United States General Accounting Office

GAO Report to the Congress

January 1996 FINANCIAL

MANAGEMENT

Implementation of the

Cash Management

Improvement Act

GAO/AIMD-96-4

GAO United States

General Accounting Office

Washington, D.C. 20548

Accounting and Information

Management Division

B-270258 

January 8, 1996

To the President of the Senate and the

Speaker of the House of Representatives

The Cash Management Improvement Act (CMIA) of 1990, as amended

(Public Law 101-453), focuses on promoting equity in the exchange of

funds between the federal government and the states. It addresses the flow

of billions of dollars monthly to states to administer numerous federal

programs involving payments to individuals or vendors. This legislation

responds to previously alleged instances in which either the states drew

cash advances well before federal funds were needed to make payment or

states used their own funds to satisfy federal program needs and were not

reimbursed in a timely manner by the federal agencies.

The act required the Secretary of the Treasury, along with the states, to

establish equitable funds transfer procedures, and provided that states

would pay interest to the federal government if they draw funds in

advance of need and that the federal government would pay interest to

states if the federal program agency does not reimburse the states in a

timely manner when states use their own funds.

The act provides a framework for calculating interest liabilities of the state

and federal government and calls for an annual exchange of the net

interest owed by either party. The three key agents in the exchange are the

Department of the Treasury’s Financial Management Service (FMS), federal

program agencies, and the 56 states and territories.1

 This report, which is

required by CMIA, assesses these entities’ implementation during 1994—the

first year of the act. During fiscal year 1994 (which, for the majority of

states, included 9 months of the states’ first fiscal year under CMIA), the

federal government obligated over a reported $150 billion in federal funds

to the states for programs covered under the act.

Results in Brief We found that the three key agents of CMIA had established structures and

processes to implement the act and had made substantial progress in

achieving the act’s purpose of equitable, timely funds transfers. The first

year of implementation of CMIA resulted in a cumulative net state interest

liability due to the federal government of approximately

$34 million—comprised of over $41 million owed by the states offset by

1

The act defines “state” to mean the 50 states, the District of Columbia, and the 5 territories (American

Samoa, Commonwealth of the Northern Mariana Islands, Guam, Puerto Rico, and the Virgin Islands).

This report adopts the act’s definition.

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$4.7 million and $2.5 million owed the states by the federal government for

interest and reimbursable costs, respectively.

Although some funds transfers were not interest neutral, taken in context,

this liability is very small compared to the over $150 billion obligated in

fiscal year 1994 for the programs covered under CMIA. In fact, much of the

state interest liability was beyond state agencies’ immediate control and

was instead attributed to certain states’ laws which require that they have

the federal funds in the bank before they make any associated

disbursements. Four of the 12 states that we visited had a state interest

liability totaling $18.5 million which primarily resulted from the states’

adherence to such laws.

FMS and the federal program agencies adequately carried out their

responsibilities under the act. In addition, the 12 states we visited

generally complied with CMIA requirements and indicated that the act had

heightened their awareness of cash management. However, several state

officials viewed some of the administrative tasks to implement CMIA as

burdensome. CMIA envisioned added costs and authorized states to submit

claims to FMS for much of the associated administrative efforts. The level

of effort in completing tasks, such as preparing Treasury-State Agreements

(TSAs) and annual reports, developing clearance patterns, and computing

interest liabilities should be less onerous now that the states have

established the initial processes for generating this information.

Finally, we found that the Office of Management and Budget’s (OMB)

published guidance for planning audits under the Single Audit Act of 1984

does not contain suggested audit procedures for testing compliance with

CMIA requirements. As a result, we found that 1994 Single Audit Act reports

for the states we visited lacked consistency and comprehensiveness in

checking for compliance with Treasury regulations.

Background Prior to CMIA, the timing of federal funds transfers to states was governed

by the Intergovernmental Cooperation Act, Public Law 90-577. That law

allowed a state to retain for its own purposes any interest earned on

federal funds transferred to it “pending its disbursement for program

purposes.”

The House Committee on Government Operations, when considering the

CMIA legislation in 1990, noted that the Intergovernmental Cooperation Act

had been “the source of continuing friction between the states and the

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Federal Government.” The House Committee stated that under the

Intergovernmental Cooperation Act, “the States need not account to the

Federal Government for interest earned on Federal funds disbursed to the

states prior to payment of program beneficiaries.” Several years earlier, in

1988, when the Senate Committee on Governmental Affairs had looked

into this matter, it found that as a result, “some administering departments

at the state level were drawing down Federal funds too far in advance of

need, costing the Federal Government foregone interest.”

