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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 of DCAA's two most recent annual evaluations for MICA, Polk 
County, and West Central Community Action found that the on-site 
monitoring covered a wide range of program and state requirements. 

* The program operations component included a review of compliance 
with state requirements for training, contracting and bid procedures, 
documentation of health and safety issues in weatherizing homes, 
general management and administrative practices, and timeliness and 
accuracy of monthly reporting. We noted, however, that the most recent 
on-site monitoring of program operations at MICA, Polk County, and 
West Central was more than a year ago. For example, DCAA's visits to 
review program operations at MICA and West Central took place in 
November 2007 and February 2008, respectively. Similarly, the State of 
Iowa Single Audit Report for the year ending June 30, 2009, found that 
DCAA did not monitor the program operations component for 6 of the 18 
local agencies because DCAA did not have prior year findings. State 
officials explained that state policy and its monitoring plan approved 
by DOE provides for DCAA to monitor agencies more frequently if it 
finds significant problems and less frequently if it finds that the 
local agency has a sound program. According to state weatherization 
officials, DCAA is currently making site visits to review the program 
operations of all local agencies because of the large increase in 
funding from the Recovery Act. A DCAA official told us that, for 
example, the three local agencies included in our review received site 
visits during February and March 2010. These site visits either had 
not been made or the results were not available at the time that we 
reviewed the files. 

* The fiscal operations component, among other things, examined 
financial transactions for accuracy and supporting documentation, 
compared time sheets to determine if the hours reported agreed with 
payroll information, and reviewed expenses to determine if they were 
supported by the terms of the local agency's agreement with the state. 
The State of Iowa Single Audit Report found that, while DCAA monitored 
fiscal operations, 8 of 18 DCAA fiscal monitoring reports were not 
sent to local agencies within 30 days after the review, as required by 
the monitoring plan. DCAA said that it will make every effort to 
ensure that both program and fiscal monitoring reports are sent in a 
timely manner. 

* DCAA inspected homes to determine if the work met state standards 
for weatherization. In cases where these inspections found that work 
did not meet the standards, the inspector notified the local agency 
that the homes had failed the inspection and directed the agency to 
take corrective action. For example, the DCAA inspector failed one 
home when he found that some floors had not been insulated to their 
edges, some wall insulation needed to be redone, and an exhaust fan 
duct had not been insulated. Local agencies did not always report 
their corrective actions on failed homes to DCAA in a timely manner. 
The State of Iowa Single Audit Report found that for three of the six 
home inspection folders reviewed, the local agency did not report its 
corrective action within 45 days of receiving the state's notice, as 
required by the state monitoring plan. DCAA said that it would monitor 
this situation more closely to ensure corrective actions are reported 
by the due dates. 

DCAA inspections during late June and early July 2009 uncovered a more 
serious case. During routine program monitoring of homes weatherized 
by the Southern Iowa Economic Development Association (SIEDA), DCAA 
found numerous weaknesses in the agency's oversight of the 
contractors' work. 

* DCAA found that work performed on numerous homes did not meet 
required state standards; SIEDA was not inspecting homes after they 
were weatherized; and the housing coordinator misled the DCAA about 
how the need for furnace and water heater replacements was determined. 
According to state officials, the housing coordinator had told DCAA 
that the energy auditor determined replacement needs while, in 
actuality, they were determined by the contractor. 

* Although Recovery Act funds were not used on these homes, DCAA 
believed that the program weaknesses were so serious that it suspended 
Recovery Act funding to the agency on September 24, 2009, and required 
SIEDA to submit an action plan to address these concerns. On September 
29, 2009, SIEDA submitted its plan to DCAA; the plan called for 
discontinuing work with current furnace and weatherization 
contractors, developing new contracting procedures, and establishing a 
policy for home evaluations and inspection to ensure that all work 
performed is according to program standards and practices. The agency 
had also fired the housing coordinator. 

* As of April 2010, DCAA was still working with SIEDA to revise its 
policies and train more contractors. According to DCAA officials, 
SIEDA will be required to demonstrate improved performance using other 
funds before the state resumes funding under the Recovery Act. 

Our visits to MICA, Polk County, and West Central Community Action to 
review their implementation of the weatherization program found the 
following: 

* The local agencies essentially use the same program controls to 
implement the weatherization program under the Recovery Act that they 
use for the regular DOE weatherization program. Local agency officials 
said program controls have been in place for years and are effective, 
ensuring that their agencies meet program requirements. While visiting 
homes and reviewing files at these agencies, we generally found that 
the work charged to the program was authorized and appeared to meet 
the state's quality guidelines. The files varied by local agency in 
terms of the information they contained but were generally complete 
and contained information essential to understanding the work. 

* To respond to the increased workload from the influx of Recovery Act 
funds, the local agencies added staff and contractors. Specifically, 
Polk County increased its staff of auditors and inspectors from 4 to 
13 and, as of March 2010, had increased the number of contractors 
weatherizing homes from 5 to 17. MICA increased its staff of auditors 
and inspectors from 2 to 4, added staff for a third work crew, and 
plans to add a second 2-person furnace crew. MICA originally performed 
all work in-house but has since added 3 contractors and expects to add 
a fourth. West Central increased its staff of auditors and inspectors 
from 3 to 5 and added an agency assistant director to work with 
contractors and Davis-Bacon requirements. West Central also increased 
its contractors from about 4 to 14. 

* Even so, two of the agencies experienced some difficulty in 
maintaining internal controls over the weatherization program as they 
were adding staff or contractors. For example, West Central used the 
same contractor to diagnose, repair, and replace problem furnaces--and 
did not visit homes to confirm that repairs or replacement were 
needed--because agency staff do not have the expertise nor the time to 
visit homes across West Central's large service area, which covers 10 
counties. According to state and West Central officials, the local 
agency requires prior agency review and approval of all furnace 
replacements called for by the contractor. Approval is based on the 
results of the agency's on-site evaluation of the furnace at the time 
of the energy audit and the contractor's written request and 
justification for replacement. We also found that the same West 
Central staff conducted both the home energy audit, which identifies 
the weatherization work to be performed by a contractor, as well as 
the final inspection of the contractor's work. In both instances, the 
Executive Director and Energy/Housing Coordinator for West Central 
acknowledged that this dual role was not desirable. The coordinator 
told us that West Central has been trying to find additional furnace 
contractors interested in working with the agency and is considering 
hiring an employee to do the furnace diagnostics and tune and clean or 
to sub-contract for the work. West Central had no choice but to use 
the same staff to conduct the home energy audit and final inspection, 
the official said, because the agency did not want to delay the final 
inspection and payment to the contractor. The official also said that 
this situation was expected to improve with the addition of two new 
staff to perform inspections. 

* In beginning to use contractors for weatherization work, MICA found 
that competitive bidding for contracts was limited because they 
received few bids. MICA works with three contractors, but not all 
contractors bid on each home. According to MICA officials, the 
situation will likely improve as the agency works to add contractors 
qualified to bid on weatherization work. 

Iowa Continues to Monitor the Use of Recovery Act Funds for Education, 
but New Reform Requirements Present Challenges According to State 
Education Officials: 

Under the Recovery Act, Iowa will receive approximately $666 million 
in Recovery Act funds through three Education programs. As of March 
31, 2010, Iowa had disbursed about $491 million to local school 
districts, institutions of higher education, and for government 
services as described below: 

* ESEA Title I, Part A. As of March 31, 2010, Education had made 
available to the Iowa Department of Education an estimated $51.5 
million in ESEA Title I, Part A, funds under the Recovery Act. In 
turn, the Iowa Department of Education has disbursed a total of about 
$16 million to school districts. These funds are intended to help 
school districts educate disadvantaged youth, and the Recovery Act 
requires these additional funds to be distributed through states to 
school districts using existing federal funding formulas, which target 
funds based on such factors as high concentrations of students from 
families living in poverty. On April 6, 2010, Iowa was awarded one of 
the first expanded ESEA Title I School Improvement Grants, for $18.7 
million for school year 2010 - 2011. These funds are intended to help 
improve student achievement in the nation's persistently low-
performing schools identified for improvement, corrective action, or 
restructuring. 

* IDEA, Part B. As of March 31, 2010, Education had made available to 
the Iowa Department of Education an estimated $126.2 million in IDEA, 
Part B, funds under the Recovery Act. The Iowa Department of Education 
has disbursed a total of about $50 million to school districts and 
area education agencies. IDEA, Part B, is the major federal statute 
supporting the provisions of early intervention and special education 
and related services for children and youth with disabilities. 

* SFSF. Education allocated to Iowa a total of about $472 million in 
SFSF funds, which included about $386 million in education 
stabilization funds and about $86 million in government services 
funds. The state had to complete two separate applications to receive 
the funds. Education made the first phase of SFSF funds available to 
the state in June 2009 and the second in March 2010. As of March 31, 
2010, Iowa had disbursed a total of about $258 million to school 
districts, $80 million to public universities, and $23 million to 
community colleges. It had also disbursed $63 million in SFSF 
government services funds. Iowa plans to use most of the $63 million 
in government services funds in 2010 for such programs as public 
assistance, public safety, and Medicaid. 

To receive Recovery Act funds, Education required that states provide 
assurances concerning accountability, transparency, reporting, and 
compliance with certain federal laws and regulations. The Iowa 
Department of Education had systems in place to monitor compliance by 
school districts with federal requirements for education programs 
prior to the receipt of Recovery Act funds. These processes were 
extended to the oversight of Recovery Act funds as described below. 

* The department designated certain staff responsible for overseeing 
education funds: the Chief Financial Officer, for SFSF funds; the 
Title I manager, for ESEA Title I funds; and the IDEA program manager, 
for IDEA, part B funds. Additionally, the department's Finance, 
Facilities and Operations Services group analyzes annual financial 
reports and external audit reports to identify areas needing more 
department oversight. State area education agencies, which distribute 
the state IDEA funds regionally, also assist the state by monitoring 
local districts' use of IDEA funds. Some officials at the Iowa 
Department of Education expressed concern that recent staff reductions 
at the state level and a steady loss of experienced business managers 
in many of the school districts across the state could result in less 
oversight of funds at a time when more oversight might be needed due 
to the influx of Recovery Act funds. 

* The department reviews several different reports to monitor the use 
of Recovery Act funds by the state's 361 local school districts. These 
reviews include (1) an annual certified financial report (completed by 
September 15, about 3 months after the end of the state fiscal year); 
(2) an annual financial audit performed by an external auditing firm 
(completed by March 31, about 9 months after the end of the state 
fiscal year); and (3) specifically for the Recovery Act, the quarterly 
recipient report that details Recovery Act funds spent and related 
jobs information. In addition, every quarter, the state reconciles 
districts' reported Recovery Act spending with expenditure information 
in its accounting system. The Iowa Department of Education is also 
audited annually by the Iowa State Auditor, who has not noted any 
material weaknesses in the department in the last 3 years. 

To receive its initial SFSF funding allocation, the U.S. Department of 
Education required that each state provide several assurances, or 
promises, that it would meet established state funding requirements, 
called maintenance-of-effort, and implement strategies to advance four 
core areas of education reform. The U.S. Department of Education's 
four areas of reform and Iowa's progress towards meeting them are as 
follows: 

* Increase teacher effectiveness and address inequities in the 
distribution of highly qualified teachers. According to Iowa Education 
officials, as a result of prior actions, Iowa has highly qualified 
teachers dispersed across the state's high-and low-poverty districts 
and has not had to take other actions to address teacher quality 
assurances. To increase teacher effectiveness and address inequities 
in the distribution of highly qualified teachers, according to Iowa 
Education officials, the Iowa General Assembly passed legislation in 
2001 establishing teaching criteria and mentoring programs, 
restructuring the teacher evaluation process and salaries, and 
requiring individual development plans and continuous education for 
teachers. The legislation was instrumental in raising state teaching 
standards and the state's national teacher quality ranking from 42nd 
to 26th highest in the country, according to Iowa Education officials. 

* Establish a pre-K-through-college data system to track student 
progress and foster improvement. To track student progress, Iowa 
established a comprehensive student achievement information system in 
1990. However, according to Iowa Education officials, an expansion of 
the state's system to track students through the college years depends 
on whether the state can overcome barriers such as the federal Family 
Educational Rights and Privacy Act and national data comparability 
issues. According to state officials, December 2008 amendments to the 
act provide additional flexibilities in sharing information, but 
officials continue to be concerned that the Family Educational Rights 
and Privacy Act limits the state's ability to share personally 
identifiable student information between K-12 schools and community 
colleges that are under the Iowa Department of Education and public 
universities that operate under a separate Board of Regents. State 
education officials said that recent discussions with the U.S. 
Department of Education have helped identify a resolution to this 
matter, but changes have not yet been implemented. 

* Make progress toward rigorous college-and career-ready standards and 
high-quality assessments that are valid and reliable for all students, 
including students with limited English proficiency and students with 
disabilities. The Iowa Department of Education is currently 
implementing the Iowa Core Curriculum. Iowa Education officials said 
that the Core Curriculum was established on a voluntary basis in 2007, 
and in 2008 the Governor signed legislation requiring full 
implementation of the curriculum. According to Iowa Education 
officials, the Iowa Core Curriculum is closely aligned with federal 
standards, and it positions the state to comply with voluntary 
national standards. According to officials, it requires the state to 
go beyond establishing standards and benchmarks to define elements of 
classroom success, including specific skills and behavior learned in 
the classroom. The enacting legislation established full 
implementation dates for the core curriculum of 2012 for grades 9-12 
and 2014 for grades K-8, according to Iowa Education officials. 

* Provide targeted, intensive support and effective interventions to 
turn around schools identified for corrective action or restructuring. 
Officials in the Iowa Department of Education told us that the state 
is currently tracking student progress, working with schools to 
develop remedial plans, and providing additional professional 
development for teachers and principals. They said that the state will 
continue to work with the U.S. Department of Education to improve the 
state's schools. However, Iowa Education officials generally disagree 
with Education's models for reforming low-performing schools because 
all four models require removal of the school principal. Iowa 
Education officials said that they do not believe removing the 
principal is necessarily effective or always appropriate, particularly 
at schools where poor performance is more affected by the population 
of students than the abilities and efforts of the principal or 
teachers. Iowa Education officials also said that they believe that 
providing states the opportunity to develop their own corrective 
action plans, instead of implementing one of the Department's four 
models, would be more effective and could work as long as the U.S. 
Department of Education established regulations to ensure that states 
are initiating constructive actions. 

To receive their second phase of SFSF funding, states had to complete 
an application in which they described their ability to address 37 
indicators and descriptors that support the four assurances agreed to 
in the initial application. These 37 indicators include, for example, 
(1) the percentage of core courses taught in the highest and lowest 
poverty schools by teachers who are highly qualified, (2) the 
percentage of limited English-proficient students who are included in 
state reading/language arts and mathematics assessments, and (3) total 
students, by school and subgroup, who graduate from high school in 4 
years. For those indicators and descriptors that the states do not 
currently report on, states were required to provide plans for how 
data would be collected, and obstacles to collecting these data. In 
its application, Iowa reported that it collected data for 25 of the 37 
indicators and provided information on how it planned to address the 
remaining 12 indicators and potential obstacles to obtaining data. For 
example, Iowa reported that it did not have a system to track student 
achievement data to measure teacher and principal performance, nor to 
determine teacher impact on student achievement in reading and 
mathematics in grades in which they administer these assessments. The 
state cited a lack of funds and personnel as potential obstacles to 
implementing and administering the needed data system changes. 
Furthermore, Iowa Education officials reported that under Iowa law, 
the Iowa Department of Education was not allowed to make public 
individual teacher and principal performance data. In order to respond 
to the indicator requirements without violating individual privacy 
concerns, the Iowa Department of Education is working with the U.S. 
Department of Education to develop a means for reporting aggregated 
data for classes, schools, or districts instead of reporting 
individual student, principal, or teacher data. 

The Iowa Department of Education applied for a school improvement 
grant on February 22, 2010, and was approved for an $18.7 million 
grant on April 6, 2010. Among other things, the new grant rules 
increase the amount of funds that can be spent on one school from 
$500,000 to $2 million. The U.S. Department of Education's stated goal 
for the use of these funds is "to dramatically transform school 
culture and increase student outcomes in each state's persistently 
lowest-achieving schools." The U.S. Department of Education has 
specified that local school districts choose between four "school 
intervention models": school turnaround, closure, restart, and 
transformation. The models vary in approach, but require specific 
actions, such as replacing the principal and up to half of the staff 
or closing the school permanently and relocating students to nearby, 
higher performing schools. However, Iowa education officials cited the 
following short-and long-term challenges in implementing the 
requirements of this grant program: 

* Time frame to implement change. According to Iowa Education 
officials, the U.S. Department of Education did not notify the state 
that it was selected for a new school improvement grant until just 
before the time that most school districts normally make staffing 
decisions and offer contract extensions for the next school year. 
Furthermore, school districts are required to submit their 
applications to the state by May 21, 2010, and will not know if their 
plan is approved until sometime after that date. As a result, local 
school districts will likely be rushed to implement changes during the 
2010-2011 school year. 

* Distribution of grant funds. The new grant program rules generally 
require that states identify the lowest-achieving 5 percent of ESEA 
Title I schools as Tier 1 schools (those that are persistently 
underachieving) and designate them as highest priority for grant 
funds. Iowa has about 120 ESEA Title I schools, meaning that 6 schools 
will be designated as the lowest performing 5 percent. These 6 schools 
will be eligible to apply for up to $2 million to improve their 
performance over 3 years, while most other ESEA Title I schools will 
receive less than they did in the past. In prior years, school funding 
was limited to $500,000 per school, which allowed the state to fund 
more schools. 

* Contract negotiations. Iowa Education officials said they expect to 
have to negotiate changes with the local teachers' unions on changes, 
such as providing longer school days and school years and releasing or 
transferring teachers in nonperforming schools. This could delay or 
limit school districts' ability to make changes at some schools. 

* Rural school districts. Iowa Education officials noted potential 
problems releasing or transferring teachers or principals from 
nonperforming schools in the state's rural areas. Many of Iowa's 361 
school districts are in rural areas that already have a shortage of 
education professionals. Iowa Education officials questioned whether 
these districts would be able to find sufficient numbers of certified 
and trained replacements should they be required to release staff. 
Some districts already have a shortage of qualified teachers for 
certain subjects, particularly math. Finally, some students in rural 
areas must travel a great distance to go to school, so that these 
students may need to travel even further if a school or a portion of a 
school closes. 

Iowa State and Local Governments Said They Benefit from Use of 
Recovery Act Funds, but Some Localities Experienced Challenges 
Applying for Competitive Grants: 

As of March 31, 2010, the Iowa General Assembly had approved all 
appropriations bills for Iowa's fiscal year 2011 budget,[Footnote 5] 
which is based on a revised revenue estimate of approximately $5.44 
billion,[Footnote 6] and appropriates a net total of approximately 
$5.28 billion from the state's General Fund. The General Assembly also 
included $323.9 million in Recovery Act funds in the fiscal year 2011 
budget, including about $240.2 million for funding Medicaid-related 
programs,[Footnote 7] and about $47.9 million for funding state school 
aid for K-12 education.[Footnote 8] However, according to officials 
from the Iowa Department of Management and Iowa's Legislative Services 
Agency, the General Assembly appropriated Recovery Act funds for 
Medicaid-funded programs on the assumption that Iowa would receive an 
extension of Recovery Act Medicaid funds. Senior officials from the 
Iowa Department of Management added that if there is no extension of 
Recovery Act Medicaid funds, the General Assembly will be able to 
consider a supplemental appropriation for Medicaid funds, based on 
enrollment and funding need, during the 2011 legislative session. 
[Footnote 9] Additionally, officials from Iowa's Legislative Services 
Agency said that, despite the allocation of Recovery Act funds for 
state school aid, local school districts may be required to increase 
property taxes to make up for any shortfall of state or local 
education funds. Senior Iowa Department of Management officials told 
us that the amount of Recovery Act funds received for fiscal year 2010 
enabled Iowa to avoid tax increases and to reduce the amount drawn 
down from its Cash Reserve Fund. 

Senior officials from Iowa's Department of Management said that the 
Governor recently implemented plans for improving the efficiency of 
state operations to reduce state expenditures, in part to account for 
revenue shortfalls following the disbursement of remaining Recovery 
Act funds and other one-time sources of revenue, such as state reserve 
funds. Additionally, according to state officials, the General 
Assembly approved legislation including additional measures to improve 
efficiency in state government and reorganize state agencies.[Footnote 
10] According to senior Iowa Department of Management officials, the 
efficiency improvements and reorganization proposals are estimated to 
achieve a combined reduction of $270 million in expenditures in fiscal 
year 2011. 

Among the efficiency improvements is the implementation of optional 
early retirement plans for eligible state employees, according to 
senior Iowa Department of Management and Iowa Legislative Services 
Agency officials. Senior Iowa Department of Management officials said 
that the early retirement plan is intended to reduce state personnel 
expenditures by about $58 million per year beginning in fiscal year 
2011 by reclassifying positions, filling only essential positions, and 
taking advantage of different skill sets and levels of experience that 
new employees would bring to their respective positions. Furthermore, 
officials believe that the early retirement program will help reduce 
the state's unemployment, provide greater diversity in state 
government, and expand employees' service capabilities. As of April 
15, 2010, according to senior Iowa Department of Management officials, 
over 2,000 eligible state employees had accepted the state's early 
retirement offer. 

We have previously noted that as experienced federal employees retire, 
they leave behind critical gaps in leadership and institutional 
knowledge, increasing the challenges government agencies face in 
maintaining a skilled workforce.[Footnote 11] These consequences may 
also be applicable to Iowa as experienced state employees take 
advantage of the early retirement offer; state agencies and 
departments may experience difficulties administering and monitoring 
federally funded programs, including those funded by the Recovery Act. 
Should the state experience problems administering and monitoring 
federally funded programs, the Iowa Department of Administrative 
Services, as well as Iowa state agencies and departments, could 
address these potential issues by creating and implementing policies 
to address leadership and knowledge gaps. For example, the state could 
choose to implement policies requiring new employees to complete 
additional training and mentoring programs to help them better 
understand how to effectively carry out their responsibilities. 
Commenting on our draft report, senior officials from the Iowa 
Department of Management said they do not believe that the early 
retirement program will impair state government operations; they also 
said services would continue to be provided. Officials added that 
training will be provided to new employees as required by individual 
Iowa state agencies and departments. 

We visited three localities in Iowa, including two localities we 
visited in 2009, to discuss the use of Recovery Act funds by local 
governments (see table 3). Local municipal governments benefited from 
the use of Recovery Act funds under various programs, according to 
officials we spoke with. In addition, some localities we visited 
cooperated with other entities to obtain Recovery Act grants. However, 
some local government officials expressed concern about the process 
for applying for and administering some Recovery Act competitive 
grants. 

Table 3: Demographics of Localities Visited to Address Use of Recovery 
Act Funds: 

Local Government: City of Council Bluffs; Population[A]: 59,536; 
Locality Type: City; 
Unemployment Rate, March 2010 (percent)[B]: 6.2; 2009-2010 Operating 
Budget[C]: $63,854,868. 

Local Government: City of Des Moines; Population[A]: 197,052; 
Locality Type: City; 
Unemployment Rate, March 2010 (percent)[B]: 8.4; 2009-2010 Operating 
Budget[C]: $625,633,246. 

Local Government: City of Newton; 
Population[A]: 15,042; 
Locality Type: City; 
Unemployment Rate, March 2010 (percent)[B]: 9.6[D]; 2009-2010 
Operating Budget[C]: $12,385,302. 

Sources: GAO analysis of U.S. Census Bureau population data and U.S. 
Department of Labor, Bureau of Labor Statistics, Local Area 
Unemployment Statistics; City of Council Bluffs; City of Des Moines; 
and City of Newton. 

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

[B] Unemployment rates are preliminary estimates for March 2010 and 
have not been seasonally adjusted. The state of Iowa had a non- 
seasonally adjusted unemployment rate of 7.4 percent in March 2010, 
and had a seasonally-adjusted unemployment rate of 6.8 percent during 
the same period. Rates are a percentage of the labor force. 

[C] The timeframe for the 2009-2010 budgets of all localities we 
interviewed is July 1, 2009-June 30, 2010. 

[D] The unemployment rate reflects Jasper County, Iowa (where Newton 
serves as the county seat). 

[End of table] 

Council Bluffs: 

* Council Bluffs, according to city officials, was awarded 
approximately $6.2 million in Recovery Act funds from federal and 
state sources, and had received approximately $694,000 in Recovery Act 
funds as of May 1, 2010. Officials from Council Bluffs said that the 
city used Recovery Act funds to fund various projects (see table 4), 
such as rehabilitating several city roads and bike trails and 
renovating city buildings to improve energy efficiency. Officials also 
noted that the city filed a joint application with the City of Carter 
Lake and Pottawattamie County to obtain funding from the Edward Byrne 
Memorial Justice Assistance Grant. However, city officials said they 
did not initially have sufficient capabilities to complete the 
application process and electronically report data pertaining to the 
Recovery Act Energy Efficiency and Conservation Block Grant program. 
[Footnote 12] To resolve the issue, city officials said the city used 
a consultant to finish the city's application for funding and complete 
the grant's periodic reporting requirements. 

Table 4: Select Sources of Recovery Act Funding to Council Bluffs: 

Agency: Iowa Department of Transportation; Program: Highway 
Infrastructure Investment Program; Use of funds: Reconstructing a 
segment of College Road in Council Bluffs; Amount awarded: $2,300,000. 

Agency: DOE; 
Program: Energy Efficiency and Conservation Block Grant; Use of funds: 
Replacing chillers, mechanical systems, and windows in the Council 
Bluffs City Hall and other municipal buildings; Amount awarded: 
$571,500. 

Agency: U.S. Department of Housing and Urban Development; Program: 
Community Development Block Grant - Recovery; Use of funds: 
Constructing roads and other infrastructure for new low-and medium- 
income housing; Amount awarded: $285,520. 

Agency: U.S. Department of Justice; 
Program: Edward Byrne Memorial Justice Assistance Grant; Use of funds: 
Purchasing law enforcement equipment and training, including 
installing new training simulators and making additional improvements 
to a local shooting range[A]; Amount awarded: 504,215[B]. 

Source: City of Council Bluffs. 

[A] According to Council Bluffs officials, their police department 
shares the local shooting range with other federal, state, and local 
law enforcement agencies based in Iowa and Nebraska. 

[B] Council Bluffs, the City of Carter Lake and Pottawattamie County 
received a joint allocation of $541,500; of that amount, Council 
Bluffs received $504,215. 

[End of table] 

* Council Bluffs officials said that the city has experienced positive 
economic growth over the past 2 years, and the city projected 
increases in revenues and expenditures for fiscal year 2010-2011 in 
comparison with the previous fiscal year.[Footnote 13] City officials 
also said that Council Bluffs benefited financially from the use of 
Recovery Act funds; for example, the city avoided using capital funds 
to pay for road projects funded by the Recovery Act, and maintained 
its bond rating to avoid higher interest rates on bonds issued by the 
city. 

* City officials said that Council Bluffs does not have a strategy to 
address any budgetary shortfalls after they use available Recovery Act 
funds. However, city officials said that the city should not 
experience significant financial difficulties because many of the 
Recovery Act funds are being used for one-time expenses, such as road 
projects. 

Des Moines: 

* Des Moines was awarded more than $18 million in Recovery Act funds 
from federal and state sources and, according to city officials, had 
received approximately $3.7 million in Recovery Act funds as of: 

* April 30, 2010. Des Moines officials said that the city used 
Recovery Act funds to rehabilitate roads, construct bike trails, and 
expand community service programs, as well as for other initiatives 
(see table 5). City officials also said that Des Moines cooperated 
with other entities to obtain funding for several Recovery Act grants. 
[Footnote 14] However, these officials said the process to apply for 
competitive grants, such as the Recovery Act Energy Efficiency and 
Conservation Block Grant, has been frustrating because DOE continues 
to change its mind on what is an acceptable project. For example, 
according to city officials, DOE changed its mind three times before 
finally disapproving a proposed $555,000 mortgage buy-down 
program.[Footnote 15] In another case, DOE told Des Moines officials 
they would be able to implement a revolving loan program that would 
allow the city to issue itself loans for, among other things, 
retrofitting public buildings with energy improvements. DOE later told 
city officials the revolving loan program would not be an eligible 
activity. Furthermore, city officials said the that the Des Moines 
City Council had approved a grant application for the Recovery Act 
Assistance to Firefighters Fire Station Construction Grant in June 
2009.[Footnote 16] However, city officials said they did not receive 
notification from the Federal Emergency Management Agency about the 
status of their application until April 2010, when city officials were 
informed that the city's application was denied. 

Table 5: Select Sources of Recovery Act Funding to Des Moines: 

Agency: Iowa Department of Transportation; Program: Transportation 
Enhancement; 
Use of funds: Constructing multipurpose trail extensions of the 
Principal Riverwalk along the Des Moines River; Amount awarded: 
$2,849,000. 

Agency: U.S. Department of Housing and Urban Development; Program: 
Community Development Block Grant - Recovery; Use of funds: Expanding 
neighborhood infrastructure rehabilitation programs (e.g., street, 
curb, sidewalk repairs) and demolition programs for neighborhood 
redevelopment; Amount awarded: $1,152,886. 

Program: Homelessness Prevention and Rapid Rehousing; Use of funds: 
Assisting individuals and families at risk of becoming homeless with 
temporary rent or utility assistance, and providing temporary housing 
assistance to individuals and families already experiencing 
homelessness; Amount awarded: $1,763,874. 

Agency: U.S. Department of Justice; 
Program: COPS Hiring Recovery Program (CHRP); Use of funds: Creating 
nine additional police officer positions for 3 years, with an 
additional year funded by the City of Des Moines, to support community 
policing efforts; Amount awarded: $2,191,806. 

Program: Edward Byrne Memorial Justice Assistance Grant (JAG); Use of 
funds: Improving forensic capabilities, upgrading technology, and 
funding equipment to improve officer safety; Amount awarded: 
$1,178,833[A]. 

Source: City of Des Moines. 

[A] Local governments in the Des Moines metropolitan area, including 
Des Moines, the City of Altoona, and Polk County, received a joint 
award of $1,502,161. Of that amount, Des Moines received $1,178,833. 

[End of table] 

* Des Moines officials said the city is facing a structural deficit, 
[Footnote 17] in part due to reductions in property taxes and other 
sources of revenue, as well as because of increased costs of health 
insurance and other employee benefits. To address the deficit, Des 
Moines intends to eliminate 58 full-time equivalent positions in 
fiscal year 2011-2012 and has reduced services, such as reducing hours 
of operation for public libraries, and changed some of its business 
practices, such as increasing contracting for city services.[Footnote 
18] Projected reductions in revenue in fiscal year 2010-2011 prompted 
the Des Moines City Council to approve decreases in expenditures in 
the current fiscal year as well.[Footnote 19] 

* City officials noted, however, that the use of Recovery Act funds 
mitigated the effects of recent budget reductions. Specifically, city 
officials said that funds for the COPS Hiring Recovery Program allowed 
Des Moines to fund positions for nine police officers and funds from 
the U.S. Department of Housing and Urban Development provided much 
needed neighborhood redevelopment and homelessness prevention 
programs. Transportation funding played an important role in allowing 
the city to move forward on important capital improvement projects. 
Des Moines officials said that once they expend available Recovery Act 
funds, they plan to reduce funding for these programs to pre-Recovery 
Act funding levels. 

Newton: 

* As of May 1, 2010, Newton was awarded approximately $1.3 million in 
Recovery Act funds from state sources, and according to city 
officials, has been reimbursed about $701,000 for expenses related to 
Recovery Act-funded projects. Newton officials said that the city used 
Recovery Act funds to perform overlay projects on several city streets 
and replace an aeration basin at Newton's water treatment facility 
(see table 6). 

Table 6: Select Sources of Recovery Act Funding to Newton: 

Agency: Iowa Department of Natural Resources and Iowa Finance 
Authority; Program: Clean Water State Revolving Fund; Use of funds: 
Replacing aeration basin at Newton's water treatment facility; Amount 
awarded: $684,000[A]. 

Agency: Iowa Department of Transportation; Program: Highway 
Infrastructure Investment Program; Use of funds: Performing road 
overlay projects on several streets in Newton; Amount awarded: 
$620,472. 

Source: City of Newton. 

[A] Newton officials said that the city obtained $684,000 in loans in 
lieu of grants (of which $136,000, or about 20 percent, is forgivable). 

[End of table] 

* Newton expects to receive more revenues in fiscal year 2010-2011 
than it did in the previous fiscal year, but it also expects higher 
total expenditures for the same period.[Footnote 20] City officials 
noted, however, that Newton benefited financially from the use of 
Recovery Act funds; for instance, the city avoided capital 
expenditures for future road repairs and anticipates it can reduce 
maintenance costs for its water treatment facility. 

* Newton officials said that the city does not have a strategy to 
address any budgetary shortfalls once it uses available Recovery Act 
funds because the Recovery Act funded one-time expenses for capital 
improvements to Newton's roads and water treatment facility. 

Iowa's State Auditor and Accountability and Transparency Board 
Continue to Monitor Controls over Recovery Act Funds: 

Iowa's State Auditor and Accountability and Transparency Board 
continue to monitor controls over Recovery Act funds, as discussed 
below: 

* Iowa's fiscal year 2009 comprehensive annual financial report and 
its fiscal year 2009 single audit report were issued on December 18, 
2009, and March 31, 2010, respectively. The State Auditor's office 
issued a qualified audit opinion on the State of Iowa's financial 
statements because of a significant (40 percent) reduction in the 
office's fiscal year 2009 appropriation. Specifically, according to 
the State Auditor, the state auditor's office could not sufficiently 
audit the state's general fund and other governmental activities 
because of the office's limited funding. In the state's fiscal year 
2009 Single Audit report, the State Auditor's office noted that it did 
not identify any material weaknesses. 

* A State Audit official told us that Iowa's single audit covered 
almost all (99.54 percent) of the Recovery Act funds received in 
fiscal year 2009, and that it performed some testing of recipient 
reports submitted during fiscal year 2010. Furthermore, a State Audit 
official told us that the audit found that some departments receiving 
Recovery Act funds, such as Iowa's Department of Education, lack 
formal written policies for reviewing and approving subrecipient 
reports. The official also found that although subrecipient reports 
are reviewed for reasonableness, specific procedures are not applied 
to determine whether the financial amounts and number of jobs reported 
are supported by adequate documentation. The State Auditor's office 
recommended that the Department of Education implement written 
policies and procedures for reviewing recipient reports submitted by 
school districts to ensure that reported expenditures are allowable 
and that reporting is complete. In March 2010, the Iowa Department of 
Education submitted a Recovery Act Funds Monitoring Plan to the U.S. 
Department of Education for approval. 

* Iowa's Accountability and Transparency Board is composed of 
representatives from the Iowa Governor's Office, Department of 
Management, Auditor's Office, the Legislature, local governments, and 
local citizens. The Iowa Accountability and Transparency Board's 
Internal Control Evaluation Team surveyed 82 programs and identified 6 
high-priority programs--such as the Weatherization Assistance Program 
and the SFSF education stabilization funds--which it expects may have 
some difficulty in fully complying with the accountability and 
transparency requirements in the Recovery Act. The board required that 
these high-priority programs submit comprehensive accountability plans 
for the board's review of Recovery Act activities. The board accepted 
the comprehensive accountability plans of the high-priority programs 
in December 2009. The board plans to establish an on-time audit 
process, assessment of needs for additional oversight, and a method to 
confirm Recovery Act information reported on the state's dashboard 
feature--a user-friendly search capability to provide detailed 
information on how and where Recovery Act funds are spent. Despite 
budget cuts and layoffs, the state is taking steps to achieve these 
goals, including the recent use of targeted site visits and recipient 
surveys. 

* At the recommendation of State Audit and Department of Management 
officials, the Iowa Department of Public Health held additional 
training on subrecipient reporting for high-priority programs and 
other Recovery Act programs on May 3, 2010. We reported in December 
2009 that the U.S. Department of Justice and the DOE Office of the 
Inspector General provided training on federal procurement guidelines 
and fraud prevention on October 27, 2009.[Footnote 21] 

* In September 2009, we suggested that Iowa could use its "Results 
Iowa" Web site[Footnote 22] to demonstrate how Recovery Act funding is 
affecting key performance measures, such as the state's unemployment 
and other key economic indicators.[Footnote 23] We also suggested that 
Iowa could integrate information from the Results Iowa Web site with 
its Economic Recovery Web site's proposed dashboard feature. In 
response, a senior official from the Office of the Governor said that 
the state has yet to act on the suggestion because funding and staff 
capacity in Iowa's state government are very stressed with other 
components of Recovery Act implementation. The official said that the 
state hopes to expand Recovery Act accountability and transparency 
mechanisms as time and resources allow. 

Iowa Reported on Jobs Funded Using Recovery Act Funds: 

Iowa's centralized database and validation and certification processes 
have helped to ensure the accuracy of data, reported jobs, and other 
information related to the use of Recovery Act funds to the federal 
government, as described below: 

* On October 10, 2009, January 15, 2010, and April 10, 2010, Iowa 
submitted detailed reports to the federal government on the Recovery 
Act funds that the state received directly from federal agencies, 
including Recovery Act expenditures and the number of jobs funded by 
the Recovery Act. The Iowa Department of Management used a centralized 
database, created by Department of Management and Department of 
Administrative Services personnel, to report Iowa's Recovery Act 
information to www.federalreporting.gov. The centralized database 
calculated the quarterly number of jobs on the basis of data, such as 
the number of hours worked reported by state agency and locality 
officials, and divided hours worked by 520, one-quarter of a 2,080 
hour work year. State officials told us that they used a centralized 
database to help ensure the accuracy and consistency of the 
information reported. However, some localities, such as public housing 
and urban transit agencies, which receive their funding directly from 
federal agencies and not through the state, report Recovery Act 
information to www.federalreporting.gov and not through the state's 
centralized reporting database. 

* The development of the centralized database was facilitated by the 
Iowa Recovery Act implementation executive working group. This working 
group was created in March 2009 to provide a coordinated process for 
(1) reporting on Recovery Act funds available to Iowa through various 
federal grants, and (2) tracking the federal requirements and 
deadlines associated with those grants. A larger implementation 
working group--made up of representatives from 24 state agencies--is 
led by the executive working group and assisted by groups focused on 
implementation topics such as budget and tracking, intergovernmental 
coordination, and communication. 

* Iowa officials told us that they developed internal controls to help 
ensure that the data submitted to federal entities are accurate. 
Specifically, Iowa inserted validation processes in the database to 
help identify and correct inaccurate data as they were entered. 
Officials told us that these validation processes generally worked and 
identified inaccuracies in the data. In addition, state agency and 
locality officials were required to certify their review and approval 
of their agency's information before submitting it to the state's 
centralized database and the federal Web site. These certifications 
are intended to help ensure responsibility for accurate information. 

* In February 2010, an official from the state's accounting office 
reconciled Recovery Act revenues and expenditures reported in the 
state's centralized accounting system for departments that use the 
system. Some state agencies, such as the Board of Regents, do not 
report to the state's centralized accounting system. Accordingly, the 
state does not reconcile Recovery Act revenue and expenditure data for 
those agencies. The Chief Financial Officer for the Iowa Department of 
Education said that he reviews the Department of Administrative 
Services' monthly financial reports for the Iowa Department of 
Education to verify fund disbursements to the Board of Regents. 

* The recipient report reconciliations prepared by state accounting 
personnel identified variances between the revenues and expenditures 
reported to the federal government and the amounts reported in the 
state's centralized accounting system. The analysis of the variances 
will help accounting and department officials correct recipient 
reports and accounting records. However, the reconciliations do not 
summarize the amounts and reasons that reports and the accounting 
records were misstated. As a next step, Iowa could summarize these 
reconciliations to assist state officials in identifying which 
departments have problems meeting their recipient reporting 
requirements and identify areas where subrecipients need additional 
training. Summarizing reconciliations could also help Iowa officials 
identify systemic reporting problems affecting multiple departments. 
When we raised this matter to state officials, they said that they 
thought such an analysis would be useful and said that they would work 
to implement it in the future as resources allow. 

* In the April 2010 reporting period, state officials said that their 
centralized reporting process worked well. As of April 8, 2010, 2 days 
prior to the reporting deadline, approximately 99 percent of the prime 
recipient reports submitted by the state of Iowa were successfully 
validated by OMB. An Iowa state official noted that the system 
illustrates for the public how Recovery Act funds are spent and 
believes the system could be useful in reporting the use of non- 
Recovery Act funds in the future. 

* Each quarter, recipients of Recovery Act funds are required to 
report jobs funded by the Recovery Act. OMB and the state of Iowa have 
both provided guidance on how to report on jobs funded. Iowa's most 
recent reporting guidance, distributed on February 26, 2010, directed 
fund recipients to report hours by either (1) summing up the hours 
worked each pay period in the quarter or (2) counting the total days 
worked each quarter and multiplying by 8, or some portion thereof for 
less than full-time employees. For the reporting cycle ended March 31, 
2010, we reviewed selected education and housing entities to document 
the methods that entities use to calculate hours worked. We visited 
four local recipients--the Des Moines Independent Community School 
District, the Heartland Area Education Agency, the Des Moines 
Municipal Housing Agency, and Iowa State University--where we noted 
that the methods used to calculate hours varied. We found that the Des 
Moines Independent Community School District and Iowa State University 
estimated hours worked by dividing each employee's quarterly salary by 
an average hourly salary or wage rate. The average hourly salary was 
determined based on employee contracts. For example, the Des Moines 
Independent Community School District calculated an average hourly 
wage for teachers based on a 195-day teacher's contract, and Iowa 
State University calculated an average hourly salary for instructors 
and administrators based on a 260-day full-time contract. The 
Heartland Area Education Agency reported an estimate of actual hours 
worked based on a standard teacher contract calendar of work days, 
which excludes holidays and other school breaks. It was able to do so 
because it has fewer than 100 employees. The Des Moines Municipal 
Housing Agency reported actual hours worked based on Davis-Bacon 
payroll reports supplied to them by the contractor. The Heartland Area 
Education Agency reports estimated actual hours worked so it reports 
few or no hours worked during the summer months for employees working 
a standard school year calendar. The Des Moines Independent Community 
School District and Iowa State University report hours based on 
salaries paid over a 12-month period, which means they report hours 
worked during the summer regardless of whether the employees are 
working. Although all four methodologies appear to be reasonable, the 
reported hours worked, based on the methodologies, could be different 
raising questions about the consistent reporting of jobs data. 

State Comments on This Summary: 

We provided the Governor of Iowa with a draft of this appendix on May 
4, 2010. The Director, Iowa Office of State-Federal Relations, and the 
Deputy Director of the Iowa Department of Economic Development, 
responded for the Governor on May 7, 2010. Officials agreed with our 
findings. The officials also offered technical suggestions, which we 
have incorporated, as appropriate. 

GAO Contact: 

Lisa Shames, (202) 512-3841 or shamesl@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above, Richard Cheston, Thomas Cook, 
Daniel Egan, Christine Frye, Ronald Maxon, Mark Ryan, Raymond H. 
Smith, Jr., and Carol Herrnstadt Shulman made key contributions to 
this report. 

[End of section] 

Footnotes: 

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

[2] These homes were selected to provide a mix of those for which the 
weatherization work had been completed, the local agency was 
conducting a final inspection of the work, and the work by contractors 
or local agency work crews was in process. The selection also depended 
on other factors, such as being able to obtain owner or renter 
permission to enter the home and scheduling our visit. We accompanied 
local agency personnel responsible for inspecting weatherization work 
and had the opportunity to discuss the work with them and the owners 
or renters. We also observed, as appropriate, equipment readings 
indicating the effectiveness of air sealing measures and the use of 
infrared cameras to determine the extent of wall insulation. 

[3] GAO used non-seasonally adjusted unemployment rates to compare 
rates between the state of Iowa and the localities in Iowa we visited. 
The state of Iowa had a non-seasonally adjusted unemployment rate of 
7.4 percent in March 2010. State officials reported a seasonally- 
adjusted unemployment rate of 6.8 percent during the same period. 
Seasonally-adjusted unemployment rates remove the effects of cyclical 
events that follow a more or less regular pattern each year, such as 
unemployment of some construction workers in northern climates during 
the winter months. 

[4] 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 controls over financial reporting and the entity's 
compliance with laws, regulations, and contract or grant provisions 
that have a direct and material effect on certain federal programs 
(i.e., the program requirements); and (3) an audit and an opinion on 
compliance with applicable program requirements for certain federal 
programs. 

[5] Iowa's fiscal year begins July 1 and ends June 30. 

[6] On March 11, 2010, the Iowa Revenue Estimating Conference 
increased the estimated amount of revenues to be collected by Iowa in 
fiscal year 2011 from about $5.40 billion to about $5.44 billion. 

[7] According to officials from Iowa's Legislative Services Agency, an 
example of a Medicaid-related program is the state resource centers. 
These centers pay for Medicaid services, but through an appropriation 
from the General Assembly independent of appropriations for other 
state Medicaid programs. 

[8] According to officials from Iowa's Legislative Services Agency, 
the General Assembly appropriated all remaining Recovery Act State 
Fiscal Stabilization Fund monies--both the education stabilization 
funds and the government services funds--for state school aid for 
fiscal year 2011. 

[9] The Recovery Act provides increased federal assistance to Medicaid 
through December 31, 2010; bills have been proposed in the U.S. 
Congress to extend the increase beyond that date. 

[10] According to officials from Iowa's Legislative Services Agency, 
the Governor implemented some plans for improving the efficiency of 
state operations through Executive Order 20 (Dec. 16, 2009), and the 
General Assembly passed additional efficiency improvements and plans 
to reorganize state agencies, as detailed in Iowa Senate File 2088 
(Feb. 1, 2010). 

[11] For more information, see GAO, Older Workers: Federal Agencies 
Face Challenges, but Have Opportunities to Hire and Retain Experienced 
Employees, [hyperlink, http://www.gao.gov/products/GAO-08-630T] 
(Washington, D.C.: Apr. 30, 2008). 

[12] The Recovery Act Energy Efficiency and Conservation Block Grant 
is intended to fund, through formula and competitive grants, energy 
efficiency and conservation programs and projects in communities, as 
well as renewable energy installations on government buildings. The 
grant is administered by DOE. 

[13] Council Bluffs projected total revenues of about $98.4 million 
for fiscal year 2010-2011, which is about a 12.8 percent increase in 
comparison to total revenues of $87.2 million for fiscal year 2009- 
2010. Council Bluffs also projected total expenditures (including 
operating, capital, and enterprise expenditures) of about $97.9 
million for fiscal year 2010-2011, which is about a 16.3 percent 
increase in comparison to total expenditures of about $84.2 million 
for fiscal year 2009-2010. 

[14] Des Moines partnered with cities and counties in the Des Moines 
metropolitan area in applying for funding from the Recovery Act Energy 
Efficiency and Conservation Block Grant program, the Edward Byrne 
Memorial Justice Assistance Grant program, and an Iowa Office of 
Energy Independence grant program. 

[15] According to Des Moines officials, the mortgage buy-down program 
would allow the city to help homeowners refinance their residences to 
obtain funding for energy improvements. 

[16] The Recovery Act Assistance to Firefighters Fire Station 
Construction Grant is intended to provide financial assistance 
directly to fire departments on a competitive basis to build new or 
modify existing fire stations and is administered by the Federal 
Emergency Management Agency. 

[17] A structural deficit is a budget deficit that results from a 
fundamental imbalance in a government's revenues and expenditures, as 
opposed to based on short-term factors. 

[18] A full-time equivalent is the number of hours that represent what 
a full-time employee would work over a given time period, such as a 
year or a pay period. 

[19] Des Moines projected total revenues of about $639.2 million for 
fiscal year 2010-2011, which is about a 12.9 percent decrease in 
comparison to total revenues of about $733.6 million in fiscal year 
2009-2010. Additionally, Des Moines projected total expenditures 
(including for operating and capital expenditures) of about $701.3 
million for fiscal year 2010-2011, which is about a 8.9 percent 
decrease in comparison to total expenditures of about $770.2 million 
for fiscal year 2009-2010. 

[20] Newton projected total operating revenues of about $12.3 million 
for fiscal year 2010-2011, which is an increase of about 0.7 percent 
in comparison to operating revenues of about $12.2 million for fiscal 
year 2009-2010. Newton also projected operating expenditures of about 
$12.9 million for fiscal year 2010-2011, which is about a 4.2 percent 
increase in comparison to operating expenditures of about $12.4 
million for fiscal year 2009-2010. 

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

[22] [hyperlink, http://www.resultsiowa.org].  

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

[End of Appendix VIII] 

Appendix IX: Massachusetts: 

Overview: 

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

What We Did: 

GAO's work in Massachusetts focused on (1) the commonwealth's use of 
Recovery Act funds for selected programs, (2) the approaches taken by 
Massachusetts agencies to ensure accountability for Recovery Act 
funds, and (3) impacts of these funds. We reviewed several specific 
programs funded under the Recovery Act in Massachusetts related to 
highway, transit system, clean water, drinking water, and housing 
projects, and education and worker training programs. We selected the 
programs we reviewed because all have significant funds being expended 
at this point and several had recent obligation deadlines, as 
discussed below. For descriptions and requirements of the programs we 
covered, see appendix XVIII of GAO-10-605SP. 

Our work was performed at state agencies responsible for implementing 
the programs, and also at some localities. We followed up on ongoing 
Recovery Act projects at two regional transit agencies--the 
Massachusetts Bay Transportation Authority and the Greater Attleboro 
Taunton Regional Transit Authority. For our review of public housing, 
we contacted four public housing agencies in Cambridge, Clinton, 
Lowell, and Taunton. Our review of state revolving fund spending 
included visits to two subrecipients--the Massachusetts Water 
Resources Authority (MWRA) and the town of Spencer. We also visited 
two local workforce areas with worker training programs--Boston and 
Bristol. 

Finally, we continued to track the use of Recovery Act funds for state 
and local fiscal stabilization. We visited two Massachusetts cities-- 
Worcester and Everett--to determine the amount of Recovery Act funds 
each is receiving and how those funds are being used as they deal with 
their difficult fiscal situations. Both cities are receiving Recovery 
Act funds under several programs, including funding for public safety 
expenses. We also followed up with two other cities--Boston and 
Springfield--which we had visited in fall of 2009. 

What We Found: 

* Recovery Act education programs. Under the Recovery Act, 
Massachusetts has been awarded funding through three major education 
programs, the largest of which is the State Fiscal Stabilization Fund 
(SFSF) with an allocation of $994 million. Unlike previous reporting 
periods, local educational agencies (LEA) did not report any SFSF 
expenditures or jobs to Recovery.gov for the period ending March 31, 
2010, according to state officials. They also said that the state did 
not receive the second phase of SFSF funding until late March, and as 
a result, the funds were not available to LEAs until April. During the 
same reporting period, a community college we contacted said that they 
used SFSF funds to pay for staff salaries and utility costs, among 
other things. The rate of draw down of funds varies among the major 
education programs. As of April 16, 2010, the commonwealth had drawn 
down more than half of its SFSF funds and less than a third of the 
other two program funds. Massachusetts has recently expanded its SFSF 
oversight plan to include a supplemental audit of selected school 
districts. In addition, the commonwealth has recently applied for 
another source of Recovery Act funding through the School Improvement 
Grant (SIG) program, but its submission was delayed in order to 
integrate federal and state requirements. 

* Highway infrastructure investment. Massachusetts has met the March 
2, 2010, obligation deadline for Recovery Act federal-aid highway 
funds. A total of $378.2 million has been obligated for 84 projects--
several paving improvement projects as well as projects that may 
promote economic and business development--and $59.7 million has been 
transferred to the Federal Transit Administration (FTA) for eligible 
projects. On average, bids for highway projects were 15-20 percent 
below state cost estimates. Massachusetts lags behind the national 
average on its reimbursement rate, an indicator that it is not 
expending funds as quickly as most other states. State officials 
raised concerns about Massachusetts's ability to meet its highway 
maintenance of effort requirement as a result of construction season 
timing and an increase after recertifying its required commitment in 
March 2010. 

* Transit Capital Assistance funds. The $290 million in Transit 
Capital Assistance funds that were apportioned to Massachusetts and 
urbanized areas in the commonwealth were obligated by the March 5, 
2010 deadline. Massachusetts transit agencies are using their Recovery 
Act funding to finance a variety of fleet enhancements and capital 
improvement projects designed to enhance customer service and improve 
safety. In addition, $59.7 million was transferred from the Federal 
Highway Administration (FHWA) to FTA for use by several of the 
commonwealth's regional transit agencies for their operating costs as 
well as many of their planned Recovery Act capital expenditures. The 
two transit agencies we visited used construction management firms to 
expedite project implementation, although their use requires transit 
agencies to consider potential increased risks related to higher costs 
and more remote oversight. 

* Public Housing Capital Fund. Public housing agencies in 
Massachusetts were allocated about $82 million in Public Housing 
Capital Fund formula grants under the Recovery Act. All public housing 
agencies in the commonwealth met the March 17, 2010, deadline for 
obligating 100 percent of these funds, and as of May 1, 2010, housing 
agencies had expended $28.5 million. Many housing agencies used the 
funds to accelerate projects that were already on their 5-year capital 
plans, ranging from window replacement and landscaping to substantial 
rehabilitation of multiple units of housing. Some are using Recovery 
Act funds to permanently transfer state-supported housing units to 
their portfolios of federally-supported housing. The Massachusetts 
Department of Housing and Community Development (DHCD) estimates that 
this process could result in the commonwealth receiving an additional 
$10 million in federal operating subsidies annually in the future. 

