U.S. ELECTION ASSISTANCE 

COMMISSION 

OFFICE OF INSPECTOR GENERAL

FINAL AUDIT REPORT: 

ADMINISTRATION OF PAYMENTS 

RECEIVED UNDER THE HELP AMERICA 

VOTE ACT BY THE TEXAS SECRETARY 

OF STATE

Report No. 

E-HP-TX-06-06 

October 2006
October 18, 2006 

Memorandum 

To: Thomas Wilkey 

 Executive Director 

From: Curtis Crider 

 Inspector General 

Subject: Final Audit Report on the Administration of Payments Received Under the 

Help America Vote Act by the Texas Secretary of State (Assignment No. EHP-TX-06-06) 

 This report presents the results of the subject audit. The objectives of the audit 

were to determine whether Texas (1) expended Help America Vote Act (HAVA) 

payments in accordance with the Act and related administrative requirements and (2) 

complied with the HAVA requirements for replacing punch card or lever voting 

machines, for appropriating a 5 percent match for requirements payments, for 

establishing an election fund, and for maintaining state expenditures for elections at a 

level not less than expended in fiscal year 2000. 

 

 The report concluded that Texas generally complied with requirements and 

identified two areas needing management attention, as follows: 

9 Texas financed indirect costs with HAVA funds before the Election Assistance 

Commission (EAC) approved the State’s indirect cost rate. This resulted in the 

improper use of HAVA funds of $180,609 for indirect costs which we classified 

as questioned costs. 

9 Texas needed to take additional steps to ensure that income from county leasing 

of HAVA-financed voting equipment is accurately computed, reported and 

properly used. 

 In an October 12, 2006 response to the draft report (Appendix 3), Texas stated 

that it had completed appropriate action to resolve the indirect costs finding and was 

waiting for EAC approval of its measures. Regarding program income, Texas requested 

approval from EAC to offset the cost of generating gross program income to determine 

net program income. 

 U.S. ELECTION ASSISTANCE COMMISSION

 OFFICE OF INSPECTOR GENERAL

 1225 New York Ave. NW - Suite 1100 

 Washington, DC 20005
 Please provide us with your written response to the recommendations included in 

this report by December 22, 2006. Your response should contain information on actions 

taken or planned, including target dates and titles of EAC officials responsible for 

implementing the recommendations 

 Section 5(a) of the Inspector General Act (5 U.S.C. § App.1) requires the Office 

of Inspector General to list this report in its semiannual report to Congress. 

 If you have any questions regarding this report, please call me at (202) 566-3125. 
1 

BACKGROUND

 

HELP AMERICA 

VOTE ACT

The Help America Vote Act of 2002 (HAVA or the Act) created the 

U.S. Election Assistance Commission (EAC or Commission) to assist 

states and insular areas with the administration of Federal elections and 

to provide funds to states to help implement these improvements. 

HAVA authorizes payments to states under Titles I and II, as follows: 

9 Title I, Section 101 payments are for activities such as 

complying with Title III of HAVA for uniform and 

nondiscriminatory election technology and administration 

requirements, improving the administration of elections for 

Federal office, educating voters, training election officials and 

poll workers, and developing a state plan for requirements 

payments. 

9 Title I, Section 102 payments are available only for the 

replacement of punchcard and lever action voting systems. 

9 Title II, Section 251 requirements payments are for complying 

with Title III requirements for voting system equipment; and 

for addressing provisional voting, voting information, statewide 

voter registration lists, and voters who register by mail. 

Title II also requires that states must: 

9 Have appropriated funds “equal to 5 percent of the total amount 

to be spent for such activities [activities for which requirements 

payments are made].” (Section 253(b)(5)). 

9 “Maintain the expenditures of the State for activities funded by 

the [requirements] payment at a level that is not less than the 

level of such expenditures maintained by the State for the fiscal 

year ending prior to November 2000.” (Section 254 (a)(7)). 

