Michigan – May 26, 2010

The content below was excerpted from the Michigan Appendix (PDF, xx pages) of GAO's most recent bimonthly review of the Recovery Act.[1]

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 FoundBack to top

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.


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)[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.

Full May ReportBack to top

Recovery Act: States' and Localities' Uses of Funds and Actions Needed to Address Implementation Challenges and Bolster Accountability
Recovery Act: States' and Localities' Uses of Funds and Actions Needed to Address Implementation Challenges and Bolster Accountability
  • [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.
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Susan Ragland

Director, Financial Management and Assurance


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