* Clean Water and Drinking Water State Revolving Funds (SRF). 
Massachusetts received about $185 million in Recovery Act funds 
through its Clean Water and Drinking Water SRFs and met the Recovery 
Act's deadline of February 17, 2010, to have its 115 selected projects 
under contract.[Footnote 2] These ranged from rehabilitation of a 70-
year old water transmission line to green projects enhancing energy 
efficiency and producing renewable energy. Massachusetts provided 
nearly all the Recovery Act funding in the form of "principal 
forgiveness," meaning that the portion of projects funded with 
Recovery Act money--about 12 percent of clean water projects and 20 
percent of drinking water projects--will not need to be repaid. 
Further, for green projects, none of the funds will need to be repaid. 

* Workforce Investment Act of 1998 (WIA) Dislocated Worker Program. 
Massachusetts was allotted about $21 million in WIA Dislocated Worker 
funds. The commonwealth distributed 60 percent of these funds to the 
local workforce areas and retained the balance. As of March 31, 2010, 
the commonwealth had drawn down at least $7.5 million of its Recovery 
Act allotment. Guided by the commonwealth, local areas have used most 
of their Recovery Act funds to place more workers in training. From 
the date the commonwealth started using Recovery Act WIA funds through 
January 31, 2010, about 2,300 dislocated workers received training 
under Recovery Act or regular WIA funds. Local areas have taken steps 
to address the U.S. Department of Labor's (Labor) Recovery Act 
priorities, such as training for green jobs. 

* Massachusetts government's and cities' use of Recovery Act funds. 
The commonwealth of Massachusetts continues to experience budget 
pressures resulting from multi-year revenue shortfalls along with 
caseload growth in some of its programs. Because of the unexpected 
levels of revenue decline, Massachusetts accelerated the use of 
Recovery Act funds that freed up funds for other uses, but has taken 
steps to prepare for when Recovery Act funds are no longer available. 
Cities we visited also discussed fiscal difficulty and reported using 
Recovery Act funds to prevent layoffs of teachers, police, and 
firefighters. They reported preparing for the challenges they face as 
Recovery Act funds end; some pointed to new sources of funds, 
including hotel and meals taxes and careful use of Recovery Act funds 
on projects that would not require sustained funding. 

* Oversight and accountability efforts. The Massachusetts Office of 
the State Auditor has several Recovery Act audits underway and is 
incorporating Recovery Act-related work into all its regular audits, 
including the state's Single Audit. Similarly, the state Inspector 
General is focusing efforts on investigating Recovery Act programs. 
Localities we spoke with utilize the Single Audit process to audit 
Recovery Act funds, although SFSF funds were the only Recovery Act 
funds that these local entities reported addressing during the 
recently completed 2009 audits. Areas addressed so far related to the 
WIA Youth Program and to SFSF. 

Massachusetts Expands Oversight of a Large Education Program and 
Applies for Recovery Act Funding from Another Program: 

Through the Recovery Act, Massachusetts has been awarded education- 
related funds through three major programs: 

* SFSF, which is divided into education stabilization and government 
services funds; 

* Title I, Part A of the Elementary and Secondary Education Act of 
1965, as amended (ESEA); and[Footnote 3] 

* Individuals with Disabilities Education Act, as amended, (IDEA) 
Parts B and C. 

In addition to these funds, Massachusetts has been allocated funding 
through the Recovery Act for SIG. The U.S. Department of Education 
(Education) recently made available 5 percent of the commonwealth's 
SIG allocation for planning purposes, the maximum amount allowed for 
administration, technical assistance, and evaluation. (See figure 1 
for more information on select funds awarded to Massachusetts.) 

Figure 1: Financial Information on Four Recovery Act Education 
Programs as of April 16, 2010: 

[Refer to PDF for image: vertical bar graph] 

Program: SFSF; 
Allocated by Education: $994 million; Awarded to state: $934 million; 
Drawn down by state: $612 million. 

Program: IDEA Part B; 
Allocated by Education: $291 million; Awarded to state: $291 million; 
Drawn down by state: $81 million. 

Program: ESEA Title I; 
Allocated by Education: $164 million; Awarded to state: $164 million; 
Drawn down by state: $36 million. 

Program: SIG; 
Allocated by Education: $50 million; 
Awarded to state: $2 million; 
Drawn down by state: $0. 

Source: GAO analysis of Education and state reported data. 

[End of figure] 

Unlike previous reporting periods, LEAs did not have SFSF funds 
available and so did not report any SFSF expenditures or jobs to 
Recovery.gov for the period ending March 31, 2010, according to state 
officials. They also said that the commonwealth did not receive the 
second phase of SFSF funding until late March, and as a result, the 
funds were not available to LEAs until April. One LEA told us that it 
plans to reallocate some of these funds to cover salary expenses for 
staff who worked during the previous reporting periods. State 
officials acknowledged this approach and said that they expect a 
significant increase in the number of jobs reported during the period 
ending June 30, 2010. Meanwhile, other entities did report SFSF 
expenditures for the period ending March 31, 2010. Officials from a 
community college we contacted said that they used SFSF education 
stabilization funds to pay for staff salaries and utility costs, among 
other things. Further, some SFSF government service funds were used to 
support staff at local fire departments and state police services. 

Massachusetts Expands its SFSF Oversight Plans: 

The Massachusetts Executive Office of Education expanded its SFSF 
oversight efforts to include a supplemental audit of select LEAs. In 
December 2009, we reported that the office planned to primarily use 
the Single Audit to monitor SFSF expenditures.[Footnote 4],[Footnote 
5] However, state officials said that the U.S. Department of Education 
recently made it clear that oversight efforts beyond the Single Audit 
were necessary. According to the draft monitoring plan the 
Massachusetts Executive Office of Education submitted on March 12, 
2010, the commonwealth has several SFSF oversight activities planned, 
including a supplemental audit that aims to verify reported 
expenditures, identify ineligible expenses, and assess the consistency 
of reported data. According to state officials, this new audit will 
provide a more detailed review of SFSF funded transactions than the 
Single Audit process. State officials said that they plan on engaging 
a public accounting firm to conduct on-site reviews of at least 15 
LEAs. Selected LEAs include recipients of the 10 largest SFSF grants, 
which represent more than a third of the SFSF funds provided to LEAs, 
and some other LEAs with previous audit findings. Federal education 
officials are currently reviewing Massachusetts' monitoring plan, and 
said they do not have a schedule for completing their review of state 
monitoring plans and will contact states whose plans are considered 
inadequate. 

Massachusetts Applied for SIG Recovery Act Funding, but Its Submission 
Was Delayed: 

The commonwealth has recently applied for SIG Recovery Act funding, 
but its application was delayed in order to address differences 
between federal and state requirements. In order to receive nearly $50 
million in formula-based funding, the commonwealth recently provided 
Education with its SIG application, which lays out the information low-
performing schools must provide when requesting SIG funding. However, 
according to state officials, the content and timing of recent state 
legislation complicated and ultimately delayed completion of this 
application by more than a month.[Footnote 6] Both the state 
legislation and SIG program require that LEAs develop reform 
strategies for low-performing schools to implement in an effort to 
improve student achievement; however, the information LEAs must submit 
in each case varies. For example, state officials told us that the 
measurable annual goals required by SIG differ somewhat in number and 
substance from those required by the state legislation. In order to 
minimize the burden on LEAs, state officials integrated these varying 
approaches into a streamlined process for LEAs to follow whereby LEAs 
must only come up with one plan that would meet both state legislative 
and SIG requirements. According to state officials, this time and 
resource-intensive effort combined with the short time frame between 
the legislation's passage and Education's application deadline 
resulted in delayed submission of the commonwealth's application to 
Education. 

Massachusetts Met Obligation Deadline for Recovery Act Highway Funds, 
but Questions Remain Regarding the Maintenance of Effort Requirement: 

Massachusetts has met the March 2, 2010, Recovery Act highway 
obligation deadline. As of this date, $378 million of its $438 million 
apportionment has been obligated to 84 projects--the majority of which 
are pavement improvement projects. Massachusetts continued to 
recommend projects that may promote economic and business development. 
For example, the commonwealth recommended that $15 million be 
obligated to make roadway access and signal improvements to the 
Assembly Square Mall, in Somerville, Massachusetts. The remaining 
$59.7 million of the highway apportionment was transferred to the 
Federal Transit Administration (FTA) for use by several of the 
commonwealth's regional transit authorities for their operating costs 
as well as many of their planned Recovery Act capital expenditures. 
The rate by which the Federal Highway Administration (FHWA) has 
reimbursed Massachusetts for Recovery Act highway projects (an 
indicator of the portion of highway work completed) has increased from 
8.1 percent on October 31, 2009, to 13 percent on May 3, 2010--below 
the national average of 29 percent (see table 1). 

Table 1: Massachusetts Recovery Act Federal Aid Highway Amounts as of 
May 3, 2010: 

Total available apportionment: $438 million; Amount obligated: $378.2 
million; 
Amount transferred to FTA for use by regional transit agencies: $59.7 
million; Reimbursement rate: 13%. 

Source: GAO analysis of FHWA data. 

[End of table] 

According to Massachusetts Department of Transportation (MassDOT) and 
FHWA Region I officials, on average, bids on the final round of 
advertised projects continued to come in 15 to 20 percent below state 
cost estimates, resulting in contracts being awarded below state cost 
estimates. As a result of these contract savings, MassDOT estimates 
that approximately $24 million will need to be deobligated and has 
begun to develop a list of additional Recovery Act projects to which 
it may apply these contract savings to meet the September 30, 2010, 
obligation deadline. The MassDOT Economic Stimulus Coordinator told us 
that MassDOT will not have difficulty ensuring any contract savings 
are obligated by the deadline and funds may support roadwork on major, 
federal-aid eligible arteries in municipalities across the 
commonwealth. 

Massachusetts May Face Challenges Meeting Maintenance of Effort 
Spending Goals: 

As a result of construction season timing and an increase after 
recertifying its maintenance of effort (MOE) commitment, the MassDOT 
Chief Financial Officer told us that, although it is too early to make 
a determination, the state may face challenges in meeting its MOE 
spending goals by the September 30, 2010, deadline.[Footnote 7] In 
March 2010, Massachusetts recertified its MOE commitment to include 
$300 million in state highway aid to local governments for state 
fiscal years 2010 and 2011. Although MassDOT officials feel they have 
committed to enough nonfederally funded projects to meet the MOE 
requirement, they explained that uneven spending caused by weather and 
the seasonal construction schedule throughout a year may result in the 
commonwealth not meeting the requirement. Massachusetts's typical 
seasonal construction schedule may be affected by the winter 
construction shut down or a rainy spring. According to the MassDOT 
Chief Financial Officer, in calendar year 2009 approximately 40 
percent of the commonwealth's highway expenditures took place in the 
fourth quarter (October to December). If this pattern is repeated, a 
significant portion of the commonwealth's highway construction 
expenditures would occur after the September 30, 2010, MOE deadline, 
and as a result, the commonwealth may not meet its MOE requirement. 
FHWA Region I officials have said that they continue to track the 
commonwealth's MOE spending and monitor their progress toward meeting 
the deadline. 

Although Its Focus Is Not Recovery Act Impact, MassDOT Measures Agency 
Performance: 

MassDOT and FHWA Region I officials said that they did not develop 
performance measures, other than a measure of jobs created, to assess 
the impact of Recovery Act highway projects. However, MassDOT monitors 
overall agency performance with periodic scorecard reports related to 
its different divisions. As part of the commonwealth's reorganization 
of MassDOT, the agency has begun to develop an Office for Performance 
Management. According to the MassDOT Economic Stimulus Coordinator, 
this office is in a nascent stage, but it will eventually focus on 
measuring the impact of MassDOT's entire portfolio of work. According 
to FHWA Region I officials, although not required by the Recovery Act, 
FHWA will be able to provide the number of highway miles improved with 
Recovery Act funding. Additionally, FHWA Region I officials told us 
they are working to assist the new MassDOT Office for Performance 
Management by bringing in best practices for performance management 
from other states' departments of transportation; it will focus on 
using asset management and budget health as tools to help manage 
MassDOT. 

MassDOT Hires New Engineers for Recovery Act Field Oversight, but 
Project Planning and Contracting Oversight Staff Capacity May Be 
Strained: 

The Recovery Act Federal-Aid Highway apportionment for Massachusetts 
has funded 84 new highway projects for the commonwealth. According to 
FHWA Region I officials, they have concerns about MassDOT highway 
staff capacity and are monitoring its staff resources, especially with 
regard to MassDOT's recent reorganization. An FHWA staffing review 
from 2003 expressed concerns over Massachusetts's state highway 
construction and materials staffing levels and training. According to 
MassDOT officials, in June 2009, MassDOT was approved to hire 100 full-
time equivalents to conduct oversight and field inspection work 
related to construction of Recovery Act projects. As of April 1, 2010, 
according to the MassDOT Economic Stimulus Coordinator, MassDOT has 
officially hired 89 new employees to be placed in its highway district 
construction offices, with the majority of hires being entry-level 
civil engineers. According to the MassDOT Economic Stimulus 
Coordinator, Recovery Act project planning and contracting takes place 
at the MassDOT central office, and they have not made any additional 
Recovery Act hires for this work. All of the central office project 
planning and contract oversight staff perform Recovery Act work in 
addition to their normal duties. The MassDOT Economic Stimulus 
Coordinator told us that a second round of stimulus money would 
present staff capacity challenges, as the volume of work related to 
planning and contract oversight at MassDOT's central office has 
increased as a result of the Recovery Act projects, the Accelerated 
Bridge Program and the state's regular federal-aid highway 
apportionment.[Footnote 8] 

Massachusetts Transit Agencies Met the 1-Year Obligation Deadline, but 
Use of Construction Management Firms May Pose Challenges: 

In March 2009, $290 million in Recovery Act Transit Capital Assistance 
funds was apportioned to Massachusetts and urbanized areas in the 
state. FTA concluded that by the March 5, 2010, deadline, 100 percent 
of this apportionment had been obligated. Massachusetts transit 
agencies are using their Recovery Act funding to finance a variety of 
fleet enhancements and capital improvement projects designed to 
enhance customer service and improve safety. For example, the 
Massachusetts Bay Transportation Authority (MBTA) is using its $181 
million in initial Recovery Act Transit Capital Assistance funding to 
purchase new paratransit vans, expand bicycle parking, improve bus 
stop and train station amenities, and increase safety throughout the 
MBTA system. In addition, MBTA was able to use additional funding from 
money transferred from the commonwealth's federal-aid highway 
apportionment to fund projects that would not have been done without 
the Recovery Act funds. These projects include the installation of new 
wheel chair accessible ramps at the Wedgemere Commuter Rail Station in 
Winchester, Massachusetts and emergency repairs to the deteriorating 
floating slab system on the portion of the Red Line subway serving the 
cities of Cambridge and Somerville, Massachusetts.[Footnote 9] 

In addition to the Recovery Act Transit Capital Assistance 
apportionment, $59.7 million of Massachusetts's federal-aid highway 
apportionment was transferred from FHWA to FTA. The transfer of these 
additional funds enabled several transit agencies to use Recovery Act 
funds for their operating costs as well as many of their planned 
Recovery Act capital expenditures. After transit agencies had 
submitted their Transit Capital Assistance applications, they were 
granted the authority to use up to 10 percent of their Recovery Act 
apportionment for operating expenses.[Footnote 10] These operating 
expenses were funded by reducing the funds originally committed for 
capital expenses by 10 percent. For example, the Greater Attleboro 
Taunton Regional Transit Authority (GATRA), one of the transit 
agencies we spoke with, told us that they made line-item reductions to 
capital expenditures in their original grant in order to fund 
operating expenses. According to these officials, the flexibility to 
amend the original grant to include operating expenses has helped them 
avoid cutting both staff and service. In addition, these officials 
told us that the portion of the transferred funds that they will 
receive will be used to backfill some of the line-item reductions in 
their original grant and will allow them to replace buses that have 
been in operation since 1994. 

Massachusetts Transit Agencies Used Construction Management Firms to 
Supplement and Expedite Project Implementation: 

In order to handle the influx of Recovery Act funds and the 
requirement that projects funded under the act be implemented quickly, 
Massachusetts transit agencies used construction management/project 
management (CM/PM) firms to supplement their internal project 
management staffing resources. According to transit officials, there 
are several advantages in using private consulting firms to provide 
CM/PM services, including that they are a source of additional 
expertise and provide transit agencies with the flexibility to 
supplement internal staff on a temporary basis in response to 
increased workloads. For example, the spike in capital spending 
resulting from the Recovery Act exceeded MBTA's capacity to manage 
this work without additional resources. As a result, MBTA used a CM/PM 
firm to provide project and construction management support for 
several of its Recovery Act projects because officials determined it 
was not prudent to "staff up" for the 2 years that Recovery Act 
projects would be ongoing. Smaller transit agencies, which typically 
do not have the capacity to manage capital projects, also used CM/PM 
firms to manage their Recovery Act projects. 

Our previous work on states' increased use of contractors to oversee 
highway projects found that state officials generally perceive 
contracting out to be more expensive than using internal staff to 
oversee projects.[Footnote 11] Similarly, transit officials we spoke 
to on this work believe that using CM/PM firms to manage their 
Recovery Act projects is likely to be more costly than managing these 
projects internally. Officials from FTA and MBTA told us that they 
believed this to be true for transit projects, as well, although they 
were not aware of any formal assessment comparing the cost of projects 
managed by private firms with projects managed internally. While 
government employees are always ultimately responsible for the 
oversight of federally-funded projects, they may be increasingly 
further removed from the day-to-day project oversight when they use 
private firms to do this work. Although transit agencies' use of CM/PM 
firms in response to temporary spikes in demand for construction 
services seems appropriate, in order to ensure the best use of 
Recovery Act funds, it is important that transit agencies that hire 
these firms give appropriate consideration to the identified areas of 
potential risk, such as those related to the increased cost and the 
adequacy of oversight of projects managed more remotely. 

Although Not Required by FTA, Transit Agencies Use Qualitative 
Measures to Assess the Impact of Recovery Act Funding: 

MBTA and GATRA are able to provide a qualitative assessment of 
improvements to local transit systems that resulted from the increase 
in federal transit spending, but other than measuring jobs created, 
they have not developed metrics specifically for measuring the impact 
of Recovery Act funds. GATRA and MBTA officials said that other than 
measuring jobs created and project status, FTA does not mandate 
additional measures beyond the requirements for all formula grant 
programs. MBTA is measuring Recovery Act impact in terms of jobs, 
contracts awarded and expenditures, but officials also report that the 
projects funded under the act provide significant benefits to their 
customers, while addressing safety issues. GATRA officials told us 
that they have qualitative evidence of the positive impact on customer 
service and the overall efficiency of their operations, but they do 
not have a set of metrics for quantifying these results. For example, 
renovations made to the Attleboro Commuter Rail Station have addressed 
critical safety and liability issues and are expected to reduce 
utility bills. 

Local Housing Agencies Met Obligation Deadline for Formula Funds, and 
Some Are Using These Funds to Federalize State Housing: 

Sixty-eight housing agencies in Massachusetts were allocated a total 
of $81.9 million in Public Housing Capital Fund formula grants under 
the Recovery Act.[Footnote 12] All 68 housing agencies obligated 100 
percent of their formula funds by March 17, 2010, the deadline to 
obligate all funds and avoid recapture by the federal government. As 
of May 1 2010, 57 of the 68 housing agencies had drawn down $28.5 
million in formula grants. We contacted local housing agencies in four 
Massachusetts communities--Cambridge, Clinton, Lowell, and Taunton--as 
well as the Department of Housing and Urban Development's (HUD) Boston 
field office and DHCD. 

Housing Agencies Met Obligation Deadline, Often by Accelerating 
Already Planned Projects: 

All housing agencies met the deadline, although they had just 1 year 
to obligate 100 percent of their Recovery Act Public Housing Capital 
Fund formula grants, compared to the 2-year time frame for obligating 
regular Capital Fund grants. According to officials from HUD's Boston 
field office, many housing agencies were able to obligate their funds 
quickly because they are using Recovery Act funds primarily to 
accelerate projects that were already on their 5-year capital plans 
and required little additional development. Of the housing agencies we 
visited, two used Recovery Act funds mainly to accelerate already 
planned projects that required minimal additional planning. For 
example, Clinton Housing Authority officials said they are using their 
entire Recovery Act allocation to speed up the completion of a 
multiphase window replacement project that had already been started 
with regular Capital Fund grant dollars and required no additional 
planning. While the Cambridge Housing Authority opted to use Recovery 
Act funds for a large project on its capital plan, that project had 
not yet been designed and required considerable additional work to 
develop. Officials told us they accelerated this project to take 
advantage of the fact that projects funded entirely by the Recovery 
Act are procured under federal rather than state procurement law. They 
said Massachusetts procurement requirements are more onerous than 
federal requirements, and include, for example, time-consuming 
separate sub-bids for specific trades. 

The Buy American provision in the Recovery Act was cited as a 
challenge by two of the housing agencies we contacted, but not 
necessarily one that delayed the obligation of Recovery Act funds. 
Lowell Housing Authority officials, for example, said it could be 
difficult to find materials and products that are purely U.S.-made, as 
many products are assembled in the United States but include some 
component parts that were produced overseas.[Footnote 13] Cambridge 
Housing Authority officials said they are having trouble finding 
energy efficient heating systems and refrigerators that are made in 
the United States, and may apply for a waiver from the requirement. 

Federalization of State Housing Will Result in Higher Federal Spending 
in the Future, although Several Factors Limited the Extent of 
Federalization: 

Eighteen housing agencies in Massachusetts are taking advantage of a 
provision in the Recovery Act allowing the use of Recovery Act funds 
to permanently transfer state-supported housing units to the agencies' 
portfolios of federally-supported housing--a process known as 
federalization. According to DHCD, housing agencies in Massachusetts 
are federalizing about 3,600 of the approximately 55,000 units of 
state-supported housing units in the commonwealth. Federal legislation 
passed in 1998 prohibited housing agencies from increasing their total 
counts of federally-supported public housing units.[Footnote 14] The 
Recovery Act lifted this restriction specifically with regard to the 
use of Recovery Act funds. 

HUD indicated, in guidance issued in the spring and summer of 2009, 
that the Recovery Act lifted the prohibition on adding new units of 
federally supported housing when only Recovery Act and no other 
federal housing funds are used. A housing agency in Massachusetts--a 
state that funds public housing--identified that by lifting the 
restriction on increasing their total number of federal housing units, 
the Recovery Act allowed housing agencies to transfer state-supported 
housing to their portfolios of federal housing. Officials from DHCD 
and two local housing agencies told us federalization is a good option 
because the federal government provides higher and more stable funding 
for public housing than the commonwealth. Additionally, several 
housing officials said the majority of residents will see no negative 
consequences as a result of federalization.[Footnote 15] 

Federalization will result in higher future levels of federal 
subsidies for public housing in Massachusetts, although the total 
additional commitment is not yet clear. DHCD officials estimate that 
federalization will bring an additional $10 million annually in 
federal operating subsidies to the commonwealth, as well as additional 
capital subsidies that cannot be easily estimated. DHCD officials said 
the commonwealth plans to maintain its current level of state spending 
for public housing, with state funds being distributed across a 
smaller number of state units. 

HUD's headquarters office and Boston field office developed procedures 
for federalizing state housing, after this opportunity had been 
identified. First of all, HUD determined that the Recovery Act allows 
housing agencies to add state housing developments to their federal 
portfolios by using Recovery Act funds to rehabilitate these 
developments.[Footnote 16] HUD then set two main conditions that 
housing agencies had to meet to federalize: (1) the state units must 
meet HUD's Uniform Physical Condition Standards after they have been 
rehabilitated with Recovery Act funds and (2) housing agencies must 
spend an average of $2,000 per unit or more in Recovery Act funds to 
rehabilitate a state housing development. Officials from HUD's Boston 
field office inspected all housing developments that housing agencies 
proposed to federalize, to assess the condition of these developments 
relative to the federal standards. (See figure 2 for an example of one 
housing agency's federalization project.): 

Figure 2: Federalization of State Housing Development in Taunton: 

[Refer to PDF for image: 2 photographs] 

Boiler to be replaced: 
Heating unit to be replaced: 

The Taunton Housing Authority is using its $615,072 allocation of 
Recovery Act capital funds to federalize 232 units of state-supported 
housing in three housing developments for the elderly. For example, 
the Taunton Housing Authority will federalize its Fitzsimmons Arms 
development by using Recovery Act funds to replace an aging boiler and 
heating units with more up-to-date, energy efficient models: 

Source: GAO. 

[End of figure] 

Despite the benefits they perceived from federalization, housing 
agencies faced challenges that prevented some from acting on this 
opportunity. These challenges stemmed partly from the timing of when 
housing agencies learned about this opportunity. DHCD sent a memo to 
all housing agencies in the commonwealth in August 2009, informing 
them that federalization was a possibility. However, according to HUD 
officials, many housing agencies had already obligated all or most of 
their Recovery Act funds by the time they heard about federalization, 
and were unable to reprogram their funds. Taunton Housing Authority 
officials told us they were able to federalize primarily because they 
heard very early on about federalization--before DHCD's memo--and 
immediately stopped their originally planned obligation of Recovery 
Act funds. Furthermore, the short time frame between the HUD Boston 
field office's issuance of guidance on federalization (October 28, 
2009) and the deadline for submitting proposals (November 23, 2009) 
made it difficult for housing agencies to prepare applications, 
according to one HUD official and one housing agency we spoke with. 
Finally, state officials told us that some housing agencies did not 
have state housing developments that could be relatively quickly and 
easily brought into compliance with HUD Uniform Physical Condition 
Standards, because of the unstable state subsidies for 
housing.[Footnote 17] Clinton Housing Authority officials, for 
example, cited problems such as lead paint and out-of-date heating 
systems as being among the reasons they could not federalize state-
supported housing within the allowed time frame. 

Recovery Act Funding Supports Improvements for Clean and Safe Drinking 
Water: 

The Massachusetts Department of Environmental Protection, working in 
collaboration with the Massachusetts Water Pollution Abatement Trust, 
has selected 115 clean water and drinking water projects to receive 
about $178 million in Recovery Act funds through its SRF (see table 
2).[Footnote 18] 

Table 2: Recovery Act Funding for Massachusetts SRF Projects: 

Type of projects: Clean water projects; Recovery Act funds: 
$127,735,008; 
Recovery Act funds: Number of projects: 61; "Green" projects: 
$54,287,508; 
"Green" projects: Number of projects: 11. 

Type of projects: Drinking water projects; Recovery Act funds: 
$50,127,360; 
Recovery Act funds: Number of projects: 54; "Green" projects: Dollars: 
$12,580,834; "Green" projects: Number of projects: 10. 

Type of projects: Total; 
Recovery Act funds: $177,862,368; 
Recovery Act funds: Number of projects: 115; "Green" projects: 
$66,868,342; 
"Green" projects: Number of projects: 21. 

Source: GAO analysis of U.S. Environmental Protection Agency and 
Massachusetts data. 

[End of table] 

* The Clean Water and Drinking Water SRF programs generally provide 
low interest loans for water quality protection projects. 
Massachusetts provided nearly all the Recovery Act funding in the form 
of "principal forgiveness," meaning that the portion of projects 
funded with Recovery Act money--about 12 percent of clean water 
projects and 20 percent of drinking water projects--will not need to 
be repaid. Further, for green projects, none of the funds will need to 
be repaid.[Footnote 19] 

State officials and officials at two sites we visited reported several 
benefits they expected from Recovery Act-funded projects.[Footnote 20] 
Benefits of projects we reviewed are described in table 3. 

Table 3: Uses and Amount of Recovery Act Funding at Sites Visited: 

Entity: MWRA; 
Project description: Lower Hultman Aqueduct: Rehabilitation in order 
to restore it to safe operation after more than 70 years of service 
without an overhaul. This project will result in two independent, 
reliable, and fully interconnected water transmission lines; Recovery 
Act funding: $3,602,688. 

Entity: MWRA; 
Project description: DeLauri Wind Turbine Project: Installation of new 
wind turbine at a wastewater pumping facility intended to utilize 
renewable power resources. As a green project, estimated to provide 
100 percent of the energy needs of the pump station; Recovery Act 
funding: $4,750,000. 

Entity: Town of Spencer; 
Project description: Drinking Water System: Construction of new 
500,000 gallon water tank, installation or replacement of 2.75 miles 
of water main and various treatment plant improvements, such as a new 
monitoring system to prevent future public health emergencies. 
Malfunction of this system in 2007 led to the release of a hazardous 
amount of sodium hydroxide (lye) into the town's water supply; 
Recovery Act funding: $1,495,872. 

Source: MWRA, Town of Spencer and U.S. Environmental Protection Agency 
data. 

[End of table] 

For example, officials told us that Recovery Act funding accelerated 
their ability to support green projects which would not have been 
funded otherwise. Massachusetts placed a special emphasis on green 
projects--described by officials as providing benefits through 
renewable energy and energy efficiency. Of the 21 green projects, 14 
had already been identified as part of an earlier state energy pilot. 
Recovery Act funding also supported the undertaking of multimillion 
dollar projects with multiple benefits. For example, MWRA officials 
described the Lower Hultman Aqueduct Project, which will rehabilitate 
a 70-year old water transmission line, as critical to public health 
and homeland security. In addition to the direct benefits of these 
projects, municipalities benefited from reductions in payments on 
loans. For example, the MWRA estimates that because of the loan 
forgiveness funded by Recovery Act money, it will save $41 million in 
debt service payments, including interest costs. 

Massachusetts officials told us that federal requirements and new 
state legislation posed challenges in meeting Recovery Act SRF 
deadlines or may pose challenges going forward. For example, state 
officials cited the Recovery Act's requirement that each state 
prioritize funds for use on projects that are ready to proceed to 
construction within 12 months of enactment of the act (by February 17, 
2010) and compliance with the Recovery Act's Buy American 
requirements. According to Massachusetts officials, confusion over the 
U.S. Environmental Protection Agency's Buy American guidance meant 
that some SRF projects had to redo project specifications to include 
American pipes after already purchasing Canadian pipes. The agency 
developed a process for recipients to provide documentation supporting 
a waiver to the Buy American provision in the Recovery Act. This 
provision generally requires the use of U.S.-produced iron, steel, and 
manufactured goods in public works projects.[Footnote 21] As a result, 
to construct the wind turbine at the DeLauri Pump Station, MWRA had to 
document why the turbine needed to be purchased from China, and 
described additional MWRA efforts needed to support the waiver. Other 
issues that may pose challenges relate to requirements in 
Massachusetts statutes. For example, officials said that a state 
statute requires that on any Recovery Act public works project 
spending more than $1 million, the use of on-site apprentices must 
account for 20 percent of labor hours.[Footnote 22] MWRA anticipated 
that some contractors would find complying with this requirement a 
challenge. State officials also said that agreements on funding were 
delayed by the need to change a Massachusetts statute that had 
previously set limits on financial assistance.[Footnote 23] 

Both state and local officials noted that new controls have been 
established for accountability of Recovery Act funding. Massachusetts 
environmental officials said they have developed tools for monitoring 
fraud, waste, and abuse, such as a checklist to document that proper 
fiscal and contract management procedures are being followed. In 
addition, the Massachusetts Department of Environmental Protection has 
designated a compliance officer to help implement its fraud, waste, 
and abuse policy. The Water Pollution Abatement Trust also hired a 
compliance officer to assist with the review of single audits required 
for SRF loan recipients receiving principal forgiveness. 

Localities Used Recovery Act Funds to Train More Dislocated Workers, 
and Addressed Some New Program Priorities: 

Massachusetts received $21.2 million in WIA Dislocated Worker Recovery 
Act funds, through the same statutory formula used to distribute 
regular WIA Dislocated Worker Program funds. The Massachusetts 
Executive Office of Labor and Workforce Development (EOLWD) 
distributed 60 percent of this allotment to the 16 local workforce 
areas, with the remaining funds set aside for rapid response 
activities to address layoffs and plant closings, and other statewide 
activities (see table 4). As of March 31, 2010, the commonwealth had 
drawn down at least $7.5 million of its Recovery Act funds.[Footnote 
24] 

Table 4: Massachusetts' Uses of its WIA Dislocated Worker Funds: 

State activity: Distributed to local areas; Amount: $12,734,068. 

State activity: Rapid response activities; Amount: $5,305,862. 

State activity: Statewide activities; Amount: $3,183,517. 

State activity: Total allotment[A]; 
Amount: $21,223,447. 

Source: GAO survey of 50 states and the District of Columbia, 
conducted March to April 2010. 

[A] Massachusetts reported that it also opted to transfer $200,000 
from its WIA Adult Recovery Act program allotment and use these funds 
for services to dislocated workers. 

[End of table] 

Local Workforce Areas Used Recovery Act Funds to Increase the Number 
of Dislocated Workers Receiving Training: 

With the infusion of Recovery Act funds as well as increased demand 
for services, the number of dislocated workers trained in the 
commonwealth between July 1, 2009 and December 30, 2009 was 56 percent 
higher than in the corresponding period in the previous year, 
according to the EOLWD.[Footnote 25] The EOLWD reported that from the 
date the commonwealth started using Recovery Act Dislocated Worker 
funds through January 31, 2010, about 2,300 dislocated workers 
received training through Recovery Act or regular WIA Dislocated 
Worker funds. Local workforce areas used their funds for training in 
accordance with state guidance, as EOLWD instructed local areas to 
spend at least 60 percent of their Dislocated Worker allocations for 
training and to spend their funds quickly. The local areas had 
expended over half of their funds by January 31, 2010, according to 
EOLWD. 

The two local workforce areas we visited--Bristol and Boston--used at 
least 60 percent of their funds for training, and both addressed a 
high demand for training. The Bristol local area in southeastern 
Massachusetts had expended more than 90 percent of its $1,100,223 
allocation by January 31, 2010, and had enrolled 143 dislocated 
workers in training in whole or in part with its Recovery Act funds. 
Officials said the workforce area enrolled twice as many adults and 
dislocated workers in training as in a typical year; many in the area 
enter training for a Commercial Driver's License or in the health care 
field. Bristol also used Recovery Act funds to hire new staff to help 
serve the increased number of visitors to career centers and to reach 
out to employers. Boston had expended about two-thirds of its $919,400 
allocation by January 31, 2010, and had enrolled 100 dislocated 
workers in training in whole or in part with Recovery Act funds. 
Boston enrolled about 15 percent more dislocated workers in training 
during this program year compared to the previous program year. Boston 
officials said that the Recovery Act funds were critical to 
maintaining services for dislocated workers because the city saw a 
reduction in its regular Dislocated Worker funds for program year 2010 
and that the city had obligated all of its regular Dislocated Worker 
funds that had been set aside for Individual Training Accounts (ITAs) 
by April 2009. 

In terms of training approaches, EOLWD officials told us that while 
local workforce areas are primarily using Recovery Act funds for ITAs--
through which individuals purchase training from, for example, 
community colleges and community-based organizations--seven are using 
some of their funds to contract for group training classes. A total of 
122 dislocated workers are enrolled in contracted training through 
Recovery Act funds, according to EOLWD. Dislocated Worker funds 
provided through the Recovery Act may be used to provide training 
through contracts, which are authorized only in limited circumstances 
for regular WIA funds. Boston is using about one quarter of its 
Recovery Act training funds for contracts, for example for classes in 
health care and in English as a Second Language. A Boston official 
told us that contracts are helpful because they allow the local area 
to customize training classes for specific populations. Bristol used 
all of its training funds for ITAs. Officials said that given the high 
demand for funds there was not enough time to develop training 
contracts. 

Local Workforce Areas Took Some Steps to Address Labor's Recovery Act 
Priorities: 

Local areas have taken some steps to address the priorities emphasized 
by Labor in implementing the Recovery Act. For example, the local 
areas we visited have attempted to train for and place participants in 
green jobs, with mixed success. Bristol officials told us that 
enrolling participants in green jobs training has been challenging 
because there is no firm definition of a green job. Regarding 
supportive services, such as child care and housing, EOLWD officials 
said there has been little demand for such services, especially given 
the availability of benefits such as Unemployment Insurance. Officials 
at one Boston career center told us they do not have the resources to 
provide extensive supportive services to clients; primarily they 
provide public transit passes. 

Recovery Act Funding Continues to Help Massachusetts State Government 
and Selected Localities with Fiscal Relief: 

Massachusetts state government continues to experience budget 
pressures driven primarily from multi-year revenue shortfalls, as well 
as caseload growth in some programs. Since the beginning of the 
Recovery Act, the commonwealth has addressed its fiscal year budget 
gaps through a combination of Recovery Act funds, spending reductions, 
use of "rainy day" funds, and the addition of new revenue sources such 
as an increase in state sales tax. Because of the unexpected magnitude 
of revenue decline, Massachusetts accelerated the use of Recovery Act 
funds, particularly the SFSF funds, which freed up funds for other 
purposes. For fiscal year 2011, the Governor's plan proposes using 
less Recovery Act funding to close its projected budget gap than was 
used during fiscal year 2010. According to a senior state official, 
relying less on Recovery Act funds is important to the state's bond 
issuing agencies, as well as to prepare for future budgets which will 
not include Recovery Act funds.[Footnote 26] In addition, the 
Governor's plan includes $608 million in increased FMAP funds based 
upon the state's expectation that Congress and the President will 
extend the temporary increase in the FMAP under the Recovery Act. 
[Footnote 27] 

Overall, most of the $6 billion Massachusetts officials expect to 
receive through the Recovery Act has been awarded. According to state 
documents, as of May 7, 2010, Massachusetts state government has been 
awarded $5 billion in Recovery Act funds and has drawn down $3.4 
billion of this amount. Among the largest categories of Recovery Act 
funding have been increased Medicaid FMAP, SFSF, and highways and 
transit funding. State officials reported they anticipate future 
Recovery Act funds coming to the state through a Department of Energy 
grant for appliance rebates as well as additional money for Broadband 
expansion. Furthermore, Massachusetts hopes to receive funding for 
education through the "Race to the Top" grants. 

We also visited the cities of Boston, Everett, Springfield, and 
Worcester (see table 5) to review their use of Recovery Act funds. 
[Footnote 28] 

Table 5: Characteristics of Selected Local Governments: 

Local government: Boston; 
Population: 609,023; 
Unemployment rate (percentage): 8.1%; Fiscal Year 2010 operating 
budget: $2.40 billion; Full-time equivalent government employees: 
17,661[A]. 

Local government: Everett; 
Population: 37,353; 
Unemployment rate (percentage): 9.9%; Fiscal Year 2010 operating 
budget: $132 million; Full-time equivalent government employees: 1,088. 

Local government: Springfield; 
Population: 150,640; 
Unemployment rate (percentage): 13.7%; Fiscal Year 2010 operating 
budget: $529 million; Full-time equivalent government employees: 5,125. 

Local government: Worcester; 
Population: 175,011; 
Unemployment rate (percentage): 10.4%; Fiscal Year 2010 operating 
budget: $491 million; Full-time equivalent government employees: 5,165. 

Sources: U.S. Census Bureau; U.S. Department of Labor; and Boston, 
Springfield, Worcester, and Everett budget documents. 

Notes: 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. 

[A] Total full-time equivalent count includes 1,132 grant-funded 
employees. 

[End of table] 

The four selected cities have used Recovery Act funds to prevent 
layoffs of teachers, police, and firefighters, and were used in some 
cases on one-time investment purchases. For example, Everett used $3 
million in Phase II SFSF funds to pay 61 teachers' salaries. 
Springfield used $4.4 million in IDEA money to pay education costs, 
including special education teachers' salaries, rather than draw from 
the city's stretched education budget. Worcester officials also 
reported using $15 million in Recovery Act funds to prevent 
significant teacher layoffs. In the area of public safety, three of 
the four cities were able to use either the Community Oriented Police 
Services Hiring Recovery Program grant or the Edward Byrne Memorial 
Justice Assistance Grant (JAG), or both, to prevent some police 
officer layoffs. Everett also used a $91,202 JAG grant to improve 
police department efficiency by hiring a part-time crime analyst, 
while Boston used a Fire Service Staffing Grant of almost $1.4 million 
to pay for firefighter overtime and maintain fire service staffing 
levels. In addition to public safety and education funding, some 
localities used Recovery Act funds to make one-time purchases that 
represent an investment in the city's future operations. Everett, for 
example, used a $149,300 Department of Energy block grant to purchase 
solar trash receptacles, which officials calculate will cut Everett's 
fuel costs and lower maintenance costs. Springfield officials told us 
that Recovery Act funds allowed them to complete some pending projects 
sooner, including a new computer database of student education 
information. 

Although all of the selected cities expressed concern about further 
reductions in state aid, Boston reported that its present budget is 
stable. Officials in Boston reported that they increased the hotel tax 
by 2 percent and added a new meals tax of 0.75 percent. In 
Springfield, officials characterized their 2010 fiscal year operating 
budget as on track, however, it had increased its use of local 
reserves by $2.5 million, for a total of $12.5 million, to close the 
budget gap for fiscal year 2011 (which begins July 1, 2010). Both 
Worcester and Everett reported experiencing various spending 
pressures, including increased health insurance premiums for city 
workers. While there were no mid-year cuts to state aid in fiscal year 
2010, officials in some of the cities we spoke to anticipate the state 
will further reduce aid during fiscal year 2011. According to state 
budget officials, the legislature is considering up to a 4 percent cut 
in aid to local governments for the coming fiscal year. For Boston 
this could amount to approximately $25 million less for the city. In 
Worcester and Springfield state aid comprises about 55 and 60 percent 
of the cities' budgets respectively, according to local officials. A 
Worcester official recalled that a 25 percent cut in aid in fiscal 
year 2009 had a significant impact on the city's operating budget. 

The cities we spoke to are preparing for the challenges posed by the 
end of Recovery Act funds in a variety of ways. Some of the cities 
have raised, or are considering raising, taxes and fees to increase 
revenues. Boston officials expect increased hotel and meals tax rates 
to add $28.4 million to the fiscal year 2011 budget, while officials 
in Everett are considering increasing city fees and charges for 
permits. Springfield and Everett will continue to look for new sources 
of grant funding. Springfield, for example, hired an outside grant 
writing consultant to address its lack of grant writing capacity. In 
Worcester, to cut costs in advance of the end of Recovery Act JAG 
funding, which is paying for the salaries of 24 police officers 
through January 2011, city officials restructured their police 
department by eliminating unfilled managerial positions and positions 
soon to be vacant due to retirement. In anticipation of the limited 
duration of Recovery Act dollars, Springfield officials stated that 
they restricted their use of some of their Recovery Act funds to one 
time purchases that would not require sustained funding. Springfield's 
$1.26 million Recovery Act JAG grant, for example, was spent entirely 
on technology upgrades; none was spent on personnel. 

State and Local Officials Have a Variety of Recovery Act Program 
Audits Underway: 

The Massachusetts Office of the State Auditor (OSA), with authority to 
audit state agencies, has several audits underway specifically focused 
on Recovery Act-funded programs. OSA, which according to officials has 
been affected by state furloughs and hiring reductions, has 
incorporated Recovery Act related questions into its audit work, 
including the Single Audit. The 2009 state Single Audit covered 
Recovery Act FMAP and SFSF funds and had one procedural finding. OSA's 
audits of Recovery Act funds include programs funding weatherization, 
housing, highways, transit, higher education, and youth employment. 
Though most audits are ongoing, OSA is completing its audit of the WIA 
Youth Program, which will address participants' eligibility and the 
number of jobs reported under this program. 

The Massachusetts Office of the Inspector General (OIG) is focusing 
its efforts on investigating Recovery Act programs for fraud, waste, 
and abuse. OIG officials say they are at different stages in their 
review of Recovery Act programs, but have had delays partly due to 
some federal agencies' slow sharing of information. In December 2009, 
OIG officials, as instructed by the U.S. Department of Justice's 
Office of Justice Programs, filed a Freedom of Information Act request 
to get needed information, including JAG grant applications. The OIG 
reported that after a delay it received the final transmission of the 
documents it requested from the Department of Justice on April 30, 
2010. In addition to its oversight role, the OIG has undertaken 
Recovery Act educational efforts, including training on proper 
procurement methods and fraud prevention. 

All localities we spoke with plan to conduct Recovery Act oversight 
through the Single Audit process. Boston officials stated that the 
city's 2009 Single Audit included an audit of $23.3 million in SFSF 
funds from the commonwealth and the audit indicated that Boston 
complied with the requirements of the grant. The only Recovery Act 
funds reviewed in the 2009 Single Audit for Everett and Worcester were 
SFSF grants to schools. In Worcester, auditors found expenses from 
before the eligible period incorrectly charged to the SFSF grant. The 
city made an adjusting entry to accurately reflect only eligible 
fourth quarter expenses and submitted an amended financial report. 
Springfield's Single Audit for 2009 also included only Recovery Act 
SFSF grants to schools and the audit indicated the city had complied 
with the requirements of these grants. Boston officials are studying 
their options regarding auditing the spending of Recovery Act funds. 
They expect that their fiscal year 2010 Single Audit will cover most 
of Recovery Act-funded programs. 

State Comments on This Summary: 

We provided a draft of this appendix to the Governor of Massachusetts, 
the Massachusetts OSA, the Massachusetts OIG, the Massachusetts Joint 
Committee on Federal Stimulus Oversight, and the Massachusetts Senate 
Committee on Post Audit, and provided excerpts of the draft to other 
entities including cities, local housing agencies, and regional 
transit agencies we visited. The Governor's office that oversees 
Recovery Act implementation, in general, agreed with our draft report. 
State and local officials provided clarifying and technical comments, 
which we incorporated where appropriate. 

GAO Contacts: 

Stanley J. Czerwinski, (202) 512-6806 or czerwinskis@gao.gov: 

Laurie E. Ekstrand, (202) 512-6806 or ekstrandl@gao.gov: 

Staff Acknowledgments: 

In addition to the contacts named above, Carol L. Patey, Assistant 
Director; Lorin M. Obler, analyst-in-charge; Anthony M. Bova, Nancy J. 
Donovan; Kathleen M. Drennan; Keith C. O'Brien; Kathryn I. O'Dea; and 
Robert D. Yetvin made major contributions to this report. 

[End of section] 

Footnotes: 

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

[2] In addition to these funds, the state also received $1,343,900 in 
funding for section 604b Water Quality Management Planning. In this 
report we use the word "project" to mean an assistance agreement, 
i.e., a loan or grant agreement made by the state revolving fund 
program to a subrecipient for the purpose of a Recovery Act project. 

[3] Moreover, state educational agencies may reserve an additional 
percentage of Recovery Act ESEA Title I, Part A funds (0.3 or 0.5 
percent, depending on whether the state educational agency requests 
waivers of certain requirements) to help defray the costs associated 
with data collection and reporting requirements under the Recovery Act. 

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

[5] 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. 

[6] 2010 Mass. Acts Chap. 12, sec. 3. 

[7] States were required to certify that they will maintain the level 
of spending that they had planned to expend between the date of 
enactment, February 17, 2009, and September 30, 2010. 

[8] In May 2008, the commonwealth introduced the $3 billion 
Accelerated Bridge Program to reduce the commonwealth's growing 
backlog of structurally deficient bridges. 

[9] A floating slab consists of a concrete slab supported by rubber- 
like material or steel-coil springs designed to reduce noise and 
vibration levels. Deterioration of a floating slab system has the 
potential to become a significant safety hazard. 

[10] Under the Supplemental Appropriations Act, 2009, recipients and 
subrecipients of the Transit Capital Assistance Urbanized Area Program 
funds and the Transit Capital Assistance Nonurbanized Area Program 
funds may use up to 10 percent of the amount apportioned for operating 
expenses. Pub. L. No. 111-32 § 1202 (June 24, 2009). 

[11] GAO, Federal Aid Highways: Increased Reliance on Contractors Can 
Pose Oversight Challenges for Federal and State Officials, GAO-08-198 
(Washington, D.C.: Jan. 8, 2008). 

[12] In addition, a total of $72.7 million in competitive grants was 
awarded to seven housing agencies in Massachusetts. 

[13] According to HUD notice PIH 2009-31, component or subcomponent 
parts may be from other countries as long as the components and 
subcomponents are assembled into manufactured goods in the United 
States. 

[14] Pub. L. No 105-276, title V, 112 Stat. 2461 (Oct. 21, 1998). 

[15] Some housing agency officials told us that a small portion of 
residents of state-funded housing will pay higher rents after their 
units are federalized because the federal and state governments have 
different deductions from the income that is counted in calculating 
rent. 

[16] The regulations governing this process are at 24 CFR 941. 

[17] In a 2006 audit report, the Massachusetts Office of the State 
Auditor found that inadequate funding by the state has contributed to 
significant deterioration in the conditions of state-supported housing 
developments. 

[18] According to Massachusetts officials, of the $185 million 
received in Recovery Act funds, over $7 million is being used for 
program administration with the remainder spent on projects. 

[19] "Green" projects are those that promote green infrastructure 
(which can reduce, capture, and treat stormwater runoff at its source 
before it reaches the sewer system) and energy or water efficiency. 
Green projects also include demonstrations of new or innovative ways 
to manage water resources in a sustainable fashion. 

[20] We visited the town of Spencer, a new SRF recipient, which 
received funds for one project, and the MWRA, which received funding 
for multiple projects. 

[21] Section 1605 of the Recovery Act permits the provision of a 
waiver by the head of an appropriate agency, here EPA, under certain 
circumstances. Pub. L. No. 111-5, 123 Stat. 115. 

[22] 2009 Mass. Acts ch. 30, § 33 (An Act Mobilizing Economic Recovery 
in the Commonwealth). 

[23] 2009 Mass. Acts ch. 30, § 12 (An Act Mobilizing Economic Recovery 
in the Commonwealth). According to a Massachusetts official, before 
passage of this act, the Massachusetts Water Pollution Abatement Trust 
was not authorized to provide any principal forgiveness, grant, or 
loan interest rate except 2 percent for 20-year terms, but the act 
authorized the trust to adapt the financing structure to conform to 
the Recovery Act requirements. 

[24] These are cash drawdowns from the U.S. Department of Health and 
Human Services' Payment Management System. Under the procedures for 
using these funds, funds are to be drawn down no more than 3 days in 
advance of paying bills. According to Labor, drawdown data for March 
2010 may be significantly understated as a result of complications 
with the transition to a new accounting system. Labor is taking steps 
to correct these issues and expects to release accurate data by the 
end of May 2010. 

[25] This comparison includes dislocated workers trained with regular 
and Recovery Act WIA funds. 

[26] The Governor's budget also includes a proposal to help prepare 
the state for future revenue volatility by smoothing out capital gains 
receipts and depositing capital gains revenue over a fixed dollar 
amount ($1 billion) into its "rainy day" fund. 

[27] State officials noted that if by June 1, 2010, Congress has not 
acted to extend the increased FMAP provision, the Governor plans to 
revise his fiscal year 2011 budget. 

[28] City Recovery Act funds referred to in this section cover funds 
which are administered by city government and not the full scope of 
Recovery Act funds that benefit city residents, such as unemployment 
insurance and Medicaid. This section includes sources of Recovery Act 
funds which substitute for declines in city operating revenues. Other 
city-administered Recovery Act funds provide expanded services and 
include funds for community development, homelessness, and energy 
efficiency. 

[End of Appendix IX] 

Appendix X: Michigan: 

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 Michigan. The full report covering all of 
GAO's work in 16 states and the District of Columbia may be found at 
[hyperlink, http://www.gao.gov/recovery]. 

What We Did: 

Our work in Michigan focused on the (1) use of Recovery Act funds for 
selected programs, (2) approaches taken by Michigan to provide 
accountability over Recovery Act funds, and (3) impacts of these 
funds. We reviewed specific programs funded under the Recovery Act 
related to public housing and dislocated worker training. In addition 
to these programs, we obtained and reviewed expenditure details and 
other information on the state's use of State Fiscal Stabilization 
Fund (SFSF) government services funds. We also reviewed the state's 
and selected localities' fiscal condition and use of Recovery Act 
funds. We considered selected reports to the federal government by 
recipients of Recovery Act funds as well as oversight and 
accountability practices including selected financial statement audit 
reports and selected Single Audit reports at both the state and local 
levels. We selected these program areas and activities because they 
had a number of risk factors, including the receipt of significant 
amounts of Recovery Act funds or a substantial increase in funding 
from previous years' levels. These program areas and activities also 
provided an opportunity for us to consider the design of internal 
controls over the program areas and activities as well as those put in 
place to obtain and report information to the federal government on 
Recovery Act spending and jobs created or retained. To address 
financial management and internal control challenges we previously 
reported on, we followed up on actions taken and those planned by the 
Michigan Department of Education (MDE) and Detroit Public Schools 
(DPS), and state and local agencies with responsibility for the 
state's Workforce Investment Act (WIA) Summer Youth Employment 
Program. For descriptions and requirements of the programs we covered, 
see appendix XVIII of GAO-10-605SP. 

