fiscal year 2011 budget includes 
an assumption that additional Recovery Act funds for the FMAP will be 
extended for 6 months and will then cover the entire fiscal year. If 
that FMAP extension does not occur, Colorado will have a larger budget 
gap to fill resulting from the phaseout of Recovery Act funds during 
fiscal year 2011. According to state officials, they are monitoring 
the status of relevant congressional actions to extend FMAP. 

Further, according to state officials, they believe that the phaseout 
of the Recovery Act funds will have a dramatic impact on balancing the 
budget in the future because funding shortfalls will continue to exist 
even as the economy improves and Recovery Act funds run out. State 
officials said that a funding shortfall will still exist in fiscal 
year 2012 and cautioned that the state should maintain a conservative 
approach to its budget for fiscal year 2011, given the uncertainty of 
revenue forecasts. The Governor's budget request for fiscal year 2011 
($7.1 billion) was lower than the state's fiscal year 2010 budget 
($7.3 billion).[Footnote 27] 

The two local governments we visited--the cities of Grand Junction and 
Fort Collins--experienced different degrees of assistance from the 
Recovery Act. Table 3 contains general information about these two 
localities, which differed significantly in terms of their economic 
situations. The Recovery Act funds did not help balance these 
localities' budgets but, to varying degrees, will help them meet other 
goals.[Footnote 28] 

Table 3: The Cities of Fort Collins and Grand Junction, Colorado: 

Locality: City of Fort Collins; 
Population: 136,509; 
Unemployment rate: 8.2; 
Total operating budget in 2010: $448.7 million; Recovery Act funds 
reported: $28.6 million. 

Locality: City of Grand Junction; 
Population: 49,688; 
Unemployment rate: 10.3; 
Total operating budget in 2010: $93.0 million; Recovery Act funds 
reported: $1.9 million. 

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

Note: Population data are from latest available estimate, July 1, 
2008. Unemployment rates are preliminary estimates for March 2010, and 
have not been seasonally adjusted. Rates shown are a percentage of the 
labor force. Estimates are subject to revisions. The state's 
unemployment rate was 8.4 percent. 

[End of table] 

Fort Collins. Recovery Act funds have helped Fort Collins work toward 
various program goals during a time of declining revenues, although 
they did not help the city's general budget situation in a significant 
way. Fort Collins has received $28.6 million in Recovery Act funds: 
$3.4 million from formula grants and $25.2 million in competitive 
grants. Fort Collins's revenues from sales and use taxes, which 
account for approximately half of its general fund revenues, declined 
7.9 percent between 2008 and 2009. In response, the city reallocated 
$2.6 million of excess reserves to the 2010 budget and cut the general 
fund budget by approximately $7 million to $102 million in 2010. 
According to city officials, however, funds from the Recovery Act did 
not help the city's budget situation because they were not used for 
general operating expenses. 

Fort Collins's Recovery Act funds have enabled the city to progress 
toward its goals of reducing energy use and promoting the use of 
renewable energy and energy efficiency measures. Of its $28.6 million 
in awarded funds, the city received $24.2 million intended for 
renewable energy and energy efficiency projects in the city, with the 
remainder for nonenergy efforts. According to city officials, 95 
percent of the energy funds is divided between two grants and is 
focused on helping Fort Collins create a "zero energy district"--an 
area that consumes only as much energy as it produces from renewable 
energy sources such as wind or solar power--within its downtown area. 
Table 4 shows the Recovery Act grants Fort Collins received that are 
contributing to the zero energy district. 

Table 4: Recovery Act Funded Zero Energy District Projects for Fort 
Collins: 

Project name: Renewable & Distributed Systems Integration; Funding: 
$4.8 million; Description: Develop an integrated system for allocating 
electricity and renewable energy; Anticipated benefits: Decrease 
summer peak electricity demand by 30 percent. 

Project name: Smart Grid Investment Grant; Funding: $18.1 million; 
Description: Develop a "smart grid" to more effectively integrate 
renewable energy sources into the electric grid; Anticipated benefits: 
Avoid utility rate increase of 2 percent and reduce city's operating 
costs by $800,000 a year. 

Source: GAO analysis of Fort Collins's Recovery Act data. 

[End of table] 

The city's Smart Grid Investment Grant is part of the Department of 
Energy's national efforts to use emerging and renewable energy 
resources to modernize the electric grid and enhance security and 
reliability of the country's energy infrastructure. According to city 
officials, the implementation of the city's smart grid involves new 
software development that will help manage the use of renewable energy 
sources on the electric grid. Further, a large part of the funding is 
going toward the installation of "smart meters" on local homes and 
office buildings, which monitor electricity consumption and ensure 
that the home or building does not draw electricity from the city 
power grid while it is producing energy from an alternative energy 
source. In addition, smart meters provide customers with the option to 
participate in a program that gives the utility the ability to reduce 
a home or business's consumption during peak periods when rates are 
higher. 

According to city officials, other significant Recovery Act awards 
they have received include (1) a formula grant for $3.4 million from 
FTA to purchase new buses and fare boxes, which will reduce 
maintenance costs, and (2) a competitive grant for $271,000 in 
Community Development Block Grant funds, which enabled Fort Collins to 
provide 1 month of rental assistance to 186 households. 

Grand Junction. Grand Junction is an example of a locality severely 
affected by the recession but receiving limited assistance through the 
Recovery Act. Although Grand Junction had the largest percentage 
decrease in nonfarm jobs in the country during 2009 and applied 
aggressively for Recovery Act funds, the city received only 4 percent 
of the funds for which it applied.[Footnote 29] Grand Junction 
officials said that when the Recovery Act was enacted, in February 
2009, the city formed an 18-person team to pursue Recovery Act grants 
and applied for $39.3 million in competitive grants. However, the city 
has received a total of $1.9 million in Recovery Act funds--$500,000 
from formula grants and $1.4 million in competitive grants. As a 
result, Recovery Act funding has had less impact on the city and its 
economy than officials had hoped for. According to city officials, 
Grand Junction's economic downturn, which is related to the decline of 
both the energy and construction sectors, began later than in many 
localities. As a result, Grand Junction's unemployment rate increased 
later than it did in other parts of the country, moving from 4.7 
percent in December 2008 to 10.2 percent in February 2010. Estimated 
2009 revenues are 19 percent ($17.3 million) below 2008 levels. Since 
the beginning of 2009, Grand Junction has eliminated 70 city positions. 

According to city officials, they thought the city's low unemployment 
rate in 2008 negatively affected their chances to receive Recovery Act 
funding. They said that many of the Recovery Act grant applications 
required that the city report the change in its unemployment rate 
between 2007 and 2008, which did not accurately reflect the 
unemployment conditions at the time it applied for the grants. For 
example, Grand Junction applied for a $7.5 million Department of 
Homeland Security Assistance to Firefighters Fire Station Construction 
Grant. The grant application guidance stated that the Department of 
Homeland Security would provide increased consideration to 
"communities that have suffered the highest increases in joblessness 
rates." However, Grand Junction was required to report its 
unemployment rate from December 2007 to December 2008, during which 
time unemployment was under 5 percent, even though the rate had risen 
to 9.1 percent by the time the city submitted its application in July 
2009. City officials said that they raised the concern about having to 
use earlier, and significantly lower, unemployment data with the 
Department of Homeland Security. However, they were not allowed to use 
a more current unemployment rate. They did not receive this $7.5 
million grant or $30.3 million in other grants for which they applied. 

Although Recovery Act funds did not help the city's budget situation, 
city officials said the funds did help in other areas, primarily 
public safety and energy efficiency. Grand Junction's $1.6 million in 
public safety grants included a $1.3 million Community Oriented 
Policing Services (COPS) Hiring Recovery Program grant that will fund 
five police officer positions for 3 years that otherwise would not 
have been filled. In addition, the city will use approximately 
$230,000 from the Energy Efficiency and Conservation Block Grants 
program to help construct a compressed natural gas fueling station and 
to pilot an energy efficient street light program. 

Colorado Reported that the Recovery Act Has Paid for Jobs in the 
State, although Data Quality Is Still an Issue: 

As of March 31, 2010, Colorado recipients reported more than 10,300 
jobs (reported in FTE) funded by the Recovery Act for the third 
reporting period, covering January 1, 2010 through March 31, 2010. 
FTEs are reported quarterly on Recovery.gov by recipients of federal 
funding. 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 or authorities, such as the 
Colorado Water Resources and Power Development Authority. The 
Governor's office reported the largest number of jobs, about 4,900, 
because it is responsible for managing the SFSF funds for IHEs and 
corrections institutions. Other agencies that reported large numbers 
of jobs include CDE and CDOT, with almost 1,400 and more than 300 jobs 
respectively. 

As we reported in March 2010, however, improving the quality of the 
jobs data is a work in progress.[Footnote 30] In our review of several 
agencies' reporting data for the first reporting round ending on 
September 30, 2009; the second reporting round covering October 1, 
2009 through December 31, 2009; and the third reporting round, we 
found discrepancies in some of the data reported. These discrepancies 
include the following: 

* Colorado's LEAs did not consistently submit FTEs for the second 
round of reporting, with unknown effects on the total FTEs reported. 
According to CDE officials, they initially directed LEAs to report 
jobs when the LEAs requested reimbursement for their expenditures. CDE 
officials explained that the reimbursements of Recovery Act funding 
depend on requests from LEAs; historically, LEAs often wait several 
months to accumulate expenses prior to requesting reimbursement. As a 
result, only 15 percent of the state's LEAs requested reimbursement 
and CDE reported a total of 310 FTEs for IDEA Part B and 138 FTEs for 
ESEA Title I, Part A. When OMB's December 18, 2009 guidance changed 
the method for reporting FTEs to a quarterly process, CDE officials 
changed their reporting policy for the third round of reporting to 
require all LEAs to report FTEs whether or not they requested 
reimbursement of funds. While almost all LEAs reported FTEs in the 
third round of reporting, CDE did not change the FTEs reported for the 
second round. 

* Several factors resulted in CDPHE and the Authority overreporting 
FTEs from their subrecipients for the second reporting round, although 
they attempted--in response to OMB's December 18, 2009, reporting 
guidance--to fix FTE data during the continual corrections period 
(which ran from February through mid-March). CDPHE worked with EPA to 
correct the data for the state's SRF programs by collecting updated 
information from the subrecipients, but CDPHE officials did not know 
that the continual corrections period ended on March 15 rather than 
March 31, the date in OMB's December guidance. The deadline change was 
announced on FederalReporting.gov; however, CDPHE and Authority 
officials said they do not regularly check this Web site and that they 
typically rely on communications and documents from EPA for guidance 
related to the Recovery Act. EPA officials said, however, that because 
the change was announced on FederalReporting.gov, they did not provide 
written guidance to the states regarding the deadline change. Because 
EPA did not share this information, the state may want to regularly 
check FederalReporting.gov for updates to guidance. Despite its 
efforts, CDPHE did not receive all the changes from subrecipients in 
time--not by March 15 or by March 31--to fix the data on Recovery.gov. 
As a result, the state reported a total of 250.4 FTEs for the second 
period to Recovery.gov when, according to CDPHE officials, the correct 
number was 144.3 FTEs. 

Colorado officials reported that although the January through March 
2010 round of recipient reporting did not present any insurmountable 
challenges, they identified some challenges going forward that will 
affect their efforts to provide quality control over the data they 
report. First, some of the Recovery Accountability and Transparency 
Board's recent changes to the quarterly reporting process have created 
problems for Colorado's centralized reporting efforts, adversely 
affecting Colorado's ability to perform state-level data quality 
review and avoid duplicate reporting. In March 2010, the board 
informed recipients of changes that reduced the number of days that 
recipients could use to review and correct their data before the 
federal agency reviews from 10 days to 2 days.[Footnote 31] According 
to state officials, reducing the number of days restricted their 
ability to review their records and make any necessary changes, 
particularly since 1 of the 2 days fell on a Sunday. As a potential 
solution to this issue, the state suggested that the board leave 
recipient reporting records unlocked and accessible for state changes 
during the federal review period. According to state officials, their 
suggestion was not accepted by the board. State officials also 
suggested that a 30-day reporting period, rather than a 10-day period, 
would allow them to provide better quality control over their data, 
although it would also require legislative changes. 

Second, the board allowed federal agencies to make multiple comments 
to the recipients but did not create a corresponding ability for 
states to respond to multiple comments. According to state officials, 
replying to individual comments greatly increases the amount of time 
it takes for recipients to reply to comments, which does not assist 
them in their quality control efforts. Finally, state officials 
explained that, in order for the state to report, recipients and 
subrecipients must maintain a current registration in the Central 
Contractor Registration (CCR) database. According to state officials, 
the registration is valid for only 1 year. If it is not renewed, 
FederalReporting.gov, the online Web site for recipient reporting, 
will reject any attempted data entries, a situation state officials 
said they have experienced. While the officials recently notified 
state agencies that they need to renew their CCR registrations, they 
anticipate this issue may create substantial problems in the near 
future, especially if a significant number of the state's 
subrecipients do not renew their CCR registrations. For example, CDE 
alone has 178 subrecipients--contacting these subrecipients and 
ensuring they renew their registrations on time is a significant 
burden for state staff. Officials said they would like to see a change 
made by the Recovery Accountability and Transparency Board that would 
allow the original registration to be used throughout the life of the 
grant, which would allow FederalReporting.gov to continue to accept 
information for an entity whose CCR information has expired. 

State and Local Audit Entities in Colorado Identified Weaknesses in 
Internal Controls for Some Recovery Act Programs: 

The Colorado audit community has completed 7 audits and 2 non-audit 
services that either exclusively or partially examined Recovery Act 
projects, with another 5 audits ongoing and at least 20 planned for 
2010 and beyond. A number of these audits identified weaknesses with 
internal controls over the projects. In Colorado, the Office of the 
State Auditor has primary responsibility for conducting independent 
financial and performance audits of the state's agencies, colleges, 
and universities, including Recovery Act funded programs. In addition 
to the State Auditor, some state agencies have their own internal 
audit divisions that may review Recovery Act funded projects, 
including, for example, CDOT. At the local level, of the five 
localities we have reviewed thus far, Denver's City and County Auditor 
is reviewing the city's management and use of Recovery Act funds. The 
other localities either do not have Recovery Act audits ongoing or are 
relying on Single Audits conducted under the Single Audit Act to 
independently check the use of these funds, where applicable. 

Colorado's State Auditor recently identified significant deficiencies 
in the internal controls in place at the state Department of Human 
Services (CDHS) over aspects of the Colorado Child Care Assistance 
Program (CCCAP). The audit was part of Colorado's participation in the 
Single Audit Internal Control Project, implemented by OMB in October 
2009. One of the goals of the project is to help achieve more timely 
communication of internal control deficiencies for higher-risk 
Recovery Act programs so that corrective action can be taken. The 
project is a collaborative effort between the states receiving 
Recovery Act funds that volunteered to participate, their auditors, 
and the federal government. Under the project's guidelines, 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 for Single Audits. Sixteen states volunteered for the project, 
including Colorado, whose auditors issued their interim reports on 
internal control for selected major Recovery Act programs by December 
31, 2009, and a corrective action plan to the appropriate federal 
agency by January 31, 2010.[Footnote 32] 

The Office of the State Auditor selected two federal programs to 
include in the audit: the Child Care and Development Program Cluster, 
used to fund CCCAP, and the Research and Development Cluster 
(administered by several Colorado IHEs). For CCCAP, the state spent 
$91 million in federal funds--$10.7 million of which was from Recovery 
Act funds--on program activities in fiscal year 2009. The audit report 
identified significant deficiencies with the controls over CCCAP, 
including errors found on the form used to report fiscal year 
expenditures of federal awards. According to the audit report, these 
errors occurred because CDHS does not have adequate written 
procedures, lacks supervisory review, and did not provide adequate 
training for completing the expenditure reports. In addition, the 
report stated errors on CDHS expenditure submissions could materially 
misstate statewide expenditures because CDHS is responsible for a 
large portion of the state's federal funds. According to the report, 
in response to the audit findings and recommendations, CDHS stated it 
is developing a written procedure manual for preparing the expenditure 
report and that enhanced training has been provided to those 
responsible for preparing the supporting documentation for the report. 

The State Auditor's fiscal year 2009 Single Audit Report--which 
included state programs receiving both non-Recovery Act and Recovery 
Act federal funds--contained a number of additional internal control 
findings relevant to Recovery Act funds.[Footnote 33] These included 
findings related to management of the Medicaid program, which had the 
largest Recovery Act expenditures in Colorado for fiscal year 2009-- 
about $252.5 million. For example, the report found the Department of 
Health Care Policy and Financing lacked adequate controls over 
identifying and recording those activities that are eligible for 
increased reimbursement rates available through the Recovery Act and 
that the department had not documented this process. Specifically, the 
audit found a lack of segregation of duties, lack of adequate review, 
and amounts excluded from reimbursement reports. The audit report made 
recommendations for addressing these shortcomings to the department. 
The department agreed and stated, among other things, that it had 
drafted procedures for creating, reviewing, recording, and approving 
financial transactions that draw down Recovery Act funds. In addition, 
the fiscal year 2009 Single Audit report identified further 
significant error rates in transactions processed for three federal 
programs: Medicaid, the Children's Basic Health Plan, and the 
Supplemental Nutrition Assistance Program, which is overseen by CDHS. 
Moreover, the State Auditor has also completed an audit of the 
Workforce Investment Act of 1998 Youth Recovery Act funds allotted to 
Colorado by the U.S. Department of Labor and used for summer youth 
employment services.[Footnote 34] 

At the local level, the Denver City and County Auditor identified a 
number of weaknesses in the city's governance of the Recovery Act 
grants it has received, which totaled more than $75 million as of the 
end of March 2010. One of the Office of the Auditor's non-audit 
service Audit Alert reports found, among other things, that the city's 
tracking of Recovery Act funds is not compliant with city procedures, 
which established unique fund numbers so these funds could be tracked 
separately from other funds.[Footnote 35] This alert also noted that 
the city was cited as failing to report on time because one agency-- 
Denver International Airport--did not report either of its two 
Recovery Act grants before the deadline for the first reporting 
period. According to the Office of the Auditor, although Denver is not 
required to respond to the recommendations in its Audit Alerts, on the 
basis of communications with city officials, the Auditor's office 
expects these issues will be adequately addressed. In addition, the 
office is scheduled to release a performance audit report in December 
2010 that will address, in part, the use and impact of Recovery Act 
funds. 

Colorado's Comments on This Summary: 

We provided officials in the Colorado Governor's Recovery Office, as 
well as other pertinent state officials, 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] 

Footnotes: 

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

[2] GAO, 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). 

[3] According to the State Controller's office, local governments, 
authorities, and special purpose authorities are political 
subdivisions that are legally distinct from the state. 

[4] Office of the State Auditor, American Recovery and Reinvestment 
Act of 2009 Internal Control Pilot Project, State of Colorado, 
Financial Audit, Fiscal Year Ended June 30, 2009 (Denver, Colorado: 
Nov. 20, 2009). 

[5] Under a May 11, 2009, memorandum from OMB, states could identify 
the costs of administering Recovery Act funds and recover these costs 
from Recovery Act funds. See OMB, OMB Memorandum M-09-18, Payments to 
State Grantees for Administrative Costs of Recovery Act Activities 
(Washington, D.C.: May 11, 2009). Colorado has identified these 
estimated costs for its centralized offices, including the State 
Procurement Office, the Office of the State Controller, and the Office 
of State Planning and Budgeting. 

[6] 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. 

[7] These assurances are (1) achieving equity in teacher distribution, 
(2) improving the collection and use of data, (3) developing standards 
and assessments, and (4) supporting struggling schools. 

[8] North Highland, Data Infrastructure Review, a Report Prepared for 
the Colorado Department of Education (November 30, 2007). 

[9] This includes obligations associated with $18.6 million of 
apportioned funds that were transferred from FHWA to FTA for transit 
projects. Generally, FHWA has authority pursuant to 23 U.S.C. § 
104(k)(1) to transfer funds made available for transit projects to 
FTA. According to FTA officials, the $18.6 million has been obligated. 

[10] CDOT received approval for $610,000 in additional funds for three 
on-the-job training projects. 

[11] The maintenance-of-effort certification is designed to prevent 
states from substituting federal funds for state funds. 

[12] As part of the federal aid highway program, FHWA assesses the 
ability of each state to have its apportioned funds obligated by the 
end of the federal fiscal year (September 30) and adjusts the 
limitation on obligations for federal aid highway and highway safety 
construction programs by reducing for some states the available 
authority to obligate funds and increasing the authority of other 
states. 

[13] In Colorado, special education programs are organized into 57 
administrative units, which, according to Colorado officials, are 
considered LEAs for the purposes of IDEA. After closing one facility 
in December 2009, Colorado also has 4 state-operated programs that are 
considered LEAs under IDEA, including 1 mental health institute, 2 
correctional facilities, and 1 school for the deaf and blind. In 
total, Colorado has 61 LEAs, including 57 administrative units and 4 
state-operated programs. 

[14] The state used a consolidated application for ESEA funds that 
included a separate section for ESEA Title I, Part A funds under the 
Recovery Act. 

[15] Single Audits are prepared to meet the requirements of the Single 
Audit Act, as amended, 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. 

[16] U.S. Department of Education Office of Inspector General, 
Colorado Department of Education's Use of Federal Funds for State 
Employee Personnel Costs, ED-OIG/A09J0004 (Sacramento, California: 
Feb. 26, 2010). 

[17] Of the $65 million it received, the state set aside 4 percent of 
the Clean Water and Drinking Water SRFs for administrative expenses 
($2,627,988) and 2 percent of the Drinking Water SRF ($687,040) for 
grants to small, low-income communities to assist with the costs of 
planning and design and for pilot projects associated with removal of 
radionuclides from drinking water. 

[18] Officials noted that in May 2010, the Committee on Transportation 
and Infrastructure, House of Representatives, sent a letter to the 
state commending the fact that the state ranks first out of all the 
states, based on an analysis of the percentage of clean water Recovery 
Act funds put out to bid, under contract, and underway. 

[19] According to SRF officials, their timeline allowed for reasonable 
exceptions, and almost all projects were under contract by the 
September deadline. 

[20] Because the state capped principal forgiveness, some projects 
received both principal forgiveness and a no-interest loan. 

[21] According to the state's 2009 Intended Use Plans, state 
regulations contain the point system for prioritizing Clean Water SRF 
projects and the point system for prioritizing Drinking Water SRF 
projects. 5 Colo. Code Reg. §§ 1002-51.5(3), 1002-52.6(4). 

[22] In its Recovery Act guidance, EPA identified four types of 
projects that were eligible for green reserve funding for the Clean 
Water and Drinking Water SRFs: water efficiency, energy efficiency, 
green infrastructure, and environmentally innovative. 

[23] EPA, Office of Inspector General, Evaluation Report: EPA Needs 
Definitive Guidance for Recovery Act and Future Green Reserve 
Projects, 10-R-0057 (Washington, D.C.: Feb. 1, 2010). 

[24] According to CDPHE officials, they do not conduct similar 
assessments of Clean Water SRF projects because these assessments are 
not required by the Clean Water Act. 

[25] BKD, LLP, Independent Accountants' Report on Compliance With 
Requirements Applicable to Each Major Program and on Internal Control 
Over Compliance in Accordance With OMB Circular A-133 (Denver, 
Colorado: Apr. 12, 2010). 

[26] According to state officials, these funds include SFSF and 
increased FMAP for Medicaid, which Colorado used, in part, to cover 
its increased Medicaid caseload. State officials also said that the 
most direct sources of Recovery Act funds in alleviating the state's 
budget crisis are SFSF funds and the funds made available as a result 
of the increased FMAP. 

[27] According to state officials, the final appropriations for fiscal 
year 2010 are not expected to be enacted before June 2010. 

[28] Although additional Recovery Act funds went to separate 
jurisdictions within the counties in which these cities are located, 
such as school districts or housing agencies, these funds are not 
included in our review. 

[29] Mesa County, the county in which Grand Junction is located, 
received other Recovery Act funds for programs that included food 
stamps and unemployment insurance. 

[30] GAO, Recovery Act: One Year Later, States' and Localities' Uses 
of Funds and Opportunities to Strengthen Accountability, [hyperlink, 
http://www.gao.gov/products/GAO-10-437] (Washington, D.C.: Mar. 3, 
2010). 

[31] On April 9, the board extended the deadline from April 10 to 
April 16 for recipient reporting to FederalReporting.gov and added 1 
day for the recipients to review their data, increasing the period to 
3 days. 

[32] The following 16 states volunteered to participate in the 
project: Alaska, California, Colorado, Florida, Georgia, Louisiana, 
Maine, Missouri, Nevada, North Carolina, Ohio, Oklahoma, South Dakota, 
Tennessee, Texas, and Virginia. 

[33] Office of the State Auditor, State of Colorado Statewide Single 
Audit, Fiscal Year Ended June 30, 2009 (Denver, Colorado: February 
2010). 

[34] Office of the State Auditor, American Recovery and Reinvestment 
Act of 2009, Workforce Investment Act, Summer Youth Program Services, 
Department of Labor and Employment, Performance Audit (Denver, 
Colorado: November 2009). 

[35] City and County of Denver's Office of the Auditor, Audit Alert: 
American Recovery and Reinvestment Act, Readiness and Governance 
(Denver, Colorado: February 2010). 

[End of Appendix III] 

Appendix IV: District of Columbia: 

Overview: 

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

What We Did: 

GAO's work in the District focused on specific programs funded under 
the Recovery Act, as well as general issues involving the effect of 
Recovery Act funds on the District's budget. The programs we reviewed--
three Recovery Act programs funded by the U.S. Department of Education 
(Education) and the Weatherization Assistance Program funded by the 
U.S. Department of Energy (DOE)--were selected primarily because they 
include existing programs receiving significant amounts of Recovery 
Act funds or programs receiving significant increases in funding from 
the Recovery Act. We also reviewed the District's use of Community 
Oriented Policing Services (COPS) Hiring Recovery Program (CHRP) grant 
funds, which is a U.S. Department of Justice competitive grant program 
that provides funding directly to law enforcement agencies to create 
and preserve jobs and to support community policing and crime-
prevention efforts. For descriptions and requirements of the programs 
we covered, see appendix XVIII of GAO-10-605SP. 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. 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. Finally, 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. 

What We Found: 

Following are highlights of our review: 

* Title I, Part A, of the Elementary and Secondary Education Act of 
1965, as amended (ESEA). Education allocated $37.6 million in ESEA 
Title I Recovery Act funds to the District to help improve teaching, 
learning, and academic achievement for disadvantaged students. Most of 
the District's local educational agencies (LEA)[Footnote 2] plan to 
use these funds for salaries and benefits and contracted professional 
services designed to support student instruction. As of April 16, 
2010, the Office of the State Superintendent of Education (OSSE) had 
disbursed about $1.5 million of these funds. For example, one LEA used 
these funds for the salary and benefits of an instructional coach to 
enhance the professional development and training of teachers. 

* U.S. Department of Education State Fiscal Stabilization Fund. 
Education awarded the District about $65.3 million of the District's 
total State Fiscal Stabilization Fund (SFSF) allocation of about $89.3 
million. These SFSF funds are intended, in part, to help the District 
stabilize its budget 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 
education, public safety, and other government services. District LEAs 
plan to use SFSF funds primarily on salaries and benefits for 
teachers. As of April 16, 2010, LEAs reported expending over $16.4 
million in SFSF education stabilization funds and $1.1 million in SFSF 
government services funds. For example, one LEA used a portion of the 
SFSF education stabilization funds for the salaries and benefits of 
music, art, and advanced placement teachers and guidance counselors. 

* Individuals with Disabilities Education Act, as amended, (IDEA) Part 
B. Education allocated $16.7 million in IDEA Part B Recovery Act funds 
to the District to support special education and related services for 
children with disabilities. As of April 16, 2010, District LEAs 
reported expending about $1.6 million in IDEA Part B Recovery Act 
funds. 

* Weatherization Assistance Program. DOE allocated about $8 million in 
Recovery Act weatherization funds to the District for a 3-year period. 
The District Department of the Environment (DDOE), which is 
responsible for administering the program for the District, did not 
begin to spend its operational weatherization funding until February 
2010, making the District among the last recipients to begin spending 
its weatherization funding under the Recovery Act. According to DDOE 
officials, they have been developing the capacity and infrastructure 
to administer the program, such as hiring new staff, but there have 
been delays in this process. According to DDOE, as of March 31, 2010, 
it has completed weatherization for 110 units, or about 14 percent of 
its goal. 

* COPS Hiring Recovery Program. In July 2009, the U.S. Department of 
Justice awarded about $12 million in Recovery Act funding to the 
Washington, D.C., Metropolitan Police Department (MPD) to create and 
preserve jobs and to support community policing and crime-prevention 
efforts. MPD is using the grant for 50 new police officer positions 
and to fund these positions for 3 years. MPD expects the new officers 
will graduate from the Metropolitan Police Academy in August 2010, and 
will have an immediate effect in the community by increasing the 
number of officers on patrol. 

* The District's fiscal situation. Since our February 2010 report, 
competitive Recovery Act grants have helped the District further 
expand its health care and housing programs. According to District 
officials, within the last quarter, the District has been awarded a 
total of about $21 million in competitive Recovery Act grants. While 
the infusion of Recovery Act funds has helped mitigate the negative 
effects of the recession on the District's budget, the District 
continues to face fiscal challenges. As a result of deteriorating 
economic conditions and a decrease in expected revenues, on April 1, 
2010, the District's Mayor reported that the District was facing a 
projected $230 million budget shortfall in fiscal year 2010. 
Additionally, 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. 

* Accountability efforts. As of April 21, 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. Other planned 
Recovery Act audits have not yet begun because of lack of resources. 

The District's Local Educational Agencies Generally Plan to Use 
Recovery Act Funds for Salaries and Benefits, and the Office of the 
State Superintendent of Education Has Begun Drawing Down and 
Monitoring the Use of These Funds: 

Education has allocated $143.6 million in Recovery Act funds to the 
District for three programs: 

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

* 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 
education, public safety, and other government services; and: 

* Part B of the Individuals with Disabilities Education Act, as 
amended (IDEA) which provides funding for special education and 
related services for children with disabilities.[Footnote 3] 

The Majority of Local Educational Agencies Plan to Use Their Recovery 
Act ESEA Title I and SFSF Funds Primarily for Salaries and Benefits 
and Contracted Professional Services: 

Title I. Most of the District's LEAs' planned spending of $37.6 
million in ESEA Title I Recovery Act funds falls into two of the six 
budget categories listed in the LEAs' applications for these funds: 
(1) salaries and benefits and (2) contracted professional services. 
[Footnote 4] (See figure 1.) The charter school LEAs plan to spend 
about 58 percent of their ESEA Title I Recovery Act funds on salaries 
and benefits and about 17 percent on contracted professional services. 
In addition, the charter school LEAs plan to spend about 16 percent on 
supplies and materials.[Footnote 5] In contrast, the District of 
Columbia Public Schools (DCPS)--the District's largest LEA 
representing about two-thirds of the District's K-12 students--plans 
to spend about 70 percent of ESEA Title I Recovery Act funds on 
contracted professional services and 7 percent on salaries and 
benefits.[Footnote 6] This planned spending on contracted services, 
rather than on direct salaries and benefits, could help DCPS avoid 
expenditures that would continue beyond the time frame of the Recovery 
Act funds. Across all the District's LEAs, planned spending on 
salaries and benefits and on contracted services was primarily 
designated to support instruction and support services. For example, 
one charter school LEA plans to use these funds to pay the salary and 
benefits of a reading specialist who provides targeted interventions 
for students falling behind in reading. 

SFSF education stabilization funds. The District was allocated $73.1 
million in SFSF education stabilization funds, which will be used to 
restore the District's primary elementary and secondary funding to the 
fiscal year 2008 level, and was allocated to the LEAs through the 
District's Uniform Per Student Funding Formula. DCPS and the charter 
school LEAs are planning to use SFSF education stabilization funds 
primarily to maintain jobs, including teaching positions, which is 
consistent with the purpose of SFSF funds to minimize budgetary cuts 
in education and other essential government services. (See figure 1.) 
The District's charter school LEAs plan to spend more than 94 percent 
of their Recovery Act SFSF education stabilization funds on salaries 
and benefits.[Footnote 7] Within this category, the charter school 
LEAs plan to spend 79 percent on instruction and 17 percent on support 
services.[Footnote 8] DCPS plans to spend 100 percent of its SFSF 
education stabilization funds on salaries and benefits. Within this 
category, DCPS designated about $43.3 million for instruction and the 
remaining $2.2 million of its total $45.5 million allocation for 
support services, as of March 9, 2010. DCPS plans to use these funds 
for 608 full time teacher positions, as well as for 30 support 
services positions, including instructional coaches to help teachers 
increase student achievement, bilingual counselors, social workers, 
and librarians. 