9 Establish an election fund for amounts appropriated by the state 

“for carrying out the activities for which the requirements 

payment is made,” for the Federal requirements payments 

received, for “such other amounts as may be appropriated under 

law,” and for “interest earned on deposits of the fund.” (Section 

254 (b)(1)). 
2 

 

1

 EAC requires states to submit annual reports on the expenditure of HAVA Sections 101, 102, and 251 

funds. For Sections 101 and 102, reports are due on February 28 for the activities of the previous calendar 

year. For Section 251, reports are due by March 30 for the activities of the previous fiscal year ending on 

September 30. 

FUNDING FOR 

TEXAS

FINANCIAL 

MANAGEMENT 

REQUIREMENTS

HAVA funds received and expended by Texas are as follows: 

TYPE OF AMOUNT OUTLAYS 

PAYMENT RECEIVED AMOUNT AS OF1

 

101 $17,206,595 $841,251 12/31/05 

102 6,269,521 4,219,039 12/31/05 

251 160,691,949 24,852,392 09/30/05 

 

Totals $184,168,065 $29,912,682 

Within the Office of the Texas Secretary of State, HAVA programs are 

administered by the Elections Division and the Administrative 

Services Division. To account for the HAVA payments, the Act 

requires recipients to maintain records that are consistent with sound 

accounting principles, that fully disclose the amount and disposition of 

the payments, that identify project costs financed with the payments 

and with other sources, and that will facilitate an effective audit. 

In addition, the Commission notified states of other management 

requirements. Specifically, that states must: 

9 Comply with the Uniform Administrative Requirements for 

Grants and Cooperative Agreements with State and Local 

Governments (also known as the “Common Rule”). 

9 Expend payments in accordance with cost principles for 

establishing the allowability or unallowability of certain items 

of cost for federal participation issued by the Office of 

Management and Budget (OMB) in Circular A-87. 

9 Submit annual financial reports on the use of Title I and Title II 

payments. 

OBJECTIVE The objectives of our audit were to determine whether Texas (1) 

expended HAVA payments in accordance with the Act and related 

administrative requirements and (2) complied with the HAVA 

requirements for replacing punch card or lever voting machines, for 

establishing an election fund, for appropriating a 5 percent match for 

requirements payments, and for maintaining state expenditures for 

elections at a level not less than expended in fiscal year 2000. 

Specifically, we audited expenditures from May 1, 2003 through 
3 

RESULTS OF AUDIT

SUMMARY We concluded that Texas (1) generally administered HAVA funds in 

accordance with requirements and (2) properly established the State 

election fund, appropriated and deposited into the election fund its 

matching monies, and sustained the appropriate level of state 

expenditures for elections. Also, our audit identified two areas 

regarding the management of HAVA funds that need further attention. 

First, Texas financed indirect costs with HAVA funds before EAC 

approved the State’s indirect cost rate. This resulted in the improper 

use of HAVA funds of $180,609 for indirect costs which we classified 

as questioned costs. Second, we found that the State needs to take 

additional steps to ensure that income from county leasing of HAVAfinanced voting equipment is accurately computed, reported and 

properly used. 

INDIRECT COSTS Texas reported on the Financial Status Report (SF-269) for HAVA 

Section 101 funds for the period ending December 31, 2005, the 

expenditure of $180,609 for indirect costs. The SF-269 indicated that 

the indirect costs were based on a provisional rate of 49.768 percent 

applied to a base of $362,901. Although Texas had submitted its 

December 31, 2005, and reviewed controls to assess their adequacy 

over the expenditure of HAVA funds. We also evaluated compliance 

with certain HAVA requirements for the following activities: 

9 Accumulating financial information reported to EAC on the 

Financial Status Reports (Standard Forms number 269). 

9 Accounting for property. 

9 Purchasing goods and services. 

9 Accounting for salaries. 

9 Charging indirect costs. 

9 Spending by counties. 

We also determined whether Texas had complied with the 

requirements in HAVA applicable to Section 251 requirements 

payments for: 

9 Establishing and maintaining the election fund. 

9 Appropriating funds equal to five percent of the amount 

necessary for carrying out activities financed with Section 251 

requirements payments. 

9 Sustaining the State’s level of expenditures for elections. 
4 

indirect cost rate proposal to EAC, EAC had not yet approved the rate. 