We performed our work at state and local agencies responsible for 
implementing and monitoring and overseeing the programs. For our 
review of public housing, we visited two public housing authorities 
that we visited in prior rounds--Detroit and Lansing--and two 
additional public housing authorities--Port Huron, and Mount Clemens, 
as well as the U.S. Department of Housing and Urban Development (HUD) 
Detroit Field Office. For our review of the WIA Dislocated Worker and 
Summer Youth Employment Programs, we met with officials from the 
Michigan Department of Energy, Labor and Economic Growth--the state 
agency responsible for administering these programs--as well as 
officials from two local workforce agencies. 

We continued to track the use and impact of Recovery Act funds on 
state and local fiscal stabilization. We met with state budget 
officials and local officials from the cities of Flint and Lansing to 
assess the economic challenges they faced and the Recovery Act's 
impact on their communities. To understand the state's Recovery Act 
oversight and accountability efforts, we visited with officials from 
the Economic Recovery Office, Office of the Auditor General (OAG), 
Office of Internal Audit Services (OIAS), and the Detroit Office of 
Auditor General. We also reviewed the most recent single audit reports 
and met with officials responsible for oversight and monitoring for 
the City of Flint and the City of Lansing. We reviewed the most recent 
single audit reports for three of the four public housing authorities 
that we visited. We did not review the other because it was not 
complete at the time of our review. Officials with the Lansing Housing 
Commission told us that their audit for the fiscal year ended June 30, 
2009, was in process and that HUD had granted an extension of time. 

Finally, to understand the state's experience in meeting the March 31, 
2010, Recovery Act reporting requirements, we focused our work on the 
recipients' methodology for computing jobs data and reviewed steps 
recipients took to assess the quality of the data. We discussed these 
issues with state and local officials with responsibilities for 
recipient reporting and reviewed documentation used by recipients to 
support the number of jobs reported. 

What We Found: 

* Public Housing Capital Fund. Public housing authorities (PHA) in 
Michigan received over $53 million in Recovery Act Public Housing 
Capital Fund formula grants. PHAs in Michigan are using these funds 
for activities including plumbing improvements and kitchen renovations 
at apartment complexes and single family home rehabilitations. All 
public housing authorities in Michigan met the March 17, 2010, 
deadline for obligating 100 percent of these funds. According to HUD, 
as of May 1, 2010, 122 housing agencies had drawn down approximately 
$22 million. Officials of the four public housing authorities we 
visited reported successfully meeting difficulties associated with 
Recovery Act requirements. For example, officials from the Detroit 
public housing authority said that documenting compliance with the 
Recovery Act's Buy America requirement has been a challenge because 
they did not have a process in place prior to the Recovery Act to 
address this requirement. Officials from HUD's Detroit Field Office 
told us that although they successfully instituted additional 
monitoring protocols for Recovery Act grants, this work limited staff 
availability to focus on other ongoing public housing program areas. 

* Education. The U.S. Department of Education (Education) allocated 
$1.592 billion in SFSF moneys to Michigan, of which $1.302 billion are 
education stabilization funds and $290 million are government services 
funds. Michigan used its education stabilization funds primarily for 
teacher salaries, and its government services funds primarily for 
public safety programs in fiscal year 2009. In addition, Education 
allocated Michigan $390 million for Title I, Part A of the Elementary 
and Secondary Education Act of 1965, as amended (ESEA)--which Michigan 
schools used to pay for salaries for academic counselors, social 
workers, tutors, and other specialists--and $414 million for Parts B 
and C of the Individuals with Disabilities Education Act, as amended 
(IDEA)--which Michigan used to pay salaries for teachers of students 
with cognitive impairment, school psychologists, and social workers. 
In our September bimonthly Recovery Act report we noted that to help 
provide accurate and timely Recovery Act reporting, MDE, in 
coordination with DPS, needed to implement policies and procedures to 
provide reasonable assurance that education-related Recovery Act funds 
are reported accurately and timely, that jobs retained and created are 
accurately and timely reported, and that funds are used only for 
allowable purposes. MDE has begun implementing a monitoring plan, and 
DPS has taken actions to improve its internal controls. 

* WIA Dislocated Worker Program. Michigan received approximately $78 
million in WIA Dislocated Worker Program Recovery Act funds. As of 
March 31, 2010, Michigan and its local areas had drawn down at least 
34 percent of these funds. Michigan officials reported that despite a 
nearly 43 percent reduction in formula funds from the previous program 
year, they were able to nearly double the number of dislocated workers 
receiving intensive services and training compared to the same period 
in the previous year. The state also reported that as of January 31, 
2010, nearly 16,000 dislocated workers are in training. State 
officials said Recovery Act funds are primarily used to place 
dislocated workers in existing state training initiatives, by using 
Individual Training Accounts (ITA).[Footnote 2] Detroit and Grand 
Rapids reported that they used or intend to use Recovery Act funds 
primarily to establish ITAs for dislocated workers in training, 
although to a limited extent they have used other training options 
emphasized by the U.S. Department of Labor (Labor), including on-the-
job-training and contracting with institutions of higher education. 

* WIA Summer Youth Employment Program. Michigan was allotted 
approximately $74 million in WIA Youth Program Recovery Act funds. The 
WIA Youth Program is designed to provide low-income, in-school and out-
of-school youth with services that lead to educational achievement and 
successful employment. The Department of Labor issued guidance 
encouraging states to use Recovery Act funds for summer employment. 
Officials told us that as of March 31, 2010, a total of $55.9 million 
had been expended and met the state's enrollment goal by serving over 
21,000 youth in Michigan's Summer Youth Employment Program. Our prior 
review of Detroit's program identified a number of internal control 
challenges involving payroll preparation and distribution and program 
eligibility determinations and documentation. Detroit officials 
addressed our payroll findings by (1) streamlining the check 
distribution process, (2) moving to a larger distribution center, and 
(3) developing a procedures manual. To address issues of eligibility 
determination and documentation, Detroit officials developed a 
procedures manual, increased training of contractor staff, and are 
working with an advisory board to clarify criteria to be used for 
eligibility determinations. 

* State and local governments' fiscal condition and use of Recovery 
Act funds. Michigan continues to face economic challenges. In March 
2010, the state's unemployment rate was 14.9 percent, the highest in 
the nation. For the fiscal year ending September 30, 2010, Michigan 
expects to use almost $1.1 billion in funds made available as a result 
of the increased Federal Medical Assistance Percentage (FMAP) to 
support the state's general fund. In response to a projected $1.497 
billion shortfall in fiscal year 2011 as Recovery Act funding slows, 
Michigan's Governor proposed a series of cost reductions and 
restructuring of the state's sales and use taxes. Flint city officials 
told us that Recovery Act funds provided the city with temporary 
relief but had little effect on the city's fiscal stability because of 
continuing economic pressures. Lansing city officials said that the 
city's economic situation would have been much worse without Recovery 
Act funds. 

* Recipient reporting. Recipients' processes for calculating jobs and 
reviewing data varied for the quarter ending March 31, 2010. Office of 
Management and Budget's (OMB) guidance states that recipients are to 
include jobs created and retained from subrecipients and vendors in 
their quarterly reports to the maximum extent practicable. We found 
that the Department of Energy, Labor, and Economic Growth (DELEG) did 
not do so. In addition, Detroit Public School (DPS) officials told us 
that their initial report to the Michigan Department of Education did 
not include staff jobs paid for with SFSF funds or contractor jobs 
paid for with Recovery Act funds. When we brought this to the 
attention of DPS officials in April 2010, they discussed the matter 
with MDE and subsequently submitted an amended report. ERO officials 
told us that they will work with DELEG to address recipient reporting 
requirements. 

* Oversight and accountability efforts. Michigan's OAG and OIAS serve 
key roles in overseeing Recovery Act-funded programs in Michigan. OAG 
officials told us that they are including Recovery Act funds as part 
of their Single Audit work at state agencies. These officials also 
told us that it would be helpful for OMB to clarify the criteria that 
the audit community should use for auditing recipient reports and 
complying with the "Buy American" provision for Recovery Act spending. 
OIAS officials told us that they assigned 2 of their 45 internal 
auditors to work full-time on programs funded by the Recovery Act. 
Based upon their assessment of risks, OIAS officials selected eight 
key programs for review. They plan to evaluate the agencies' ongoing 
monitoring activities. OIAS officials also told us that they would 
include steps as appropriate in their audit work plans for agencies 
that our work identifies as having internal control challenges. 

Housing Agencies Continue to Make Progress on Public Housing Capital 
Fund Recovery Act Projects: 

Michigan has 131 public housing authorities (PHAs), 122 of which 
received Recovery Act-funded Public Housing Capital Fund (PHCF) 
grants.[Footnote 3] These grants are intended to improve the physical 
condition of, and modernize, public housing units. Michigan PHAs 
received over $53 million in Recovery Act PHCF formula grants. The 
Recovery Act mandated that housing agencies obligate 100 percent of 
these funds within 1 year of award by HUD--by March 17, 2010-- 
representing a shorter timeline than that for the regular PHCF 
grant.[Footnote 4] Michigan PHAs also received approximately $41 
million through the regular fiscal year 2009 PHCF grant 
program.[Footnote 5] We met with officials from four PHAs--the 
Detroit, Lansing, Mount Clemens, and Port Huron Housing Commissions--
to better understand how Michigan PHAs are using and monitoring the 
Recovery Act funds.[Footnote 6] We also met with officials from HUD's 
Detroit Field Office (Field Office) to better understand their 
interactions with PHAs regarding meeting the obligation deadline and 
steps they are taking to oversee Recovery Act spending, as well as to 
obtain their perspectives on implementing Recovery Act requirements, 
such as the recipient reporting and Buy American provisions. 

Michigan PHAs Successfully Met Obligation Deadline: 

According to HUD officials, Michigan's 122 PHAs that received Recovery 
Act funds obligated 100 percent of Recovery Act PHCF formula grants 
prior to the obligation deadline of March 17, 2010, and as of May 1, 
2010, had drawn down approximately $22 million (see figure 1). 

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

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

Funds obligated by HUD: 100% ($53,467,210); Funds obligated by public 
housing agencies: 100% ($53,467,210); Funds drawn down by public 
housing agencies: 41.9% ($22,400,715). 

Number of public housing agencies: 
Were allocated funds: 122; 
Obligated 100% of funds: 122; 
Have drawn down funds: 115. 

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

[End of figure] 

The four PHAs we met with are using Recovery Act-funded PHCF grants 
for a variety of projects. For example, the Detroit Housing Commission 
(Detroit) is using the funds for, among other things, plumbing 
improvements at a 156-unit development as well as rehabilitating 178 
single family homes. The Lansing Housing Commission (Lansing) is using 
its grant to upgrade two different apartment developments and 75 
single-family homes. Figure 2 depicts two Recovery Act-funded projects 
at Detroit and Lansing. 

Figure 2: Photos of a Detroit Single-Family Home and Units at a 
Lansing Housing Complex That Are in the Process of Being Renovated 
with Recovery Act Funds: 

[Refer to PDF for image: 2 photographs] 

Source: GAO. 

[End of figure] 

The two smaller PHAs we spoke with targeted their Recovery Act funding 
on one development. For example, the Port Huron Housing Commission 
(Port Huron) reported that it will use its Recovery Act grant for 
exterior and interior kitchen renovations of 90 units at one 
development. 

HUD's Detroit Field Office Identified PHAs Needing Assistance to Meet 
the Obligation Deadline: 

Field Office officials described communication with PHAs as "a core 
element" of their strategy to monitor grant implementation and ensure 
obligation rates would meet Recovery Act deadlines. They reached out 
to PHAs in a variety of ways, including participating in industry 
association meetings, supporting local PHA training sessions, and 
contacting executive directors. In cases where Field Office staff 
identified PHAs at risk of failing to meet the obligation deadline, 
they contacted either housing commission board commissioners or 
locally elected officials to communicate their concerns about a PHA's 
lagging obligation rate. The Field Office contacted each of the four 
PHAs we reviewed to help identify and address any issues that could 
have prevented them from meeting the obligation deadline. For example, 
Field Office officials told us that they helped the Ecorse Housing 
Commission through several processes involved with its plan to 
demolish a number of public housing units as part of a Recovery Act-
funded project. 

Recovery Act Requirements Created Some Challenges: 

PHA officials reported varying degrees of difficulty associated with 
meeting Recovery Act requirements. For example, PHA officials told us 
that in administering prior capital fund grants, there was no 
requirement to identify and report on the source of materials used for 
capital fund activities, and processes were not in place to gather 
this information. As a result, officials from all four PHAs we visited 
told us that they modified their procurement processes to obtain 
information from contractors to meet the Recovery Act's Buy American 
provision.[Footnote 7] Detroit officials said that the Buy American 
provision required some of its contractors to find new suppliers that 
would meet the Buy America provision requirements and that documenting 
the source of materials used for Recovery Act-funded projects has been 
a challenge as not all manufactured products provide this information 
and some products are not available from American sources. 

We also analyzed the impact of Recovery Act-funded PHCF grants on the 
administration of regular PHCF grants. Two of the PHA officials we 
visited reported that the requirement to obligate 100 percent of their 
Recovery Act funds by March 17, 2010, had affected their ability to 
administer other funds. Officials from Lansing and Mount Clemens told 
us that limited staffing made administering both Recovery Act-funded 
and regular PHCF grants a challenge, but that, despite their focus on 
obligating Recovery Act funds first, they still expect to meet the 
September 2011 obligation deadline for regular fiscal year 2009 funds. 

PHAs Are Using Existing Processes to Oversee Recovery Act Funds: 

Officials from Detroit and Lansing--the PHAs we reviewed that made 
significant expenditures by the beginning of April--told us that they 
are using existing monitoring processes, such as conducting periodic 
inspections, for Recovery Act-funded work. Detroit officials, for 
example, told us that their staffs are producing daily field reports 
as part of their regular procedures to monitor construction progress. 
Similarly, Lansing officials told us that they conduct periodic site 
visits and review progress reports provided by their architects. 

Each PHA that receives HUD funds is responsible for having its 
activities audited by an independent public accountant in accordance 
with Government Auditing Standards, and submitting the audit report to 
HUD within 9 months after its fiscal year-end. We obtained the audit 
reports for three of the four PHAs we visited--Detroit, Mount Clemens, 
and Port Huron.[Footnote 8] These audits covered the PHAs' fiscal year 
ended June 30, 2009, and two of the three audits included coverage for 
some Recovery Act spending (Detroit and Port Huron). All three PHAs 
received an unqualified or "clean" audit opinion on their financial 
statements and none of the audits reported any significant internal 
control or compliance matters. 

HUD's Detroit Field Office Instituted Additional Monitoring Protocols 
for Recovery Act Funds: 

Field Office officials, who have responsibility for monitoring all 122 
PHAs in Michigan receiving Recovery Act-funded PHCF grants, provided 
us with their monitoring plan. Although this plan provided monitoring 
procedures for all PHAs, it focuses the Field Office's efforts on the 
15 Michigan PHAs that HUD has designated as "troubled."[Footnote 9] 
Field Office officials said that they required all troubled PHAs to 
obtain Field Office approval before obtaining bids and awarding 
contracts. They also told us that they reviewed troubled PHAs' 
obligation actions, such as award packages and final contracts and any 
subsequent change orders, for compliance with Recovery Act 
requirements including the Buy American provision. 

Field Office staff said they also are reviewing obligations and 
expenditures equal to 25 percent of each grant award at PHAs that are 
not "troubled." Field Office officials told us that they believe this 
process has helped them identify and resolve compliance issues. For 
example, Field Office staff told us that they identified the need to 
update PHA procurement procedures and prevented the allocation of 
funds by PHAs for ineligible work items (e.g., computers or office 
equipment) prior to the commitment of funds. However, Field Office 
officials told us that overseeing Recovery Act grants using the 
monitoring plan had limited their staff's availability to conduct 
timely monitoring, oversight, and technical assistance over other 
program areas. For example, they postponed some planned monitoring 
activities for other HUD programs, such as Section 8 rental 
assistance, until later in fiscal year 2010. 

Michigan Is Using Recovery Act Funds from the U.S. Department of 
Education for Education and Public Safety Programs: 

The U.S. Department of Education (Education) made Recovery Act 
education funds available to Michigan through three major programs: 

* Education allocated $1.592 billion in State Fiscal Stabilization 
Fund (SFSF) moneys, of which $1.302 billion are education 
stabilization funds and $290 million are government services funds, as 
of May 29, 2009. Education stabilization funds must first be used to 
alleviate shortfalls in state support for education to school 
districts, also known as local educational agencies (LEA), and public 
institutions of higher education.[Footnote 10] Government services 
funds must be used for public safety and other government services, 
which may include education. 

* Education allocated $390 million in funding for ESEA Title I, Part A 
to help educate disadvantaged youth, on April 1, 2009. 

* Education allocated $414 million in funding for IDEA, Parts B and C 
for programs that ensure preschool and school-age children with 
disabilities have access to a free and appropriate public education 
and that provide early intervention and related services for infants 
and toddlers with disabilities--or at risk of developing a disability--
and their families, on April 1, 2009. 

LEAs in Michigan used SFSF education stabilization funds to retain 
jobs--primarily teachers--that would otherwise have been lost. LEAs 
used ESEA Title I funds to pay for salaries for academic counselors, 
social workers, tutors, and other specialists. In some cases, they 
used funds to train teachers or enhance curriculum. For example, 
Detroit Public Schools used ESEA Title I funds for professional 
development and instructional materials. Finally, MDE reported using 
IDEA funds to pay salaries for teachers of students with cognitive 
impairment, school psychologists, and social workers. As of April 16, 
2010, Michigan had drawn down $923.1 million (71 percent) of its SFSF 
education stabilization funds; $86.9 million (22 percent) of its ESEA 
Title I, Part A funding; and $82.2 million (20 percent) of its IDEA 
Part B funding. 

In our September report we noted that to provide accurate and timely 
Recovery Act reporting, the Michigan Department of Education (MDE), in 
coordination with the Detroit Public Schools (DPS), will need to 
consider implementing policies and procedures in the near term to 
provide reasonable assurance that education-related Recovery Act 
funds, including those provided to DPS, are reported accurately and 
timely; that jobs retained and created are accurately and timely 
reported; and that funds are used only for allowable purposes. To 
accomplish this, MDE has begun implementing a monitoring plan and DPS 
has taken actions to improve its internal controls. We discussed our 
prior findings with MDE and DPS officials in April 2010 and they told 
us that they would provide us with written responses to these issues 
at a later date. 

The Recovery Act created SFSF in part to help state and local 
governments stabilize their budgets by minimizing budgetary cuts in 
education and other essential government services. On April 1, 2009, 
Education allocated $290 million in SFSF government services funds to 
Michigan. As of March 31, 2010, Michigan had expended almost all of 
its government services funds (over $288 million). Specifically, these 
funds were used during Michigan's fiscal year ended September 30, 
2009, for the following: 

* Payroll and related expenses for the Michigan State Police: $98 
million. Funds were used for staff payroll and the state's share of 
employee benefits for uniformed troopers, investigative services, and 
laboratory operations. 

* Payroll and related expenses for the Department of Corrections: $190 
million. Funds were used for staff payroll and the state's share of 
employee benefits for operations at one correctional facility; mental 
health care staff; and food services staff. 

* Expenses of the Economic Recovery Office (ERO), which administers 
the Recovery Act for Michigan: $324,000. Michigan used these funds for 
staff salaries, the state's share of employee benefits for 3.5 full- 
time equivalents, and the general operational and administrative 
expenses of the ERO. In addition, it used Recovery Act funds to 
develop a centralized database and portal to support recipient 
reporting. 

State budget officials told us that these payroll, benefit, and other 
expenses were incurred during the period starting on February 17, 
2009, the Recovery Act's enactment date, and ending on September 30, 
2009, the last day of the state's fiscal year. Officials said that 
they identified specific staff salaries and the related estimated 
employer share of benefit expenses to support the amounts charged to 
Recovery Act funds. Officials told us that as of March 31, 2010, 
Michigan had about $1.6 million of its government services funds 
remaining, most of which are to be used to pay for ERO operations 
through September 30, 2011. 

Michigan Has Made Progress on Monitoring and Internal Controls for 
Education Funds: 

As required, MDE submitted its monitoring plan for education 
stabilization funds to Education in March 2010. MDE's plan states that 
the department will implement an integrated, comprehensive monitoring 
program for all Recovery Act grants, and that for the first year the 
effort will focus on SFSF education stabilization funds. According to 
MDE officials, this monitoring began in March 2010, and they 
determined the schedule for monitoring based on a risk-based analysis 
of numerous factors, including whether the district has a deficit, 
prior audit findings, and the amount of SFSF funds received. 

In order to meet the requirements to effectively monitor Recovery Act 
grant programs, MDE plans to follow a phased approach, while building 
capacity. Officials told us that MDE currently conducts programmatic 
monitoring on all Education grants, and they plan to add fiscal 
monitoring over time. During the 2009-2010 school year, MDE plans to 
leverage its resources by using existing staff. Using a risk-based 
approach, MDE officials told us they identified recipients to receive 
on-site visits and will conduct monitoring of SFSF funds for 
subrecipients with a Recovery Act award during these visits. MDE 
assigned a Recovery Act monitoring coordinator to coordinate MDE 
monitoring efforts of all Recovery Act grants, but with a special 
focus on on-site and desk reviews for SFSF grants. Officials told us 
that program monitors have been trained on SFSF-specific monitoring 
protocols and tools. MDE also plans to collect data from all 
subrecipients as part of its Recovery Act monitoring. 

State officials said that although they have not developed a specific 
oversight plan to provide assurance of accountability of Recovery Act 
SFSF government services funds, Michigan intends to rely primarily 
upon existing safeguards, which is consistent with the state's 
practices for other Recovery Act funds. Michigan's Department of 
Management and Budget, the Michigan State Police, and the Department 
of Corrections each have responsibility for overseeing and monitoring 
their operations' use of SFSF government services funds. Education 
required states to submit monitoring plans for both the education 
stabilization and government services funds. Michigan provided 
monitoring plans from the Department of Corrections and the Michigan 
State Police by the March 12, 2010, deadline. In addition, in April 
2010 officials in the Office of the Auditor General told us that they 
are including these funds in their Single-Audit Act work.[Footnote 11] 

MDE Performs Targeted Monitoring and Oversight of the Detroit Public 
Schools District: 

MDE performs targeted monitoring and oversight of DPS based on the 
significant education funds provided to the district--including 
increases in funds through the Recovery Act--and the risks posed by 
long-standing financial management challenges. In addition, as a 
result of financial management weaknesses and DPS's budget deficits, 
[Footnote 12] Michigan's Governor appointed an Emergency Financial 
Manager for the district in March 2009 and extended his initial 1-year 
term through March 1, 2011. The Emergency Financial Manager also 
appointed two officials to help improve DPS's financial oversight, an 
Inspector General and an Auditor General. 

MDE allocated $62.3 million in SFSF funding and $150 million in ESEA 
Title I Recovery Act funds to DPS through fiscal year 2010, along with 
$25.7 million in Recovery Act funds to DPS for IDEA Part B grants, for 
a total of $238 million. As of April 20, 2010, DPS had drawn down 
$98.2 million of these funds ($60.4 million from SFSF grants, $32.4 
million from ESEA Title I grants, and $5.4 million from IDEA Part B 
grants). MDE officials told us that as part of the department's 
enhanced monitoring of DPS, including its Recovery Act spending, they 
have created a team that meets on a regular basis to discuss and 
review DPS's applications, draw-down requests, policies and 
procedures, and strategic planning documents. MDE also has a core team 
that conducts biweekly phone calls with DPS to discuss internal 
control issues. 

In addition, MDE officials told us that they engaged an independent 
public accountant (IPA) to test DPS payment transactions. They hired 
the IPA to assist in evaluating whether DPS maintained documentation 
and followed specified procedures regarding federally funded payroll 
and fringe benefit costs for employees, as well as nonpayroll federal 
expenditures for fiscal year 2010. According to MDE officials, DPS is 
working with MDE to establish new procedures. DPS's rate of compliance 
with these procedures is periodically tested by the IPA, which in turn 
is responsible for reporting the test results to MDE. Although MDE 
officials told us that the new procedures have led to improved 
controls over payroll and nonpayroll expenditures, they did not 
maintain a record of the change in error rates reported by the IPA 
over time or other metrics to monitor progress. Without preparing and 
continually updating such a record, MDE may not be assured that 
actions taken are appropriate or that the desired effect occurs, or be 
able to assess whether the impact is being sustained. 

The Detroit Public Schools District Has Taken Steps to Improve Its 
Internal Controls: 

DPS has made progress in improving its financial management in a 
number of areas. For example, in contrast to prior years, the IPA 
submitted the district's 2009 audit in advance of the November 15, 
2009, deadline. The 2009 audit also contained fewer findings than the 
prior year's audit. DPS officials also told us that they hired a 
consulting firm to assist them in organizing and addressing audit 
findings and to help develop long-term solutions. 

DPS officials told us that DPS's Inspector General has instituted a 
monitoring system that seeks to continuously evaluate and reduce risk 
of fraud. In addition to this monitoring system, the DPS Auditor 
General, an internal audit office, has recently begun a formal 
internal control risk management analysis involving interviews of 
various DPS administrators, contractors, vendors, and other 
stakeholders. In April 2010, DPS Auditor General officials told us 
that they conducted preliminary assessments of all departments and are 
working to understand and document what controls are currently in 
place for each department. Officials also told us that, in an effort 
to encourage program managers to take ownership of internal control 
improvements, they plan to ask each program manager to identify 
initiatives he or she wants to complete within a year. 

DPS officials said that they also developed a procedures manual for 
financial reporting and they plan to provide financial training, 
including training in accounting, bookkeeping, and preparing financial 
statements for school administrative staff. The manual is not specific 
to Recovery Act funding; rather, it is designed to address financial 
reporting on a district-wide basis. Specific issues addressed in the 
manual are allowable use of funds, contract suspension and debarment, 
equipment management, personnel management, and contracting policy. 
However, as of April 2010, although much has been done in each of the 
five targeted areas to document policies and procedures, officials 
acknowledged that none of these efforts have been fully completed or 
placed in operation. 

Work Remains to Address Systemic Weaknesses at DPS: 

To ensure accountability over Recovery Act funds, it is important for 
MDE, DPS, and other stakeholders to continue their efforts to provide 
sustained attention to these long-standing financial management 
challenges. In addition, it is important to ensure that the underlying 
causes of control weaknesses are addressed and that improvements--once 
put into place--are monitored. 

For example, MDE officials told us they were concerned that the 
district inadequately documented conflicts of interest. To address, 
they said that DPS has adopted new policies and procedures, but still 
needs to train about 15,000 employees. According to DPS officials, DPS 
has also implemented new controls over computers. These include 
equipping all new computers with an electronic tracking system and 
working with schools to complete an inventory of all equipment. 
Although there are plans to do so, DPS officials informed us in April 
2010 that the computer physical inventory has not yet been reconciled 
with DPS property records. In addition, DPS has not established 
essential management processes for controlling physical assets-- 
including, for example, periodic inventories and reconciliations to 
books and records. 

MDE officials told us that they are focusing on improvements at DPS in 
the following areas: conflict of interest, allowable use of federal 
funds, cash management, contracting, procurement, internal monitoring, 
property and equipment, and personnel. DPS is charged with documenting 
its policies and procedures in each of these areas. MDE officials are 
benchmarking DPS's performance with that of other large city school 
districts, evaluations of external consultants, and MDE's own policies 
and procedures. 

In addition, as discussed earlier, the DPS Inspector General is 
conducting work that results in recommendations to management. 
However, there is no formal process for tracking the recommendations 
from the Inspector General or actions to address the recommendations 
and there is no requirement for DPS departments to provide responses 
to the findings. 

Michigan Has Made Progress in Using Recovery Act Funds to Provide 
Services and Training to Additional Dislocated Workers, Mainly through 
Existing Training Programs: 

Michigan has made progress in using Recovery Act funds for the WIA 
Dislocated Worker Program. The state received $78.4 million in 
Recovery Act funds for the program and as of March 31, 2010, total 
state draw downs account for at least 34 percent ($27.3 million) of 
available funds.[Footnote 13] Drawdowns represent cash transactions: 
funds drawn down by states and localities to pay their bills, such as 
payments for training provided. Localities must spend Recovery Act 
funds by June 30, 2011 to provide job training and other employment 
assistance. 

Funds Have Been Used to Increase the Number of Workers Receiving 
Services and Training: 

Officials from the Michigan Department of Energy, Labor, and Economic 
Growth said that economic conditions contributed to an increased 
number of customers seeking services at one-stop centers across the 
state. At the same time, in 2009 Michigan received nearly 43 percent 
less in regular WIA Dislocated Worker formula funds than it did the 
previous program year.[Footnote 14] Despite this reduction, state 
officials said that they were able to serve and train more WIA 
customers using both Recovery Act and regular formula funds. For 
example, according to state officials, for the month of December, when 
they typically see fewer customers, one-stop centers statewide saw an 
increase in customers from around 7,000 in 2007, to around 14,000 in 
2009.[Footnote 15] Moreover, dislocated workers receiving intensive 
services and training nearly doubled compared to the same time period 
in the previous year, according to our survey.[Footnote 16] The state 
also reported that nearly 16,000 dislocated workers are in training 
using Recovery Act or regular WIA dislocated worker funds, as of 
January 31, 2010. 

Michigan Used Recovery Act Funds to Provide Training in Existing 
Programs and to Address Local Plans: 

State officials said that Recovery Act funds are primarily being used 
to place dislocated workers in existing training initiatives, such as 
the state's No Worker Left Behind program (NWLB), using individual 
training accounts (ITAs). The goal of this program is to accelerate 
the transition of thousands of workers into good paying jobs by 
providing up to two years worth of tuition at any community college, 
university, or other approved training provider. Both Grand Rapids and 
Detroit reported that they have used or intend to use Recovery Act 
funds primarily to establish ITAs for dislocated workers.[Footnote 17] 
Labor encouraged states to use Recovery Act funds for a variety of 
training methods such as on-the-job training (OJT) and contracts with 
institutions of higher education, community based organizations and 
other training providers.[Footnote 18] Grand Rapids officials said 
that they offered some OJT, but have not placed any dislocated workers 
in training through contracts with institutions of higher education. 
According to Grand Rapids officials, local community colleges are 
reluctant to develop group training programs because Recovery Act 
funds are temporary and would not be available to support these 
programs when funds are exhausted. Detroit officials said they are 
considering ideas to increase industry interest in OJT during the 
economic downturn and said they are using Recovery Act funds to place 
dislocated workers in training contracted through a local community 
college for coursework aligned with the Weatherization Assistance 
Program.[Footnote 19] In summary, Grand Rapids and Detroit have a 
number of planned uses for Recovery Act funds in their local areas, 
such as providing training for the health care industry or for green 
jobs, among others, as shown in table 1. 

Table 1: Selected Uses of WIA Dislocated Workers Program Recovery Act 
Funds in Detroit and Grand Rapids, MI: 

Locality: Detroit; 
Allocation: $7,224,075; 
Planned uses: 
* Serve an increased number of customers at one-stop centers, in part 
by increasing career planning staff; 
* Provide training coordinated through the NWLB program; 
* Provide training in the health care industry due to strong local 
demand; 
* Provide training contracted with higher education institutions for 
the Weatherization Assistance Program. 

Locality: Grand Rapids; 
Allocation: $2,740,261; 
Planned uses: 
* Serve an increased number of customers in one-stop centers; 
* Offer more basic skills programs to prepare workers for entry-level 
college courses; 
* Provide training in the health care industry due to strong local 
demand; 
* Provide increasing training opportunities for green jobs. 

Source: GAO analysis of interviews and information provided by the 
Detroit Workforce Development Department and Grand Rapids' Area 
Community Services Employment and Training Council. This table is not 
intended to present all planned uses for Recovery Act funds. 

[End of table] 

State and Local Officials Have Taken Steps to Address Detroit's WIA 
Summer Youth Employment Program's Internal Control Challenges: 

Michigan was allotted approximately $74 million in WIA Youth Program, 
Recovery Act funds. The WIA Youth Program is designed to provide low- 
income, in-school and out-of-school youth with services that lead to 
educational achievement and successful employment, and the Department 
of Labor issued guidance encouraging states to use Recovery Act funds 
for summer employment. DELEG--the state agency responsible for 
administering the program--allocated $62.9 million to its 25 local 
Michigan Works! Agencies and reserved $11.1 million (15 percent) for 
statewide activities. DELEG officials told us that as of March 31, 
2010, the Michigan Works! Agencies had expended $55.9 million and that 
the program had met the state's enrollment goal and served over 21,000 
youth in Michigan's Summer Youth Employment Program. 

Our prior review of Detroit's program identified a number of 
significant internal control challenges that needed attention. 
[Footnote 20] The Detroit program served approximately 7,000 youth. 
These challenges included control weaknesses with the payroll 
preparation and distribution process and program eligibility 
determinations and documentation. In September 2009 we reported that 
DELEG needed to work with the Detroit Workforce Development Department 
(DWDD)--the Michigan Works! Agency responsible for Detroit's program-- 
and its WIA contractors to address internal control issues with youth 
not being paid on time and checks being prepared with incorrect 
amounts, payee names, and addresses, as well as to resolve past 
payroll preparation issues and payroll distribution challenges. We 
also reported that DELEG should work with Detroit program officials to 
identify program risks and implement appropriate internal controls to 
address issues involving eligibility determinations and the lack of 
documentation supporting eligibility decisions. 

State officials concurred with our assessment of Detroit's payroll 
weaknesses and recommended that DWDD modify its entire weekly payroll 
process and restructure the distribution process to ensure sites are 
adequately staffed to serve participants in an organized and timely 
manner. Through a series of biweekly meetings and conference calls, 
DELEG officials provided DWDD officials with technical assistance, 
including staff training and best practices from another Michigan 
Works! Agency. Based in part on this assistance, DWDD worked with its 
program contractor to address our payroll findings by (1) streamlining 
the check distribution process, (2) moving to a larger distribution 
center, and (3) developing a procedures manual. DELEG and contractor 
officials told us that during the last two payroll periods for the 
2009 program, the streamlined payroll procedures and change of venue 
resulted in shorter waiting times for youth picking up their paychecks 
and faster resolution of complaints and they expect further 
improvements in payroll procedures going forward. 

Actions Are Under Way to Improve Safeguards for Documenting 
Eligibility Determinations: 

Two DWDD-led reviews determined that some files contained improper or 
incomplete eligibility certification documentation and that 119 
ineligible youth received a total of $40,253 from WIA Recovery Act 
funds that should not have been paid. For example, DWDD found that 
medical files--which DELEG officials told us was unacceptable for 
verification purposes--were used to verify age and eligibility for 
some participants. On April 27, 2010, DWDD officials provided us with 
evidence that the Detroit WIA Summer Youth program had been reimbursed 
for $40,253 for improper payments made to youth in Detroit using 
Recovery Act funds.[Footnote 21] 

DWDD officials told us that because complete documentation and 
evidence of eligibility verifications were missing from some files, 
they had conducted an assessment of their eligibility determination 
and documentation processes. DWDD officials also said they trained 24 
contractor staff on required and acceptable alternative documentation. 

Our earlier review of participant files had also revealed inadequate 
or nonexistent support of the "youth in need of special assistance" 
basis for WIA eligibility decisions. In March 2010, the DWDD Director 
told us that DWDD officials were collaborating with an advisory body 
to develop a working definition of the "youth in need of special 
assistance" category that was used during the 2009 program.[Footnote 
22] They expect that once the definition is approved by the DWDD 
board, it will provide clear instructions on which youth meet this 
definition. 

Recovery Act Funds Continue to Provide Assistance to the State of 
Michigan and Its Local Governments as They Address Ongoing Budget 
Challenges: 

The State of Michigan continues to face economic difficulties. In 
March 2010, the state's unemployment rate was 14.9 percent,[Footnote 
23] the highest in the nation and an increase from 13.3 percent in 
March 2009. As noted in our previous reports, Michigan took a number 
of cost-cutting measures midway through fiscal year 2009 to help 
ensure that the state's budget ended the fiscal year in balance. These 
measures included mandating furlough days for state employees, closing 
three correctional facilities, and implementing a 4 percent across-the-
board cut for most state agencies. The ongoing difficulties are also 
reflected in projected revenues for the state's two largest budget 
funds--the general fund and the School Aid Fund--which are estimated 
to total $17.4 billion[Footnote 24] for the fiscal year ending 
September 30, 2011. This would be a 4.6 percent decline from fiscal 
year 2009. The Governor's proposed fiscal year 2011 budget states that 
expected revenues, along with current spending policies, would create 
a $1.497 billion shortfall in fiscal year 2011. 

Recovery Act Funds Used to Maintain Balanced Budget: 

In fiscal year 2010, Michigan officials expect to use almost $1.1 
billion in funds made available as a result of the increased FMAP 
under the Recovery Act to support the state's general fund. In 
addition, the School Aid Fund is bolstered by $450 million in Recovery 
Act SFSF education stabilization funds.[Footnote 25] State officials 
said that without these funds, the state would likely have had to make 
cuts to school spending and its Medicaid program, and even more 
drastic cuts in local government aid than it did for fiscal year 2010. 
[Footnote 26] State officials said that through March 2010, fiscal 
year 2010's actual revenues have matched projections and that--with 
the assistance of Recovery Act funds--the state has not had to 
implement employee furloughs or supplemental budget cuts as it did in 
fiscal year 2009. State officials said that the State Budget Office 
will continue to monitor the state's fiscal situation to determine if 
additional action is necessary. 

Michigan Is Preparing for the Cliff Effect: 

As mentioned above, Michigan is facing a $1.497 billion shortfall in 
fiscal year 2011. According to the Governor's proposed fiscal year 
2011 budget, over $1 billion of this shortfall is due to a funding gap 
that is expected to exist when Recovery Act funds run out. The 
Governor has proposed a series of cost reductions and a restructuring 
of the state's sales and use taxes[Footnote 27] to help fill the 
anticipated gap. The proposed budget also includes $514 million in 
increased FMAP payments to the state in the first two quarters of 
calendar year 2011 based upon the state's expectation that the 
Congress will extend the temporary increase in the FMAP that was 
provided under the Recovery Act. State officials told us that if 
Congress does not extend this increase, the state's fiscal year 2011 
budget would not balance and officials would need to find alternative 
sources to address the additional budget shortfall of $514 million. 

We also visited the cities of Flint and Lansing (see table 2) to 
review their use of Recovery Act funds. 

Table 2: Background on Selected Local Governments: 

Locality: Flint; 
Population: 112,900; 
Locality type: City; 
Unemployment rate: 27.0%; 
Fiscal year 2010 operating budget: $279.4 million. 

Locality: Lansing; 
Population: 113,968; 
Locality type: City; 
Unemployment rate: 16.3%; 
Fiscal year 2010 operating budget: $219.1 million. 

Source: GAO analysis of U.S. Census Bureau and U.S. Department of 
Labor, Bureau of Labor Statistics, Local Area Unemployment Statistics. 
Operating budget information provided by local budget officials. 

Notes: 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. 

[End of table] 

City of Flint: 

Flint was awarded $12.2 million in Recovery Act funds through April 
30, 2010, an increase of $7.7 million from the $4.5 million we 
reported in December 2009.[Footnote 28] City officials told us that 
this increase was due to two Recovery Act grants: 

* an Energy Efficiency and Conservation Block Grant (EECBG) of about 
$1 million, which they plan to use for increasing energy efficiency as 
they rehabilitate houses and construct group housing, and: 

* a Staffing for Adequate Fire and Emergency Response Grant of $6.7 
million awarded by the U.S. Department of Homeland Security, which 
they expect to use to rehire 39 firefighters that had been previously 
laid off. 

Flint officials noted that similar to what we reported in December 
2009, Recovery Act funds continue to have little effect on the city's 
fiscal stability because of continuing economic pressures. Officials 
told us that while Recovery Act funding has provided the city with 
temporary relief, the city is still losing more jobs than are created 
or retained with the use of Recovery Act funds. Flint officials told 
us that the city has recently experienced declines in its primary 
sources of revenue--income taxes and state revenue sharing. To help 
balance its budget, the city is decreasing the number of municipal 
employees and reducing government services, such as garbage 
collection. Flint officials told us that a Recovery Act funded COPS 
Hiring Recovery Program (CHRP) grant helped the police department 
prevent further reductions in staffing by hiring eight police 
officers, but that city has not determined how it will pay these 
officers' salaries when the grant runs out. 

Flint's most recent Single Audit report--dated December 18, 2009, for 
the fiscal year ended June 30, 2009--included a report on internal 
controls. One control weakness reported was the absence of 
documentation confirming that contractors being paid through the 
city's Community Development Block Grant (CDBG) program had not been 
debarred. The city has received Recovery Act funds through the CDBG 
program, but after the time period covered by the Single Audit report. 
To correct this weakness, city officials told us that before expending 
any Recovery Act funds they had begun to include confirmation 
documentation in their contract records. 

City of Lansing: 

As of April 30, 2010, Lansing was awarded approximately $26.5 million 
in Recovery Act funds through a number of different programs--
including an $867,768 CHRP award, which will be used to add or retain 
four police officers for a three year period, and approximately $5 
million through a Neighborhood Stabilization Program award which will 
be used to acquire, manage, rehabilitate, or demolish 323 foreclosed 
homes. Lansing officials also described instances in which they worked 
with other entities to maximize the effectiveness of Recovery Act 
grants. For example, they told us that the city is currently 
collaborating with the state on a solar demonstration project using 
EECBG funds received separately by the city and state. 

City officials said that Lansing's economic situation would have been 
much worse without Recovery Act funds. Officials told us that they are 
allocating most of the Recovery Act funds that Lansing receives to 
nonrecurring projects that will not need continued funding once the 
Recovery Act funds run out. For example, city officials told us that 
Lansing is using its CDBG grant to fund improvements to walkways at 
the Boys and Girls Club and install light-emitting diode traffic 
lights. 

Although city officials primarily relied upon preexisting internal 
controls and oversight practices, they told us that they modified 
their controls as a result of control weaknesses reported in the most 
recent Single Audit report. The audit--dated December 17, 2009, for 
the fiscal year ended June 30, 2009--included internal control 
findings. In response to the audit, officials said that among other 
things, Lansing is now performing closer monitoring of subrecipients 
by instructing all monitoring staff to ensure that single audit 
findings of subrecipients are followed up on. 

Recipients Varied in Compliance with OMB's Guidance on Reporting Jobs: 

The Recovery Act requires each recipient of Recovery Act funds to 
report information quarterly to the federal government on each award, 
including (1) the total amount of Recovery Act funds received, (2) the 
amount of funds expended or obligated to projects or activities, and 
(3) the estimated number of jobs created and retained by the projects 
and activities.[Footnote 29] For this report, we met with state and 
local officials to discuss processes and procedures selected 
recipients have in place to implement the Office of Management and 
Budget's (OMB) guidance on full-time equivalent (FTE) calculations. 
[Footnote 30] We also reviewed steps recipients took to assess the 
quality of the data they used in their most recent recipient reports, 
which covered the period January 1 through March 31, 2010. We reviewed 
supporting documents and held discussions with state officials from 
the Economic Recovery Office (ERO), Michigan Department of Education 
(MDE), and Michigan Department of Energy Labor and Economic Growth 
(DELEG), as well as officials from Detroit Public Schools (DPS), 
Michigan State University, Detroit Workforce Development Department 
(DWDD), and the Detroit Housing Commission. In Michigan, state 
agencies--such as MDE and DELEG--report to the ERO through a 
centralized reporting process, while entities that receive Recovery 
Act funds directly from the federal government--including the Detroit 
Housing Commission--report on an individual basis to the federal 
government and do not participate in the state's centralized process. 

Improvement May Be Needed to Meet Recovery Act Reporting Requirements: 

We found that preparers of recipient reports that we reviewed 
generally followed the OMB guidance; however, their interpretations of 
guidance and their processes varied and did not consistently ensure 
that complete and accurate information was reported to the federal 
government. OMB's guidance states that recipients are to include jobs 
created and retained from subrecipients and vendors in their quarterly 
reports to the maximum extent practicable. Consistent with OMB's 
guidance, Detroit Housing Commission officials told us that their 
recipient report FTE calculation did include hours worked by 
contractors and subcontractors.[Footnote 31] However, we found that 
DELEG and DWDD (which is one of 25 Michigan Works! Agencies that 
reports to DELEG) did not report consistent with OMB guidance. DWDD 
officials told us that the FTE information they provided to DELEG 
included the number of youth employed in the summer youth employment 
program, but did not include hours worked by their contractor or 
subcontractor personnel.[Footnote 32] DELEG officials told us that 
they did not require their Michigan Works! Agencies to include hours 
worked by their contractors or subcontractors. Similarly, DPS 
officials told us that their initial report to MDE did not include 
hours worked by their Recovery Act-funded contractors because they 
were not aware of the requirement. When we brought this to the 
attention of DPS officials in April 2010, they told us they would 
discuss the matter with MDE. MDE officials later told us DPS submitted 
an amended report to include contractor and subcontractor jobs. 

Without processes in place to obtain information from the contractors 
for hours worked, DELEG's reporting of jobs created or retained may be 
misstated. DELEG should pursue with appropriate ERO and federal 
officials what information they may be responsible for obtaining from 
contractors, and provide appropriate direction to their subrecipients--
including the 25 Michigan Works! Agencies--as appropriate. In May 
2010, ERO officials told us that they will work with DELEG to address 
this issue. 

We also found one instance where jobs created by Recovery Act funds 
were not initially reported because, according to DPS officials, the 
school system concluded that it had not been reimbursed with Recovery 
Act funds by March 31, 2010.[Footnote 33] DPS officials told us that 
they reported jobs for their ESEA and IDEA grants, but not for their 
SFSF grant because they had not received reimbursement during the 
quarter ended March 31, 2010. DPS subsequently received reimbursement 
from the state. When we brought this to the attention of DPS officials 
in April 2010, they discussed the matter with MDE and subsequently 
submitted an amended report to include 430 jobs. 

Similarly, another recipient we spoke with told us that they needed 
further guidance from state or federal officials regarding salaries 
that had been paid from operating funds but will be retroactively 
funded by SFSF education stabilization funds. Michigan State 
University officials told us that the Michigan Department of 
Management and Budget awarded them $35.7 million in SFSF education 
stabilization funds in February 2010. Officials also said that through 
March 31, 2010, they had spent approximately $2.5 million of their 
award on scholarships and had reported zero jobs in the March 31, 
2010, recipient report. Approximately $30.1 million of these funds 
will be used to fund university salaries and related benefits 
retroactive to October 1, 2009.[Footnote 34] The university plans to 
offset budget cuts by transferring employee salaries and benefits paid 
from operating funds to SFSF education stabilization funds, and is 
currently working to identify these expenses. However, officials told 
us that they will seek guidance from Michigan's Department of 
Management and Budget about how to report the jobs created or retained 
by Recovery Act funds and paid for in previous quarters. Because OMB's 
December 18, 2009, guidance states that a funded job is one in which 
the wages or salaries are either paid for or will be reimbursed with 
Recovery Act funding, these jobs should be reported as jobs created or 
retained with Recovery Act funds. Michigan officials with the ERO, the 
Michigan Department of Management and Budget and MDE should consider 
what actions might be taken to ensure that jobs that are paid for by 
Recovery Act SFSF education stabilization funds are being reported 
consistently and timely. In May 2010, ERO officials told us that they 
will work with stakeholders to address this issue. 

Data Quality Review Processes Varied among Recipients: 

We found that recipients conducted various levels of data quality 
reviews. For example, MDE officials told us that their subrecipients-- 
including DPS--provide them with FTE and vendor payment information on 
each Recovery Act grant they received using an electronic system with 
a built-in error-checking mechanism. Officials provided us with a copy 
of their written review procedures, which include steps for program 
offices to review subrecipient reports for missing information, verify 
that the number of FTEs is consistent with the award amount and is 
reported for the quarter only, and contact subrecipients in instances 
where the program offices have concerns. MDE sent its completed 
recipient report to the ERO, where it was again reviewed before it was 
submitted to the federal government. On the other hand, the Detroit 
Housing Commission, which reports directly to the federal government, 
told us that it collected and aggregated FTE information from each of 
its contractors and submitted the completed recipient report.[Footnote 
35] Although the housing commission does not require contractors to 
provide documentation supporting their FTE information, officials told 
us that they review the information that contractors do provide for 
reasonableness. 

State and Local Officials Have a Variety of Recovery Act Program 
Audits Under Way, but Believe Additional Federal Guidance Is Needed: 

Michigan's Office of the Auditor General (OAG) and the Office of 
Internal Audit Services (OIAS) serve key roles in safeguarding 
Recovery Act-funded programs in Michigan. OAG is responsible for 
conducting financial, performance, and Single Audits[Footnote 36]--
under the Single Audit Act--of Michigan's state agencies. In April 
2010, OAG officials told us that they are including Recovery Act funds 
as part of their audit work and that the Single Audit reports covering 
the 2-year period ended September 30, 2009, are planned for issuance 
by June 30, 2010. They told us that the scope of work covered in each 
state agency's single audit differs because it is based on the results 
of risk assessments, but typically includes, as applicable, compliance 
work in areas such as Davis-Bacon Act provisions, state cost matching 
or maintenance-of-effort requirements, allowable costs, recipient 
reporting, and subrecipient monitoring.[Footnote 37] 

OAG officials told us that one challenge in their Single Audit process 
for state agencies is the absence of Office of Management and Budget's 
(OMB) guidance on audit requirements for the mandated quarterly 
recipient reports of Recovery Act spending and jobs created and 
retained. OAG officials told us that they were uncertain about the 
usefulness of auditing the September 30, 2009, recipient reports, 
since OMB's December guidance changed the jobs calculation methodology 
from calculating jobs on a cumulative basis to a quarterly basis. As a 
consequence, OAG officials stated that for their single-audit work on 
recipient reporting they will obtain an understanding of the internal 
control structure established and make an assessment of the process 
based on that understanding, but likely will not audit the 
effectiveness of the controls. Because Michigan is one of the few 
states with a September 30 fiscal year-end--the same date as the first 
required recipient reports--this challenge is unusual compared to 
states with a June 30 fiscal year-end because at the close of these 
audits state officials had not yet completed any recipient reports. 
[Footnote 38] 

Another challenge OAG officials discussed with us is the lack of 
federal guidance related to the "Buy American" provision of the 
Recovery Act.[Footnote 39] OAG officials said that it would be helpful 
for OMB to clarify the criteria that the audit community should use 
for assessing compliance with the Buy American provision. Similar to 
the recipient report issue discussed above, OAG officials are 
concerned that additional guidance from federal agencies is needed to 
help ensure that the Single Audits provide sufficient information for 
the report users and that OAG investments of scarce audit resources 
are targeted on areas that are at higher risk.[Footnote 40] 

In April 2009, Michigan established the ERO to, among other things, 
provide oversight and enhance transparency over the availability and 
uses of funds, and maintain a Web Site on Michigan's Recovery and 
Reinvestment Plan (www.michigan.gov/recovery). The ERO is the central 
state office that collects, reviews, and transmits state agencies' 
quarterly recipient reports to the federal government through 
federalreporting.gov. According to ERO officials, state agencies are 
responsible for the data in their recipient reports and ERO staff 
review the reports for inconsistencies and reasonableness. 

OIAS is the central internal audit group for Michigan with 
responsibility for internal audit and related services--such as 
reviews and technical assistance--to assist executive branch 
departments and state agencies in assessing risk and implementing, 
maintaining, and monitoring internal controls. In January 2010, OIAS 
officials told us that when Congress enacted the Recovery Act in 
February 2009, they began designing an approach for monitoring 
Recovery Act funds. Officials told us that the office assigned two of 
its 45 internal audit staff to work full-time on programs funded by 
the Recovery Act, and plans to increase staffing as necessary. In 
addition, OIAS officials told us that they selected eight programs for 
detailed review based on an assessment of the control risks posed by 
the programs, and that they planned to conduct further reviews of the 
selected programs as spending occurred.[Footnote 41] OIAS officials 
told us that they would include steps as appropriate into their audit 
work plans for issues that GAO's Recovery Act work identifies, such as 
the internal control challenges we reported in September 2009 for MDE, 
DPS, DELEG and the Detroit Workforce Investment Act (WIA) program. 
[Footnote 42] 

Along with OIAS and OAG efforts to monitor Michigan's state agencies 
through audits, reviews, and technical assistance, state agencies are 
responsible for monitoring their subrecipients. For example, MDE is 
responsible for monitoring its local educational agencies. An OIAS 
official told us that they observed MDE staff monitoring the local 
educational agencies in April 2010. They also told us that they plan 
to observe how the Michigan Department of Human Services--the state 
agency that oversees the Weatherization Assistance Program--completes 
on-site reviews of the local agencies that administer the program to 
determine if any changes to the Department of Human Services' review 
procedures are necessary. 