Both committees pointed out, however, that whenever the federal

government complained that states profited unduly from early

drawdowns, states would recite “numerous instances where they lose

interest opportunities because the Federal Government is slow to

reimburse them for moneys the states advance to fund Federal programs.”

At the request of the Senate Committee, a Joint State/Federal Cash

Management Reform Task Force, comprised of financial management

representatives from six states and six federal agencies, including OMB and

Treasury, was formed in 1983 to seek fair and equitable solutions to the

aforementioned problems relating to the transfer of funds between the

federal government and the states. Its work contributed to passage of CMIA

in October 1990.

The House Committee expected that CMIA would “provide a fair and

equitable resolution to those differences.” It would do so, according to the

committee, by establishing “equitable cash transfer procedures,

procedures whereby neither the Federal nor state governments profit or

suffer financially due to such transfers.”

CMIA, as enacted in 1990, requires the federal government to schedule

transfers of funds to states “so as to minimize the time elapsing between

transfer of funds from the United States Treasury and the issuance or

redemption of checks, warrants, or payments by other means by a state,”

and expects states to “minimize the time elapsing between transfer of

funds from the United States Treasury and the issuance or redemption of

checks, warrants, or payments by other means for program purposes.” To

accomplish this goal, CMIA directed the Secretary of the Treasury to

negotiate agreements with the individual states to specify procedures for

carrying out transfers of funds with that state. It authorized the Secretary

to issue regulations establishing such procedures for states with which the

Secretary has been unable to reach agreement.

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The Senate Governmental Affairs Committee explained when considering

a 1992 amendment to CMIA that the act is “meant to provide a self-enforcing

incentive for both state and Federal agencies to time the transfer of

Federal funds as closely as possible to their actual disbursement for

program purposes, so that neither... will lose the time value of their funds.”

The “self-enforcing incentive” that the Senate Committee refers to is the

act’s interest liability provision. States are required to pay interest to the

United States on federal funds transferred to the state from the time those

funds are deposited to the state’s account until the time the state uses the

funds to redeem checks or warrants or make payments by other means for

program purposes. If a state advances its own funds for program purposes

prior to a transfer of federal funds, the state is entitled to interest from the

United States from the time the state’s own funds are paid out to redeem

checks or warrants, or make payments by other means, until the federal

funds are deposited to the state’s bank account.

CMIA requires each state to calculate any interest liabilities of the state and

federal government and calls for an annual exchange of the net interest

owed by either party. Other key requirements of the act and/or Treasury2

rules and regulations are as follows:

• The Department of the Treasury must establish rules and regulations for

implementing CMIA.

• States and FMS may enter into Treasury-State Agreements (TSAs) that

outline, by program, the funding technique and the clearance pattern3

states will use to draw down4 funds from the federal government. If any

state and FMS do not enter into such an agreement, FMS will designate the

funding technique and the interest calculation method to be used by that

state.

• States may claim reimbursement from Treasury annually for allowable

direct costs relating to development and maintenance of clearance

patterns and the calculation of interest.

• States must prepare and submit to FMS an annual report that summarizes

by program the results of the interest calculation from drawdowns and

may include any claims for reimbursement of allowable direct costs.

2

While the Secretary of the Treasury is responsible for managing funds disbursement under CMIA, this

responsibility has been designated to FMS.

3

Funding techniques are procedures to minimize the time between the transfer of funds from the

Treasury and the payment of funds for program purposes by the state. A clearance pattern shows the

proportion of a total amount disbursed that is debited against a state’s bank account each day after the

disbursement.

4

A drawdown is a process whereby a state requests and receives federal funds.

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• The federal program agencies are required to (1) schedule transfers of

funds to the states so as to minimize the time elapsing between the

disbursement of federal funds from the U.S. Treasury and the issuance and

redemption of checks, warrants, or payments by other means by a state

and (2) upon Treasury’s request, review annual reports submitted by the

states for reasonableness and accuracy.