SFSF government services funds. Recovery Act SFSF government services 
funds for the District total almost $16.3 million--$9.8 million (60 
percent) for public schools, including public charter schools, 
[Footnote 9] and $6.5 million (40 percent) for the Metropolitan Police 
Department (MPD).[Footnote 10] LEAs in the District plan to use the 
largest portion of their SFSF government services funds on maintaining 
and creating jobs--specifically, using these funds on salaries and 
benefits, as shown in figure 1. Of the $9.8 million in government 
services funds for education, the charter school LEAs were allocated 
about $3.6 million and DCPS was allocated about $6.2 million. Overall, 
the charter school LEAs plan to spend 89 percent, or over $3.2 
million, of their SFSF government services funds on salaries and 
benefits. In this category, the charter school LEAs designated about 
73 percent of funds for instruction, such as teachers, and 26 percent 
for support services, such as guidance counselors. In addition to 
salaries and benefits, charter school LEAs planned to spend SFSF 
government services funds on contracted professional services and 
equipment.[Footnote 11] According to its application, DCPS plans to 
use all of its $6.2 million of government services funds for teachers' 
salaries and benefits. 

Figure 1: Percentage of Recovery Act Funds All District LEAs Plan to 
Spend in Selected Budget Categories: 

[Refer to PDF for image: vertical bar graph] 

Salaries and benefits: 
ESEA Title I: 21.3%; 
SFSF education stabilization funds: 98.0%; SFSF government services 
funds: 96.1%. 

Contracted professional services: 
ESEA Title I: 54.3%; 
SFSF education stabilization funds: 0.8%; SFSF government services 
funds: 2.3%. 

Supplies and materials: 
ESEA Title I: 20.1%; 
SFSF education stabilization funds: 0.4%; SFSF government services 
funds: 0.1%. 

Source: GAO analysis of data from District of Columbia Office of the 
State Superintendent of Education. 

Note: We obtained Recovery Act-specific applications with budget 
sheets for 37 LEAs for ESEA Title I and 58 LEAs for SFSF as provided 
to us by OSSE. These budget sheets were approved by OSSE and 
identified the LEAs' planned uses of Recovery Act funds. We 
reformatted and analyzed the planned uses and determined that the data 
were sufficiently reliable for the purposes of this report. The budget 
categories shown in the figure are the three out of six total budget 
categories that have the highest planned spending. Totals do not add 
to 100 percent because they represent only three of the six budget 
categories, and the percentages have been rounded. 

[End of figure] 

The District's LEAs Have Begun Accessing Recovery Act Funds: 

ESEA Title I. OSSE provides the LEAs with ESEA Title I Recovery Act 
funds 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. Before LEAs can access 
these funds, OSSE requires LEAs to submit an application that 
describes how the funds will be used and provide assurances that the 
uses comply with the Recovery Act. According to OSSE officials, upon 
approval of this application, LEAs can submit requests for 
reimbursement, using a reimbursement workbook.[Footnote 12] OSSE 
officials then review these workbooks to verify the requests are in 
line with the LEAs' approved applications. According to an OSSE 
official, about 75 percent of the LEAs that are scheduled to receive 
these funds have approved applications. 

LEAs with approved applications began requesting reimbursement for 
expenditures related to ESEA Title I Recovery Act funds in December 
2009. As of April 16, 2010, 39 of these LEAs had requested a total of 
about $4.4 million for reimbursement, of which about $1.5 million had 
been reimbursed. For example, according to OSSE officials, OSSE 
reimbursed one charter school LEA for its spending on salary and 
benefits for an instructional coach to enhance ongoing professional 
development and training for teachers. 

SFSF. 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). Charter 
school LEAs spend their SFSF funds and report their expenditures to 
OSSE,[Footnote 13] which reviews their expenditures to verify 
appropriate use of the funds. As of April 16, 2010, charter school 
LEAs reported expending over $6.7 million for SFSF education 
stabilization funds and $1.1 million in SFSF government services 
funds. For example, one charter school LEA used a portion of its 
education stabilization funds for the salaries and benefits of art and 
advanced placement teachers, as well as guidance counselors. Another 
charter school LEA is using a portion of its government services funds 
on salaries and benefits for three deans of students and two 
computer/engineering teachers. In contrast to the charter schools, 
DCPS accesses its SFSF funds as it accesses other federal funds--that 
is, by requesting reimbursement for its expenditures through OSSE. 
DCPS' application for SFSF funds was approved in March 2010, and DCPS 
requested reimbursement for about $9.7 million in SFSF funds as of 
April 16, 2010. 

IDEA Part B. OSSE reports that as of April 16, 2010, out of the $16.7 
million allocated to the District for IDEA Part B, slightly more than 
$1.4 million had been requested for reimbursement by 30 of the charter 
school LEAs and about $218,000 had been requested for reimbursement by 
DCPS. For example, one charter school LEA told us it had used a 
portion of its IDEA Part B Recovery Act funds to hire an inclusion 
specialist, whose responsibilities include supporting teachers that 
have students with disabilities in their class. 

OSSE Has Developed and Begun Implementing New Subrecipient Monitoring 
Protocols, but It Is Too Early to Assess Effectiveness: 

OSSE has taken steps to reform its processes for managing and 
monitoring its federal grants, including implementing new protocols 
for monitoring its subrecipients.[Footnote 14] According to OSSE 
officials, these steps were necessary because of the multiple issues 
identified in past audits related to OSSE's management of federal 
grants, as well as Education and the DC OIG designating the District's 
school system as a high-risk entity for management of its federal 
grants. Specifically, the District's fiscal year 2008 Single Audit 
found that OSSE had a total of 24 material weaknesses regarding 
internal control over compliance with major federal grant program 
requirements, 10 of which were directly related to ESEA Title I or 
IDEA funds, including deficiencies in subrecipient monitoring. Similar 
findings were identified in the District's fiscal year 2007 Single 
Audit.[Footnote 15] In addition, Education has designated OSSE as a 
high-risk grantee, for weaknesses related to financial management and 
grants management for several of the programs receiving Recovery Act 
funds. The DC OIG's fiscal year 2010 audit and inspection plan 
includes a review to determine whether OSSE properly managed and 
distributed IDEA funds to LEAs and whether DCPS used the IDEA funds 
for their intended purposes.[Footnote 16] 

To resolve the identified subrecipient-monitoring issues, OSSE 
developed a new monitoring protocol as of March 2010, which includes 
on-site monitoring visits and desk reviews, with expenditure testing 
conducted during both procedures. However, it is too early to review 
and assess the effectiveness of OSSE's new monitoring protocol because 
OSSE has not had a chance to conduct a full cycle of monitoring, which 
concludes with the resolution of any identified grant management 
issues at an LEA. OSSE implemented its new on-site monitoring protocol 
for the first time in March 2010. OSSE uses this protocol to conduct 
reviews of LEAs receiving SFSF and all ESEA grant awards, including 
ESEA Title I Recovery Act funds.[Footnote 17] As of April 30, 2010, 
OSSE officials had conducted seven on-site visits. OSSE's on-site 
monitoring protocol involves interviewing LEA officials and external 
stakeholders, such as parents, reviewing the LEA's policies and 
procedures,[Footnote 18] and conducting expenditure testing to verify 
appropriate uses of funds.[Footnote 19] We observed OSSE's grant-
monitoring team conduct an on-site monitoring visit of one LEA. The 
grant-monitoring team asked questions regarding the LEA's SFSF and 
ESEA Title I applications; use of SFSF and ESEA Title I funds; fiscal 
oversight of SFSF and ESEA Title I funds; and compliance with OSSE and 
federal Recovery Act reporting requirements. According to OSSE 
officials, based on the LEA's answers and supporting documentation, 
the monitoring team will determine whether the LEA had problems with 
its grant management and program implementation, and then will 
communicate such findings to the LEA during the exit conference and 
through a report that documents the findings.[Footnote 20] 

OSSE's desk-review protocol is intended to achieve similar objectives 
as the on-site visit, but is more limited in scope and does not 
require visiting the LEA. The desk-review protocol involves reviewing 
grant documents pertaining to the LEA's federal grant program 
implementation, including Recovery Act ESEA Title I, IDEA, and SFSF 
funds; reviewing the LEA's reimbursement and reporting workbook; and 
expenditure testing. Based on OSSE's review of documents and testing, 
the desk-review team determines whether the LEA had problems with its 
grant management and program implementation, and then communicates 
such findings to the LEA through a report, documenting the findings. 
In addition, an OSSE official told us that they intend to use desk 
reviews to determine the need for future site visits to an LEA. OSSE 
plans to begin desk reviews in May 2010. According to OSSE officials, 
they plan on conducting both an on-site monitoring visit and a desk 
review of all of the LEAs that received Recovery Act funds. 

According to OSSE's protocols, following the on-site visit or desk 
review, OSSE's monitoring team will compile a report for the LEA that 
identifies findings and recommendations, and addresses corrective 
actions implemented by the LEA.[Footnote 21] LEAs with one or more 
findings must develop and submit a corrective action plan that 
describes the LEA's strategies and timeline for resolving the 
findings. OSSE officials said that OSSE program staff will work with 
the LEA to develop the corrective action plan so that the plan is 
sufficient, manageable, and timely in resolving the findings, as 
determined by the OSSE program staff. OSSE officials told us that OSSE 
would consider all findings resolved only after an LEA has provided 
evidence, such as documentation of changed policies, that the 
corrective action plan has been implemented. Then OSSE will issue a 
letter to the LEA indicating the resolution of findings and document 
any restrictions that have been lifted. According to OSSE officials, 
if an LEA fails to implement its corrective action plan in a timely 
manner, as determined by OSSE officials, OSSE may impose restrictions 
on the LEA'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. 

OSSE officials told us that both the on-site monitoring schedule and 
the desk-review schedule were determined by a risk analysis. OSSE 
officials determined the relative risk of its LEAs based on each LEA's 
fiscal year 2008 Single Audit report findings, Recovery Act grant 
award amounts, and whether submissions of Recovery Act grant 
applications and other related documents were timely. The on-site 
visit schedule divided the LEAs into two categories--higher-risk LEAs 
and lower-risk LEAs--with OSSE conducting site visits at higher-risk 
LEAs in fiscal year 2010 and lower-risk LEAs in fiscal year 2011. The 
desk-review schedule divided the LEAs into three categories--high-
risk, medium-risk, and low-risk--with OSSE planning to conduct desk 
reviews of LEAs in May 2010, July 2010, and October 2010, respectively. 

With respect to SFSF government services funds allocated to MPD, OSSE 
is also responsible for monitoring the use of these funds. OSSE 
officials told us that, similar to the LEA subrecipients, MPD will 
have to submit its SFSF government services funds application to OSSE 
and provide assurances that the funds will be used in accordance with 
Recovery Act requirements. As of April 26, 2010, OSSE and MPD had not 
finalized their memorandum of understanding outlining the roles and 
responsibilities of each agency with respect to the use and oversight 
of SFSF funds. However, OSSE officials said they plan to use their new 
monitoring protocol to monitor MPD's use of SFSF funds, once MPD's 
application for SFSF government services funds is approved and MPD 
begins expending these funds. 

LEAs We Visited Have Some Processes and Procedures to Help Safeguard 
Recovery Act Funds: 

We reviewed selected processes and controls of three LEAs in the 
District to understand each LEA's Recovery Act grant management and 
financial processes. We selected two LEAs that were allocated the 
largest portions of Recovery Act funds among the LEAs in the District: 
DCPS and Friendship Public Charter School. We selected a third LEA, 
Center City Public Charter School, which had requested the largest 
amount of reimbursement of Recovery Act funds as of February 19, 2010. 
At each of these LEAs we reviewed policies and procedures describing 
the LEA's internal control framework related to Recovery Act grant 
management and financial processes. We also interviewed the LEAs' 
management officials to obtain an understanding of the LEAs' internal 
control framework. Our LEA site reviews were limited in scope and were 
not sufficient for expressing an opinion on the effectiveness of LEA 
internal controls or compliance.[Footnote 22] 

We found that the three LEAs we visited had accounting processes in 
place to identify and review financial transactions including 
unallowable or questionable expenditures. For example, at Center City 
Public Charter School, the Chief Financial Officer (CFO) told us that 
all transactions were reviewed weekly in an expense report and the 
report was subject to three levels of review by the staff accountant, 
account manager, and CFO, with purchases in excess of $25,000 reviewed 
by the Board of Directors. Similarly, Friendship Public Charter 
School's policies require that requests for payments to vendors must 
be submitted to the Chief Operating Officer (COO) or program manager 
for review and approval, which includes a check-request form, the 
invoice of the good or service, and evidence that the good or service 
was received, if applicable. 

The two public charter schools provided documented policies showing 
their official processes for both approval and payment of purchases. 
For example, at Friendship Public Charter School, employees who wish 
to purchase goods or services enter a purchase request into an 
electronic accounting system. Upon submission, the cost of the 
purchase request is compared against the available dollars in the 
budget of the associated grant. If there is sufficient funding, the 
purchase request is submitted for approval. According to a Friendship 
Public Charter School official, transactions using grant funds are 
approved by the grant manager and the COO, in addition to other levels 
of approvals. Additionally, the Board Chairman, Board Treasurer, Board 
Secretary, and the Chief Executive Officer are the only individuals 
authorized to sign checks and wire transfers, with two signatures 
required for transactions over $10,000. Officials at all three LEAs 
also told us that they had communicated Recovery Act objectives to 
employees through various methods including staff meetings, e-mails, 
and informal discussions. For example, one LEA discussed the 
objectives of the Recovery Act at its monthly meeting for principals, 
according to officials from that LEA. 

All three LEAs we visited took some steps to assess risks associated 
with the use of Recovery Act funds. For example, two LEAs relied on 
external audits as their main source of identifying risks, while 
officials from the other LEA told us they used external audit findings 
as well as periodic internal discussions to assess risks, including 
risks involving the use of Recovery Act funds. According to officials 
from this LEA, the LEA's Board of Directors, the grant manager, and 
compliance manager discussed risks regarding Recovery Act funds, 
including the risk of using the funds for unallowable purposes. 
However, while all three LEAs took certain steps to identify risks, 
none of the LEAs could provide documentation on their process of 
evaluating risk for its possible effects or on the results of such 
evaluations. 

The District Has Begun to Expend Funding on the Weatherization Program: 

The Recovery Act 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 the U.S. 
Department of Energy. DDOE plans to spend about $6.5 million on 
weatherizing homes, and the remaining $1.5 million will be used for 
salaries and other administrative expenses, such as training and 
technical assistance. 

The District Has Experienced Delays in Starting Its Recovery Act 
Weatherization Program: 

DDOE did not begin to spend its operational weatherization funding 
until February 2010, according to DDOE officials. Community-based 
organizations (CBO) in the District manage weatherization projects and 
cannot start weatherizing homes until they receive 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 
DDOE official, DDOE was slow to expend funds because DDOE has been 
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 have been delays in this process. 
DDOE officials told us as early as June 2009 that they intended to 
hire six new staff members as soon as possible to oversee and manage 
the program.[Footnote 23] In October, DDOE officials stated that they 
expected to fill these positions by the end of November. However, by 
December a DDOE official stated that DDOE had yet to start the 
interview process because of administrative delays. As of April 5, 
2010, three new-hires--including the program manager--have begun work, 
and one offer is pending. However, two positions still remain open, 
according to this DDOE official. 

While the District has made some progress achieving its initial goal 
of weatherizing 785 homes within the 3-year funding time frame, 
weatherization work has just begun and only a small portion of the 
work has been completed.[Footnote 24] According to DDOE, as of March 
31, 2010, it has completed weatherization for 110 units--about 14 
percent of its total unit goal. However, DDOE officials told us that 
101 of these units, or about 13 percent of its total goal, are located 
in one multifamily residence in which contractors installed one new 
boiler. According to a DDOE official, improvements made to a 
multifamily residence--such as replacing a boiler--allow DDOE to count 
all units in the building as having been weatherized. As of April 8, 
2010, CBOs have paid contractors about $25,500 for these 101 units, or 
under one-half of 1 percent of DDOE's operational budget for the 
weatherization program. Given that nearly 13 percent of the total unit 
goal was weatherized for less than one-half of 1 percent of the 
operation funding available, DDOE officials told us they expected 
their initial goal of weatherizing 785 homes to increase. Though DDOE 
does not have an updated estimate of how many units will be 
weatherized in the District with Recovery Act funding, DDOE plans to 
accelerate its weatherization work over the next few months and 
estimates expending all of its Recovery Act funding by September 30, 
2010. 

To manage the increase in the number of weatherization projects under 
the Recovery Act, DDOE has added three new CBOs--for a total of seven. 
[Footnote 25] DDOE selected these additional CBOs based on specific 
criteria, such as the CBOs' experience and performance in 
weatherization work, as well as their experience in assisting low- 
income persons. The CBOs are responsible for obtaining and monitoring 
the local contractors that weatherize homes. According to DDOE 
officials, each CBO will receive about $935,000 in Recovery Act funds 
for weatherization activities. Through monthly reports from CBOs, DDOE 
monitors their balances and pays the CBOs when they require more 
funding, releasing funding in installments of 25 percent to CBOs with 
whom they have previously worked and installments of 10 percent to 
those with no weatherization experience in the District. 

CBOs in the District Employ Different Management Practices: 

DDOE has given CBOs some flexibility in how they go about the day-to- 
day management of their weatherization programs and how they fulfill 
the requirements of the grant agreements with DDOE. For the purposes 
of this review, we contacted three of the seven CBOs to discuss their 
weatherization activities under the Recovery Act.[Footnote 26] Of 
these three CBOs, two use contractors exclusively to perform the 
weatherization work as specified for each job. Of these two, one has 
no prior experience implementing weatherization programs and has hired 
a firm that, among other things, selects contractors, solicits bids, 
and conducts postinstallation inspections. The third CBO uses a 
combination of its own crews of full-time employees and contractors to 
complete weatherization work. Eventually this CBO intends to stop 
using contractors, except for certain specialized jobs, and use only 
its own weatherization crews. Further, this CBO provides training to 
its crews and plans to provide training to other CBOs and contractors 
in the District.[Footnote 27] 

Of the three CBOs we spoke with, none of which is a governmental 
entity, each has a different method of soliciting bids and awarding 
weatherization work to contractors. One CBO does not formally solicit 
multiple bids for each weatherization project. Rather, the program 
manager of that CBO told us he sends potential contractors a price 
sheet and asks them to list their prices for every weatherization item 
or task. He then uses that price sheet to determine which contractors 
offer the lowest prices for certain weatherization tasks, and selects 
contractors based on those prices as well as the contractors' 
availability, experience, and the quality of past work.[Footnote 28] 
The remaining CBOs told us they solicit bids from a list of their 
preapproved contractors they consider qualified and reliable. 
According to the program manager for one CBO, their policy is to 
solicit one bid each from three contractors as they cycle through 
their contractor list, starting again from the beginning when reaching 
the end. The program manager said he awards the contract to the lowest 
bidder for each job. According to staff at another CBO, when they 
receive weatherization jobs from DDOE, all of their approved 
contractors can bid on every job. Staff from this CBO told us that 
they normally awarded contracts to the lowest bidder, but factors such 
as the nature of the job and the experience of the contractor may also 
influence their decisions. CBOs told us that the system they use to 
report to DDOE does not accept contract bids that exceed established 
price limits. 

The District Has a Variety of Procedures in Place to Monitor the 
Weatherization Program: 

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

* Inspections: In its Recovery Act program guidance, DOE requires all 
state agencies, such as DDOE, to inspect at least 5 percent of all 
completed weatherization work and recommends inspection of even more. 
[Footnote 29] DDOE, in its grant agreement with the CBOs, commits 
itself to inspecting 10 percent of all work completed. DDOE officials 
stated that they plan to inspect more than 10 percent of all work and 
a greater percentage of those weatherization jobs performed by new 
CBOs.[Footnote 30] In addition to DDOE's oversight of the program, all 
CBOs are required to perform postinstallation inspections on 100 
percent of weatherization projects. The CBO that performs 
weatherization work using its own crews has independent contractors 
conduct postinstallation inspections, and these inspection reports are 
checked by that CBO's program manager, according to officials from 
that CBO. According to the CBOs we talked to, if they find cases of 
poor quality or workmanship, CBOs will require contractors to correct 
the problem at no additional cost to the CBO. 

* Reporting: DOE requires DDOE to submit quarterly reports to DOE and 
to conduct annual reviews of the CBOs. The quarterly report must 
provide the status of work and include 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 period and the actual costs 
incurred, and the schedule status should list milestones, anticipated 
completion dates, and actual completion dates. The annual review must 
include all of the above reporting, in addition to the results of the 
physical weatherization inspections cited above. According to DDOE 
officials, DDOE identified a relatively small number of problems, such 
as contractors charging for work not performed, during prior reviews 
of CBOs. CBOs are required to submit monthly reports to DDOE that 
include details on how much funding they have spent and how much work 
they have completed. 

* Data gathering: To facilitate CBO reporting, DDOE has joined other 
states in implementing the Hancock Energy Software Weatherization 
Assistance Program (Hancock system), a private-sector online reporting 
system that is DDOE's primary accountability tool for tracking and 
managing Recovery Act funds, including budgeting and invoicing, 
administrative costs, and job management, among other things. 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 also shows 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 would 
use 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. In October 2009, DDOE 
provided training in the use of the Hancock system to CBOs 
weatherizing homes in the District. DDOE officials said that the 
reliability of the data in the system will be checked through 
inspections. 

* Client Eligibility: A home is eligible for the Recovery Act 
weatherization program if household income is at or below 200 percent 
of the poverty level.[Footnote 31] DOE has provided guidance to states 
on how to determine income eligibility.[Footnote 32] In the District, 
eligibility for the weatherization program is determined by DDOE's Low 
Income Home Energy Assistance Program (LIHEAP) intake processors after 
examining certain pertinent documents, such as income statements. For 
multifamily apartment buildings (five units or more), 66 percent of 
the households must meet income requirements for the entire building 
to be eligible for weatherization program funds. 

We were unable to fully assess the quality or completeness of these 
procedures at this time because the District's weatherization program 
has not progressed enough for DDOE or CBOs to provide completed 
project files for us to review.[Footnote 33] Further, DDOE has not 
begun reviewing how CBOs are using Recovery Act funds, and has only 
recently begun conducting on-site inspections of completed work. 
However, staffing issues could affect the District's effort to monitor 
its weatherization program. While DDOE has hired a project manager, 
the staff member primarily responsible for site visits--the assistant 
project manager--had not been hired as of April 5, 2010. Further, DDOE 
expects finding someone to fill this position to be a time-consuming 
effort because a successful candidate must possess significant 
construction experience, according to DDOE. Considering the quantity 
and pace of the weatherization work being undertaken with Recovery Act 
funds, this vacancy may hinder DDOE's ability to effectively monitor 
CBO and contractor work. 

The District Has Used COPS Hiring Recovery Program Funds for Hiring 
New Police Officers: 

CHRP is a Department of Justice competitive grant program that 
provides funding directly to law enforcement agencies to create and 
preserve jobs and to support community policing and crime-prevention 
efforts. The Recovery Act made $1 billion in grant funding available 
through CHRP. In April 2009, the Washington, D.C., MPD submitted its 
application and in July 2009, was awarded a CHRP grant of $12,146,550 
for 50 new police-officer positions. Fifty new recruits entered the 
program on October 26, 2009. As of May 8, 2010, about 11 percent of 
CHRP funding (or about $1,382,000) has been expended, according to MPD 
officials. MPD officials project that the 49 recruits who have 
remained with the program will graduate from training at the 
Metropolitan Police Academy in August 2010, and will have an immediate 
effect in the community by increasing the number of officers on 
patrol.[Footnote 34] According to MPD officials, the CHRP-funded 
police officers will be assigned to neighborhood patrols and work 
closely with community members to fight crime in the 46 Police Service 
Areas in the seven Police Districts, thereby contributing to the MPD 
community-policing strategy focused on creating a strong, visible, and 
accessible police presence in all neighborhoods. When the grant term 
expires after 3 years, CHRP grantees must retain all positions funded 
through CHRP for at least 1 additional year. To meet the 4th-year 
retention requirement, MPD intends to seek local funding to cover 
salaries and benefits of the CHRP officers. MPD officials anticipate 
that an economic recovery by 2012 will allow the District to provide 
this funding. 

Recovery Act Funds Aid the District's Budget and Expand Programs, but 
the District Continues to Face Fiscal Challenges: 

Table 1: Characteristics of the District of Columbia: 

Population: 591,833; 
Unemployment rate: 10.9%; 
Fiscal year 2011 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 documents. 

Note: The data are from budget documents. Population data are from 
July 1, 2008. Unemployment rate is a preliminary estimate for March 
2010 and has not been seasonally adjusted. Rate is a percentage of the 
labor force. Estimates are subject to revision. 

[End of table] 

Since our February 2010 report, competitive Recovery Act grants have 
helped the District further expand its health care and housing 
programs. According to District officials, within the last quarter the 
District has been awarded a total of about $21 million in competitive 
Recovery Act grants. For example, on March 19, 2010, the District's 
Department of Health was awarded a $4.9 million grant for wellness and 
tobacco-prevention programs in the District. The grant is a part of 
the U.S. Department of Health and Human Services' (HHS) Communities 
Putting Prevention to Work initiative. On February 17, 2010, the 
District's Department of Health Care Finance was awarded $5 million 
from HHS for the Statewide Health Information Exchange Planning 
Cooperative Agreement. On February 26, 2010, the District's Department 
of Housing and Community Development was also awarded a grant of 
approximately $9.5 million to stabilize neighborhoods and stimulate 
the housing market for neighborhoods affected by high rates of housing 
foreclosure and vacancies. The U.S. Department of Housing and Urban 
Development awarded the District this grant as a result of a 
competition the department held for Neighborhood Stabilization Program 
2 funds. According to District officials, the remainder of the grant 
awards received was under $500,000 per award. 

While the infusion of Recovery Act funds has helped mitigate the 
negative effects of the recession on the District's budget, the 
District continues to face fiscal challenges. On April 1, 2010, the 
District's Mayor reported that the District was facing a projected 
$230 million budget shortfall in fiscal year 2010. According to the 
Mayor's budget-gap-closing proposal, the budget shortfall was the 
result of a $35 million decline in estimated revenue due to the 
District's weakened economy, $185 million in projected spending 
pressures,[Footnote 35] and the repayment of $10 million for the use 
of contingency reserve funds.[Footnote 36] The budget shortfall 
occurred even though the District used all of its Recovery Act SFSF 
funds, $89.3 million, for direct budgetary relief in fiscal year 2010. 
[Footnote 37] To address this budget shortfall for fiscal year 2010, 
the Mayor proposed a plan to reduce $131 million in expenditures, 
reduce $69 million in spending pressures, and generate an additional 
$45 million in revenues.[Footnote 38] Additionally, 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 39] freezing automatic pay increases for government 
employees; and renegotiating contracts with the District's vendors. 
Despite these budget challenges, the District's Chief of Budget 
Execution told us that the District would not use its Rainy Day funds 
to close its fiscal year 2011 budget gap because by law the Rainy Day 
funds that are used by the District must be paid back in full over the 
following 2 years--with one half of the funds repaid in the first year 
and the remainder of the funds repaid in the second year. 

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. 

The District's Office of the Inspector General Has Begun Audits of 
Recovery Act Funding: 

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. As of 
April 21, 2010, the DC OIG has 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. 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 40] complied with District 
procurement regulations in awarding contracts, and utilized effective 
internal controls. A senior DC OIG official told us that other planned 
audits of Recovery Act funds had not begun because of limited 
resources within the agency. Nevertheless, this official said that the 
DC OIG has two audits that touch on Recovery Act funds, though use of 
Recovery Act funds were not part of the audit objectives in either 
case: (1) an audit of the Highway Trust Fund, which verified that no 
Recovery Act funds were included within Highway Trust Fund spending, 
and (2) an audit of DCPS nonpublic tuition to assess whether DCPS 
properly recorded Recovery Act IDEA funding and used that funding for 
intended purposes. 

District Comments on This Summary: 

We provided the Office of the Mayor of the District a draft of this 
appendix on May 6, 2010. On May 10, 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; John Hansen; Nicole 
Harris; and Mattias Fenton made major contributions to this report. 

[End of section] 

Footnotes: 

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

[2] The District has 58 LEAs, including 57 charter school LEAs and the 
District of Columbia Public Schools (DCPS). Fifty-one LEAs are 
eligible to receive ESEA Title I Recovery Act funds, according to the 
Office of the State Superintendent of Education (OSSE). Most of the 
charter school LEAs consist of a single campus, but some have multiple 
campuses or schools. DCPS comprises 129 schools. 

[3] We do not fully discuss the planned uses of IDEA Part B Recovery 
Act funds because the majority of LEAs did not have approved IDEA 
applications at the time we began our analysis. DCPS--which serves as 
the LEA for IDEA purposes for 17 charter school LEAs--had its Recovery 
Act IDEA application approved on January 20, 2010. 

[4] 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. In the application--which OSSE developed-- 
there are six budget categories: Salaries and Benefits, Supplies and 
Materials, Fixed Property Costs, Contracted Professional Services, 
Equipment, and Other Expenses. The "salaries and benefits" category 
can support teachers, as well as employees that provide support 
services such as tutoring, and counseling and social work, and those 
who provide professional development. The budget category "contracted 
professional services" is similar to the "salaries and benefits" 
category in that contracted professional services include teaching, 
support services, and technical and logistical support to facilitate 
and enhance instruction, as well as contracts for accountants, and 
activities such as in-service training and conference registration. 

[5] The third largest planned spending category for ESEA Title I 
Recovery Act funds was supplies and materials. The remaining portion 
of planned spending was spread across the other budget categories. 

[6] DCPS also plans to spend 22 percent of ESEA Title I Recovery Act 
funds on supplies and materials. 

[7] The remaining portion of planned spending was spread across the 
other budget categories--primarily contracted professional services 
and supplies and materials. 

[8] Instruction and support services are two of a total of six program 
spending categories in the OSSE-created application that LEAs must 
complete to receive Recovery Act funds. The other four categories are: 
administrative costs, operations and maintenance, student 
transportation, and other. The remaining portion of the charter school 
LEAs' program spending within the budget category of salaries and 
benefits is spread across the other four program categories. 

[9] Similar to the SFSF education stabilization funds, these SFSF 
government services funds are distributed to the LEAs through the 
Uniform Per Student Funding Formula, which is administered by the 
District's Office of the Chief Financial Officer (OCFO). 

[10] Initially, the District had designated 40 percent of the 
government services funds for low-income housing, which was proposed 
to be used in a rotating loan fund. However, this fund would have 
extended beyond the time frames for Recovery Act spending, which is 
inconsistent with the guidelines for using SFSF government services 
funds, according to District officials. 

[11] Overall, 51 charter school LEAs designated the entirety of their 
SFSF government services funds allocation to a single use: salaries 
and benefits (48 LEAs), contracted professional services (2 LEAs), and 
equipment (1 LEA). The remaining 6 charter school LEAs planned to 
spend across various categories including those listed above, supplies 
and materials, and other expenses. 

[12] OSSE officials told us they also use this process for reimbursing 
IDEA Recovery Act fund expenditures to LEAs. 

[13] Currently, LEAs receive District funds periodically throughout 
the year and OSSE officials told us that the charter school LEAs 
receive SFSF funds in a similar manner. In particular, the charter 
school LEAs do not receive SFSF funds by means of reimbursement. 

[14] Subrecipients are District LEAs and other District organizations 
receiving federal funds through OSSE. 

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

[16] According to the DC OIG Acting Assistant Inspector General, the 
agency is conducting an audit of DCPS nonpublic tuition to assess 
whether DCPS properly recorded Recovery Act IDEA funding and used that 
funding for intended purposes. 

[17] OSSE officials told us that they had developed a similar on-site 
monitoring protocol and desk-review protocol for Recovery Act IDEA 
funds in March, 2010. OSSE officials stated that they plan to conduct 
on-site visits of three LEAs in May 2010, and if needed, will make 
revisions to the protocol based on the monitoring experience. 

[18] OSSE officials told us they reviewed the LEA's policies and 
procedures in advance of the on-site monitoring visit. 

[19] Prior to a site visit, OSSE requests from the LEA documentation 
that supports Recovery Act expenditures submitted to OSSE for 
reimbursement since the inception of the Recovery Act. OSSE's staff 
told us that expenditure testing consists of the review of supporting 
documentation for the expenditures--that is, looking for purchase 
requests, receipts, invoices, and purchase payments that validate the 
expenditure. 

[20] As of April 30, 2010, OSSE had not completed the report. OSSE 
officials told us that the monitoring report is distributed within 60 
days of the on-site visit to the LEA. 

[21] Corrective actions are activities or processes that an LEA 
executed to correct findings or implement recommendations identified 
by OSSE or other auditors during previous reviews, according to OSSE 
officials. 

[22] At the time of our field work, the District's LEAs had only begun 
to spend Recovery Act funds. Due to limited financial transactions 
available, we did not test such transactions at the three LEAs we 
visited to determine if internal controls were implemented. 

[23] DDOE told us it planned to hire a program manager, an assistant 
program manager, two energy auditors, and two administrative support 
staff. 

[24] According to DDOE, a unit is considered complete when: (1) all 
recommended weatherization measures are finished, (2) the CBO--which 
has primary responsibility for ensuring the quality of the work-- 
performs a final inspection, and (3) the resident signs the customer 
satisfaction and evaluation form. 

[25] Four CBOs had managed weatherization projects for DDOE under 
other programs, and DDOE continued those relationships when Recovery 
Act funding became available. 

[26] 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 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. 

[27] DDOE does not require that contractors receive special 
weatherization training or certification to perform weatherization 
work in the District. 