The localities whose officials we spoke with typically conduct 
Recovery Act oversight through the Single Audit process. For example, 
the Detroit Housing Commission's audit for the year ended June 30, 
2009, included Recovery Act funds HUD awarded to the commission. 
However, the in-process audit of the Lansing Housing Commission and 
the City of Flint's completed audit for the year ended June 30, 2009, 
did not address Recovery Act funds because the audit period predated 
their Recovery Act spending. Officials in the Detroit Office of 
Auditor General told us that their office's Recovery Act initiatives 
included an internal control risk assessment and review of the control 
structure and the preparedness of three city departments that were 
allocated Recovery Act funds: Detroit's Department of Human Services, 
the Detroit Workforce Development Department,[Footnote 43] and the 
Detroit Police Department. In October 2009, the Detroit Office of 
Auditor General recommended to the Detroit City Council that the city 
strengthen its overall reporting process to comply with the 
accountability and transparency requirements of the Recovery Act. The 
auditor's report noted that conditions related to weaknesses in 
reporting, bank reconciliations and other internal controls cited in 
the City's single audits increased the financial control risks of 
Recovery Act funds. In April 2010, officials from the Office of 
Auditor General told us that as the city's spending of Recovery Act 
funding increases, they plan to follow up on their preliminary work 
and anticipate that they may issue an updated assessment to city 
departments and the City Council after completion of follow-up work. 

State and Locality Comments on This Summary: 

We provided the Governor of Michigan with a draft of this appendix and 
staff in the ERO reviewed the draft and responded on May 6, 2010. We 
also provided relevant excerpts to officials from the localities we 
visited. Officials agreed with our draft and provided technical 
suggestions that were incorporated, as appropriate. 

GAO Contact: 

Susan Ragland, (202) 512-8486 or raglands@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above, Robert Owens, Assistant 
Director; Ranya Elias, analyst-in-charge; Kevin Finnerty; Patrick 
Frey; Henry Malone; Giao N. Nguyen; Laura Pacheco; and Amy Sweet made 
major contributions to this report. 

[End of section] 

Footnotes: 

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

[2] Except in limited circumstances, WIA requires the use of 
individual training accounts (ITAs) through which WIA participants 
purchase services from training providers. 

[3] The remaining nine PHAs did not receive PHCF grants because they 
only administer the U.S. Department of Housing and Urban Development's 
Section 8 rental assistance program and do not manage any housing 
developments themselves. 

[4] In contrast to Recovery Act deadlines, PHAs must generally 
obligate 100 percent of regular PHCF grant funds within two years. 

[5] These funds are in addition to fiscal year 2010 regular PHCF 
grants. 

[6] Recovery Act PHCF grants awarded to selected PHAs are as follows: 
Detroit, $17,275,908; Lansing, $1,997,093; Mount Clemens, $582,013; 
and Port Huron, $946,655. 

[7] Recovery Act, div. A, § 1605, 123 Stat. 303. 

[8] The fourth PHA, Lansing, received an extension from HUD to submit 
its audit for the fiscal year ending June 30, 2009, and told us on 
April 23, 2010, that the auditor expects to issue a report soon. 

[9] HUD identifies "troubled" PHAs through its Public Housing 
Assessment System, which evaluates the overall condition of housing 
agencies and measures performance in major operational areas of the 
public housing program. In Michigan, these PHAs are the Algonac, 
Benton Harbor, Detroit, Ecorse, Flint, Grayling, Highland Park, Iron 
County, Jackson, Luna Pier, Pontiac, Rapid River, River Rouge, Royal 
Oak Township, and Wakefield Housing Commissions. 

[10] States must maintain state support for K-12 education and 
institutions of higher education at least at fiscal year 2006 levels 
in fiscal years 2009, 2010, and 2011. States must first use education 
stabilization funds to restore state funding to the greater of fiscal 
year 2008 or 2009 levels for state support to K-12 school districts 
and institutions of higher education in fiscal years 2009 through 2011. 

[11] For more discussion of single audits, see the full report at 
[hyperlink, http://www.gao.gov/recovery]. 

[12] DPS reported a deficit of $139 million for its fiscal year ended 
June 30, 2008; and $219 million for fiscal year ended June 30, 2009. 

[13] According to Labor officials, the total amount of Michigan's 
drawdowns is a minimal estimate because of programming issues with 
Labor's new computer system. Labor is taking steps to correct the 
problem and officials told us on April 21, 2010 that they expect the 
issue to be resolved within the next 30 days. Labor officials said 
that actual drawdown amounts will be publicly available at that time. 

[14] GAO has previously found that as states and localities have 
implemented WIA, they have been hampered by funding issues, including 
statutory funding formulas that are flawed. As a result, states' 
funding levels may not always be consistent with the actual demand for 
services. For more information, see [hyperlink, 
http://www.gao.gov/products/GAO-03-636] and GAO, Workforce Investment 
Act Potential Effects of Alternative Formulas on State Allocations, 
[hyperlink, http://www.gao.gov/products/GAO-03-1043], (Washington, 
D.C.: August 28, 2003). 

[15] One-Stop customers in Michigan may be served through a variety of 
programs, including WIA Adult and Dislocated Worker Programs, and the 
Wagner-Peyser Employment Service Program, among others. 

[16] GAO conducted a nationwide Web-based survey of state workforce 
agencies regarding their use of Recovery Act funds for dislocated 
workers. However, GAO did not review the data used to provide these 
estimates. 

[17] In Grand Rapids we visited the Area Community Services Employment 
and Training Council, the Workforce Development Board representing 
Kent and Allegan Counties. 

[18] To facilitate increased training for high-demand occupations, the 
Recovery Act expanded the methods for providing training with Recovery 
Act funds, allowing states to directly enter into contracts with 
institutions of higher education or other training providers. 

[19] The Recovery Act appropriated $5 billion over a 3-year period for 
the Weatherization Assistance Program, which the U.S. Department of 
Energy (DOE) administers through each of the states, the District of 
Columbia, and seven territories and Indian tribes. The program enables 
low-income families to reduce their utility bills by making long-term 
energy efficiency improvements to their homes. 

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

[21] Program officials told us that their work had identified $40,253 
of improper payments made with Recovery Act funds. Our work did not 
extend to testing the methodology used or the support for the amount 
management identified. The $40,253 represents unaudited information. 

[22] DWDD was consulting with the Education & Youth Advisory Council, 
an advisory body to the Detroit Workforce Development Board charged 
with developing policy to operate youth services. 

[23] GAO analysis of U.S. Department of Labor, Bureau of Labor 
Statistics (BLS) data. 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. 

[24] According to state budget officials, general fund revenues in 
fiscal year 2011 are expected to be $6.96 billion, and revenues for 
the School Aid Fund are expected to be $10.48 billion. 

[25] According to state budget officials, general fund spending in 
fiscal year 2010 is expected to be $8.1 billion; School Aid Fund 
spending in fiscal year 2010 is expected to be $12.8 billion. 

[26] According to officials, Michigan cut revenue sharing with local 
governments from $1.03 billion in fiscal year 2009 to an estimated 
$917 million in fiscal year 2010. 

[27] According to a March 2010 Michigan Senate Fiscal Agency memo on 
the Governor's proposed tax changes, this proposed restructuring would 
lower the sales and use tax rate from 6 percent to 5.5 percent while 
expanding the sales and use tax to consumer services such as repair 
and maintenance services; cable and satellite television; and live 
entertainment. The Governor's proposed budget excludes certain items 
from this tax, such as health care and social assistance, education, 
and new construction. 

[28] See [hyperlink, http://www.gao.gov/products/GAO-10-232SP] for our 
discussion of Flint's previous Recovery Act grant awards. 

[29] Recovery Act, div. A, title XV, § 1512(c). 

[30] OMB Memorandum, M-10-08, Updated Guidance on the American 
Recovery and Reinvestment Act - Data Quality, Non-Reporting 
Recipients, and Reporting of Job Estimates (Dec. 18, 2009), among 
other things, standardized the period of measurement of jobs created 
or retained as one quarter. 

[31] OMB Memorandum, M-10-08, December 18, 2009, states that, "To the 
maximum extent practicable, information should be collected from all 
sub-recipients and vendors in order to generate the most comprehensive 
and complete job impact numbers available." 

[32] Of the $11.4 million of Recovery Act funding allocated to Detroit 
Michigan Works! Agency, DWDD retained $8.3 million for youth payroll 
and internal administration and used $3.1 million to contract with a 
vendor that administered the summer youth employment program. In 
total, DELEG allocated $62.9 million to the 25 Michigan Works! 
Agencies for the WIA summer youth program. 

[33] On October 21, 2009, MDE initially made approximately $12.1 
million in SFSF funds available to DPS. On March 12, 2010, MDE made an 
additional $14.7 million in SFSF funds available to DPS. 

[34] Officials told us that they plan to use approximately $5.2 
million of the award to reinstate Michigan Promise scholarships, about 
$400,000 on economic hardship scholarships, and the balance on making 
up for budget cuts that had affected the Michigan Agricultural 
Experiment Station and the Michigan State University Extension Service. 

[35] Detroit Housing Commission officials told us that contractors 
also provide FTE information from their subcontractors. 

[36] 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. 

[37] The Davis-Bacon Act is codified at 40 U.S.C. §§ 3141-3144, 3146- 
3148. The Recovery Act's Davis-Bacon provisions are located at section 
1606 of the act. Recovery Act, div. A, § 1606, 123 Stat. 303. 

[38] The first recipient reports covered the period through September 
30, 2009, and were due on October 10, 2009. 

[39] Section 1605 of the Recovery Act imposes a Buy American 
requirement on Recovery Act funding, subject to certain exceptions. 
Recovery Act, div. A, § 1605, 123 Stat. 303. 

[40] For more discussion of Single Audits, see the full report at 
[hyperlink, http://www.gao.gov/recovery]. 

[41] The eight programs selected for review are the: (1) State Energy 
Program, (2) Byrne Memorial Justice Assistance Grant, (3) Grants to 
Local Educational Agencies, (4) Individuals with Disabilities 
Education Act - Special Education Grants, (5) School Improvement 
Grants, (6) Workforce Investment Act of 1998, (7) Clean Water/Drinking 
Water Revolving Funds, and (8) Weatherization Assistance Program. 

[42] In September 2009 we reported that the Department of Energy, 
Labor and Economic Growth should work with the Detroit WIA program to 
implement internal controls to address weaknesses with the program's 
payroll preparation and distribution process as well as program 
eligibility determinations. We also noted that the Michigan Department 
of Education, in coordination with Detroit Public Schools, will need 
to consider implementing procedures to provide reasonable assurance 
that Recovery Act funds are reported accurately and timely and used 
only for allowable purposes. [hyperlink, 
http://www.gao.gov/products/GAO-09-1017SP]. 

[43] Our Recovery Act work includes the Workforce Investment Act of 
1998 summer youth employment program. Michigan's Department of Energy, 
Labor and Economic Growth is the state agency that administers the 
program and does so in Detroit through the Detroit Workforce 
Development Department, one of 25 Michigan Works! Agencies. Please see 
our report, [hyperlink, http://www.gao.gov/products/GAO-09-1017SP] 
beginning at page MI-28 for a more detailed discussion of the control 
challenges that we identified. 

[End of Appendix X] 

Appendix XI: Mississippi: 

Overview: 

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

What We Did: 

We reviewed two programs funded under the Recovery Act--the 
Weatherization Assistance Program and the Mississippi Clean Water and 
Drinking Water State Revolving Funds (SRF). We selected these programs 
because the Recovery Act significantly increased the programs' 
funding. Our work focused on the status of program funding, the 
programs' use of funds, and other issues. As part of our review of the 
Weatherization Assistance Program, we visited community action 
agencies located in Columbia, D'Lo, McComb, and Meridian. We also 
visited the Mississippi Department of Environmental Quality (MDEQ) and 
the Mississippi Department of Health (MSDH), which administer loans 
for clean and drinking water projects that are funded through the 
Recovery Act. For description and requirements of the programs we 
covered, see appendix XVIII of GAO-10-605SP. 

Our work in Mississippi also included meeting with officials of two 
Mississippi cities to determine the amount of Recovery Act funds each 
has or will receive directly from federal agencies and to learn how 
those funds are being used. We also wanted to determine the amount of 
Recovery Act funds that flow indirectly into these communities from 
state and federal agencies and the funds' impact on the communities. 
We chose to visit the cities of Hattiesburg and Greenwood. We selected 
Hattiesburg because its unemployment rate was below the state's 
average and it is one of the largest cities in Mississippi. We 
selected Greenwood because of its small population and because its 
unemployment rate is higher than the state's average. 

What We Found: 

* Weatherization Assistance Program. The U. S. Department of Energy 
(DOE) allocated $49.4 million in Recovery Act weatherization funding 
to Mississippi. Based on information available as of March 31, 2010, 
more than 2,400 homes have been weatherized statewide and $8 million 
has been expended. To ensure that funds are expended appropriately and 
efficiently, the Department of Community Services (DCS) monitors the 
programmatic and fiscal operations of its subgrantees, which execute 
the program. DCS cancelled its subgrant with one community action 
agency because of improper weatherization of homes and mismanagement 
of the program. We reviewed the amounts paid to contractors for labor 
for home weatherization and brought them to the attention of DCS, who 
determined that the amounts exceeded DCS' established guidance. DCS 
subsequently required the community action agency to reimburse DCS 
more than $38,000 paid to contractors for excess labor charges. 

* Clean Water and Drinking Water revolving funds. Two Mississippi 
agencies--MDEQ and MSDH--received $35,665,000 and $19,500,000 
respectively, in Recovery Act funding for their Clean Water and 
Drinking Water SRF programs. Overall, bids on projects were lower than 
state estimates, freeing up Recovery Act funding for other projects. 
According to the Directors of the Clean Water and Drinking Water 
programs, the Environmental Protection Agency (EPA) has been slow to 
distribute guidance and states are left to decide how to monitor the 
implementation of Recovery Act requirements. 

* Localities' use of Recovery Act funds. Both Hattiesburg and 
Greenwood received Recovery Act funds directly from federal agencies. 
Hattiesburg received a total of $1,829,233 and Greenwood received a 
total of $462,042. In addition, other entities within the cities of 
Hattiesburg and Greenwood received Recovery Act funds that did not 
directly affect the two cities' budgets, but did benefit the cities. 
According to city officials, Recovery Act funds helped Hattiesburg and 
Greenwood, but did not prevent budget reductions or meet all of the 
cities' critical needs. 

* State fiscal condition. Mississippi continues to experience 
significant fiscal challenges. Tax revenue collections for July 2009 
through April 2010, the first 10 months of fiscal year 2010, totaled 
$300.4 million, or 7.7 percent below expectations. Based on the 
current revenue forecast, the expected shortfall for the fiscal year 
is projected to be $499.1 million. 

* Accountability. To ensure accountability and oversight over federal 
funds received by Mississippi, the Office of the State Auditor (OSA) 
conducts an annual Single Audit that reports on internal controls over 
financial reporting and compliance with pertinent laws and 
regulations.[Footnote 2] In addition, to provide increased oversight 
and accountability of Recovery Act funds, OSA has contracted with a 
national accounting firm, BKD, to assist with monitoring and 
oversight. BKD plans to monitor entities such as local governments, 
not-for-profit organizations, community health centers, and school 
districts. The Mississippi Department of Finance and Administration 
(DFA) is monitoring state agencies receiving Recovery Act funds. To do 
so, it has contracted with the accounting firm KPMG LLP to assess all 
state agencies for their compliance with Recovery Act provisions. 

Mississippi Progresses in Weatherizing Homes and Curtails Abuse: 

DOE allocated $49.4 million in Recovery Act funding to Mississippi for 
its Weatherization Assistance Program, which the Department has 
indicated is to be spent by March 31, 2012. This represents a large 
increase over prior years when DOE's allocation to Mississippi 
typically ranged from $1.5 million to $2 million. This large influx of 
Recovery Act funding has significantly increased the oversight 
responsibilities of DCS, the office within the Mississippi Department 
of Human Services (MDHS) that administers the Weatherization 
Assistance Program. DCS provides subgrants to community action 
agencies to weatherize homes and oversees these agencies' activities 
to ensure that homes are weatherized efficiently and economically and 
that contractors being used by the agencies perform quality work. 

Of the total $49.4 million in Recovery Act weatherization funds that 
DCS is to receive, $35.5 million has been allocated to 10 community 
action agencies statewide to purchase materials and contract for 
weatherization services.[Footnote 3] DCS expects to use the remaining 
$13.9 million, or 28 percent, for administrative costs, technical and 
training assistance, and audit fees for community action agencies' 
year-end audits by private accounting firms. According to information 
provided by DCS, of the $13.9 million, the department will expend 
approximately $8.6 million for training and technical assistance; $4.9 
million, shared equally by DCS and the community action agencies, for 
administrative costs; and $255,000 for the audits performed by the 
accounting firms. 

The Recovery Act has allowed states to increase the average amount of 
funds that may be used to weatherize a home. Formerly, DOE allowed an 
average of $3,055 per home, but the Recovery Act increased this to a 
maximum average of $6,500. DCS has directed community action agencies 
to allocate no more than $4,500 of that amount for material and labor. 
The Director of DCS told us that he has also directed that labor cost 
should not be more than 125 percent of material costs. This action was 
taken after our work found that one community action agency's labor 
costs were 200 to 400 percent of material costs. DOE allows the 
remainder of the $6,500 per home, or $2,000, to be spent on overhead 
costs, such as program staff salaries, travel, supplies, rent, and 
utilities.[Footnote 4] 

DCS initially determined that it could weatherize a total of 5,468 
homes with Recovery Act funds ($35.5 million allocated to community 
action agencies divided by $6,500). An agency official told us that 
the 5,468 homes is a minimum goal and is based on projected costs per 
home. Further, the official told us that should weatherization cost 
per home be less than $6,500 additional homes will be weatherized. 

DCS officials stated that they have divided the Recovery Act 
Weatherization Assistance Program into two segments. As shown in table 
1, the first segment, which stretched from April 2009 through March 
2010, called for the weatherization of 2,408 homes. The remaining 
3,060 homes are to be weatherized during the second segment which runs 
from April 2010 through September 2011. DCS officials stated that the 
schedule for the second segment will reflect any additional homes that 
can be weatherized if the average cost per home remains less than the 
estimated $6,500 ($4,500 projected for labor and materials, plus 
$2,000 for overhead). 

Table 1: Homes Weatherized, by Community Action Agency: 

Community action agency: Bolivar County; 
Homes scheduled for weatherization: 117; 
Actual number of homes weatherized: 145; 
Variance: 28; 
Average cost of homes weatherized[A]: $2,120. 

Community action agency: Central Mississippi, Inc.; 
Homes scheduled for weatherization: 136; 
Actual number of homes weatherized: 204; 
Variance: 68; 
Average cost of homes weatherized[A]: $3,722. 

Community action agency: Lift, Inc.; 
Homes scheduled for weatherization: 167; 
Actual number of homes weatherized: 196; 
Variance: 29; 
Average cost of homes weatherized[A]: $2,492. 

Community action agency: Multi-County; 
Homes scheduled for weatherization: 248; 
Actual number of homes weatherized: 248; 
Variance: 0; 
Average cost of homes weatherized[A]: $3,131. 

Community action agency: Northeast; 
Homes scheduled for weatherization: 88; 
Actual number of homes weatherized: 127; 
Variance: 39; 
Average cost of homes weatherized[A]: $3,568. 

Community action agency: Pearl River Valley Opportunity; 
Homes scheduled for weatherization: 429; 
Actual number of homes weatherized: 404; 
Variance: (25); 
Average cost of homes weatherized[A]: $3,001. 

Community action agency: Prairie Opportunity; 
Homes scheduled for weatherization: 230; 
Actual number of homes weatherized: 254; 
Variance: 24; 
Average cost of homes weatherized[A]: $3,788. 

Community action agency: South Central; 
Homes scheduled for weatherization: 337; 
Actual number of homes weatherized: 392; 
Variance: 55; 
Average cost of homes weatherized[A]: $3,393. 

Community action agency: Southwest Mississippi; 
Homes scheduled for weatherization: 236; 
Actual number of homes weatherized: 48; 
Variance: (188); 
Average cost of homes weatherized[A]: $3,016. 

Community action agency: Warren Washington Issaquena Sharkey; 
Homes scheduled for weatherization: 420; 
Actual number of homes weatherized: 442; 
Variance: 22; 
Average cost of homes weatherized[A]: $3,769. 

Community action agency: Total; 
Homes scheduled for weatherization: 2,408; 
Actual number of homes weatherized: 2,460; 
Variance: 52; 
Average cost of homes weatherized[A]: $3,278. 

Source: Mississippi Department of Human Services/Division of Community 
Services. 

Note: All data through March 31, 2010: 

[A] Average cost includes labor and materials. 

[End of table] 

As of March 31, 2010, the community action agencies had weatherized a 
total of 2,460 homes, or 45 percent of the 5,468 scheduled to be 
weatherized. Although the total number of homes weatherized is ahead 
of schedule, one community action agency--Southwest Mississippi 
Opportunity (SMO)--was 188 homes behind schedule because of poor 
performance. As discussed later in this appendix, DCS officials stated 
that they directed SMO to halt new weatherization activities and 
subsequently terminated SMO's weatherization subgrant. According to 
the DCS Director, SMO's backlog of homes will be redistributed between 
South Central and Warren Washington Issaquena Sharkey community action 
agencies. 

Oversight of Weatherization Assistance Program Exceeds DOE 
Requirements: 

DOE requires that at least 5 percent of all homes weatherized each 
year be inspected by the state, but DCS monitors 22.5 percent of all 
weatherized homes. DCS regional weatherization coordinators are 
required to monitor 20 percent of all completed homes. DCS state-level 
personnel re-inspect 10 percent of the homes inspected by regional 
personnel, and an additional 2.5 percent of homes that have not been 
inspected. During the second segment of their work, DCS officials told 
us that they have set a new goal of inspecting 40 percent of all 
weatherized homes. To carry out its monitoring activities, DCS has 
four site coordinators and six regional coordinators performing home 
inspections and it plans to hire an additional six regional 
coordinators. 

The Division of Program Integrity (DPI), within MDHS, also has 
oversight responsibilities. DPI is required to examine the fiscal and 
programmatic records of the community action agencies and DPI 
officials stated that their division is to inspect 10 percent of the 
total number of homes weatherized. Currently, DPI has a staff of two 
to inspect homes and plans to hire one additional staff member. 

Oversight by Division of Community Services Identified Program 
Weaknesses: 

According to DCS and community action agency officials, DCS personnel 
monitor the community action agencies' weatherization activities on a 
regular basis. As of March 31, 2010, the community action agencies had 
weatherized 2,460 homes using Recovery Act funds and DCS staff 
reported that DCS monitors had inspected 810, or 33 percent of homes 
weatherized, exceeding DOE's requirement of 5 percent. DCS staff noted 
that problems found during home inspections included improperly 
installed smoke and carbon monoxide detectors and incomplete work by 
contractors, such as homes that were not properly insulated. The 
Director of DCS told us that if a contractor is required to return to 
a home to complete improper work, the work must be performed at the 
contractor's expense. 

As part of the inspection process, DCS monitors also review client 
files for accuracy and completeness. Monitors stated that some of the 
problems found most often in client files are incomplete labor 
invoices and unfinished weatherization checklists. DCS staff explained 
that when problems are identified, DCS directs community action agency 
officials to correct the problem. We also reviewed client files at 
four community action agencies and identified inconsistencies in the 
reporting of labor costs. We discussed these findings with DCS and as 
a result, DCS has created a uniform labor invoice to be used by all 
community action agencies. 

Serious Deficiencies at One Community Action Agency Led to Termination 
of Weatherization Activities: 

During routine monitoring at the SMO community action agency, DCS 
found problems that resulted in the termination of the agency's 
subgrant. SMO was allocated approximately $3.6 million of Recovery Act 
funds to weatherize 507 homes in 10 counties. DCS monitors who 
reviewed client files and inspected homes weatherized by SMO 
contractors found that client files were incomplete and, according to 
DCS officials, work performed on many of the homes was of poor 
quality. DCS provided written notification to SMO on multiple 
occasions, alerting SMO officials to the problems identified as well 
as directing SMO to correct the problems. DCS officials stated that 
they also provided additional training to SMO staff in an attempt to 
correct problems it saw as pervasive. According to DCS officials, when 
SMO did not achieve the results that DCS considered necessary, DCS 
terminated SMO's Recovery Act Weatherization Assistance Program. 

SMO Given Numerous Opportunities to Correct Deficiencies: 

From September 2009 through February 2010, DCS completed numerous 
reviews of SMO's operations and home weatherization activities. During 
these reviews, DCS found that SMO was not in compliance with DCS 
policies and procedures. For example, the work that contractors were 
directed to complete did not match the work performed on homes; 
documents were missing from client files or were incomplete; an 
equipment inventory had not been maintained; and SMO had not provided 
adequate oversight and assistance to contractors to ensure that 
laborers were paid prevailing wages.[Footnote 5] Site visits to homes 
weatherized by SMO contractors also revealed poor quality work. 
Insulation in walls did not meet specifications; non-vented heaters 
were not removed from homes that had been weatherized; and SMO 
inspectors were not testing homes for carbon monoxide. 

After each visit, DCS notified SMO's Executive Director of the 
deficiencies and directed him to make corrections. To assist SMO 
officials, DCS also provided additional training and information for 
SMO contractors. In early October, after finding continuing problems 
with client records and with completed homes, DCS also notified SMO 
that it was not to weatherize additional homes and that it was to 
correct the problems found in the homes it had weatherized. 

During January and February, we reviewed client files as well as data 
provided by SMO and DCS personnel and found several problems, which we 
shared with DCS. Our review of labor and material costs showed that in 
some cases the cost of labor exceeded material cost by 200 to 400 
percent, which greatly exceeded DCS' established guidance at the time. 
As a result of these findings, DCS established a state-wide policy 
limiting labor costs to 125 percent of material costs. At our request, 
the Executive Director of SMO also provided documentation that showed 
the community action agency had incurred more than $16,000 in rework 
costs to bring 23 of the 40 homes that it had weatherized up to 
standard. 

Officials told us that SMO's weatherization coordinators did not 
respond to DCS training and that SMO's lead weatherization coordinator 
stated that the demands of supervising the weatherization program were 
overwhelming. The officials attributed SMO's problems to its failure 
to hire enough qualified personnel to effectively operate the program, 
as well as to poor program management. Officials also stated that 
because SMO was unable to correct the deficiencies in its 
weatherization program, DCS held a public hearing on March 4, 2010, 
that terminated SMO's Recovery Act Weatherization subgrant. 

DCS officials stated that SMO will be responsible for reimbursing more 
than $38,000 in Recovery Act funding to DCS for excessive labor 
expenditures. The Director of DCS also told us that SMO will be 
required to repay any additional labor and material costs incurred to 
correct poor quality workmanship in completed homes. Finally, the 
Director gave SMO 30 days to show that contractors had paid all 
laborers the prevailing wage as required by the Recovery Act, or DCS 
would report SMO to the Department of Labor. 

The Director of DCS told us that SMO's problems have increased the 
costs of his division. He told us that the cost of re-inspecting and 
reworking the homes SMO weatherized and the cost of providing 
oversight and monitoring of SMO will amount to about $50,000. This 
includes the cost of bringing in state coordinators and staff from 
other community action agencies to review client files and the cost of 
training SMO staff and contractors. Costs are expected to increase as 
homes are redistributed to other community action areas and additional 
staff are hired and trained. The director of DCS stated that Recovery 
Act funds set aside for training, technical assistance, and 
administrative efforts will pay for the additional cost. 

Division of Program Integrity Was Unaware of Program Weaknesses at 
Problem Community Action Agency: 

The Division of Program Integrity (DPI) is an independent division of 
MDHS that monitors all sub-grants from MDHS and assesses the audit 
findings for and corrective action plans of MDHS funding divisions. 
DPI officials stated that they monitor fiscal and programmatic 
records, compare costs with the monthly reporting worksheets, and 
conduct both payroll and non-payroll cash disbursement tests. Further, 
officials stated that DPI tests equipment purchases to ensure that the 
purchases are authorized, are used for the job specified, and have 
appropriate invoices. Officials also told us that DPI checks the 
fiscal and programmatic internal controls of community action agencies. 

DPI's Oversight of Weatherization Program Is Limited: 

As of March 31, 2010, DPI officials stated that they had visited 5 
community action agencies that are responsible for Recovery Act 
weatherization programs and inspected a total of 87 of the 2,460 homes 
that have been weatherized throughout the state. In comparison, as of 
March 2010, DCS officials reported that they had inspected 810 homes. 
As discussed previously, DPI only has 2 staff conducting homes 
inspections whereas DCS has a total of 10 staff. 

DPI monitors visited SMO in early December 2009 and inspected the 
files and homes of 10 clients, as well as SMO's fiscal and program 
operations. During its review, DPI did not find any of the problems 
that were identified by DCS during the same period. A draft report 
prepared by DPI stated that there were no significant adverse findings 
noted during its review of SMO. 

DPI Unaware of Problems at SMO Due to Lack of Coordination: 

DPI conducted its review of SMO during the same period that DCS 
personnel were reviewing and monitoring SMO's weatherization 
activities. DPI found nothing significant during its review of SMO 
even though 3 weeks after DPI's review DCS issued a letter to SMO's 
Executive Director that listed numerous problem areas. DPI officials 
stated that they were not aware of the ongoing DCS review of SMO. Nor 
were DPI officials aware that in October 2009, DCS told SMO that it 
was not to weatherize additional homes. DPI officials also told us 
that they were unaware that homes weatherized by SMO required 
additional work or that there was a backlog of 188 homes waiting to be 
weatherized. In addition, DPI's review determined that SMO was in 
compliance with all state regulations and policies and the requirement 
to pay laborers the prevailing wage for the area. In contrast, in a 
December 29, 2009, letter to SMO, DCS stated that its monitors found 
that SMO was not in compliance with state procurement regulations and 
was not paying laborers the prevailing wage. DPI monitors also 
determined that SMO had adequate accounting and administrative 
internal controls and that SMO had a system in place that allowed all 
required financial reports to be completed correctly and submitted 
before reporting deadlines. In contrast, the DCS December 29, 2009, 
letter stated that SMO was unable to show DCS a monitoring system that 
ensured programmatic and administrative controls were in place, and 
that SMO did not meet reporting requirement standards. 

In the future, DPI and DCS officials plan to meet once a month to 
discuss ongoing reviews and to better coordinate their work. DPI 
monitors have also attended weatherization training conducted by DCS. 
In addition, DPI plans to hire one additional weatherization monitor 
to assist in conducting reviews of community action agencies. 

Recovery Act Significantly Increases Funding for Mississippi Clean 
Water and Drinking Water Programs: 

MDEQ and MSDH administer loans for Clean Water and Drinking Water 
projects that are funded through the Recovery Act. MDEQ administers 
the Clean Water SRF program, which provides assistance in constructing 
publicly owned municipal wastewater treatment plants and implementing 
pollution management programs. MSDH is in charge of the Drinking Water 
SRF that provides assistance to public water systems in meeting 
requirements of the Safe Drinking Water Act.[Footnote 6] MDEQ received 
$35,665,000 in Recovery Act funding for the Clean Water program, which 
is nearly six times the amount that the department received in fiscal 
year 2008. Similarly, MSDH received $19,500,000, about six times as 
much as it received in fiscal year 2008, to support the Drinking Water 
program. 

According to the Directors of the Clean and Drinking Water SRF 
programs in Mississippi, the programs operate much like environmental 
infrastructure banks that are capitalized with federal and state 
contributions.[Footnote 7] The Directors explained that base SRF 
programs are normally funded by grants from EPA and by state matching 
funds equal to about 20 percent of the federal funds. These funds, 
according to the Directors, are loaned to communities and loan 
repayments are recycled back into the SRF program to fund additional 
water projects and create a continuing source of assistance for 
communities, known as subrecipients. Both Directors stated that the 
Clean Water and Drinking Water SRF programs distributed all Recovery 
Act funds to subrecipients in the form of principal forgiveness, 
meaning that communities are not required to repay the portion of 
their loan provided with these funds. Communities will repay the 
portion of their loan financed with normal state revolving funds at 
the programs' normal loan terms. 

All Mississippi SRF Projects Met the February 17, 2010 Recovery Act 
Deadline: 

The Recovery Act required a project receiving Recovery Act funding to 
be under contract by February 17, 2010, otherwise EPA would have to 
reallocate the funds. According to the Clean Water SRF and Drinking 
Water SRF Directors, all projects receiving Recovery Act funds met the 
February 17, 2010, deadline. The Clean Water SRF Director told us that 
to ensure that all projects met the February deadline, the program 
established an internal deadline of February 8, 2010. In contrast, the 
Drinking Water SRF Director told us that his program did not set an 
internal deadline, but verbally urged all recipients of Recovery Act 
funds to award contracts for their projects as soon as possible. 

The Clean Water SRF Director also explained that to ensure contracts 
for Clean Water SRF were signed by the Recovery Act deadline, the 
program required applicants to complete the design of their proposed 
project prior to submitting it for loan approval. This requirement, 
according to the Director, deterred some applicants because they had 
to plan and design the project without the guarantee that they would 
receive funding. 

MDEQ and MSDH Use a First Come, First Serve Approach to Select 
Recovery Act Projects: 

According to both SRF Directors, communities that completed all 
applicable program requirements and were ready to advertise for 
construction bids were the first to receive loans made with Recovery 
Act funds. The Clean Water SRF Director stated that Mississippi's 
Clean Water SRF program provided Recovery Act funds for the 
construction of new treatment facilities, replacement of older pumps 
with more energy efficient models, rehabilitation of sewer lagoons, 
improvement of levees, and realignment of old sewer lines with new 
material that will keep sand out of the ground water system. The 
Drinking Water SRF director told us that the program provided Recovery 
Act funds to communities to construct new water lines, install new 
elevated tanks or storage reservoirs, and construct new drinking water 
booster and pump stations, treatment plants, and water wells. 

According to its Director, the Clean Water SRF program chose to 
forgive a portion of the loan principal on all qualified Recovery Act 
projects, which means that communities will not be responsible for 
repaying the portion of their loan provided by Recovery Act funds, but 
will repay the portion provided with base Clean Water SRF funds. The 
Director told us that half of all clean water projects that received 
Recovery Act funding were first time recipients of Clean Water SRF 
funds. In addition, the Director stated that the program had three 
large energy efficiency projects that assisted the Clean Water SRF 
program in meeting the Recovery Act Green Reserve requirement. This 
requirement, according to both SRF Directors, sets aside 20 percent of 
Recovery Act funds for projects that address green infrastructure, 
water or energy efficiency improvements, or other environmentally 
innovative activities. Both Directors explained that MDEQ and MSDH 
were responsible for determining the eligibility of green reserve 
projects; however, according to EPA's Office of Inspector General, EPA 
did not develop and issue clear and comprehensive guidance for states 
on determining green project eligibility until after many states had 
selected their green projects.[Footnote 8] 

According to the Director, the Drinking Water SRF program chose to use 
Recovery Act funds to fully forgive the loan principal for some 
projects and partially forgive the principal for others. The Director 
explained that communities receiving SRF loans made entirely from 
Recovery Act funds will not be required to repay any part of that 
loan. The Director told us that the Drinking Water SRF program 
provided total principal forgiveness to 4 projects, with the remaining 
16 projects receiving a combination of Recovery Act and base SRF 
dollars. 

Some Project Bids Are Lower Than State Estimates, While Others Are 
Higher: 

The Clean Water SRF Program Director stated that in general contractor 
bids came in lower than the state's estimates for project costs. The 
Director explained that the lower bids freed up Recovery Act funds to 
increase funding for two clean water projects that had not received 
all allowable principal forgiveness. According to the Director, the 
state could provide principal forgiveness amounting to 50 percent of 
the initial loan if the community's median household income was equal 
to or greater than the state median household income. The amount of 
the loan principal that could be forgiven increased to 85 percent if 
the community's median household income was less than the state's 
median household income. However, the Director explained that the 
maximum amount of principal forgiveness for any single community was 
$5 million. 

Specifically, according to the Clean Water SRF Director, the lower 
bids received for clean water projects freed up $1.9 million of 
Recovery Act funds. This, according to the Director, allowed two 
communities to reduce by $510,000 the cumulative loan amount that they 
will be required to repay. In addition, it allowed the SRF program to 
set aside the remaining $1.4 million, or 4 percent of the total amount 
of Recovery Act funds received by Clean Water SRF, for administrative 
activities.[Footnote 9] 

According to the Drinking Water SRF Director, although a number of 
contractor bids for drinking water Recovery Act projects came in under 
state estimates, overall the bids balanced out. The Director explained 
that the bids for water distribution projects, such as construction of 
new water lines, the installation of new elevated tanks or storage 
reservoirs, and the construction of new drinking water booster and 
pump stations were lower than department estimates; however, the bids 
for overhead water tanks, treatment plants, and water wells were 
higher than state estimates. The Director attributed this difference 
to the number of contractors available and competition for work. 

SRF Directors Found EPA Guidance Vague and Open to Interpretation: 

EPA has been slow to distribute guidance, according to both SRF 
Program Directors. The Directors told us that the state was left to 
decide how to monitor the implementation of Recovery Act requirements 
and provisions and that the guidance EPA provided on other subjects 
was vague and left to state interpretation. Two Clean Water SRF 
subrecipients stated that the guidance provided by EPA on substantial 
transformation for Buy American requirements was unclear and left too 
much room for interpretation by government inspectors. Section 1605 of 
the Recovery Act generally requires assistance recipients to use 
domestic iron, steel, and manufactured goods that are produced in the 
United States when working on public buildings or public works, though 
this requirement is subject to multiple exceptions. According to EPA 
guidance, a manufactured good that consists in whole or in part of 
materials from another country meets the Section 1605 requirement if 
it is substantially transformed in the United States into a new and 
different manufactured good, distinct from the materials from which it 
was transformed. However, two loan recipients told us that government 
inspectors are left to decide whether substantial transformation has 
taken place. 

In addition, MDEQ staff also explained that they had challenges 
dealing with rapidly changing rules and guidance. Clean Water SRF 
program staff stated that additional work imposed by the Recovery Act 
and the Office of Management and Budget's issuance of new guidance on 
reporting job creation/retention so close to the recipient reporting 
deadline increased their workload significantly. However, Clean Water 
SRF officials told us that the program could not afford to hire 
additional employees. 

Existing Controls Used to Monitor Recovery Act Projects: 

The Clean Water and Drinking Water SRF programs, according to both SRF 
Directors, did not make any changes to existing oversight policies and 
procedures to monitor projects receiving Recovery Act funding. 
Officials from both programs stated that Recovery Act projects do not 
require more monitoring than other SRF projects. The Clean Water SRF 
program administrators told us that all project requirements and 
responsibilities are clearly stated in contracts signed by project 
subrecipients and contractors. Both SRF Directors told us that if any 
project requirements are not met, subrecipients and contractors do not 
get paid; additionally, MDEQ and MSDH reserve the right to revoke 
funding and reallocate the money to another project. 

According to the program Directors, all SRF projects are monitored by 
an on-site consulting engineer whether the project is receiving 
Recovery Act dollars or base SRF dollars. The Directors explained that 
the consulting engineer is not associated with the contractor 
responsible for completing the project, but is a contractor for the 
local governmental entity. The engineer is on-site any time 
significant work is performed on the project to ensure that contract 
requirements are met. The Directors also stated that contractors 
verify that laborers and mechanics are paid prevailing wages by 
conducting random interviews of all workers at the jobsite. In 
addition, the Directors told us that contractors submit a 
certification with each pay request as another way to ensure that 
workers are paid the prevailing wage, that the random interviews to 
confirm the wage rate were conducted, and that periodic reviews of a 
representative sample of the payroll data have been performed. Along 
with each pay request, contractors also submit a Buy American 
Certification, which, according to the Directors, assures that all 
goods used in the project are manufactured in the United States and 
meet the Buy American requirement of the Recovery Act. 

To meet recipient reporting requirements, subrecipients receiving 
Clean Water SRF or Drinking Water SRF are required to report the 
number of jobs funded by Recovery Act projects. In some cases, 
according to the Directors, certified payrolls are required to ensure 
that the data reported are correct and workers are paid the prevailing 
wage rate. However, the Directors stated that MDEQ and MSDH do not 
have the time or manpower to compare the data reported against 
certified payrolls. Although MDEQ and MSDH staff told us that neither 
program validates the jobs information that is reported by 
subrecipients of Recovery Act funds, both MDEQ and MSDH check for 
outliers and ensure that reported data is complete. 

Recovery Act Funds Benefit Cities, but Do Not Prevent Budget 
Reductions: 

We visited two Mississippi cities--Greenwood and Hattiesburg--to 
assess the impact the Recovery Act is having on local government. 
Greenwood lies on the eastern edge of the Mississippi Delta, about 96 
miles north of the state's capital, and is the 26th largest city in 
the state in terms of population. According to a 2008 U.S. Census 
Bureau estimate, Greenwood's population is 16,084, which is a decline 
of approximately 13 percent since 2000. According to the last complete 
census, about 65 percent of Greenwood's citizens are African American, 
33 percent are Caucasian, and 2 percent are various other races. The 
census also showed that Greenwood's median household income is 
$21,867, or a little over half of the U.S. median household income. 
The population of Hattiesburg, which lies about 87 miles southeast of 
the state capital, is 51,993, according to a 2008 Census Bureau 
estimate. Between the years of 2000 and 2008, Hattiesburg, 
Mississippi's third largest city, increased in population by about 
13.2 percent. The racial composition of the city's residents, 
according to the last complete census, is about equally split between 
African Americans (47.3 percent) and Caucasians (49.9 percent), with 
other races represented by small percentages. Census data also shows 
that Hattiesburg's median household income of $24,409 is larger than 
that of Greenwood, but still well below the U.S. median household 
income of $41,994. 

Greenwood is home to several large corporations, including Viking 
Range, Milwaukee Electric Tool, and Heartland Catfish. Conversely, 
Hattiesburg, according to Moody's Investor Services, has developed 
into a diverse trade and service center, along with becoming a 
regional health care center. Moody's reported that Hattiesburg's 
largest employers are state-owned Camp Shelby and Forrest County 
General Hospital. The University of Southern Mississippi is also 
located within the city and, with an enrollment of approximately 
15,000, is the third largest university in the state. In the opinion 
of Moody's Investor Services, the presence of the university and other 
institutional facilities provides some degree of economic stability to 
the city. 

Recession Forces Cities to Tighten Budgets: 

Greenwood and Hattiesburg officials told us that their cities first 
began to feel the effects of the recession in late 2008 and early 
2009. This is supported by unemployment figures that show the 
unemployment rates were relatively stable from 2006 through 2007 but 
rose more than 2 points in 2009 and even more in 2010. With more 
people out of work, Greenwood and Hattiesburg officials expected sales 
tax collections to drop, which the cities reflected in their general 
fund budgets.[Footnote 10] Table 2 shows each city's unemployment 
rates and sales tax collections for fiscal years 2007 through 2010. 

Table 2: Greenwood and Hattiesburg Unemployment Rates and Sales Tax 
Collections: 

Fiscal year: 2007; 
Greenwood[A]: Unemployment rate: 10.3%; 
Greenwood[A]: Percent change in rate: [Empty]; 
Greenwood[A]: Sales tax collections: $4,453,970; 
Greenwood[A]: Percent change in collections: [Empty]; 
Hattiesburg: Unemployment rates: 6.4%; 
Hattiesburg: Percent change in rates: [Empty]; 
Hattiesburg: Sales tax collections: $22,545,201; 
Hattiesburg: Percent change in collections: [Empty]. 

Fiscal year: 2008; 
Greenwood[A]: Unemployment rate: 9.7%; 
Greenwood[A]: Percent change in rate: (0.6%); 
Greenwood[A]: Sales tax collections: $4,433,128; 
Greenwood[A]: Percent change in collections: (0.47%); 
Hattiesburg: Unemployment rates: 6.3%; 
Hattiesburg: Percent change in rates: (0.1%); 
Hattiesburg: Sales tax collections: $22,362,399; 
Hattiesburg: Percent change in collections: (0.8%). 

Fiscal year: 2009; 
Greenwood[A]: Unemployment rate: 12.2%; 
Greenwood[A]: Percent change in rate: 2.5%; 
Greenwood[A]: Sales tax collections: $4,325,125; 
Greenwood[A]: Percent change in collections: (2.4%); 
Hattiesburg: Unemployment rates: 8.3%; 
Hattiesburg: Percent change in rates: 2.0%; 
Hattiesburg: Sales tax collections: $20,594,947; 
Hattiesburg: Percent change in collections: (7.9%). 

Fiscal year: 2010; 
Greenwood[A]: Unemployment rate: 15.1%; 
Greenwood[A]: Percent change in rate: 2.9%; 
Greenwood[A]: Sales tax collections: $4,162,000[B]; 
Greenwood[A]: Percent change in collections: (3.8%); 
Hattiesburg: Unemployment rates: 10.5%; 
Hattiesburg: Percent change in rates: 2.2%; 
Hattiesburg: Sales tax collections: $19,500,000[B]; 
Hattiesburg: Percent change in collections: (5.3%). 

Source: Mississippi Department of Employment Security, January 2010 
publication and sales tax collections provided by the City of 
Greenwood and the City of Hattiesburg. 

[A] The unemployment rates presented for Greenwood are the rates for 
LeFlore County, that includes Greenwood. The Mississippi Department of 
Employment Security does not maintain separate unemployment data for 
Greenwood. 

[B] Fiscal Year 2010 sales tax collections are projections based on 
collection of sales taxes through March 2010. 

[End of table] 

Both Greenwood and Hattiesburg reduced general fund expenditures of 
city departments to address declining sales tax collections. Between 
2008 and 2010, Greenwood reduced capital outlays--expenditures for 
equipment and projects needed to provide city services--to zero for 
all city departments, with the exception of the police and fire 
departments. However, the capital outlay budgets for these departments 
were limited. The city budgeted $25,000 in 2010 to purchase a fire 
department vehicle and $4,220 for police department equipment. In 
addition to reducing General Fund Capital Outlay budgets, Greenwood's 
City Clerk told us that in fiscal year 2010, the city also used some 
of its cash on hand to balance its operating budget. 

Hattiesburg chose to make its primary reductions in city budgets to 
accounts that pay for services or repairs performed by outside 
vendors, including services provided by engineers, attorneys, and 
consultants. Comparisons of the city's fiscal year 2008 and 2010 
budgets show that the cumulative reduction to all city departments' 
budgets for these "other services and charges" was about 29 percent. 
Hattiesburg's capital outlay budget actually increased between the 
2008 and 2010 budgets. However, according to the Chief Financial 
Officer, the city's increase in capital outlays is partially accounted 
for by the receipt of Recovery Act funds. 

City officials in Greenwood and Hattiesburg told us that reductions to 
their city's general fund expenditures have prevented layoffs and 
furloughs of city personnel. However, Greenwood officials told us that 
they are not replacing personnel who retire or leave the city's 
employment. Hattiesburg's Chief Financial Officer also told us that 
the Mayor was not calling for raises for city employees this year, 
although that has been one of the mayor's major initiatives in prior 
years. 

Recovery Act Dollars Are Beneficial, but Did Not Prevent Budget 
Reductions or Meet All Critical Needs Recognized by Officials: 

Funds provided by the Recovery Act, according to city officials, 
helped Greenwood and Hattiesburg initiate projects that were needed 
and that would not otherwise have been possible. However, because 
Recovery Act funds were provided for specific purposes, the funds 
could not be used to replace all budget cuts made to address declining 
sales tax collections. In addition, city officials told us that 
although some of the funds received addressed infrastructure needs, 
which the officials identified as a priority for their cities, the 
needs far exceeded the Recovery Act funds received. 

Both cities received Recovery Act grants. Greenwood received two, both 
awarded by the Department of Justice-an Edward Byrne Memorial Justice 
Assistance Grant (JAG) and a COPS Hiring Recovery Program grant 
(CHRP). Hattiesburg received four grants, which were awarded by the 
Department of Energy (DOE), the Department of Housing and Urban 
Development (HUD), the Department of Transportation (DOT), and the 
Department of Justice (DOJ). Table 3 presents the Recovery Act grants 
that Greenwood and Hattiesburg received from the various federal 
agencies, the amount of each grant, and the specific purpose for which 
each grant was used. 

Table 3: Recovery Act Funds Received Directly by the Cities of 
Greenwood and Hattiesburg: 

City receiving grant: Greenwood; 
Funding agency: Department of Justice: $347,052 COPS Hiring Recovery 
Program Grant (CHRP); 
Planned use of funds: Used to hire three full-time police officers. 

City receiving grant: Greenwood; 
Funding agency: Department of Justice: $114,990 Justice Assistance 
Grant (JAG); 
Planned use of funds: Provides overtime pay for officers to patrol 
high-crime areas during summer months when crimes are most prevalent. 

City receiving grant: Hattiesburg; 
Funding agency: Department of Justice: $134,390.40 Justice Assistance 
Grant (JAG); 
Planned use of funds: Allows the city to purchase six police vehicles. 

City receiving grant: Hattiesburg; 
Funding agency: Department of Energy: $536,400 Energy Efficiency; 
Planned use of funds: Allows the removal of an older aeration system 
from a water treatment facility lagoon and its replacement with a new 
energy efficient diffusion treatment system. 

City receiving grant: Hattiesburg; 
Funding agency: Housing and Urban Development: $166,632 Community 
Development Block Grant; 
Planned use of funds: Provides for the repair and construction of 
sidewalks in an area of Woodley Elementary School. 

City receiving grant: Hattiesburg; 
Funding agency: Department of Transportation: $991,811 Transit Capital 
Assistance Grant; 
Planned use of funds: Allows the city to purchase one trolley bus and 
a new transportation management system, as well as reconstruct bus 
stops to comply with Americans with Disabilities Act requirements. 

Source: Recovery.gov and interviews with Hattiesburg and Greenwood 
officials. 

[End of table] 

The Recovery Act grants provided extra funds for the budgets of some 
Greenwood and Hattiesburg city departments, but did not affect many 
other departments whose budgets were reduced as sales tax collections 
declined. For example, Department of Justice JAG and CHRP grants 
increased the Greenwood Police Department's Personnel Services budget 
by $462,042, allowing the department to hire additional officers and 
place more officers on the street for longer hours. However, none of 
the Recovery Act funds received by Greenwood could be used for other 
city departments, such as the Public Works and Parks and Recreation 
departments, whose capital outlays budgets were reduced to zero in 
fiscal years 2009 and 2010. Similar to Greenwood, Hattiesburg's Chief 
Financial Officer told us that the Recovery Act grants increased 
revenue for some general fund and specific use accounts, but could not 
be used in ways that would have prevented all general fund budget 
reductions.[Footnote 11] 

Both Greenwood and Hattiesburg officials identified infrastructure 
improvements as their city's most pressing need. The Director of 
Greenwood's Public Works Department told us that the city's streets 
and sewer lines require immediate attention. The Mississippi 
Department of Transportation (MDOT) is improving about 2.25 miles of 
streets in Greenwood with MDOT Recovery Act funds that are available 
to improve streets considered connectors or collectors of the National 
Highway System.[Footnote 12] However, the Director said that many 
other streets that do not qualify for federal funding are in need of 
repair.[Footnote 13] Greenwood budgets show that in 2010, the city had 
$151,350 available for this purpose. Although the city does not have a 
street improvement plan that identifies the cost of making all needed 
street repairs, the Director told us the cost would greatly exceed the 
funds available. He also told us that the city's sewer system is aging 
and badly in need of improvement, and that recently, three cave-ins 
ruptured sewer lines and forced the city to make emergency repairs. 
Although the Director did not have an estimate for the cost of sewer 
projects that are needed in the near future, he told us that he 
estimated the cost would be significantly more than $10 million. 

Hattiesburg's City Engineer, as well as other Hattiesburg city 
officials, identified sewer and water improvements as Hattiesburg's 
greatest needs. However, the engineer also noted that city roads and 
bridges need improvement as well. According to a plan developed by the 
city's Public Works Department and engineering consulting firm, within 
the next 5 years Hattiesburg needs about $21 million to make water 
line improvements; around $6 million for sewer system improvements; 
and approximately $47 million to complete 15 road projects and improve 
aging bridges. In fiscal year 2010, Hattiesburg budgeted about $9 
million to improve water and sewer lines and about $5.5 million to 
improve city roads and bridges. However, the $536,400 DOE grant for 
improving the aeration of one city lagoon is included in the $9 
million available for water and sewer improvements, which means that 
about $8.5 million is available for additional projects in 2010. 

Recovery Act Funds Could Have Been Used to Improve Sewer System: 

Both Greenwood and Hattiesburg would have been eligible for Recovery 
Act funds to improve their sewer systems through the Clean Water SRF 
and Hattiesburg could have also applied for Drinking Water SRF funding 
for new water lines, pumps, and tanks.[Footnote 14] However, according 
to the cities' officials, neither Greenwood nor Hattiesburg applied 
for the funds. According to the Director of Mississippi's Clean Water 
SRF, using the state's Recovery Act funding, the state could provide 
principal forgiveness amounting to 50% of the initial loan amount for 
a project if the community's median household income was equal to or 
greater than the state median household income. The amount of 
principal forgiveness, that is, the amount that did not have to be 
repaid, would increase to 85 percent for communities with a median 
household income that was less than that of the state. The maximum 
Recovery Act Clean Water SRF loan principal forgiven for any single 
community was $5 million. If Greenwood and Hattiesburg had submitted 
clean water projects and the state had approved the projects, each 
city could have qualified for principal forgiveness up to $5 million. 
Greenwood officials told us that the city's current administration was 
unaware that Recovery Act funding was available for sewer improvements. 