During fiscal year 1994 (which, for the majority of states, included 9

months of the states’ first fiscal year under CMIA), the federal government

obligated over a reported $150 billion in federal funds to the states for

programs covered under the act. (See table 1.) These programs were

funded by the Departments of Health and Human Services (HHS), Labor,

Education, Agriculture, Transportation and the Social Security

Administration. We did not independently verify the amounts in table 1.

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Table 1: Federal Program Funding

Provided to the States During the First

Year of CMIA

Dollars in thousands

Programs included in first

year of CMIA a

Fiscal year 1994 actual

obligations b,c

Responsible federal

program agency

National School Lunch $ 4,346,099 Agriculture

Food Program for Women,

Infants & Children

3,304,925 Agriculture

Food Stamp Program 1,520,083 Agriculture

Nutrition Assistance for

Puerto Rico

1,078,528 Agriculture

Unemployment Insurance 2,489,631 Labor

Job Training Partnership 2,484,985 Labor

Highway Planning &

Construction

20,718,690 Transportation

Chapter 1-Local Education

Agencies

6,335,067 Education

Special Education 2,661,605 Education

Rehabilitation Services 1,967,630 Education

Family Support Payments to

States

12,651,300 HHS

Job Opportunities & Basic

Skills Training

872,976 HHS

Child Support Enforcement 1,789,492 HHS

Low-Income Home Energy

Assistance

1,437,392 HHS

Foster Care 2,605,500 HHS

Social Services Block Grant 2,807,000 HHS

Medical Assistance 81,211,439 HHS

Prevention & Treatment of

Substance Abuse

1,164,789 HHS

Total $151,447,131

aThe Pell Grant program was covered under CMIA during the first year. However, the Treasury

regulations granted a grace period for colleges and universities which states that, unless

otherwise specified in a Treasury-state agreement, the regulations do not apply to a state

institution of higher education prior to a state’s 1995 fiscal year. Approximately 5 states included

the Pell Grant program in their TSA for their 1994 fiscal year.

bObligations represent amounts expected to be distributed by the federal government to the

states and territories during the period October 1, 1993 through September 30, 1994.

cThe Supplemental Security Income program is a reverse flow program whereby the federal

government makes payments on behalf of the state. The federal government will incur an interest

liability if state funds are in a federal government account prior to the day a federal agency pays

out funds for program purposes. A federal interest liability will accrue from the day state funds are

credited to the federal government’s account to the day the federal agency pays out the state

funds for program purposes.

Source: Office of Management and Budget’s Budget Information for States, Fiscal Year 1996.

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Objectives, Scope,

and Methodology

Our objective was to report, as required under the act, on CMIA’s

implementation. Specifically, we determined whether

• as required under the act, the Department of the Treasury developed rules

and regulations for implementing the act;

• the Treasury-State Agreements (TSAs) were negotiated in accordance with

CMIA provisions and Treasury rules and regulations;

• the states we visited followed the funding techniques and clearance

patterns approved by FMS in requesting and transferring funds;

• for the states we visited, interest was assessed to the federal government

and states, in accordance with CMIA and Treasury rules and regulations;

• claims submitted by the states we visited for reimbursement of allowable

direct costs incurred in implementing CMIA were prepared in accordance

with Treasury regulations;

• the states submitted all required annual reports to FMS; and

• the federal program agencies (1) scheduled transfers of funds to the states

so as to minimize the time elapsing between the disbursement of federal

funds from the U.S. Treasury and the issuance and redemption of checks,

warrants, or payments by other means by a state and (2) upon Treasury’s

request, reviewed annual reports submitted by the states for

reasonableness and accuracy.

To accomplish these objectives, we (1) performed walkthroughs of how

funds flow from the federal government to the states and how the states

distribute the funds for program purposes, (2) interviewed state officials,

(3) tested transactions, (4) interviewed state auditors, and (5) reviewed

Single Audit Act reports.

The Single Audit Act of 1984 requires each state or local government that

receives $100,000 or more in federal financial assistance in any given year

to have an annual5

 comprehensive single audit of its financial operations,

including tests to determine whether the entity complied with laws and

regulations that may have a material effect on its financial statements or

its major programs, as defined in the Single Audit Act. The Office of

Management and Budget (OMB) publishes guidance to assist auditors in

planning audits under the Single Audit Act of 1984.