[28] According to this program manager, he bases these decisions on 
his own judgment and expertise from over 28 years of weatherization 
and contractor experience. 

[29] DOE, Grant Guidance to Administer the American Recovery and 
Reinvestment Act of 2009 Funding (Mar. 12, 2009). 

[30] This represents a decrease from prior estimates. In December 2009 
[hyperlink, http://www.gao.gov/products/GAO-10-232SP], we reported 
that DDOE officials initially anticipated inspecting 30 percent of all 
homes and 60-70 percent of those weatherized by new CBOs. 

[31] The pre-Recovery Act Weatherization Assistance Program had an 
income limit of 150 percent of the poverty level. 

[32] DOE guidance lists the dollar amount of the 200 percent poverty 
threshold for various family sizes, along with the types of income to 
consider when determining eligibility. See DOE, WPN 09-05 (Feb. 18, 
2009). 

[33] According to one CBO, completed project files contain: contractor 
estimates, pre-and postweatherization pictures, invoices, daily log 
sheets, relevant DDOE audits, Davis-Bacon payrolls, and a signed 
resident survey. 

[34] According to MPD officials, of the original 50 recruits, two 
trainees dropped out in the first week of the program and were 
replaced immediately from the roster of eligible applicants and, 3 
months into the training program, another trainee dropped out. As a 
result, 49 recruits remain in training with MPD. 

[35] According to District officials, a spending pressure is a 
situation where an agency may need to spend more money than it has 
budgeted resulting in an expected budget shortfall. For example, the 
District's Fire and Emergency Medical Services Department has 
identified spending pressures of $5.3 million consisting of estimated 
payroll expenses that are over its budgeted amount. 

[36] In fiscal year 2009, the District used funds from the Contingency 
Reserve to provide advance funding to the District's public charter 
schools, the replenishment of which is mandatory, subject to certain 
deadlines, under District of Columbia law. D.C. Code § 1-204.10(b)(6), 
(c)(3). The Mayor's gap-closing plan repays $10 million, or half, of 
the funds borrowed from the Contingency Reserve. 

[37] Originally, the District had budgeted $18 million in SFSF funds 
to use in fiscal year 2009 and $71 million in SFSF funds to use in 
fiscal year 2010. 

[38] According to the Mayor's budget-gap-closing proposal, the 
District has a total, projected budget need of $245 million, which 
consists of a $230 million projected budget shortfall, $10 million for 
repaying its Contingency Reserve Fund and $5 million for repaying its 
Operating Cash Reserve Fund. 

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

[40] 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, § 1511, 123 
Stat. 287. 

[End of Appendix IV] 

Appendix V: Florida: 

Overview: 

The following summarizes GAO's work on the sixth of its 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, 
http://www.gao.gov/recovery]. 

Florida has been deeply affected by the national economic recession, 
exceeding the national unemployment and home foreclosure rates as well 
as facing budget gaps. The state has taken steps to reduce 
expenditures and increase revenues and has used Recovery Act funds to 
address its short-term economic hardship. Florida officials expect 
state agencies, cities, counties, non-profits, and other organizations 
to receive about $20 billion in Recovery Act funds over multiple years 
through formula and competitive grants. Additional funding goes 
directly to individuals through unemployment compensation, increased 
food stamp assistance, and other programs. 

What We Did: 

Our work in Florida focused on specific programs funded under the 
Recovery Act. From January to May 2010, we collected relevant data to 
understand how they were using funds (see table 1). Our review focused 
exclusively on these entities and our results cannot be generalized to 
Florida or nationwide. For descriptions and requirements of the 
programs we covered, see appendix XVIII of GAO-10-605SP. 

Table 1: Sites Selected for the Sixth Round, Rationale, and Work Done: 

Program: Workforce Investment Act of 1998 (WIA) Dislocated Worker 
Program; Entities and sites selected: 
* Florida Agency for Workforce Innovation (FAWI); 
* Eight local workforce boards based on increases in unemployment 
rates as compared to all Florida counties. The eight boards 
collectively received 45 percent of the total Recovery Act WIA 
allotment to state; Methodology and information collected: 
* FAWI: Conducted interviews on state and workforce boards' 
implementation of program and reporting of obligations to the U.S. 
Department of Labor (Labor); 
* Gathered data from each of the eight local boards and visited two: 
Region 20, Workforce Solutions; and Region 23, South Florida Workforce 
Investment Board. 

Program: Weatherization Assistance Program; Entities and sites 
selected: 
* Florida Department of Community Affairs (DCA); 
* Three subgrantees: Suwannee River Economic Council, Inc., Pinellas 
County Urban League, and Indiantown Non-Profit Housing, Inc. Selected 
subgrantees based on the size of the respective programs and 
geographic dispersion; Methodology and information collected: 
* DCA: Discussed management controls in place; 
* Subgrantees: Selected 36 weatherization cases either randomly or 
judgmentally based on geographic dispersion within the subgrantees' 
service areas to review for documentation supporting compliance with 
DCA requirements, such as income eligibility; however, we did not 
independently verify clients' income; 
* Weatherized homes: Visited 29 homes to determine that 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, and we received technical assistance from a consulting 
engineering firm on issues involving heating, ventilation, and air 
conditioning equipment; 
* Visited University of Central Florida, Solar Energy Center, which is 
training local weatherization inspectors, and interviewed center 
officials. 

Program: Public Housing Capital Fund Program (formula grant); Entities 
and sites selected: 
* Jacksonville and Miami Department of Housing and Urban Development 
(HUD) field offices; 
* Four public housing agencies, two of which obligated less than 50 
percent of their Recovery Act Capital Fund formula grants as of mid-
February 2010 (Pasco County and city of Lakeland) and two of which had 
obligated more than 50 percent as of the same date (cities of Orlando 
and Sarasota); Methodology and information collected: 
* HUD field offices: Interviewed officials about pace of obligations 
and HUD's oversight and technical assistance; 
* Public housing agencies: Inquired about challenges in obligating 
funds, reporting, and HUD's oversight and technical assistance at four 
selected agencies. Interviewed officials at agencies about internal 
controls and collected relevant documents; at Orlando Housing 
Authority, performed limited testing of internal controls over certain 
financial transactions and their compliance with requirements of the 
Recovery Act Capital Fund formula grant. We did not independently 
determine whether the goods/services paid for were received and met 
various requirements, such as Buy American. 

Program: Clean Water and Drinking Water State Revolving Funds; 
Entities and sites selected: 
* One Drinking Water project in city of North Miami Beach and one 
Clean Water project in city of Stuart; Methodology and information 
collected: 
* Reviewed Florida's method of awarding these Recovery Act funds and 
its approach to ensure accountability. We did no testing of controls, 
such as Buy American, or whether goods/services paid for were received. 

Program: State and local budgets; 
Entities and sites selected: 
* State budget officials; 
* One city, Orlando (population 230,519), and its county, Orange 
County (population 1,086,480), because both have high unemployment 
rates--11.5 percent and 12 percent for Orlando and Orange County, 
respectively, as of March 2010--and are among the areas experiencing 
the highest foreclosure rates relative to the state average; 
Methodology and information collected: 
* Interviewed state officials on state's use of Recovery Act funds and 
reviewed budget documentation; 
* Interviewed city of Orlando and Orange County officials on use and 
amount of Recovery Act funds received, and strategies for addressing 
challenges when Recovery Act funds are no longer available, and 
reviewed localities' budget documents. 

Program: Transparency and accountability (recipient reporting and 
Single Audit Project); Entities and sites selected: 
* Florida Auditor General; 
* Florida Department of Education; 
* Florida Agency for Workforce Innovation; 
* A Florida public housing agency; 
* Florida Recovery Czar and inspectors generals; Methodology and 
information collected: 
* Assessed the involvement of Florida officials participating in the 
federal Office of Management and Budget's (OMB) Single Audit Pilot 
Project by reviewing audit findings, recommendations, and corrective 
actions taken as a result of the project; 
* Discussed recipient reporting as well as audit work planned or 
completed; 
* Interviewed officials and reviewed documentation at a local 
educational agency, an institution of higher education, and a public 
housing agency in Florida regarding job calculations for the second 
and third rounds of recipient job reporting. These entities were 
selected because they are among the largest recipients of education 
and public housing Recovery Act funds in Florida. 

Source: GAO. 

[End of table] 

What We Found: 

We reviewed the implementation of several Recovery Act programs in 
Florida and found that state agencies and other grant recipients are 
generally meeting statutory deadlines or goals for obligating Recovery 
Act funds, meaning that recipients have contracts in place to begin 
work or provide services. However, several recipients we visited said 
they faced implementation challenges, such as understanding new 
requirements under tight time frames for obligating funds. Moreover, 
in a few of the programs reviewed, we identified several compliance 
challenges and control gaps that state officials committed to address. 

* Dislocated Worker Recovery Act Funds. The state agency administering 
the WIA program has data on local workforce boards' expenditures of 
their entire WIA allocation (Youth, Adult, and Dislocated Worker), but 
state officials reported not having data on local boards' obligation 
of funds. Half of the eight local boards we contacted regarding their 
dislocated worker allocation--to be used for employment and training 
activities to assist workers dislocated by layoffs or terminations-- 
reported obligating or spending their entire allocation of funds by 
January 31, 2010. All eight boards reported using Dislocated Worker 
funds to place additional people in employment-related training; 
taking steps to address demand for services; having data-collection 
and reporting procedures that accounted for Recovery Act funds; and 
using site visits to monitor performance of those receiving funds. In 
doing our work, we learned that the state agency overseeing Florida's 
workforce system has been reporting obligations data to the U.S. 
Department of Labor (Labor) that do not satisfy Labor's definition for 
obligations. The state agreed to change the way data are reported. 

* Weatherization. Florida has established a variety of management 
controls for weatherizing residences using Recovery Act funds and has 
significantly increased the pace of home weatherizations between 
September 2009 and March 2010 to a total of 1,987 single family homes 
as of March 31, 2010, according to data received from the state. We 
found several gaps in the controls, resulting in problems undetected 
by program personnel or noncompliance. At the three subgrantees we 
reviewed, we found some instances of work done that was of 
unacceptable quality or inconsistent with planned work, or work 
charged but not done, and potential health or safety issues that were 
not addressed. In addition, we raised with state officials that 
stronger guidance and oversight by the state Department of Community 
Affairs (DCA), which administers the program, could help to ensure 
that subgrantees use local market rate information to obtain fair and 
reasonable prices for goods and services, as required for spending 
Recovery Act funds. DCA and subgrantees agreed to act on our 
suggestions to address the problems we identified. 

* Public Housing Recovery Act Capital Fund Formula grants. According 
to HUD, public housing agencies in Florida receiving Recovery Act 
Capital Fund formula grants met the March 17, 2010 deadline for 
obligating these funds. In our review of internal control 
documentation at four selected public housing agencies, we found each 
had internal control policies for procurement and for Recovery Act-
required information. 

* Drinking Water and Clean Water and State Revolving Funds. Florida 
officials told us all Recovery Act-funded projects were under contract 
by the February 17, 2010 deadline. However, state officials said they 
faced challenges in processing the high volume of drinking water and 
clean water project requests while some local subrecipients had to 
take additional steps to meet state contracting requirements and 
Recovery Act requirements for U.S.-made construction materials. 

* State and Local Budgets. Florida officials project a slight 
improvement in the state's fiscal condition; however, they expect the 
economy may take a long time to recover fully. Officials said that 
Recovery Act funds have not eliminated, but have limited, the need to 
use reserves to balance the state's general fund budget. Officials in 
Orlando and Orange County said Recovery Act funds have been used 
mainly for short-term strategies to provide services to communities, 
with funds contributing a small amount to their budgets. 

* Transparency and accountability. Florida's Recovery Czar expressed 
concern that the total Florida award amounts posted on the federal 
Recovery Act Web site are overstated due in part to double-counting of 
submitted recipient reports caused by agencies assigning different 
award identifiers from one round to the next. Also, at one of the 
recipients we visited we identified errors in data collection and 
reporting of jobs created and retained for the second and third rounds 
of reporting. In addition, Florida was one of 16 states participating 
in a federal project to communicate audit findings earlier. Most of 
the Florida officials we spoke with expressed concerns about the 
project's usefulness, especially given the increased work load. In 
addition to participating in the project, various state agencies 
continue to provide oversight of Florida's spending of Recovery Act 
funds. 

Most Workforce Boards Appear on Track to Meet Recovery Act Spending 
Deadlines, but State Needs to Report Correct Obligations Information: 

Most Florida workforce boards appear on track to spend their Workforce 
Investment Act (WIA) Recovery Act allocations. WIA Recovery Act funds 
must be spent by June 30, 2011 to provide employment and training 
services to job seekers. As of January 31, 2010, 19 of the state's 24 
local area boards have spent half or more of their combined WIA Adult, 
Dislocated, and Youth allocation, according to data collected by the 
state. Because the state reported that it did not collect data on 
local boards' obligations, we queried boards about a subset of their 
total allocations--those for dislocated workers. Half of the eight 
boards we contacted reported obligating or spending their entire 
allocation of these funds (see figure 1). All eight also reported 
placing additional people in training using these funds. For example, 
the workforce board for the local area that includes Orlando, reported 
placing over 1,200 people in training using these funds.[Footnote 2] 
According to workforce officials, various factors may explain boards' 
obligations, spending, and number of people trained using Recovery Act 
funds. These include local demand for training, training providers' 
class schedules, and decisions boards made given the flexibility 
afforded them. Officials at all eight boards told us they used various 
strategies to address increased demand for services, including hiring 
additional staff, increasing service hours and locations, and 
utilizing on-line resources and linked their ability to provide 
services to the availability of Recovery Act funds. They also said 
they had reporting and data-collection procedures that accounted for 
Recovery Act funds and that they used site visits as part of 
monitoring performance. 

In collecting information on boards' obligations and expenditures, we 
learned that, when filing its quarterly financial reports to Labor, 
the state agency overseeing Florida's workforce system was not 
following the definition of obligations Labor specifies in its 
guidance.[Footnote 3] According to state workforce officials, the 
state reported its obligations, not those of local workforce boards as 
required. Under the Workforce Investment Act of 1998 the local boards' 
obligations are the basis for reallocating funds. Florida officials 
said they would change how they report obligations. 

Figure 1: Commitment of Dislocated Worker Recovery Act Funds by Eight 
Workforce Boards, as of January 31, 2010: 

[Refer to PDF for image: map of Florida and accompanying data] 

Percentage of Dislocated Worker Recovery Act funds: 

Region: 6; 
Total Dislocated Worker Recovery Act funds: $291,788; 
Unobligated: 60%; 
Accrued: 30%; 
Obligated: 0; 
Expended: 10%. 

Region: 7; 
Total Dislocated Worker Recovery Act funds: $291,710; 
Unobligated: 0; 
Accrued: 0; 
Obligated: 51%; 
Expended: 49%. 

Region: 8; 
Total Dislocated Worker Recovery Act funds: $5.0 million; 
Unobligated: 33%; 
Accrued: 9%; 
Obligated: 22%; 
Expended: 36%. 

Region: 11; 
Total Dislocated Worker Recovery Act funds: $1.7 million; 
Unobligated: 54%; 
Accrued: 7%; 
Obligated: 19%; 
Expended: 20%. 

Region: 12; 
Total Dislocated Worker Recovery Act funds: $5.8 million; 
Unobligated: 29%; 
Accrued:0; 
Obligated: 12%; 
Expended: 59%. 

Region: 17; 
Total Dislocated Worker Recovery Act funds: $1.7 million; 
Unobligated: 0; 
Accrued:14%; 
Obligated: 53%; 
Expended: 33%. 

Region: 20; 
Total Dislocated Worker Recovery Act funds: $2.1 million; 
Unobligated: 0; 
Accrued:0; 
Obligated: 9%; 
Expended: 91%. 

Region: 23; 
Total Dislocated Worker Recovery Act funds: $9.1 million; 
Unobligated: 0; 
Accrued:2%; 
Obligated: 81%; 
Expended: 17%. 

Sources: GAO analysis of data submitted by eight Florida local area 
boards; National Atlas of the United States of America (base map). 

Note: To select sites, we first examined Bureau of Labor Statistics 
data on the net change in unemployment in Florida counties from 
December 2008 to December 2009. We selected those counties with the 
greatest net gain and identified their local workforce board. Region 
15, Tampa Bay WorkForce Alliance, Inc., was captured in our original 
selection but we excluded it because of ongoing work related to a 
report by the Florida Office of Inspector General. The eight workforce 
boards we selected collectively received 45 percent of the total WIA 
Recovery Act allotment to the state of Florida. 

Accruals are amounts owed for goods and services that have been 
received but for which cash has not yet been disbursed. Expenditures 
are cash disbursements or outlays. Obligations are legally binding 
commitments to expend funds. 

According to Labor, states received their funding allocations in March 
2009. Some boards moved a portion of their Dislocated Worker 
allocation to their WIA Adult Program. The allocations in the graphic 
above reflect these transfers. 

[End of figure] 

Florida Weatherization Assistance Program Has Controls in Place, but 
We Identified Some Compliance Issues and Control Gaps: 

The Recovery Act Weatherization Assistance Program is intended to 
weatherize homes, save energy, improve health and safety and create 
jobs. To accomplish these goals, DCA funded 27 subgrantees, which 
include local governments and nonprofit organizations, most of which 
had managed prior DCA weatherization projects. Other subgrantees were 
selected through a competitive process. In addition to weatherizing 
homes (e.g., insulating walls and attics, caulking), subgrantees are 
required by DCA to address, within limits, health and safety issues 
related to weatherization work (e.g., lead-based paint).[Footnote 4] 
The program also has recipient eligibility requirements.[Footnote 5] 
Table 2 shows the amount of Recovery Act funds allocated to Florida as 
well as the funds obligated and expended as of March 31, 2010. Florida 
plans to spend about $145.2 million on weatherization of 19,090 
private and multifamily units and about $31 million has been set aside 
for training and technical assistance. However, if DCA determines that 
any training and technical assistance funds will not be utilized at 
the state level, it said that it will allocate the remaining funds to 
subgrantees meeting or surpassing their production goals to weatherize 
additional dwellings. 

Table 2: Florida's Weatherization Assistance Program Allocation, Funds 
Obligated and Expended as of March 31, 2010: 

Recovery Act Weatherization Assistance Program grant total allocation 
2009-2012: $176.0 million; Allocation received: $88.0 million (50 
percent of total allocation); Obligated funds: $58.1 million; Expended 
funds: $22.3 million. 

Source: Data from the Florida Department of Community Affairs. 

[End of table] 

Florida Has Significantly Increased Weatherization Pace: 

Despite a slow start to weatherizing homes in 2009, Florida reports 
increasing home weatherizations in 2010. However, the slow start means 
that DCA is working to close a gap between homes weatherized and DCA's 
overall goal to date. Subgrantees did not begin Recovery Act 
weatherizations until September 2009. Several factors affected 
startup: receipt of funds from the U.S. Department of Energy, hiring 
and training subgrantee staff, identifying and orienting new 
contractors, and implementing Davis-Bacon wage requirements after 
delays in receiving updated wage rates from Labor. Notwithstanding 
these factors, as figure 2 shows, Florida reported continuously 
increasing its home weatherizations since September 2009, weatherizing 
a total of 1,987 single-family homes as of March 31, 2010.[Footnote 6] 
Because Florida reported achieving only about 43 percent of its home 
weatherization goal for the last 4 months of 2009, DCA is about 30 
percent below its overall goal as of March 31, 2010. Nonetheless, 
Florida officials reported achieving about 93 percent of their goal 
for the first 3 months of 2010, and exceeding their goal for March 
2010 by 23 homes. 

Figure 2: Actual Homes Weatherized Compared to Monthly Goals for 
Florida Weatherization Assistance Program: 

[Refer to PDF for image: vertical bar graph] 

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

Date: October 2009; 
Goal: 288; 
Actual: 76. 

Date: November 2009; 
Goal: 473; 
Actual: 187. 

Date: December 2009; 
Goal: 432; 
Actual: 268. 

Date: January 2009; 
Goal: 506; 
Actual: 418. 

Date: February 2009; 
Goal: 519; 
Actual: 469. 

Date: March 2009; 
Goal: 532; 
Actual: 555. 

Source: DCA. 

[End of figure] 

In addition, as of March 26, 2010, Florida reported about 870 homes in 
progress and over 8,000 clients on subgrantees' waiting lists or 
qualified to receive benefits. DCA's 3-year goal is to weatherize at 
least 19,090 dwellings by March 31, 2012, including 13,812 single- 
family and 5,278 multifamily residences. Florida is also preparing to 
initiate its multifamily residence weatherizations: A DCA official 
said two contracts for 320 units in Escambia County are at the final 
stages. DCA officials said that through continued high production on 
single family homes and launching of its multifamily initiative, they 
should meet their target of weatherizing at least 5,700 homes 
statewide by the end of September 2010. Although Florida has not 
established a goal, DCA plans to measure energy savings. Thus far the 
data it collects to measure program results show that home heating and 
air conditioning systems should operate less frequently and more 
efficiently based on weatherization improvements.[Footnote 7] As of 
March 31, 2010, DCA reports that its weatherization program has saved 
or created 339 jobs. 

DCA Has Established and Implemented a Variety of Management Controls: 

As we previously reported, and recently found, DCA has instituted a 
variety of management controls, such as policies for determining and 
documenting (1) client eligibility and priority for services, (2) 
completion of home energy audits before work is performed, (3) work 
priorities and maximum allowable costs, and (4) accuracy of data 
entered into the state's data system and proper reimbursement. 
[Footnote 8] In addition, DCA requires training for certain subgrantee 
staff and their construction contractors and that both clients and 
subgrantees approve completed work. DCA also reviews subgrantees' 
operations, their requests for reimbursements, clients' files, and 
corrective actions. It also plans to visit at least 10 percent of the 
homes weatherized. As of March 31, 2010, DCA had completed operations 
reviews of eight subgrantees and inspected 49 homes for completed 
weatherization work, according to DCA officials. DCA has also 
addressed some performance issues among subgrantees, replacing 3 of a 
total of 27 subgrantees for previous poor performance. Since November 
2009, DCA has contracted with field monitors to verify subgrantees' 
data entries, review 100 percent of client files, and inspect 50 
percent of homes completed. As of the end of March 2010, DCA reports 
that contract monitors reviewed 1,899 of 1,987 client files in which 
subgrantees sought payment[Footnote 9] and inspected 983 completed 
homes.[Footnote 10] DCA's Inspector General and Florida's Auditor 
General have reviewed or plan to review the weatherization program. In 
addition, the U.S. Department of Energy reviewed DCA's weatherization 
assistance program in February 2010. 

Subgrantees We Visited Generally Met Program Requirements, but We 
Identified Some Compliance Issues and Control Gaps: 

DCA and its subgrantees have made good progress in implementing the 
Weatherization Assistance Program, which has involved navigating 
multiple new requirements and quick time frames for Recovery Act-
funded programs. However, our review identified issues in the 
following areas: 

Client Eligibility: 

The 36 client files we reviewed typically contained the eligibility 
information required by DCA. However, there were exceptions. For 
example, 23 files were missing some of the required documentation, 
including proof of a disability (required by DCA for priority 
services) or a copy of a Social Security card. These problems were not 
noted by DCA's contract field monitors in client files we reviewed. 
[Footnote 11] 

Home Energy Audits: 

Subgrantees typically followed DCA requirements for home energy 
audits--used to determine appropriate weatherization as well as health 
and safety improvements needed--in the 36 client files we reviewed and 
at three home sites where we observed audits. However, while 
weatherization work was generally consistent with the priorities 
established in the audit, in 22 of the 36 client files, 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, refrigerator, or smart thermostat was either recommended 
in the audit but not done, or done without recommendation. The reasons 
for these actions were not recorded, as required by DCA policy. When 
we spoke with subgrantees, they offered reasonable explanations such 
as changes occurring after an audit, but acknowledged there were 
inconsistencies and agreed to be more diligent. These inconsistencies 
also were not noted in the contract field monitors' reports we 
reviewed. An explanation for some discrepancies, for example, was that 
two items listed on the audit form--faucet aerators and smart 
thermostats--were not listed on DCA's form to record completed work. 
We raised this matter with DCA officials and they agreed to correct 
this problem. 

Weatherization Work: 

We found that all work charged to the program was authorized, 
performed, and appeared to be of acceptable quality in 22 of the 29 
homes we visited. For the other 7, work was authorized, but some of 
the listed improvements were either not completed or lacked quality. 
For example, at one home recorded as completed in December 2009, the 
program was charged for a smart thermostat that had not been installed 
and for solar window screens, some of which were being installed as we 
were inspecting the home 2 months later in February 2010. The 
subgrantee said the screens were replacements for those installed 
improperly.[Footnote 12] At this same home, the door on a shed built 
to house a new hot-water heater did not function properly. Yet the 
homeowner and the subgrantee's inspector had signed the completed 
inspection form and noted no problems. At another home, the program 
was charged for three window air conditioning units, but only two had 
been installed, and for air filters that had not been delivered. One 
of the window units was not installed tightly enough to prevent air 
leakage. The seven homes with issues had been inspected by DCA's 
contract field monitors, who did not note the problems in their 
reports. The subgrantees agreed to correct the problems we noted. 

Health and Safety: 

As required by DCA policy, home energy audits performed by the three 
subgrantees we reviewed covered health and safety issues. However, we 
found three potential health or safety issues that had not been 
addressed and that reflected a breakdown in a subgrantee or DCA 
management control, or both. We alerted the subgrantees and DCA about 
these issues and they agreed to take appropriate action. 

Air quality: 

Of 36 inspection files we reviewed, 14 were at one subgrantee, and in 
10 of those we found that at the subgrantee's inspection, air flow 
through the homes was insufficient, possibly affecting indoor air 
quality.[Footnote 13] We also found the issue had not been identified 
in the monitoring reports prepared by DCA's field monitor or by DCA's 
staff, who had recently completed a review of the subgrantee. The 
principal research engineer at Florida Solar Energy Center, which 
provides weatherization training to subgrantee staff throughout 
Florida, said that in general, when an 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. DCA officials 
said they would clarify DCA's guidance and explore refresher training 
or technical assistance on ventilation rates. In addition, DCA 
officials agreed to require subgrantees to add the minimum ventilation 
rate for each residence to the work completion report filed with DCA 
so this requirement can more easily be checked. 

Electrical hazards and removal of hazardous equipment: 

In three of the homes we inspected, we found potential safety hazards. 
In two of the homes the owners told us their circuit breakers 
"tripped" when they ran the heat cycle of the window heating and air 
conditioning units installed by the subgrantees. In one case our 
inspection identified a window unit that exceeded the limit 
recommended for shared circuits, at least when turned to heating. 
[Footnote 14] Although DCA's energy audit form calls for an assessment 
of a residence's electrical panel, it does not specifically require a 
load assessment for planned weatherization work. DCA officials said 
they would expect subgrantees to do one and would clarify guidelines. 
The third safety issue involved the subgrantee not removing 
noncompliant heating units prior to work. The subgrantee installed a 
window heating and air conditioning unit but had not removed two 
unvented kerosene heaters from the home.[Footnote 15] The home's 
energy audit report noted the unvented kerosene heaters, with the 
qualification that there was no fuel. When we visited the home, one of 
the heaters was being used and kerosene storage cans were inside the 
home. When we noted the violation, the subgrantee agreed to correct 
the problem. In each of these cases, DCA's contract field monitors had 
inspected weatherization work in the homes but did not note these 
problems in their reports. At one of the homes where circuit breakers 
"tripped", the owner addressed the problem prior to our inspection; at 
the other, the subgrantee reported taking corrective action in April 
2010. 

Fair and Reasonable Prices: 

After our review of three subgrantees, state officials agreed that 
procurement practices at two of the three subgrantees were not fully 
consistent with DCA's requirements and raised questions about whether 
subgrantees always paid prices that were fair and reasonable.[Footnote 
16] These practices also revealed possible gaps in DCA's manual. One 
of the three subgrantees advertised for competitive, fixed-price bids 
for labor and materials for weatherization work, but often received 
only one or two bids and did not have documentation showing a 
comparison of bid prices to local-market rates to ensure price 
"reasonableness." Bid packages were not consistently included in 
client files. Another subgrantee told us they initially advertised for 
bids for labor and materials, but found the process too cumbersome and 
negotiated prices with a contractor, rotating work among five firms. 
We found that the subgrantee also had no documentation showing 
comparison of prices negotiated to local-market rates, and in some 
client files we reviewed, the contractor's "bid" price was dated on or 
after the invoice date. After we brought these problems to their 
attention, the two subgrantees said they would focus more attention on 
these contracting issues. DCA's contract field-monitor reports did not 
note the issue we found in their case file reviews.[Footnote 17] 
Regarding competition, the two subgrantees said they were skeptical of 
being able to get additional bidders due to such reasons as the nature 
and profit potential of weatherization work compared to other work, 
the condition or locations of many of the homes to be served, or 
program requirements such as Davis-Bacon wage provisions. The third 
subgrantee, which performed weatherization work with in-house staff, 
told us they used an open, competitive process to get unit-price bids 
for most of its needed materials, and contracted for an analysis of 
local labor and materials costs for weatherization work in its service 
area as well as several other areas in Florida. DCA officials agreed 
that the comparative approach and information this subgrantee used 
could be helpful to other subgrantees. 

Although we recognize that a variety of factors can affect 
subgrantees' ability to get competitive bids, the competition and 
pricing issues do not appear to be sufficiently covered under DCA's 
current monitoring program, and it's Weatherization Assistance 
Programs Procedures and Guidelines manual does not call for review and 
approval of subgrantees' acquisition policies and procedures. We 
believe that the manual does not explain DCA's expectations in 
situations with no or limited competition or how subgrantees should 
document their determination that the prices obtained are indicative 
of local rates. DCA officials agreed to address the concerns we noted. 

In commenting on the overall results of our review, DCA said that many 
of the concerns or areas of non-compliance we noted have been 
addressed by issuance of a program notice to subgrantees or by a state 
monitor. In addition, when we raised our concern that contract field 
monitors had apparently missed a number of the weatherization issues 
we identified, DCA said that they planned to take various other 
actions, such as revising to its program and field monitoring 
procedures and guidelines, to address several of the issues we had 
raised, and that these issues would be discussed at its annual 
statewide meeting of subgrantees in May 2010. 

Florida Public Housing Agencies Obligated Recovery Act Funds by 
Deadline, and Those We Visited Had Internal Control Policies: 

According to U.S. Department of Housing and Urban Development (HUD) 
officials, all Florida public housing agencies met the March 17, 2010 
Capital Fund formula grants deadline for Recovery Act funds by either 
obligating all of their funds or rejecting or returning a portion of 
their grant funds by March 17, 2010. Grant funds are intended to 
improve the physical condition of public housing properties. Of 110 
public housing agencies in Florida, 82 eligible agencies collectively 
received about $86 million in Recovery Act Capital Fund formula 
grants. Prior to this deadline, 2 of the 82 eligible agencies returned 
some or all of their funds--totaling about $194,000--to HUD.[Footnote 
18] As of March 17, 2010, the recipient agencies had drawn down a 
cumulative total of $29.7 million from the obligated funds. HUD 
reports that recipient agencies are using Recovery Act funds to make 
improvements to almost 2,900 public housing units in Florida. 

The four agencies we selected received approximately 8 percent of 
total Recovery Act Capital Fund formula grants to Florida. Table 3 
shows the obligations, expenditures, and types of projects undertaken. 

Table 3: Recovery Act Capital Fund Recipient Obligations and 
Expenditures as of March 17, 2010: 

Public housing agencies: All eligible Florida public housing agencies; 
Recovery Act Capital Fund grants: $85,505,627; Funds obligated by the 
agencies by March 17 deadline: $85,311,543; Funds drawn down by 
agencies by March 17[A]: $29,687,265; Recovery Act-funded projects at 
selected housing agencies: [Empty]. 

Public housing agencies: Orlando Housing Authority; Recovery Act 
Capital Fund grants: $3,582,587; Funds obligated by the agencies by 
March 17 deadline: $3,582,587; Funds drawn down by agencies by March 
17[A]: $2,442,183; Recovery Act-funded projects at selected housing 
agencies: Soil abatement, demolition of a building, and various 
smaller projects including removing clothesline poles and 
rehabilitating a children's spray pool. 

Public housing agencies: Sarasota Housing Authority; Recovery Act 
Capital Fund grants: $1,132,916; Funds obligated by the agencies by 
March 17 deadline: $1,132,916; Funds drawn down by agencies by March 
17[A]: $111,744; Recovery Act-funded projects at selected housing 
agencies: Redevelopment, including kitchen renovation in 100 units; 
painting; installing energy efficient, hurricane-resistant windows; 
and, energy-efficient mini-split air conditioning units. 

Public housing agencies: The Housing Authority of the City of 
Lakeland; Recovery Act Capital Fund grants: $1,457,334; Funds 
obligated by the agencies by March 17 deadline: $1,457,334; Funds 
drawn down by agencies by March 17[A]: $59,137; Recovery Act-funded 
projects at selected housing agencies: Total rehabilitation of 20-unit 
building with "green" standards. 