In addition to being eligible for a Clean Water SRF loan, Hattiesburg 
might also have qualified for a Drinking Water SRF loan. Similar to 
the Clean Water SRF program, the amount of principal forgiveness that 
a community could receive for a Drinking Water project was based on 
the community's median household income. Hattiesburg's Chief Engineer 
said that the city was aware that Recovery Act funds were available 
and intended to apply for them, but the city misunderstood the 
application deadline. 

Other Local Entities Also Benefit from Recovery Act Funds, but 
Experience Challenges in Using Funds for Greatest Needs: 

Other entities within the cities of Greenwood and Hattiesburg received 
Recovery Act funds that did not directly affect the two cities' 
budgets, but did benefit the cities. Table 4 identifies two Greenwood 
and four Hattiesburg entities that received Recovery Act funding. 
During interviews we conducted with each of the six entities, 
officials described how the Recovery Act funds have benefited and 
could potentially benefit the populations that their entities serve. 

Table 4: Other Greenwood and Hattiesburg Entities Receiving Recovery 
Act Funds: 

Entity: City of Greenwood: Greenwood Public School District; 
Program/project funded: City of Greenwood: ESEA Title I[A]; 
SFSF[B]; and IDEA[C]; 
Amount received: $4,486,214; 
Realized benefits: 
* Employment for 15 new staff; 
* Current employee salaries for the 2009 school year; 
* Instructional technology; 
Potential benefits: 
* Lower incidences of student drop-outs[D]; 
* Higher percentages of parental involvement and graduations[D]; 
* Better educated public[D]. 

Entity: City of Greenwood: Housing Authority of Greenwood; 
Program/project funded: City of Greenwood: Capital Fund Program; 
Amount received: $913,410; 
Realized benefits: 
* Siding, fence replacement, painting, bath tub restoration, and new 
refrigerators for 408 housing units; 
* Foundation correction for one vacant unit; 
Potential benefits: 
* Better housing for residents[E]. 

Entity: City of Hattiesburg: University of Southern Mississippi; 
Program/project funded: City of Greenwood: Edward Byrne Memorial 
Competitive Grant; SFSF; 
Amount received: $7,179,888; 
Realized benefits: 
* Seven Campus Security Officer salaries for the 2009 and 2010 school 
years; 
* 5,226 scholarships for the 2009 school year; 
Potential benefits: 
* Reduces crime[D]; 
* Improves local economy[D]. 

Entity: City of Hattiesburg: University of Southern Mississippi State- 
Wide 1808 Funded School District; 
Program/project funded: City of Greenwood: IDEA; 
Amount received: $77,503; 
Realized benefits: 
* Employment for three new staff; 
Potential benefits: 
* Reduces the number of children waiting to enroll[D]; 
* Provides additional instructional support[D]; 
* Increased parental involvement[D]. 

Entity: City of Hattiesburg: Hattiesburg Public School District; 
Program/project funded: City of Greenwood: Title I; 
SFSF; and IDEA; 
Amount received: $5,528,151 estimated; 
Realized benefits: 
* Current employee salaries for the 2009 school year; 
* Instructional technology; 
* Professional developmental opportunities for staff; 
* Continued implementation of district-wide school transitional model; 
* Travel funds for early intervention program; 
* Classes for parents of children with disabilities; 
Potential benefits: 
* Lowers incidences of student dropouts[D]; 
* Increased parental involvement[D]; 
* Higher percentage of graduations[D]; 
* Better educated public[D]. 

Entity: City of Hattiesburg: Housing Authority of Hattiesburg; 
Program/project funded: City of Greenwood: Capital Fund Program; 
Amount received: $551,249; 
Realized benefits: 
* New roofs, kitchen cabinets, and HVAC units for single family 
residences; 
Potential benefits: 
* Better housing for residents[E]. 

Source: Recovery.gov, and interviewees. 

[A] Title I, Part A of the elementary and secondary education act of 
1965, as amended. 

[B] State Fiscal Stabilization Fund. 

[C] Individuals with Disabilities Education Act, as amended. 

[D] Potential Benefits are based on local officials' opinion. 

[E] Potential Benefits are based on GAO conclusion. 

[End of table] 

Officials also explained that the Recovery Act presented certain 
challenges in using the money in ways that were most needed. In 
particular, Hattiesburg officials were concerned with Department of 
Education guidance that suggested that local educational agencies not 
invest their funding in ways that would result in unsustainable 
continuing commitments after the act's funding expires. Because of 
this guidance and the looming threat of additional state budget cuts, 
officials with the Hattiesburg Public Schools District decided that 
they could not use their funding to fill positions that would greatly 
benefit their district, including hiring social workers, nurses, and 
psychologists. Conversely, the Greenwood Public School District and 
the University of Southern Mississippi decided to hire staff even 
though they were unsure as to whether they would be able to continue 
to pay them after their Recovery Act funds expired. 

In addition, officials from the Housing Authority of Hattiesburg 
explained that although the Recovery Act had enabled them to improve 
many of their 56 single family units, they did not receive enough 
funding to fulfill the authority's largest need: the construction of 
new apartment buildings. According to housing authority officials, the 
authority's current apartment buildings, which were built in the 
1940s, are the oldest public housing units in the state. In addition, 
officials from the housing authority explained that the apartments 
lack many of the amenities available to low-income families that hold 
housing vouchers, which means that the housing authority cannot 
compete with other housing options that are offered to these families. 

Mississippi's Fiscal Challenges Continue: 

The state of Mississippi continues to experience significant fiscal 
challenges. While tax revenue collections for fiscal year 2009 were 
more than $384 million below estimates, tax revenue collections for 
fiscal year 2010 are projected to decline even more. As shown in 
figure 1, tax revenue collections for July 2009 through April 2010, 
the first 10 months of Fiscal Year 2010, were $300.4 million or 7.7 
percent below expectations. Based upon the current revenue forecast, 
the expected shortfall for fiscal year 2010 is projected to be $499.1 
million. The major causes for decreasing tax revenue are declines in 
sales and individual income taxes. 

Figure 1: Aggregate Revenue Shortfall for Fiscal Year 2010: 

[Refer to PDF for image: vertical bar graph] 

Month: July 2009; 
Aggregate Revenue Shortfall: -$26 million. 

Month: August 2009; 
Aggregate Revenue Shortfall: -$32 million. 

Month: September 2009; 
Aggregate Revenue Shortfall: -$83.4 million. 

Month: October 2009; 
Aggregate Revenue Shortfall: -$111.9 million. 

Month: November 2009; 
Aggregate Revenue Shortfall: -$136.8 million. 

Month: December 2009; 
Aggregate Revenue Shortfall: -$183 million. 

Month: January 2010; 
Aggregate Revenue Shortfall: -$223.6 million. 

Month: February 2010; 
Aggregate Revenue Shortfall: -$257.9 million. 

Month: March 2010; 
Aggregate Revenue Shortfall: -$255.3 million. 

Month: April 2010; 
Aggregate Revenue Shortfall: -$300.4 million. 

Month: May-June 2010; 
Aggregate Revenue Shortfall: -$499.1 million. 

Source: GAO analysis based on Mississippi Department of Finance and 
Administration and Joint Legislative Budget Committee documents. 

[End of figure] 

In the face of declining tax revenues, the Governor ordered a series 
of reductions to state agencies' fiscal year 2010 budget expenditures 
totaling $499.1 million, or about 9.5 percent. According to the 
Governor, he is statutorily prohibited from cutting an agency's budget 
by more than 5 percent until he has cut spending for all agencies by 5 
percent. After reaching the 5 percent threshold, the Governor may make 
additional cuts, but those reductions must be equal across all 
agencies. The budget cuts reduce fiscal year 2010 funding for 
education by approximately $319.6 million while reducing funding for 
non-education agencies by about $179.5 million. 

Recovery Act and Rainy Day Funds Used to Reduce Impact of Revenue 
Shortfall: 

Funding provided by the Recovery Act and "rainy day funds" have helped 
Mississippi reduce the impact of tax revenue shortfalls in fiscal 
years 2009 and 2010, but have not stabilized the budget, as evidenced 
by the continuing budget cuts.[Footnote 15] The Governor has also 
proposed using these funds to help reduce the impact of projected 
revenue shortfalls in fiscal year 2011. 

The use of Recovery Act funds must comply with specific program 
requirements, but also, in some cases, enables states to free up state 
funds to address their projected budget shortfalls. Mississippi was 
able to use Recovery Act funds in this manner. The Mississippi 
legislature approved the fiscal year 2010 Mississippi state budget 
using more than $523 million of Recovery Act funds to bring it into 
balance. The legislature appropriated $111.5 million and $19.6 million 
of State Fiscal Stabilization Fund monies for K-12 education and 
institutions of higher education (IHE), respectively. This amount, 
plus $78.5 million of Recovery Act education stabilization funds 
appropriated in fiscal year 2009 that were carried forward into fiscal 
year 2010 freed up $209.6 million in General Funds that had been 
planned for K-12 education, IHEs, and community colleges. In addition, 
a provision of the Recovery Act that increased the Federal Medical 
Assistance Percentage (FMAP) requirement made another $313 million 
available by lowering Mississippi's share of Medicaid costs, which 
made a like amount of state funds available for other uses. According 
to a state budget official, these state funds were redirected to other 
programs. Likewise, more than $201 million in State Fiscal 
Stabilization Fund monies and funds made available as a result of 
increased FMAP were used to reduce the impact of revenue shortfalls on 
the fiscal year 2009 budget. 

The Governor has proposed using $383 million of Recovery Act funds to 
offset revenue shortfalls in the fiscal year 2011 budget that begins 
July 1, 2010. Table 5 shows the planned use of these funds. 

Table 5: Proposed Use of Recovery Act Funding in Fiscal Year 2011 
Budget: 

State Program: Hospital and Hospital Schools; 
Amount: $22,969,561. 

State Program: Institutions of Higher Learning, Agricultural Units; 
Amount: $1,681,525. 

State Program: Public Education; 
Amount: v128,365,837. 

State Program: Higher Education; 
Amount: $74,686,001. 

State Program: Social Welfare; 
Amount: $154,171,907. 

State Program: Public Health; 
Amount: $1,316,501. 

State Program: Total; 
Amount: $383,191,332. 

Source: Mississippi Fiscal Year 2011 Proposed Budget. 

[End of table] 

Mississippi has also used its rainy day funds to reduce the impact of 
declining tax revenues. To help close out and balance the fiscal year 
2009 budget, the State Fiscal Officer transferred almost $20 million 
of rainy day funds to the general fund. Similarly, the legislature 
transferred $65.2 million of rainy day funds to the Budget Contingency 
Fund to help cover a projected shortfall in the 2010 general fund 
budget.[Footnote 16] The Governor has also proposed using $80 million 
in rainy day funds to cover projected shortfalls in the fiscal year 
2011 budget. If the legislature approves the Governor's proposal, this 
would leave a balance of some $80 million in rainy day funds for 
fiscal year 2012 and 2013, years in which the Governor predicts 
revenues may continue to decline. 

Planning for the End of Recovery Act Funds: 

The Governor's assessment is that Mississippi faces significant fiscal 
challenges beyond fiscal year 2010. He believes that revenue is 
unlikely to significantly rebound in the years to come and that 
savings in excess of $715 million will be necessary to balance the 
shortfall for fiscal year 2011. According to the Governor, fiscal year 
2012 will be even bleaker. Current projections indicate that 
Mississippi will be faced with a budget gap of more than $1.2 billion 
during fiscal year 2012. 

In anticipation of continuing revenue shortfalls and the end of 
stimulus funding, the Governor has proposed, as part of the fiscal 
year 2011 budget, a number of steps to reduce spending and restructure 
how the state government operates. These steps include: 

* Reducing the fiscal year 2011 budget for most state agencies 12 to 
17 percent below fiscal year 2010 appropriations; 

* Asking all state agencies to find innovative solutions to trim the 
budget, including reviewing and renegotiating all contracts to reduce 
their cost by 5 to 10 percent; 

* Requesting that the legislature: 

- consider major reforms and restructuring of state departments and 
agencies; 

- allow department and agency heads maximum flexibility in managing 
their agencies, including allowing lump sum budgeting and streamlining 
of departments by exempting them from State Personnel Board rules for 
two years; 

- consider adopting proposals for a strategic statewide plan, 
reforming performance based budgeting, and creating a state agency 
from existing entities to provide continuous review and improvements 
of state government operations: 

* Reducing administrative costs in the state's educational system by 
consolidating school districts to reduce short-term administrative 
costs; and: 

* Reforming the state's community and junior colleges as well as 
universities to help reduce administrative costs. 

Mississippi Initiated Several Efforts to Ensure Accountability for 
Recovery Act Funds: 

To ensure accountability and oversight over federal funds received by 
Mississippi, OSA conducts, on an annual basis, a "Single Audit" that 
reports on internal controls over financial reporting and compliance 
with pertinent laws and regulations. With regard to Recovery Act 
funding, OSA reported that the Mississippi Department of Employment 
Security did not record $23,999,054 of Recovery Act funding for 
unemployment insurance on its accounting records even though these 
funds were expended, thereby understating both revenues and 
expenditures by this amount.[Footnote 17] In addition, the agency did 
not report these funds on the Schedule of Expenditures of Federal 
Awards. As a result of these audit findings, an adjustment was made to 
properly account for the funds. MDES also agreed to strengthen 
controls and improve supervisory review of these funds and to move 
financial management responsibilities for the Unemployment Insurance 
Trust Fund to the Office of the Comptroller, Business Management 
Department. 

In addition to normal oversight of federally funded programs, 
Mississippi has undertaken several efforts to hold state recipients 
accountable for the Recovery Act funds that they receive. National 
accounting firms, under the auspices of OSA and DFA, are carrying out 
two of these efforts. Other more limited efforts are being carried out 
by other state agencies. In addition, one local government that we 
visited intends to audit Recovery Act funds received by the city. 

OSA has contracted with a certified public accounting and advisory 
firm, BKD, to conduct monitoring and oversight of Recovery Act funds. 
BKD is expected to monitor entities such as local governments, not-for-
profit organizations, community health centers, and school districts. 
According to an OSA official, the reviews will not include state 
agencies, which are being monitored by the DFA. 

Overall, OSA expects that its contract with BKD will allow the firm to 
monitor about 85 to 90 percent of all local entities receiving 
Recovery Act funds. This includes all school districts, with an 
emphasis on 43 school districts identified by the Mississippi 
Department of Education as the districts most at risk, and all 
community action agencies weatherizing homes. An OSA official 
explained that each site visit will determine if an entity receiving 
Recovery Act funds is complying with requirements, such as paying 
laborers and mechanics the prevailing wage for the area, following 
published guidelines in reporting on the uses of the funds, and, 
awarding contracts that include all required terms and conditions. 
According to officials, OSA's primary objective is to determine if 
internal control changes are needed and to provide an audited entity 
with specialized training or individualized technical assistance, if 
it is needed. However, if BKD's reviews should find fraud, OSA's 
performance division will refer the issue to its Investigative 
Division. 

Based on a review of selected BKD reports, we noted that some 
weaknesses were consistent across most of the audited entities. For 
example, BKD found that internal controls for the preparation and 
review of recipient reports were either not effective or not in place; 
supporting documentation for the jobs that grant recipients reported 
as part of their recipient reports was not available; and jobs were 
not calculated according to the latest OMB guidance. An OSA official 
stated that OSA is reviewing BKD's reports and expects to identify 
trends that can be shared with the Governor's office, DFA, and others. 

In addition to OSA's efforts, DFA is monitoring internal controls of 
state agencies receiving Recovery Act funds to ensure that they are 
spent responsibly and effectively while maintaining the appropriate 
controls and reporting mechanisms necessary for accountability and 
transparency. DFA has contracted with national accounting firm KPMG 
LLP to assist with monitoring thru June 30, 2011. KPMG and DFA 
officials stated that if they identify gaps in an agency's internal 
controls, DFA will work with the agency to correct the deficiencies, 
or if fraud is identified, DFA will notify OSA. 

DFA and KPMG jointly developed a risk assessment tool that summarizes 
financial risk, internal controls, public interest risks, and 
operational and delivery risks. Monitoring may be prioritized based on 
the total scoring of each individual grant and/or high risks in one or 
more individual areas. Before its contract ends, KPMG will conduct on- 
site visits to all state agencies receiving Recovery Act funds. After 
each on-site visit, KPMG will provide a document identifying 
observations, potential next steps for the agency, and actions that 
DFA should consider, including the addition of new monitoring 
procedures. 

Some state agencies and cities that we visited also expect to provide 
oversight of Recovery Act projects. For example, the Mississippi 
Department of Transportation's internal audit office provides limited 
oversight of Recovery Act contracts and in the near future, the City 
of Jackson plans to initiate an audit of Recovery Act funds awarded to 
the city. 

State Comments on This Summary: 

We provided the Governor of Mississippi with a statement of facts on 
the Mississippi Appendix on May 3, 2010. The General Counsel to the 
Governor, who serves as the stimulus coordinator, responded for the 
Governor on May 6, 2010. The official provided technical suggestions 
that were incorporated, as appropriate. 

GAO Contacts: 

John K. Needham, (202) 512-5274 or needhamjk1@gao.gov: 

Norman J. Rabkin, (202) 512-9723 or rabkinn@gao.gov: 

Staff Acknowledgments: 

In addition to the contacts named above, Barbara Haynes, Assistant 
Director; James Elgas, analyst-in-charge; Anna Russell; Gary Shepard; 
Erin Stockdale; and Ryan Stott made major contributions to this report. 

[End of section] 

Footnotes: 

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

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

[3] Initially 10 community action agencies weatherized homes using 
Recovery Act funding. However, as of March 4, 2010, DCS terminated 
funding to Southwest Mississippi Opportunity (SMO) and DCS officials 
stated that they plan to redistribute the remaining funds to other 
community action agencies for home weatherization. 

[4] The overhead costs charged to each home are in addition to 
administrative costs that DOE allows the community action agencies to 
recover. 

[5] The Recovery Act requires all laborers and mechanics employed by 
contractors and subcontractors on projects funded directly by or 
assisted in whole or in part by and through the federal government 
with Recovery Act funds be paid wages at rates that are not less than 
those paid on local projects of a similar character as determined by 
the Secretary of Labor. Recovery Act § 1606, 123 Stat. 303. 

[6] The Safe Drinking Water Act, as amended, requires public water 
systems to take actions to protect drinking water. Public water 
systems must comply with federal drinking water standards set by EPA 
based on their type and size. The health based standards set by EPA, 
considering feasibility, are intended to protect drinking water 
consumers against certain naturally and man-made contaminants that may 
be found in drinking water. EPA, states, and water systems each have 
roles in ensuring that these standards are met. See 42 U.S.C. § 300f 
et seq. 

[7] Environmental Infrastructure banks make loans that provide capital 
for a wide variety of environmental projects within a range of market 
interest rates. 

[8] EPA Office of Inspector General, EPA Needs Definitive Guidance for 
Recovery Act and Future Green Reserve Projects, EPA-OIG Report No. 10- 
R-0057, February 1, 2010. 

[9] The Clean Water Act caps the amount of Recovery Act funds that can 
be used to support administrative activities at 4 percent. 33 U.S.C. § 
1383(d)(7). 

[10] Sales tax revenues are accounted for in a city's general fund, 
which is the city's primary operating account. 

[11] Some revenue received by cities is separated from the general 
fund because it is only available for a specific type of expenditure. 
For example, a city may establish a Water and Sewer Operation and 
Maintenance fund that receives revenue from the fees that citizens pay 
for these services. The revenue in this account can only be used for 
expenditures that allow the city to provide this service. 

[12] 23 U.S.C. § 133(b)(1). 

[13] 23 U.S.C. § 133(c). 

[14] According to the Directors of the Clean and Drinking Water 
programs, projects that met all requirements for eligibility and 
readiness to proceed were selected to receive Recovery Act funding on 
a first come, first serve basis. 

[15] The Mississippi rainy day fund, normally called the Working Cash- 
Stabilization Reserve Fund, is intended, among other uses, to cover 
any projected deficits that may occur in the general fund at the end 
of a fiscal year as a result of revenue shortfalls. Miss. Code § 27-
103-203. 

[16] The Budget Contingency Fund was created in 2001 by the 
legislature to identify nonrecurring funding--such as funds received 
from a legal judgment--that the legislature could use in the budget 
process. The sources of funds deposited in the Budget Contingency Fund 
can differ from Special Fund transfers to the General Fund that are 
identified as nonrecurring. 

[17] State of Mississippi, Single Audit Report for the Year Ended June 
30, 2009. 

[End of Appendix XI] 

Appendix XII: New Jersey: 

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 New Jersey. The full report covering all 
of GAO's work in 16 states and the District of Columbia may be found 
at [hyperlink, http://www.gao.gov/recovery]. 

What We Did: 

We reviewed four specific programs funded through the Recovery Act: 
Clean Water and Drinking Water State Revolving Funds (SRF), Highway 
Infrastructure Investment Program, Public Housing Capital Fund, and 
COPS Hiring Recovery Program (CHRP). We selected these programs for 
various reasons. The SRF, highway, and public housing programs all had 
1-year obligation or contracting deadlines during the course of our 
review. Our work focused on the ability of these programs to meet the 
1-year deadlines and challenges agencies faced in meeting them. (For 
descriptions and requirements of the programs we covered, see appendix 
XVIII of GAO-10-605SP.) To gain a further understanding of these 
issues, we met with state agency officials and conducted site visits 
to SRF subrecipients in Long Branch and the Borough of Beach Haven and 
public housing agencies in Elizabeth and Bergen County. We selected 
the SRF subrecipients because they incorporated green components into 
their projects, which was a new requirement under the Recovery Act. We 
selected the public housing agencies because they had obligated less 
than 50 percent of their Recovery Act funds as of January 30, 2010, 
and were required to have 100 percent of these funds obligated by 
March 17, 2010.[Footnote 2] New Jersey CHRP recipients used more of 
their grant funds to hire new officers rather than to avoid layoffs or 
rehire officers compared to the national average. We met with 
officials from the East Orange and Trenton Police Departments to gain 
an understanding of their need for additional officers and the impact 
of the CHRP funds on their policing efforts. 

In addition to the four program-specific reviews, we also interviewed 
state and local budget officials about their use of Recovery Act funds 
and the impact of these funds on state and local budgets. We selected 
three counties and one city--the Counties of Bergen, Burlington, and 
Cape May, and the City of Newark--to gain a deeper understanding about 
the use and impact of Recovery Act funds. The localities were selected 
based on various factors, including population, unemployment rates, 
type of government, and geographic dispersion. Finally, to gain an 
understanding of state efforts to oversee and monitor the use of 
Recovery Act funds, we interviewed officials from the state's 
accountability community about their oversight roles and audits 
related to Recovery Act funds. 

What We Found: 

* SRF. The New Jersey Department of Environmental Protection (DEP) 
received approximately $162 million in Recovery Act funds for the 
Clean Water SRF program and approximately $43 million in Recovery Act 
funds for the Drinking Water SRF program. For example, the Long Branch 
Sewerage Authority received $7.5 million under the Clean Water SRF to 
make improvements to its wastewater treatment plan and the Borough of 
Beach Haven received $3.1 million under the Drinking Water SRF to 
install residential water meters. DEP changed its priority ranking 
systems and financing for the Recovery Act SRF program to ensure 
Recovery Act deadlines and requirements, such as the 1-year deadline 
to have all Recovery Act projects under contract by February 17, 2010, 
were met. According to local officials, these changes delayed the 
implementation of some projects under the base and Recovery Act SRF 
programs.[Footnote 3] 

* Highways. The U.S. Department of Transportation's Federal Highway 
Administration (FHWA) apportioned $652 million in Recovery Act funds 
to New Jersey and obligated New Jersey's full apportionment by the 1-
year deadline of March 2, 2010. However, the New Jersey Department of 
Transportation (NJDOT) faced challenges in meeting the deadline due, 
in part, to contracts being awarded at prices lower than state cost 
estimates. As a result of the lower contract prices, funds had to be 
deobligated by FHWA and obligated on new projects. Some of these 
deobligated funds became available for obligation close to the 1-year 
deadline and required NJDOT to identify additional projects in a short 
time period. Although NJDOT is not directly assessing the impact of 
Recovery Act funds on the state highway system, NJDOT officials stated 
the funds have allowed them to, among other things, rehabilitate or 
replace deficient bridges and pavement at both the state and local 
levels. 

* Public Housing Capital Fund. New Jersey's 80 public housing agencies 
met the 1-year obligation deadline of March 17, 2010, obligating $104 
million in Recovery Act funds. The U.S. Department of Housing and 
Urban Development (HUD) field office provided guidance and technical 
assistance to help public housing agencies meet the obligation 
deadline. Despite the condensed time period, HUD officials, as well as 
officials from the public housing agencies we visited, stated that the 
obligation of their regular public housing capital funds is on track 
compared to previous years. 

* CHRP. A total of 18 law enforcement agencies in New Jersey received 
CHRP grants totaling $26.8 million. Officials from the East Orange and 
Trenton Police Departments told us their departments were understaffed 
due to budget constraints, and therefore used their CHRP funds to hire 
additional officers. Specifically, East Orange received funds to hire 
14 additional officers over a 3-year period, and Trenton received 
funds to hire 18 additional officers. Officials from both police 
departments stated that they are confident they will be able to meet 
the requirement to retain officers for one additional year after the 3-
year CHRP grant expires because they anticipate retirements over the 
next 3 years. As of April 1, 2010, East Orange had obligated about 
$1.4 million and expended about $20,606 of its CHRP grant, and Trenton 
had obligated its entire CHRP grant and expended $352,289. 

* Budget stabilization. Although Recovery Act funds helped New Jersey 
stabilize its budget, New Jersey faced a $2.2 billion budget gap in 
its current year budget and faces a larger projected shortfall of 
$10.7 billion for fiscal year 2011. The localities we visited also 
face budget challenges and may be unable to retain some positions 
funded by the Recovery Act. However, these localities largely used 
their Recovery Act funds for nonrecurring projects and to maintain 
services. For example, the County of Burlington received Recovery Act 
funds for 14 programs and used these funds for delivering meals to the 
elderly, homelessness prevention, and workforce training, among other 
things. 

* Accountability efforts. New Jersey's Recovery Accountability Task 
Force continues to hold regularly scheduled meetings on the use of 
Recovery Act funds by state agencies. The Office of the State 
Comptroller and the Office of the State Auditor recently issued audit 
reports on the use of Workforce Investment Act of 1998 (WIA) and 
Weatherization Assistance Program funds, respectively. The 
weatherization audit identified internal control weaknesses in the 
oversight of Recovery Act funds and made recommendations to strengthen 
accountability over the use of these funds. 

New Jersey Met Recovery Act SRF Requirements and Is Using Existing 
Controls to Ensure Accountability: 

New Jersey received approximately $205 million in Recovery Act funds 
for its Clean and Drinking Water SRF programs. Specifically, the Clean 
Water SRF program, which is designed to provide assistance in 
constructing publicly owned wastewater treatment plants and 
implementing other types of water quality projects, received 
approximately $162 million. The Drinking Water SRF, which provides 
assistance to public water systems in meeting the requirements of the 
Safe Drinking Water Act, received approximately $43 million. New 
Jersey used its Recovery Act SRF funding to fund 44 Clean Water SRF 
projects and 19 Drinking Water SRF projects in 20 of the 21 counties 
in New Jersey. We visited the Long Branch Sewerage Authority, a Clean 
Water SRF subrecipient, and the Borough of Beach Haven, a Drinking 
Water SRF subrecipient, during the course of our review. Information 
about these subrecipients is summarized in table 1. 

Table 1: Summary of Recovery Act Clean Water SRF and Drinking Water 
SRF Projects Visited by GAO: 

Project category: Clean water: 
Location: Long Branch, N.J.; 
Description: Improvement of a wastewater treatment plant that includes 
installation and replacement of equipment to make the plant more 
energy efficient, which is intended to provide cost savings; 
Total cost: $13.7 million; 
Total Recovery Act funding: $7.5 million; 
Total green Recovery Act funding: $2.5 million. 

Project category: Drinking water: 
Location: Beach Haven, N.J.
Description: Installation of residential water meters for all 
residential units to provide greater incentive for residents to 
conserve water and, upon installation, the ability for the city to 
electronically monitor water readings and usage; 
Total cost: $4.1 million.
Total Recovery Act funding: $3.1 million.
Total green Recovery Act funding: $3.1 million. 

Source: DEP. 

[End of table] 

New Jersey's Recovery Act and base SRF programs are administered 
jointly by DEP and the New Jersey Environmental Infrastructure Trust 
(EIT). Through this partnership, DEP manages aspects of the SRF 
program including project approval, document reviews, project 
certification, and construction oversight. EIT works directly with 
DEP, and based on DEP's project approval, provides a portion of the 
project financing to every project funded through the SRF program in 
addition to overseeing the credit worthiness of borrowers, preparing 
loan agreements, and processing payments of these loan funds. 

New Jersey Revised Its Ranking Systems and Financing to Meet Recovery 
Act Requirements, Which Delayed the Implementation of Some SRF 
Projects: 

DEP officials told us they revised their existing priority ranking 
systems and financing to ensure Recovery Act requirements and 
deadlines would be met. Under the base SRF programs, DEP assigned 
points to projects based on various factors, such as improvement to 
the local environment, impact on public health, type of water 
facility, primary use of water, water quality, and population of the 
area to be impacted. DEP officials told us that improvements to 
wastewater treatment facilities scored high under the Clean Water SRF 
ranking system because these projects were a priority under the base 
SRF program. However, DEP slightly revised the ranking systems to 
ensure Recovery Act SRF program requirements and time frames would be 
met. For example, officials told us that they were concerned about 
meeting the requirement to reserve 20 percent of Recovery Act funds 
for green projects, which includes green infrastructure, water and 
energy efficiency, and innovative environmental projects. Therefore, 
projects that could qualify as green were ranked higher on the 
priority list for Recovery Act funding. In addition, DEP gave priority 
to projects that were considered shovel-ready in order to ensure that 
they would meet Recovery Act time frames, including that all Recovery 
Act SRF project funds be under contract within 1 year.[Footnote 4] 

New Jersey also set up favorable financing in order to distribute 
Recovery Act SRF and base SRF funding to more subrecipients. In the 
past, base SRF projects were funded through a combination of a zero 
percent interest and market-rate loans through EIT that each accounted 
for 50 percent of the project's cost. Officials told us that based on 
U.S. Environmental Protection Agency (EPA) guidance they developed 
more favorable loan terms for Recovery Act projects. Specifically, DEP 
provided each eligible project a combination of principal forgiveness 
loans using Recovery Act funds (50 percent), zero percent interest 
loans using Recovery Act funds (25 percent), and market-rate loans 
through EIT (25 percent). DEP capped the total amount of Recovery Act 
SRF funds for an individual project at $7.5 million, meaning that a 
$10 million project would receive $7.5 million in Recovery Act SRF 
funds and $2.5 million in market-rate loans administered through 
EIT.[Footnote 5] Officials told us they capped this total at $7.5 
million per project because they wanted to spread out Recovery Act SRF 
funds to a number of projects rather than to only two or three large 
projects. In addition, DEP officials told us that for their base SRF 
programs, they utilized a state stimulus program initiated by the 
Governor's office for projects that did not qualify for Recovery Act 
SRF funds under the revised ranking system or because they were unable 
to meet deadlines. These projects received a combination of zero 
percent interest and market rate loans that were more favorable than 
previous years' base SRF funding. (See figure 1 for a summary of the 
state's SRF financing mechanisms.) Officials believe that due to the 
attractive financing structure of both their Recovery Act SRF and base 
SRF programs that they were able to fund more projects. For example, 
DEP funded 164 SRF projects in 2009, up from 81 projects in 2008. 

Figure 1: New Jersey SRF Loan Terms in Previous Years and Fiscal Year 
2009: 

[Refer to PDF for image: illustrated table] 

Financing Incentives: Previous years’ base SRF projects; 
Principal forgiveness loan: Not Applicable; 
Zero percent interest loan: 50%; 
Market rate loan: 50%. 

Financing Incentives: Fiscal year 2009 base SRF projects; 
Principal forgiveness loan: Not Applicable; 
Zero percent interest loan: 75%; 
Market rate loan: 25%. 

Financing Incentives: Recovery Act projects; 
Principal forgiveness loan: 50%; 
Zero percent interest loan: 25%; 
Market rate loan: 25%. 

Source: DEP. 

[End of figure] 

Although DEP revised its priority ranking and financing mechanisms to 
ensure that Recovery Act milestones were met, these changes delayed 
the implementation of some SRF projects, according to local officials. 
For example, according to Long Branch Sewerage Authority officials, 
projects that were on the base SRF priority list or that planned to 
apply for base SRF funding before the Recovery Act SRF funds were 
announced were passed over by new projects seeking the improved 
financing structure provided by the Recovery Act SRF program. These 
officials stated that projects already in the pipeline should have 
been given preference for the Recovery Act funds because they were 
considered priority projects before Recovery Act SRF funding became 
available. Furthermore, a Beach Haven project engineer told us that he 
submitted six applications for Recovery Act funds on behalf of various 
localities, but only the Beach Haven project was selected. According 
to the project engineer, the Beach Haven project was likely selected 
because it helped address the green reserve requirement. However, 
according to the project engineer, DEP did not provide guidance on the 
criteria it planned to use to select projects to receive Recovery Act 
funds when it issued its call for applications. As a result, the 
engineer had to wait for DEP to review all of the applications before 
receiving authorization to advertise projects that were not selected 
to receive Recovery Act funds. The project engineer stated that 
although these projects were ultimately funded through the base SRF 
program, their implementation was delayed by about 6 months. 

New Jersey Met the 1-Year Contracting Deadline, Despite Facing 
Challenges: 

New Jersey successfully met the 1-year deadline to have 100 percent of 
Recovery Act SRF funds under contract by February 17, 2010, but 
experienced challenges in meeting this requirement. Specifically, DEP 
officials identified the following challenges in meeting the deadline: 

* Administering a record number of applications. DEP officials told us 
that they put out a statewide call for clean and drinking water 
projects in December 2008 in anticipation of receiving Recovery Act 
SRF funds and received 421 applications, which was twice the number of 
applications that they normally receive for their base SRF programs. 
Officials told us that while the influx of applications demonstrated a 
statewide need for the funds, it also created an administrative burden 
for DEP because of staff retirements and the inability to fill key 
positions because of the state's budget situation. To address the 
staffing shortage, DEP officials told us they reassigned DEP personnel 
from other internal departments to ensure that 100 percent of their 
Recovery Act SRF program funds were under contract by the 1-year 
deadline, and used EPA consultants to oversee their base SRF program. 
DEP officials told us the ability to use EPA consultants to work on 
their base SRF program was instrumental in helping New Jersey meet the 
1-year deadline. 

* Complying with the Recovery Act's Buy American provision. DEP 
officials told us that they set internal state deadlines prior to the 
February 17th deadline to ensure that any potential savings from 
contracts being awarded at prices lower than state cost estimates 
could be used for other eligible Recovery Act SRF projects. However, 
DEP officials told us that EPA provided guidance on the Buy American 
provision late in the application process, which caused confusion for 
both DEP and the applicants about eligibility and slowed down the 
contracting process. For example, officials from the Long Branch 
Sewerage Authority stated that different project equipment may have 
been needed to ensure compliance with the Buy American provision and 
the guidance should have been provided sooner. Instead, officials told 
us they had to go back to their vendors to ascertain compliance, which 
was both burdensome and time-consuming. In addition, officials told us 
that the Buy American provision is not always the best for 
subrecipients because the best equipment for a specific project may 
not be American-made. 

DEP is Using Existing Processes to Monitor Compliance with Recovery 
Act Requirements, but Inconsistencies Exist in Recipient Reporting: 

DEP officials told us that they are using existing monitoring 
procedures for Recovery Act SRF projects. That is, DEP will continue 
to conduct on-site monitoring of all base SRF recipients and Recovery 
Act SRF subrecipients on a quarterly basis, as well as conduct 
inspections at each quarter completion interval for individual 
projects in order to ensure subrecipients are complying with Recovery 
Act requirements, providing appropriate documentation, and completing 
work in accordance with the project contract. Additionally, DEP 
requires SRF subrecipients to hire a project engineer to oversee the 
daily aspects of the project, monitor contractors, and approve 
contractor invoices. The state, in turn, oversees the engineer and 
monitors and approves contract modifications as needed to ensure the 
project is meeting the requirements of Recovery Act SRF funding. A 
Beach Haven official concurred with this and told us that DEP makes 
unannounced site visits to verify construction is proceeding as 
planned and prevailing wages are being paid. 

DEP provided guidance to localities on recipient reporting, but we 
found inconsistencies among subrecipients on what hours need to be 
reported. DEP officials told us that they require each subrecipient to 
submit a quarterly jobs reporting form on their hours worked, 
expressed as full time equivalents (FTE), and provide a narrative 
explanation on the types of jobs created 15 days before the end of 
each quarter. For example, for the first quarter of 2010, which ended 
March 31, they required subrecipients to submit their jobs reporting 
information on March 15, for the number of FTEs worked during the 
months of December 2009, January 2010, and February 2010. DEP 
officials told us that they developed an early reporting deadline to 
ensure that subrecipients and DEP met federal quarterly recipient 
reporting requirements. However, by reporting one month early, DEP is 
collecting FTE data that is inconsistent with how OMB defines a 
quarter for recipient reporting purposes and is inconsistent with the 
way that other Recovery Act funded agencies report the data.[Footnote 
6] Thus, its data will not be comparable to that supplied by other 
recipients. 

DEP requires subrecipients to report total FTEs for both Recovery Act- 
and non-Recovery Act-funded portions of their project, and DEP then 
prorates the totals using EPA's SRF reporting databases to calculate 
jobs created by Recovery Act SRF funding. Specifically, 75 percent of 
the jobs are attributed to the Recovery Act SRF program because 75 
percent of the project's costs are funded using Recovery Act SRF 
funds.[Footnote 7] Some subrecipients we spoke with told us that 
recipient reporting requirements are fairly easy to follow and they 
have received adequate guidance from DEP. However, we also found some 
inconsistencies among subrecipients on the hours reported. For 
example, we contacted additional Clean Water SRF subrecipients about 
the hours used to calculate their FTEs.[Footnote 8] In one case, a 
subrecipient included hours worked by the project engineer in their 
FTE calculation, and in another case, a subrecipient did not include 
the project engineer's hours. According to DEP officials, they did not 
include engineering hours in the FTE calculation because they were 
advised by the EPA consultants overseeing their SRF reporting 
databases that because project engineers are not responsible for the 
actual construction of the projects, they are not considered prime 
contractors. However, based on additional guidance DEP received during 
the course of our review, it plans to include project engineers' hours 
in the FTE calculation going forward.[Footnote 9] 

NJDOT Is Meeting Recovery Act Milestones and Identified Benefits of 
the Funds: 

FHWA apportioned $652 million in Recovery Act funds to New Jersey for 
highway infrastructure and other eligible projects. The federal 
government obligated the state's full apportionment of $652 million by 
the 1-year deadline of March 2, 2010. As of May 3, 2010, $177 million 
had been reimbursed by FHWA. As of May 3, 2010, New Jersey had awarded 
79 contracts for $504 million. Of those awarded contracts, 68 awarded 
for a value of $494 million were under construction, of which 10 
awarded for a value of $17 million were substantially complete. 

In accordance with the Recovery Act, states needed to ensure that all 
apportioned highway funds, including suballocated funds, were 
obligated within 1 year (by March 2, 2010). Although NJDOT met the 
Recovery Act's obligation deadline, as the deadline approached, the 
agency and other stakeholders, including the FHWA division office, 
state Metropolitan Planning Organizations (MPO),[Footnote 10] and 
local government units, had concerns about whether the deadline would 
be met. As required under the Recovery Act, about $196 million was 
suballocated in New Jersey, primarily based on population, for 
metropolitan, regional, and local use. As we previously reported, the 
state had been slow in having FHWA obligate its suballocation for 
projects planned by local agencies.[Footnote 11] Officials' concerns 
rested in part with local transportation enhancement projects, such as 
bike and pedestrian improvements, whose planning, preparation, and 
need for more extensive local involvement and different funding 
streams took longer to complete. According to FHWA officials, funds 
for the last project were obligated about a week before the deadline. 

NJDOT officials stated that the savings from bids being received that 
were lower than the state's estimated costs also presented challenges 
in meeting the 1-year obligation deadline. According to NJDOT 
officials, bids on projects continue to come in 10 to 12 percent lower 
than state cost estimates. Lower bids on highway infrastructure and 
other eligible projects have produced savings of about $45 million 
that NJDOT immediately requested FHWA deobligate and then reprogrammed 
for other projects. Officials stated that the $45 million in funds 
associated with savings from these contract awards were reprogrammed 
for six additional projects--four state highway projects for $40 
million and two additional local projects for $5 million--before the 
March 2, 2010 obligation deadline. However, NJDOT officials said that 
a joint effort with all stakeholders, including the FHWA division 
office and state MPOs, was needed to identify local projects that were 
ready for construction and could utilize the funds. NJDOT officials 
stated that if it continues to realize substantial savings from bids 
coming in lower than cost estimates, the agency may be challenged to 
identify additional projects that are ready for construction. 

Although NJDOT and FHWA Are Not Directly Measuring the Impact of 
Recovery Act Funds, Officials Identified Benefits: 

According to NJDOT officials, the state of New Jersey currently has 48 
state highway projects and 115 county and municipal projects that are 
utilizing Recovery Act funds. However, NJDOT and FHWA are not directly 
measuring the impact that Recovery Act funds have on the state's 
highway system. NJDOT and FHWA have not directly measured impact 
because they are not required to and stated that it would be difficult 
and time-consuming for the following reasons: 

* Recovery Act funds for highway infrastructure improvements are 
frequently used in conjunction with the state's matching share, as 
well as other federal contributions, so it is difficult to identify 
the unique effect of Recovery Act funds; 

* it is too early to quantify impact as local projects have not yet 
started and most of the state's projects, 42 out of a total of 48, are 
ongoing and will not be completed until the end of the calendar year; 
and: 

* detailed guidance on the type of information to collect and the 
portion of a highway project to include would be needed. 

Although NJDOT has not measured the impact of Recovery Act funds on 
its highway system, NJDOT officials identified several benefits these 
funds have had for the state. NJDOT officials said that the biggest 
impact of Recovery Act funds was that they allowed the department the 
opportunity to address critical infrastructure needs at the state and 
local levels and to relieve the funding pressure for over $1 billion 
in projects that, prior to the Recovery Act, were deferred from year 
to year due to state financial constraints. For example, Recovery Act 
funds have allowed NJDOT to rehabilitate or replace deficient bridges 
and pavement at both the state and local levels and to make other 
repairs and improvements to its highway system (see table 2). 

Table 2: NJDOT Summary of Projects Attributed to the Recovery Act: 

Type of project: State; 
Projects attributed to the Recovery Act[A]: 
About 240 lane miles resurfaced or rehabilitated; 
45 interstate highway bridges and 2 movable bridges painted; 
40 bridge decks preserved; 
27 structurally deficient bridges rehabilitated or replaced; 
18.6 miles of guide rail installed; 
5 priority drainage locations addressed. 

Type of project: Local; 
Projects attributed to the Recovery Act[A]: 
55 pavement projects undertaken; 
9 intersections improved; 
5 bridges rehabilitated or replaced; 
2 bridges painted; 
1 dam repaired. 

Source: NJDOT. 

Note: According to NJDOT, all but a few of these construction projects 
were fully funded with Recovery Act funds. Other phases, such as 
design, may have been funded with other sources. GAO did not 
independently verify the accuracy or completeness of the information 
shown in this table. 

[A] Other projects addressed with Recovery Act funds include bike/ 
pedestrian projects; other local guide rail projects; rail 
rehabilitation; road realignment and pavement marking; projects to 
improve signalization and address Americans With Disability Act 
requirements; and projects to renovate historic train stations. 

[End of table] 

In addition to addressing critical infrastructure needs in the state, 
NJDOT identified qualitative impacts of Recovery Act funds. For 
example, Recovery Act funds have led to improved interagency 
relationships and coordination between federal, state, and local 
transportation departments and have increased local recipients' 
understanding of the federal funding process. In addition, the state 
has modified its internal practices to streamline the project review 
and approval process. For example, NJDOT is now taking responsibility 
for completing federal environmental documents that were formerly done 
by local project recipients and is also loaning them consultants with 
technical expertise in developing project plans and knowledge of the 
federal application process. Finally, NJDOT officials told us that 
they believe that Recovery Act funds are serving the intended purpose 
of improving infrastructure and creating jobs. 

New Jersey Is On Track to Meet Its Maintenance-of-Effort Requirement 
This Year but It May Be an Issue in the Future: 

Under the Recovery Act, a state must certify that it 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 is 
required to identify the amount of funds the state plans to expend 
from state sources from February 17, 2009, through September 30, 2010. 
[Footnote 12] To meet its maintenance-of-effort requirement, NJDOT 
uses expenditures from the state's transportation trust fund. NJDOT 
officials stated the trust fund has the bonding capacity to support a 
state-funded transportation program and receives its funds primarily 
from the state gas tax. 

As of February 17, 2010, the state had met 79 percent, or $1.244 
billion of its $1.571 billion, maintenance-of-effort requirement. Both 
NJDOT and FHWA officials said that the state will not have a problem 
meeting the maintenance-of-effort requirement by September 30, 2010. 
However, meeting such a requirement may be an issue in the future. 
According to NJDOT officials, the state's transportation trust fund 
will need additional revenue after June 30, 2011, because it is being 
depleted as more and more of the fund is used to service its bond debt 
related to highway infrastructure improvements. If the entire trust 
fund is used to pay debt service, FHWA officials are concerned that 
NJDOT might not be able to satisfy future maintenance-of-effort 
requirements unless the trust fund is renewed or another source of 
funding is developed. However, FHWA officials stated it is not likely 
that New Jersey will take action to raise the gas tax, the primary 
source of trust fund revenue, to improve the long-term viability of 
the fund. 

New Jersey's Public Housing Agencies Met the 1-Year Obligation 
Deadline with Little Impact to Regular Public Housing Capital Funds: 

New Jersey has 80 public housing agencies that received Recovery Act 
formula grant awards. In total, these public housing agencies received 
$104 million in Public Housing Capital Fund formula grants to improve 
the physical condition of their properties; develop, finance, and 
modernize public housing developments; and improve 
management.[Footnote 13] As required by the Recovery Act, all 80 
public housing agencies obligated 100 percent of their funds by the 
March 17, 2010, deadline. As of May 1, 2010, 78 of these public 
housing agencies had drawn down a cumulative total of about $41.5 
million from the obligated Recovery Act funds (see figure 2). The two 
housing agencies we visited had drawn down about $423,000. 

Figure 2: Percentage of Public Housing Capital Funds Allocated by HUD 
that Have Been Obligated and Drawn Down in New Jersey, as of May 1, 
2010: 

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

Funds obligated by HUD: 100% ($104,165,767); 
Funds obligated by public housing agencies: 100% ($104,165,767); 
Funds drawn down by public housing agencies: 39.8% ($41,463,206). 

Number of public housing agencies: 
Were allocated funds: 80; 
Obligated 100% of funds: 80; 
Have drawn down funds: 78. 

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

[End of figure] 

Public Housing Agencies Identified Challenges in Meeting the 
Obligation Deadline: 

All of New Jersey's public housing agencies met the 1-year obligation 
deadline, which required public housing agencies to have 100 percent 
of their Recovery Act Public Housing Capital Formula Funds obligated 
by March 17, 2010. The Housing Authority of the City of Elizabeth 
obligated 100 percent of its Recovery Act funds, or $4.3 million, by 
March 1, 2010, and the Housing Authority of Bergen County obligated 
100 percent of its Recovery Act funds, or $937,001, by March 10, 2010. 
Although both public housing agencies were able to meet the obligation 
deadline, they identified various challenges in doing so. For example, 
officials from the Housing Authority of the City of Elizabeth stated 
that bids for one of their major projects to replace heating, hot 
water, and boiler systems came in higher than anticipated and new bids 
were solicited. In addition, the procurement process, which officials 
stated can take up to 2 years from project design to construction, was 
compressed by 1 year in order to meet the obligation deadline. This 
condensed timeframe was exacerbated because the housing authority 
undertook twice the number of projects that it normally undertakes in 
a given year in half the time. An official from the Housing Authority 
of Bergen County stated that turnover at the Director of Finance 
position in the last year resulted in the loss of expertise at the 
management level and delayed the obligation of funds. The Housing 
Authority of Bergen County also hired a consulting firm to assess the 
physical condition of its public housing properties and identify 
needed capital improvements before selecting projects to receive 
Recovery Act funds. The consulting firm did not complete its work 
until October 2009, which delayed the selection of projects to be 
funded. Despite the challenges the housing agencies faced in quickly 
obligating their Recovery Act funds, officials from both housing 
agencies stated that these funds allowed them to undertake projects 
that otherwise would have been deferred or taken years to complete. 

HUD Provided Technical Assistance to Ensure Housing Agencies Met the 
Obligation Deadline: 

Officials from the HUD field office provided ongoing communication and 
technical assistance to ensure that public housing agencies in New 
Jersey met the 1-year obligation deadline. According to these 
officials, e-mail reminders were sent to those housing agencies that 
were behind on their obligations, reminding them of the upcoming 
deadline. In addition, field office officials provided each of the 
public housing agencies with a grant compliance checklist obtained 
from HUD headquarters to monitor compliance with Recovery Act 
requirements and grant obligations and expenditures. HUD field office 
officials stated they conducted on-site reviews for 28 public housing 
agencies identified by HUD headquarters. The on-site reviews included 
those public housing agencies characterized as troubled by HUD. 
[Footnote 14] 

Both public housing agencies we visited relied on technical assistance 
from the HUD field office to ensure that their Recovery Act funds were 
obligated by the 1-year deadline. Specifically, officials from both 
housing agencies told us they received assistance from the field 
office to ensure that their solicitations for bids contained all of 
the necessary information to meet Recovery Act manufacturing, wage, 
and workforce requirements. According to an official from the Housing 
Authority of Bergen County, HUD field office officials contacted them 
on a weekly basis to ensure that they met the March 17, 2010, 
obligation deadline. The official stated they will request further 
assistance from the HUD field office in the form of a technical file 
review once the housing agency begins to expend funds to ensure 
continued compliance with Recovery Act requirements. 

The Administration of Regular Public Housing Funds Is on Track 
Compared to Previous Years: 

According to officials from the HUD field office, their ability and 
the ability of public housing agencies to administer the regular 
public housing capital funds has not been impacted by Recovery Act 
requirements.[Footnote 15] According to HUD field office officials, 
the process used to administer the Recovery Act funds is the same as 
the process used to administer the regular public housing capital 
funds in terms of meeting federal requirements. Although the number of 
remote and on-site reviews increased significantly compared to prior 
years to ensure Recovery Act requirements were met, officials from the 
HUD field office stated that they had adequate resources and 
experienced staff to complete the additional monitoring and continue 
to administer the regular public housing capital funds. 

Officials from both public housing agencies we visited stated that 
they have been able to administer their regular public housing capital 
funds despite additional reporting requirements and the condensed time 
frame for obligating Recovery Act funds.[Footnote 16] Officials from 
the Housing Authority of the City of Elizabeth stated that the overall 
process for administering the Recovery Act funds was the same and that 
they pulled forward projects they already had in their 5-year Capital 
Plan, so they were able to implement them without compromising their 
ability to continue projects under the regular capital fund program. 
In addition, the housing agency has received fewer capital funds in 
recent years as compared to the past, so it has been able to obligate 
the funds fairly quickly. An official from the Housing Authority of 
Bergen County stated that the Recovery Act funds may have delayed the 
regular capital fund projects by 2 months, but at the time of our 
visit, the housing agency was in the process of soliciting bids for 
the four projects it plans to undertake with these funds. Officials 
from the housing agencies provided their rates of obligation for 
capital funds for fiscal years 2006 through 2009 based on the 
percentage of funds that were obligated within 1 year of receiving the 
funds. The rate of obligation for both housing authorities are on 
track for 2009 compared to previous years (see table 3). 

Table 3: Regular Public Housing Capital Fund 1-Year Obligation Rates, 
for Fiscal Years 2006 to 2009: 

2006: 
Housing Authority of the City of Elizabeth: 30%; 
Housing Authority of Bergen County: 54%. 

2007: 
Housing Authority of the City of Elizabeth: 63%; 
Housing Authority of Bergen County: 30v. 

2008: 
Housing Authority of the City of Elizabeth: 31%; 
Housing Authority of Bergen County: 33%. 

2009[A]: 
Housing Authority of the City of Elizabeth: 42%; 
Housing Authority of Bergen County: 30%. 

Sources: Housing Authority of the City of Elizabeth and Housing 
Authority of Bergen County. 

Note: The date at which public housing capital funds are received by 
the housing agencies varies from year to year. The obligation rates 
are based on the percentage of funds obligated within 1 year of 
receiving the funds. 

[A] Obligation rates for fiscal year 2009 are as of February 28, 2010, 
for funds received on September 15, 2009. 