We also reviewed Treasury’s regulations, implementation plans, and

procedures for reviewing TSAs and annual reports. In addition, we sent a

questionnaire to all states to obtain their views on CMIA implementation

5

Entities may arrange for biennial audits under certain conditions specified in the act.

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and summarized the results of the 54 completed and returned

questionnaires.

To determine if the federal program agencies and the states were properly

implementing CMIA, we also documented systems used to process selected

transactions of eight major programs (National School Lunch,

Unemployment Insurance, Chapter 1-Local Education, Family Support

Payments to States, Social Services Block Grant, Medical Assistance,

Highway Planning and Construction, and Supplemental Security Income).

These programs were selected on the basis of federal funding levels and

the amount of interest liabilities incurred during the first year of CMIA

implementation. It was not part of our scope to assess the adequacy of the

accounting systems states and federal program agencies used to carry out

their CMIA requirements.

The period covered by the audit was the states’ 1994 fiscal year, which, for

almost all of the states, was the period from July 1, 1993 through June 30,

1994. The first required annual reports were due by December 31, 1994,

and the first interest exchange between the states and the federal

government occurred on or about March 1, 1995.

The 12 states selected for detailed audit work were chosen primarily

because they received relatively large amounts of federal funds, incurred

comparatively large federal or state interest liabilities, and, in some cases,

were denied interest and direct costs reimbursement claims submitted to

FMS. We included states that reported interest liabilities to or from the

federal government (California, Colorado, Florida, Indiana, Maryland, New

York, Ohio, Pennsylvania, Texas, and Tennessee) and states that reported

no state or federal interest liabilities (District of Columbia and Georgia).

We also visited the Departments of Health and Human Services, Labor,

Education, Agriculture, Transportation and the Social Security

Administration because they process requests for funds for the programs

we selected for audit and review federal interest liabilities relating to these

programs.

We conducted our audit between April and September 1995 at 12 states, 6

federal program agencies, and FMS. We performed our work in accordance

with generally accepted government auditing standards. While we

performed limited testing of the reasonableness of the calculated interest

liability and reimbursement of the direct costs for the 12 states visited, our

audit scope did not include an assessment of the accuracy and

completeness of the $34 million net interest liability (comprised of

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$41.6 million of state interest liabilities offset by a $4.7 federal interest

liability and $2.5 million in states’ claims for direct costs reimbursement),

nor did we test the accuracy of program disbursements made by the

states.

We provided a draft of this report to Treasury’s FMS for review and

comment. FMS agreed with our findings and conclusions.

The Three Key Agents

of CMIA Have Made

Progress in Achieving

the Act’s Purpose

Our review showed that the Department of the Treasury, federal program

agencies, and the states have made substantial progress in achieving the

act’s purpose of timely transfers of funds. Most state officials

acknowledged that CMIA has helped heighten their awareness of cash

management, but several expressed concern over what they viewed as

added administrative burden.

While the three key agents have made progress in implementing CMIA,

three of the states we visited consistently did not comply with certain

Treasury rules and regulations. Some of the noncompliance situations

resulted in an understatement in the states’ reported state interest liability.

However, because it was outside the scope of our audit, we did not

attempt to project the total understatements resulting from these

noncompliances. We communicated these noncompliances to FMS, and it

informed us that it will take appropriate actions to address the

noncompliances.

Financial Management

Service and Federal

Program Agencies

As amended, CMIA directed that by July 1, 1993, or the first day of a state’s

fiscal year beginning in 1993, whichever is later, the Secretary of the

Treasury was to make all reasonable efforts to enter into a written

agreement with each state that receives a transfer of federal funds. This

agreement was to document the procedures and requirements for the

transfer of funds between federal executive branch agencies and the

states. In addition, the Secretary was to issue rules and regulations within

3 years relating to the implementation of CMIA.

FMS officials have made substantial efforts to enable successful

implementation. They

• published final rules and regulations for implementing CMIA;

• contracted for development of clearance patterns that could be used by

states that did not develop their own;

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• developed and issued an Implementation Guide, Federal and State Review

Guides, and a Treasury-State Agreement Form Book;

• negotiated first year TSAs, within the time period specified in the act, with

all but two states and second year agreements with all but one state;

• reviewed the documentation for reimbursement of allowable direct costs

over $50,000 submitted by the states;

• received first-year annual reports from all the states and submitted them

to program agencies for review of federal interest liabilities claimed;

• issued several policy statements intended to clarify regulations;

• submitted to OMB suggested language on CMIA-related audit objectives and

procedures for inclusion in the planned revisions to the Compliance

Supplement for Single Audit Act reviews; and

• developed plans to revise the CMIA regulations to streamline processes to

make them more flexible.