Federal cost principles contained in OMB Circular A-87 require an 

indirect cost rate to be approved by the cognizant Federal agency 

(EAC) before the rate is used.2

 As such, we questioned the use of 

HAVA funds for indirect costs of $180,609. 

Notwithstanding the lack of an approved indirect cost rate, we noted 

that Texas incorrectly calculated indirect costs. Specifically, Texas 

applied the proposed rate of 49.768 percent to total direct costs less 

payments to counties resulting in the $180,609 charge for indirect 

costs. However, the Texas indirect cost proposal specifies that the rate 

will be applied to only personal services costs, which would result in a 

lesser charge for indirect costs. 

Texas made adjustments to its reported indirect costs after we informed 

them of our finding. On July 6, 2006, Texas submitted amended SF269s to EAC in which it reduced its indirect charge from $180,609 to 

$62,223. Texas based its reduction on the application of its current 

pending rate of 48.548 percent applicable to personal services of 

$128,168. This calculation reflects the proper application of the rate. 

Therefore, if EAC approves an indirect cost rate of 48.548 percent for 

fiscal years 2004 and 2005, Texas has made the proper adjustments 

and no further action is necessary regarding this matter. 

In response to this finding, Texas stated that it had: 

received the EAC Cognizant Agency Indirect Cost 

Negotiation Agreement Filing Ref: TX-SFY05-06 dated 

September 19, 2006 approving the indirect cost rate of 

48.548 percent. As noted in the audit report, the SOS 

has already made the accounting adjustment to reflect 

the 48.548 percent rate. Accordingly, the SOS requests 

that the EAC conclude that no further action is 

necessary. 

Recommendation: 

1. We recommend that EAC resolve the questioned costs of 

$180,609. 

PROGRAM 

INCOME

Program income has not been properly computed, reported and (if 

applicable) used to support HAVA-related activities. According to the

Uniform Administrative Requirements for Grants and Cooperative 

Agreements with State and Local Governments (41 CFR 105-71.125), 

program income is defined as gross income received from a grantsupported activity during the grant period and includes items such as 

 

2

 OMB Circular A-87, Attachment E, Part E.1 requires indirect cost rates to be reviewed, negotiated and 

approved by the cognizant Federal agency before it will be accepted and used by all Federal agencies. 
5 

fees from the use or rental of real or personal property acquired with 

grant funds. In the case of the HAVA program, the grant-supported 

activity is the acquisition of voting machines. And, according to a 

December 28, 2005 EAC letter to the Texas Secretary of State, the 

grant period started on the date HAVA funds were disbursed to the 

State (May 1, 2003 for 102 funds and June 15, 2004 for 251 funds) 

and will end on the date that the State and/or a political subdivision of 

the State expends all the funds received (which has yet to occur). 

The Uniform Administrative Requirements also stipulate, in part, that 

the costs incident to the generation of program income may be 

deducted from gross income to determine program income, if 

authorized by Federal regulations or the grant agreement. 

Computation: Three of the four counties we visited during our audit 

collected revenue that included program income. For example, Texas 

granted Harris County about $21 million as reimbursement for the 

purchase of HAVA-compliant voting equipment. Harris County has 

subsequently entered into lease agreements with local governments, 

such as the City of Houston and county school districts, to support 

elections. The lease agreements included fees for election judges, 

supervisors, clerks, training booklets, postage, technical support, 

polling places, printing and supplies, rental of voting equipment, and 

several similar items. Harris County lease revenues beginning in fiscal 

year 2004 are as follows: 

To compute program income, an analysis must be performed that: 

9 Determines the specific grant periods for 102- and 251-

funded voting equipment included in the leases. (The 

periods will differ because the funds were received by Texas 

on different dates.) 

9 Determines gross revenues applicable to only the use of 

HAVA-funded equipment from total lease revenue. 

9 Identifies the costs of generating the gross program income 

Fiscal Year Amount

2003 - 2004 $4,423,593 

2004 - 2005 3,924,776 

2005 - 2006 2,538,523 

2006 - 2007 178,095

Total $11,064,987
6 

applicable to the HAVA-funded activities. 