[End of table] 

Although officials from the HUD field office and both housing agencies 
stated that the implementation of their regular capital fund projects 
are on track, ensuring compliance with Recovery Act requirements will 
require greater oversight once construction begins and reimbursements 
for expenditures of Recovery Act funds are incurred. As of May 1, 
2010, almost 40 percent of Recovery Act funds had been drawn down by 
public housing agencies in the state. Continued monitoring and 
oversight will be important to ensure Recovery Act fund requirements 
are met as funds are expended and delays to regular capital fund 
projects do not occur. 

CHRP Is Helping Cities Address Staffing Shortages in Their Police 
Departments, and Officials Face Few Challenges in Meeting Reporting 
Requirements: 

Eighteen law enforcement agencies in New Jersey received CHRP grants 
that totaled $26.8 million. According to officials from the East 
Orange and Trenton Police Departments, fiscal conditions in their 
cities, along with lower-than-desired police officer levels, led them 
to apply for the CHRP grant to hire new officers. For example, 
officials in East Orange told us that their city lost police officers 
in the past few years due to attrition and the city was unable to 
replace these positions due to a $13 million budget shortfall. Trenton 
Police Department officials also cited understaffing due to 
retirements and a budgetary shortfall as their reason for applying for 
the CHRP grant. 

Despite the current fiscal conditions, officials from the East Orange 
and Trenton Police Departments are confident they can meet the CHRP 
grant's fourth-year retention requirement.[Footnote 17] Officials from 
both departments anticipate multiple retirements over the next 3 years 
and believe that the officers hired through the CHRP grant can be used 
to meet their staffing needs and fill shortages left by these 
retirements. However, based on its review of the Governor's Proposed 
Fiscal Year 2011 Budget, officials in the Trenton Police Department 
expressed concern that the state's fiscal condition could result in 
layoffs in their police department for those officers supported by 
state and local funds. Specifically, Trenton Police Department 
officials told us that potential cuts in state aid for the City of 
Trenton could result in a $6 to $7 million cut in funding for the 
police department. Although the police department is concerned about 
potential cuts to its current staffing levels, Trenton Police 
Department officials reiterated that they are not concerned about 
meeting the CHRP staffing retention requirement four years from now 
because fiscal conditions in the state may eventually improve. 

CHRP Grant Helped Recipients Fill Needed Positions and Is Expected to 
Enhance Community Policing Efforts: 

Officials from the East Orange and Trenton Police Departments told us 
that their departments are understaffed and that the CHRP grant 
allowed them to fill some of the vacant positions. Specifically, the 
East Orange Police Department received $3.2 million to hire an 
additional 14 officers, while the Trenton Police Department received 
$3.0 million to hire an additional 18 officers for the 3-year period. 
Officials from the East Orange Police Department stated they did not 
receive their initial request for 18 officers due to high demand for 
funding for the grant nationwide. Officials from the Trenton Police 
Department told us that they understood they did not receive their 
initial request for 21 officers because it exceeded the number of 
officers allowed under CHRP grant limits.[Footnote 18] The table below 
summarizes the staffing needs at the East Orange and Trenton Police 
Departments prior to and after receiving the CHRP grant. 

Table 4: Projected Impact of CHRP Grant Funding on East Orange and 
Trenton Police Department Staffing Levels: 

Police department: East Orange; 
Desired number of officers: 300; 
Number of officers before CHRP grant: 278; 
CHRP grant award (number of officers and grant amount): 14 ($3.2 
million); 
Officer total with CHRP grant addition: 292. 

Police department: Trenton; 
Desired number of officers: 371; 
Number of officers before CHRP grant: 345; 
CHRP grant award (number of officers and grant amount): 18 ($3.0 
million); 
Officer total with CHRP grant addition: 363. 

Source: East Orange and Trenton Police Department data as of February 
1, 2010. 

[End of table] 

The East Orange and Trenton Police Departments have completed some 
hiring under the CHRP grant but still have positions that need to be 
filled. East Orange officials told us that they have hired 6 of their 
14 officers, who started on March 1, 2010, and the officers are 
currently going through initial officer training. Officials expect to 
have the remaining 8 officers hired by the end of the city's fiscal 
year of June 30, 2010, and are actively recruiting to fill these 
positions. As of April 1, 2010, East Orange obligated about $1.4 
million and expended about $20,606 of their CHRP award. Trenton Police 
Department officials told us that as of March 1, 2010, they hired 16 
of the 18 officers for which they received funding under the CHRP 
grant. These officers began on-the-job training on February 25, 2010, 
and reported for official duty on April 1, 2010. They expect to fill 
the remaining two positions in the near future. These two positions 
were initially filled, but due to an injury and a dismissal, the 
police department needs to recruit for these positions again. 
Officials told us as of April 1, 2010, the Trenton Police Department 
obligated all $3.0 million of its CHRP funds, and $352,289 was 
expended. 

In addition to increasing staffing levels, officials expect that the 
CHRP grant will have a positive impact on their community policing 
efforts. East Orange Police Department officials told us that the city 
experienced a 76 percent decrease in crime over the last 3 years and 
believes the CHRP grant will allow them to have sufficient police 
presence to maintain this trend. Trenton Police Department officials 
told us the CHRP grant will allow the department to enhance their 
community policing efforts beyond core functions such as basic car 
patrols and responding to emergencies. These enhanced policing efforts 
include implementing foot and bike patrols to target high-crime areas, 
having officers attend community events to strengthen neighborhood 
relationships, and generally increasing police presence, which they 
believe will deter criminals and reduce overall crime. 

Recovery Act Recipient Reporting Requirements Posed Few Challenges: 

East Orange and Trenton Police Department officials told us despite a 
few early technical issues, Recovery Act recipient reporting has been 
fairly straightforward, and they do not anticipate any major issues in 
the future. East Orange Police Department officials told us that they 
had some initial difficulties registering as a new recipient in 
www.federalreporting.gov. East Orange Police Department officials 
stated that reporting will take on a larger role once their full 
allotment of officers is hired because they will have to account for 
all of their officers under the CHRP grant, but they do not envision 
major difficulties in meeting the reporting requirements. Similarly, 
Trenton Police Department officials told us that reporting on 
federalreporting.gov has not posed major challenges. However, 
obtaining the required data to report this information can be 
challenging because the police department needs to coordinate with 
city hall to obtain information to satisfy various reporting 
deadlines. Specifically, the police department relies on city hall to 
obtain the payroll information it needs to calculate CHRP grant FTEs 
in order to submit this information to federalreporting.gov within 10 
days of the end of the quarter. In addition, the police department 
relies on city hall to submit federal financial reports on its CHRP 
grants to the U.S. Department of Justice within 30 days of the end of 
each quarter. According to Trenton Police Department officials, the 
different reporting deadlines and the reliance on city hall to obtain 
necessary data, makes it difficult to accurately report on Recovery 
Act requirements within 10 days. Thus, officials recommended extending 
the reporting deadline from 10 days to 15 days to allow more time to 
obtain the required information. 

Although Recovery Act Funds Helped Stabilize New Jersey's Budget, the 
State Faces a Severe Budget Shortfall That May Affect Localities: 

New Jersey received approximately $5 billion in Recovery Act funds, 
which the state used, in part, to help stabilize its fiscal year 2010 
budget.[Footnote 19] However, despite the Recovery Act funds, New 
Jersey is facing a $2.2 billion shortfall in its current-year budget 
due to lower-than-projected tax revenues.[Footnote 20] As a result, in 
February 2010, the Governor of New Jersey signed an executive order 
declaring a fiscal state of emergency to address the estimated $2.2 
billion budget gap that remains for fiscal year 2010.[Footnote 21] 
Under this emergency initiative, the state took several actions to 
close the budget gap, including freezing state spending, reducing aid 
to state schools and school districts, re-examining employee salary 
structures, and monitoring the collection of revenues and 
expenditures. However, New Jersey is currently working to address a 
projected $10.7 billion budget shortfall for fiscal year 2011. 

While Recovery Act funds had a significant impact on the fiscal year 
2010 budget, NJOMB officials do not believe that the impact will be 
the same for fiscal year 2011. For example, since the state disbursed 
all of the $1.2 billion in SFSF funds it received in fiscal year 2010, 
total aid to New Jersey's school districts (approximately 590 school 
districts in 21 counties) is expected to decrease by approximately 
$820 million even though the fiscal year 2011 spending plan dedicates 
almost $70 million in additional state funding to education than in 
the previous year. To address the projected budget shortfall for 
fiscal year 2011, the Governor's budget proposes to cut spending 
across hundreds of state programs and operations, reducing fiscal year 
2011 state-supported spending by 5.3 percent. The Governor's proposed 
budget also makes reductions to projected growth and assumes the 
continuation of increased federal Medicaid funding under the Recovery 
Act. Figure 3 summarizes the Governor's proposal to close the 
projected $10.7 billion shortfall in 2011. 

Figure 3: Proposed Actions to Close the Fiscal Year 2011 Budget Gap: 

[Refer to PDF for image: pie-chart] 

Elimination of programs: $0.20 billion (2%); 
Supported by nonstate resources: $0.42 billion (4%); 
Increased federal medicaid funding: $0.49 billion (5%); 
Resource solutions: $0.60 billion (6%); 
Reductions to base budget: $1.95 billion (18%); 
Eliminations or reduction of projected growth: $7.08 billion (65%). 

Source: Fiscal year 2011 state of New Jersey, Budget in Brief, March 
16, 2010. 

[End of figure] 

New Jersey's Fiscal Condition Impacts Localities: 

The fiscal condition of the state directly impacts the fiscal 
condition of localities throughout New Jersey. For example, the 
Governor's fiscal year 2011 budget proposes cutting the funds it 
provides to localities through its special municipal aid. Furthermore, 
officials in some of the localities we visited stated that they expect 
reductions in state aid as a result of the state's fiscal condition. 
For example, officials in Newark told us that in fiscal year 2009, 
they received $45 million in special municipal aid that they will not 
receive in fiscal year 2010. Concerned about the impact of the state's 
budget on the city's budget, officials noted that the city 
administration is developing next-step scenarios, strategies, and 
solutions to the city's budget challenges. To date, officials said 
that there have not been any cuts in Newark services. Burlington 
County officials also stated that the number and amount of grants that 
the county typically receives from the state has decreased 
considerably. Furthermore, officials stated that their budget has 
declined due to decreases in revenue collected, including lower 
amounts of fees collected for county services. 

New Jersey Localities Primarily Used Recovery Act Funds for 
Nonrecurring Projects and Maintaining Services: 

Despite the budgetary challenges faced by the localities we visited, 
officials in these localities told us that Recovery Act funds did not 
help them stabilize their budgets because they generally used Recovery 
Act funds for nonrecurring projects and to maintain services. The 
following table summarizes characteristics of the state of New Jersey 
and the localities we visited. 

Table 5: Statistical Data of the State of New Jersey and Select 
Localities: 

Locality: State of New Jersey; 
Population: 8,707,739; 
Government type: State; 
Unemployment rate: 10.2%; 
FY 2009 budget (in millions): $30,000[B]; 
Total Recovery Act funds (in millions)[A]: $5,000. 

Locality: City of Newark; 
Population: 278,980; 
Government type: City; 
Unemployment rate: 15.5%; 
FY 2009 budget (in millions): $677; 
Total Recovery Act funds (in millions)[A]: $62. 

Locality: County of Bergen; 
Population: 895,250; 
Government type: County; 
Unemployment rate: 8.5%; 
FY 2009 budget (in millions): $480; 
Total Recovery Act funds (in millions)[A]: $16. 

Locality: County of Burlington; 
Population: 446,108; 
Government type: County; 
Unemployment rate: 9.6%; 
FY 2009 budget (in millions): $224; 
Total Recovery Act funds (in millions)[A]: $6. 

Locality: County of Cape May; 
Population: 96,091; 
Government type: County; 
Unemployment rate: 16.3%; 
FY 2009 budget (in millions): $145; 
Total Recovery Act funds (in millions)[A]: $1. 

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

Notes: City population data are from the latest available estimate, 
July 1, 2008. State and 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 
revisions. 

[A] Recovery Act fund totals do not include suballocated 
transportation funds administered by the counties. 

[B] The New Jersey state budget is for fiscal year 2010. 

[End of table] 

City of Newark Continues to Compete for and Receive Recovery Act Funds: 

Officials in the Mayor's office stated that the City of Newark and its 
community partners have received almost $360 million in Recovery Act 
funds, which exceeded their original goal of $150 million. 
Specifically, Newark received $62 million and its community partners 
received $297 million.[Footnote 22] Of the $62 million, $46.2 million 
was received through Recovery Act competitive grants. According to 
officials, Newark has received nearly 26 percent of the competitive 
Recovery Act grant funds for which it has applied. For example, a 
consortium, of which the city was the lead applicant, received about 
$20.8 million for a Neighborhood Stabilization Program 2 grant that 
provided funding for the acquisition and redevelopment of foreclosed 
and abandoned properties. Officials said that Newark works closely 
with its community partners to maximize the use of Recovery Act funds. 
For example, the consortium for the stabilization grant involved 16 
consortium members, including Newark. If the city becomes aware of a 
Recovery Act grant for which a community partner could apply, it 
notifies them about the grant and offers assistance in putting the 
application together. Officials scan the Internet daily for grant 
opportunities, and the city is building a repository of grant 
applications that it posts quarterly on the city's Web site. 

Officials said that Newark included five nonrecurring Recovery Act 
projects in its fiscal year 2009 budget, totaling $11.6 million. For 
example, Newark included Recovery Act funding in its 2009 budget for 
WIA services for adults, dislocated workers, and youth. These 
workforce services provide adult employment and job-training 
activities to individuals over the age of 18 and workers who have been 
laid off or notified that they will be laid off. Newark is also using 
Recovery Act funds to complete projects that it may not have been able 
to complete absent the funds. For example, Newark is using its Energy 
Efficiency and Conservation Block Grant to create a Climate Prosperity 
Plan to strategically guide the city's carbon reduction efforts, 
retrofit municipal buildings, install energy-efficient building 
management technologies, support green neighborhood approaches, and 
provide technical assistance to connect residents and businesses to 
available energy efficiency programs. 

Recovery Act Funds Help the County of Bergen Provide Vital Services 
for Its Citizens: 

According to Bergen County officials, the county has received 
approximately $16 million in Recovery Act funds. For example, the 
Bergen County Department of Public Works received a $7.4 million 
Energy Efficiency and Conservation Block Grant to implement various 
energy projects throughout the county. In addition, the Bergen County 
Division of Community Development received a $4.3 million Homeless 
Prevention and Rapid Rehousing Program grant to provide financial 
assistance and housing relocation and stabilization services to low-
income citizens. Officials stated that without the Recovery Act funds 
it would have taken 5 to 7 years to complete some of the projects. The 
Bergen County Department of Human Services used about $30,000 in 
Recovery Act funds to train and supervise 100 volunteers to serve on 
crisis-response teams for domestic violence victims at municipal 
police departments throughout the county. The Recovery Act funds 
initially provided funding for the program through June 30, 2010. 
According to a department official, the department was recently 
notified that it will receive additional Recovery Act funds, along 
with other federal funds, to support the program for the remainder of 
the year. 

County of Burlington Used Its Recovery Act Funds to Maintain a Variety 
of Services: 

Burlington County received approximately $6 million from the federal 
and state governments in Recovery Act funds for 14 programs. Those 
funds helped Burlington County provide a number of programs and 
services to citizens, including home-delivered meals for the elderly; 
homelessness prevention; services for victims of domestic violence; 
energy-efficiency and conservation projects; wastewater management 
planning; and workforce training for youth, adult, and dislocated 
workers. Officials stated that the Recovery Act funds allowed the 
county to complete projects that it would not have otherwise been able 
to complete absent the funds. 

According to a Burlington County official, once the Recovery Act funds 
are depleted, the county will discontinue several of the programs, and 
some jobs funded through the Recovery Act may be eliminated. The 
official noted, however, that the Recovery Act funds did allow the 
county to retain nine jobs that were not created by the Recovery Act. 
The official went on to say that the county's 2010-2011 budget will 
determine whether employees holding these positions will be retained. 
One Burlington County official remarked that the number of retirements 
due to normal attrition may allow the county to retain some employees, 
but as of March 2010, no retirements had been announced. 

County of Cape May Used Recovery Act Funds to Support Workforce 
Stabilization: 

Cape May County received about $1 million in total Recovery Act funds, 
which it used for the provision of homebound and congregate meals, 
development of a water quality management plan, workforce projects, 
and job retention.[Footnote 23] For example, funding for the county 
prosecutor's Gangs, Guns, and Narcotics Task Force helped to stabilize 
salaries for three full-time employees and to purchase needed 
equipment. The prosecutor's office has received federal funding for 
the last 6 months of 2009 and expects Recovery Act funds for the first 
6 months of 2010 to cover the salaries. According to Cape May County 
officials, the county also received $884,841 to support WIA summer 
youth employment opportunities. Tourism is the primary industry for 
Cape May County but, as officials explained, receiving the funds 
during peak tourist season made it difficult to create jobs under the 
summer youth program due to competition with the prevailing wages 
offered by other employers in the county. Consequently, the county 
spent only $182,634 of the funds received, resulting in the seasonal 
employment of 40 young adults between the ages of 16 and 24.[Footnote 
24] Given the relatively small amount spent and the general stability 
of the Cape May economy, officials asserted that the grant could have 
been easier to implement in nonpeak tourist months or better used in 
other localities. 

New Jersey's Accountability Community Plays an Active Role in 
Monitoring the State's Recovery Act Funds: 

The New Jersey Recovery Accountability Task Force, co-chaired by the 
Governor's Deputy Chief of Staff and the State Comptroller, has 
primary responsibility for oversight of the state's Recovery Act 
funds. In addition, the Office of the State Auditor reviews internal 
controls over Recovery Act funds as part of its planned audits of 
state agencies. Ongoing oversight activities by these entities over 
Recovery Act funds are summarized below.[Footnote 25] 

* Recovery Accountability Task Force. The task force plays a 
significant managerial role in the oversight of Recovery Act funds and 
is responsible for monitoring the distribution of Recovery Act funds 
in the state and promoting the effective and efficient use of those 
funds. The task force continues to receive updates from state agencies 
that are receiving Recovery Act funds during its regularly scheduled 
meetings to ensure the agencies are disbursing funds in an efficient 
and transparent manner and in accordance with the goals of the 
Recovery Act. The task force is also considering taking on a more 
proactive role in directing state agencies that have their own audit 
departments to conduct audits of their Recovery Act funds. Other 
issues discussed in the task force meetings include findings of other 
agency audits, federal recipient reporting requirements, and 
weaknesses identified in the Single Audit report, coordinated by 
NJOMB.[Footnote 26],[Footnote 27] 

* Office of the State Comptroller. In addition to the State 
Comptroller serving as co-chair on the Recovery Accountability Task 
Force, the New Jersey Office of the State Comptroller conducts its own 
audits of Recovery Act funds in coordination with the Office of the 
State Auditor. For example, the Comptroller's Office issued a report 
of its audit of WIA Youth Program Recovery Act funds received by the 
Department of Labor and Workforce Development for its summer youth 
employment program on April 29, 2010. The audit focused on the 
administration and monitoring of both the fiscal and programmatic 
components of the program, including compliance with applicable 
federal, State, and department policies related to the program; the 
department's monitoring and oversight of the program; and the 
achievement of federal and State program goals and the measurement of 
program outcomes. The audit found, among other things, that although 
the program attained its minimum objectives, a lack of detailed 
guidance at the federal and State levels resulted in significant 
variations in the design and implementation of the program across the 
state, such as differences in assessing work readiness skills, which 
will make it difficult to assess such outcomes as the level of work 
readiness achieved in the state. The state also did not recruit 
private sector employers to participate in the program, limiting the 
range of work experiences for participants and did not accurately 
report FTEs during the first round of required recipient 
reports.[Footnote 28] The Comptroller's Office made 7 recommendations 
to improve the department's oversight and monitoring of the program. 
The department stated that it would take the recommendations into 
consideration in the event that the program is funded again in the 
future. 

* Office of the State Auditor. The Office of the State Auditor issued 
a report on its audit of the Department of Community Affairs' Recovery 
Act Weatherization Assistance Program on March 26, 2010.[Footnote 29] 
The audit focused on the eligibility process at the local and 
community-based agencies that administer the program to determine 
whether adequate controls were in place to confirm the eligibility of 
recipients scheduled to receive weatherization assistance. The audit 
found that the controls to determine eligibility were not adequate 
because of a lack of supporting documentation for household income and 
size, as well as the lack of Social Security numbers maintained by the 
weatherization agencies. As a result, ineligible program applicants 
were determined to be eligible and could receive weatherization 
services. The Office of the State Auditor recommended that the 
Department of Community Affairs update its weatherization bulletins to 
address the determination of annual income on a consistent basis and 
to require the inclusion of Social Security numbers for applicants and 
all household members to minimize the potential for fraud and program 
abuse. The Office of the State Auditor also recommended that the 
Department of Community Affairs strengthen controls and edit checks in 
the software system used by weatherization agencies to determine 
eligibility, monitor the progress of applications, and track 
expenditures. According to the State Auditor, deficiencies identified 
in the Weatherization Assistance Program were communicated to the 
Department of Community Affairs as the audit was under way and the 
department has already begun to implement the recommendations. The 
department stated that based on the recommendations, it will now 
require Social Security numbers, update and clarify department 
policies, and verify applicant wages. The Office of the State Auditor 
will continue to monitor the department's progress in implementing the 
recommendations and plans to further audit the administration of the 
program, as well as some of the homes that have already been 
weatherized in the coming months. 

State Comments on This Summary: 

We provided the Governor of New Jersey with a draft of this appendix 
on May 6, 2010. On behalf of and in concert with the Governor's Deputy 
Chief of Staff, who serves as co-chair for the Governor's Recovery 
Accountability Task Force, the Governor's Policy Advisor for Recovery 
Act matters responded for the Governor on May 11, 2010. The official 
provided technical comments that were incorporated, as appropriate. 

GAO Contacts: 

David Wise, (202) 512-2834 or wised@gao.gov: 

Gene Aloise, (202) 512-6870 or aloisee@gao.gov: 

Staff Acknowledgments: 

In addition to the contacts named above, Diana Glod, Assistant 
Director; Nancy Lueke, analyst-in-charge; Kisha Clark, Alexander 
Lawrence Jr.; Tarunkant Mithani; and Nitin Rao made major 
contributions to this report. 

[End of section] 

Footnotes: 

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

[2] We also obtained follow-up information from the Newark Housing 
Authority and Rahway Housing Authority on the impact, if any, the 
Recovery Act funds had on their ability to administer their regular 
public housing capital funds. These housing agencies had obligated 
more than 50 percent of their public housing capital funds as of 
January 30, 2010 and were therefore not a focus of this review. 

[3] The base SRF program refers to all SRF funds generated through 
yearly appropriations, state-match, or repaid loans and does not 
include Recovery Act funds. 

[4] The Recovery Act required each state to prioritize funds for 
projects that are ready to proceed to construction within 12 months of 
enactment of the Act (by February 17, 2010) and directed EPA to 
reallocate any funds that were not under contract by this date. 

[5] If the total project cost is more than $10 million, the balance of 
the costs are funded through a combination of zero percent interest 
loans using base SRF funds (75 percent) and additional market rate 
loans through EIT (25 percent). 

[6] According to the Office of Management and Budget's (OMB) December 
18, 2009 guidance, recipient reporting for the first quarter of 2010 
should include FTEs worked in January, February, and March 2010. 

[7] Projects costs that exceed $10 million will have a lower ratio of 
FTEs attributed to Recovery Act funding since Recovery Act funds 
cannot exceed $7.5 million of a project's total cost. 

[8] We contacted Bayonne Municipal Utilities Authority, City of 
Newark, and Stony Brook Regional Sewerage Authority about their 
experience with recipient reporting. 

[9] DEP received updated guidance from the consulting firm that 
oversees its EPA Clean Water and Drinking Water reporting databases 
stating that FTEs and payroll dollars should be reported for 
engineering firms working directly for Recovery Act SRF loan 
recipients. 

[10] MPOs are federally mandated regional organizations, representing 
local governments and working in coordination with state departments 
of transportation that are responsible for comprehensive 
transportation planning and programming in urbanized areas. MPOs 
facilitate decision making on regional transportation issues, 
including major capital investment projects and priorities. 

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

[12] Recovery Act, div. A, title XII, § 1201(a). 

[13] Public housing agencies receive money directly from the federal 
government (HUD). Funds awarded to the public housing agencies do not 
pass through the state budget. 

[14] 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. These 
include financial condition, management operations, and physical 
condition of housing agencies' public housing 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. 

[15] A public housing agency generally must obligate all Capital Fund 
Program assistance not later than 24 months after the date on which 
the funds become available to the public housing agency or the date on 
which the public housing agency accumulates adequate funds, and 
generally must spend all Capital Fund Program assistance not later 
than 4 years after the date on which funds become available to the 
public housing agency for obligation. 42 U.S.C. § 1437g(j). 

[16] Officials from the Newark and Rahway Housing Authorities also 
stated that the administration of their regular public housing capital 
funds is on track. 

[17] CHRP grants cover 100 percent of grantees' approved expenses and 
benefits associated with entry-level salaries for both newly hired and 
rehired full-time sworn officer positions for three years. When the 
grant term expires, grantees must retain all positions funded through 
CHRP for one additional year. 

[18] The CHRP grant provided a capping methodology that allowed local 
law enforcement agencies to request and have funded no more than 5 
percent of their current sworn officer workforce up to a 50-officer 
maximum. 

[19] We have discussed the Recovery Act's impact on New Jersey's 
budget in previous reports. See GAO, Recovery Act: States' and 
Localities' Current and Planned Uses of Funds While Facing Stresses 
(Appendixes), [hyperlink, http://www.gao.gov/products/GAO-09-830SP] 
(Washington, D.C.: July 8, 2009) and Recovery Act: Funds Continue to 
Provide Fiscal Relief to States and Localities, While Accountability 
and Reporting Challenges Need to Be Fully Addressed (Appendixes), 
[hyperlink, http://www.gao.gov/products/GAO-09-1017SP] (Washington, 
D.C.: Sept. 23, 2009). 

[20] New Jersey's budget fiscal cycle is July 1st through June 30th. 

[21] 42 N.J. Reg. 660(b) (March 15, 2010) (Executive Order No. 14). 

[22] Community partners are nonprofits, educational institutions, 
faith-based, and other community organizations, as well as other 
government and quasi-government organizations. 

[23] Congregate meals, or group meals, are usually provided in 
locations such as senior centers, schools, or churches, whereas 
homebound meals are provided to older persons who are homebound due to 
illness, an incapacitating disability, or isolation. 

[24] According to NJOMB and Atlantic County officials, there is an 
agreement in place that states any funding left over from Cape May's 
summer program will be pooled for both counties to use until the end 
of the Recovery Act funding period on June 30, 2011. 

[25] See GAO, 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) for additional information about 
agencies responsible for the state's Recovery Act oversight efforts. 

[26] The Single Audit Act of 1984, as amended (31 U.S.C. §§ 7501-
7507), requires that each state, local government, or nonprofit 
organization that expends at least a certain amount per year in 
federal awards--currently set at $500,000 by OMB--must have a Single 
Audit conducted for that year subject to applicable requirements, 
which are generally set out in OMB Circular No. A-133, Audits of 
States, Local Governments and Non-profit Organizations (June 27, 
2003). If an entity expends federal awards under only one federal 
program and when federal laws, regulations or grant agreements do not 
require a financial statement audit of the entity, the entity may 
elect to have an audit of that program. 

[27] New Jersey's Single Audit report for fiscal year 2009 was due on 
March 31, 2010. However, NJOMB sent a letter to the Department of 
Health and Human Services on March 2, 2010, requesting an extension 
until April 30, 2010. NJOMB submitted the audit report to the Federal 
Audit Clearinghouse on April 27, 2010. 

[28] The Office of the Comptroller examined FTE calculations for the 
six highest-funded Workforce Investment Boards in the state. 

[29] New Jersey Office of Legislative Services, Office of the State 
Auditor, Department of Community Affairs American Recovery and 
Reinvestment Act Weatherization Assistance Program Eligibility, April 
1, 2009 to December 4, 2009 (Trenton, N.J., 2010). 

[End of Appendix XII] 

Appendix XIII: New York: 

Overview: 

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

What We Did: 

We reviewed seven programs funded by the Recovery Act--the Clean Water 
and Drinking Water State Revolving Funds (SRF), the Edward Byrne 
Memorial Justice Assistance Grants (JAG), the Highway Infrastructure 
Investment Program, the Weatherization Assistance Program, and three 
education programs: (1) the U.S. Department of Education (Education) 
State Fiscal Stabilization Fund (SFSF); (2) Title I, Part A of the 
Elementary and Secondary Education Act of 1965, as amended (ESEA); and 
(3) the Individuals with Disabilities Education Act, as amended 
(IDEA), Part B. These programs were selected primarily because they 
are receiving significant amounts of Recovery Act funds, recently 
began disbursing funds to states, or both. We focused on how funds 
were being used, how safeguards were being implemented, and how 
results were being assessed. For descriptions and requirements of the 
programs we covered, see appendix XVIII of GAO-10-605SP. 

Our work in New York also included understanding the state's fiscal 
condition and obtaining an update on two of the localities we visited 
for our December 2009 report. We visited New York City because it is 
the largest city in the state and its unemployment rate is above the 
state's rate.[Footnote 2] We also visited Westchester County because 
it is a suburban county with an unemployment rate below the state's 
rate. Finally, we reviewed the work being done by the accountability 
community to oversee the use of Recovery Act funds. 

What We Found: 

Funds from the programs we reviewed are helping New York state and 
local governments stabilize their budgets while also stimulating 
infrastructure development and expanding existing programs. The 
following summarizes findings for the areas we examined. 

* Clean Water and Drinking Water SRFs. New York received about $436.9 
million in Recovery Act funding for the Clean Water SRF, more than any 
other state, and about $86.8 million in Recovery Act funding for the 
Drinking Water SRF. Both SRFs relied primarily on project lists 
developed before the Recovery Act was passed to identify eligible 
projects. New York took innovative approaches to meeting Recovery Act 
requirements, such as partnering with another agency to identify new 
and existing green elements in clean water projects and developing a 
new grant program to meet the green reserve requirement.[Footnote 3] 
We visited three SRF projects--an ecological restoration and improved 
stormwater management project in Brooklyn, a wastewater treatment 
plant upgrade project in Westchester County, and a new drinking water 
system project in Poestenkill. All three projects we visited reported 
that their final contract awards were lower than official cost 
estimates. 

* Highway Infrastructure Investment Program. The U.S. Department of 
Transportation's Federal Highway Administration (FHWA) apportioned 
$1.12 billion in Recovery Act funds to New York in March 2009 for 
highway infrastructure and other eligible projects.[Footnote 4] The 
federal government obligated the state's full apportionment by the 1- 
year deadline of March 2, 2010. The New York State Department of 
Transportation (NYSDOT) reports that the majority of Highway Recovery 
Act funds are going towards the rehabilitation and repair of highways 
and bridges, as well as bridge replacement and highway reconstruction 
projects. As of May 3, 2010, $238 million had been reimbursed by the 
federal government. NYSDOT officials report that bids for state 
projects were 13 percent lower than the state's original estimated 
costs of the projects. 

* JAG Program. The U.S. Department of Justice's Bureau of Justice 
Assistance (BJA) awarded $110.6 million in Recovery Act JAG funding to 
New York. On the basis of a statutory formula, BJA awarded about 60 
percent to New York state ($67.3 million), part of which ($43.8 
million) was passed on to localities. According to officials, the bulk 
of the state funds have been obligated to implement recently enacted 
drug law reforms and continue recidivism pilot programs.[Footnote 5] 
BJA also awarded $43.3 million in Recovery Act JAG funds directly to 
eligible localities in New York.[Footnote 6] We visited two localities-
-New York City and Utica--that received such funds. While, according 
to officials, New York City is using nearly its entire direct local 
Recovery Act JAG award to retain personnel--such as New York City fire 
department and corrections officer positions--Utica is using most of 
its direct local Recovery Act JAG funds to purchase law enforcement 
equipment. 

* Weatherization Assistance Program. The U.S. Department of Energy 
(DOE) allocated $394.7 million in Recovery Act funds to New York in 
March 2009 for the Weatherization Assistance Program. Through March 
31, 2010, New York had weatherized 1,309 units--2.9 percent of its 
goal of 45,000 units. In part, this low completion rate reflects the 
emphasis in the state plan on weatherizing multifamily projects, which 
account for over half of this goal. Multifamily projects typically 
take longer to complete than one-to four-family homes. Yet state 
officials were confident that they would not only meet but exceed 
their goal. They reported that work on an additional 10,546 units was 
currently under way and that energy audits--which are required before 
weatherization can begin--of an additional 14,008 units had been 
completed. Once these 24,554 units are completed, New York will have 
completed 57.5 percent of the units needed to meet its goal. 

* Education programs. Education allocated $549 million in SFSF 
government services funds to New York, most of which the state 
appropriated to education programs that were facing cuts prior to the 
enactment of the Recovery Act. Although the state has disbursed only 
15 percent of the funds (partly because of administrative delays), a 
senior state budget official said that she believes the SFSF 
government services funds will be obligated by the federal deadline of 
September 30, 2011, with disbursements also occurring by federal 
deadlines. The New York State Education Department is undertaking new 
monitoring of SFSF funds and some additional monitoring of Recovery 
Act ESEA Title I, Part A and IDEA, Part B funds. 

* State and localities' use of Recovery Act funds. New York's 
persistent fiscal challenges have led to a projected budget gap of 
$9.2 billion for fiscal year 2010-2011. The Governor's proposed 2010-
2011 Executive Budget, as amended and supplemented by additional gap-
closing recommendations, closes this deficit, but the state's 
legislature has not approved a budget. Officials reported that the 
fiscal stability of the localities we revisited have been positively 
affected by Recovery Act funds. However, localities are concerned 
about cuts in state aid and future budget gaps, especially after the 
Recovery Act ends. 

* Accountability. The Stimulus Oversight Panel,[Footnote 7] Office of 
the State Comptroller (OSC), and Economic Recovery and Reinvestment 
Cabinet, which is headed by the Governor's office, are primarily 
responsible for statewide oversight of Recovery Act funds.[Footnote 8] 
In addition, an estimated 90 percent to 95 percent of the state's 
Recovery Act funding will be reviewed in the state's Single Audit. 
[Footnote 9] The most recent Single Audit, which was issued November 
25, 2009, for the fiscal year ending March 31, 2009, found material 
weaknesses in internal controls for two Recovery Act programs. 
[Footnote 10] These involved 238 duplicate payments totaling $5,950 in 
the Recovery Act Unemployment Insurance program and inadequate 
identification of Recovery Act funds as separate from regular program 
funds for the Medical Assistance Program (Medicaid). The state 
implemented a manual process to prevent future duplicate payments and 
took steps to improve identification of Recovery Act funds for 
Medicaid. According to New York State Inspector General (NYSIG) 
officials, NYSIG also has ongoing investigations related to complaints 
received through the Stimulus Complaint hotline. 

Clean and Drinking Water SRFs in New York Used Innovative Approaches 
to Meet Recovery Act Requirements: 

New York Used Existing Plans to Identify "Shovel-Ready" Projects and 
Met the 1-year Deadline for Having Funds under Contract: 

New York received about $436.9 million in Recovery Act funding for its 
Clean Water SRF, more than any other state.[Footnote 11] The Clean 
Water SRF program is managed jointly by the New York State Department 
of Environmental Conservation (NYSDEC) and the New York State 
Environmental Facilities Corporation (NYSEFC). New York City received 
an allocation of $219.5 million--or over half--of the total state 
funding for clean water. Officials reported that New York City has a 
large need for clean water funds and has annual capital construction 
costs of over $2 billion. New York state also received about $86.8 
million in Recovery Act funding for its Drinking Water SRF. The 
Drinking Water SRF is managed jointly by the New York State Department 
of Health (NYSDOH) and NYSEFC. Both SRF programs relied primarily on 
their 2009 Intended Use Plans, which were developed before the passage 
of the Recovery Act and are developed annually as part of the base SRF 
programs, to select projects that were "shovel ready." New York 
awarded Recovery Act funds to 80 clean water projects and 30 drinking 
water projects, and met the deadline to have 100 percent of its 
Recovery Act funds awarded to projects that were under contract by 
February 17, 2010. These projects range from a clean water project to 
construct three sludge transportation vessels serving New York City's 
water pollution control plants, which was awarded $65.5 million in 
Recovery Act funds, to a drinking water project in the Town of 
Schodack, New York, which was awarded $812,000 in Recovery Act funds 
to interconnect two water districts, replace water pipes, and improve 
a pump station. 

New York Used Innovative Approaches to Meet the Green Reserve 
Requirement: 

The Recovery Act required states to reserve at least 20 percent of 
their funds for projects that address green infrastructure, water or 
energy efficiency, or other environmentally innovative activities. New 
York state's SRFs took two innovative approaches to meet the green 
reserve requirement: 

(1) NYSEFC partnered with the New York State Energy Research and 
Development Authority (NYSERDA) to identify new and existing green 
elements in clean water projects, such as installing energy-efficient 
pumping motors and lighting where appropriate. NYSERDA conducted 
project-by-project energy audits to identify green project elements, 
both within existing project plans and as potential project 
improvements. In total, NYSERDA identified $91 million in energy 
efficiency improvements that were incorporated into Recovery Act 
projects. 

(2) New York used a portion of its Recovery Act funds to create a new 
grant program called the Green Innovative Grant Program (GIGP). NYSEFC 
officials reported that GIGP was created to identify projects with a 
green focus and to assist in meeting the green reserve requirement. 
Projects awarded GIGP funds include green roofs, permeable pavement, 
rain harvesting, and progressive wastewater treatment processes. GIGP 
funded 35 clean water projects with $38.2 million in Recovery Act 
funds, including 16 energy-efficiency projects; 13 green 
infrastructure projects, such as water harvesting and reuse programs 
or wet weather management systems projects; 4 environmental innovation 
projects; and 2 water-efficiency projects. GIGP funded 14 drinking 
water projects with $6.1 million of Recovery Act funds, including 7 
water meter projects, 3 water-efficiency projects, and 4 energy-
efficiency projects. 

Officials Reported That Projects Will Benefit the Community; Also, 
Contract Awards on Some Recovery Act Projects Have Been Lower Than 
Official Cost Estimates: 

We visited three (two Clean Water and one Drinking Water) SRF projects 
funded by the Recovery Act (see figure 1). 

Figure 1: Profile of Recovery Act Clean Water SRF and Drinking Water 
SRF Projects Visited by GAO: 

[Refer to PDF for image: illustrated table] 

Clean water: 

Location: Paerdegat Basin, Brooklyn, NY; 
Description: 
* Ecological restoration of land adjacent to a Combined Sewer Overflow 
facility; 
* Creation of natural area and ecology parks with walking trails and 
viewing platforms; 
Total Recovery Act funding/total cost: 14.6 million/$14.6 million; 
Total Recovery Act Green Reserve funding: 14.6 million; 
Reported impact of project: 
* Restoring wetlands, naturally filtering stormwater runoff, and 
providing a community amenity; 
* Creating an estimated 57.5 jobs a year during construction, and 3 
jobs after completion to maintain the park. 

Location: Mamaroneck, NY; 
Description: Biological nutrient removal upgrades to the Mamaroneck 
Wastewater Treatment Plant in Westchester County; 
Total Recovery Act funding/total cost: $24.4 million/$55.4 million[A]; 
Total Recovery Act Green Reserve funding: $2.9 million; 
Reported impact of project: Reducing the amount of nitrogen the plant 
discharges in the Long Island Sound. 

Drinking water: 

Location: Town of Poestenkill, NY; 
Description: 
* New drinking water system to supply 553 residences, an elementary 
school, and several businesses; 
* Reduce current reliance on private wells (primarily residential), 
some of which are contaminated; 
Total Recovery Act funding/total cost: $4.8 million/$9.5 million; 
Total Recovery Act Green Reserve funding: None; 
Reported impact of project: 
* Providing safe drinking water and promoting local business 
development; 
* Generating an estimated 30 full time equivalent jobs. 

Sources: GAO analysis; Town of Poestenkill (street sign photograph); 
Map Resources (NY map); and GAO (Mamaroneck WastewaterTreatment Plant). 

[A] The total project was originally estimated to cost $55.4 million. 
Of this, the municipality was to contribute $400,000 for non-SRF- 
eligible project components and the remainder was financed through a 
$55 million bond that was issued for the project before the contract 
was awarded. However, the award was below the estimate at $45.9 
million. As a result, the $55.4 million now includes a $9.1 million 
contingency, which is funded by base SRF funds, to be used in the 
event of cost overruns if needed. 

[End of figure] 

Officials at each of the projects we visited reported community 
benefits from the project and noted benefits from having the project 
funded through the Recovery Act. For example, officials at the 
Paerdegat Basin project reported that it would not have been funded 
without Recovery Act funds. With Recovery Act funds, the project was 
not only able to proceed, but project planners were also able to 
increase the size of the project and add green components, such as 
porous pavement. This project is considered entirely green 
infrastructure, since it involves coastal habitat restoration and 
infrastructure to improve stormwater management. In the town of 
Poestenkill, where we visited a drinking water project, a local 
official stated the additional incentive of the Recovery Act helped 
focus the project stakeholders to move the long-planned project ahead. 
All three of the projects we visited had final bids that came in lower 
than the official cost estimates. Subsequently, the lower than 
expected contract awards allowed NYSEFC to redistribute Recovery Act 
funds to other projects. For example, savings in New York City allowed 
NYSEFC to devote Recovery Act funds to projects involving upgrades and 
repairs for four water pollution control plants serving communities in 
Queens, Brooklyn, and Staten Island. 

Internal Audit Departments Have Issued Findings on Recipient Reporting 
and NYSEFC is Hiring a Contractor to Provide Recovery Act Compliance 
and Monitoring Assistance: 

As requested by the state's Economic Recovery and Reinvestment 
Cabinet, both NYSDEC and NYSDOH have issued internal audit reports 
related to the recipient reporting process for the SRFs.[Footnote 12] 
The NYSDOH internal audit of recipient reporting recommended that 
NYSDOH (1) rework its process to ensure timely collection and 
reporting of all data; (2) implement the planned change to separate 
the data collection and review functions; (3) finalize the draft 
written procedures; and (4) ensure the procedures are complete, clear, 
and updated as necessary. NYSDOH officials report that they have fully 
implemented these recommendations and established a process for timely 
collection of reporting data, including a formal tracking system. 
However, NYSDOH reported that even with multiple follow-ups, a few 
recipients were late in reporting and NYSDOH withheld reimbursement as 
a means of enticing compliance. A NYSDOH Internal Audit official 
indicated she will continue to monitor the Drinking Water SRF Recovery 
Act quarterly recipient reports, with an emphasis on the expenditure 
and employment information. The audit of NYSDEC's Recovery Act 
recipient reporting process contained similar recommendations--to 
review and compare reported data with sources to verify the data, to 
develop written policies and procedures for recipient reporting data 
quality assurance plans, and to periodically review and update the 
risk assessments prepared relative to recipient reporting. NYSDEC 
developed a corrective action plan in response to these 
recommendations. According to a NYSDEC official, NYSDEC does not have 
any other internal audits of the Recovery Act SRF funds planned or 
under way. 

NYSEFC officials reported that NYSEFC issued a Request for Proposals 
(RFP) on March 15, 2010, to hire a firm to provide compliance 
assistance and monitoring of Recovery Act recipients. According to a 
senior NYSEFC official and our review of the RFP, the selected firm's 
duties will include bi-monthly project site visits, inspections of 
project compliance with Recovery Act requirements, and reporting any 
allegations or suspicions of waste, fraud, or abuse to NYSEFC. The 
selected firm also will be required to undergo training from NYSIG 
with regard to identifying and reporting allegations of mismanagement 
of Recovery Act funds. A senior NYSEFC official reported that NYSEFC 
would like to have the firm under contract by May 21, 2010, and in the 
field visiting projects as early as June 1, 2010. 

New York Plans to Meet Recovery Act Requirements for Highway 
Infrastructure Investment Program Funds and Is Implementing Changes to 
Improve Reporting: 

In March 2009, FHWA apportioned $1.12 billion in Recovery Act funds to 
New York 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.[Footnote 13] NYSDOT reports that the 
majority of Highway Recovery Act funds are going towards the 
rehabilitation and repair of highways and bridges, as well as bridge 
replacement and highway reconstruction projects. As of May 3, 2010, 
$238 million had been reimbursed by FHWA. From March 2 through April 
26, 2010, the FHWA deobligated $717,032 of the highway funds for New 
York and has until September 30, 2010, to obligate these funds to 
other projects. NYSDOT officials attributed the deobligated amounts to 
a few specific projects--for example, one project had funds 
deobligated because of savings from contract awards that were below 
original state cost estimates and another project had issues with a 
right-of-way permit. 

NYSDOT officials reported that bids for state projects were 13 percent 
lower than the state's original estimated costs of the projects. 
However, they also pointed out that approximately 16 percent of their 
projects were awarded to contractors who submitted bids that were 
higher than the state's estimated costs. 

New York Is on Track to Meet Its Maintenance of Effort Requirement: 

The Recovery Act required the governor of each state to certify that 
the state would maintain the level of state spending for the types of 
transportation projects funded by the Recovery Act that it planned to 
spend the day the Recovery Act was enacted (which is known as a 
maintenance of effort--or MOE--requirement). Both FHWA and NYSDOT 
officials believe New York will meet its MOE requirement of $2.1 
billion. However, NYSDOT officials said the state's multiyear budget 
deficits present a significant challenge in doing so. 

NYSDOT's Internal Audit Bureau Made Recommendations for Recipient 
Reporting Improvements and Plans Further Audit Work: 

NYSDOT submits quarterly recipient report information on all of its 
Recovery Act highway projects, which is reported on the federal 
www.recovery.gov Web site. As requested by the state's Economic 
Recovery and Reinvestment Cabinet, NYSDOT's Internal Audit Bureau 
completed a review of the department's recipient reporting process. 
This audit was focused on highway project reporting and contained 13 
recommendations, including recommendations to verify data elements to 
a third-party source, perform periodic data reviews, and develop 
policies and processes for identifying differences in data posted and 
reported. NYSDOT accepted all of the recommendations and is 
implementing them as part of the Corrective Action Plan. In addition, 
NYSDOT's Internal Audit Bureau is conducting "real-time" audit work of 
reported project information, which is shared with NYSDOT officials 
for immediate action; a formal audit report is not prepared. As a part 
of this work, on April 5, 2010, NYSDOT's Internal Audit Bureau issued 
an assessment of the completeness of 42 data fields that regional 
offices are required to provide for Recovery Act projects. NYSDOT 
officials report that corrective actions are underway in response to 
this review. Further, NYSDOT Internal Audit Bureau officials report 
that they plan future reviews, including a review of the completeness 
of NYSDOT's employment reporting. Additionally, the Internal Audit 
Bureau is planning an audit of local Recovery Act projects, but the 
timeline and audit plan have not been finalized. 

New York's JAG Award Is Planned to Largely Support Implementation of 
State Drug Law Reform: 

The Department of Justice's BJA awarded New York state and local 
governments about $110.6 million in Recovery Act JAG funds. On the 
basis of a statutory formula, BJA awarded about 60 percent to New York 
state ($67.3 million), part of which ($43.8 million) was passed on to 
localities.[Footnote 14] The Division of Criminal Justice Services 
(DCJS) administers JAG funds in New York and monitors the allocation 
of funds that are passed on to localities based on priorities outlined 
in the DCJS strategic plan. BJA awarded the remaining approximately 40 
percent ($43.3 million) directly to eligible localities in New York. 

New York plans to use the majority of Recovery Act JAG funding to 
support corrections (for probation and reentry services), drug 
treatment and enforcement, and prosecution and courts program areas 
(see figure 2). 

Figure 2: State Allocation of JAG Funds by Program Area: 

[Refer to PDF for image: pie-chart] 

Administration: $810,000 (1%): 
Law enforcement: $513,706 (1%); 
Program planning, evaluation, and technology improvement: $1,100,000 
(2%); 
Unencumbered funds: $3,503,210 (5%); 
Prosecution and courts: $12,086,534 (18%); 
Drug treatment and enforcement: $22,307,239 (33%); 
Corrections: $26,960,000 (40%). 

Source: New York State Division of Criminal Justice Services data. 

[End of figure] 

According to officials, the state will use most of its Recovery Act 
JAG funds that it did not pass on to localities (the state's share, 
which is the remaining 34.84 percent of the state's award) to support 
implementation of reforms to the state's Rockefeller Drug Laws (RDL), 
which emphasize treatment and prevention instead of incarceration for 
drug offenders.[Footnote 15] For example, New York state plans to 
spend about $22 million of Recovery Act JAG funds for drug treatment 
and enforcement and plans to use a share of the nearly $27 million 
allocated for corrections to help implement recent state law changes 
eliminating mandatory prison terms for many drug offenses and 
increasing judicial discretion to sentence many non-violent drug 
offenders to probation. According to New York state officials, some 
localities have already obligated and expended JAG funds to support 
prosecution projects across the state that would help assistant 
district attorneys reduce the number of prison commitments, as 
required by the RDL reforms. DCJS officials also said Recovery Act JAG 
funding has been critical in helping to maintain innovative pilot 
programs, such as prisoner reentry programs that help reduce 
recidivism. 

Officials Report Using Recovery Act JAG Funding for Programs to Reduce 
Recidivism and for Personnel and Equipment Costs: 

According to state and local officials in New York, Recovery Act JAG 
funding was used to support programs to reduce the pace of recidivism. 
For example, six recipients used about $14 million in pass-through 
Recovery Act JAG grants from New York state to fund job placement 
programs to facilitate hiring returning offenders. In addition, 
without direct local Recovery Act JAG funds, New York City officials 
said they would have been unable to support the $6.9 million Institute 
of Inner Development program, which focuses on combating adolescent 
recidivism. The New York City Department of Corrections is tracking 
performance benchmarks to evaluate its program and measure the impact 
of Recovery Act JAG funds. 

The two localities we visited--New York City and Utica--are also using 
Recovery Act JAG funds for personnel and equipment costs. (See figure 
3.) According to officials, nearly all of New York City's allocation 
of $29.1 million in Recovery Act JAG funds has supported personnel 
costs, such as New York City fire department and corrections officer 
positions. New York City officials reported that without Recovery Act 
JAG funds, New York City would have eliminated 158 jobs because of 
budget cuts. 

Figure 3: Profile of Recovery Act JAG Projects Visited by GAO: 

[Refer to PDF for image: 2 photographs, illustrated table] 

Location: New York, NY
Description: To largely support essential public safety personnel, 
such as emergency call technicians, corrections officers, and fire 
department officers. Several agencies, including five district 
attorney’s offices, the Department of Corrections, and the Fire 
Department are expected to receive funds. Funds are also planned to 
support implementation of Rockefeller Drug Laws reforms; 
Total Recovery Act funding: $29.1 million; 
* $9.8 million for corrections (33.8 percent); 
* $7.9 million for law enforcement (27.2 percent); 
* $6.8 million for prosecution and courts (23.3 percent); 
* $3.2 million for program planning, evaluation and technology 
improvement (10.9 percent); 
* $1.4 million for crime victim and witness programs (4.8 percent); 
Reported impact of project: Officials estimate that funds enable New 
York City to retain 158 jobs that would otherwise have been eliminated 
due to budget cuts, and helped create 51 new jobs. 

Location: Utica, NY
Description: Funds will be shared between Utica and Rome police 
departments and Oneida County Sheriff’s Department to improve public 
safety. Most funds will purchase equipment such as police patrol 
vehicles; light bars that provide high intensity light for police 
vehicles, and mobile computer systems. Funds will also be spent on 
developing a police station in a high crime neighborhood; 
Total Recovery Act funding: $271,831; 
* $271,831 for law enforcement (100 percent); 
Reported impact of project: Officials expect that funds will support 
police officer overtime in a high crime neighborhood. Utica used JAG 
funds for mobile computer systems in police vehicles. 

Sources: GAO analysis; Art Explosion (firefighter photograph); and GAO 
(computer systems photograph). 

[End of figure] 

DCJS Has Ongoing and Completed Audits Related to Recovery Act JAG 
Funds: 

As requested by New York's Economic Recovery and Reinvestment Cabinet, 
DCJS issued an audit report related to its compliance with recipient 
reporting requirements. DCJS's audit recommended that it clarify 
written procedures for reporting subrecipient expenditures and jobs; 
DCJS implemented a Corrective Action Plan as a result. In addition, 
according to DCJS officials, they are conducting joint site visits 
with the Office of Program Funding and Development to monitor selected 
grantees that have relatively large Recovery Act JAG awards. Recovery 
Act JAG funds were not reviewed as part of New York's fiscal year 2009 
Single Audit. 

New York Has Made Progress Using Recovery Act Weatherization Funds, 
but the Number of Completed Units Is a Lagging Indicator: 

The Recovery Act appropriated $5 billion for the Weatherization 
Assistance Program, which DOE 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. 