Public housing agencies: Pasco County Housing Authority; Recovery Act 
Capital Fund grants: $383,805; Funds obligated by the agencies by 
March 17 deadline: $383,805; Funds drawn down by agencies by March 
17[A]: $21,053; Recovery Act-funded projects at selected housing 
agencies: Various management improvements and deferred maintenance, 
such as kitchen renovations, resurfacing of roads, erosion control, 
irrigation, installing water heaters and rear screen doors, and making 
one vacant unit handicap accessible. 

Source: HUD and public housing agencies. 

[A] Funds must be completely expended by March 17, 2012. 

[End of table] 

Officials at three of the four public housing agencies we visited said 
Recovery Act funds allowed them to complete planned projects sooner 
than planned, broaden the work's scope or complexity, or avoid staff 
layoffs. For example, Lakeland officials said Recovery Act housing 
funds will allow them to complete rehabilitation of housing units this 
year rather than over several years, including improvements to receive 
gold certification as an energy-efficient or "green" building. 
[Footnote 19] 

Officials we visited also identified various challenges to quickly 
obligating Recovery Act funds, including difficulties in combining 
funds from multiple federal sources, identifying projects with 
appropriate timelines for Recovery Act spending, creating policies 
required by the Recovery Act,[Footnote 20] and identifying additional 
projects when contract bids on some planned projects came in under the 
agency's cost estimates. Officials also identified reporting 
challenges, including accessing systems and establishing passwords in 
three required reporting databases. Agency and HUD officials said that 
efforts to quickly obligate Recovery Act Capital funds did not 
interfere with their administration of regular Capital Fund grants. 
Officials at the agencies credited the staff at Miami and Jacksonville 
HUD field offices with providing timely and helpful technical 
assistance and outreach. 

Our review of internal controls documentation of the four public 
housing agencies we visited found each had written internal control 
policies for procurement and various financial policies detailing 
separation of duties and approvals required for specific expenditure 
levels. In addition, limited testing of Orlando's internal control 
over certain financial transactions and the agency's compliance with 
certain Recovery Act requirements found no material issues.[Footnote 
21] However, the Orlando agency's financial policy states that 
contractors must accompany payment requests with certain HUD and 
agency forms even though officials said the forms are actually 
required only for contracts lasting over 30 days and valued at more 
than $100,000. We suggested officials clarify the procedure in its 
financial policy, and they agreed to this revision. 

In addition to our work, in September 2009 HUD's Office of Inspector 
General issued an audit that identified several internal control 
weaknesses and provided recommendations to strengthen the Miami-Dade 
Housing Authority's controls over administering Recovery Act funds to 
carry out capital and management activities.[Footnote 22] For example, 
the Inspector General found the agency's procurement procedures had 
weaknesses, such as not maintaining sufficient records detailing the 
history of the process followed for each contract, and had not 
properly prioritized its Recovery Act-funded activities. According to 
HUD officials, recommendations contained in the report were addressed 
by March 9, 2010, and the Miami-Dade Housing Authority obligated all 
of its Recovery Act funds by the March 17, 2010 deadline. 

Florida Successfully Met Contracting Deadline for Drinking Water and 
Clean Water Projects: 

Florida officials told us they successfully met the Recovery Act's 
February 17, 2010 deadline for having Drinking Water and Clean Water 
projects under contract.[Footnote 23] Florida's Department of 
Environmental Protection (DEP) received more than $88 million in 
Recovery Act funds for its Drinking Water State Revolving Fund (SRF) 
projects and more than $132 million for its Clean Water SRF projects 
in federal fiscal year 2009.[Footnote 24] These additional Recovery 
Act funds were three times larger than the state's 2009 federal base 
grants for Drinking Water and five times its Clean Water federal base 
grants. A DEP official in charge of the SRF program funding said 
Recovery Act funds helped pay for 40 Drinking Water and 28 Clean Water 
projects. (See figure 3.) 

Figure 3: Total Florida State Revolving Fund (SRF) Levels for Fiscal 
Years 2006-2009 and Number and Types of Projects Funded by Recovery 
Act Money in Fiscal Year 2009: 

[Refer to PDF for image: illustration] 

Federal funding: 

Year: 2006; 
Drinking-water funds: $37 million; 
Clean-water funds: $30 million. 

Year: 2007; 
Drinking-water funds: $37 million; 
Clean-water funds: $39 million. 
Year: 2008; 
Drinking-water funds: $38 million; 
Clean-water funds: $23 million. 

Year: 2009; 
Drinking-water funds: $117 million (Recovery Act funds: $88 million); 
Clean-water funds: $158 million (Recovery Act funds: $132 million). 

2009 Recovery Act-funded projects by type: 

Of the 40 drinking-water projects: 
14 were for a new subrecipient; 
7 were for “green” projects; 
34 were in disadvantaged communities. 

Of the 28 clean-water projects: 
8 were for a new subrecipient; 
4 were for “green” projects; 
18 were in disadvantaged communities. 

Source: GAO analysis of data from EPA and state, and information from 
state DEP officials. 

Note: Subrecipients are generally counties and cities. A new 
subrecipient is an entity that had not previously received SRF funds. 
Under the Recovery Act, green projects include those that promote 
green infrastructure and energy or water efficiency, as well as 
projects that demonstrate new or innovative ways to manage water 
resources in a sustainable way. 

[End of figure] 

State officials told us they used existing systems for ranking 
projects for projects to be funded with Recovery Act funds.[Footnote 
25] However, they said they were sometimes overwhelmed by the number 
of documents to review and prioritize. A DEP official said department 
employees had to review $950 million in Drinking Water project 
applications and $1.5 billion in Clean Water project applications from 
localities to award $88 million and $132 million, respectively. 

Subrecipients we spoke with reported taking additional steps to meet 
state and Recovery Act requirements. In North Miami Beach, officials 
said they took additional steps to meet state contracting requirements 
when they only received one bid.[Footnote 26] To ensure the 
procurement process yielded a reasonable price for its Drinking Water 
SRF contract to remove vinyl chloride from city wells, the city used 
its consultants to compare prices in the bid to market prices. DEP 
reviewed the city's required cost analysis to determine whether prices 
were fair and reasonable and approved the project. City water 
officials said that without Recovery Act funds they would not have 
proceeded because the project's costs had the potential to increase 
user rates to pay for the new debt needed for the project.[Footnote 
27] The city of Stuart also took additional steps to ensure its Clean 
Water SRF project met Recovery Act requirements. Stuart is using SRF 
funds to reclaim wastewater to irrigate athletic fields, which helps 
preserve its drinking water. A city official expressed concern about 
the required Buy American certification of one project contractor, but 
after numerous conversations, the city official concluded that because 
the filter components were incorporated during the fabrication of the 
filter in Dayton, Ohio, it met this Recovery Act provision. 

State officials also told us about a Buy American issue in Vero Beach. 
The city installed 600 feet of foreign-made steel casing based upon 
early Environmental Protection Agency (EPA) Buy American guidance that 
officials said was unclear. The city's consulting engineer told us she 
received conflicting guidance, with DEP initially telling the engineer 
that the city could forgo the use of U.S.-made steel if the cost 
exceeded the cost of foreign-made steel by more than 25 percent. The 
engineer said EPA guidance later clarified that foreign-made 
components could only be used in Recovery Act projects if American 
products, such as steel, increased the total cost of a project by more 
than 25 percent. DEP replaced the project's Recovery Act funding with 
base SRF funding not subject to the Buy American provisions to cover 
the cost of the project. 

Florida officials told us they added new Recovery Act requirements and 
procedures for its SRF to ensure they met the Davis-Bacon, Buy 
American, and Recovery Act reporting provisions. According to 
officials in North Miami Beach and Stuart, they also established 
procedures for project oversight and monitoring per Recovery Act 
requirements. For example, North Miami Beach checks Davis-Bacon wage 
rates when the contractor submits weekly certified payrolls. 

Florida Uses Recovery Act Funds to Address Budget Gaps While 
Localities Mainly Use Funds for Nonrecurring Expenses: 

Florida officials project a slight improvement in the state's fiscal 
condition based on revenue projections for the current fiscal year 
(2009-2010), but they expect the state's economy may take a long time 
to recover fully. State officials said revenue trends have stabilized 
due to a moderate increase in the general revenue fund resulting from 
increases to driver's license, motor vehicle, and court fees approved 
by the state legislature in 2009. Officials are not anticipating a 
budget shortfall this fiscal year and expect about a $1.1 million 
surplus in general revenue to carry forward to the next fiscal year, 
which begins July 1, 2010. As we have reported, Florida's efforts to 
reduce expenditures and increase revenues are expected to offset the 
substantial decrease in Recovery Act funds beginning in 2011.[Footnote 
28] However, Florida's unemployment rate is 12 percent. And population 
growth--a driver of Florida's economic growth--is projected to remain 
relatively flat over the next few years, while revenue collections are 
still billions of dollars less than before the recession. 

For the state's fiscal year 2010-2011, Florida budget officials said 
the Governor proposed using $2.5 billion in Recovery Act funds for 
education, health and human services, transportation, and general 
government operations. The legislature passed the budget in late April 
2010, but according to state officials the final budget, pending the 
Governor's review and approval, has not been signed as of early May 
2010. Officials said Recovery Act funds have not eliminated, but have 
limited, the need to use reserves to balance the state's general fund 
budget. Florida may need to reduce expenditures further when Recovery 
Act funds substantially decrease beginning in fiscal year 2011; 
however, officials said shortfalls might be offset by a state-
projected increase in revenues. 

To examine the use and effect of Recovery Act funds on local budgets, 
we selected two localities: one city, Orlando, and its county, Orange 
County. Officials in both localities said Recovery Act funds have been 
used mainly for short-term strategies to provide services to 
communities.[Footnote 29] Overall, Recovery Act funding contributed a 
small percentage of the city's and county's budgets: Orlando's $9.6 
million and Orange County's $22.1 million in Recovery Act funds--which 
will be received over multiple years--account for a small fraction of 
the 2009-2010 operating budgets of about $360 million and $748 million 
for Orlando and Orange County, respectively. The program area 
receiving the largest amount of funding in Orlando is public safety at 
$5.4 million and in Orange County is energy efficiency at $8.7 
million. (See table 4.) 

Table 4: Recovery Act Grants and Contracts to Orlando and Orange 
County, Fiscal Years 2009-2012: 

Program area: Energy efficiency; 
Orlando project or federal award: Energy Efficiency and Conservation 
Block Grant used for a city facility and privately-owned residences; 
$2.7 million over 3 years; Orange County project or federal award: 
Energy Efficiency and Conservation Block Grant and Weatherization 
Assistance Program to reduce fossil fuel emissions and energy use; 
$8.7 million over 3 years. 

Program area: Housing; 
Orlando project or federal award: Homeless Prevention and Rapid Re 
housing Program for housing expense assistance and Community 
Development Block Grant for installation of under-drains; $1.5 million 
over 3 years; Orange County project or federal award: Homeless 
Prevention and Rapid Re-housing Program for housing expense assistance 
and Community Development Block Grant for energy-efficiency 
initiatives; $4.2 million over 3 years. 

Program area: Human services; 
Orlando project or federal award: Not applicable; Orange County 
project or federal award: Head Start for teacher training and 
Community Services Block Grant to provide employment-related services 
to low-income communities; $2.1 million over 1 year. 

Program area: Public safety; 
Orlando project or federal award: COPS Hiring Recovery Program 
(CHRP)(salaries of officers)[A]; Edward Byrne Memorial Justice 
Assistance Grant for activities such as purchasing portable radios and 
tasers; and STOP Violence Against Women to address domestic violence; 
$5.4 million over 1 to 4 years; Orange County project or federal 
award: Edward Byrne Memorial Justice Assistance Grant for substance 
abuse treatment and equipment purchases including laptop computers and 
digital radios; $7.1 million over 1 to 4 years. 

Program area: Total Recovery Act funding; Orlando project or federal 
award: $9.6 million over multiple years; Orange County project or 
federal award: $22.1 million over multiple years. 

Source: GAO analysis of federal and state data. 

[A] Although the city and county are generally using funds for 
nonrecurring expenses, Orlando is using about $3.1 million in CHRP 
funds over the 3 years in which funds are available to restore 15 of 
29 sworn police officer positions eliminated from the current year 
budget, 2009-2010. CHRP requires grantees to fund the positions with 
state or local funds, or both, for a fourth year. City officials said 
that they are currently formulating strategies to retain the positions 
after CHRP funding is no longer available. 

[End of table] 

Given that local officials said Recovery Act funds have generally not 
been used to balance localities' budgets, city and county officials 
explained they have taken several actions to address continuing budget 
gaps, including eliminating vacant positions, freezing hiring, cutting 
department budgets, and using reserves. Officials in Orlando said that 
although they have used general fund reserves to balance the budget 
for fiscal years 2008-2009 and 2009-2010, reserve balances are 
currently at maximum required levels.[Footnote 30] 

Florida Officials Expressed Concerns about Recipient Reporting and 
Single Audit Project While State Continues to Provide Oversight: 

Florida Recovery Czar Voiced Concerns about Double Counting of 
Recipient Reports: 

The state Recovery Czar said the second and third rounds of recipient 
reporting appeared to go more smoothly than the first round. He did 
express concern that funding awarded to Florida posted on 
Recovery.gov, the federal government's Web site to track Recovery Act 
spending nationwide, overstated awards by about $463 million for the 
first-and second-round of recipient reports covering the period 
February 17, 2009 through December 31, 2009. For example, his analysis 
of second-round data found that some first-and second-round reports 
were treated as separate projects but should have been linked, 
resulting in double counting of awards and overstating total Recovery 
Act funds awarded to Florida.[Footnote 31] According to the Recovery 
Accountability and Transparency Board (the Board), which manages 
Recovery.gov, federal agencies could assign different award 
identifiers from one round to the next, and the Recovery Czar said 
when dollar amounts were summed for Recovery.gov, it resulted in 
double counting of some amounts reported. In our March 2010 report, we 
raised similar concerns about the quality of the data reported. 
[Footnote 32] OMB, the Board, and federal program agencies are working 
to resolve this issue and have taken steps to minimize this issue for 
round three.[Footnote 33] 

Recipients We Visited Generally Met Reporting Requirements, but We 
Identified Job Calculation Gaps: 

We found that the full-time equivalent (FTE) calculations done by the 
local educational agency (LEA) and a public institution of higher 
education (IHE) we visited were adequately supported by documentation 
and were computed in accordance with federal guidance during the third 
round of Recovery Act reporting.[Footnote 34] However, we identified 
issues at a public housing agency, which reports on its funds 
directly, not through Florida's centralized system.[Footnote 35] At 
the LEA and IHE we found that the number of jobs reported for the 
third round was calculated in accordance with OMB guidance and 
consistent with the FTE calculation method used in the previous round. 
Documentation maintained by these entities also supported the number 
of jobs reported for the third round.[Footnote 36] In contrast, at the 
public housing agency we identified errors in data collection and 
reporting of jobs created and retained for the second and third 
rounds. A housing agency official said a change in executive 
management in November 2009 resulted in confusion about how to meet 
recipient reporting requirements. OMB and HUD guidance requires that 
an agency collect hours worked from the contractors and calculate jobs 
created and retained based on an FTE formula. However, officials at 
the public housing agency said they did not collect hours worked from 
their two contractors in the second round and instead repeated the 
numbers from the first round. In addition, we found that for the third 
round of reporting, the two contractors counted each part-time worker 
as a full-time worker instead of reporting hours worked as required 
for FTE computation. Although the housing agency is responsible for 
ensuring that jobs are reported based on FTEs, an official said they 
reported the job numbers provided by the contractors and did not 
follow up with the contractors to confirm their job calculations. 
Furthermore, although the agency also maintains hourly payroll data 
submitted by the contractors, the official said they did not verify 
that the payroll data matched the number of FTEs reported by the 
contractor. We discussed these issues with the public housing agency 
official and he said that he agreed with our finding and planned to 
revise the recipient report for round three. 

Florida Officials Involved in Single Audit Project Expressed Concerns 
about Its Usefulness: 

OMB implemented a Single Audit Internal Control Project (project) in 
October 2009. One of the goals of the project is to help achieve more 
timely communication of internal control deficiencies for higher-risk 
Recovery Act programs so that corrective action can be taken. The 
project is a collaborative effort between the states receiving 
Recovery Act funds that volunteered to participate, their auditors, 
and the federal government. Under the project's guidelines, 
significant internal control deficiencies were to be reported to 
management and federal officials 3 months sooner than the 9-month time 
frame required by the Single Audit Act and OMB Circular No. A-133 for 
Single Audits. Sixteen states volunteered for the project including 
Florida, whose auditors issued their interim reports on internal 
control for selected major Recovery Act programs by December 31, 2009. 
[Footnote 37] 

Most of the Florida officials we spoke with expressed concerns about 
the project's usefulness. According to the Auditor General's office, 
the project added additional reports to the typical audit cycle and 
may have delayed completion of audits for some programs. The 
additional reporting resulted in some duplication, such as duplicated 
exit discussions of findings with program managers. The Auditor 
General also indicated that absent an interim report, an audited 
entity would still be aware of any issues due to ongoing discussions 
with Auditor General staff. His view was echoed by one state program 
manager. A state manager from another program noted that the short 
time frames associated with interim reporting resulted in the need to 
revise an audit finding, which took additional time. The Auditor 
General's office said interim reporting may be more helpful for 
federal agencies than it is to state agencies given that ongoing 
discussions between the state auditor and program management occur at 
the state level. One state program manager said receiving interim 
audit recommendations did allow for earlier implementation of agency 
financial improvements. 

Improvements to the Single Audit process suggested by the Auditor 
General's office included providing more timely guidance, for example, 
in February of the year to be audited, to facilitate planning, and 
allowing auditors more flexibility in identifying major programs and 
reporting findings of significance. 

State Oversight Agencies Continue to Play Oversight Role for Recovery 
Act Funds: 

Various Florida state agencies provide oversight of Florida's spending 
of Recovery Act funds, as we have previously reported.[Footnote 38] 
The Auditor General's work related to the Recovery Act is primarily 
being conducted under the Single Audit Act. For the fiscal year ended 
June 30, 2009, the Auditor General conducted Single Audits of state 
governments and numerous school district boards that included Recovery 
Act funds. For example, in the Single Audit of state government, the 
Auditor General found that the Florida Department of Education (FDOE) 
had not implemented certain information-technology controls governing 
cash-management practices, which FDOE agreed to address. In addition 
to focusing on training, technical assistance, and risk assessments, 
Florida's Chief Inspector General said the inspector general (IG) 
community is at different stages in its review of Recovery Act 
programs, depending on factors such as workload and timing of when 
Recovery Act funds are used by recipients and subrecipients. For 
example, the Inspector General of the Florida Department of Community 
Affairs (DCA) is in the process of reviewing the weatherization 
program, but her work has been delayed due to staffing issues. 
However, according to the Inspector General for the Florida Department 
of Law Enforcement, it reviewed supporting documentation for selected 
subrecipients and found some discrepancies in the number of jobs and 
or hours reported.[Footnote 39] 

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 Czar), 
with a draft of this appendix on May 7, 2010. In general, the Florida 
state official agreed with our draft and provided some clarifying 
information, which we incorporated, as appropriate. 

GAO Contacts: 

Andrew Sherrill, (202) 512-7215 or sherrilla@gao.gov: 

Bernard Ungar, (202) 512-7215 or ungarb@gao.gov: 

Staff Acknowledgments: 

In addition to the contacts named above, Michael Armes, Susan Aschoff, 
Patrick di Battista, Lisa Galvan-Trevino, Cheri Harrington, Sabur 
Ibrahim, Kevin Kumanga, Frank Minore, Brenda Ross, Margaret Weber, and 
James Whitcomb made major contributions to this report. 

[End of section] 

Footnotes: 

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

[2] Because job seekers can use self services (e.g., on-line and 
computer-based job search resources) remotely or at the career centers 
the boards oversee, the number of people served using such funds, in 
all likelihood, surpasses the number placed in training. 

[3] Any effect this error had was potentially mitigated by a waiver 
Labor granted Florida. This waiver allowed Florida to recapture funds 
from local workforce boards based on their expenditures. The waiver 
was not renewed for the remainder of program year 2009. 

[4] 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. DCA allows subgrantees to spend an 
average of $6,500 per home for weatherization and related services, 
and up to $600 per home for correction of related health and safety 
issues. 

[5] Recipients of these services may not have total household income 
exceeding 200 percent of the national poverty level, with preference 
given to homeowners, the elderly (60 and over), residents with 
disabilities, families with children under 12, and households with 
high utility bills. 

[6] We assessed the reliability of these data by comparing the number 
of completed homes reported by DCA to the number of homes reported 
completed by DCA's contract field monitors for two subgrantees we 
reviewed for selected time periods, interviewing DCA officials, and 
reviewing the results of a similar test done by DCA's Inspector 
General. We determined that the data were sufficiently reliable for 
our purposes. 

[7] According to DCA, weatherization work to date has resulted in a 
reduction of about 28 percent in air infiltration. 

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

[9] Prior to the contract-monitoring program, 88 cases were reviewed 
by DCA staff. 

[10] In addition, DCA recently awarded a contract to provide fiscal 
monitoring and technical assistance to 14 subgrantees on implementing 
program procedures, developing internal controls and accounting 
protocols, and is in the process of modifying the contract to include 
all 27 subgrantees, according to a DCA official. Furthermore, DCA 
plans to award a contract for oversight, training, and technical 
assistance to subgrantees on the Davis-Bacon wage and reporting 
requirements. 

[11] We did not independently verify client income. DCA's income- 
verification procedures are broad, and DCA officials agreed to 
reexamine them to address related potential vulnerabilities that may 
exist. 

[12] Based on DCA's policy requirements, this home should not have 
been reported as a closed case or charged to the program because all 
work had not been completed and found acceptable. 

[13] The extent to which the final air flow readings were below the 
minimums calculated by the subgrantee varied, ranging from less than 1 
percent difference to almost 40 percent. DCA's energy audit form 
states that the final air flow measurement must be higher than the 
minimum rate calculated, or work to improve air flow/ventilation must 
be done. 

[14] According to the National Electrical Code, fixed equipment, such 
as heating/air conditioning units, on a shared circuit should not 
exceed 50 percent of the circuit's current-carrying rating. 

[15] DCA policy prohibits the use of un-vented gas heating units as a 
primary heating source in a weatherized home, and their use as a 
secondary heating source unless they meet certain requirements. 

[16] DCA's May 2009 Weatherization Assistance Programs Procedures and 
Guidelines states that subgrantees are responsible for (1) ensuring 
that all bids for goods and services contracted are made in a manner 
to provide, to the maximum extent possible, open and free competition, 
and (2) determining that costs charged to the program for material and 
labor are indicative of local rates. 

[17] Although the contract field monitor for the first subgrantee said 
he did not review pricing in his file review, he did note a case 
during a home inspection in which a weatherization measure had been 
overpriced. He said the subgrantee recovered the overcharge from the 
contractor. 

[18] According to HUD officials, the two public housing agencies 
returning funds received Recovery Act Capital Fund formula grants 
based on having qualified housing units. However, one public housing 
agency demolished its units and was not able to initiate work on 
developing new units by the obligation deadline; the other used part 
of its funds to demolish its existing units and returned the remaining 
funds. 

[19] The Leadership in Energy and Environmental Design (LEED) Green 
Building Rating System certifies that a building was designed and 
built for sustainability and energy efficiency. It has 4 levels: 
certified, silver, gold, and platinum. 

[20] The Recovery Act required public housing agencies to comply with 
provisions not required for the regular Capital Fund grant, such as 
the "Buy American" provision. 

[21] We selected 12 of 23 transactions (non-salary/non-benefit) 
related to the Recovery Act Capital Fund formula grant, which 
represented about 93 percent of the total dollar value of 
transactions, available as of March 8, 2010. We reviewed whether the 
transactions were allowable and adequately supported by documentation, 
such as approved invoices and whether payments were made to approved 
vendors. 

[22] HUD, Miami-Dade Public Housing Agency Needs to Strengthen 
Controls over Its American Recovery and Reinvestment Act Funds, Audit 
Memorandum No.: 2009-AT-1801 (Atlanta, GA, Sept. 25, 2009). 

[23] Drinking Water funds are used for drinking-water infrastructure 
projects and Clean Water funds are used for wastewater, storm water, 
and non-point source infrastructure projects. 

[24] Florida did not use all of the Recovery Act funds for its 
Drinking Water SRF to fund projects. As allowed under amendments to 
the Safe Drinking Water Act (SDWA), the state used a part of its funds 
to support various non-infrastructure activities which have public 
health benefits and assist in compliance with SDWA, such as technical 
assistance to small systems. 

[25] Priority is given to those Drinking Water projects that address 
the most serious risks to human health, ensure compliance with federal 
and state drinking-water regulations, and assist systems most in need 
on a per household basis (affordability). Clean water projects are 
given priority according to the extent each project is intended to 
remove, mitigate, or prevent adverse effects on surface or ground 
water quality and public health. 

[26] In cases with only one bid, officials said the state requires 
subrecipients to evaluate the specific elements of proposed costs and 
profits. 

[27] An estimated $2.5 million of the $3.0 million Recovery Act loan 
is in the form of principal forgiveness, meaning the city does not 
have to pay back these funds. 

[28] 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. 
2009). 

[29] City and county Recovery Act funds referred to in this section 
include only funds administered by city and county governments and not 
the full scope of Recovery Act funds--including unemployment 
insurance, Medicaid, and highways--that benefit city and county 
residents. For example, Recovery Act highway funds are being used in 
Orlando and Orange County that total $3.8 million and $12.9 million, 
respectively. 

[30] City and county officials explained that Central Florida has been 
affected by the economic downturn, including high numbers of 
foreclosures, decreased home values, and a related drop in property-
tax revenues. This revenue accounts for about 30 percent and 50 
percent of the general fund in Orlando and Orange County, 
respectively. In Orlando, the 2009 median home value was $130,000 
compared with $220,000 in 2008, and foreclosures have risen to about 
31,000 in 2009 compared to an average of 3,000 to 4,000 prior to 2008, 
officials stated. In addition, a decline in tourism decreased sales-
tax revenues because hotel occupancy rates dropped, officials said. 

[31] Florida has a centralized system into which all 17 state agencies 
report, then the information is uploaded to the federal system, 
FederalReporting.gov. 

[32] GAO, Recovery Act: One Year Later, States' and Localities' Uses 
of Funds and Opportunities to Strengthen Accountability, [hyperlink, 
http://www.gao.gov/products/GAO-10-437] (Washington, D.C.: Mar. 3, 
2010). 

[33] In the third reporting period ending March 31, 2010, the Recovery 
Czar said he has identified a total of 188 potentially erroneous 
Recovery Act fund awards--awarded to Florida through federal and state 
agencies--listed with mismatched identifiers that were double counted 
and with other types of errors. 

[34] At the LEA, there was enough documentation to support the 
reported numbers for the specific grant we reviewed, with the 
exception of an immaterial variance of .90 of an FTE for Title I grant 
funds, which the LEA identified and plans to adjust in the next 
quarterly report, ending June 30th. 

[35] Public housing agencies, as prime recipients do not report to the 
Florida system because they receive Recovery Act funding directly from 
a federal agency and not through a state agency. 

[36] OMB now defines FTEs to be reported under section 1512 of the 
Recovery Act as the total number of hours worked and funded by 
Recovery Act dollars within the reporting quarter divided by the 
quarterly hours in a full-time schedule. 

[37] The following 16 states volunteered to participate in the 
project: Alaska, California, Colorado, Florida, Georgia, Louisiana, 
Maine, Missouri, Nevada, North Carolina, Ohio, Oklahoma, South Dakota, 
Tennessee, Texas, and Virginia. 

[38] GAO has previously reported that Florida has various agencies 
responsible for monitoring, tracking, and overseeing financial 
expenditures, assessing internal controls and ensuring compliance with 
state and federal laws and regulations that include the Office of the 
Chief Inspector General, Auditor General, and the Department of 
Financial Services. Also, each state agency has an Office of Inspector 
General responsible for conducting audits and investigations and 
providing technical assistance. The Auditor General has broad audit 
authority in Florida and routinely conducts Single Audits. The Florida 
Department of Financial Services is responsible for settling the 
state's expenditures and reporting financial information. Independent 
certified public accountants also conduct annual financial audits of 
local government entities. 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); [hyperlink, 
http://www.gao.gov/products/GAO-09-1017SP]; 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.: Apr. 23, 2009). 

[39] The Inspector General plans to select subrecipients of various 
grants for review each quarter. 

[End of Appendix V] 

Appendix VI: Georgia: 

Overview: 

The following summarizes GAO's work on the sixth of its bimonthly 
reviews of American Recovery and Reinvestment Act of 2009 (Recovery 
Act) spending in Georgia.[Footnote 1] 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 these programs funded under the Recovery Act--the 
Weatherization Assistance Program, the Clean and Drinking Water State 
Revolving Funds, the Public Housing Capital Fund, and the Tax Credit 
Assistance and Section 1602 Tax Credit Exchange Programs. We looked in 
more depth at the Weatherization Assistance Program because the 
Recovery Act funds were a large increase over Georgia's annual 
allocations and work had been under way for several months. We began 
work on the Clean and Drinking Water State Revolving Funds and 
continued work on the Public Housing Capital Fund because key Recovery 
Act deadlines passed during the review period. We began work on the 
Tax Credit Assistance and 1602 Tax Credit Exchange Programs--which 
provide capital investments in low-income housing tax credit projects--
because significant Recovery Act funds had been obligated. For 
descriptions and requirements of the programs covered in our review, 
see appendix XVIII of GAO-10-605SP. Finally, we focused on the use of 
Recovery Act funds by selected localities and the state's efforts to 
ensure accountability over funds. 

What We Found: 

Following are highlights of our review. 

* Weatherization Assistance Program. The U.S. Department of Energy 
(Energy) allocated about $125 million in Recovery Act weatherization 
funding to Georgia for a 3-year period. As of the end of March 2010, 
the 22 contracted service providers in the state had completed 1,538 
(about 11 percent) of the 13,617 homes to be weatherized with these 
funds by March 2012. The state has taken a number of steps to increase 
production, including providing additional training for new 
weatherization workers. While monitoring has been slow to start, the 
state has taken measures to address deficiencies we identified in 
providers' procedures for determining client income eligibility and 
prioritizing work. 

* Clean and Drinking Water State Revolving Funds. The Environmental 
Protection Agency (EPA) allocated about $122 million in Recovery Act 
funding to Georgia for the Clean and Drinking Water State Revolving 
Funds. The state used most of these funds to provide assistance to 59 
projects. It reserved 21 percent of its Clean Water funds and 22 
percent of its Drinking Water funds for green projects (such as those 
that increase energy or water efficiency) and ensured that 
subrecipients entered into construction contracts by February 17, 2010. 

* Public Housing Capital Fund. The U.S. Department of Housing and 
Urban Development (HUD) allocated about $113 million in Recovery Act 
funding to 184 public housing agencies in Georgia to improve the 
physical condition of their properties. As of May 1, 2010, these 
agencies had obligated all of their funds and drawn down about $35 
million. All met the Recovery Act requirement to obligate their funds 
within 1 year of the date they were made available. 

* Tax Credit Assistance and Section 1602 Tax Credit Exchange Programs. 
Georgia received about $54.5 million in Tax Credit Assistance Program 
funds and approximately $195.6 million in Section 1602 Tax Credit 
Exchange Program funds. As of April 30, 2010, the state had committed 
$184.3 million (about 74 percent) under both programs for 31 projects, 
including the rehabilitation of 300 units for the elderly and persons 
with disabilities in Atlanta, Georgia, and the construction of 52 
units for persons over age 55 in Sandersville, Georgia. The state 
expects to commit the remainder of its funds by June 2010. 

* Selected localities' use of Recovery Act funds. DeKalb County, the 
City of Savannah, and the City of Albany had been awarded $25.4 
million, $9.6 million, and $5.9 million, respectively, as of May 4, 
2010. These localities received funds for purposes ranging from 
improving energy efficiency to hiring police officers. 

* Accountability efforts. The State Auditor participated in the U.S. 
Office of Management and Budget's (OMB) Single Audit Internal Control 
Project, which required earlier communication of significant 
deficiencies and material weaknesses in internal controls over 
Recovery Act funds. The resulting report identified several 
deficiencies at the Georgia Department of Transportation that the 
department has implemented changes to address. Further, the State 
Inspector General investigated two Recovery Act complaints, and 
several internal audit departments have plans to audit or are already 
auditing Recovery Act funds. 

Georgia Has Been Taking Steps to Increase Production in the 
Weatherization Assistance Program and Address Program Deficiencies: 

Under the Recovery Act, the Georgia Environmental Facilities Authority 
(GEFA), the agency that administers the Weatherization Assistance 
Program, will receive approximately $125 million to weatherize 13,617 
homes by March 2012.[Footnote 2] Energy approved Georgia's 
weatherization plan on June 26, 2009, for the period April 1, 2009, 
through March 31, 2012. GEFA awarded contracts to 22 service 
providers--community action agencies, nonprofit agencies, or local 
governments--which were in place prior to the Recovery Act. 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). [Footnote 3] 

Although Production Has Increased in Recent Months, Georgia's Recovery 
Act Weatherization Program Has Not Met Goals: 

As of the end of March 2010, 1,538 homes (about 11 percent) had been 
weatherized and about $15.3 million of the $99.7 million awarded to 
service providers (about 15 percent) had been spent.[Footnote 4] In 
March 2010, providers weatherized 370 units, below the monthly 
production goal of about 500 homes (see figure 1). Although Georgia 
did not meet this goal, Energy asked the state to increase its monthly 
production to 700 units from April through September 2010. 