As part of its revision of the CMIA regulations, FMS plans to allow for greater

variation in funding techniques and to delete descriptions and examples of

the four current funding techniques from the regulations. Thus, according

to FMS, states will be able to choose a technique that meets their needs. FMS

also plans to eliminate the prohibition on reimbursable funding to provide

states with greater flexibility in funding techniques.

In the same regard, we found that the federal program agencies met their

responsibilities under the act to transfer funds in a timely manner. This is

evidenced by the relatively small (approximately $4.7 million) federal

interest liability incurred in the first year of the act’s implementation.

States State officials generally credit CMIA with heightening their awareness of

cash management matters. Even though several of them said that they had

been practicing cash management techniques prior to CMIA, they still

believed that CMIA was instrumental in focusing attention on when federal

funds should be requested. Of the 54 states responding to our

questionnaire, 41 stated that CMIA raised their level of awareness regarding

cash management. Thirty-two said that CMIA is needed to ensure financial

equity in the transfer of funds. The 12 states we visited were generally

making a good effort to comply with CMIA requirements.

The following sections describe actions states have taken and provide

additional details on actions taken by the 12 states we visited and the

noncompliance situations we found at 3 of the states.

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Treasury-State Agreement: All but 2 of the 56 states and all of the 12 states

visited signed a first year TSA with FMS.

Clearance Pattern Methodology: Nine of the states we visited developed

their own clearance patterns based on techniques described in the

Treasury regulations. Three chose to accept a clearance pattern time

provided by FMS based on a study done under contract for the federal

government. In an effort to be efficient, a few states are testing clearance

patterns on a quarterly basis, even though they are not required by

Treasury regulations to recertify their clearance patterns more frequently

than every 5 years.

Adherence to Agreed to Drawdown Techniques: For all the programs

included in our review, we tested to determine whether states we visited

were drawing down federal funds in accordance with the terms contained

in their agreements. Generally, we noted that drawdowns complied with

agreement terms. However, in one state, the agreed upon drawdown

techniques were consistently not followed for six of the seven programs

tested. For example, two programs were consistently drawing funds

several days prior to the TSA specified schedule. According to program

officials, the agreed upon funding techniques negotiated by the state

treasurer’s office did not reflect the actual timing of when these funds

were clearing accounts. Therefore, the program officials drew the funds in

what they thought was a more accurate manner.

In addition, the state filed an amended annual report with FMS reducing its

net state liability from about $500,000 to $60,000. The state informed FMS

that it had followed its agreed upon funding techniques in all its programs

and, therefore, was reducing its previously reported interest liability.

However, as mentioned above, we found that the state was consistently

not following its agreed upon funding techniques.

In another state, our work showed that no attempt was made to draw

down in accordance with the funding technique for 5 of the programs

tested. According to program officials, they were unaware of the

techniques specified in the agreement because they were not consulted

before the agreement was approved nor had they seen the agreement after

it went into effect. In this case, no federal interest liability was created

since funds were being transferred to the states in a timely manner

whenever they were requested. However, in the transactions we looked at,

this did result in the state consistently using its own money to fund

programs until it received federal funds.

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Interest Calculation: Ten of the 12 states we visited computed interest

liabilities. Both states that did not make such computations told us they

had no interest liabilities to compute. However, our review showed that

one of these states should have computed an interest liability on certain

refunds it received.

Our tests of interest calculations showed some problems. For example,

one state claimed a federal interest liability because it did not receive

federal funds by the time specified in the TSA. FMS denied a significant

portion of this claim because it concluded that the state was not

requesting funds in time for the federal government to provide them as

called for in the agreement. We attempted to determine the

reasonableness of the state’s claim, but state officials told us that they no

longer had sufficient documentation to support their claim.

Direct Cost: The Treasury regulations authorize states to claim

reimbursement for direct costs incurred for developing and maintaining

clearance patterns and computing interest liabilities. Reimbursable direct

costs were claimed by 11 of the 12 states we visited. FMS denied a

significant portion of the direct cost claims for two of these states. FMS

denied a portion of the claims because the documentation submitted did

not support costs allowable under CMIA. One state has appealed the

decision and the other is considering an appeal. In those cases where

reimbursement was approved, our review of supporting documentation

indicated that the states had reasonable support for their claims.