Through March 31, 2010, just over 9 months after the DOE approved New 
York's weatherization assistance plan, DHCR has obligated $207.5 
million of its total allocation of $394.7 million in Recovery Act 
Weatherization Assistance Program funds. DHCR has disbursed $60.8 
million to the 65 local weatherization agencies in New York to fund 
weatherization activities under the Recovery Act and reported that a 
total of 1,309 units had been weatherized using these funds. This is 
only 2.9 percent of its stated goal of 45,000 units. In part, this low 
completion rate results from the emphasis in the state plan on 
weatherizing multifamily projects, which account for over half of this 
goal. Multifamily projects typically take longer to complete than one- 
to four-family homes. This emphasis reflects the fact that two thirds 
of New York's income eligible population live in rental housing which, 
for the most part, are multifamily residences. DHCR officials were 
confident that they would not only meet but exceed their goal. 
Although only 1,309 units are counted as completed, DHCR officials 
reported that work on 10,546 units was currently under way (see figure 
4 for an example of the work being done) and that energy audits--which 
are required before weatherization can begin--of an additional 14,008 
units had been completed. Once these 24,554 units are completed, New 
York will have completed 57.5 percent of the units needed to meet its 
goal. 

Figure 4: Community Environmental Center Workers Insulate a Home Being 
Weatherized in Brooklyn, New York: 

[Refer to PDF for image: photograph] 

Source: GAO. 

[End of figure] 

Many Factors Delay Completion of Multifamily Projects: 

One explanation for the seemingly slow completion rates through March 
31, 2010, is the proportion of planned multifamily projects. In its 
approved plan, DHCR estimated that multifamily projects--those that 
house more than four families--would constitute over 23,000 of its 
stated goal of 45,000 units.[Footnote 16] 

Many factors delay completion of multifamily projects. For example, 
DHCR requires that an entity approved by DHCR conduct an energy audit 
of the residence. While all 65 local weatherization agencies are 
approved to conduct energy audits of one-to four-family homes, only 
six are approved to conduct their own audits of multifamily projects. 
The remaining agencies must contract with a DHCR-approved entity, such 
as the Association for Energy Affordability. Local agencies' demand 
for more energy audits as a result of the influx of funding from the 
Recovery Act has created a backlog, resulting in delays in starting 
projects. DHCR is in the process of training local agencies to allow 
them to conduct their own energy audits of multifamily projects, but 
according to DHCR officials, this process takes at least 1 year. DHCR 
hopes to have over 30 local agencies approved to do multifamily energy 
audits by the end of the year. 

The process is further complicated by DHCR's requirement that the 
owners of a multifamily project contribute to payment for the cost of 
the project. According to DHCR officials, this requirement is 
typically 25 percent of the project's cost, but the exact terms of the 
ownership participation have to be negotiated, and until the agreement 
is finalized, solicitations for bids on the project cannot be 
requested.[Footnote 17] 

[See PDF for image] 

[End of figure] 

Figure 15: Finally, according to DHCR officials, units in a 
multifamily project cannot be counted as completed until all work on 
each unit is finished and the project has been inspected and accepted 
by the local weatherization agency. At one agency we visited, over 100 
one-to four-family homes had been weatherized by March 1, 2010. The 
director noted that in March, two multifamily projects consisting of 
300 units would be completed, raising the agency's production from 100 
to over 400 in 1 month. 

DHCR Has Taken Steps to Improve the Training of the Weatherization 
Work Force: 

As of March 31, 2010, DHCR required that all energy auditors and crew 
chiefs be certified by the Building Performance Institute.[Footnote 
18] In addition, other skilled workers will be required to achieve 
certification soon. Although DHCR does not require certification for 
all weatherization workers, it does mandate that all workers receive 
training in specific areas, such as Lead Safe Practices, and 
encourages all local weatherization agencies to provide their workers 
with appropriate training. DHCR funds two training centers in the 
state operated by the Association for Energy Affordability and the New 
York State Weatherization Directors' Association. DHCR officials 
stated that, because they recognized a need to increase the pool of 
qualified weatherization workers to meet the needs of local 
weatherization agencies hiring additional staff, they used Recovery 
Act funds to expand the training opportunities for workers at those 
centers. To avoid training cancellations, local agencies are charged a 
nominal fee for enrolling their worker in the training classes. For 
the state fiscal year ending March 31, 2010, 2,688 workers attended 
training at those centers compared with 1,138 the previous year--a 136 
percent increase. 

DHCR Has a Strong Program and Fiscal Monitoring System in Place: 

A recent DOE review found that DHCR had a robust monitoring system in 
place. As outlined in its approved Weatherization Plan for the use of 
Recovery Act funds, DHCR has two sets of inspectors that visit each 
local weatherization agency at least once every 2 months. The program 
inspectors review the program files to ensure that the agency has 
followed program guidelines in determining eligibility and developing 
a work scope based upon an energy audit and that the work has been 
properly inspected. At each of the three agencies we visited, we 
reviewed a sample of program files. In every case, we found evidence 
that client eligibility had been determined based on DHCR 
guidelines,[Footnote 19] an energy audit had been conducted, the 
proposed weatherization measures met program guidelines, that the work 
had been done, and both the client and post inspector had signed off 
on the project. 

In addition, DHCR program inspectors physically visit homes 
weatherized by the agency. Typically, DHCR visits 10 percent to 20 
percent of the one-to four-family homes weatherized, although DOE only 
requires that 5 percent be inspected, and every multifamily project 
completed. We accompanied two program inspectors on their on-site 
reviews of weatherization projects and found their inspections 
consistent with the procedures detailed in the state's Weatherization 
Policy and Procedures manual. In one case, the inspector reviewed the 
project and found everything in order. However, he recommended that 
the local agency add a door between the furnace room and the rest of 
the home as an additional step. In another situation, we observed the 
inspector discuss with agency staff the best strategy to deal with a 
structural situation that arose during an energy audit of a single- 
family home. Thus, in addition to their role as program monitors, the 
inspectors are a source of technical assistance to agency staff. 

In addition to program monitors, according to DHCR officials, DHCR 
fiscal inspectors are supposed to do on-site reviews of agency 
accounting procedures. During these reviews, they should determine 
whether funds are properly accounted for and that the agency has 
proper internal controls in place. Further, state officials stated 
that they should review inventory practices used by the local agency 
to monitor the use of weatherization materials. As a result of these 
fiscal reviews, according to DHCR officials, two large recipients of 
Recovery Act weatherization funds have been placed under what DHCR 
calls "special conditions." This means that before any vouchers can be 
submitted to DHCR for reimbursement, the on-site DHCR fiscal monitor 
must first review and approve them. 

Besides DHCR and DOE reviews, local agencies are subject to other 
reviews conducted periodically by other entities, such as OSC and 
NYSIG. For example, according to a recent report, NYSIG has conducted 
recent reviews of weatherization activities in 11 counties and is 
providing fraud awareness training to all local weatherization 
agencies. 

New York Is Disbursing SFSF Government Services Funds Slowly to 
Programs Facing Cuts, and Recovery Act Education Programs Are Being 
Monitored: 

For this bimonthly report, we reviewed (1) the use of Recovery Act 
SFSF government services funds by the New York State Education 
Department (NYSED), Division of Budget, and DHCR and (2) the extent to 
which the state is monitoring the SFSF and Recovery Act ESEA Title I, 
Part A and IDEA, Part B funds to ensure that they are used 
appropriately. 

New York Primarily Is Using SFSF Government Services Funds for 
Education Programs That Faced Cuts, but Disbursements Remain Slow 
because of Administrative Delays: 

Education allocated 81.8 percent of Recovery Act SFSF funds to states 
to support education programs (education stabilization funds) and the 
remaining 18.2 percent for public safety and other government services 
(government services funds), which may also include education 
programs. New York allocated most of its $549 million allocation of 
government services funds on education programs that the state had 
previously intended to cut and a small amount on a Mortgage 
Foreclosure Prevention Program for homeowners. Two education programs 
are receiving approximately 80 percent of the government services 
funds--special education preschool and tuition assistance for low-
income college students. The following figure shows the programs New 
York supported with Recovery Act SFSF government services funds. 

Figure 5: Programs Funded by Recovery Act SFSF Government Services 
Funds: 

[Refer to PDF for image: pie-chart] 

Special education preschool: $326.32 million (59%); 
Tuition assistance program: $103.76 million (19%); 
Public institutions of higher education funding: $37.64 million (7%); 
Other: $81.5 million (15%): 
- Teachers centers $35 million: (4%); 
- Mortgage foreclosure prevention: $21.9 million (2%); 
- Educational TV and radio: $11.2 million (1%); 
- Roosevelt school district academic improvement grant: $6 million 
(1%); 
- Teacher-mentor intern program: $4 million (0.5%); 
- Math and science high schools: $2.8 million (0.1%); 
- Syracuse school district Say Yes to Education: $0.7 million (0.1%). 

Source: GAO analysis of New York State Monitoring Plans and Protocols 
for the State Fiscal Stabilization Education and Other Government 
Services Fund. 

Note: The SFSF funds have been programmed for Fiscal Year, School 
Year, and Academic School Year 2009-2010 and 2010-2011. Although the 
allocations were included in the NY 2010-2011 Executive Budget, they 
are subject to change pending enactment of the 2010-2011 State Budget. 

[End of figure] 

As of April 23, 2010, only $83.8 million, or 15 percent, of the 
government services funds allocation had been disbursed. As we 
previously reported, New York is disbursing Recovery Act education 
funds slowly, relative to other states.[Footnote 20] As of April 16, 
New York's rate of 15 percent was one of the lowest rates of funds 
disbursed compared with the 56 percent average among the 16 states and 
the District of Columbia included in our Recovery Act review. 
Nevertheless, a senior state budget official said she believes the 
SFSF government services funds will be obligated by the federal 
deadline of September 30, 2011, with disbursements also occurring by 
federal deadlines, even though the program receiving the most funding--
the special education preschool program--and three other programs had 
not disbursed any government services funds as of April 23, 2010. 
State officials said this is partly because NYSED typically reimburses 
counties for their expenditures on the preschool program approximately 
9 months after the start of the school year on July 1. Although the 
program begins at the start of the school year, it is funded by the 
state's budget for the next fiscal year, which begins on April 1. 
Officials are preparing to provide the first reimbursement to counties 
by the end of June, after taking additional steps to ensure that only 
Recovery Act funds are included in the reimbursement requests. An 
official at another program that had not disbursed funds as of April 
23, the Mortgage Foreclosure Prevention Program, said they did not 
receive authorization from the state to disburse funds until March 
2010. As of April 15, they have named 6 of the approximately 60 
planned awardees and plan to expend all of the program's funds by 
September 2010. We will continue to monitor the SFSF government 
services funds disbursement rate for New York. 

New York Has Begun to Implement a New SFSF Monitoring Plan and 
Undertake Some Additional Monitoring of ESEA Title I and IDEA Funds: 

The three state agencies responsible for overseeing the use of SFSF 
education stabilization funds and government services funds in New 
York--NYSED, the Division of Budget, and DHCR--finalized a new 
monitoring plan in March 2010 that includes reviews of all SFSF 
applications and quarterly reports, on-site monitoring visits, desk 
reviews, and audits of a sample of school districts, community 
colleges, and vendors to assess whether subrecipients are spending and 
safeguarding the SFSF funds according to Recovery Act requirements. 
[Footnote 21] New York provided Education with the monitoring plan on 
March 12, 2010 and Education officials are currently reviewing the 
plan along with plans from other states. Under the new plan, NYSED 
expects to perform site visits at 37 of the state's approximately 700 
local educational agencies (LEA) by June 2011; the Division of Budget 
plans to visit 7 of the state's 36 2-year colleges by the end of this 
summer; and DHCR plans to visit approximately 4 of 60 vendors 
receiving Recovery Act mortgage foreclosure prevention grants by next 
spring. Thirty of the 37 NYSED visits will oversee the use of all 
Recovery Act funds, while the other NYSED, Division of Budget, and 
DHCR visits will focus only on SFSF funds. Each agency selected sites 
based on risk assessments or random sampling and will require 
corrective action if a finding is made. Figure 6 highlights some new 
and existing monitoring activities of Recovery Act funds for SFSF, 
ESEA Title I, and IDEA by NYSED's program and administrative offices. 
Monitoring Recovery Act education funds may pose a challenge as all of 
the NYSED offices have lost staff in recent years, which have not been 
replaced due to state budget cuts, and have incurred an increase in 
workload from the Recovery Act, such as reviewing a greater amount of 
grant applications from LEAs and providing support to LEAs struggling 
with Recovery Act requirements. 

Figure 6 Highlights of Some NYSED Monitoring Activities of SFSF, 
Recovery Act ESEA Title I, and IDEA Funds: 

[Refer to PDF for image: illustrated table] 

NYSED Office: Title I program office; 
LEAs apply for grant: Review of Title I applications’ proposed amount 
and use of funds; 
LEAs begin requesting reimbursement of expended funds: 
* Sample of desk audits; 
* Sample of on-site visits; 
* Detailed expenditure review on sample of requests for Title I 
reimbursements; 
LEAs request final reimbursement of expended funds: [Empty]. 

NYSED Office: IDEA program office; 
LEAs apply for grant: Review of IDEA applications’ proposed amount and 
use of funds; 
LEAs begin requesting reimbursement of expended funds: 
* Quality assurance review of IDEA quarterly report data; 
* Sample of desk audits; 
* Sample of on-site visits; 
* Detailed expenditure review on sample of requests for IDEA 
reimbursements; 
LEAs request final reimbursement of expended funds: [Empty]. 

NYSED Office: SFSF program office; 
LEAs apply for grant: Review of SFSF applications’ proposed amount and 
use of funds[A]; 
LEAs begin requesting reimbursement of expended funds: 
* Site visit to 12 LEAs on SFSF fund use[A]; 
* Quality assurance review of Recovery Act quarterly report data[A]; 
* Recovery Act quarterly reports compared to approved budget; 
LEAs request final reimbursement of expended funds: Review all final 
requests for SFSF reimbursement. 

NYSED Office: Grants Finance; 
LEAs apply for grant: [Empty]; 
LEAs begin requesting reimbursement of expended funds: 
* Review LEA cash balances to ensure no excessive interest earned[A]; 
* Flag LEA for further review if request large reimbursement early in 
project timeline; 
* Detailed expenditure review on sample of all requests for Recovery 
Act reimbursements; 
LEAs request final reimbursement of expended funds: Review of final 
request for reimbursement. 

NYSED Office: Office of Audit Services; 
LEAs apply for grant: [Empty]; 
LEAs begin requesting reimbursement of expended funds: Site visits to 
30 LEAs on Recovery Act fund use[A]; 
LEAs request final reimbursement of expended funds: Audit of final 
requests for reimbursement. 

Source: GAO analysis of NYSED information. 

[A] New monitoring initiative. 

[End of figure] 

Altogether, NYSED's program and administrative offices will conduct 42 
visits to approximately 37 LEAs under its new SFSF monitoring plan. 
Five of these LEAs will be visited by more than one office. As of 
April 28, 2010, NYSED has published reports on four LEAs selected for 
visits and found the following:[Footnote 22] 

* Three LEAs had submitted requests to NYSED for reimbursement of 
education stabilization funds that included estimated future 
expenditures when they should only include expenditures to date. 

* All of the LEAs lacked a process for ensuring compliance with 
federal cash management requirements to minimize the amount of time 
between receiving and disbursing funds and remitting interest on 
federal funds earned in excess of $100. However, the audits concluded 
that the LEAs did not earn interest exceeding $100 during the period 
audited. 

* Two of the four LEAs were not regularly preparing personnel activity 
reports as federally required for staff salaries that are paid by 
multiple funding streams. 

However, NYSED ESEA Title I and IDEA program officials said their 
offices have not enhanced their existing risk assessment for Recovery 
Act funds to account for the greater risk that funds could be misused 
because of the large increase in federal funding for these two 
programs from the Recovery Act. The ESEA Title I and IDEA program 
offices' existing monitoring protocols include reviews of annual 
applications for the approximately 700 LEAs, and desk audits and on- 
site visits of a sample of LEAs selected using risk based criteria, 
according to officials. 

Although Recovery Act Funds Provided the State and Localities with 
Short-term Budget Support, Shortfalls Persist for Projected Budgets: 

New York state continues to face fiscal challenges, and the state's 
March 2010 unemployment rate increased to 8.8 percent, compared with 
8.2 percent a year ago.[Footnote 23] Since our December 2009 report, 
the Governor has proposed a 2010-2011 Executive Budget that closes a 
projected $9.2 billion budget deficit through several avenues--
additional federal fiscal relief, spending reductions, and revenue 
actions, such as increases in taxes and fees.[Footnote 24] The 
Governor's plan recommends spending cuts in the following: school aid 
($1.1 billion, or 5 percent year-to-year, decrease), health care ($1 
billion, mainly in Medicaid and health care savings), and agency 
spending ($1 billion in reductions to state agency operations). The 
2010-2011 Executive Budget also proposes $1.2 billion in revenue 
actions that increase taxes and fees. However, the state legislature 
must approve a budget before the state can finalize it.[Footnote 25] 

According to state budget officials, Recovery Act funds have provided 
critical short-term support to state finances. For example, the state 
has accelerated the use of $391 million in SFSF funds by moving funds 
from future fiscal years to address the midyear budget gap in fiscal 
year 2009-2010. According to these officials, New York state plans to 
address the "funding cliff" that will result when Recovery Act funds 
are no longer available as part of the 2011-2012 Executive Budget. 
State officials will propose a range of efforts to close total 
projected budget gaps that grow from $5 billion in fiscal year 2011- 
2012 to approximately $12 billion by fiscal year 2013-2014. 

As identified in our December 2009 report, Recovery Act funds have 
provided short-term budget relief to several localities throughout the 
state. We followed up with two of these localities, New York City and 
Westchester County, to update their latest use of funds, current 
fiscal condition, and preparation for the phasing out of Recovery Act 
funds.[Footnote 26] (See table 1 for locality background information.): 

Table 1: Background on Selected Local Governments: 

Local government: New York City; 
Population: 8,363,710; 
Type of local government: City; 
Unemployment rate: 9.9%; 
Fiscal year 2010 operating budget: $63.5 billion. 

Local government: Westchester County; 
Population: 955,962; 
Type of local government: Suburban; 
Unemployment rate: 7.2%; 
Fiscal year 2010 operating budget: $1.8 billion. 

Source: U.S. Census Bureau and U.S. Department of Labor, Bureau of 
Labor Statistics, Local Area Unemployment Statistics. Operating budget 
detail obtained from the New York City May 2010 Budget Summary and 
Westchester County's 2010 Adopted Summaries County Current Operating 
Budgets. 

Notes: City population data are from the latest available estimate, 
July 1, 2008. 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 revisions. 

[End of table] 

New York City: 

Officials report that Recovery Act funds helped maintain fiscal 
stability. Since we last visited, New York City received $383 million 
in additional Recovery Act formula and competitive grants funds, 
bringing the city's total Recovery Act funds to over $7.2 billion for 
both capital and noncapital programs. Officials reported that Recovery 
Act funds helped offset expenses and maintain the city's fiscal 
stability to a significant extent. Programs in education ($1.9 
billion) and Medicaid ($2.8 billion) continue to be the major use of 
funds.[Footnote 27] Other programs that have recently received funding 
include a formula grant for Clean Water SRF projects ($219.5 million) 
and competitive grants for the Broadband Technology Opportunities 
Program ($22.2 million), the Health Information Technology Extension 
Program ($21.7 million), and the Neighborhood Stabilization Program 2 
($20.1 million). New York City officials reported applying for 93 
competitive grants. Of these, the city was awarded 21, denied 59, and 
awaits the decision on 13 grants.[Footnote 28] City officials stated 
they often work with local and nonprofit organizations to identify and 
apply for Recovery Act funds. 

Current and proposed cuts in state aid concern New York City 
officials. Although New York City revenues are projected to grow in 
fiscal year 2011, officials expect these levels to remain below 
prerecession totals. The city closed a projected fiscal year 2011 
budget gap of $4.9 billion through planned spending reductions and the 
use of the $3.3 billion surplus funds from fiscal year 2010. However, 
New York City officials noted that this gap-closure plan does not 
account for proposed reductions in state assistance as part of the 
state's budget actions. According to officials, the state's proposed 
$1.3 billion reduction in funding to New York City would likely result 
in potential layoffs in education (approximately 6,400 teachers) and a 
reduction of 800 uniformed firefighters through attrition. 

Officials are developing a plan for when Recovery Act funds are no 
longer available. New York City officials said they are aware of the 
funding cliff that will result when Recovery Act funds are no longer 
available and are currently working on a plan to prepare for it. 
Although the city's January 2010 Financial Plan closes the fiscal year 
2011 budget gap, the phasing out of Recovery Act funds will affect the 
budgets for fiscal years 2012 through 2014, when deficits above $3 
billion each year are expected to persist. New York City officials 
reported that any exit strategy from Recovery Act funds depends on the 
state's plan as well. 

Westchester County: 

Officials reported that Recovery Act funds affected fiscal stability. 
Since our December 2009 report, the county has received a $4.5 million 
Energy Efficiency and Conservation Block Grant (EECBG).[Footnote 29] 
However, the main uses of the county's $116.3 million in Recovery Act 
funds are upgrading the county's Mamaroneck Wastewater Treatment Plant 
($24.4 million) and for Medicaid ($35.6 million).[Footnote 30] 
Officials added that Recovery Act funds have helped counter declines 
in county revenues and offset some of the increased expenses in social 
services. Finally, county officials stated that the county maintains 
the application for and operation of many activities within the 
county, minimizing their need to coordinate with other local entities 
when applying for Recovery Act funds. 

Declines in sales tax and state aid continue to affect the county. The 
county budgeted about $1 billion in tax revenues for fiscal year 2010, 
with an almost even split between receipts from property and sales tax 
revenues. Although property tax revenues have held steady during the 
downturn, sales tax revenues decreased about 10 percent from fiscal 
years 2008 to 2009. Officials added that state aid has been stagnant 
or decreasing in recent years, including reductions in funding for 
major service areas such as health care and transportation. Officials 
also stated that costs of health care and retirement benefits have 
increased as well. As a result, officials forecast a fiscal year 2011 
budget gap of about 9 percent, even though sales tax revenues in 
fiscal year 2010 are predicted to increase 3 percent to 4 percent. 

Officials are identifying actions to address future budget gaps. 
Westchester County officials reported that they do not have a defined 
plan for addressing the funding cliff that will result when Recovery 
Act funds are no longer available. However, they are considering 
several actions to mitigate the phasing out of funds and future budget 
gaps. These actions include current fiscal year cuts to build a 
surplus for next year's predicted budget shortfall; possible layoffs; 
and addressing structural issues, such as Medicaid funding. Overall, 
county officials have sought to minimize future liabilities by 
focusing on grant applications for nonrecurring expenses in 
transportation and infrastructure over those for social services, 
which often require future-year funding. 

New York Has Multiple Entities with Recovery Act Oversight 
Responsibilities: 

In New York, the Stimulus Oversight Panel,[Footnote 31] Economic 
Recovery and Reinvestment Cabinet (headed by the Governor's office), 
and OSC are primarily responsible for statewide oversight of Recovery 
Act funds.[Footnote 32] In addition, an estimated 90 percent to 95 
percent of the state's Recovery Act funding will be part of the 
state's Single Audit. To date, these oversight entities have completed 
audits of a number of Recovery Act programs and reviewed crosscutting 
Recovery Act issues, such as civil rights compliance and recipient 
reporting.[Footnote 33] According to NYSIG officials, NYSIG also has 
ongoing investigations related to complaints received through the 
Stimulus Complaint hotline, which will be posted on its Web site when 
complete. 

Some findings from completed audits or oversight activities have led 
to enhanced guidance, revised procedures, or additional training. For 
example, NYSIG identified that funds from the Weatherization 
Assistance Program and Community Services Block Grants (CSBG) 
consistently have been distributed to many of the same community 
action groups with limited collective oversight and 
accountability.[Footnote 34] Therefore, NYSIG is working to enhance 
field reviews by having both state agencies responsible for these 
programs--DHCR and the Department of State--and others, when 
appropriate, jointly review community action groups. NYSIG also has 
developed a training curriculum on fraud, waste, and abuse awareness 
to provide on-site to community action groups, not-for-profits, and 
localities receiving Recovery Act funding, which will commence shortly. 

Another member of the Stimulus Oversight Panel, the Division of Human 
Rights (Human Rights), has examined general civil rights compliance 
procedures at agencies receiving Recovery Act funds. Human Rights 
determined that most agencies were aware of their general obligations 
to comply with the applicable civil rights laws and willing to 
investigate specific complaints if received. However, it found those 
agencies that do collect data about their contractors' employment 
practices do not analyze the data or monitor compliance. In response, 
it developed a set of best practices for compliance. It also has 
referred to a federal agency a possible violation regarding the award 
of a Recovery Act contract to a business fraudulently claiming 
minority status. 

OSC has completed four audits of procurement procedures for Recovery 
Act related highway projects at 39 municipalities. These audits found 
that the local governments followed sound procurement procedures when 
awarding contracts funded with Recovery Act funds. However, OSC, 
through its contract-review responsibility, uncovered an issue with 
vendor responsibility on a contract awarded by the New York State 
Department of Transportation. As a result, NYSDOT officials reported 
that OSC initially did not approve the $26.8 million Recovery Act 
highway contract and will now require more documentation of vendor 
responsibility for all new NYSDOT contracts over $100,000. In 
response, NYSDOT officials stated that NYSDOT convened a meeting of 
its Contract Review Unit, conducted further investigation, obtained 
additional documentation, and added an Integrity Monitoring Agreement. 
NYSDOT officials reported that OSC ultimately approved the initially 
rejected contract. 

The most recent Single Audit, which was issued November 25, 2009, for 
the fiscal year ending March 31, 2009, identified about $1.8 billion 
in Recovery Act spending through March 31, 2009, in five programs: 
Unemployment Insurance, Workforce Investment Act of 1998 (WIA) Adult 
Program, WIA Youth Activities, WIA Dislocated Workers, and Medicaid. 
The auditors reported material weaknesses in internal controls 
concerning 238 duplicate payments totaling $5,950 in the Unemployment 
Insurance program and inadequate identification of Recovery Act funds 
as separate from regular program funds for Medicaid. The state 
implemented a manual process to prevent future duplicate payments and 
took steps to improve identification of Recovery Act funds for 
Medicaid. According to officials, the Single Audit for the fiscal year 
ending March 31, 2010, will focus resources on the Weatherization 
Assistance Program and Highway Infrastructure Investment Program, 
which received significant Recovery Act funds. 

State Comments on This Summary: 

We provided the Governor of New York with a draft of this appendix on 
May 6, 2010. A representative from the Governor's office responded on 
May 10, 2010. We also provided various state agencies and local 
officials with the opportunity to comment. In general, they agreed 
with our draft and provided some clarifying and technical suggestions 
that were incorporated as appropriate. 

GAO Contacts: 

Susan Fleming, (202) 512-4431 or flemings@gao.gov: 

Dave Maurer, (202) 512-9627 or maurerd@gao.gov: 

Staff Acknowledgments: 

In addition to the contacts named above, Ronald Stouffer, Assistant 
Director; Emily Larson and Tiffany Mostert, analysts-in-charge; John 
Davis; Colin Fallon; Christopher Farrell; Sarah McGrath; Joshua 
Ormond; Summer Pachman; Anthony Pordes; Frank Putallaz; Glenn Slocum; 
and Yee Wong made major contributions to this report. 

[End of section] 

Footnotes: 

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

[2] The U.S. Department of Labor, Bureau of Labor Statistics (BLS) 
reported an 8.8 percent unemployment rate for New York state for March 
2010. This rate is preliminary and has not been seasonally adjusted. 

[3] The Recovery Act required states to reserve at least 20 percent of 
their funds for projects that address green infrastructure, water or 
energy efficiency, or other environmentally innovative activities. 

[4] This does not include obligations associated with over $175 
million of apportioned funds that was transferred from FHWA to the 
Federal Transit Administration (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. 

[5] Recidivism is a tendency to relapse into a previous condition or 
mode of behavior; especially relapse into criminal behavior. 

[6] These are known as direct local awards. 

[7] In July 2009, the Governor created a Stimulus Oversight Panel 
chaired by the New York State Inspector General (NYSIG) with the state 
Division of Human Rights Commissioner, Metropolitan Transportation 
Authority Inspector General (IG), and Medicaid IG as members. The 
panel meets on a biweekly basis to examine the use of Recovery Act 
funds by each of the 22 New York state agencies designated to receive 
them, to develop coordination with other state and federal law 
enforcement partners responsible for the oversight of Recovery Act 
funds, to discuss the progress of investigations whose allegations 
were received through the Stimulus Complaint hotline, and to initiate 
proactive reviews when deemed necessary. 

[8] State program departments and agencies also have internal audit 
departments that review Recovery Act funds and localities and transit 
or housing authorities play a role in managing some Recovery Act funds 
that do not pass through state offices. 

[9] 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. 

[10] A material weakness is a significant deficiency, or combination 
of significant deficiencies, that results in more than a remote 
likelihood that material noncompliance with a type of compliance 
requirement of a Federal program will not be prevented or detected by 
the entity's internal control. 

[11] This amount includes about $4.4 million in Clean Water Act (CWA) 
Section 604(b) Water Quality Management Planning Grants. Section 
604(b) of the CWA provides for the reservation of 1 percent of each 
state's Clean Water SRF allotment (or $100,000, if that is greater) 
each fiscal year to carry out planning under Sections 205(j) and 
303(e) of the CWA. New York uses 604(b) grants to fund regional 
comprehensive water quality management planning activities. According 
to New York officials, the 604(b) program is administered separate 
from the SRF program by NYSDEC. 

[12] NYSEFC, which helps administer both the Clean Water and Drinking 
Water SRFs, does not have an internal audit department. 

[13] This does not include obligations associated with $175.5 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. 

[14] The minimum percentage of Recovery Act JAG funds that New York 
state is required to pass through to local governments, referred to as 
"state pass-through funds" in this report, is 65.16 percent. 

[15] In April 2009, Governor Paterson signed a law to reform the RDL, 
which previously required mandatory minimum prison terms for drug 
offenses by eliminating mandatory prison sentences for many drug 
offenses and emphasizing treatment and prevention. The legislation 
also provides judges discretion to divert nonviolent drug-addicted 
individuals to treatment alternatives. 

[16] DHCR initially set aside $50 million and ultimately awarded $60.3 
million of Recovery Act funds to target multifamily housing that have 
specific weatherization needs. Much of this targeted housing consists 
of large multifamily housing projects whose weatherization requires 
special expertise to manage. In recognition of that need, DHCR awarded 
grants to nine temporary subgrantees as well as to three local 
weatherization agencies to manage these projects. 

[17] According to DHCR officials, on April 1, 2010, DHCR amended this 
policy by no longer requiring direct ownership investment for housing 
under the control of the federal, state, or local government such as 
public housing and publicly-assisted private housing. 

[18] The Building Performance Institute is a national independent not- 
for-profit standards development organization for residential energy 
efficiency and weatherization retrofit work. 

[19] Clients may be eligible for weatherization based on either 
categorical or income eligibility. Clients are categorically eligible 
if they receive public assistance, Supplemental Security Income, food 
stamps or Home Energy Assistance benefits. DHCR uses the Low Income 
Home Energy Assistance Program income guidelines to determine income 
eligibility for the weatherization program. 

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

[21] The SFSF monitoring plan was required as a condition of accepting 
education stabilization funds from the U.S. Department of Education 
and was recommended to New York by Education’s Office of Inspector 
General in New York State System of Internal Control over American 
Recovery and Reinvestment Act Funds, Ed-OIG/A02J0006 (Washington, 
D.C.: Nov. 10, 2009). 

[22] NYSED's Office of Audit Services has published these reports on 
its Web site at [hyperlink, 
http://www.oms.nysed.gov/oas/Audit_Report/SchoolDistricts/SchoolDistrict
s.html]. The school districts reviewed include Saranac Central, Malone 
Central, Hamburg Central, and Eden Central. 

[23] The U.S. Department of Labor, BLS reported the 8.8 percent 
unemployment rate for New York state for March 2010 and the 8.2 
percent unemployment rate for March 2009. The March 2010 rate is 
preliminary. Both the March 2010 and 2009 rates have not been 
seasonally adjusted. 

[24] State officials said that the state financial plan includes the 
receipt of $1.06 billion in increased federal Medicaid funds for 
fiscal year 2010-2011 and another $1.06 billion for fiscal year 2011-
2012. The Medicaid estimate is based upon the state's expectation that 
Congress will extend the temporary increase in the Federal Medical 
Assistance Percentage under the Recovery Act. 

[25] New York state operates on an April 1 through March 31 fiscal 
year. At the time of this report, the New York state legislature had 
not yet approved the budget details. 

[26] New York City operates on a July 1 to June 30 fiscal year while 
Westchester County operates on a January 1 to December 31 fiscal year. 

[27] New York City officials stated that this amount includes the 
receipt of increased federal Medicaid funds. The Medicaid estimate is 
based upon the city's expectation that Congress will extend the 
temporary increase in the Federal Medical Assistance Percentage under 
the Recovery Act. 

[28] For more information on specific New York City grants, see the 
Clean Water and Drinking Water SRFs and the Edward Byrne Memorial 
Justice Assistance Grants sections of this appendix. 

[29] Westchester County's Recovery Act funding detail is as of April 
6, 2010. 

[30] For more information on Westchester County's Mamaroneck 
Wastewater Treatment Plant, see the Clean Water and Drinking Water 
SRFs section of this appendix. 

[31] The NYSIG, state Division of Human Rights Commissioner, 
Metropolitan Transportation Authority IG, and Medicaid IG constitute 
the Stimulus Oversight Panel. 

[32] OSC is responsible for tracking and monitoring the progress of 
Recovery Act funding and ensuring that the funding meets established 
internal controls. OSC also must review and approve all contracts over 
$50,000; OSC does not have pre-approval authority over contracts 
awarded by local governments. 

[33] The following programs have been audited: Weatherization 
Assistance Program (Weatherization), Community Services Block Grants 
(CSBG), Highway Infrastructure Investment Program (Highways), 
Unemployment Insurance, Workforce Investment Act of 1998 (WIA) Adult 
Program, WIA Youth Activities, WIA Dislocated Workers, and Medical 
Assistance Program (Medicaid). Additional work is planned for 
Weatherization, Highways, WIA, and Medicaid. 

[34] NYSIG joined DHCR in fiscal and program audits of 11 community 
action groups that received Recovery Act weatherization grants and 
participated in a joint fiscal audit with the Department of State of a 
community action group receiving Recovery Act CSBG funding. 

[End of Appendix XIII] 

Appendix XIV: North Carolina: 

Overview: 

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

What We Did: 

Our work in North Carolina included gathering information about eight 
programs funded under the Recovery Act--3 education programs, the 
Weatherization Assistance Program, the Transit Capital Assistance 
Fund, the Dislocated Worker program under the Workforce Investment Act 
(WIA), and the Clean Water and Drinking Water State Revolving Funds. 
We also reviewed the use of Recovery Act funds for budget 
stabilization at the state level and in four local communities, and 
reviewed the work of the accountability community in monitoring and 
reporting on Recovery Act funds. For descriptions and requirements of 
the programs we covered, see appendix XVIII of GAO-10-605SP. 

For education, we reviewed North Carolina's monitoring plans for the 
expenditure of funds under the State Fiscal Stabilization Fund (SFSF), 
Title I of the Elementary and Secondary Education Act of 1965 (ESEA), 
as amended, and Part B of the Individuals with Disabilities Education 
Act (IDEA), as amended, to ensure local educational agencies (LEA) are 
spending the funds in compliance with applicable laws and regulations. 
We also reviewed the state's fiscal monitoring activities and visited 
two local educational agencies--Winston-Salem/Forsyth County Schools 
and Avery County Schools--to review Recovery Act spending and how LEAs 
were ensuring appropriate use of the funds. Our review of LEAs 
included an examination of local compliance with state directives 
governing procurement with Recovery Act funds. 

For the Weatherization Assistance Program in North Carolina, we 
visited the State Weatherization Office and three community action 
agencies that are executing the program (Four County Community 
Services, Laurinburg, N.C.; Martin County Community Action, 
Williamston, N.C.; and Watauga-Avery-Mitchell-and Yancey Counties 
(W.A.M.Y.) Community Action Agency, Boone, N.C.). We interviewed 
officials and reviewed guidance and other documents related to the 
Weatherization Assistance Program pertaining to monitoring, client 
eligibility, and program status. We also reviewed 10 client files from 
each of the three community action agencies to determine completeness 
of the files and inclusion of required documentation. We also 
accompanied weatherization staff as they performed initial audits, 
work in progress, and final inspection of nine homes. 

For the transit program, we visited the North Carolina Department of 
Transportation and AppalCART, a local transportation agency, to follow 
up on their oversight of the construction of AppalCART's new transit 
facility. 

For the Dislocated Workers program, we visited the North Carolina 
Department of Commerce to gather information about the state workforce 
development board's use of Recovery Act funds for the program. We also 
visited two local Workforce Development Boards, Lumber River and 
Charlotte-Mecklenburg, to review the use of funds at the local level. 

We reviewed the Clean Water and Drinking Water State Revolving Funds 
(SRF) under the direction of the North Carolina Department of 
Environment and Natural Resources (DENR), which is distributing these 
funds; interviewed state officials; and reviewed documents. In 
addition we interviewed officials at the Charlotte-Muddy 
Creek/Campbell Creek Project for the Clean Water SRF and at the 
Perquimans County Winfall Treatment Plant Project for the Drinking 
Water SRF. The Clean Water project was in an urban area and a Green 
Reserve Requirement Program project. The Drinking Water project was in 
a rural community and serves a community in need of drinking water 
infrastructure improvements. 

To learn more about use of Recovery Act funds to stabilize state and 
local budgets, we visited four local communities--Bladen County, the 
City of Durham, Halifax County, and the City of Jacksonville. We also 
interviewed state budget officials to gather information about the 
state's fiscal condition, including challenges to future economic 
recovery. 

What We Found: 

* Education. North Carolina conducts on-going fiscal monitoring of LEA 
expenditures under the three Recovery Act programs--SFSF, IDEA Part B, 
and ESEA Title I--through its existing processes of electronic systems 
checks, yearly desk audits, and selected on-site monitoring as well as 
some additional reviews incorporated specifically for SFSF. Although 
North Carolina has a range of monitoring processes in place, 
weaknesses in LEA monitoring efforts--allowing use of federal funds on 
potentially unallowable purchases and failure to follow some 
procurement regulations, for example--show the need for the state to 
enhance its monitoring efforts related to the use of Recovery Act 
funds. We also discussed with North Carolina officials their 
experiences with meeting education reform assurances for SFSF and 
implementing the Recovery Act School Improvement Grant (SIG) program. 
These officials reported that additional funding would help further 
enhance and expedite data collection efforts related to meeting the 
assurances and that limited time to disburse funds to LEAs is the 
primary challenge in implementing the SIG program in the state. 
Finally, we found that while North Carolina has processes in place to 
collect and review LEA and institution of higher education (IHE) 
recipient reporting data, more review by the state is necessary to 
ensure that the data local entities submit is accurate. For example, 
in the second round of recipient reporting, the state likely missed 
under-reporting by one IHE because the state does not collect and 
review IHEs' supporting documentation. 

* Weatherization. North Carolina weatherization officials have 
established several controls to ensure subgrantees' compliance with 
Recovery Act requirements, but face challenges meeting monitoring 
goals due to staffing levels. Subgrantees reported that slow 
allocation and reimbursement of funds by the state agency created 
challenges for them in executing the program. 

* Transportation. We found that the North Carolina Department of 
Transportation and AppalCART, a local transit agency, are experiencing 
challenges in providing oversight for the first non-urban, Recovery 
Act-funded transit infrastructure project in the state; and the 
Recovery Act Buy American and prevailing wage requirements for that 
project had not been enforced or monitored. 

* Dislocated Workers. The North Carolina Division of Workforce 
Development distributed 60 percent of the nearly $44 million in 
Recovery Act funds it received for the WIA Dislocated Worker program. 
The state trained 38 percent more dislocated workers between July 1, 
2009, and December 30, 2009, than in the corresponding period in the 
previous year. The local areas we visited--Lumber River and Charlotte/ 
Mecklenburg had over a 300 percent increase in the number of 
dislocated workers who participated in training compared to the same 
period in the previous year. State officials told us Recovery Act 
funds are primarily being used for individual training accounts, which 
individuals use to purchase training. 

* Clean and Drinking Water State Revolving Funds. State officials told 
us they have met all the Recovery Act deadlines with minimal 
challenges including the February 17, 2010, deadline for projects to 
be under contract. In the Clean Water SRF Green Reserve Requirement 
Program, challenges included applicants failing to obtain needed 
easements prior to loan approval and the subsequent need to find other 
loan applicants.[Footnote 2] In the Drinking Water Program, officials 
noted late or insufficient guidance from the Environmental Protection 
Agency (EPA) and the Department of Labor (Labor). The state set a 
maximum loan amount of $3 million per project when distributing 
Recovery Act funds in order to spread funding across a larger number 
of assistance recipients and established principal forgiveness to 
encourage participation. 

* State and Local Budget Stabilization. The localities we visited used 
Recovery Act funds to support a variety of initiatives. Although their 
budgets differed in terms of stability, officials in all four 
localities told us that the Recovery Act funds they received helped to 
start, continue, or speed up a variety of programs and projects in 
their jurisdictions. However, they also told us Recovery Act funds 
were not enough to affect their government's fiscal stability. Local 
officials told us they continue to face difficult budget decisions in 
the wake of declining property and sales tax revenues. State officials 
told us North Carolina continues to face significant budget 
challenges, but reported signs of improvement in revenues for the 
first quarter of 2010. 

North Carolina Has Incorporated Monitoring of LEAs' Use of Recovery 
Act Funds into Existing Education Monitoring Practices and Protocols: 

As of April 16, 2010, North Carolina had drawn down about $546 million 
(47 percent) of its $1.2 billion in SFSF education stabilization 
funds, $82 million (20 percent) of its $258 million in ESEA Title I 
funds, and $124 million (38 percent) of its $327 million in IDEA Part 
B Recovery Act education funds.[Footnote 3] For these programs, we 
reviewed North Carolina's monitoring plans to examine the extent to 
which the state is ensuring that LEAs are spending the funds in 
compliance with applicable federal laws and regulations. North 
Carolina Department of Public Instruction (DPI) officials reported 
that the department conducts ongoing fiscal monitoring of expenditures 
of federal, state, and local funds for all LEAs through its electronic 
systems and yearly desk audits. DPI has incorporated its review of 
Recovery Act funds into these existing processes and conducts 
additional checks of SFSF funds. Additionally, DPI staff makes on-site 
fiscal monitoring visits to selected LEAs to review internal controls 
and the extent to which education expenditures comply with federal 
laws and regulations. DPI officials said that they have also 
incorporated a review of Recovery Act funds into protocols staff use 
during on-site visits. Although North Carolina has a range of 
monitoring processes in place, weaknesses in LEA monitoring efforts 
provide an opportunity for the state to enhance its efforts related to 
the use of Recovery Act funds. 

North Carolina Monitors Recovery Act Funds through Existing Electronic 
Systems and Desk Audits: 

DPI officials reported that they monitor LEAs' use of federal 
education funds, including Recovery Act funds, through existing 
systems and procedures. For example, DPI monitors how LEAs spend funds 
through reports of all LEA expenditures that are electronically 
generated by LEA accounting systems each month.[Footnote 4] LEAs are 
also required to submit budgets to DPI through the state Budget 
Utilization and Development (BUD) system, which captures salary data 
and information on equipment purchases over $5,000. Each month, DPI 
compares the monthly expenditure data that LEAs submit to the data in 
BUD. These expenditure data are also run through a series of 
electronic checks through DPI's Uniform Education Reporting System to 
determine compliance with certain accounting specifications. Once the 
expenditure data have passed these checks, they are validated against 
the state's Uniform Chart of Accounts to determine which expenditures, 
if any, are coded to unallowable or invalid account codes. DPI 
officials said that they request corrections from those LEAs that have 
expenditures assigned to an unallowable or invalid account code. 

Additionally, DPI officials told us that it conducts a variety of 
additional monitoring steps. For example, staff in the ESEA Title I 
and IDEA Part B program offices conduct routine comparisons of LEA 
budgets with expenditures in these programs. DPI officials also said 
that the department conducts audits of all expenditures coded as 
"certified personnel" (i.e., teachers) through the state's salary and 
licensure database to ensure that the employees coded to a specific 
grant are paid from an allowable fund and that the employees are 
certified with the appropriate licenses. Finally, DPI officials 
reported that the department conducts yearly reviews of findings from 
the independent Single Audits required for all LEAs.[Footnote 5] DPI 
officials said, based on the Single Audit findings, DPI would initiate 
actions against LEAs ranging from a request for an action plan from an 
LEA to a requirement for the LEA to repay funds. 

North Carolina Conducts Some On-Site Monitoring of Recovery Act 
Education Funds through Existing Procedures and Conducts Some 
Additional Monitoring of SFSF Education Stabilization Funds: 

DPI officials said that they also monitor LEAs' use of federal funds, 
including Recovery Act funds, through visits to selected LEAs. DPI 
officials reported that the ESEA Title I program monitoring schedule 
determines the state's schedule for on-site fiscal monitoring of LEA 
use and management of all federal funds, including Recovery Act funds. 
[Footnote 6] DPI officials reported that they use a risk assessment 
protocol for selecting LEAs that is primarily based on ESEA Title I 
program issues, including factors such as number of schools designated 
as "in improvement"[Footnote 7] but also includes information from LEA 
Single Audit findings and other factors.[Footnote 8] LEAs deemed high 
risk receive priority for an on-site visit from state ESEA Title I 
staff and DPI's fiscal monitoring staff, with the goal of visiting all 
LEAs once every 5 years.[Footnote 9] DPI officials reported that as of 
April 2010 it had completed fiscal monitoring in all of the 11 LEAs 
scheduled for on-site visits for the 2009-2010 year (visits were 
scheduled to begin in December 2009 and conclude in April 2010). 

However, DPI did not modify its existing risk assessment process for 
selecting LEAs for on-site monitoring after the receipt of Recovery 
Act education funds. DPI officials told us that they are currently in 
year 5 of their monitoring cycle, meaning they are primarily visiting 
LEAs with lower risk ratings. They said that they did not redo the 
risk assessment based on the receipt of Recovery Act funds, but 
decided to stick with their 5-year plan and visit LEAs that have not 
been visited. A DPI official explained that because North Carolina 
does not provide funding for fiscal monitoring, staff must work within 
the Title I schedule in order to use federal funds for fiscal on-site 
visits. Further, the North Carolina State Auditor recently reported 
that, for the IDEA program, DPI did not alter its monitoring plans to 
ensure that subrecipients of Recovery Act funds would be monitored 
prior to the expiration of the grant.[Footnote 10] As we have 
previously reported, a component of strong internal control is the use 
of risk assessments to identify relevant risks for their possible 
program impact and establish policies and procedures to manage those 
risks. We have also reported that Recovery Act programs should be 
reviewed before significant funding is expended.[Footnote 11] A risk 
assessment that incorporates consideration of new risks from Recovery 
Act funds, would allow DPI to identify those LEAs most at risk for 
mismanagement of the funds. 

While the fiscal monitors' visits are determined by the Title I 
program, a DPI official reported that the scope of the fiscal reviews 
conducted by the fiscal monitors goes beyond the scope of the ESEA 
Title I office's protocol, which focuses on programmatic aspects of 
ESEA Title I. DPI's fiscal monitoring checklist indicates that DPI 
staff review the following to ensure compliance with state and federal 
requirements: 

* documentation certifying time and effort for employees paid with 
federal funds, 

* maintenance of records for equipment purchased with federal funds, 
and: 

* staff knowledge about written policies and procedures to ensure 
proper internal controls are in place. A DPI official said that 
monitors interview key LEA staff to ascertain their familiarity with 
these policies. 

After conducting fiscal monitoring visits, DPI issues a written report 
to LEAs with observations and any recommendations for further action. 
DPI officials reported that their ability to conduct the on-site 
fiscal monitoring visits to LEAs had been limited because DPI's fiscal 
monitoring office had only one staff member assigned to do on-site 
monitoring until it hired a second person in February 2010. 

As we reported in December 2009, DPI developed a plan to monitor SFSF 
education stabilization funds.[Footnote 12] DPI's written monitoring 
plan for SFSF funds incorporates all of the state's existing 
electronic monitoring and desk audits conducted for all LEAs. In 
addition, DPI officials said that in October 2009 they began to 
conduct monthly comparisons of LEA budgets and monthly SFSF 
expenditures for approximately 30 LEAs. Specifically, officials said 
that each month DPI selects five LEAs based on the amount of funding, 
five LEAs based on risk factors such as single audit findings, and 20 
LEAs at random. Additionally, DPI staff conducts on-site monitoring of 
SFSF funds during their visits to monitor the use of other federal 
funds. 

LEA Weaknesses in Monitoring Use of Federal Education Funds Highlight 
Opportunities for North Carolina to Enhance Its Monitoring Efforts: 

We visited two LEAs--Winston-Salem/Forsyth County Schools (WSFCS) and 
Avery County Schools (ACS)--to review Recovery Act spending and how 
the LEAs were ensuring appropriate use of the funds. Specifically, we 
reviewed Recovery Act expenditures for SFSF, ESEA Title I, and IDEA 
Part B and the supporting documentation, including contracts, 
associated with these expenditures.[Footnote 13] We chose WSFCS 
because of its sizable allocation of Recovery Act funds and multiple 
Single Audit findings regarding its use of federal funds. We chose 
Avery County Schools because it had received a monitoring visit from 
DPI. A comprehensive account of our findings in both LEAs is outlined 
in a letter to DPI.[Footnote 14] Our findings in these LEAs highlight 
some opportunities for North Carolina to enhance its on-site 
monitoring protocol to address issues arising from LEA use of Recovery 
Act funds. Also, our findings indicate that North Carolina's 
monitoring efforts could benefit from reassessing LEA risks in light 
of additional risks resulting from Recovery Act funds. We have 
discussed our findings with DPI officials, and they told us they are 
taking actions to enhance their oversight of LEAs based on what we 
found. 

In February 2010, we visited WSFCS, the fifth-largest LEA in North 
Carolina and the recipient of the fifth largest Recovery Act education 
award in the state. WSFCS received about $36 million in SFSF, ESEA 
Title I, and IDEA Part B Recovery Act funds. The district used these 
funds for salaries, equipment purchases, professional development for 
teachers, a summer youth program for students in ESEA Title I schools, 
and other purposes. According to DPI officials, WSFCS had not received 
an on-site fiscal monitoring visit since 2006--the first year of the 
current 5-year monitoring cycle. In our review of documentation 
supporting WSFCS's Recovery Act expenditures, we found that WSFCS 
expended $38,400 of Recovery Act and non-Recovery Act ESEA Title I 
funds[Footnote 15] for a 2009 summer program and that some of those 
funds may have been used to pay for entertainment expenses, a possibly 
unallowable use of the funds.[Footnote 16] The program, operated by 
the Housing Authority of Winston-Salem, was designed to assist 
students in ESEA Title I schools retain educational gains over the 
summer months. Officials affiliated with the summer program told us 
that students spent approximately 3 hours, 4 days a week, on 
educational activities and one 8-hour day per week on academic field 
trips that included trips to science centers, planetariums, and 
colleges. However, in our review of documents held by the Housing 
Authority of Winston-Salem, we found evidence that the program also 
used ESEA Title I, Part A funds to pay for non-academic field trip-
related expenses, including tickets for movies, a water park, fast 
food, and other potentially unallowable expenses. For example, field 
trips for students included a trip to the movie theatre to see Ice Age 
and Terminator for a total of $405.50, and a trip to a water park for 
$961.23 (including food and locker rentals). WSFCS officials told us 
that, to their knowledge, district staff did not monitor the summer 
program but said that they related their expectations for how funds 
were to be used to the housing authority officials implementing the 
program. After learning about the potentially unallowable expenses 
through our visit, WSFCS officials told us that they had submitted a 
request to the state to reprogram the $38,400 used from their ESEA 
Title I accounts (Recovery Act and non-Recovery Act) to their local 
fund. A DPI official said that reprogramming the funds would be one 
aspect of a solution the state would review, but that they would also 
consider the extent to which an LEA has implemented controls to 
prevent similar situations from occurring in the future. 

We also visited Avery County Schools (ACS) in February 2010; it was 
one of two LEAs that had received a 2009-2010 on-site fiscal 
monitoring visit from DPI as of December 2009. ACS received about $1.5 
million in SFSF, ESEA Title I, and IDEA Part B Recovery Act funds. ACS 
officials reported that the district spent the funds for salaries, 
purchases of equipment, and professional development for teachers. For 
the district's small purchases of equipment, we found, and ACS 
officials agreed that the district did not conduct price or cost 
analyses for some purchases, document that they had obtained multiple 
bids or price quotes, or document reasons for entering into 
noncompetitive contracts. ACS officials said that they are using their 
district's existing policies and procedures for purchases using 
Recovery Act funds, but also acknowledged that, for at least one of 
their contracts, they were out of compliance with the district's 
policy regarding the requirement to obtain multiple bids for 
expenditures over $10,000. ACS officials said that the district's 
expenditure requirement of $10,000 exceeded the state's requirement 
and that after our visit, the district revised the local policy so 
that it is consistent with the state requirement. DPI's fiscal monitor 
reviewed two ACS Recovery Act purchases totaling $104,738.98, and 
reported that the invoices included sufficient detail to show that 
services were rendered. The report also noted that the procurement 
official did not have a clear understanding of written procurement 
requirements. 