Figure 1: Homes Weatherized in Georgia, August 2009 through March 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; 
Goal: 115; 
Actual: 205.

Date: January 2010; 
Goal: 231; 
Actual: 219. 

Date: February 2010; 
Goal: 496; 
Actual: 312. 

Date: March 2010; 
Goal: 508; 
Actual: 370. 

Source: GEFA. 

[End of figure] 

Progress made by individual providers varied. Four providers, 
including the three largest, had completed 5 percent or less of their 
targeted number of homes as of the end of March 2010. The highest rate 
was 21 percent. Table 1 shows the percentage of funds spent and homes 
weatherized by all 22 service providers, as of the end of March 2010. 

Table 1: Percentage of Funds Expended and Homes Weatherized by Service 
Provider, as of the end of March 2010: 

Service provider: Coastal Plain Area Economic Opportunity Authority, 
Inc.; Counties served: 10; 
Contract amount: $4,886,875; 
Percentage drawn down: 18%; 
Homes to be weatherized: 590; 
Homes weatherized through March: 125; Percentage of homes weatherized: 
21%. 

Service provider: Tallatoona Community Action Partnership, Inc.; 
Counties served: 6; 
Contract amount: $4,103,205; 
Percentage drawn down: 25%; 
Homes to be weatherized: 563; 
Homes weatherized through March: 119; Percentage of homes weatherized: 
21%. 

Service provider: EOA for Savannah-Chatham County Area, Inc.; Counties 
served: 1; 
Contract amount: $2,743,978; 
Percentage drawn down: 12%; 
Homes to be weatherized: 371; 
Homes weatherized through March: 76; 
Percentage of homes weatherized: 20%. 

Service provider: West Central Georgia Community Action Council, Inc.; 
Counties served: 8; 
Contract amount: $2,448,384; 
Percentage drawn down: 23%; 
Homes to be weatherized: 336; 
Homes weatherized through March: 63; 
Percentage of homes weatherized: 19%. 

Service provider: Southwest Georgia Community Action Council, Inc.; 
Counties served: 14; 
Contract amount: $5,469,280; 
Percentage drawn down: 17%; 
Homes to be weatherized: 753; 
Homes weatherized through March: 140; Percentage of homes weatherized: 
19%. 

Service provider: Concerted Services, Inc. - Waycross; Counties 
served: 8; 
Contract amount: $3,455,919; 
Percentage drawn down: 23%; 
Homes to be weatherized: 478; 
Homes weatherized through March: 78; 
Percentage of homes weatherized: 16%. 

Service provider: Middle Georgia Community Action Agency, Inc.; 
Counties served: 12; 
Contract amount: $6,358,846; 
Percentage drawn down: 22%; 
Homes to be weatherized: 870; 
Homes weatherized through March: 130; Percentage of homes weatherized: 
15%. 

Service provider: Concerted Services, Inc. - Reidsville; Counties 
served: 9; 
Contract amount: $4,163,318; 
Percentage drawn down: 19%; 
Homes to be weatherized: 574; 
Homes weatherized through March: 83; 
Percentage of homes weatherized: 14%. 

Service provider: Heart of Georgia Community Action Council, Inc.; 
Counties served: 9; 
Contract amount: $2,764,125; 
Percentage drawn down: 21%; 
Homes to be weatherized: 379; 
Homes weatherized through March: 54; 
Percentage of homes weatherized: 14%. 

Service provider: Coastal Georgia Area Community Action Authority, 
Inc.; Counties served: 6; 
Contract amount: $3,384,006; 
Percentage drawn down: 30%; 
Homes to be weatherized: 468; 
Homes weatherized through March: 66; 
Percentage of homes weatherized: 14%. 

Service provider: Clayton County Community Action Authority, Inc.; 
Counties served: 3; 
Contract amount: $3,250,251; 
Percentage drawn down: 11%; 
Homes to be weatherized: 452; 
Homes weatherized through March: 56; 
Percentage of homes weatherized: 12%. 

Service provider: North Georgia Community Action, Inc.; Counties 
served: 10; 
Contract amount: $5,471,460; 
Percentage drawn down: 9%; 
Homes to be weatherized: 752; 
Homes weatherized through March: 91; 
Percentage of homes weatherized: 12%. 

Service provider: City of Albany; 
Counties served: 1; 
Contract amount: $1,546,104; 
Percentage drawn down: 15%; 
Homes to be weatherized: 209; 
Homes weatherized through March: 25; 
Percentage of homes weatherized: 12%. 

Service provider: Overview, Inc.; 
Counties served: 7; 
Contract amount: $2,463,271; 
Percentage drawn down: 21%; 
Homes to be weatherized: 340; 
Homes weatherized through March: 38; 
Percentage of homes weatherized: 11%. 

Service provider: Area Committee to Improve Opportunities Now, Inc.; 
Counties served: 10; 
Contract amount: $5,010,500; 
Percentage drawn down: 13%; 
Homes to be weatherized: 687; 
Homes weatherized through March: 70; 
Percentage of homes weatherized: 10%. 

Service provider: Partnership for Community Action, Inc.; Counties 
served: 3; 
Contract amount: $6,926,773; 
Percentage drawn down: 8%; 
Homes to be weatherized: 956; 
Homes weatherized through March: 92; 
Percentage of homes weatherized: 10%. 

Service provider: Gwinnett County Board of Commissioners; Counties 
served: 1; 
Contract amount: $3,284,888; 
Percentage drawn down: 7%; 
Homes to be weatherized: 461; 
Homes weatherized through March: 44; 
Percentage of homes weatherized: 10%. 

Service provider: Community Action for Improvement, Inc.; Counties 
served: 6; 
Contract amount: $4,138,220; 
Percentage drawn down: 16%; 
Homes to be weatherized: 569; 
Homes weatherized through March: 44; 
Percentage of homes weatherized: 8%. 

Service provider: Central Savannah River Area EOA, Inc.; Counties 
served: 13; 
Contract amount: $7,000,302; 
Percentage drawn down: 12%; 
Homes to be weatherized: 962; 
Homes weatherized through March: 50; 
Percentage of homes weatherized: 5%. 

Service provider: Enrichment Services Program, Inc.; Counties served: 
8; 
Contract amount: $3,758,994; 
Percentage drawn down: 11%; 
Homes to be weatherized: 512; 
Homes weatherized through March: 25; 
Percentage of homes weatherized: 5%. 

Service provider: Southeast Energy Assistance; Counties served: 1; 
Contract amount: $8,196,838; 
Percentage drawn down: 16%; 
Homes to be weatherized: 1,112; 
Homes weatherized through March: 40; 
Percentage of homes weatherized: 4%. 

Service provider: Ninth District Opportunity, Inc.; Counties served: 
14; 
Contract amount: $8,837,469; 
Percentage drawn down: 9%; 
Homes to be weatherized: 1,223; 
Homes weatherized through March: 29; 
Percentage of homes weatherized: 2%. 

Service provider: Total; 
Counties served: 160; 
Contract amount: $99,663,006; 
Percentage drawn down: 15%; 
Homes to be weatherized: 13,617; 
Homes weatherized through March: 1,538; Percentage of homes 
weatherized: 11%. 

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] 

Weatherization work has been delayed for a variety of reasons. GEFA 
officials explained that work has been delayed at the largest 
providers primarily because of the need to hire and train new crews. 
GEFA is coordinating training for all of the providers and has 
contracted out its Recovery Act training.[Footnote 5] As of early 
April 2010, the contractor had offered 16 training classes to about 
300 students.[Footnote 6] However, GEFA officials explained that there 
was still an unmet need for training. The large provider we visited 
explained that delays were due to changes in the way services were 
provided. To help meet the increased Recovery Act production targets, 
Ninth District officials began contracting out services that it had 
previously performed using in-house crews. They are still refining 
their contracting procedures, but expect them to be fully implemented 
by June 2010. 

According to GEFA officials, they have taken steps to increase 
production. First, GEFA has encouraged its training contractor to add 
classes and required at least one person from each provider to be 
trained to help provide on-the-job training to new staff. The 
contractor also plans to visit each provider to offer on-site 
technical assistance. Second, GEFA required each provider to create a 
monthly production plan. Third, it modified the providers' contracts 
to include actions it could take if the provider did not meet 
production goals or work quality standards.[Footnote 7] 

GEFA Expanded its Planned Oversight of the Weatherization Program, but 
Has Been Slow to Start Monitoring: 

GEFA has expanded its oversight of the Recovery Act Weatherization 
Assistance Program by hiring a senior program manager and fiscal 
monitor, buying a new Web-based reporting tool, and hiring contractors 
for field and desk monitoring. The senior program manager works with 
providers and ensures compliance with contracts, regulations, and 
program goals. The fiscal monitor will visit each service provider to 
review policies, practices, and internal controls; examine invoices 
and payroll records; and identify problems. As of April 2, 2010, the 
fiscal monitor had conducted three site visits. GEFA officials expect 
a new Web-based reporting tool for managing weatherization assistance 
programs, which will provide real-time information on production and 
energy savings and standardized reporting, to be in place by July 
2010. Currently, GEFA relies on monthly paper reports. 

GEFA also has contracted with the University of Georgia Cooperative 
Extension (UGA) for program oversight to be conducted by 26 monitors-- 
13 desk monitors and 13 field monitors.[Footnote 8] Prior to the 
Recovery Act, GEFA's goal was to visit providers once a year. For the 
Recovery Act program, 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. 
[Footnote 9] However, monitoring did not start until March 2010, and 5 
of the 26 positions were vacant as of April 1, 2010. GEFA staff have 
conducted technical assistance visits, but no formal on-site 
monitoring occurred before monitors were hired. 

UGA submitted its first monthly monitoring report, which consisted of 
desk and field reports, on April 2, 2010. Because desk monitors had 
not been hired for the three providers we visited, no desk reports 
were submitted. The field reports for the three providers we visited 
summarized insufficiencies for each house inspected, but did not 
describe the provider's overall performance or major findings. In 
addition, some individual inspection reports were incomplete. 
According to GEFA and UGA officials, future monitoring reports will 
include on-site assessment reports that rate each provider as very 
good, good, or unacceptable in 17 areas, such as file documentation, 
subcontractor administration, and program and financial reporting. The 
reports also will describe issues that are of significant concern, 
such as violations of eligibility guidelines or health and safety 
problems. 

File Reviews Identified Some Deficiencies: 

Our review of 25 files and other documentation during site visits 
conducted at three service providers found that providers 
inconsistently followed Energy and GEFA guidance for procuring 
contractors, prioritizing clients for service, determining client 
eligibility, and prioritizing work.[Footnote 10] We raised these 
issues with GEFA, and officials said they are taking steps to address 
them. 

Procuring Contractors: 

GEFA's Weatherization Procedures Manual and the contract the providers 
signed with GEFA include guidelines about contractor procurement and 
compliance with Recovery Act provisions such as Davis-Bacon wage 
requirements.[Footnote 11] We found that some of these requirements 
were not consistently followed. 

Ninth District: According to GEFA and Ninth District officials, the 
Ninth District did not initially use a competitive process to 
determine the contract price for each house, a GEFA requirement. 
Rather, officials explained that they solicited bids from contractors 
and developed a standard price for each item. On the basis of guidance 
from GEFA, the Ninth District changed its procurement methods in 
February 2010. According to officials, work now is competitively bid 
from a pool of three to five subcontractors, and contracts awarded per 
home based on price, timelines, and previous performance and 
workmanship history. 

Albany: We reviewed four contracts and did not find language requiring 
compliance with Recovery Act requirements, including Davis-Bacon 
prevailing wages. We also found and Albany officials agreed that the 
contracts did not include GEFA's requirement that each contractor have 
liability insurance of at least $3 million in aggregate and $1 million 
per occurrence; instead, each included a $300,000 threshold. 

EOA-Savannah: EOA-Savannah officials confirmed that the contracts we 
reviewed were awarded competitively and included Recovery Act 
provisions. However, they were not awarded for a specified amount. 
[Footnote 12] Savannah officials told us they used a competitive 
process to identify the lowest bidder, but the contracts did not 
include the prices negotiated with the contractor. According to the 
officials, contractors provide a verbal price for approval before 
beginning work, with a final invoice payable after completing work. 
Further, we found and EOA-Savannah officials confirmed that Savannah's 
contractors did not carry the state-required level of liability 
insurance, with coverage ranging from $1 million to $2 million in 
aggregate. 

According to GEFA officials, they have identified issues related to 
procurement, such as a need for more education on contracting 
requirements. GEFA plans to provide procurement training for 
providers, but has not yet found a contractor to lead the training. 
UGA monitors also will review each provider's contracts and 
procurement processes to ensure compliance with GEFA policies. 

Prioritizing Clients: 

GEFA identified populations to be given priority for assistance in the 
Recovery Act weatherization plan it submitted to Energy: the elderly, 
elderly with a disability, and persons with disabilities. Households 
containing children and households with high energy use or burden also 
were given priority. GEFA included the priorities in its contract with 
service providers, which also lists other criteria including potential 
energy savings and benefits directed to unit occupants. 

EOA-Savannah and Albany officials explained that they prioritized 
clients based on age, disability status, presence of children, and 
energy burden, but there was no documentation in the files we reviewed 
that supported this. The Ninth District had developed a prioritization 
sheet for each client that awarded points based on demographics 
(elderly, family status, income, house type), with the most points 
awarded to elderly clients and persons with disabilities. Ninth 
District officials were able to provide this sheet for four of the 
five homes in our file review.[Footnote 13] 

While GEFA's guidance for client prioritization may not be implemented 
consistently, GEFA officials stated that their new Web-based reporting 
tool (scheduled for release in July) should automate and standardize 
prioritization. More specifically, the system will prioritize 
applicants based on age (households with people under 12 or over 60), 
disability status, household size, waiting time, high energy use or 
burden, and poverty level. 

Determining Client Income Eligibility: 

A home is eligible for the Recovery Act Weatherization Assistance 
Program if household income is at or below 200 percent of the poverty 
level.[Footnote 14] Energy provided guidance to states on how to 
determine income eligibility, and GEFA distributed that guidance to 
providers and included a checklist on its application form.[Footnote 
15] However, the GEFA form does not include all the types of income in 
Energy's guidance. It includes public assistance payments, wages and 
self-employment income, and retirement payments such as Social 
Security but excludes interest, dividends, rental property, and 
annuities and other types of nonretirement income. The 25 files we 
reviewed did not include evidence that interest or dividend 
information (or other types of income excluded from the application) 
was considered during application. 

UGA officials stated two monitors had identified problems with income 
verification and conducted additional training with providers. In 
addition, UGA monitors developed a sample file with the types of 
documentation that providers' files should contain; it includes a 
comprehensive checklist of sources of income to consider for income 
eligibility. The checklist should help providers, but none of the 
files we reviewed contained it. 

Prioritizing Weatherization Work: 

Energy guidance allows states to use priority lists (subject to 
Energy's approval) in conjunction with an energy audit to prioritize 
weatherization activities.[Footnote 16] GEFA's approved list includes 
air sealing and attic insulation as the highest priority items and 
heating and cooling systems and water heaters as the lowest priorities. 

According to GEFA officials, GEFA's provider contract requires that 
the priority list be followed and that an assessment form relating to 
the list be completed for each home. However, two of the three 
providers we visited did not consistently use this form. In Albany, 3 
of the 10 files included the completed form, while in Savannah 5 of 
the 10 files did. All 5 Ninth District files we reviewed had the form. 
Albany and EOA-Savannah used other methods to document their 
assessment of work required. In Albany, staff prepared a summary sheet 
of major items identified that was also used as a work order to 
solicit bids from contractors. EOA-Savannah officials used handwritten 
notes from the initial inspection to document major leaks or items to 
repair. However, without the GEFA form, it was difficult to determine 
if the state's priority list had been followed. According to Albany 
officials, they were revising procedures to include GEFA's form. EOA-
Savannah officials stated that they had started using GEFA's form. 
According to GEFA officials, in March 2010 they made the assessment 
form more user-friendly, reducing the number of pages from 16 to 8. 

Georgia Used Clean and Drinking Water State Revolving Funds to Assist 
Almost 60 Projects and Ensured That Subrecipients Met Milestones: 

Georgia received about $122 million in Recovery Act funding from EPA 
for the Clean and Drinking Water State Revolving Funds (SRF).[Footnote 
17] GEFA and the Georgia Environmental Protection Division (EPD) 
administer both SRFs. GEFA applies for and receives funds, complies 
with reporting requirements, and finances SRF loans, and has 
designated EPD to perform monitoring and compliance reviews for SRF 
loans. 

Despite Challenges, Georgia Met the Recovery Act SRF Funding 
Requirements and Contract Deadline: 

GEFA allocated approximately $84.3 million in Recovery Act funds for 
the Clean Water SRF and approximately $36.7 million in Recovery Act 
funds for the Drinking Water SRF.[Footnote 18] GEFA used Recovery Act 
funds to provide assistance to 59 projects in 54 communities.[Footnote 
19] As shown in figure 2, 34 of these projects serve disadvantaged 
communities.[Footnote 20] 

Figure 2: Projects Funded with Georgia's Recovery Act Clean and 
Drinking Water SRFs: 

[Refer to PDF for image: illustration] 

Recovery Act projects by type: 

Of the 38 clean water projects: 
10 were “green” projects; 
26 were in disadvantaged communities. 

Of the 21 drinking water projects: 
6 were “green” projects; 
8 were in disadvantaged communities. 

Source: GEFA. 

[End of figure] 

GEFA considered SRF loan applications for three categories--rural, 
nonrural, and green.[Footnote 21] GEFA verified that all applications 
met basic SRF eligibility requirements, such as eligible project 
types. Eligible projects were reviewed and prioritized based on 
information such as the status of project design, environmental 
reviews required or completed, and the anticipated construction 
schedule. Additionally, officials considered whether the Drinking 
Water SRF projects directly addressed public health issues. Officials 
explained that the agency received 1,311 preapplications, about seven 
times the number GEFA received for the 2008 base SRF programs. 

The Recovery Act requires states to meet certain funding targets. They 
must reserve at least 20 percent of SRF funds for green projects. 
States also must use at least 50 percent of SRF funds for additional 
subsidization (additional financial assistance beyond a low-or no- 
interest loan), which could include forgiveness of SRF loan principal, 
negative interest SRF loans, or SRF grants. GEFA exceeded these 
targets: 

* Twenty-one percent of Clean Water SRF funds and 22 percent of 
Drinking Water SRF funds were awarded to green projects, such as green 
infrastructure and projects that increase energy and water efficiency. 

* The state awarded 65 percent of Clean Water SRF funds and 60 percent 
of Drinking Water SRF funds in the form of principal forgiveness (to 
address the additional subsidization requirement). 

The Recovery Act also required each state to prioritize funds for 
projects that were ready to proceed to construction within 12 months 
of enactment (Feb. 17, 2010) and directed EPA to reallocate any funds 
for projects that were not under contract by this date. GEFA set 
interim deadlines to ensure that projects in Georgia met this 
deadline. More specifically, GEFA required applicants to certify that 
they could instruct contractors to begin work for proposed projects by 
November 1, 2009.[Footnote 22] Officials stated they faced challenges 
in meeting the deadline due to the increased workload and changes to 
the guidance on the green reserve requirement. EPA revised its 
guidance on the green reserve requirement after the state had approved 
its final list of Clean and Drinking Water SRF projects. This resulted 
in two previously approved projects no longer meeting the green 
reserve requirement. According to officials, this change required GEFA 
to take additional time to (1) ensure that its green projects met the 
green reserve requirement and (2) obtain EPA's approval of its list. 

Georgia Modified Its Oversight of SRF Projects to Address Recovery Act 
Requirements: 

In addition to applying base SRF program oversight policies and 
procedures to all Recovery Act SRF projects, GEFA and EPD have added 
unique procedures. For example, GEFA implemented a Web-based reporting 
tool for SRF subrecipients to provide data on direct jobs created and 
retained with Recovery Act funds. EPD added procedures to monitor 
subrecipients' compliance with Buy American requirements. 
Subrecipients are now required to maintain adequate source 
documentation for project components, such as certifications from 
manufacturers, shipping manifests, and documentation that a project 
owner determined that manufactured goods were assembled in the United 
States. 

As with base SRF projects, EPD officials stated they conduct oversight 
of Recovery Act projects from initial application through completion. 
All subrecipients must attend a preconstruction conference, and EPD 
conducts monthly site visits to ensure work is consistent with 
approved project plans and contract requirements. EPD officials said 
that during the on-site inspections, they review Buy American 
documentation and examine country of origin labels. EPD also reviews 
invoices before GEFA reimburses subrecipients. 

SRF Projects Have Provided Economic and Other Benefits in Georgia: 

GEFA collects some environmental and health performance measures for 
base and Recovery Act SRF projects. For example, it requests 
information from subrecipients on energy conservation and solid waste 
and pollution reduction. For Recovery Act projects, GEFA also reports 
on direct jobs created and retained with the funds. GEFA reported that 
343.8 full-time equivalents (FTE) were created or retained from 
January 2010 to March 2010.[Footnote 23] During our site visit to the 
City of Tennille, officials provided examples of SRF benefits: 
[Footnote 24] 

* The city used a green Drinking Water SRF loan for new residential 
and commercial water meters, which officials said would help (1) 
identify sources of water loss (they had more than 44 percent water 
loss in 2007 through 2009), (2) increase revenues, and (3) encourage 
conservation. 

* A Clean Water SRF loan partially funded an upgrade to the wastewater 
facility that officials believe will reduce system failures and sewage 
overflow into storm water facilities. 

Housing Agencies in Georgia Have Obligated All of Their Recovery Act 
Formula Grants: 

In Georgia, 184 public housing agencies received about $113 million in 
Public Housing Capital Fund formula grants (see figure 3). These grant 
funds were provided to the agencies to improve the physical condition 
of their properties. As of May 1, 2010, these agencies had obligated 
100 percent of the funds and drawn down about $35 million (31.5 
percent). We interviewed four: the Housing Authority of the City of 
Atlanta (Atlanta Housing Authority), the Housing Authority of the City 
of Macon (Macon Housing Authority), the Housing Authority of the City 
of McDonough (McDonough Housing Authority), and the Housing Authority 
of the City of Villa Rica (Villa Rica Housing Authority).[Footnote 25] 

Figure 3: Percentage of Public Housing Capital Fund Formula Grants 
Allocated by HUD That Had Been Obligated and Drawn Down in Georgia, as 
of May 1, 2010: 

[Refer PDF for image: 3 pie-charts and 1 horizontal bar graph] 

Funds obligated by HUD: 100% ($112,675,806); Funds obligated by public 
housing agencies: 100% ($112,675,806); Funds drawn down by public 
housing agencies: 31.5% ($35,478,002). 

Number of public housing agencies: 
Were allocated funds: 184; 
Obligated 100% of funds: 184; 
Have drawn down funds: 164. 

Source: GAO analysis of data from HUD's Electronic Line of Credit 
Control System. 

[End of figure] 

The Recovery Act requires public housing agencies to obligate their 
funds within 1 year of the date they were made available, or by March 
17, 2010. In Georgia, all public housing agencies obligated their 
funds by that date. However, 21 agencies had not obligated any funds 
as of mid-February 2010 and were in danger of missing the deadline, as 
the following examples illustrate. 

* According to the McDonough Housing Authority, it obligated the 
approximately $215,000 it received by awarding a contract on February 
18, 2010. An agency official explained that the delay was due to the 
small size of the housing agency and the busy schedule of the 
consultant hired to manage the contract bidding process. The agency 
awarded the contract for new doors, windows, blinds, and screens at 27 
housing units. 

* The Villa Rica Housing Authority obligated the approximately 
$276,000 it received on March 8, 2010. An agency official explained 
that the challenge in obligating Recovery Act capital funds was 
identifying the best use of the funds. Because the housing agency was 
seeking HUD approval to demolish its existing units and replace them 
with a midrise housing development for seniors, the official did not 
want to put capital into units scheduled for demolition. Ultimately, 
the agency obligated its funds for construction of a new maintenance 
building and new sidewalks that could remain in place for the planned 
senior development. 

HUD field office staff in Atlanta took measures to ensure that the 
public housing agencies in Georgia met the obligation deadline. 
Specifically, the officials actively monitored obligation rates and 
conducted outreach through e-mails, phone calls, and site visits to 
agencies that were slow to obligate the funds. For the 21 agencies 
that had not obligated any funds as of mid-February 2010, HUD field 
staff made calls to the agencies' boards of directors and the mayors 
of the cities in which agencies were located to inform them about the 
potential loss of Recovery Act funds if their local housing agency did 
not act quickly to meet the obligation deadline. 

Despite Some Challenges, Georgia Has Committed the Majority of Its Tax 
Credit Assistance Program and Section 1602 Tax Credit Exchange Program 
Funds: 

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 Tax Credit Exchange Program (Section 1602 Program) 
administered by the U. S. Department of the Treasury (Treasury). 
[Footnote 26] TCAP and the Section 1602 Program were designed to fill 
financing gaps in planned tax credit projects and jumpstart stalled 
projects. According to Georgia officials, such funding was needed 
because of a decline in pricing and a lack of investors in the tax 
credit market. They reported that actual prices paid per dollar of tax 
credit declined on average from $0.91 in 2007, to $0.88 in 2008, and 
to $0.65 in 2009.[Footnote 27] According to our survey of housing 
finance agencies, this compared to the national average of $0.67 in 
2009. Officials also noted investors were reluctant to participate in 
projects in rural areas and metropolitan Atlanta due to the large 
number of foreclosures. 

Georgia Awarded Funding to 31 Projects and Expects to Commit the Rest 
of Its Funds by June 2010: 

Georgia received about $54.5 million in TCAP funds. As of April 30, 
2010, the Georgia Department of Community Affairs (DCA)--which 
administers the low-income housing tax credit program--had approved 
TCAP funding for seven projects containing 970 units (including 875 
tax credit units).[Footnote 28] For these projects, Georgia had 
committed $44.1 million (81 percent) and disbursed $13.3 million (24 
percent). Under the Recovery Act, 75 percent of TCAP funds had to be 
committed by February 2010. Georgia met this deadline successfully. 
Seventy-five percent of TCAP funds must be expended by February 2011, 
and 100 percent must be expended by February 2012. Georgia also 
received about $195.6 million in Section 1602 Program funds. As of 
April 30, 2010, DCA had approved Section 1602 Program funding for 24 
projects containing 1,514 units (including 1,308 tax credit units). 
For these projects, Georgia had committed $140.2 million (72 percent) 
and disbursed about $28 million (14 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 must disburse 100 percent of Section 1602 Program 
funds by December 2011. DCA expects to select additional projects and 
commit the remainder of its TCAP and Section 1602 Program funds by 
June 2010. 

When selecting projects to fund, DCA first considered projects that 
had received 2008 tax credits, but did not have adequate financing to 
proceed. Once all the 2008 projects had been awarded funds, DCA then 
considered 2009 tax-credit projects. Priority for funding was based on 
several factors, including project readiness; improvements to the 
quality, sustainability, and energy efficiency of affordable housing; 
financial sustainability; and ability to meet federal wage and 
environment requirements and create jobs. 

We reviewed documentation on or visited three TCAP projects and four 
Section 1602 Program projects.[Footnote 29] See table 2 for 
information on each of these projects. 

Table 2: Selected TCAP and Section 1602 Program Projects in Georgia: 

Project name: Baptist Towers Apartments, Atlanta; Type of funding: 
TCAP; 
Recovery Act funds committed: $1,850,000; Type of construction: 
Rehabilitation; Type of housing: Elderly; 
Total number of housing units: 300; 
Number of tax credit units: 268. 

Project name: Riverview Heights (also known as Oconee Park), Dublin; 
Type of funding: TCAP; 
Recovery Act funds committed: $8,311,921; Type of construction: 
Rehabilitation; Type of housing: Family; 
Total number of housing units: 117; 
Number of tax credit units: 115. 

Project name: Sustainable Fellwood, Phase II, Savannah; Type of 
funding: TCAP; 
Recovery Act funds committed: $4,300,000; Type of construction: New; 
Type of housing: Family; 
Total number of housing units: 110; 
Number of tax credit units: 99. 

Project name: Antigua Place, Moultrie; Type of funding: Section 1602 
Program; Recovery Act funds committed: $2,102,746; Type of 
construction: New; 
Type of housing: Over age 55; 
Total number of housing units: 40; 
Number of tax credit units: 36. 

Project name: Camellia Lane, Sandersville; Type of funding: Section 
1602 Program; Recovery Act funds committed: v8,348,674; Type of 
construction: New; 
Type of housing: Over age 55; 
Total number of housing units: 52; 
Number of tax credit units: 52. 

Project name: The Landing at Southlake, Albany; Type of funding: 
Section 1602 Program; Recovery Act funds committed: $5,125,000; Type 
of construction: New; 
Type of housing: Over age 55; 
Total number of housing units: 40; 
Number of tax credit units: 36. 

Project name: Waterford Estates, Dublin; Type of funding: Section 1602 
Program; Recovery Act funds committed: $9,500,000; Type of 
construction: New; 
Type of housing: Family; 
Total number of housing units: 56; 
Number of tax credit units: 50. 

Source: DCA. 

[End of table] 

According to Georgia officials, none of the projects awarded Recovery 
Act funding could have proceeded without these funds. With TCAP 
funding, the developer of the stalled Riverview Heights project is now 
converting an outdated development in an economically challenged area 
into modern Section 8 housing. Similarly, the Baptist Towers 
Apartments, an older high-rise for the elderly and disabled, is now 
undergoing significant renovation and modernization with TCAP funding. 
(See figure 4 for pictures of the rehabilitation ongoing at Riverview 
Heights and Baptist Towers Apartments.) The Camellia Lane developer 
said that the project could not have started without Section 1602 
Program funding because no investors were willing to finance the rural 
project. Camellia Lane will provide 52 new residences with geothermal 
heating and cooling for persons over age 55 in an area with limited 
housing for seniors. 

Figure 4: Rehabilitation of Riverview Heights and Baptist Towers 
Apartments: 

[Refer to PDF for image: 4 photographs] 

Bathroom and kitchen at Baptist Towers Apartments prior to renovation 
(2); 

Bathroom and kitchen at Baptist Towers Apartments after renovation; 

Riverview Heights community center under construction. 

Source: GAO. 

[End of figure] 

Although Progress Has Been Made, Georgia Faced Some Implementation 
Challenges: 

Although DCA officials were pleased with overall progress, they 
reported some challenges relating to increased workloads, reporting, 
and cost certification. To manage the increased workload, they delayed 
the 2010 round of low-income housing tax credits by 60 days to 
complete processing of Recovery Act projects. They also hired a 
temporary staff person to help with loan processing. 

DCA officials also reported that complying with some Recovery Act 
reporting requirements was difficult. For example, they initially 
experienced some challenges in reporting on environmental requirements 
in HUD's Recovery Act Management and Performance System. In addition, 
they reported that it required two staff to comply with recipient 
reporting requirements. To ensure the reliability of job data, DCA 
officials said they compare the numbers to payroll records. When 
discussing the procedure for calculating jobs created, the officials 
said that the reported job numbers were understated. They believed 
prorating job numbers based on the percentage of project funding 
provided by the Recovery Act was misleading because the project might 
not have been completed without those funds. 

A new process that DCA used to ensure that project costs were 
reasonable also was time-consuming. DCA worked with a local university 
on comprehensive cost and energy efficiency analyses for funded 
projects. The analyses were based on actual bids from subcontractors 
for the projects and resulted in increased energy efficiency and 
reduced costs of $5 million, according to DCA officials. While 
acknowledging the utility of the cost certification process, one 
developer we interviewed estimated it took 6 months to complete. 

Georgia Accelerated Its Use of Recovery Act Funds, and Selected 
Localities Have Begun to Receive Recovery Act Funds: 

Georgia moved Recovery Act funds planned for use in the fiscal 2011 
budget to the 2010 budget because of declining revenues.[Footnote 30] 
Localities we visited began receiving Recovery Act funds, and they had 
varying budget situations. 

Declining Revenues Forced Georgia to Accelerate Its Use of Recovery 
Act Funds: 

Georgia's year-to-date revenues as of March 2010 were almost 12 
percent less than they were as of March 2009. To cover part of the 
shortfall, the Governor proposed amending the fiscal year 2010 budget 
by accelerating use of State Fiscal Stabilization Fund monies. 
According to state officials, the legislature approved moving $342.6 
million planned for use in fiscal year 2011 to fiscal year 2010. The 
state's fiscal year 2011 budget included about $2 billion in Recovery 
Act funds, and also eliminated vacant positions and reduced 
expenditures in multiple departments. Georgia drew down its reserve 
fund to $103.7 million from a high of $1.5 billion in fiscal year 
2007. Georgia is preparing for the cessation of Recovery Act funds by 
continuing to reduce spending levels. 

Selected Localities in Georgia Also Received Recovery Act Funds: 

We visited three local governments--DeKalb County, the City of 
Savannah, and the City of Albany--to discuss their use of Recovery Act 
funds and fiscal condition.[Footnote 31] See table 3 for demographic 
and economic overview information. 