Annual Reports: All 56 states submitted an annual report to FMS for the

first year’s activities.

Some States View Certain

Procedures as

Burdensome

While overall states see benefits from CMIA, such as a heightened

awareness of cash management, some expressed concern about what they

perceived as an additional burden of the act. In 24 of the 54 responses to

our questionnaire and 7 of the 12 states we visited, officials expressed

their view that the additional administrative tasks associated with

implementing the act are burdensome. In addition, officials at 2 of the

states we visited stated that the CMIA regulations were inflexible.

Some of the issues cited by the states included:

• Administrative tasks needed to comply with CMIA, such as preparing TSAs

and annual reports, developing clearance patterns, computing interest

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liabilities, tracking refunds, and compiling direct costs, are burdensome to

their operations.

• Three states said that the Treasury was being inflexible by not allowing

them to use the reimbursable funding technique, which is a method of

transferring federal funds to a state after the state has paid out its own

funds for program purposes. After June 30, 1994, Treasury regulations

prohibited reimbursable funding, except where mandated by federal law.

One state said that it believed that the act itself does not specifically

prohibit reimbursable funding and that some federal assistance programs

must use it as a necessity. It said that using another funding technique that

requires estimating cash needs in advance and reconciling later to actual

expenditures creates an unnecessary administrative burden. It also said

that the cash needs for some programs cannot be estimated due to

fluctuating activities. As we discussed earlier, FMS is planning to revise the

CMIA regulations to allow for the use of reimbursable funding.

• A Treasury policy statement requires that average clearance patterns be

calculated out until 99 percent of the funds have cleared through the bank

account. Some of the states said that this degree of precision was

unnecessary because it requires them to make excessive small dollar

amount draws.

• Treasury regulations require states to compute interest on refunds for

which the federal share is $10,000 or more. Several of the states said that

monitoring all programs covered by CMIA for refunds was burdensome

given that most of these refunds relate to one federal program. We

determined that over 90 percent of all state interest liabilities from refunds

reported by the states in the first year annual reports related to one federal

program.

• Some states said that the Treasury regulatons should allow reimbursement

for all direct costs related to implementing CMIA and not just those costs

related to the three specific categories identified in the regulations.

We did not determine the extent of burden created by the added

administrative tasks placed on the states as a result of implementing CMIA.

However, it should be noted that the states can submit claims for

reimbursement for some of the efforts required. Also, some of the tasks,

such as preparing TSAs and annual reports, developing clearance patterns,

and computing interest liabilities should be less onerous now that the

initial processes for generating this information have been established.

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First-Year Exchange

of Funds Indicates Act

Is Working

Under CMIA, a state is authorized to draw down funds based on approved

funding techniques. If the state requests funds early, interest is due the

federal government. Conversely, if the federal government fails to transfer

funds on time, the state is due interest. Ideally, under the act, the transfer

of funds would be interest neutral, with neither the federal government

nor the states incurring any interest liability. The first year of

implementation of CMIA resulted in a cumulative net state interest liability

due to the federal government of approximately $34 million. Taken in

context, this liability is relatively small compared to the over $150 billion

reported as obligated in fiscal year 1994 for the programs covered by the

act. Table 2 summarizes the components of the $34 million net state

interest liability.

Table 2: Components of the Net State

Interest Liability Resulting From

CMIA’s First Year of Implementation

Dollars in thousands

State

State

interest

liability

Federal

interest

liability

Claims for

reimbursement

of direct costs

Net state

(federal)

interest

liability

Alaska $ 7.9 $ (24.5) $(31.7) $(48.3)

Alabama 282.3 (10.3) (72.3) 199.7

Arkansas 0.5 (0.0) (0.0) 0.5

American Samoa 0.0 (0.0) (0.0) 0.0

Arizona 345.3 (0.0) (46.6) 298.7

California 6,409.1 (696.7) (130.3) 5,582.1

CNMIa 0.3 (0.5) (0.4) (0.6)

Colorado 111.0 (0.0) (50.0) 61.0

Connecticut 47.7 (55.5) (18.7) (26.5)