Our initial observation regarding procurement in the two LEAs was that 
the districts did not maintain documentation showing competition, 
supporting decisions on competitive and non-competitive contracts, or 
having conducted price or cost analyses. A senior finance 
administrator with DPI said that in response to our initial 
observations, the fiscal on-site monitoring visits would be expanded 
to include a more robust review of LEA purchases. Specifically, 
according to a DPI official responsible for LEA monitoring, DPI's 
fiscal monitors have changed their review to interview LEA finance 
staff regarding their written policies for procurement and ask these 
staff to guide them through the LEA's procedures (written and 
unwritten) on procurement. This official said that the interviews 
would allow the monitors to assess internal controls on procurement 
and ensure that the LEAs are following their own procurement policies 
and procedures. This DPI official also reported that monitors request 
documentation of multiple bids or price quotes for Recovery Act 
purchases to ensure compliance with new state requirements for 
Recovery Act purchases. However, DPI officials reported that the 
department does not review whether LEAs have documentation required by 
the state to support the type of procurement or whether or not a price 
or cost analyses was conducted. 

North Carolina's DPI Expands LEA Reviews to Ensure Compliance with 
State Procurement Directive for Recovery Act Purchases: 

In May 2009, according to state officials, North Carolina's Office of 
Economic Recovery and Investment (OERI) issued a directive regarding 
the use of Recovery Act funds for procurements of goods and services. 
According to state officials, this directive states that recipients of 
Recovery Act funds are required to advertise contracts for $5,000 or 
more and obtain multiple bids or price quotes for Recovery Act 
procurements, among other things.[Footnote 17] At the time of our LEA 
visits, WSFCS and ACS reported that they were not yet in compliance 
with OERI's directive. DPI officials told us that a review of LEA 
compliance with the state procurement directive was not, at that time, 
a part of their fiscal monitoring protocol. However, DPI has 
subsequently added a review of LEA compliance with some aspects of the 
OERI directive to its on-site visits. 

OERI officials reported that in response to our observations regarding 
LEA compliance, they began to increase communication about the 
procurement directive among the state's LEAs through e-mail notices 
and announcements in statewide meetings with administrators. For 
example, in April 2010, OERI sent a letter to LEA superintendents and 
finance officers reminding them of the state directives for 
procurements with Recovery Act funds and the role DPI would take in 
ensuring compliance. Also, in response to our observations, OERI 
issued another management directive in April 2010 directing North 
Carolina's state agencies to ensure compliance with Recovery Act 
procurement requirements. According to state officials, this 
management directive requires state agencies to design an audit 
program for Recovery Act projects and contracts that includes 
regularly scheduled on-site visits and desk reviews. Further, in this 
audit program, state agencies are to check subrecipients' compliance 
with OERI's May 2009 directives. According to state officials, OERI's 
directive required an initial report on April 30, 2010, of state 
agencies' plans and a report every 30 days thereafter certifying that 
subrecipients used a competitive process for Recovery Act purchases. 
OERI also scheduled several technical assistance seminars around the 
state to provide guidance on complying with its directives. A DPI 
official said that the department plans to ask LEAs to self-report 
compliance with OERI's requirements and fiscal monitors will check the 
accuracy of these reports during on-site monitoring visits. However, 
DPI officials reported that OERI's additional monitoring requirements 
pose an administrative challenge to the department given its limited 
monitoring staff. 

Some Efforts in North Carolina to Fully Meet SFSF Education Reform 
Assurances Depend on Additional Federal Funding: 

State officials said that some efforts in North Carolina to meet SFSF 
education reform assurances were under way prior to the state 
receiving Recovery Act funds. Additionally, these officials reported 
to us that most of the indicators and descriptors related to these 
reform assurances were also under way in the state prior to receiving 
funds.[Footnote 18] However, state officials reported to us that 
Recovery Act funds have helped to expedite ongoing efforts and 
additional federal funding would help further expand their ongoing 
efforts, including efforts to collect data linked to the assurances. 
When we spoke with North Carolina officials in March 2010, they 
described a need for additional federal funding to expand efforts in 
teacher quality and to create state systems to collect teacher and 
principal performance data and track high school student enrollment in 
the state's institutions of higher education as required by Education. 
North Carolina's 2009 equity plan for highly qualified teachers states 
that North Carolina has a shortage of highly qualified teachers who 
are able to teach special education students. The plan attributes the 
shortage, in part, to a determination by Education that the test North 
Carolina used to qualify teachers was not sufficient for demonstrating 
mastery at the secondary level. State officials described wanting to 
use Race to the Top funds to expedite the statewide rollout of a pilot 
program to address this shortage.[Footnote 19] Without additional 
federal funding, these officials said that while they would not 
dismantle the program, the statewide rollout will be much slower. 
State officials reported that they were also hoping to use Race to the 
Top funds to implement a previously piloted, Web-based tracking system 
to collect performance data on teachers and principals. North 
Carolina's plan for this effort states that the system would cost 
North Carolina about $6 million over 4 years. State officials said 
that without the additional federal funding, they would continue to 
meet this education reform goal but with a more limited system created 
by a state agency that would cost $54,700. 

North Carolina submitted an application in December 2009 to Education 
for a Statewide Longitudinal Data Systems Grant award to fund 
development of a statewide longitudinal data system that links high 
school data with data from institutions of higher education to allow 
the state to track the number of students who enroll in state 
institutions of higher education. This system, estimated to cost 
$536,000, would build upon North Carolina's current pre-K-12 state 
longitudinal data system, which it created using a federal grant. 
State officials reported that they intend to use the funds to 
accelerate the establishment of the new portion of the system and 
thereby create a more streamlined system that allows the various 
educational sectors to share data and allows the integration of data 
from independent colleges. If North Carolina does not receive a 
Statewide Longitudinal Data Systems Grant award, state officials said 
that they will be unable to bring independent colleges into a unified 
system.[Footnote 20] 

Limited Time to Disburse Funds Cited as Potential Challenge to 
Implementation of ESEA Title I School Improvement Grants: 

Education approved North Carolina's Recovery Act ESEA Title I School 
Improvement Grant (SIG) application on April 6, 2010. States are 
expected to disburse the majority of SIG funds to LEAs for the 2010- 
2011 school year. DPI officials said that the limited amount of time 
to get the funds out to LEAs was the most significant challenge in 
implementing the grant. North Carolina's SIG application lists June 30 
as the deadline for final approval of any LEAs receiving funds. DPI 
officials said that they distributed a draft LEA application and held 
webinars with LEAs and school administrators to mitigate the effect of 
the short period for making awards to LEAs. DPI officials reported 
that in order to ensure that LEAs and schools receiving SIG funds have 
sufficient technical assistance from the state they are reserving the 
permitted 5 percent of their SIG award for administration, evaluation, 
and monitoring. DPI officials said that these additional 
administrative funds reserved from their SIG grant are minimal but 
would pay for the development of a teacher leadership program to train 
teacher-coaches. The teacher leadership program will provide 
professional development to teachers around the state who will serve 
as local resources to assist schools in implementing their 
intervention models.[Footnote 21] DPI officials said that by investing 
in professional development they will create a sustainable cadre of 
coaches to assist schools after Recovery Act funds end. 

North Carolina Uses Most of its SFSF Government Services Funds for 
State Salaries: 

North Carolina received about $258 million in SFSF government services 
funds. Table 1 provides a description of the state's spending of these 
funds for fiscal years 2009 through 2012. North Carolina's largest 
single use of the funds, about $150 million in fiscal year 2009, was 
payroll in the state's Department of Correction. In total, salaries 
for existing and new staff comprised about $250 million (97 percent) 
of North Carolina's total government services funds allocation. About 
$5 million of the funds will pay for a new budget system for the state 
and about $2.3 million was or is scheduled to be spent on staff and 
other efforts related to monitoring. North Carolina's Office of State 
Budget and Management (OSBM) administers SFSF government services 
funds. 

Table 1: North Carolina's Uses of SFSF Government Services Funds for 
Fiscal Years 2009 through 2012: 

Office of State Budget and Management: 

Information technology; 
Funding amount: $428,570; 
Fiscal year 2009: [Empty]; 
Fiscal year 2010: [Check]; 
Fiscal year 2011: [Check]; 
Fiscal year 2012: [Check]. 

Payroll for 4 new internal auditors; 
Funding amount: $1,261,489; 
Fiscal year 2009: [Empty]; 
Fiscal year 2010: [Check]; 
Fiscal year 2011: [Check]; 
Fiscal year 2012: [Check]. 

New budget system; 
Funding amount: $5,170,453; 
Fiscal year 2009: [Empty]; 
Fiscal year 2010: [Check]; 
Fiscal year 2011: [Check]; 
Fiscal year 2012: [Check]. 

OSMB Total; 
Funding amount: $6,860,512; 
Fiscal year 2009: [Empty]; 
Fiscal year 2010: [Empty]; 
Fiscal year 2011: [Empty]; 
Fiscal year 2012: [Empty]. 

Office of Economic Recovery and Investment: 

Establishment of office (salaries and benefits); 
Funding amount: $1,968,136; 
Fiscal year 2009: [Empty]; 
Fiscal year 2010: [Check]; 
Fiscal year 2011: [Check]; 
Fiscal year 2012: [Empty]. 

Monitoring and compliance; 
Funding amount: $565,000; 
Fiscal year 2009: [Empty]; 
Fiscal year 2010: [Check]; 
Fiscal year 2011: [Check]; 
Fiscal year 2012: [Empty]. 

Other; 
Funding amount: $622,400; 
Fiscal year 2009: [Empty]; 
Fiscal year 2010: [Check]; 
Fiscal year 2011: [Check]; 
Fiscal year 2012: [Empty]. 

OERI Total; 
Funding amount: $2,389,246[A]; 
Fiscal year 2009: [Empty]; 
Fiscal year 2010: [Empty]; 
Fiscal year 2011: [Empty]; 
Fiscal year 2012: [Empty]. 

Department of Administration: 

Payroll for three new contract compliance monitors; 
Funding amount: $444,600; 
Fiscal year 2009: [Empty]; 
Fiscal year 2010: [Check]; 
Fiscal year 2011: [Check]; 
Fiscal year 2012: [Check]. 

Department of Correction: 

Payroll; 
Funding amount: $176,574,356; 
Fiscal year 2009: [Check]; 
Fiscal year 2010: [Check]; 
Fiscal year 2011: [Check]; 
Fiscal year 2012: [Empty]. 

Administrative Office of the Courts: 

Payroll; 
Funding amount: $66,585,556; 
Fiscal year 2009: [Check]; 
Fiscal year 2010: [Empty]; 
Fiscal year 2011: [Empty]; 
Fiscal year 2012: [Empty]. 

North Carolina Virtual Public School: 

Payroll; 
Funding amount: $3,877,840; 
Fiscal year 2009: [Empty]; 
Fiscal year 2010: [Check]; 
Fiscal year 2011: [Empty]; 
Fiscal year 2012: [Empty]. 

Total SFSF government services funds; 
Funding amount: $256,732,110[B]. 

Source: North Carolina Office of State Budget and Management. 

[A] The total amount incorporates a reduction based on North 
Carolina's reservation of 0.3 percent of Recovery Act grants in the 
amount of $766,290 for fiscal years 2009 and 2010. 

[B] According to an OSBM official, the $1.79 million remaining in 
North Carolina's total government services funds award is reflected in 
North Carolina's amended SFSF application and allocated for public 
safety. At the time of our review, this official noted that the funds 
had not yet been included in the budget. 

[End of table] 

OSBM officials reported that the administration of federal funds is a 
new responsibility for the agency. These officials reported that in 
order to ensure proper oversight of the state's use of government 
services funds, they reviewed the plans of other states, worked with 
OSBM internal auditors to design a monitoring protocol, and used 
government services funds to hire four temporary internal auditors. 
OSBM officials also said that the agency sent information to state 
agencies receiving SFSF government services funds to ensure that these 
agencies, as subrecipients, were aware of their responsibilities 
regarding the uses of the funds. OSBM's written monitoring protocol 
describes a three-pronged process for its ongoing monitoring of 
government services funds. According to this plan, OSBM budget 
analysts will conduct monthly reviews of state agencies' budget and 
expenditure reports to verify that the budget and expenditures are 
recorded using the correct Recovery Act expenditure code(s), charged 
to the correct or authorized accounts, and recorded in the correct 
amounts. OSBM also reviews agencies' data for recipient reporting to 
ensure that the reported expenditures match the approved budget 
allocation and draw down amounts. Finally, OSBM's internal audit staff 
conduct periodic reviews of agencies' uses of government services 
funds. To ensure accurate accounting for recipient reports, five 
audits are scheduled to generally cover fiscal years 2009 through 
2012, with the first audit having occurred in March 2010. OSBM's 
protocol includes selecting a sample of SFSF government services funds 
transactions to test for compliance with state and SFSF requirements 
and cash management policies and procedures, as well as testing the 
accuracy of performance data for a sample of subrecipients. 

North Carolina Faces Challenges in Monitoring Subgrantees' Execution 
of the Weatherization Assistance Program, Despite Established 
Procedures: 

The Recovery Act appropriated $5 billion for the Weatherization 
Assistance Program, which the U.S. Department of Energy (DOE) is 
distributing to each of the states, the District of Columbia, and 
seven territories and Indian tribes, to be spent by March 31, 2012. 
North Carolina's Department of Commerce (NCDOC) is the prime recipient 
for the federal Weatherization Assistance Program's Recovery Act 
funding. The goal of the program is to improve energy efficiency, 
increase household safety, and educate the public about maintaining 
energy efficiency. The program serves low-income individuals, with a 
focus on reaching the elderly, individuals with disabilities, families 
with children, and high energy users. Weatherization assistance is 
available for single-family homes, apartments, condominiums, and 
mobile homes. An applicant for weatherization assistance is not 
required to own the home for which the assistance is sought, but the 
applicant, if a renter, must have the landlord's permission for the 
weatherization work to be done. 

NCDOC is responsible for developing the state's Weatherization 
assistance plan--currently covering April 1, 2009 through March 31, 
2012--and for monitoring and overseeing its implementation. NCDOC 
provides funding to 28 subgrantees--22 community action agencies, 3 
nonprofit organizations, and 3 local government units--that administer 
the program locally and provide weatherization services to all 100 
North Carolina counties. As of March 31, 2010, the DOE had provided 
North Carolina 50 percent--approximately $66 million--of its 3-year 
Weatherization Assistance Program Recovery Act funding.[Footnote 22] 
NCDOC retained $13 million of these funds for program administration, 
training, and technical assistance for subgrantees, and awarded the 
remaining $53 million to the 28 local subgrantees for weatherizing 
over 22,000 homes by March 31, 2012. Each subgrantee is required to 
submit an annual application that includes a description of the scope 
of the weatherization work it will perform, including the number of 
homes to be weatherized; an implementation schedule; and a detailed 
budget. In order to determine the number of homes to weatherize, North 
Carolina's Recovery Office established the average weatherization 
expenditure at $4,000 per home, significantly less than the $6,500 
federal maximum per home average limit for weatherization. As of March 
31, 2010, the subgrantees reported completing 1,715 units--about seven 
percent of the total homes identified for weatherization in the DOE-
approved state plan. According to the NCDOC Weatherization Program 
Manager,[Footnote 23] the agency recently received approval from the 
governor's office to use $6,000 as the average per home limit for 
weatherization in North Carolina and plan to amend the state's 
weatherization assistance plan to reflect this change. 

Subgrantees can use the weatherization funds for a variety of 
purposes, including educating clients in safety and energy efficiency; 
professionally evaluating homes for safety and energy efficiency; 
cleaning, evaluating and tuning heating and air conditioning systems; 
insulating attics, floors, and walls; making minor home repairs for 
health and safety reasons; installing smoke and carbon monoxide 
detectors; and identifying average energy usage and general heat 
waste. To identify weatherization measures a home needs, during the 
initial home assessment, energy auditors conduct an inspection, which 
generally includes a blower door test that reveals where air is 
escaping from a home. The final inspector performs a post 
weatherization test to determine the effectiveness of the measures 
taken. Figure 1 shows exterior and interior views of a blower door 
installed for home testing. 

Figure 1: Blower Door Set up: 

[Refer to PDF for image: 2 photographs] 

Outside view of blower door set-up; 
Inside view of blower door set-up. 

Source: GAO. 

[End of figure] 

On the left is a photo of the outside view of the blower door set-up 
and the photo on the right is of an inside view of the blower set-up. 
A basic blower-door system includes three components: a calibrated 
fan, a door-panel system, and a device to measure fan flow and 
building pressure. The blower-door fan is temporarily sealed into an 
exterior doorway using the door-panel system. The fan is used to blow 
air into or out of the building, which creates a small pressure 
difference between inside and outside. This pressure difference forces 
air through all holes and penetrations in the building enclosure. The 
tighter the building (e.g. fewer holes), the less air is needed from 
the blower door fan to create a change in building pressure. 

North Carolina Weatherization Officials Monitor Subgrantees' Use of 
Recovery Act Funds but Face Challenges Due to Staffing Levels: 

NCDOC officials have established several controls to ensure 
subgrantees' compliance with Recovery Act requirements. These controls 
include training and certification requirements for subgrantees, NCDOC 
monitoring visits that include reviews of subgrantees' client files, 
and periodic reports subgrantees are to submit to NCDOC via a 
comprehensive, Web-based system called Accountable Results for 
Community Action (AR4CA). NCDOC officials also do risk assessments of 
subgrantees and require subgrantees to obtain NCDOC approval of 
contractors who perform basic weatherization work, such as caulking, 
duct sealing, and installing insulation. In addition, subgrantees that 
weatherize homes using their own employees or contractors must have 
their work inspected by an inspector who was not involved in 
performing the work. Further, while the DOE requires comprehensive 
monitoring of 5 percent of the units completed during the year, NCDOC 
plans to monitor 20 percent. Based on NCDOC's current projections, 
15,350 units will be completed during fiscal year 2010, meaning that 
NCDOC will have to monitor about 768 units to be compliant with the 
federal DOE requirement and 3,070 units to reach its 20 percent goal. 
However, as of March 31, 2010, the NCDOC Weatherization Program 
Manager said his office had only monitored 11 units weatherized by 
subgrantees under the Recovery Act. As of March 31, 2010, NCDOC had 
four staff members who are responsible for subgrantee monitoring as 
well as subgrantee application and budget reviews, and for conducting 
training and technical assistance appropriate to the subgrantees' 
level of performance. To meet the monitoring requirement, NCDOC 
officials stated four additional monitoring staff members are needed 
and, at the time of our visit, were interviewing to hire those 
individuals. 

Subgrantees Also Report Challenges: 

Subgrantees reported that NCDOC's slow funds allocation and 
reimbursement created[Footnote 24] challenges for them and could 
negatively impact their future allocations. Officials at one 
subgrantee we visited, reported that prior to receiving Recovery Act 
funds the subgrantee had to use its own funds to acquire two vehicles 
needed for expanded weatherization work. Officials at another 
subgrantee reported the subgrantee had to secure a $500,000 line of 
credit, which it used twice in February 2010 due to slow reimbursement 
by the state. The director of this subgrantee said it was able to 
secure the credit line using the subgrantee's "good name" in the 
community as collateral and pointed out that it was not clear how 
subgrantees without this resource would pay their expenses while 
waiting for state reimbursement. In addition, subgrantees that do not 
meet production goals may receive smaller allocations in the future. 
[Footnote 25] NCDOC officials said that in addition to receiving 
smaller allocations, such subgrantees may be barred from receiving 
advance payments, which could equal up to one-half of total contract 
costs, and may be put in reimbursement status whereby they would only 
receive funds after they had completed weatherizing homes. NCDOC 
officials said that subgrantees not meeting production goals may also 
face additional reporting requirements, such as more frequent progress 
reports. 

Requirements for Transit Infrastructure Project Were Not Monitored or 
Enforced: 

The Federal Transit Administration (FTA) has apportioned $33.1 million 
in Transit Capital Assistance Funds for nonurbanized areas in North 
Carolina.[Footnote 26] The North Carolina Department of Transportation 
(NCDOT) is the primary recipient of those funds and is responsible for 
allocating and distributing those funds to individual transit agencies 
in nonurbanized areas. NCDOT is using about $9.1 million of those 
dollars to fund 8 transit infrastructure construction projects. Only 
one of those projects--the AppalCART transit facility--had begun the 
construction process as of April 1, 2010. This project, which we 
previously reported on in December 2009,[Footnote 27] is a new office 
and maintenance facility for AppalCART, the transportation authority 
serving all of Watauga County in North Carolina. AppalCART was able to 
quickly utilize these funds because it had already completed a 
prequalification process for eligible bidders and it had designed the 
project before the Recovery Act went into effect on February 17, 2009. 
AppalCART officials told us that, in anticipation of receiving 
Recovery Act grant funds, AppalCART advertised for bids on February 
18, 2009, opened bids on March 12, 2009, signed a contract with the 
contractor on May 29, 2009, and began work in June of 2009.[Footnote 
28] 

In our review of the AppalCART project, we found that Recovery Act and 
federal-aid contracting requirements were included in the bid and 
contract documents, but not all of the requirements were being 
enforced or monitored. NCDOT officials told us they assisted AppalCART 
in the bidding and award process and provided contract provisions to 
make sure federal and Recovery Act requirements were included in the 
bid documents and contract. Our review showed, and NCDOT officials 
confirmed, that the Buy American and minimum prevailing wage 
provisions required by the Recovery Act were included in the contract, 
and NCDOT officials told us that while the bid documents did not 
include specific Recovery Act requirements--because they were created 
before the FTA published Recovery Act guidance in the Federal 
Register--they did include the customary FTA procurement requirements 
for Buy America and prevailing wages.[Footnote 29] However, we found, 
and AppalCART officials confirmed, that the Buy America requirements 
were not being enforced. Specifically, neither AppalCART nor NCDOT had 
made any checks to ensure that the steel being used on the project met 
the Buy America requirements. In addition, neither had checked to 
ensure that workers were being paid at least the minimum prevailing 
wages, as required. Specifically we found, and NCDOT and AppalCART 
officials confirmed, the following: 

* Prior to our review, NCDOT and AppalCART had not been checking to 
see if the steel being used on the project met the Buy America 
requirements included in the contract. Steel certifications sent to us 
by AppalCART for the project indicated, and the structural steel 
vendor verified, that some of the steel erected on the site was made 
in Canada. 

* Even though an official for the project's contractor had certified 
in its bid documents that the firm would meet the Buy America 
requirements, an official of the contractor's structural steel vendor 
stated the steel vendor was not aware of the Buy America requirements, 
and the firm had used some steel for the project the origin of which 
was not tracked. As a result, the official of the steel vendor stated 
he could not verify for some of the steel used, whether or not it was 
made in the United States. 

* The Recovery Act also requires, and the contract called for, the 
contractor's and subcontractor's workers to be paid at least 
prevailing wages as determined by the Secretary of Labor in accordance 
with subchapter IV of chapter 31 of title 40, United States Code. 
However, AppalCART officials had not seen the minimum wage rates until 
after our inquiry and both NCDOT and AppalCART had not, prior to our 
review, made inquiries to the contractor, subcontractors, or workers 
if they were being paid in accordance with the act. 

* NCDOT had not developed written guidance regarding how the 
nonurbanized area transit agencies should provide oversight of the Buy 
America or prevailing wage requirements for the projects.[Footnote 30] 

NCDOT officials told us since our review that they developed and 
provided to AppalCART a "materials received report" for the transit 
agency to use in documenting current and future payment requests, to 
show that the materials meet the Buy America requirements. In 
addition, since our review, they have utilized an audit program 
developed by NCDOT's External Audit Branch to examine AppalCART's 
compliance with Recovery Act requirements which identified several 
areas of needed monitoring and oversight improvement including 
prevailing wage verification, Buy America verification of materials, 
change order approval process, and inclusion of Recovery Act special 
provisions in all subcontractor agreements. FTA officials told us that 
they rely on contractors and FTA grantees to perform due diligence in 
complying with the Buy America requirement, and while the contractor 
is responsible for certifying compliance, or non-compliance, the 
grantee is responsible for assessing the validity of the 
certification, and that FTA can investigate compliance when 
petitioned. FTA officials told us they also conduct some oversight 
reviews to assess the practices of their grantees. 

NCDOT and AppalCART officials had plans to provide oversight of the 
project, but both agencies had challenges providing that oversight. As 
we reported in December 2009, NCDOT officials told us that their 
oversight for their nonurbanized area projects would generally include 
periodic site visits, reviewing and approving key steps in the 
contracting process, review of contract documentation, progress 
reviews, assistance on project management, and assistance on Recovery 
Act reporting requirements. NCDOT officials told us that despite a 
shortage of staff, they had plans to provide oversight of the project 
through an existing services agreement for engineering services with a 
private firm. However, NCDOT was unable to move forward with this 
service agreement due to a North Carolina Office of Economic Recovery 
and Investment (OERI) management directive issued in January 2010, 
which clarified that state agencies are prohibited from utilizing 
existing agreements of this type for Recovery Act work because they 
want to ensure that the goods and services are competitively procured, 
and that the existing agreements met the Recovery Act requirements. 
NCDOT officials told us OERI gave them permission to use an existing 
limited services contract, 2 months later, in March 2010. As of May 
17, 2010, the NCDOT was still developing the scope of the engineering 
services agreement with the private firm, based on the audit tool they 
have developed for Recovery Act projects, but expected to give the 
firm a notice to proceed as early as May 28, 2010. AppalCART also 
faced challenges providing oversight. For example, an AppalCART 
official told us that its project manager had left December 31, 2009, 
leaving them without a project manager until they recruited a new 
project manager, who began May 1, 2010. 

NCDOT and AppalCART have had additional challenges resulting in 
AppalCART not being reimbursed for the work completed to date and 
incurring unplanned interest costs as a result. A NCDOT official told 
us that it informed AppalCART, prior to AppalCART putting the project 
out for bids that before AppalCART could get reimbursed for eligible 
project costs, FTA had to award the grant to NCDOT, and then a grant 
agreement between NCDOT and AppalCART had to be in place. NCDOT 
officials told us that after the FTA awarded the grant on August 24, 
2009, it took them until January 26, 2010, to write the agreement and 
get it executed, because the State had to incorporate the Recovery Act 
requirements into their agreement and there was an error in the period 
of performance which needed to be corrected. Once executed, AppalCART 
should have been able to begin requesting reimbursement. However, in 
our meeting with NCDOT officials on April 1, 2010, they discovered the 
period of performance error still existed in the AppalCART grant 
agreement and an amendment would have to be made before NCDOT could 
reimburse AppalCART for the period from June 2009 through July 31, 
2009. AppalCART officials told us they had been working with NCDOT to 
provide invoices for reimbursement in a format that NCDOT would 
accept, but are unclear if invoices submitted to date are acceptable 
yet. NCDOT officials told us that not all of the processes for funds 
reimbursement and project management were in place when they were 
needed because they had not constructed a nonurbanized area, federally 
funded transit infrastructure project in over 20 years, which required 
them to develop some new processes. While NCDOT was developing new 
processes, AppalCART proceeded with construction, providing jobs, and 
paying the contractor over $712,000. As a result of not being 
reimbursed, AppalCART needed to acquire a bank line of credit to pay 
the contractor for a portion of completed work. As of March 2010, 
AppalCART officials reported paying almost $2,000 a month in loan 
interest costs. 

North Carolina Has Made Progress in Using Recovery Act Funds to 
Increase Training to Dislocated Workers: 

North Carolina was allotted about $44.4 million in Workforce 
Investment Act (WIA) Dislocated Worker Program funds under the 
Recovery Act. According to state officials, local workforce investment 
boards have used Recovery Act funds to significantly increase the 
number of dislocated workers enrolled in training. While local areas 
primarily relied on the same type of training used under WIA, one of 
the two local areas we visited, Charlotte-Mecklenburg, used the new 
flexibility allowed under the Recovery Act to contract with 
institutions of higher education for some group training. 

North Carolina received WIA dislocated worker funds under the Recovery 
Act through the same statutory formula used to distribute regular WIA 
Dislocated Worker Program funds. The Division of Workforce Development 
in North Carolina's Department of Commerce administers this program 
and distributed 60 percent of its allotment to 24 local workforce 
boards. The state set aside the remaining funds for rapid response 
activities to address layoffs and plant closings, and other statewide 
activities. As of March 31, 2010, the state had drawn down at least 37 
percent ($16.4 million) of its Recovery Act funds.[Footnote 31] In the 
two local areas we visited, Lumber River has fully committed--expended 
or obligated--its Recovery Act allocation for the WIA Dislocated 
Worker Program and Charlotte-Mecklenburg has committed 93 percent of 
its allocation (see table 2).[Footnote 32] 

Table 2: Selected Local Workforce Investment Areas Commitment of 
Recovery Act WIA Dislocated Worker Program Funds as of January 31, 
2010: 

Workforce Investment Area: Charlotte-Mecklenburg; 
Total allocation: $1,681,622; 
Expended: $773,992; 
Obligated: $794,858; 
Percent obligated and expended: 93. 

Workforce Investment Area: Lumber River; 
Total allocation: $ 862,402; 
Expended: $281,187; 
Obligated: $581,215; 
Percent obligated and expended: 100. 

Source: GAO analysis of Charlotte-Mecklenburg Workforce Development 
Board and Lumber River Workforce Development Board data. 

[End of table] 

With the combination of Recovery Act funds and increased demand for 
services, the number of dislocated workers trained in the state 
between July 1, 2009, and December 30, 2009, was 38 percent higher 
than in the corresponding period in the previous year, according to 
our state survey. The state reported that from the date it began using 
Recovery Act funds through January 31, 2010, about 10,568 dislocated 
workers in North Carolina received training through Recovery Act or 
regular WIA dislocated worker funds. As shown in Table 3, both of the 
local workforce areas we visited had over a 300 percent increase in 
the number of dislocated workers who participated in training compared 
to participation during the same period in the prior year. Despite 
these significant increases in participants receiving training, Lumber 
River officials told us that some dislocated workers in this largely 
rural area were not interested in training because they would prefer a 
job instead. To encourage participation in training, Lumber River 
promoted short-term courses such as computer literacy courses and 
occupational classes such as welding. However, these efforts were not 
fully successful in recruiting those individuals mainly interested in 
jobs. A state workforce development official told us that North 
Carolina is working toward preparing a workforce for growth in the 
green economy, but there are not sufficient training opportunities or 
jobs available to motivate workers to invest in training for green 
jobs. 

Table 3: Number of WIA Dislocated Workers Who Participated in Training 
July 1, 2008, to December 31, 2008, Compared to Those Who Participated 
in Training July 1, 2009, to December 31, 2009: 

Local workforce investment area: Charlotte-Mecklenburg; 
WIA dislocated workers who participated in training 7/1/08 to 
12/31/08: 122; 
WIA dislocated workers who participated in training 7/1/09 to 
12/31/09: 571; 
Percent increase: 368. 

Local workforce investment area: Lumber River; 
WIA dislocated workers who participated in training 7/1/08 to 
12/31/08: 57; 
WIA dislocated workers who participated in training 7/1/09 to 
12/31/09: 245; 
Percent increase: 330. 

Source: GAO analysis of Charlotte-Mecklenburg Workforce Development 
Board and Lumber River Workforce Development Board data. 

[End of table] 

State officials said that the Recovery Act funds were primarily being 
used for individual training accounts (ITA), which individuals use to 
purchase training through, for example, community colleges and 
community based organizations. Lumber River reported that all of its 
Recovery Act funds devoted to dislocated worker training are being 
used for ITAs. While Charlotte-Mecklenburg is using 83 percent of its 
Recovery Act dislocated worker training funds for ITAs, it is also 
using 17 percent to contract directly with institutions of higher 
education for group classes. Dislocated Worker funds provided through 
the Recovery Act may be used to provide training through contracts, 
which are authorized only in limited circumstances for regular WIA 
funds. Although the U.S. Department of Labor encouraged states and 
local areas to use Recovery Act funds to provide training for green 
jobs, both Lumber River and Charlotte-Mecklenburg officials said that 
there has been little opportunity to do this because few green jobs 
are available at this time. The Lumber River Workforce Development 
Board Administrator told us North Carolina developed the JobsNow 12 in 
6 Program, which coupled short-term occupational skills training with 
a career readiness certificate program. Lumber River, this official 
said, promoted recruitment of dislocated workers into this program but 
said these efforts were not fully successful because the individuals 
were more interested in working than attending training. 

North Carolina Clean Water and Drinking Water State Revolving Funds: 

The North Carolina Department of Environment and Natural Resources 
(DENR) administers the state's Clean Water State Revolving Fund (SRF) 
and its Drinking Water SRF and is responsible for providing loans from 
the two revolving funds to North Carolina localities and overseeing 
usage of the loan funds. The Clean Water SRF provides funds for the 
construction of publicly owned wastewater treatment facilities, 
implementation and management of non point source pollution control 
programs,[Footnote 33] and development and implementation of estuary 
conservation and management plans. The Drinking Water SRF provides 
funds for the construction or upgrade of wells and intakes, water 
treatment plants, storage, and water lines; eligible uses include 
replacement of aging infrastructure and consolidation of water 
systems. North Carolina received approximately $71 million in Recovery 
Act funds for its Clean Water SRF and approximately $66 million for 
its Drinking Water SRF. Under the Recovery Act, states were to give 
priority to projects that were ready to proceed to construction within 
12 months of enactment of the act. As of mid-April 2010, North 
Carolina's Clean Water SRF and Drinking Water SRF used almost $132 
million in Recovery Act funds to provide assistance for 129 
projects.[Footnote 34] These projects include construction of 
wastewater infrastructure, local government planning for improving 
water quality, and restoring beaches and waterways. We interviewed and 
reviewed documents from DENR program officials and officials at two 
local projects--the Charlotte Muddy Creek/Campbell Creek Clean Water 
SRF project and the Perquimans Winfall Water Treatment Plant Drinking 
Water SRF project. We selected one urban and one rural project, both 
of which received a large amount of Recovery Act loan funds. 
Charlotte's Muddy Creek/Campbell Creek Project was awarded adjusted 
loan funds in the amount of $1.57 million which helped the state 
address the Recovery Act's green reserve requirement. The Perquimans 
Winfall Water Treatment Plant Project, located in a rural location, 
was awarded $3 million in funds in July 2009 and serves a community in 
need of drinking water infrastructure improvements. 

State Officials Report Minimal Challenges in Meeting Recovery Act 
Requirements: 

DENR program officials told us that they have met all Recovery Act 
requirements for use of funds with minimal challenges, including 
meeting the February 17, 2010, deadline for projects to be under 
contract, despite the increased workload of processing approximately 
250 Clean Water SRF applications and 600 Drinking Water SRF 
applications in 2009.[Footnote 35] Clean Water SRF program officials 
told us that the only challenge to date occurred when green reserve 
requirement applicants failed to obtain easements prior to requesting 
loan approval.[Footnote 36] However, DENR program officials reported 
that this problem was quickly resolved and the easements were obtained 
or other green projects on the priority list were funded. 

The Drinking Water SRF program manager reported that the primary 
challenge in meeting the February 2010 contractual deadline was late 
or insufficient guidance from the U.S. Environmental Protection Agency 
(EPA) and U.S. Department of Labor (Labor). This late guidance 
pertained to the green reserve requirement as well as the Buy 
American[Footnote 37] and Davis-Bacon[Footnote 38] provisions of the 
Recovery Act. Guidance concerning the latter two requirements, which 
call for language to be inserted into contracts and for subrecipients 
and contractors to ensure compliance, arrived late in the contractual 
process and were difficult to explain to subrecipients, according to 
DENR program officials. Some officials said that Davis-Bacon 
requirements were complicated. The Drinking Water Program Manager 
noted that since all applicants are anticipated to pay locally 
prevailing wages without this requirement, the mandate to ensure 
compliance through documentation and tracking is resulting in 
unnecessary costs that will not add to the value of the completed 
project. Project officials and the County Manager we interviewed 
praised state officials for their assistance and guidance with the 
implementation of requirements. These officials told us the 
information was provided via telephone calls, the DENR Web site, and 
during onsite monitoring. 

North Carolina Clean Water SRF and Drinking Water SRF Status: 

DENR has used approximately $67.9 million in Recovery Act funds for 56 
Clean Water SRF projects, and approximately $64 million in Recovery 
Act funds for Drinking Water SRF projects. DENR program officials 
reported that contracts for initial Clean Water SRF awards were $10.5 
million less costly than expected, based on local cost estimates. As a 
result, DENR program officials said they used these funds as allowed 
under the Recovery Act to finance 5 additional clean water 
infrastructure projects and augment loan amounts given at the same 
financial terms for two additional clean water infrastructure 
projects.[Footnote 39] DENR program officials also reported that as 
additional Recovery Act funds for the North Carolina Clean Water SRF 
and Drinking Water SRF funds become available, other Recovery Act 
compliant projects will be funded in priority order. 

GAO Visited Two Local Government Projects: 

Charlotte project officials told us they received $1.57 million in 
Recovery Act funds and all of these funds were spent on environmental 
upgrades to restore Muddy Creek/Campbell Creek--a green reserve 
requirement eligible project. This project reduces pollutants from 
storm water and enhances and creates a wetland and river bank habitat. 
The officials told us the project was a prime candidate for Recovery 
Act funding because its engineering tests were complete and it was 
ready to proceed to construction. They further told us that Recovery 
Act funds allowed local funds previously dedicated to this project to 
be freed up for other green programs that had not been prioritized as 
high as the Muddy Creek/Campbell Creek Project. 

Perquimans County received $3 million in Recovery Act funds to upgrade 
the Winfall Water Treatment Plant. This project includes upgrading the 
current water system to improve both the county's water quality and 
appearance. According to the Perquimans County Manager, this project 
was the number one priority for Perquimans County but had never been 
submitted to the Drinking Water program before for consideration. In 
the absence of Recovery Act funds, local officials said that user 
rates would have been insufficient to cover the cost of the 
infrastructure upgrade. According to the Perquimans County official, 
with Recovery Act funding these fees are not expected to rise. 

Review of Local Governments Receiving Recovery Act Funding: 

As we have in developing prior bi-monthly reports, we visited local 
governments in selected rural and urban areas of the state to learn 
about the use of Recovery Act funds and their impact. Specifically, we 
visited Bladen County, the City of Durham, Halifax County, and the 
City of Jacksonville. We selected these localities based on variation 
in unemployment rate, population size, and geographic location (see 
table 4). This was our second visit to the City of Durham and Halifax 
County in an effort to provide a more detailed account of Recovery 
fund usage in those localities. Based on U.S. Census estimates, the 
population in the four localities ranges from 32,343 to 223,284. With 
budget cycles starting on July 1st and ending June 30th, the 
localities' budgets range from $36 million to $346 million. We 
interviewed officials in these cities and counties to obtain their 
perspectives on the Recovery Act. We also interviewed officials from 
the North Carolina League of Municipalities (NCLM)[Footnote 40] to 
discuss their interactions with localities across the state pertaining 
to the Recovery Act. 

Table 4: Statistical Data on North Carolina Localities Visited: 

Locality: North Carolina; 
Population: 9,222,414; 
Locality type: State; 
Unemployment rate: 10.9%; 
Budget: $19 billion; 
Total Recovery Act funds[A]: $5.1 billion. 

Locality: Bladen County; 
Population: 32,343; 
Locality type: County; 
Unemployment rate: 12.2%; 
Budget: $38.4 million; 
Total Recovery Act funds[A]: $734,227. 

Locality: City of Durham; 
Population: 223,284; 
Locality type: City; 
Unemployment rate: 7.4%; 
Budget: $345.6 million; 
Total Recovery Act funds[A]: $8.9 million. 

Locality: Halifax County; 
Population: 54,582; 
Locality type: County; 
Unemployment rate: 13.2%; 
Budget: $36.4 million; 
Total Recovery Act funds[A]: $517,271. 

Locality: City of Jacksonville; 
Population: 76,233; 
Locality type: City; 
Unemployment rate: 8.5%; 
Budget: $89.5 million; 
Total Recovery Act funds[A]: $5.6 million. 

Source: GAO analysis of Bureau of Labor Statistics, U.S. Census, 
selected local government budgets, and Recovery.gov data: 

[A] Based on Recovery Act funds reported to North Carolina's Office of 
Economic Recovery and Investment as of May 4, 2010. 

[End of table] 

Local Officials said that Recovery Act Funds Helped but Did Not 
Stabilize Their Budgets: 

The localities used the Recovery Act funds to support a variety of 
initiatives. Although their budgets differed in terms of stability, 
officials in all four localities told us that the Recovery Act funds 
they received helped to start, continue, or speed up a variety of 
programs and projects in their jurisdictions. For example, the City of 
Durham received $2.1 million in Energy Efficiency and Conservation 
Block Grant funds. Durham officials told us that they will use about 
one-half of these funds to improve energy efficiency in city 
facilities and the other half will be used to start up a neighborhood-
based, residential energy efficiency upgrade program. According to the 
officials, these upgrades will include increased insulation, sealing 
air ducts, plugging air leaks in attics and crawlspaces, and 
installing programmable thermostats. A $1.5 million Federal Transit 
Administration formula grant will be used by the City of Jacksonville 
to purchase five replacement buses; procure a design and commence 
construction of a bus-washing facility; and purchase and install 
automated passenger counters. Bladen County will use $24.6 million in 
Recovery Zone Facility Bonds, under the Recovery Act, toward the 
development of a water treatment plant[Footnote 41]. Officials from 
all of these localities indicated that these projects and programs 
would not have been initiated had they not received Recovery Act 
funding. 

While the officials we interviewed told us that the Recovery Act funds 
were helpful in starting and advancing programs and projects in their 
localities, most indicated that the funds were not enough to affect 
their government's fiscal stability. For example, Bladen and Halifax 
County officials indicated that, despite the Recovery Act funds, their 
fiscal situations continue to decline. The officials told us that they 
continue to face difficult budget decisions in the wake of declining 
property and sales tax revenues. Halifax County officials told us 
that, in December 2009, county departments were asked to reduce their 
budgets by as much as 10 percent, which did not result in any layoffs 
but many employees' work hours were reduced from full-time to part-
time. The officials said that the county is "dangerously close" to 
making noticeable and potentially harmful cuts in services. City of 
Jacksonville officials reported that receipt of Recovery Act funding 
had only a moderate impact on their budget because the economy in 
their area of the state has been generally stable when compared to 
other regions of the state and country, due to the presence of two 
large and growing military installations in close proximity to the 
city. As a result, Jacksonville officials did not view Recovery Act 
funds as a means to stabilize their budget, but to accelerate or 
expand planned projects. 

Officials Reported Usage of a Variety of Recovery Act Funds Based on 
the Needs and Priorities of Their Localities: 

Officials in the four localities that we interviewed chose to focus 
their Recovery Act dollars on different priorities based on the needs 
in their respective jurisdictions. Both Bladen and Halifax officials 
told us that the Recovery Act funds supplemented existing programs and 
allowed them to either serve more residents or enhance program 
services. Both county officials also told us that their plan was to 
not use the funding they received from the Recovery Act on programs 
and projects that would require recurring expenses so that their 
citizens would not be adversely affected when the funds were no longer 
available. For example, at the time of our visit, Halifax officials 
reported that the county had received a total of $517,271 in Recovery 
Act funding through state and federal sources. The county plans to 
spend nearly 90 percent of those funds on boosting social services 
programs for children and the elderly, including day care provisions 
and its Meals on Wheels program. Similarly, Bladen officials told us 
that their county has a high population of senior citizens and plans 
to spend a significant portion of its Recovery Act funding on social 
services, which includes a portion of its Recovery Act funding for 
programs geared toward assisting its aging residents. According to 
officials from both counties, these programs will receive a one-time 
infusion of Recovery Act funding designed to supplement existing 
programs and allow them to either serve more residents or enhance 
program services for a limited period of time. Conversely, the City of 
Jacksonville, located in close proximity to two military installations 
and cited as one of the youngest cities in the United States with an 
average age of 22.9 years, will spend 100 percent of its Recovery Act 
funding on physical infrastructure projects and the procurement of 
four new police vehicles and other public safety equipment. The City 
of Durham plans to use its Recovery Act funding on a variety of 
programs and projects, including $746,013 from the Edward Byrne 
Memorial Justice Assistance Grant (JAG)[Footnote 42] to fund one 
Domestic Violence Assistant District Attorney and $205,146 from a 
program under the Workforce Investment Act of 1998, administered by 
the U.S. Department of Labor to provide subsidized work experience and 
on-the-job training for eligible adult residents. 

All Four Localities Planning for Phase Out of Recovery Act Funds; Only 
One Has a Formal Exit Strategy: 

One of the four localities that we visited had a formal exit strategy 
in place for when Recovery Act funds are phased out, but officials 
from the other localities indicated that their jurisdictions are 
having ongoing phase out discussions with the departments within their 
governments that are receiving Recovery Act funding. Specifically, the 
City of Durham developed formal budget guidelines for fiscal year 2011 
in which the City proposes a specific strategy for when Recovery Act 
funds are no longer available. The proposal focuses on enhancing 
revenues to replace non-recurring Recovery Act funding for core 
services. Although Bladen, Halifax, and Jacksonville officials do not 
have formal plans in place to address the so-called Recovery Act 
funding "cliff," they told us that they have made it clear that the 
Recovery Act supplements are one-time funding increases. Jacksonville 
officials also told us that they plan to absorb the continuing costs 
generated by projects. 

North Carolina Budget Officials Report that Fiscal Challenges Persist, 
but See Some Early Signs of Potential Recovery: 

North Carolina budget officials told us that the state is still 
experiencing significant budget challenges, but reported some 
improvements over projections made in mid to late 2009. The officials 
told us that most state agencies have been required to withhold 5 
percent of their budget spending in response to the state's projected 
budget shortfall. According to state budget officials, beginning in 
January of this year the state temporarily withheld state income tax 
refunds to individuals because the state did not have the cash to make 
the payments. The officials also told us that while they did not speed 
up or slow down their use of Recovery Act funds during fiscal year 
2010, if the state had not received Recovery Act funding, it would 
likely have had to make deeper program cuts and raise taxes. According 
to a report issued by the North Carolina Fiscal Research Division 
[Footnote 43], the state's fiscal year 2009-2011 biennial budget 
relies heavily on Recovery Act funds. The report states that when 
adjusted for the $1.7 billion in Recovery Act funds, the fiscal year 
2009-10 total state budget actually decreased $2.3 billion, or 4.7 
percent. For example, according to state budget officials, North 
Carolina's reserve fund, or "rainy day" account, was approximately 
$900 million before it received Recovery Act funds. State officials 
told us that they used all but $150 million of its rainy day funds to 
help close the budget shortfall from fiscal year 2009. The officials 
also indicated that the state had spent nearly $1 billion in Recovery 
Act assistance and would have been forced to deplete its entire rainy 
day account if Recovery Act funds were not available. In April, the 
Governor released her budget recommendations for fiscal year 2010-2011 
proposing to put $100 million into the state's rainy day fund which it 
plans to use in the event of an emergency or as a buffer in the event 
the state does not impose an estate tax on the estates of individuals 
who die in 2010. State budget officials explained that, according to 
state law, North Carolina's estate tax mirrors the federal estate tax 
and both expired in December 2009, but will return in January 2011. 
The state will lose revenues in 2010-2011 if the state does not amend 
its requirement to mirror the federal estate tax and the federal 
estate tax is not applied to 2010. 

State budget officials reported signs of improvement in revenues for 
the first quarter of 2010. Specifically, the state budget office had 
projected an $850 million shortfall in the summer of 2009, but 
modified their shortfall projections in December to $450 million 
deficit. Most of the improvement, however, is related to a corporate 
settlement initiative that boosted revenue collections by $422 
million. In addition, officials credited the improved budget standing 
to slightly better than expected revenues in sales and individual 
income taxes. 

The officials told us that state officials have had executive 
discussions regarding a state plan for when Recovery Act funds are no 
longer available. The officials said that it is difficult to make 
definitive plans for weaning their programs off of Recovery Act funds 
because it is hard to predict what the condition of the state or the 
overall economy will look like a year from now. They said that the 
state will have a formal exit strategy developed in early 2011. 

Reporting and Accountability: North Carolina Recovery Act 
Accountability Community: 

To ensure accountability and oversight over federal funds received by 
North Carolina, the Office of the State Auditor (OSA) annually 
conducts a "Single Audit" that reports on internal controls over 
financial reporting and compliance with pertinent laws and 
regulations, as well as a report on compliance with requirements 
applicable to each major federal program and internal controls over 
compliance in accordance with OMB circular 133. North Carolina's 2009 
Single Audit report included 168 findings. Eight of these findings 
were material weaknesses related to provisions of the Recovery Act for 
the North Carolina Department of Public Instruction (DPI); ESEA Title 
I Grants to Local Educational Agencies (2), Special Education Grants 
to States (3), and Special Education Preschool Grants (3). All of the 
8 material weaknesses were related to insufficient subrecipient 
monitoring. The state auditor's office told us that single audit 
reports have consistently reported findings related to subrecipient 
monitoring by state agencies. Insufficient subrecipient monitoring and 
other deficiencies leave Recovery Act funds vulnerable to fraud, 
waste, and abuse. 

North Carolina has various other entities, in addition to the State 
Auditor, that provide oversight to ensure the state's recipients are 
held accountable for the Recovery Act funds they receive. These 
entities include the Office of Economic Recovery and Investment 
(OERI), the Office of Internal Audit (OIA), as well as local 
government oversight authorities. 

Office of the State Auditor: 

In addition to the 2009 Single Audit, OSA is performing interim agency 
specific internal control and compliance audits for agencies receiving 
Recovery Act funds. Four interim reports covering the North Carolina 
Departments of Health and Human Services (NCHHS), Environment and 
Natural Resources (DENR), Agriculture and Consumer Services (DACS), 
and Commerce (NCDOC) were issued by OSA prior to the issuance of the 
2009 Single Audit. These reports identified numerous issues that could 
affect the oversight of Recovery Act funds administered by these 
agencies. For example: 

* At NCHHS, the State Auditor reported 10 findings, including internal 
control deficiencies in cash management and subrecipient monitoring. 

* At DENR, the State Auditor reported that Clean Water and Drinking 
Water subrecipient audit reports were not reviewed, as mandated by 
federal subrecipient monitoring requirements. 

* At DACS, the State Auditor noted certain deficiencies in internal 
control over financial reporting by DACS. 

* At NCDOC, the State Auditor reported deficiencies in subrecipient 
monitoring at the State Energy Office (SEO) and recommended that SEO 
revise its monitoring plans and tools to ensure that Recovery Act 
compliance issues are addressed timely. 

OERI senior officials told us they reviewed the OSA reports with NCHHS 
and NCDOC and detailed steps both agencies are taking to address the 
OSA findings. NCDOC has revised its monitoring plans and tools to 
ensure that Recovery Act-specific compliance requirements are 
addressed timely. The agency has also assigned an internal auditor to 
the Energy Program who is responsible for implementation of the plans 
and compliance spreadsheets have been developed so that monitoring is 
consistent. The Energy Office has filled 2 positions for compliance 
monitoring and has taken steps to fill an additional 5 positions for 
compliance monitoring, which will bring their total staff for 
compliance monitoring to 18. 

OERI senior officials also report that NCHHS has taken numerous 
actions to address OSA findings. For example, NCHHS has sent letters 
to all 100 North Carolina counties providing Recovery Act federal 
award information and reporting requirements. The agency, according to 
OERI, has also implemented processes to drawdown federal Medicaid 
Program funds based on actual expenditures, rather than estimates and 
an additional level of review has been added to ensure that federal 
reimbursement codes are accurate. NCHHS is also taking steps to 
address the reported deficiencies in subrecipient monitoring by 
prioritizing completion of an internal tracking system that schedules 
required monitoring activities within appropriate timeframes and 
follow-up on any required corrective actions. In addition, OERI is 
using a tracking system to monitor obligations and expenditures at the 
subrecipeint level on a monthly basis. OERI staff, senior officials 
report, will continue meeting with NCHHS staff to follow the impact of 
these and other corrective actions until the findings have been 
completely resolved. 

Subsequent to the issuance of the 2009 Single Audit report, the State 
Auditor issued 3 more interim agency specific internal control and 
compliance audits for agencies receiving Recovery Act funds, one on 
the Office of State Budget and Management (OSBM), the Employment and 
Security Commission, and on DPI. 

* The State Auditor reported that OSBM did not have controls in place 
to ensure that the calculation of the state's elementary and secondary 
education expenditures for fiscal year 2006 were accurate. Since the 
SFSF, the Recovery Act requires states to assure that they will 
maintain at least their 2006 level of education support in fiscal 
years 2009, 2010, and 2011 in order to receive SFSF, errors in this 
calculation could result in the state not maintaining adequate support. 

* The State Auditor reported that DPI had material weaknesses in 
subrecipient monitoring as reported in the Single Audit, plus 
additional material weaknesses specific to DPI including: 

- September expenditures omitted from initial Section 1512 Recovery 
Act report; 

- Failure to comply with federal suspension and debarment requirements 
[Footnote 44]; 

- Verification of central contractor registration not performed timely 
[Footnote 45]. 

Office of Economic Recovery and Investment: 

As we previously reported, OERI wa