Table 3: Information on Three Localities Visited by GAO: 

Locality: DeKalb County; 
Locality type: County; 
Population[A]: 747,274; 
Unemployment rate (percentage)[B]: 10.4; FY 2010 budget (in 
millions)[C]: $1,231. 

Locality: Savannah; 
Locality type: City; 
Population[A]: 132,410; 
Unemployment rate (percentage)[B]: 9.8; FY 2010 budget (in 
millions)[C]: $324. 

Locality: Albany; 
Locality type: City; 
Population[A]: 75,831; 
Unemployment rate (percentage)[B]: 12.5; FY 2010 budget (in 
millions)[C]: $104. 

Sources: GAO analysis of U.S. Census Bureau data; U.S. Department of 
Labor, Bureau of Labor Statistics, Local Area Unemployment Statistics; 
and budget documents. 

[A] City population data are from the latest available estimate, July 
1, 2008. County population data are from the latest available 
estimate, July 1, 2009. 

[B] Unemployment rates are preliminary estimates for March 2010 and 
have not been seasonally adjusted. Rates are a percentage of the labor 
force. Estimates are subject to revision. 

[C] DeKalb County officials provided their operating budget. DeKalb 
County and Savannah have a fiscal year ending on December 31, while 
Albany has a fiscal year ending June 30. 

[End of table] 

DeKalb County, Georgia: 

According to county officials, DeKalb County had been awarded about 
$25.4 million in Recovery Act funds as of May 4, 2010. The largest 
award was a $6.5 million Energy Efficiency and Conservation Block 
Grant from Energy. 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 Community Oriented 
Policing Services (COPS) Hiring Recovery Program. County officials 
stated that because Recovery Act funds were used mostly for one-time 
capital projects, the county's strategy for winding down their use 
will be to rely on prior capital funding sources. DeKalb County had a 
balanced fiscal year 2010 operating budget of approximately $1.2 
billion. To balance the budget, the county reduced overtime payments, 
limited purchasing, and began an early retirement program. DeKalb 
County has an internal auditor who plans to review Recovery Act 
expenditures as of April 7, 2010. Reviews of various programs that 
expended Recovery Act funds began in April 2010 and will end by May 
2010. 

Savannah, Georgia: 

According to city officials, Savannah had been awarded $9.6 million in 
Recovery Act funds as of May 4, 2010. The city's largest award was a 
$1.7 million Port Security Grant for supporting emergency management 
and response at the city's port. The city also was awarded funds under 
the Homelessness Prevention and Rapid Re-housing Program and Energy 
Efficiency and Conservation Block Grant Program, among others. 
[Footnote 32] City officials stated that since most of the Recovery 
Act funds were for one-time expenses, they did not need to develop a 
strategy for winding down their use of the funds. 

Savannah had a balanced fiscal year 2010 budget of about $324 million. 
To balance its budget, Savannah froze hiring and salaries and 
eliminated vacant positions. According to city officials, they planned 
for an economic downturn by setting up a special reserve funded with 
excess proceeds from the sales tax. These funds helped fill revenue 
gaps during the downturn. 

The finance and internal audit departments have oversight over 
Savannah's Recovery Act funds. The internal audit department's plans 
for fiscal year 2010 include overseeing grants as a whole, rather than 
Recovery Act funds specifically. If a grant at a city department is 
reviewed, the internal auditor will also review associated Recovery 
Act spending. The internal auditor has not issued any reports on 
Recovery Act funding to date. 

Albany, Georgia: 

According to city officials, Albany had been awarded approximately 
$5.9 million in Recovery Act funding as of May 4, 2010, including 
about $1.4 million under the COPS Hiring Recovery Program grant. The 
city also received about $771,000 in Energy Efficiency and 
Conservation Block Grant funds and about $310,000 in Community 
Development Block Grant funds, among other grants. While the Recovery 
Act provided additional funding for Albany, city officials stated the 
funds were not essential for operations because they expanded current 
operations rather than created new services. When the Recovery Act 
funds have been used, officials stated they would scale back their 
operations to the previous level. Albany has a fiscal year 2010 budget 
of about $104 million, and officials characterized its fiscal 
condition as stable. However, city officials planned to use $3 million 
to $4 million from cash reserves for budget shortfalls. Officials said 
absent Recovery Act funds, essential city projects could have been 
funded either by the special local options sales tax, an increase of 
property taxes, or draw downs from cash reserves. Although the city 
does not have an internal auditor, a staff person in the finance 
department coordinates Recovery Act grants and has oversight 
responsibilities. Officials expect that the city's 2010 Single Audit 
performed by an external auditor will cover Recovery Act funds. 
[Footnote 33] 

Georgia's Accountability Community Is Auditing Recovery Act Funding: 

The State Auditor, the State Inspector General, and agencies' internal 
audit departments are responsible for auditing and investigating 
Recovery Act funds. The State Auditor's oversight of Recovery Act 
funds occurs primarily through the Single Audit, as the following 
examples illustrate: 

* The State Auditor participated in OMB's Single Audit Internal 
Control Project.[Footnote 34] On December 28, 2009, the State Auditor 
issued an internal control letter based on an audit of the State 
Fiscal Stabilization Fund Cluster and the Highway Planning and 
Construction Cluster.[Footnote 35] It did not identify any findings 
related to its review of the State Fiscal Stabilization Fund cluster. 
However, it identified three significant deficiencies and one material 
weakness at the Georgia Department of Transportation. The significant 
deficiencies were noted for the following control categories: cash 
management, reporting, and special tests and provisions. These 
involved inconsistencies in the reporting of disbursement dates and 
the reimbursement request dates, failure to submit an accurate 
Schedule of Expenditures of Federal Awards, and failure to complete 
and maintain quarterly materials certificate checklists. The 
deficiency in cash management and reporting was a material weakness. 
The State Auditor noted that failure to have adequate cash management 
policies and procedures in place could result in noncompliance with 
federal regulations and may affect the proper recording of federal 
program revenues, causing misstatements within the financial 
statements. The Georgia Department of Transportation agreed with the 
findings and stated that it had implemented changes to address them. 

* For the final fiscal year 2009 Single Audit report, the State 
Auditor included audits of Recovery Act programs administered by GEFA 
and the Georgia Departments of Community Health, Education, Human 
Resources, Labor, and Transportation. According to the State Auditor 
and other independent auditors, there were 19 findings related to 
programs with Recovery Act expenditures. For example, the Georgia 
Department of Human Resources did not record Recovery Act expenditures 
separate from regular expenditures on its Schedule of Expenditures of 
Federal Awards, which could result in material misstatements in the 
agency's financial statements.[Footnote 36] According to department 
officials, this error was corrected prior to being reported in the 
final Schedule of Expenditures of Federal Awards. 

* The State Auditor plans to conduct additional audits of Recovery Act 
programs for the fiscal years 2010 and 2011 Single Audits. 

Due to limited staffing, the State Inspector General has taken a 
complaint-based approach to investigate alleged misuse of Recovery Act 
funds. Each state agency must notify the Inspector General when a 
complaint has been filed with the agency. Citizens can submit 
complaints directly to the Inspector General using a form on its Web 
site. To date, the Inspector General has received two complaints 
directly. A complaint received in Fall 2009 was based on citizen 
dissatisfaction with Recovery Act funds being used to purchase road 
signs for Georgia Department of Transportation projects. As of 
September 2009, the department had stopped the practice of posting 
these signs. Upon further investigation, the second complaint turned 
out not to be related to Recovery Act funds. 

A number of state agencies, including the Board of Regents of the 
University System of Georgia, the Georgia Departments of 
Transportation and Human Services, and GEFA, have internal audit 
departments that plan to audit or are already auditing Recovery Act 
funds. For example, the Board of Regents of the University System of 
Georgia, which oversees 35 public colleges and universities in the 
state, has audited institutions directly or reviewed reports completed 
by institutions following an audit plan it provided. The 10 audit 
reports we reviewed did not find any significant weaknesses with 
Recovery Act funds. However, one report found that the institution 
could make improvements to its written documentation for specific 
procedures. 

The State Accounting Office continues to monitor Recovery Act 
recipient reporting by reviewing the data each state agency submits 
for reasonableness and potential inaccuracies. In addition, it is 
tracking state agencies' progress in addressing Single Audit findings 
and plans to produce quarterly reports. Beginning in May 2010, the 
office plans to start an internal control initiative working with 
state agencies, particularly those identified as high risk in the 
Single Audit, to provide additional internal control training on 
topics such as subrecipient monitoring and cash management issues. In 
addition to internal control training, the State Accounting Office is 
working with the Recovery and Transparency Board to conduct fraud, 
waste, and abuse prevention training for selected agencies in June 
2010. 

State Comments on This Summary: 

We provided the Governor of Georgia with a draft of this appendix on 
May 7, 2010, and a representative from the Governor's office responded 
that same day. 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; David 
Shoemaker; and Robyn Trotter made major contributions to this report. 

[End of section] 

Footnotes: 

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

[2] The Recovery Act appropriated $5 billion for the Weatherization 
Assistance Program, which Energy is distributing to each of the 
states, the District, 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 by, for example, installing insulation or 
modernizing heating or air conditioning equipment. 

[3] Ninth District Opportunity, Inc. is located in Gainesville, 
Georgia. We selected these three providers based on their location, 
the size of the weatherization program, and progress as of the end of 
January 2010. 

[4] GEFA will use the balance of the $125 million allocation for 
monitoring, training, and technical assistance, among other things. 

[5] GEFA contracted with Southface Energy Institute--a nonprofit that 
promotes comfortable, energy-, water-, and resource-efficient homes, 
workplaces, and communities--to provide training to weatherization 
workers. 

[6] At the end of each class, each student must pass a written exam. 
Members that fail portions of the classes are given remedial 
instruction by GEFA or are limited in the work that they can undertake 
until they successfully pass the course. 

[7] According to GEFA officials, if a sub-grantee is not meeting 
production goals and/or work quality standards GEFA may: (1) allow the 
recipient to continue operations at the existing funding level and 
thereafter conduct weekly performance reviews; (2) reduce the funding 
level for the recipient and provide unexpended dollars to another sub- 
grantee; (3) require the sub-grantee to select a nonprofit delegate in 
cooperation and with assistance from GEFA to meet production goals in 
a specified time frame; or (4) reduce the funding to the sub-grantee 
and provide the dollars on a competitive basis to a qualified 
nonprofit to serve the defined geographic territory. 

[8] The Cooperative Extension provides research-based education in 
agriculture, the environment, communities, and youth and families, and 
has the ability and authority to conduct monitoring. 

[9] The desk monitors will review contracting documents, compliance 
with Davis-Bacon 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. 

[10] In Albany and Savannah, we reviewed the files for 10 completed 
homes. We selected a simple random sample from among the completed 
homes. At the Ninth District, we reviewed five files because only five 
homes had been completed at the time of our visit. At all three 
locations, we also inspected five homes (three completed homes, one 
where work was ongoing, and one undergoing an energy audit). 

[11] 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. 

[12] EOA-Savannah uses in-house crews to conduct the majority of 
weatherization work, but uses contractors to install heating systems 
and perform electrical work. The provider issued a request for 
proposals for installation of five items--heating and air systems, 
water heaters, stoves, bathroom exhaust fans, and kitchen vents and 
hoods. 

[13] A Ninth District official explained the fifth home was a test 
case used for training purposes. 

[14] The pre-Recovery Act Weatherization Assistance Program had an 
income limit of 150 percent of the poverty level. 

[15] Energy guidance lists the dollar amount of the 200 percent 
poverty threshold for various family sizes, along with the types of 
income to consider when determining eligibility. 

[16] Energy allows states to use the National Energy Audit Tool 
(NEAT), a computer-based audit that applies engineering and economic 
calculations to evaluate energy conservation measures, or an energy 
audit based on an approved priority list. According to GEFA officials, 
Georgia has permission from Energy to use a priority list instead of a 
NEAT audit for similar, single-family homes. 

[17] The Clean and Drinking Water SRFs provide states and local 
communities independent and permanent sources of subsidized financial 
assistance, such as low-or no-interest loans for projects that protect 
or improve water quality and that are needed to comply with federal 
drinking water regulations. 

[18] The remainder of the Recovery Act funding ($669,600) will be used 
for water quality management planning. 

[19] The majority of SRF projects receiving Recovery Act funds will 
receive additional base SRF funding, and subrecipients will be 
required to comply with the requirements of the Recovery Act for any 
projects wholly or partially funded by the Recovery Act. 

[20] GEFA defined disadvantaged communities as rural communities--or 
those that have less than 50,000 residents and a poverty rate of 10 
percent or higher--for the purposes of our reporting. 

[21] Applicants (communities) could receive only one loan under either 
the rural fund or the nonrural fund, whichever was applicable. 
Applicants could also receive one loan under the green project fund. 

[22] A number of applicants sought extensions, and after determining 
that all applicants that made such requests had made strong progress 
and a good faith effort to comply with the requirement, GEFA granted 
the requests received. 

[23] Full-time equivalents are the total number of hours worked and 
funded by Recovery Act dollars divided by the number of hours in a 
full-time schedule, as defined by the recipient. 

[24] We selected a mix of SRF projects to visit: a green Drinking 
Water SRF project in Tennille and Clean Water SRF projects in Tennille 
and Cobb County. 

[25] We interviewed officials from the Atlanta and Macon Housing 
Authorities because they did not have difficulty meeting the March 17, 
2010, deadline for obligating Public Housing Capital Fund formula 
grants. We visited the McDonough and Villa Rica Housing Authorities 
because they were slow to obligate their funds. 

[26] 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. 

[27] We sent a survey to the 50 state housing finance agencies, the 
District of Columbia, Puerto Rico, Guam, and the U.S. Virgin Islands 
in November and early December of 2009. We asked about the status of 
program delivery, design, safeguards and controls, expected results, 
and challenges to implementation. The response rate was 100 percent 
(54 agencies). 

[28] Because tax credit projects have multiple sources of financing, 
they sometimes include other types of units. 

[29] 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 visited 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. 

[30] The state's fiscal year begins on July 1. 

[31] We chose these locations because they represented a mix of cities 
and counties, population sizes, unemployment rates, and amount of 
Recovery Act funds received. 

[32] Funding that the City of Savannah received to provide summer 
youth employment and adult and dislocated workers programs will be 
used to serve a nine-county area. 

[33] Single Audits are prepared to meet the requirements of the Single 
Audit Act, as amended, 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 
(i.e., the program requirements); and (3) an audit and an opinion on 
compliance with applicable program requirements for certain federal 
programs. 

[34] OMB implemented a Single Audit Internal Control Project (project) 
in October 2009. One of the goals of the project is to help achieve 
more timely communication of internal control deficiencies for higher- 
risk Recovery Act programs so that corrective action can be taken. The 
project is a collaborative effort between the states receiving 
Recovery Act funds that volunteered to participate, their auditors, 
and the federal government. Under the project's guidelines, 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 No. 
A-133 for Single Audits. Sixteen states volunteered for the project 
including Georgia, whose auditors issued their interim reports on 
internal control for selected major Recovery Act programs by December 
31, 2009, and a corrective action plan to the appropriate federal 
agency by January 31, 2010. 

[35] The State Fiscal Stabilization Fund Cluster includes Recovery Act 
education stabilization and government services funds. The Highway 
Planning and Construction Cluster includes Recovery Act and non- 
Recovery Act funding for highway planning and construction and repairs 
to recreational trails. 

[36] The Georgia Department of Human Resources has since been 
reorganized and renamed the Georgia Department of Human Services. 

[End of Appendix VI] 

Appendix VII: Illinois: 

Overview: 

This appendix summarizes GAO's work on the sixth 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 six programs funded under the Recovery Act: 
Edward Byrne Memorial Justice Assistance Grants (JAG), Weatherization 
Assistance Program, Public Housing Capital Fund, Tax Credit Assistance 
Program (TCAP), Section 1602 Tax Credit Exchange Program (Section 1602 
Program), and Highway Infrastructure Investment. For descriptions and 
requirements of the programs we included in our review, see appendix 
XVIII of GAO-10-605SP. We selected these programs primarily because 
they received significant amounts of Recovery Act funds. For each 
program, we conducted interviews and examined relevant program 
documents and data to determine what challenges recipients of Recovery 
Act funds faced in meeting mandated obligation deadlines; to assess 
whether state agencies met monitoring requirements set forth under the 
Recovery Act; or to follow up on issues we reported on in previous 
bimonthly reviews. 

We also met with officials from the Illinois Office of the Governor, 
the Illinois State Board of Education (ISBE), and selected local 
educational agencies (LEA) to determine what steps ISBE has taken to 
ensure the completeness and accuracy of the employment data LEAs 
report to the agency, which ISBE uses to complete its quarterly 
reporting requirements under section 1512 of the Recovery Act. 
[Footnote 2] 

Additionally, our work in Illinois included monitoring the state's 
fiscal situation and visits to two counties--Cook County and Winnebago 
County--to review their use of Recovery Act funds and the impact of 
the funds on their budgets, as well as meeting with state-level 
auditors to determine what steps they are taking to oversee state 
agencies' implementation of the Recovery Act.[Footnote 3] 

What We Found: 

* Edward Byrne Memorial Justice Assistance Grants. The U.S. Department 
of Justice's Office of Justice Programs, Bureau of Justice Assistance 
(BJA) awarded $83.7 million to Illinois and units of local government 
(localities) within the state under the Recovery Act JAG program. 
Based on a statutory formula, BJA awarded 60 percent of these funds to 
the state (which the state primarily used to make grants to 
localities) and 40 percent of the funds directly to eligible 
localities within the state. Only seven localities qualified for the 
$33.5 million in direct funding available through BJA. As a result, 
the localities in Illinois that received a direct grant received 
disproportionately larger sums compared to localities in other states. 
The average award for these seven localities was $4.8 million; the 
City of Chicago and Cook County were jointly awarded $28.7 million. 
The localities we spoke to said that they used their Recovery Act JAG 
grants primarily to purchase capital equipment and pay law enforcement 
wages. 

* Weatherization Assistance Program. The U.S. Department of Energy 
(DOE) allocated $242.5 million to Illinois for the Illinois Home 
Weatherization Assistance Program, a substantial increase over the 
state's allocation of base program funds in prior years. Illinois's 
Department of Commerce and Economic Opportunity (DCEO) Office of 
Energy Assistance, the agency responsible for administering Illinois's 
weatherization assistance program, plans to use the Recovery Act funds 
to weatherize 27,000 homes--as of March 31, 2010, 11,283 homes had 
been completed or were in the process of being weatherized. Although 
DCEO expects to meet DOE's 5 percent inspection requirement for 2010, 
as of March 31, 2010, it had not inspected homes from 19 of the 35 the 
local agencies that weatherize homes on behalf of the state. 

* Public Housing Capital Fund. Ninety-nine public housing agencies in 
Illinois received $221.5 million in Recovery Act Capital Fund formula 
grants. Although all of the housing agencies met the March 17, 2010, 
deadline for obligating their funds, some faced challenges in doing 
so. For example, one housing agency we spoke to had difficulty finding 
enough local contractors that were willing and able to bid for its 
Recovery Act projects, which included replacing the roofs and siding 
on and replacing lights and appliances in most of its properties. 
Officials from the Department of Housing and Urban Development's (HUD) 
Illinois State Office of Public Housing and the housing agencies we 
spoke to stated that Recovery Act-related activities have not to date 
had any noticeable effect on their ability to administer their 
existing Capital Fund programs. 

* Tax Credit Assistance Program and Section 1602 Tax Credit Exchange 
Program.[Footnote 4] As of April 30, 2010, the Illinois Housing 
Development Authority (IHDA) had awarded $91.6 million (out of the 
$94.7 million available) in TCAP funds, and $128.2 million (out of the 
$264.5 million available) in Section 1602 Program funds to a total of 
46 projects, including the Rosa Parks Apartments, a low-income housing 
development located on Chicago's west side. Despite the much needed 
financing these two programs are providing to low-income housing 
projects in Illinois, IHDA officials raised concerns about the 
agency's ability to bear the administrative costs associated with 
these programs. 

* Highway Infrastructure Investment Funds. The U.S. Department of 
Transportation's Federal Highway Administration apportioned $935.6 
million in Recovery Act funds to Illinois. The federal government 
obligated the state's full apportionment by the 1-year deadline of 
March 2, 2010. As of May 3, 2010, $451 million had been reimbursed by 
the federal government. Almost 77 percent of Recovery Act highway 
obligations for Illinois have been for pavement projects. For example, 
$3.1 million has been obligated for resurfacing of 11 miles of IL 
Route 47 in Grundy County. 

* Recipient Reporting--Education. ISBE implemented procedures to 
ensure that LEAs report employment data (expressed as full-time 
equivalents, or FTEs) to the agency in advance of the quarterly 
reporting deadlines under section 1512 of the Recovery Act. Although 
ISBE instituted reasonableness checks designed to identify reporting 
errors, the agency does not have procedures in place to assess the 
accuracy of LEAs' calculations. According to ISBE officials, the 
agency has limited resources to independently review LEAs' 
calculations in the short amount of time it has to compile and submit 
its recipient reports. The agency has contracted with accounting firms 
to review a selection of LEAs' State Fiscal Stabilization Fund FTE 
submissions for the first reporting period. 

* Illinois's Fiscal Condition and Oversight Activities: 

* State budget stabilization. Recovery Act funds continued to assist 
the state in funding its education, infrastructure, and Medicaid 
programs. An estimated $1.3 billion from the State Fiscal 
Stabilization Fund and $1.6 billion made available as a result of 
increased federal assistance to Medicaid are expected to allow the 
state to provide $2.9 billion in services in fiscal year 2010. 
However, the state faces a fiscal crisis stemming from a structural 
deficit, escalating pension costs, decreasing revenues, and unpaid 
bills. 

* Counties' use of Recovery Act funds. The counties we spoke with 
generally used their Recovery Act awards to pay for programs and 
services that would otherwise have gone unfunded. Moreover, the 
counties indicated that they generally avoided using Recovery Act 
funds for programs or personnel costs that would result in additional 
funding commitments for long-term obligations. 

* State-level audits. The Illinois Office of the Auditor General and 
the Illinois Office of Internal Audit are currently conducting audits 
of Recovery Act-funded programs; however, officials from both offices 
do not expect to report on the results of their audits until June 
2010. The Illinois Office of Accountability is charged with assisting 
the Governor in complying with the Recovery Act and Illinois's Federal 
Stimulus Tracking Act. 

Few Illinois Localities Qualified for Direct Recovery Act JAG Awards 
and Those We Spoke to Used Their Grants to Purchase Capital Equipment 
and Pay Wages: 

The Bureau of Justice Assistance (BJA) awarded $83.7 million to 
Illinois and units of local government (localities) within the state 
under the Recovery Act Justice Assistance Grants (JAG) program. Based 
on a statutory formula, BJA awarded 60 percent of the $83.7 million 
($50.2 million) to the state of Illinois, which the state in turn 
primarily awarded to localities in the form of pass-through grants. 
[Footnote 5] BJA awarded the remaining 40 percent ($33.5 million) 
directly to eligible localities within the state. The localities we 
spoke to said that they used their direct and state pass-through 
Recovery Act JAG grants primarily to purchase capital equipment and 
pay law enforcement wages. 

In order to qualify for direct JAG funding from BJA, localities were 
required to report crime statistics directly or through a state agency 
to the Federal Bureau of Investigation (FBI). Localities that did not 
report these data or have these data reported on their behalf were not 
eligible for direct funding; however, they may have qualified for pass-
through grants from the state. In Illinois, only seven localities 
reported their crime data to FBI and thus were eligible to receive a 
share of the $33.5 million in direct JAG funding available from BJA: 
Aurora, Chicago, Joliet, Naperville, Peoria, Rockford, and 
Springfield.[Footnote 6] Because so few localities in Illinois 
qualified for direct grants from BJA, those that received these grants 
were awarded disproportionately larger amounts of funds compared to 
localities in other states. The average award for these seven 
localities was $4.8 million; Chicago and Cook County were jointly 
awarded $28.7 million. In comparison, in Pennsylvania, the state with 
the closest total Recovery Act JAG program allocation, BJA awarded 259 
localities a total of $26.9 million in direct JAG funds--the average 
direct award in Pennsylvania was $103,934. Similarly, in New York, BJA 
awarded 152 localities a total of $43.3 million in direct JAG funds-- 
the average direct award in New York was $285,025. 

In April 2009, the Department of Justice's Office of the Inspector 
General requested that the Office of Justice Programs provide greater 
transparency regarding the significant differences in the award 
amounts between localities in Illinois and localities in other states. 
[Footnote 7] On May 14, 2009, the Acting Assistant Attorney General 
for the Office of Justice Programs informed the Office of Inspector 
General of a revision to the office's Web site that complied with this 
request. The Illinois State Police Department is taking steps to 
ensure that all localities have an opportunity to report crime 
statistics to FBI, which could expand the pool of eligible localities 
in the state in the event Recovery Act JAG or similar programs are 
available in the future. 

We visited two counties and one city in Illinois that received both a 
direct grant from BJA and at least one pass-through grant from the 
state: Cook County, Winnebago County, and the City of Rockford. 
[Footnote 8] All three localities reported using their grants to 
purchase new equipment and to fund programs and services that, in the 
absence of these grants, would have gone unfunded. 

Cook County. Cook County received $7.2 million of a $28.7 million 
grant BJA awarded directly to the county and the City of Chicago. 
County officials explained that this grant would be distributed among 
several entities in the county (see table 1). 

Table 1: Distribution of the $7.2 Million Direct JAG Award from BJA: 

Recipient: 37 municipal units of governments; Amount: $2,571,685. 

Recipient: Sheriff's Office; 
Amount: $1,502,876. 

Recipient: Nonprofits and a state university; Amount: $1,144,042. 

Recipient: State's Attorney's Office; Amount: $1,021,506. 

Recipient: Circuit Court; 
Amount: $710,169. 

Recipient: Judicial Advisory Council; Amount: $215,719. 

Recipient: Total; 
Amount: $7,165,997. 

Source: Cook County Judicial Advisory Council. 

Note: These amounts are subject to change. 

[End of table] 

Thirty-seven municipal units of government expect to use their share 
of these funds to purchase law enforcement equipment and pay law 
enforcement wages. Additionally, not-for-profit organizations and a 
state university plan to use their funds for mentoring and drug 
treatment programs. The Sheriff's Office plans to use its funds 
primarily for overtime wages of law enforcement agents, while the 
Circuit Court anticipates using its funds for programming designed to 
assist individuals with substance abuse or mental health issues. The 
State's Attorney's Office plans to use its share of the $7.2 million 
to hire second-year law students to provide clerking services. The 
Cook County Judicial Advisory Council is expected to retain 3 percent 
of the $7.2 million award for grant management. 

In addition to the direct grant from BJA, Cook County officials said 
that the county received six pass-through grants from the state 
totaling over $4.5 million (see table 2). 

Table 2: State Pass-Through JAG Funds Awarded to Cook County and 
Selected County Agencies: 

Recipient: State's Attorney's Office; Amount: $1,650,307. 

Recipient: State's Attorney's Office; Amount: $877,650. 

Recipient: Circuit Court; 
Amount: $500,000. 

Recipient: Circuit Court; 
Amount: $500,000. 

Recipient: Sheriff's Office; 
Amount: $499,800. 

Recipient: Sheriff's Office; 
Amount: $497,028. 

Source: Cook County Judicial Advisory Council. 

[End of table] 

The State's Attorney's Office is using its two pass-through grants for 
cold-case initiatives and community justice centers. The Circuit Court 
plans to use its awards for domestic violence programs and specialty 
courts that provide additional services to targeted populations of non-
violent, repeat offenders. The Sheriff's Office plans to use its 
grants to fund 4 daily 6-hour police shifts in Ford Heights, a 
township that cannot afford to staff a police force of its own, and to 
provide transition services to recently-released prisoners, such as 
mentoring and job training. 

Winnebago County. Winnebago County received two Recovery Act JAG 
awards totaling over $1 million, including $598,133 of a $1.5 million 
direct award the county shared with the City of Rockford. The county 
used its share of the joint award to purchase capital equipment and 
law enforcement software. The county used a $416,485 state pass-
through grant to provide wages for the equivalent of 3 full-time 
corrections officer positions for 2 years. Officials expected that an 
economic recovery would generate sufficient revenues for the county to 
pay for these positions once the Recovery Act funding expires. 

City of Rockford. Officials said that the City of Rockford received 
three Recovery Act JAG awards totaling $1.4 million. The city received 
$879,200 of a $1.5 million direct grant from BJA, which it shared with 
Winnebago County, as noted above. The city used its share of these 
funds to purchase law enforcement software, in-car video systems, and 
bicycles for the city's Community Services Flexible Patrols program. 
The city also received $540,000 from 2 pass-through grants from the 
state, which it used to pay for 5 part-time receptionist positions for 
3 years, allowing officers to return to patrols, and purchase two 
squad cars. 

Illinois Is on Track to Weatherize 27,000 Homes with Recovery Act 
Funds, but Oversight of Local Agencies Has Lagged: 

The U.S. Department of Energy (DOE) allocated $242.5 million in 
Recovery Act funds to the Illinois Department of Commerce and Economic 
Opportunity (DCEO) for the Illinois Home Weatherization Assistance 
Program, a substantial increase in funding compared to previous years. 
By June 2009, DOE had provided $121.3 million of the Recovery Act 
funds to DCEO's Office of Energy Assistance, which is responsible for 
administering the state's weatherization assistance program.[Footnote 
9] DCEO plans to use these funds to weatherize 27,000 homes in state 
fiscal years 2010 and 2011, targeting approximately 40 percent of the 
funds toward the 2010 program and 60 percent toward the 2011 program. 
[Footnote 10] 

According to DCEO, in 2010, the agency awarded $85.6 million in 
Recovery Act funds to 35 local administering agencies.[Footnote 11] 
Local administering agencies, such as Community Contacts, Inc., 
Community Action Partnership of Lake County, and Will County Center 
for Community Concerns, the three local agencies we spoke with as part 
of this report, are using these funds for planning, purchasing 
equipment, hiring and training staff, using contractors, and 
weatherizing homes on behalf of the state. For example, in Will County 
we observed homes in which Will County Center for Community Concerns 
had installed new furnaces and attic insulation using Recovery Act 
funds. 

By March 31, 2010, according to DCEO, the local administering agencies 
had spent $22.7 million (about 27 percent) of their 2010 Recovery Act 
funds and had completed or were in the process of weatherizing 11,283 
homes.[Footnote 12] A DCEO official said that the state expects to 
meet or exceed its goals to spend 40 percent of the Recovery Act funds 
and weatherize 40 percent of the 27,000 planned homes by June 30, 2010. 

As a condition of accepting Recovery Act funds, DOE required that 
local agencies increase the number of homes weatherized compared to 
the prior year. The three local agencies we spoke with, like many 
other local administering agencies in Illinois, were able to increase 
the number of homes weatherized compared to the prior year because 
they hired new staff and used new contractors (see figure 1). For 
example, Community Contacts, Inc. of Kane and DeKalb Counties 
increased program staff from 5 to 8 people and more than doubled the 
number of contractors, from 5 to 11 companies. 

Figure 1: Planned and Completed Homes at Three Local Agencies in 
Illinois: 

[Refer to PDF for image: horizontal bar graph] 

Weatherized homes: 

Community Action Partnership of Lake County: 
Homes completed with base program funds, July 1, 2008 - June 30, 2009: 223; 
Homes to be completed with Recovery Act funds, July 1, 2009 - June 30, 2010: 600; 
Homes completed with Recovery Act funds, July 1, 2009 - March 31, 2010: 273. 

Community Contacts, Inc. of Kane and DeKalb Counties: 
Homes completed with base program funds, July 1, 2008 - June 30, 2009: 182; 
Homes to be completed with Recovery Act funds, July 1, 2009 - June 30, 2010: 415; 
Homes completed with Recovery Act funds, July 1, 2009 - March 31, 2010: 316. 

Will County Center for Community Concerns: 
Homes completed with base program funds, July 1, 2008 - June 30, 2009: 132; 
Homes to be completed with Recovery Act funds, July 1, 2009 - June 30, 2010: 263; 
Homes completed with Recovery Act funds, July 1, 2009 - March 31, 2010: 77. 

Source: GAO analysis of DCEO data (homes completed) and officials at 
the Community Action Partnership of Lake County, Community Contacts, 
Inc. of Kane and DeKalb Counties, and Will County Center for Community 
Concern (homes to be completed data). 

[End of figure] 

According to DCEO officials, DCEO required that local agencies follow 
state guidance to assess and document client eligibility, 
appropriateness of weatherization measures, including completeness and 
quality of work, and accuracy of labor and material costs, and 
required them to provide final review of work completed. We reviewed 
randomly-selected client files and observed home assessments and 
inspections of clients whose homes had been weatherized using Recovery 
Act funds at 3 of the 35 local administering agencies in Illinois. For 
the 3 agencies we visited and the 30 files we reviewed, we found the 
following: 

* Local administering agencies are required to determine and document 
that clients are eligible for weatherization assistance. Clients are 
eligible if their household income is at or below 200 percent of the 
federal poverty income level. In our review of client files, we 
observed that agencies had obtained income documentation such as wage 
statements, W-2s, and proof of Social Security or Temporary Assistance 
for Needy Families eligibility. 