District of Columbia 0.0 (0.0) (20.5) (20.5)

Delaware 56.5 (56.8) (45.0) (45.3)

Florida 3,949.6 (34.7) (51.0) 3,863.9

Georgia 0.0 (0.0) (36.3) (36.3)

Guam 0.0 (0.0) (0.0) 0.0

Hawaii 134.6 (37.0) (205.7) (108.1)

Idaho 0.1 (0.0) (15.7) (15.6)

Illinois 1,678.2 (244.3) (36.7) 1,397.2

Indiana 8,609.3 (0.9) (83.7) 8,524.7

Iowa 515.4 (0.0) (31.3) 484.1

Kansas 579.0 (11.5) (60.2) 507.3

Kentucky 439.9 (133.6) (183.0) 123.3

Louisiana 161.6 (39.7) (6.1) 115.8

(continued)

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Dollars in thousands

State

State

interest

liability

Federal

interest

liability

Claims for

reimbursement

of direct costs

Net state

(federal)

interest

liability

Maine 63.8 (7.1) (65.5) (8.8)

Maryland 249.9 (828.9) (54.6) (633.6)

Massachusetts 101.9 (4.8) (116.5) (19.4)

Michigan 102.9 (370.4) (6.4) (273.9)

Minnesota 52.4 (117.0) (121.0) (185.6)

Mississippi 19.5 (11.1) (58.2) (49.8)

Missouri 707.8 (24.8) (24.3) 658.7

Montana 17.6 (6.8) (17.5) (6.7)

Nebraska 18.6 (2.7) (4.1) 11.8

Nevada 67.4 (81.0) (43.0) (56.6)

New Hampshire 1.6 (1.1) (67.8) (67.3)

New Jersey 222.6 (117.4) (25.7) 79.5

New Mexico 0.7 (12.3) (56.1) (67.7)

New York 1,758.7 (138.6) (53.9) 1,566.2

North Carolina 1,647.7 (49.6) (100.3) 1,497.8

North Dakota 0.0 (0.0) (0.0) 0.0

Ohio 963.8 (0.0) (0.0) 963.8

Oklahoma 47.6 (13.7) (0.0) 33.9

Oregon 0.0 (52.5) (0.0) (52.5)

Pennsylvania 519.0 (311.4) (230.5) (22.9)

Puerto Rico 6.5 (123.1) (18.5) (135.1)

Rhode Island 393.2 (39.1) (0.0) 354.1

South Carolina 900.3 (24.8) (68.8) 806.7

South Dakota 1.4 (4.0) (14.3) (16.9)

Tennessee 332.7 (160.4) (1.7) 170.6

Texas 8,309.7 (0.0) (21.9) 8,287.8

Utah 24.3 (181.8) (76.7) (234.2)

Vermont 27.8 (84.9) (8.1) (65.2)

Virgin Islands 0.0 (0.0) (0.0) 0.0

Virginia 995.7 (53.2) (50.0) 892.5

Washington 1.6 (1.0) (2.7) (2.1)

West Virginia 525.3 (0.0) (46.3) 479.0

Wisconsin 272.2 (543.0) (36.5) (307.3)

Wyoming 0.0 (0.0) (0.0) 0.0

Total $41,682.5 $(4,712.5) $(2,516.1) $34,453.9

(Table notes on next page)

Page 15 GAO/AIMD-96-4 Implementation of CMIA
B-270258 

aCommonwealth of the Northern Mariana Islands.

Interest claims are submitted by program. FMS denied 47 claims by 15

states for interest (approximately $6.4 million). Reasons cited included

insufficient documentation and repeated failure to follow the funding

technique specified in the TSA. As of October 1995, 8 of the 15 states had

appealed those denials to FMS. Of the 8 states that filed claims to appeal

these denials, all but 2 have been resolved. FMS denied a portion of direct

cost reimbursement claims submitted by 10 states because the costs were

not eligible for reimbursement under Treasury rules and regulations, or

the supporting documentation contained both eligible and ineligible costs

which could not be separately identified. Three states submitted claims to

appeal the denials; two of these states’ appeals were subsequently

approved based on additional supporting documentation provided to FMS.

