Michigan – September 20, 2010

The content below was excerpted from the Michigan Appendix (PDF, 29 pages) of GAO's most recent bimonthly review of the Recovery Act.[1]

What We Did

Our work in Michigan focused on the Recovery Act–funded Energy Efficiency and Conservation Block Grant (EECBG), how Michigan provided accountability over Recovery Act funds, and how Recovery Act funds affected Michigan's and a selected locality's fiscal conditions. We reviewed selected recipient reports to the federal government, as well as oversight and accountability practices at both the state and local level. We selected program areas and activities based on a number of risk factors, such as the receipt of significant amounts of Recovery Act funds. We also reviewed the design of internal controls over program areas and activities, as well as those put in place to gather and report spending and jobs data for recipient reports to the federal government. For descriptions and requirements of the programs we covered, see appendix XVIII of GAO-10-1000SP.

We performed our work at state and local agencies responsible for implementing, monitoring, and overseeing the programs. For our review of EECBG, we spoke with officials from two local communities—the city of Farmington Hills and Kent County—as well as officials from the Michigan Department of Energy, Labor & Economic Growth (DELEG)—the state agency which administers the program.

We continued to track the use and impact of Recovery Act funds on state and local fiscal stabilization. We met with state budget officials and local officials from the city of Farmington Hills to assess their fiscal situations and the Recovery Act's impact on their communities. To understand the state's Recovery Act oversight and accountability efforts, we spoke with officials from the Economic Recovery Office (ERO), Office of the Auditor General (OAG), Office of Internal Audit Services (OIAS), and the Detroit Office of Auditor General. We obtained the June 2010 reports of the OAG covering its financial audits that included the provisions of the Single Audit Act[2] for seven Michigan departments and a component unit of the state[3]. Each of these audits covered the 2–year period that ended September 30, 2009. We read and summarized the Single Audit reports for the Michigan Department of Education (MDE) and the Department of Community Health (DCH). We also reviewed the most recent Single Audit reports for the local communities that we visited as well as the most recent Single Audit report for the city of Detroit. To address financial management and internal control challenges we previously reported on in September 2009 (GAO-09-1017SP) and May 2010 (GAO-10-605SP), we followed up on actions taken and those planned by MDE and Detroit Public Schools (DPS), and state and local agencies with responsibility for the state's Workforce Investment Act of 1998 (WIA) Youth Employment Program.

Finally, to understand Michigan's experience in meeting the June 30, 2010, Recovery Act reporting deadline, we met with state and local officials to discuss processes and procedures selected recipients have in place to implement the Office of Management and Budget's (OMB) guidance on job calculations. Additionally, we followed up on recipient reporting issues related to the March 31, 2010, quarterly recipient reports that we identified in our May 2010 report.

What We FoundBack to top

Energy Efficiency and Conservation Block Grants

The U.S. Department of Energy (DOE) awarded a total of $76.6 million in EECBG funds to Michigan—74 percent ($57.0 million) directly to 68 communities and 26 percent ($19.6 million) to DELEG. In turn, DELEG awarded 89 percent ($17.4 million) of its allocation to 131 subgrantees through a competitive grant process. Michigan and some local governments have begun spending EECBG, with the state relying on existing mechanisms to oversee spending. State officials told us that DELEG is not responsible for and does not monitor the use of EECBG funds that localities received directly from DOE. We spoke with officials from two local communities that received EECBG funds directly from DOE, who told us that they rely on existing internal controls and systems to safeguard EECBG funds. DELEG directs most of its EECBG funds to projects in communities across the state to spread program funds as widely as possible and increase the visibility of these projects. Direct grantees in Michigan are likewise using their grants for projects that promote intergovernmental cooperation and public awareness, along with energy conservation.

Recipient reporting

Beginning with the quarter ending June 30, 2010, Michigan shifted from a centralized to a new decentralized reporting process. For the first time, Michigan state agencies submitted quarterly recipient reports directly to the federal government rather than to the state's ERO, which had previously served as a centralized reporting point transmitting reports to the federal government. ERO officials told us that state agencies successfully submitted their reports by the July 14, 2010 deadline, and did not experience substantial challenges with compiling or reporting the data. We met with a Farmington Hills official regarding the city's recipient report for its EECBG grant. While Farmington Hills submitted the recipient report by the deadline, the official told us he experienced some challenges and, subsequent to our meeting, took steps to resubmit the report to better reflect hours worked. Finally, we followed up with state and other officials to identify actions taken to address issues we previously identified regarding recipient reporting. We found that recipients still varied in compliance with guidance on reporting jobs due to varying interpretation of OMB's guidance.