* Local administering agencies are required to prioritize the types of 
home improvements that will result in the highest energy savings. DCEO 
has implemented a computerized approach to determine which home 
improvements will result in the largest energy savings, which the 
agency calls the WeatherWorks system.[Footnote 13] In our review of 
client files, we observed work orders that were generated from the 
WeatherWorks system that listed the weatherization measures to be 
taken and estimated material and labor costs. 

* Local agencies are required to track the expenditures of home 
improvements to ensure that they stay below the state-established 
limit of $5,200 per home for labor and materials.[Footnote 14] The 
client files we reviewed contained documentation of work orders and 
contractor invoices that were within the expense limits. All three of 
the agencies we visited also included documentation of any change that 
was made to the original work order. 

* As prescribed in state and local procedures, each of the three 
agencies we visited had procedures in place to inspect completed work. 

According to DCEO officials, the agency expects to meet the DOE 
requirement to inspect at least 5 percent of the Recovery Act-funded 
homes at each of the local agencies, although the agency's home 
inspection rate was affected by its inability to hire 10 additional 
weatherization specialists to perform the inspections.[Footnote 15] 
Agency officials reported that as of March 31, 2010, the agency had 
inspected at least 5 percent of the weatherized homes at 11 local 
agencies, less than 5 percent of the homes at 5 agencies, and no homes 
at 19 agencies. Officials noted they will do whatever it takes to meet 
the inspection requirement because it is one of the prerequisites for 
receiving the remainder of their Recovery Act funds. As of April 5, 
2010, DCEO officials stated that they have been able to fill 2 of the 
10 specialist positions and hope to fill the other positions soon. 

Housing Agencies in Illinois Obligated All of Their Recovery Act 
Formula Funds by the March 17, 2010, Deadline and HUD's Illinois 
Office Ensured Agencies' Compliance with Recovery Act Requirements: 

Ninety-nine housing agencies in Illinois collectively received $221.5 
million in Public Housing Capital Fund formula grants under the 
Recovery Act. These grant funds were provided to the agencies to 
improve the physical condition of their properties. All 99 housing 
agencies obligated 100 percent of their funds by the March 17, 2010, 
deadline. Also, 97 of the recipient agencies had drawn down a 
cumulative total of $97.3 million from the obligated funds, as of May 
1, 2010 (see figure 2). For this report, we visited the Housing 
Authority of the County of Cook and the Marion County Housing 
Authority to determine what, if any, challenges they faced in 
obligating their Recovery Act funds. We also spoke to officials from 
the Chicago Housing Authority and the Housing Authority for LaSalle 
County, which we visited for previous reports.[Footnote 16] 

Figure 2: Percentage of Public Housing Capital Fund Formula Grants 
Allocated by HUD That Have Been Obligated and Drawn Down in Illinois 
as of May 1, 2010: 

[Refer PDF for image: 3 pie-charts and 1 horizontal bar graph] 

Funds obligated by HUD: 100% ($221,498,521); Funds obligated by public 
housing agencies: 100% ($221,498,521); Funds drawn down by public 
housing agencies: 44.0% ($97,349,380). 

Number of public housing agencies: 
Were allocated funds: 99; 
Obligated 100% of funds: 99; 
Have drawn down funds: 97. 

Source: GAO analysis of data from HUD's Electronic Line of Credit 
Control System. 

[End of figure] 

Officials from two of the housing agencies we spoke to said they faced 
challenges that slowed their ability to obligate their Recovery Act 
Capital Fund formula grants. As of January 30, 2010, the Housing 
Authority of the County of Cook and the Marion County Housing 
Authority had obligated 0 and 18 percent of their funds, respectively, 
while more than three-quarters of the housing agencies in Illinois 
(including the Chicago Housing Authority and the Housing Authority for 
LaSalle County, the other two housing agencies we spoke to as part of 
this report) had obligated at least 50 percent of their funds by that 
date. The Housing Authority of the County of Cook used most of the 
$4.7 million it received in Recovery Act funds to finance a 52-unit 
development for seniors called the Riverdale Senior Apartments. 
Although the agency was able to obligate the funds by February 22, 
2010, agency officials said that the financing structure for the 
project was not typical and that they required additional time to 
finalize the structure and receive Department of Housing and Urban 
Development (HUD) approval.[Footnote 17] Marion County Housing 
Authority used its Recovery Act funds to award roofing, siding, 
lighting, and appliance installation contracts for the majority of its 
properties. The agency was able to obligate all of these funds by 
March 8, 2010, but agency officials said they were delayed because 
they had difficulty finding enough local contractors that were willing 
and able to bid for their Recovery Act projects, and thus had to 
expand the geographic area in which they solicited for bids. Officials 
from HUD's Illinois State Office of Public Housing explained that the 
housing agencies that took on complex design projects had relatively 
more trouble obligating their funds than the housing agencies that 
used Recovery Act funds to finance shovel-ready projects. 

Officials from the Chicago Housing Authority and Housing Authority for 
LaSalle County said that they did not experience any major delays in 
obligating their Recovery Act formula funds and that they were making 
progress on their Recovery Act-funded projects.[Footnote 18] Chicago 
Housing Authority officials said that as of April 30, 2010, they had 
completed work on 5 of the 12 projects the agency is funding with 
Recovery Act formula funds and that they expect to complete work on 
all but one of the remaining projects in 2010. Recovery Act-funded 
projects include demolitions and comprehensive rehabilitations of 
properties and the installation of security camera systems. Officials 
from the Housing Authority for LaSalle County said that as of April 
30, 2010, the agency had expended 95 percent of its Recovery Act 
formula funds. The agency expects to complete work on all 11 of its 
Recovery Act-funded projects by June 2010. Recovery Act-funded 
projects include, among other things, the improvement of common areas, 
upgrades to boiler valves, rehabilitation of units, and the 
replacement of a retaining wall. 

According to HUD Illinois officials, they have practices and 
procedures in place to oversee housing agencies compliance with all 
program deadlines and requirements, including those under the Recovery 
Act. For example, they communicated almost daily with the 99 housing 
agencies in Illinois that received Recovery Act funding to make sure 
that the housing agencies were obligating their funds in a timely 
manner and to offer assistance in meeting the deadline. In addition, 
HUD Illinois officials said that they remotely monitored housing 
agencies' Recovery Act-related expenditures and verified housing 
agencies' compliance with the Buy American, Davis-Bacon prevailing 
wage, Section 3, and supplement-versus-supplant provisions.[Footnote 
19] HUD Illinois officials also said that they performed on-site 
reviews of 22 housing agencies selected based on the results of risk 
assessments.[Footnote 20] Finally, HUD Illinois officials said that 
they performed National Environmental Policy Act (NEPA) reviews for 
the majority of the housing agencies in the state and provided 
technical assistance related to the quarterly reporting requirements 
under section 1512 of the Recovery Act.[Footnote 21] Officials from 
housing agencies we spoke to said HUD's Illinois and Headquarters' 
staff were helpful in providing them assistance when needed. 

Finally, officials from HUD's Illinois office and the four housing 
agencies we spoke to stated that Recovery Act-related activities have 
not had any noticeable effect on their ability to administer their 
regular Capital Fund programs. HUD Illinois officials provided 
obligations data for each of the four housing agencies we spoke with-- 
the data reflect the obligation rate for Capital Fund program funds 
for fiscal years 2006 through 2008 based on the percentage of funds 
that were obligated within 1 year of receiving the funds, as well as 
the obligation rates for the 2008 and 2009 funds as of April 30, 2010 
(see table 3). Although the data show that the Housing Authority of 
the County of Cook and the Marion County Housing Authority are 
obligating their 2008 Capital Fund program funds more slowly than they 
have in previous years, officials from both housing agencies told us 
that their obligation rates are on par with previous years at a time 
closer to the obligation deadline, and that they expect to fully 
obligate the funds by that deadline.[Footnote 22] HUD Illinois 
officials indicated that housing agencies in Illinois are just 
starting to obligate their 2009 Capital Fund program funds, in part 
because the funds became available in September 2009 or later. 

Table 3: Percentage of Public Housing Capital Fund Program Funds 
Obligated 1 Year after Disbursement for Fiscal Years 2006 to 2008, and 
Percentage of 2008 and 2009 Funds Obligated as of April 30, 2010: 

2006 obligation rate; 
Chicago Housing Authority: 87%; 
Housing Authority for LaSalle County: 85%; Housing Authority of the 
County of Cook: 31%; Marion County Housing Authority: 57%. 

2007 obligation rate; 
Chicago Housing Authority: 85%; 
Housing Authority for LaSalle County: 92%; Housing Authority of the 
County of Cook: 22%; Marion County Housing Authority: 35%. 

2008 obligation rate; 
Chicago Housing Authority: 49%; 
Housing Authority for LaSalle County: 90%; Housing Authority of the 
County of Cook: 8%; Marion County Housing Authority: 27%. 

2008 obligation rate as of April 30, 2010[A]; Chicago Housing 
Authority: 100%; 
Housing Authority for LaSalle County: 96%; Housing Authority of the 
County of Cook: 36%; Marion County Housing Authority: 58%. 

2009 obligation rate as of April 30, 2010[B]; Chicago Housing 
Authority: 21%; 
Housing Authority for LaSalle County: 23%; Housing Authority of the 
County of Cook: 16%; Marion County Housing Authority: 3%. 

Source: GAO analysis of HUD data. 

[A] The deadline for obligating the 2008 Capital Fund program funds is 
June 12, 2010. 

[B] HUD Illinois officials stated that housing agencies in Illinois 
received at least some of their 2009 Capital Fund program funds on 
September 15, 2009. The deadline for obligating these 2009 Capital 
Fund program funds is September 14, 2011. 

[End of table] 

IHDA Has Allocated and Drawn Down Recovery Act Tax Credit Assistance 
Funds for a Variety of Low-Income Housing Projects: 

The Illinois Housing Development Authority (IHDA) is responsible for 
administering the Tax Credit Assistance Program (TCAP) and the Section 
1602 Tax Credit Exchange Program (Section 1602 Program) in Illinois. 
For this purpose, IHDA established the Equity Replacement Program with 
a centralized application process through which IHDA awards TCAP and 
Section 1602 Program funds as gap financing to low-income housing 
projects that lack private investment due to the broader economic 
crisis. Under the Low-Income Housing Tax Credit program, developers 
with allocations of credits sell them to investors to raise equity to 
fund the development of low-income housing. According to IHDA 
officials, the average price investors were offering for Low-Income 
Housing Tax Credits in Illinois fell from approximately $0.85 in 2007 
to $0.67 in 2009. IHDA expects to award TCAP and Section 1602 Program 
funds to projects that were awarded tax credits during the period 
October 1, 2006, to September 30, 2009, but that could not raise 
enough equity with the tax credits.[Footnote 23] 

According to IHDA officials, as of April 30, 2010, the agency had 
awarded $91.6 million (out of $94.7 million available) in TCAP funds, 
and $128.2 million (out of $264.5 million available) in Section 1602 
Program funds to a total of 46 projects.[Footnote 24] According to 
data from HUD and The U.S. Department of the Treasury, as of the same 
date, IHDA had disbursed $22.9 million in TCAP funds and $16.9 million 
in Section 1602 Program funds to the projects. The projects are 
expected to produce close to 2,700 low-income housing units, which 
will primarily benefit the elderly and families. Figure 3 describes 
the Rosa Parks Apartments project, which received TCAP and Section 
1602 Program funds because the developer was unable to find tax credit 
investors. 

Figure 3: Rosa Parks Apartments, Chicago, Illinois--a Combined TCAP- 
Section 1602 Program Project: 

[Refer to PDF for image: 2 photographs] 

One of eight buildings of the Rosa Parks Apartments project in Chicago’
s Humboldt Park, West Town, East Garfield, and Near West Side 
communities. TCAP and Section 1602 Program funds account for about 37 
percent of this $27.4 million project. The Rosa parks Apartments 
project is 100 percent affordable for low-income households. 

Source: GAO. 

[End of figure] 

According to IHDA officials, when awarding TCAP and Section 1602 
Program funds to projects, the agency considered each project's 
viability, readiness to proceed, and level of commitment from other 
sources of funding, among other things. In addition, regarding TCAP 
funds, IHDA preferred to select projects that already included other 
sources of federal funding because they were already in compliance 
with and reporting on certain crosscutting federal requirements like 
the Davis-Bacon prevailing wage and NEPA requirements. 

According to IHDA officials, the agency had to make some changes to 
its existing procedures in order to comply with certain deadlines and 
requirements of the Recovery Act programs. For example, HUD required 
TCAP recipients to draw their funds no later than 3 days after HUD 
made these funds available to the agency. HUD disbursed the TCAP funds 
through the Illinois Department of Revenue in the same way it 
disburses HOME Investment Partnerships program funds to IHDA, a 
process that, according to IHDA officials, usually takes several 
weeks.[Footnote 25] In order to comply with the 3-day draw 
requirement, IHDA had to set up a separate local account, with 
approval from HUD and the Governor's Office, from which it could draw 
the TCAP funds within the 3-day period. 

Despite the much-needed gap financing the tax credit assistance 
programs are providing to low-income housing projects in Illinois, 
IHDA officials raised concerns about the administrative costs 
associated with TCAP and the Section 1602 Program. Officials stated 
that meeting the programs' requirements, especially the reporting 
requirements under section 1512 of the Recovery Act, consumed 
significant staff time and resources. They said that the agency could 
be relieved of at least part of these costs if, for example, it was 
able to use some percentage of the program funds to cover 
administrative expenses, as is allowed under HUD's HOME Investment 
Partnerships Program.[Footnote 26] 

Finally, IHDA officials said that the ability to award Section 1602 
Program funds in the form of a loan rather than a grant would give 
them greater leverage in enforcing program requirements among 
developers, and loan repayments would provide IHDA a future source of 
funds for other affordable housing initiatives. 

Illinois's Highway Program Met Recovery Act Funding Obligation 
Deadline and Is on Track to Maintain Spending Levels: 

In March 2009, $935.6 million was apportioned to Illinois for highway 
infrastructure and other eligible projects. The federal government 
obligated the state's full apportionment by the 1-year deadline of 
March 2, 2010. As of May 3, 2010, $451 million had been reimbursed by 
the Federal Highway Administration (FHWA) for 588 projects. States 
request reimbursement from FHWA as they make payments to contractors 
working on approved projects. 

Almost 77 percent of Recovery Act highway obligations for Illinois 
have been for pavement projects. Specifically, $712 million of the 
$929 million obligated as of May 3, 2010, is being used for pavement 
improvements, such as resurfacing and reconstruction (see figure 4). 
[Footnote 27] For example, $3.1 million has been obligated for 
resurfacing of 11 miles of IL Route 47 in Grundy County. State 
officials told us they selected these types of projects because they 
could be completed quickly and would create jobs immediately. 

Figure 4: Percentage of Highway Obligations for Illinois by Project 
Improvement Type as of May 3, 2010: 

[Refer to PDF for image: pie-chart] 

Pavement projects total (77 percent, $712 million): Pavement 
improvement: resurface ($550 million); 59%; Pavement improvement: 
reconstruction/rehabilitation ($137 million): 15%; New road 
construction ($20 million): 2%; Pavement widening: ($5 million): 1%. 

Bridge projects total (10 percent, $90 million): Bridge improvement 
($67 million): 7%; Bridge replacement ($19 million): 2%; New bridge 
construction ($4 million): lass than 1%. 

Other (14 percent, $127 million): 14%. 

Source: GAO analysis of Federal Highway Administration data. 

Note: Totals may not add due to rounding. "Other" includes safety 
projects, such as improving safety at railroad grade crossings, and 
transportation enhancement projects, such as pedestrian and bicycle 
facilities, engineering, and right-of-way purchases. 

[End of figure] 

Illinois Department of Transportation officials told us they were 
satisfied with the state's ability to maintain spending levels for 
transportation, which they attributed to the fact that the Illinois 
General Assembly passed capital funding plans in April and July 2009 
that are expected to fund transportation infrastructure projects over 
the next few years. States are required to certify that they will 
maintain the level of spending that they had planned on the day the 
Recovery Act was enacted. In March 2010, Illinois submitted to the 
U.S. Department of Transportation its maintenance-of-effort 
certification, which amounted to just under $1.8 billion.[Footnote 28] 
U.S. Department of Transportation officials told us that they had 
accepted the Illinois certification. 

ISBE Has Implemented Procedures to Ensure Complete and Timely 
Reporting of Employment Data but Has Faced Challenges in Ensuring the 
Accuracy of These Data: 

The Illinois State Board of Education (ISBE) has implemented 
procedures to ensure that local educational agencies (LEA)--generally 
school districts--report employment data (expressed as full-time 
equivalents, or FTEs) to the agency in advance of the quarterly 
reporting deadlines under section 1512 of the Recovery Act.[Footnote 
29] For example, ISBE's reporting system identifies LEAs that fail to 
report FTE and other data to the agency in a timely manner, and agency 
officials said that they have taken steps to follow up with these LEAs 
to ensure complete reporting. 

However, ISBE has faced challenges in assessing and ensuring the 
accuracy of the FTE data LEAs report to the agency. OMB guidance 
emphasizes that recipients of Recovery Act funds are responsible for 
the quality of the data they submit to federal agencies and should 
take appropriate steps to minimize significant reporting errors. 
[Footnote 30] In the first reporting period, which ended September 30, 
2009, ISBE did not assess that the data LEAs reported to the agency 
were accurate. According to ISBE officials, the agency distributed OMB 
reporting guidance to LEAs and provided technical assistance as they 
calculated their FTEs. A November 2009 Chicago Tribune article raised 
questions about the accuracy of five LEAs' FTE submissions for the 
State Fiscal Stabilization Fund.[Footnote 31] As a result, ISBE 
contacted the LEAs identified and asked them to review and revise 
their FTEs, as needed.[Footnote 32] We interviewed each of these LEAs 
and found that two revised their submissions downward to zero and two 
submitted corrections to their initial calculations.[Footnote 33] For 
the two that submitted corrections, we found that they still had not 
accurately calculated their FTEs for the period. For example, one LEA 
we spoke to initially counted the number of employees it had paid with 
Recovery Act funds during the reporting period (135). The LEA later 
revised this figure to a count of only those teachers that had been 
laid off and subsequently rehired during the reporting period (76). 
Both of these calculations are potentially inaccurate under OMB's June 
22, 2009, reporting guidance because they are based on the number of 
people, rather than the number of hours worked that were paid for with 
Recovery Act funds.[Footnote 34] ISBE subsequently identified 
approximately 100 additional LEAs that might have similarly 
misreported their FTEs for the first period and asked them to review 
and revise their submissions, as needed. However, ISBE officials said 
that they did not check the corrected FTE submissions to ensure that 
they complied with OMB's guidance (for example, by checking the 
methodologies the LEAs followed or the underlying data and assumptions 
they used in calculating their FTEs). 

ISBE officials said that in response to the number of LEAs that 
potentially misreported their employment numbers for the first 
reporting period, the agency instituted reasonableness checks designed 
to identify reporting errors in future reporting periods. 
Specifically, ISBE's reporting system now flags recipient reports with 
100 or more FTEs, as well as those with more FTEs than the number of 
teachers and administrators the LEA employs. While a good first step, 
these checks need to be refined. For example, the former check would 
likely flag most LEAs that received and reported on Recovery Act 
funds, while the latter would flag only the most egregious errors. 

ISBE continued to face challenges assessing the accuracy of FTE data 
in the second reporting period, which ended December 31, 2009, despite 
the introduction of these reasonableness checks. On December 18, 2009, 
OMB issued guidance that clarified the method for calculating FTEs by 
directing recipients to base their FTE calculations on the number of 
hours worked that are paid for with Recovery Act funds.[Footnote 35] 
According to ISBE officials, the agency and LEAs did not have 
sufficient time to implement the new guidance in advance of the 
reporting deadline. ISBE officials said that the cumulative FTE counts 
reported in the second period for at least some of the education 
programs funded with Recovery Act funds were too low--some LEAs had 
continued to report zero FTEs for these programs, as ISBE did not 
implement changes to conform to the clarifications in the most recent 
guidance. As a result, officials said that they contacted six LEAs, 
including Chicago Public Schools, the largest LEA in the state and, 
for any positive FTE entry the LEAs made in the first period followed 
by a zero FTE entry in the second period, asked them to confirm that 
the number of positions they reported in the first period were still 
being paid for with Recovery Act funds. According to ISBE officials, 
if an LEA confirmed that the positions it reported in the first period 
were still being paid for with Recovery Act funds, the agency used the 
first-period FTE submission for the second period.[Footnote 36] After 
the conclusion of the reporting period, ISBE continued to contact LEAs 
with similar reporting patterns, and corrected their calculations 
accordingly.[Footnote 37] However, as was true in the first reporting 
period, ISBE did not assess the methodologies LEAs used to compute 
their revised FTEs for the second reporting period, even that of 
Chicago Public Schools, which, according to ISBE data, received 
approximately 75 percent of the Title I funding awarded to Illinois as 
of December 31, 2009.[Footnote 38] 

ISBE officials said that resource constraints make it challenging to 
independently assess and verify the accuracy of LEA reports in the few 
days the agency has to submit its recipient reports to the state for 
review and subsequently upload them to federalreporting.gov. Officials 
from the Governor's Office and ISBE feel confident that the 
reasonableness checks they have created are sufficient to flag 
potentially inaccurate LEA FTE data and that ISBE has made reasonable 
efforts based on the reports generated from these checks to work with 
LEAs to make corrections to their data when necessary. Officials 
believe that the accuracy of LEAs' FTE calculations is likely to 
improve over time as the LEAs become more familiar with OMB's guidance 
and the FTE formula.[Footnote 39] In addition, ISBE officials said 
that the agency has hired accounting firms to review, among other 
things, the FTE calculations 204 LEAs submitted to the agency for the 
State Fiscal Stabilization Fund funds they received in state fiscal 
year 2009. Officials said that the results of these reviews will allow 
the agency to determine areas of concern in the reporting of FTEs and 
provide additional training and technical assistance to LEAs to help 
ensure the reasonableness of their FTE calculations. 

Recovery Act Funds Continue to Aid Illinois's State Budget and Help 
Local Governments Create and Expand Programs, but Significant State 
Budget Shortfalls Remain: 

Recovery Act funds continued to assist the state in funding its 
education, infrastructure, and Medicaid programs. According to an 
Illinois OMB official we spoke with, an estimated $1.3 billion from 
the State Fiscal Stabilization Fund (including both education 
stabilization funds and government services funds) and $1.6 billion 
made available as a result of the increased federal assistance to 
Medicaid (Federal Medical Assistance Percentage, or FMAP) are expected 
to allow the state to provide $2.9 billion in education and Medicaid 
services in 2010. However, as the Governor's March 10, 2010, budget 
proposal for fiscal year 2011 acknowledges, the state faces a fiscal 
crisis stemming from a structural deficit, escalating pension costs, 
decreasing revenues, and unpaid bills.[Footnote 40] The state's 
financial situation is in part a result of practices that began long 
before the recession hit in late 2007. According to the fiscal year 
2008 Comprehensive Annual Financial Report, the state faces continuing 
underlying financial weaknesses that significantly impact its overall 
fiscal health in regards to deferred liabilities, ongoing operational 
concerns related to cash management, and long-term concerns related to 
pension and other post-employment obligations.[Footnote 41] According 
to the Governor's proposed budget, the projected cumulative deficit at 
the end of fiscal year 2011 exceeds $10 billion (see fig 5). 

Figure 5: Illinois's Revenues, Expenses, and End of Year Deficit for 
Fiscal Years 2008 through 2011: 

[Refer to PDF for image: multiple line graph] 

FY 2008 actual: 
Revenues: $29.7 billion; 
Expenses: $30.4 billion; 
End of fiscal year deficit: $0.8 billion. 

FY 2009 actual: 
Revenues: $29.1 billion; 
Expenses: $32.9 billion; 
End of fiscal year deficit: $3.8 billion. 

FY 2010 projected: 
Revenues: $28.0 billion; 
Expenses: $29.1 billion; 
End of fiscal year deficit: $5.9 billion. 

FY 2011 projected: 
Revenues: $27.4 billion; 
Expenses: $32.1 billion; 
End of fiscal year deficit: $10.6 billion. 

Source: GAO analysis of Illinois OMB data. 

Note: Fiscal year 2010 data represent Illinois OMB projections through 
June 30, 2010. Fiscal year 2011 data represent Illinois OMB 
projections based on the Governor's proposed 2011 budget as of March 
10, 2010. 

[End of figure] 

With revenues projected to fall well below expenses in fiscal year 
2011, the Governor's fiscal year 2011 budget proposal calls for $4.7 
billion in borrowing to cover the anticipated shortfall.[Footnote 42] 
In addition, in the face of mounting pension obligation bond debt 
service payments--these payments increased from $564 million in fiscal 
year 2010 to $1.6 billion in fiscal year 2011, after the state 
borrowed $3.5 billion for pension bonds in fiscal year 2010--the state 
created a two-tiered pension system in which new employees will be 
eligible for less generous benefits. The budget proposal also calls 
for $300 million in funding cuts for local governments by decreasing 
the local government income tax distributive share from 10 percent to 
7 percent, as well as additional cuts to state employee benefits, 
social services, and public health programs. Despite over $2.7 billion 
in estimated cuts, expenses remain $4.7 billion greater than revenues 
in the proposed fiscal year 2011 budget. When the projected $4.7 
billion fiscal year 2011 deficit is added to the $5.9 billion deficit 
from prior years, the anticipated cumulative deficit at the end of 
fiscal year 2011 is $10.5 billion. 

As funding from the Recovery Act ends, the state must raise additional 
revenues or make significant cuts to existing services to achieve a 
balanced budget. For example, the fiscal year 2011 budget proposal 
does not include additional assistance from the State Fiscal 
Stabilization Fund, which has amounted to over $2 billion cumulatively 
in fiscal years 2009 and 2010. To address the phasing out of State 
Fiscal Stabilization Fund funds in fiscal year 2011, the Governor 
proposed a 1-year, 1-percent increase to both the state income and 
corporate tax rates, which state officials project will generate an 
additional $2.8 billion in revenues. Without the projected revenue 
from these increases, the Governor's Office said that a significant 
number of teachers are at risk of being laid off in fiscal year 2011 
as a result of a projected $1.3 billion funding cut for education 
programs.[Footnote 43] Further, the Governor's budget proposal for 
fiscal year 2011 assumes that the U.S. Congress will extend the 
increased FMAP through June 2011, providing $1.5 billion for the 
fiscal year.[Footnote 44] If the increased FMAP is not extended, the 
state will be required to raise or borrow additional funds or lower 
expenses. 

In addition to meeting with state officials, we visited Cook County 
and Winnebago County to review their use of Recovery Act funds and the 
impact of the funds on local budgets. Figure 6 provides recent 
demographic information for these counties. 

Figure 6: Demographic Data for Cook County and Winnebago County, 
Illinois: 

[Refer to PDF for image: illustration] 

County demographics: Cook; 
Estimated population (2009): 5,287,037; Unemployment rate (March 
2010): 11.3%; FY10 budget: (change from FY09): $3.1 billion (4.8%). 

County demographics: Winnebago; 
Estimated population (2009): 299,702; Unemployment rate (March 2010): 
17.5%; FY10 budget: (change from FY09): $179 million (-6.4%). 

Sources: GAO analysis of U.S. Census Bureau and U.S. Department of 
Labor, Bureau of Labor Statistics (BLS) Local Area Unemployment 
Statistics (LAUS) data; Cook County and Winnebago County officials; 
and Art Explosion. 

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

[End of figure] 

County officials told us that they generally used the Recovery Act 
grants to pay for a variety of programs and services that would 
otherwise have remained unfunded. Moreover, county officials said that 
they generally avoided using Recovery Act funds for programs or 
personnel costs that would result in additional county funding 
commitments for long-term obligations. 

As of April 23, 2010, Cook County officials reported that the county 
and selected county agencies received 22 Recovery Act grants totaling 
more than $80 million. The county formed an internal task force to 
coordinate and monitor the Recovery Act funds. Table 4 describes the 5 
largest Recovery Act grants awarded directly to Cook County and 
selected county agencies. In addition to these grants, the county 
awaits notification on five pending applications for grants totaling 
over $73 million.[Footnote 45] County officials also reported that the 
county benefited from $35.7 million in freed-up state funds made 
available through the increased FMAP for services provided to Medicaid-
eligible individuals in the Cook County Health & Hospitals System 
(CCHHS).[Footnote 46] Officials noted that the availability of these 
funds allowed CCHHS to avoid reductions in service and that such 
reductions are likely once the increased FMAP is discontinued. 

Table 4: Largest Five Direct Recovery Act Grants Awarded to Cook 
County and Selected County Agencies: 

Agency: U.S. Department of Health and Human Services; Grant: 
Communities Putting Prevention to Work; Examples of uses of funds: 
Obesity prevention; Amount: $15,898,821. 

Agency: U.S. Department of Energy; 
Grant: Energy Efficiency and Conservation Block Grant; Examples of 
uses of funds: Development of county-wide energy efficiency strategy, 
LED traffic lights; Amount: $12,696,000. 

Agency: U.S. Department of Labor; 
Grant: Workforce Investment Act Title I-B Grant; Examples of uses of 
funds: Job training and employment services; Amount: $11,459,737. 

Agency: U.S. Department of Justice; 
Grant: Edward Byrne Memorial Justice Assistance Grant; Examples of 
uses of funds: Law enforcement equipment and wages; Amount: 
$7,165,997[A]. 

Agency: U.S. Department of Labor; 
Grant: Workforce Investment Act Title I-B Grant; Examples of uses of 
funds: Summer employment for youth; Amount: $5,676,547. 

Source: Cook County. 

[A] This amount represents Cook County's share of a $28.7 million 
Edward Byrne Memorial Justice Assistance Grant awarded to the City of 
Chicago. 

[End of table] 

As of March 9, 2010, Winnebago County officials reported that the 
county received three Recovery Act grants totaling $1.6 million (see 
table 5). While funds to replace aging squad cars and retain three 
corrections officers provide some relief to the county's finances, 
officials considered the Recovery Act grants to have had little impact 
on the county's overall budget stability. Budget cuts had compelled 
the county, which employed about 1,600 people in March 2010, to cut or 
leave unfilled approximately 150 positions since April 2009. 

Table 5: Direct Recovery Act Grants Awarded to Winnebago County: 

Agency: U.S. Department of Justice; 
Grant: Edward Byrne Memorial Justice Assistance Grant; Examples of 
uses of funds: Law enforcement vehicles and equipment; Amount: 
$598,133[A]. 

Agency: U.S. Department of Energy; 
Grant: Energy Efficiency and Conservation Block Grant; Examples of 
uses of funds: Traffic signal synchronization, LED traffic lights; 
Amount: $568,800. 

Agency: U.S. Department of Justice; 
Grant: Edward Byrne Memorial Justice Assistance Grant; Examples of 
uses of funds: Wages for 3 corrections officers for two years; Amount: 
$416,485. 

Source: Winnebago County. 

[A] This amount represents Winnebago County's share of a $28.7 million 
Edward Byrne Memorial Justice Assistance Grant awarded to the City of 
Rockford. 

[End of table] 

State-Level Auditors Are Conducting Audits of Recovery Act-Funded 
Programs: 

The Illinois Office of the Auditor General and the Illinois Office of 
Internal Audit under the Office of the Governor are currently 
conducting audits of Recovery Act-funded programs. According to state 
officials, the Illinois Office of Accountability, also under the 
Governor's Office, is charged with assisting the Governor in complying 
with the Recovery Act and Illinois's Federal Stimulus Tracking Act. 
[Footnote 47] 

The Illinois Office of the Auditor General is required to conduct an 
annual audit--referred to as the Single Audit--of the state's 
financial statements and federal awards, including Recovery Act 
awards. [Footnote 48] The selection of programs for the single audit 
is based on level of program expenditures and other criteria set forth 
by OMB.[Footnote 49] The fiscal year 2009 Single Audit (for the period 
July 1, 2008, to June 30, 2009) includes a number of programs that 
received Recovery Act funds. Officials from the Office of the Auditor 
General said that over the past several years, the Illinois 
Comptroller's Office has been slow to send the expenditure data and 
the state's financial statements to them, which has delayed the single 
audit process. As was the case in previous years, the Auditor General 
did not complete the fiscal year 2009 single audit by the March 30, 
2010, deadline.[Footnote 50] Audit officials said that they expect to 
release the fiscal year 2009 audit by June 2010. 

The Illinois Office of Internal Audit has also initiated audits of 
several programs that received Recovery Act funds. Officials expect 
these audits to be substantially completed by June 30, 2010. According 
to Internal Audit officials, audits (including audits of Recovery Act- 
funded programs) are prioritized based on several factors, including 
when agencies received and spent Recovery Act funds, prior audit 
findings (e.g., findings from the Single Audit), significant increases 
in funding, whether audit or agency staff had identified errors in 
recipient reports, and the outcome of agency and program risk 
assessments that the Office of Internal Audit completed prior to and 
in anticipation of the implementation of the Recovery Act.[Footnote 51] 

Officials explained that, due to resource constraints, the Office of 
Internal Audit likely will not audit those programs that were 
scheduled to be audited in this fiscal year and the next under 
Illinois's Fiscal Control and Internal Auditing Act. Officials felt 
that, in light of the amount of Recovery Act funding state agencies 
have received, the Office of Internal Audit should focus its resources 
on working with those agencies to ensure that they are using their 
Recovery Act funds properly. Further, because many of the state's 
agencies are currently subject to one or more external audits--
including audits we and the federal Inspectors General are conducting--
the Office of Internal Audit has delayed some of its auditing efforts 
to ensure those agencies are not overwhelmed and can devote resources 
to comply with auditors' requests. 