As indicated previously, most of the states visited computed interest

liabilities in accordance with TSAs, and the majority of the programs

reviewed had interest neutral funding techniques, whereby neither the

federal government nor the states incur interest. Much of the state interest

liability was beyond state agencies’ immediate control and was instead

attributed to certain states’ laws which require that they have the federal

funds in the bank before they make any associated disbursements, as

opposed to when the check clears the bank. Four of the 12 states we

visited had a state interest liability totaling $18.5 million which primarily

resulted from the states’ adherence to such laws.

Single Audit Coverage OMB publishes guidance to assist auditors in planning audits under the

Single Audit Act of 1984. The guidance, entitled, Compliance Supplement

for Single Audits of States and Local Governments, was last updated in

September 1990 and does not address CMIA, which was enacted in

October 1990. OMB plans to issue a revised Compliance Supplement during

fiscal year 1996 which will address CMIA requirements. We reviewed and

generally supported a draft of the proposed revisions to the Compliance

Supplement relating to cash management. However, we suggested that the

Compliance Supplement also include provisions to determine that

clearance patterns were properly established and verified by the

appropriate state official.

The fiscal year 1994 single audit reports for the states we visited lacked

consistency and comprehensiveness in checking for compliance with CMIA

Page 16 GAO/AIMD-96-4 Implementation of CMIA
B-270258 

requirements. Auditors in some of the states we visited said that they

obtained knowledge about CMIA by obtaining FMS’ guidelines to state

governments and attended cash management and audit conferences where

CMIA was discussed. The auditors also said that they intended to expand

work in their next audits to cover other aspects of CMIA requirements such

as clearance pattern establishment and compliance with drawdown

techniques contained in the TSA.

FMS officials informed us that they do not routinely receive a copy of single

audit reports from each state. Under the single audit concept, audited

entities are only required to submit single audit reports to federal agencies

that directly provide them funds and the Single Audit Clearinghouse,

Governments Division, of the Commerce Department. Since FMS is not a

funding agency, entities would not be required to submit reports to FMS.

However, FMS may obtain copies of single audit reports from the Federal

Audit Clearinghouse. Since some states comply with Single Audit Act

requirements by arranging for single audit reports for each state

department and agency that receives federal assistance, rather than one

single audit for the entire state, FMS would in those cases need to obtain

multiple reports for a given state.

FMS officials also informed us that they do not routinely review the reports

they do receive for CMIA findings. In our June 1994 report6

 on the single

audit process, we pointed out that single audit reports are not user

friendly. We recommended that the auditors include a summary of their

determinations concerning the entity’s financial statements, internal

controls, and compliance with laws and regulations. The summary

information would be useful because single audit reports generally contain

seven or more reports from the auditor. We also recommended that the

results of all single audits be made more accessible by having the Federal

Audit Clearinghouse compile the results in an automated database. We

believe that more useful information on compliance with cash

management requirements, particularly when summarized in an accessible

database, would provide FMS officials with a better basis for reviewing and

acting on CMIA issues.

Conclusions The Cash Management Improvement Act has heightened awareness of

cash management at both the state and federal levels. Treasury, the federal

agencies, and the states have made substantial progress in implementing

the act. By implementing its plans to begin revising CMIA regulations to

6

Single Audit: Refinements Can Improve Usefulness (GAO/AIMD-94-133 June 21, 1994).

Page 17 GAO/AIMD-96-4 Implementation of CMIA
B-270258 

streamline the process and placing greater emphasis on using the results

of single audits as a means of overseeing state activities and enforcing CMIA

requirements, FMS should be able to further improve the act’s effectiveness

and help alleviate any concerns about administrative burden.

We are also sending this report to the Secretary of the Treasury; the

Commissioner of the Financial Management Service, Department of the

Treasury; the Director of the Office of Management and Budget; and the

Chairmen and Ranking Minority Members of the House Committee on

Government Reform and Oversight, Subcommittee on Government

Management, Information and Technology and Senate Committee on

Governmental Affairs. We will also send copies to others on request.

This report was prepared under the direction of Gregory M. Holloway,

Director, Governmentwide Audits, who may be reached at (202) 512-9510

if you or your staffs have any questions. Other major contributors to this

report were Gary T. Engel, Senior Assistant Director; J. Lawrence

Malenich, Assistant Director; and Johnny R. Bowen, Senior Audit Manager.

Gene L. Dodaro

Assistant Comptroller General

(901673) Page 18 GAO/AIMD-96-4 Implementation of CMIA
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