Oversight and accountability efforts

Michigan's OAG and OIAS serve key roles in safeguarding Recovery Act–funded programs. In June 2010, OAG issued eight reports covering its financial audits that included the provisions of the Single Audit Act for seven Michigan departments and a component unit of the state. Each of these audits covered the 2–year period that ended September 30, 2009, and collectively covered entities that reported federal program expenses of approximately $20 billion, including $2 billion of Recovery Act funds. These are the first state level Single Audits for Michigan that include Recovery Act programs. The OAG issued "clean" or unqualified opinions on each of the financial statements for each of the entities. The OAG also reported significant deficiencies in internal controls over federal program compliance matters for each of the entities audited – including controls over Recovery Act and non Recovery Act federal programs. OIAS officials told us that in fiscal year 2011 they intend to prepare summaries of findings reported by accountability professionals related to federal programs, including Recovery Act–funded programs, which they anticipate will identify issues to consider at a state–wide level, such as lessons learned from oversight and monitoring of Recovery Act funds. Local accountability practices, including single audits by independent public accountants, also help provide oversight and monitoring of federal programs.

Actions taken to address previously reported internal control challenges

In July 2010 officials with MDE, DPS and DELEG as well as ERO officials told us that some actions have been taken and that others are underway to address the internal control challenges described in our September 2009 and May 2010 reports. For example, MDE officials told us that they continue to monitor Recovery Act funds provided to DPS and, among other things, they are using an independent public accounting firm to monitor payroll and non payroll expenditures at DPS. According to OIAS officials, MDE plans to hire an auditor in the near term and initiate a fiscal monitoring program. Officials from DELEG—the state agency responsible for the WIA program—told us that they are continuing to work with stakeholders to address the payroll and eligibility challenges that we identified with the WIA summer youth program in Detroit. DELEG officials also provided us with documentation describing the Detroit Workforce Development Department's (DWDD) plan for improved monitoring of future programs in Detroit. The plan is under review, and DWDD officials told us they developed and approved eligibility criteria for use in future youth employment programs.

States' and local governments' fiscal condition and use of Recovery Act funds

Michigan continues to experience economic challenges as a result of the decline in the automotive industry, which has lead to budget pressures and declines in state revenues. Michigan has addressed its fiscal year budget gaps since the beginning of the Recovery Act through a combination of Recovery Act funds and cost–cutting measures. As of June 30, 2010, slippage in revenue estimates left the state with a projected General Fund shortfall of approximately $200 million for the fiscal year ending September 30, 2010. Officials are seeking solutions to this shortfall while simultaneously addressing a projected fiscal year 2011 budget gap of $1.1 billion. On August 11, 2010, state budget officials told us that based on recent federal action extending the increased Federal Medical Assistance Percentage (FMAP), Michigan estimates it will receive approximately $300 million[4]. According to state budget officials, as of July 16, 2010, expenses of Michigan state entities totaled about $7.0 billion of the approximately $7.4 billion in Recovery Act funds it has been awarded. State officials told us they are aware of the upcoming "cliff effect" in fiscal year 2012, when Recovery Act funds diminish, and are working to devise solutions to address the potential budget shortfall. As we previously reported, local governments we visited in Michigan are facing the pressure of balancing budgets in the midst of declining revenues. Officials from Farmington Hills told us their city is experiencing a similar situation. They said that Recovery Act funds allowed the city to undertake projects and purchase equipment it otherwise would not have been able to, but that these funds have not had an impact on the city's fiscal stability. Given that the city plans to spend all of its Recovery Act funds on one–time projects or acquisitions, officials do not foresee having to deal with a "cliff effect" once Recovery Act funds are expended.

Full September ReportBack to top

Recovery Act: Opportunities to Improve Management and Strengthen Accountability over States' and Localities' Uses of Funds
Recovery Act: Opportunities to Improve Management and Strengthen Accountability over States' and Localities' Uses of Funds
  • [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 Michigan Public Educational Facilities Authority is a separately audited component unit of the state.
  • [4] The Recovery Act initially provided eligible states with an increased FMAP for 27 months from October 1, 2008, to December 31, 2010. Recovery Act, div. B, title V, § 5001, Pub. L. No. 111–5, 123 Stat. at 496. On August 10, 2010 federal legislation was enacted amending the Recovery Act and providing for an extension of increased FMAP funding through June 30, 2011, but at a lower level. See Pub. L. No. 111–226, § 201, 124 Stat. 2389 (Aug. 10, 2010).
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Susan Ragland

Director, Financial Management and Assurance


(202) 512-9406