Effective July 1, 2010, the state's internal audit function will be 
decentralized, and audit responsibility will pass from the Governor's 
Office to internal auditors within state agencies.[Footnote 52] The 
Illinois Department of Central Management Services within the 
Governor's Office will assume audit responsibility for the few 
agencies that do not have an internal audit function. These agencies 
will be responsible for ensuring that Recovery Act funds are used in 
accordance with federal laws and regulations. 

Finally, the Governor established the Office of Accountability in 
November 2009 to help ensure compliance with the Recovery Act and the 
State of Illinois Federal Stimulus Tracking Act. Specifically, 
according to state officials, the Office of Accountability is 
responsible for, among other things, obtaining clarifications to 
federal Recovery Act-related guidance; establishing standardized 
policies and procedures for state agencies for tracking, reporting on, 
and monitoring Recovery Act funds; assisting agencies with 
implementing corrective action plans to address audit and risk-
assessment findings; and providing technical assistance to state 
agencies on Recovery Act reporting requirements to ensure accurate and 
timely reporting. The Office of Accountability will continue to exist 
in this capacity after July 1, 2010, when the Office of Internal Audit 
is dissolved. 

State Comments on This Summary: 

We provided the Office of the Governor of Illinois with a draft of 
this appendix on May 11, 2010. The Director of Recovery Operations and 
Reporting responded for the governor on May 12, 2010. The official 
provided technical suggestions that were incorporated, as appropriate. 

GAO Contact: 

Debra Draper, (202) 512-4608 or draperd@gao.gov: 

Staff Acknowledgments: 

In addition to the contacts listed above, Paul Schmidt, Assistant 
Director; Silvia Arbelaez-Ellis; Dean Campbell; Gail Marnik; Cory 
Marzullo; Rosemary Torres Lerma; and Roberta Rickey made major 
contributions to this report. 

[End of section] 

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 recipient reports are due on the 10th day of the month 
following the end of the reporting period. These data are available to 
the public on the Recovery.gov Web site. 

[3] We selected Cook County because it has the largest population of 
any county in Illinois and Winnebago county because it has a high 
unemployment rate relative to other counties in Illinois. 

[4] Pursuant to the Recovery Act, we are to review the use of funds of 
programs included under the act's Division A. TCAP is a Division A 
program, while the Section 1602 Program is included under Division B 
of the Recovery Act. We chose to include the Section 1602 Program in 
our review because both TCAP and the Section 1602 Program supplement 
the Low-Income Housing Tax Credit Program and are being implemented 
simultaneously by state housing finance agencies. 

[5] As the state administering agency for JAG funds in Illinois, the 
Illinois Criminal Justice and Information Authority received $50.2 
million in Recovery Act JAG funds, of which it passed $30 million to 
localities, used $15.8 million for statewide programs, and retained 
$4.3 million for administrative costs. The minimum percentage of 
Recovery Act JAG funds that Illinois is required to pass through to 
localities after administrative costs are subtracted from the total 
grant amount is 65.5 percent. 

[6] Illinois statute requires that localities report crime statistics 
directly to the Illinois State Police and according to a 2009 
Department of Justice, Office of the Inspector General Management 
Advisory Memorandum, the state requires the localities to measure and 
report crime statistics in a manner that differs from how FBI measures 
and reports these statistics. 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 (April 9, 2009). Prior to the Recovery Act, the Illinois 
State Police did not convert localities' crime statistics into the 
format used by FBI. As a result, only those localities that reported 
data directly to FBI were eligible to apply for direct grants from 
BJA. When the law enforcement costs of two localities significantly 
overlap (e.g., a city makes up a large percentage of a county's 
population), the two localities must submit a joint application for 
JAG funds. All of the cities in Illinois that qualified for direct 
grants from BJA were required to submit joint applications with their 
respective counties, which included Cook, Dupage, Kane, Peoria, 
Sangamon, Will, and Winnebago counties. BJA officials confirmed that 
counties were eligible to share these grants even though the counties 
did not report crime statistics to FBI. 

[7] See U.S. 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 (April 9, 
2009). 

[8] We visited Cook County because it received more JAG funding 
through the Recovery Act than any other county in Illinois. We visited 
Winnebago County and the City of Rockford because the project status 
of their shared grant was listed as more than 50 percent complete as 
of December 31, 2009. 

[9] DOE will provide the remainder of the Recovery Act funds once the 
state has demonstrated that it has successfully met certain 
requirements, such as completing work on 30 percent of the homes 
slated to be weatherized with Recovery Act funds. 

[10] A program year runs concurrently to the state fiscal year, which 
runs from July 1 to June 30. 

[11] According to a DCEO official, the agency retained a portion of 
its Recovery Act award for administrative and training activities. 

[12] According to agency officials, DCEO did not begin weatherizing 
homes with Recovery Act funds until November 2009, after the U.S. 
Department of Labor determined the state's prevailing wage rates and 
local administering agencies concluded their bidding processes to 
award contracts to implement the weatherization program. By March 31, 
2010, the local agencies had spent $15.7 million of their $20.7 
million in base program funds and had completed or were in the process 
of weatherizing 5,309 homes. 

[13] Local agency assessors conduct a home inspection to determine the 
sources of home heat loss. They input their assessment data into the 
WeatherWorks system, which generates the benefit/cost ratio and prints 
out a work order that lists the weatherization measures to be 
installed and estimates of labor and materials costs. 

[14] DCEO allows local agencies to use $1,300 for program support, for 
a maximum expenditure of $6,500 per home. 

[15] DCEO monitors local administering agencies by visiting each 
agency at least annually, reviewing client files, and inspecting at 
least 5 percent of the homes weatherized at each local administering 
agency. A recent study by DOE's Office of Inspector General observed 
that in 2009, DCEO had not inspected any of the weatherized units 
completed with DOE funds at 7 of the 35 local agencies and suggested 
that DCEO monitoring is even more critical given the dramatic increase 
in work. In an internal memo, the Illinois Office of Accountability 
noted that DCEO had inspected at least 5 percent of the homes 
weatherized at all of the state's local agencies, but acknowledged 
that the agency did not distinguish between funding sources when 
selecting homes for inspection. DCEO plans to improve its tracking of 
Recovery Act-and non-Recovery Act-funded homes to ensure it meets the 
requirement. See U.S. Department of Energy, Office of Inspector 
General, Office of Audit Services, Audit Report: Management Alert on 
the Department's Monitoring of the Weatherization Assistance Program 
in the State of Illinois, OAS-RA-10-02 (Washington, D.C.: Dec. 3, 
2009). 

[16] See 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); and 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 10, 2009). 

[17] Housing agency officials said that the Riverdale Senior 
Apartments project was a hybrid between a mixed-finance development, 
which usually includes Low-Income Housing Tax Credit equity in 
addition to Capital Fund program and other funds, and a traditional 
development, which usually involves only Capital Fund program funds. 
The housing agency worked with HUD for approximately 4 months to 
finalize the terms and conditions of the development and to ensure it 
met all applicable federal regulatory requirements. 

[18] The Housing Authority for LaSalle County obligated 100 percent of 
its Recovery Act Capital Fund formula grant by February 3, 2010. The 
Chicago Housing Authority obligated 99 percent of its Recovery Act 
Capital Fund formula grant by February 17, 2010, and 100 percent by 
March 3, 2010. 

[19] The Buy American provision of the Recovery Act requires that 
"none of the funds appropriated or otherwise made available by [the] 
Act may be used for a project 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," and federal agencies can waive these 
requirements in certain circumstances. Recovery Act, div. A § 1605, 
123 Stat. 303. The Davis-Bacon prevailing wage provision requires that 
contractors and subcontractors performing work on federally assisted 
contracts in excess of $2,000 pay their laborers and mechanics not 
less than the wages and fringe benefits that prevail in the area. 
Section 3 of the Housing and Urban Development Act of 1968 states that 
"recipients, contractors and subcontractors shall direct their efforts 
to provide, to the greatest extent feasible, training and employment 
opportunities generated from the expenditure of section 3 covered 
assistance to section 3 residents." 12 U.S.C. § 1701u. Finally, the 
Recovery Act requires that Public Housing Capital Fund grants "serve 
to supplement and not supplant expenditures from other Federal, State, 
or local sources or funds independently generated by the grantee." 

[20] HUD selected housing agencies for on-site reviews based on the 
size of their Recovery Act awards as well as results from independent 
public accountant audit findings, among other factors. 

[21] The Recovery Act requires that adequate resources be devoted to 
ensuring that applicable environmental reviews under NEPA are 
completed expeditiously and that the shortest existing applicable 
process under NEPA shall be used. 

[22] As of April 30, 2010, housing authorities in Illinois had 1.5 
months to obligate their 2008 funds. Housing Authority of the County 
of Cook officials stated that as of April 30, 2010, the agency has 
obligated 85 percent of its 2008 funds, and that the agency obligated 
100 percent of its 2007 funds 10 days before the obligation deadline. 
They explained that the 85 percent obligation rate was not immediately 
reflected in the HUD data due to an internal lag in providing the 
numbers to HUD. Similarly, officials from the Marion County Housing 
Authority stated that the agency obligated 66 and 64 percent of the 
2006 and 2007 funds, respectively, around 1.5 months before the 
obligation deadline. The agency's obligation rate for the 2008 funds 
as of April 30, 2010 is 58 percent, which officials believe is on par 
with recent years' obligation rates. 

[23] Although state housing development agencies are allowed to grant 
Section 1602 Program funds to projects without allocations of Low- 
Income Housing Tax Credits, IHDA gave priority to projects that had 
such allocations. As of April 9, 2010, all the projects that had been 
awarded TCAP and Section 1602 Program funds in Illinois had 
allocations of Low-Income Housing Tax Credits. 

[24] IHDA allocated some of the Illinois TCAP and Section 1602 Program 
funds to the City of Chicago, which awards and administers those funds 
with IHDA's approval. In Illinois, both IHDA and the City of Chicago 
receive tax credits under the Low-Income Housing Tax Credit program. 
According to their intergovernmental agreement, IHDA allocated 
approximately 22 percent of TCAP funds to the City of Chicago. IHDA 
officials stated that the agency allocates Section 1602 Program funds 
to the city as the latter is willing to exchange tax credits and 
demonstrates the ability to award the funds to qualifying projects. 

[25] Under the HOME Investment Partnerships program, HUD establishes 
HOME Investment Trust Funds for each grantee, providing a line of 
credit that the grantee may draw upon as needed. 

[26] See 24 C.F.R. § 92.207. 

[27] According to an Illinois highway official, the amount of highway 
infrastructure funds obligated as of May 3, 2010, differs from the 
total Recovery Act obligation amount because the agency has requested 
that FHWA de-obligate some funds as a result of, for example, project 
bids coming in under estimates. 

[28] A state that does not meet its maintenance-of-effort 
certification would be excluded from FHWA's redistribution of 
obligation authority that will occur after August 1, 2011. 

[29] As the recipient of approximately $3 billion in Recovery Act 
funds (including funds awarded under the State Fiscal Stabilization 
Fund; Title I, Part A of the Elementary and Secondary Education Act of 
1965, as amended; and Part B of the Individuals with Disabilities 
Education Act (IDEA)) ISBE collects and aggregates FTE data from over 
900 LEAs, which it reports to the U.S. Department of Education through 
the federalreporting.gov Web site. The purpose of calculating FTEs is 
to avoid overstating the number of other than full-time, permanent 
jobs paid for with Recovery Act funds. The state of Illinois requires 
state agencies to submit their data to the Illinois Reporting Test 
Site for review before the agencies upload their data into 
federalreporting.gov. According to state officials, this review 
includes several reasonableness checks, including a comparison of FTE 
submissions to federally established FTE reporting guidelines. 

[30] See OMB, Implementing Guidance for the Reports on Use of Funds 
Pursuant to the American Recovery and Reinvestment Act of 2009, M-09-
21 (Washington, D.C.: June 22, 2009). Significant reporting errors are 
instances where required data are not reported accurately and such 
erroneous reporting results in significant risk that the public will 
be misled or confused by the agency's recipient report. 

[31] See Bob Secter and Erika Slife, "Illinois Data on Stimulus-
Related Jobs Saved, Created Don't Add Up," Chicago Tribune, Nov. 4, 
2009. 

[32] To date, OMB has not allowed recipients to correct their reports 
from the first reporting period on Recovery.gov. ISBE officials said 
that they are keeping corrections to FTE data on file until OMB 
permits agencies to make corrections to their reports. 

[33] According to ISBE guidance for the first reporting period, LEAs 
could report zero FTEs for the first reporting period even if they 
used Recovery Act funds to pay for salaries as long as they would have 
been able to pay for those salaries in the absence of Recovery Act 
funds. The fifth LEA we spoke to reported zero FTEs for the first 
reporting period, based on ISBE's guidance, and did not revise its 
submission. 

[34] OMB's June 22, 2009, guidance (M-09-21) directs recipients of 
Recovery Act funds to calculate FTEs for the first reporting period 
using the following formula--cumulative Recovery Act funded hours 
worked divided by cumulative hours in a full-time schedule. The 
guidance also directs recipients to count only those jobs that were 
created or retained with Recovery Act funds, with a job created 
defined as "a new position created and filled or an existing unfilled 
position that is filled as a result of the Recovery Act" and a job 
retained defined as "an existing position that would not have been 
continued to be filled were it not for Recovery Act funding." Simply 
counting people, rather than FTEs (or the total hours saved or 
retained with Recovery Act funds) can result in overestimations of the 
impact of Recovery Act funds, as measured by OMB--for example, paying 
one part-time teacher or a portion of one full-time teacher's salary 
with Recovery Act funds is not equivalent to one job paid for with 
Recovery Act funds, based on OMB's guidance. 

[35] OMB's December 18, 2009, guidance directs recipients to use the 
following calculation to determine the number of FTEs paid for with 
Recovery Act funds in the reporting quarter: total number of hours 
worked and funded by the Recovery Act within the reporting quarter 
divided by quarterly hours in a full-time schedule. See 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.: December 18, 2010). Under the revised guidance, 
reporting zero FTEs was unlikely if Recovery Act funds were used to 
pay for salaries. 

[36] According to officials from the Governor's Office, based on these 
corrections, ISBE added over 1,900 FTEs to its second period FTE total. 

[37] According to ISBE officials, OMB permitted recipients to make 
corrections to the data they submitted for the second reporting period 
through March 15, 2010, so these corrections are reflected in ISBE's 
recipient report for the period on Recovery.gov. 

[38] Also according to ISBE data, 11 LEAs collectively received 
approximately 50 percent of IDEA funds as of December 31, 2009. 

[39] In this vein, an LEA we spoke to about its experiences with 
recipient reporting for the third reporting period, which ended March 
31, 2010, told us that it had developed electronic systems to track 
and report on the number of hours worked by employees who are paid 
with Recovery Act funds. Based on our review, we determined this LEA 
was using a reasonable approach to calculate its FTEs for the third 
reporting period and could provide documentation that supported its 
reported figure. The Department of Education Office of Inspector 
General is currently conducting an audit to determine whether (1) ISBE 
and LEAs used Recovery Act funds in accordance with applicable laws, 
regulations, and guidance and (2) the data ISBE and LEAs reported to 
the Department of Education through federareporting.gov were accurate, 
reliable, and complete. 

[40] A structural deficit is a fiscal system's inability to fund an 
average level of public services with the revenues that it could raise 
with an average level of taxation, plus the federal aid it receives. 

[41] See Illinois Office of the Comptroller, State of Illinois 
Comprehensive Annual Financial Report for Fiscal Year Ended June 30, 
2008 (July 10, 2009). 

[42] Illinois's Constitution requires the Governor to submit to the 
Illinois General Assembly a budget proposal in which proposed 
expenditures do not exceed the available funds for the fiscal year. 

[43] The Governor noted that the proposed tax increases would prevent 
17,000 teachers from losing their jobs. See FY 2011 State of Illinois 
Budget Address (March 10, 2010). 

[44] The Recovery Act provides increased federal assistance to 
Medicaid through December 31, 2010; multiple proposals to extend the 
increase past December 31, 2010, are under consideration in the U.S. 
Congress. 

[45] Not included in this total is a $25 million Energy Efficiency and 
Conservation Block Grant that the U.S. Department of Energy awarded to 
a consortium of localities, including Cook County, for the 
coordination of industry and labor programs in projects involving 
energy efficiency. 

[46] Cook County operates its own hospitals and health system. 

[47] The state's Federal Stimulus Tracking Act requires the Governor's 
Office, or a designated state agency, to track and report monthly to 
the state legislature on the state's spending of the federal stimulus 
monies provided pursuant to the Recovery Act. 30 Ill. Comp. Stat. 270/ 
5. 

[48] 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 
OMB Circular A-133 (revised June 26, 2006). 

[49] See OMB Circular A-133, Compliance Supplement (issued May 2009) 
and the Compliance Supplement Addendum (issued August 2009). 

[50] See OMB Circular A-133, subpart C, section 320 (revised June 26, 
2007)--In general, the single audit must be completed and submitted to 
OMB 9 months after the end of the audit period. For a fiscal year 
ending June 30, audits must be submitted by March 31 of the following 
year. Note that for 2009, the audits were due March 30. 

[51] The state's assessments ranked the risk level of state agencies 
from low to high based on a number of factors, including the amount of 
Recovery Act funding disbursed to an agency, the number of 
subrecipients receiving Recovery Act funds, and previous audit 
findings. We reported on these risk assessments in GAO-09-830SP. 

[52] 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 (April 11, 
2003). State officials further explained that Illinois Public Act 096-
0795 mandated the return of the internal audit function to state 
agencies. 2009 Ill. Laws 96-795. 

[End of Appendix VII] 

Appendix VIII: Iowa: 

Overview: 

The following summarizes GAO's work on the sixth 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 four programs receiving Recovery Act funds-- 
the Weatherization Assistance Program and three education programs--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 weatherization program because it has 
begun to use significant amounts of Recovery Act funds, and we 
selected three education programs because these are the largest 
recipients of Recovery Act funds in Iowa. For descriptions and 
requirements of the programs we reviewed, see appendix XVIII of GAO-10-
605SP. 

To review the weatherization program, we visited Iowa's Division of 
Community Action Agencies (DCAA), within the Department of Human 
Rights, which is responsible for administering the weatherization 
program. We also visited three local agencies--the Polk County Public 
Works Department in Des Moines, Mid-Iowa Community Action (MICA) in 
Marshalltown, and West Central Community Action in Harlan--to provide 
a mix of urban and rural agencies that weatherize homes using 
contractors or in-house staff. According to officials, the Polk County 
agency, located in a large urban area, uses competitive bidding for 
weatherization work; MICA, located in a rural area, performs most of 
its weatherization work using in-house staff; and West Central, also 
in a rural area, uses contractors but at a predetermined price. As 
part of this work, we also visited 18 homes that had been or were 
being weatherized using Recovery Act funds.[Footnote 2] 

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 review state and local efforts to stabilize their budgets, we 
analyzed state and local budget information, including state revenue 
estimates, and met with state and municipal officials. We visited 
three Iowa localities--Council Bluffs, Des Moines, and Newton--
selected to provide a mix of large and small communities and 
unemployment rates. We selected Council Bluffs because it is the 
seventh largest city in Iowa and because its unemployment rate is 
below the state's average--6.2 percent compared with a state average 
of 7.4 percent; Des Moines because it is the largest city in Iowa and 
because its unemployment rate is above the state's average--8.4 
percent compared with a state average of 7.4 percent; and Newton 
because its population is smaller in comparison with many other 
localities throughout the state, and its unemployment rate is above 
the state's average--9.6 percent compared with a state average of 7.4 
percent.[Footnote 3] 

To review state and local efforts to report on the results of Recovery 
Act funds, we met with state-level officials as well as with officials 
at four recipients of Recovery Act funds: the Des Moines Independent 
Community School District, the Heartland Area Education Agency, the 
Des Moines Municipal Housing Agency, and Iowa State University. We 
discussed their most recent quarterly reporting of funds spent and 
jobs funded and reviewed payroll and other documents supporting their 
methodology for calculating hours worked and determining full-time 
equivalent (FTE) positions. 

What We Found: 

* Weatherization Assistance Program. Iowa has significantly increased 
the number of homes weatherized each month using Recovery Act funds. 
After the U.S. Department of Labor (DOL) established Davis-Bacon 
prevailing wage rates for weatherization in Iowa on August 19, 2009, 
the state began using Recovery Act funds to weatherize homes. As of 
March 31, 2010, the 18 local agencies implementing the program in Iowa 
had spent about $14.1 million and completed weatherizing 1,176 homes, 
which represented about 16 percent of the state's target for Recovery 
Act funds. 

* Both the state and local agencies appear to have multi-faceted and 
comprehensive programs to monitor the weatherization program and use 
of Recovery Act funds. Specifically, each of the three local agencies 
we visited used the same program controls that they used under the 
base U.S. Department of Energy (DOE) weatherization program. While 
visiting homes and reviewing files, we found that the local agencies 
authorized all work performed and work generally appeared to meet 
state guidelines. However, while the three local agencies added staff 
and contractors in response to the increased workload, we also found 
that two of them did not have sufficient staff or contractors with the 
needed skills; as a result, they experienced problems maintaining 
internal controls, such as not using the same contractor to both 
assess the need for new equipment and install a replacement. 

* Education. Between 2009 and 2011, the Iowa Department of Education 
will receive approximately $666 million through three U.S. Department 
of Education (Education) programs: (1) Title I, Part A, of the 
Elementary and Secondary Education Act of 1965, as amended (ESEA); (2) 
Individuals with Disabilities Education Act, as amended (IDEA); and 
(3) the State Fiscal Stabilization Fund (SFSF) for education 
stabilization and government services. As of March 31, 2010, the 
department had disbursed about $491 million in Recovery Act funds to 
local school districts and institutions of higher education and for 
government services. Of this amount, about $332 million had been 
expended. 

* We found that the Iowa Department of Education had systems in place 
to monitor compliance by school districts with federal requirements 
for education programs and the Recovery Act. To receive SFSF funds, 
Iowa agreed to make progress toward specific education reforms, such 
as improving teacher effectiveness. However, according to state 
education officials, more funding is needed to modify existing 
reporting systems to provide some of the data for the outcome 
indicators used to track progress toward these reforms, such as 
student achievement data to measure teacher performance. Furthermore, 
state officials expressed concern about other challenges to 
implementing some of the education reforms, including limitations on 
disclosing personally identifiable student information to track 
student performance beyond high school graduation, the confidentiality 
of individual teacher and principal performance evaluations, and 
inconsistencies between the Iowa student identification system and the 
National Student Clearinghouse student tracker system. 

* State and local government use of Recovery Act funds. As of March 
31, 2010, the Iowa General Assembly had approved the state's fiscal 
year 2011 budget, which included about $323.9 million in Recovery Act 
funds for programs such as Medicaid and K-12 education. According to 
senior officials from the Iowa Department of Management, Recovery Act 
funds have enabled the state to avoid tax increases and to reduce the 
amount of funds drawn from the state's Cash Reserve Fund. Anticipating 
the end of Recovery Act funds and other one-time sources of revenue, 
such as the use of state reserve funds, Iowa's Governor and General 
Assembly implemented plans for improving the efficiency of state 
operations and reorganizing state agencies to reduce state 
expenditures. For example, as of April 15, 2010, over 2,000 eligible 
state employees had applied for retirement under the state's early 
retirement plan. Officials at three of the localities we visited--
Council Bluffs, Des Moines, and Newton--said that they have used 
Recovery Act funds for various programs, and that these funds helped 
to stabilize their budgets. However, officials from two of these 
localities also said that they had encountered problems in applying 
for and administering funds from some Recovery Act competitive grants, 
such as the Energy Efficiency and Conservation Block Grant. 

* State monitoring and internal controls. Iowa's 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 single audit report,[Footnote 4] officials said that they 
identified some problems with internal controls over Recovery Act 
funds, such as inadequate monitoring of subrecipients. The state 
provided training on subrecipient monitoring in May 2010. The Iowa 
Accountability and Transparency Board identified six high-priority 
programs--such as the Weatherization Assistance Program and SFSF 
education stabilization funds--that it expects may have some 
difficulty in fully complying with the accountability and transparency 
requirements in the Recovery Act. The Board required these programs to 
submit comprehensive accountability plans describing how they would 
comply. 

* State and local recipient reporting. In accordance with the Recovery 
Act, Iowa has reported to www.recovery.gov on the number of jobs 
funded by the act. Iowa created a centralized database and used it to 
calculate jobs based on data provided by state and local agency 
officials. Iowa has also implemented internal controls to ensure the 
accuracy of data, such as requiring state and local agency officials 
to certify that they reviewed and approved the jobs data prior to 
submission. We noted that the methods used to calculate hours varied 
at the four local recipients we visited--the Des Moines Independent 
Community School District, the Heartland Area Education Agency, the 
Des Moines Municipal Housing Agency, and Iowa State University--
raising questions about the consistency of the quarterly reported jobs 
data. 

Iowa Has Significantly Increased Efforts to Weatherize Homes and to 
Oversee Local Agencies: 

Since August 2009, when DOL established Davis-Bacon prevailing wage 
rates for weatherization workers, Iowa has used Recovery Act funds to 
weatherize 1,176 homes (see table 1). Iowa steadily increased its 
monthly total of weatherized homes completed using Recovery Act funds 
from 1 in August 2009 to 318 in March 2010 primarily by using Recovery 
Act funds instead of funds from the Weatherization Assistance 
Program's base and supplemental appropriations for fiscal year 2009 
and the federal Low-Income Home Energy Assistance Program. In a letter 
dated February 23, 2010, DOE asked DCAA whether the program would meet 
a weatherization production target, established by DOE, of at least 
364 homes per month by March 31, 2010. In response, DCAA officials 
expressed concern that DOE's target was substantially higher than 
Iowa's goal as identified in its State Plan, DOE's goal was not based 
on pertinent Iowa data, and Iowa was already exceeding the monthly 
production goals in its State Plan. While DCAA officials are seeking 
to further increase production, they cited the DOE Inspector General's 
concern about the risk of waste, fraud, and abuse and the need to 
balance increased production with program oversight and accountability. 

Table 1: Homes Weatherized in Iowa by Funding Source, April 2009 
through March 2010: 

Month: April 2009; 
Homes weatherized using annual appropriated funds[A]: 257; Homes 
weatherized using Recovery Act funds: 0; Total: 257. 

Month: May 2009; 
Homes weatherized using annual appropriated funds[A]: 255; Homes 
weatherized using Recovery Act funds: 0; Total: 255. 

Month: June 2009; 
Homes weatherized using annual appropriated funds[A]: 199; Homes 
weatherized using Recovery Act funds: 0; Total: 199. 

Month: July 2009; 
Homes weatherized using annual appropriated funds[A]: 286; Homes 
weatherized using Recovery Act funds: 0; Total: 286. 

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: Total; 
Homes weatherized using annual appropriated funds[A]: 1,929; Homes 
weatherized using Recovery Act funds: 1,176; Total: 3,105. 

Source: DCAA. 

Note: Iowa began its Recovery Act weatherization activities in April 
2009. Iowa considers weatherization to be complete only after the 
local agency's inspector has conducted the final inspection and 
approved the work. 

[A] The Recovery Act's weatherization funds supplement DOE's base 
Weatherization Assistance Program appropriations and funding from the 
federal 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. 

[End of table] 

As shown in table 2, DCAA awarded $38.5 million in Recovery Act funds 
to 18 local agencies to weatherize homes by, for example, cleaning and 
tuning or replacing the furnace, sealing the living space from the 
outside to reduce air flow, insulating exterior walls and the attic, 
and replacing old, inefficient refrigerators or water heaters. As of 
March 31, 2010, local agencies had spent about $14.1 million of 
Recovery Act funds to weatherize 1,176 homes, or about 16 percent of 
the state's target of 7,196 homes. Furthermore, almost all of the 
local agencies had completed more than 10 percent of their targets for 
weatherizing homes using Recovery Act funds. Iowa reported that the 
Recovery Act's weatherization funding had created 183 full-time 
equivalent jobs. 

Table 2: Recovery Act Funds Disbursed and Homes Weatherized by Local 
Agencies, as of March 31, 2010: 

Local agency: Hawkeye; 
Funds awarded: $4,945,217; 
Funds spent: $1,735,953; 
Weatherized homes: 874; 
Weatherized homes: Completed: 138. 

Local agency: Polk County; 
Funds awarded: $3,906,140; 
Funds spent: $1,636,731; 
Weatherized homes: 741; 
Weatherized homes: Completed: 146. 

Local agency: Eastern Iowa; 
Funds awarded: $3,381,630; 
Funds spent: $1,375,352; 
Weatherized homes: 653; 
Weatherized homes: Completed: 76. 

Local agency: Mid-Iowa Community Action; Funds awarded: $2,921,118; 
Funds spent: $831,451; 
Weatherized homes: 549; 
Weatherized homes: Completed: 73. 

Local agency: Upper Des Moines; 
Funds awarded: $2,502,927; 
Funds spent: $1,086,801; 
Weatherized homes: 486; 
Weatherized homes: Completed: 101. 

Local agency: North Iowa; 
Funds awarded: $2,468,182; 
Funds spent: $1,559,054; 
Weatherized homes: 403; 
Weatherized homes: Completed: 93. 

Local agency: West Central; 
Funds awarded: $2,407,928; 
Funds spent: $617,761; 
Weatherized homes: 469; 
Weatherized homes: Completed: 81. 

Local agency: Operation Threshold; 
Funds awarded: $2,285,855; 
Funds spent: $523,485; 
Weatherized homes: 445; 
Weatherized homes: Completed: 18. 

Local agency: Southern Iowa Economic Development; Funds awarded: 
$1,924,714; 
Funds spent: $53,611; 
Weatherized homes: 386; 
Weatherized homes: Completed: 0. 

Local agency: Community Opportunities; Funds awarded: $1,752,337; 
Funds spent: $770,383; 
Weatherized homes: 319; 
Weatherized homes: Completed: 61. 

Local agency: Northeast Iowa; 
Funds awarded: $1,701,371; 
Funds spent: $553,031; 
Weatherized homes: 307; 
Weatherized homes: Completed: 36. 

Local agency: Southeast Iowa; 
Funds awarded: $1,621,984; 
Funds spent: $608,269; 
Weatherized homes: 295; 
Weatherized homes: Completed: 54. 

Local agency: Siouxland; 
Funds awarded: $1,572,067; 
Funds spent: $877,502; 
Weatherized homes: 302; 
Weatherized homes: Completed: 54. 

Local agency: Operation: New View; 
Funds awarded: $1,527,036; 
Funds spent: $447,652; 
Weatherized homes: 291; 
Weatherized homes: Completed: 69. 

Local agency: Mid-Sioux; 
Funds awarded: $1,068,796; 
Funds spent: $567,777; 
Weatherized homes: 187; 
Weatherized homes: Completed: 63. 

Local agency: Red Rock; 
Funds awarded: $961,281; 
Funds spent: $403,837; 
Weatherized homes: 184; 
Weatherized homes: Completed: 53. 

Local agency: Matura; 
Funds awarded: $838,215; 
Funds spent: $289,499; 
Weatherized homes: 155; 
Weatherized homes: Completed: 40. 

Local agency: South Central; 
Funds awarded: $758,942; 
Funds spent: $146,766; 
Weatherized homes: 150; 
Weatherized homes: Completed: 20. 

Local agency: Total; 
Funds awarded: $38,545,740; 
Funds spent: $14,084,915; 
Weatherized homes: 7,196; 
Weatherized homes: Completed: 1,176. 

Source: DCAA. 

Note: DOE has made available only $40.4 million of the $80.8 million 
it has obligated to Iowa. DOE plans to make the remaining funds 
available once Iowa has completed weatherizing 30 percent of its 
target of 7,196 homes and meets specified program management 
objectives. 

[End of table] 

DCAA's monitoring of the local agencies' implementation of the 
weatherization program appears to be multi-faceted and comprehensive. 
It includes the following: 

* Monthly reviews or desk audits. These reviews or audits involve 
reconciling the local agencies' monthly financial reports on program 
spending with activity reports on the weatherization of homes to 
ensure that they are consistent and that the local agencies are on 
schedule to spend their funds and to check for unusual expense charges. 

* Reviews of the agencies' annual independent auditors' reports. As 
the local agencies submit these reports on their financial statements 
and internal controls over financial reporting, DCAA reviews them for 
any identified problems. 

* On-site monitoring at each local agency that leads to a formal 
annual assessment or evaluation. This monitoring includes a review of 
fiscal and program operations and inspections of homes that have been 
weatherized. DOE requires states to inspect 5 percent of homes 
weatherized. According to Iowa officials, DCAA inspects about 7 
percent of homes weatherized and will try to sustain this rate even as 
more homes are weatherized with Recovery Act funds. In turn, DCAA 
requires local agencies to inspect 100 percent of weatherized homes. 
DCAA's on-site monitoring is a critical aspect of its oversight and 
its primary interface with the local agencies on their compliance with 
program requirements and the quality of their weatherization work. 

Our review