9 Reduces, subject to EAC approval, gross program income by 

the applicable costs. 

Reporting: Both the federal Standard Form 269 and the Texas online 

grant application, approval, and payment system provide for reporting 

program income. However, none of the counties we visited reported 

any program income. Texas should ensure that its counties accurately 

report program income for subsequent reporting to EAC. 

Use: In its December 28, 2005 letter to Texas, EAC said that counties 

which generate program income should dedicate the income to uses 

permitted under HAVA, Section 251. In this regard, we noted that 

Harris County deposited the revenue from its support of local 

elections into its general fund. Therefore, counties with program 

income should establish a separate fund that reserves the income for 

uses only as authorized under HAVA, Section 251. 

Although Texas incorported into its grant agreements the Uniform 

Administrative Requirements and also had a separate section in the 

agreements on program income, its guidance was prepared before 

EAC defined the grant period. Thus, state guidance did not identify 

the parameters for determining program income. 

Recommendations: 

We recommend that EAC ensure that the Texas Office of the 

Secretary of State: 

2. Provides guidance to counties on computing, reporting, and 

using program income. 

3. Ensures that counties follow the guidance for program income. 
7 

APPENDIX 1 

SCOPE AND METHODOLOGY 

To accomplish our objective, we reviewed: 

9 The prior single audit report and other reviews related to the 

Secretary of State’s financial management systems and the HAVA 

program for the last 2 years. 

9 Policies, procedures and regulations for the Texas Secretary of 

State’s management and accounting systems as they relate to the 

administration of HAVA programs. 

9 Inventory lists of equipment purchased with HAVA funds. 

9 Major purchases. 

9 Supporting documents maintained in the accounting system for 

payments made with HAVA funds. 

9 Support for reimbursements to counties. 

9 Certain Texas laws that impacted the election fund. 

9 Appropriations and expenditure reports for State funds used to 

maintain the level of expenses for elections at least equal to the 

amount expended in fiscal year 2000 and to meet the five percent 

matching requirement for section 251 requirements payments. 

9 Information regarding source/supporting documents kept for 

maintenance of effort and matching contributions. 

We also interviewed appropriate Division employees about the 

organization and operation of the HAVA program. 

We conducted our review in accordance with Government Auditing 

Standards issued by the Comptroller General of the United States. As 

such, we included tests and procedures as considered necessary under 

the circumstances to evaluate the Division’s controls over the 

administration of HAVA payments. Because of inherent limitations, a 

study and evaluation made for the limited purposes of our review 

would not necessarily disclose all weaknesses in administering HAVA 

payments.
8 

APPENDIX 2 

MONETARY IMPACT 

Description 

Questioned 

Costs 

 

Indirect Costs $180,609
9
10
11
12
13
OIG’s Mission 

The OIG audit mission is to provide timely, high-quality 

professional products and services that are useful to OIG’s clients. 

OIG seeks to provide value through its work, which is designed to 

enhance the economy, efficiency, and effectiveness in EAC 

operations so they work better and cost less in the context of 

today's declining resources. OIG also seeks to detect and prevent 

fraud, waste, abuse, and mismanagement in these programs and 

operations. Products and services include traditional financial and 

performance audits, contract and grant audits, information systems 

audits, and evaluations. 

Obtaining 

Copies of 

OIG Reports 

Copies of OIG reports can be requested by e-mail. 

(eacoig@eac.gov). 

Mail orders should be sent to: 

U.S. Election Assistance Commission 

Office of Inspector General 

1225 New York Ave. NW - Suite 1100 

Washington, DC 20005 

To order by phone: Voice: (202) 566-3100 

 Fax: (202) 566-3127 

To Report Fraud, 

Waste and Abuse 

Involving the U.S. 

Election Assistance 

Commission or Help 

America Vote Act 

Funds

By Mail: U.S. Election Assistance Commission 

 Office of Inspector General 

 1225 New York Ave. NW - Suite 1100 

 Washington, DC 20005 

E-mail: eacoig@eac.gov

OIG Hotline: 866-552-0004 (toll free) 

FAX: 202-566-0957