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EAC MANAGEMENT DECISION:

Resolution of the OIG Audit Report on the Administration of 

Payments Received Under the Help America Vote Act by 

California’s Secretary of State, for the Period January 1, 2005 

Through December 31, 2008, Report No. E-HP-CA-01-09

September 30, 2010 

BACKGROUND

The EAC is an independent, bipartisan agency created by the Help America Vote Act 

(HAVA). EAC assists and guides state and local election officials in improving the 

administration of elections for Federal office. EAC distributes HAVA funds to States for 

the acquisition of voting systems, and supports the establishment of statewide voter 

registration lists, and other activities to improve the administration of elections for 

Federal office. EAC monitors State use of HAVA funds to ensure funds distributed are 

being used for authorized purposes. To help fulfill this responsibility, the EAC 

determines the necessary corrective actions to resolve issues identified during Single 

Audit Act and Department of Inspector General (OIG) audits of state administration of 

HAVA funds. The EAC OIG has established a regular audit program to review the use 

of HAVA funds by States. The OIG’s audit plan and audit reports can be found at 

www.eac.gov. 

The EAC Audit Follow-up Policy authorizes the EAC Executive Director to issue the 

management decision for OIG audits of Federal funds to state and local governments, to 

non-profit and for-profit organizations, and for single audits conducted by state auditors 

and independent public accountants (external audits). The Executive Director has 

delegated the evaluation of final audit reports provided by the OIG and single audit 

reports to the Director of the HAVA Grants Division of EAC. The Division provides a 

recommended course of action to the Executive Director for resolving questioned costs, 

administrative deficiencies, and other issues identified during an audit. The EAC 

Executive Director issues the EAC Management Decision that addresses the findings of 

the audit and details corrective measures to be taken by the State. 

States may appeal the EAC management decisions. The EAC Commissioners serve as 

the appeal authority. A State has 30 days to appeal the EAC management decision. All 

appeals must be made in writing to the Chair of the Commission. The Commission will 

render a decision on the appeal no later than 60 days following receipt of the appeal or, in 

the case where additional information is needed and requested, 60 days from the date that 

the information is received from the State. The appeal decision is final and binding. 

AUDIT HISTORY 

The OIG issued an audit report on the administration of payments received under the 

Help America Vote Act (HAVA) by California’s Secretary of State (SOS) on December 
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14, 2009. With noted exceptions, the audit concluded the SOS generally accounted for 

and expended HAVA funds in accordance with the HAVA requirements and complied 

with the financial management requirements established by the U.S. Election Assistance 

Commission (EAC). The SOS also complied with Section 251 requirements. The 

exceptions noted in the audit were: 

• There were errors in Financial Status Reports (SF 269) submitted to the EAC 

during the audit period for Section 101 funds. 

• Section 102 funds were transferred to Los Angeles County that were not spent 

timely because of a delay in the state’s voting system certification process, and 

the interest earned on idle funds was not deposited into the HAVA election fund. 

• Property records at six of the seven counties the auditors visited were not 

adequate, because they did not contain all of the information required by the 

Common Rule, and two of the counties were unable to locate some of the 

equipment selected for physical observation. 

• The state spent $81,374 to print voter registration cards to be sent to each high 

school and university student in the state, which are questioned costs. 

All corrective actions required in this audit are to be completed before November 30, 

2010. 

I. Accounting and Reporting Errors 

The SOS submitted incorrect Financial Status Reports (SF-269s) for Section 101 funds 

from 2004 through 2008. The amounts reported did not match amounts shown in the 

State’s financial accounting system. In its most recent SF-269 submitted on February 27, 

2009, Cumulative Total Outlays were overstated by $141,204. Previous year’s SF-269’s 

were understated by $1,265,894.49 in 2004 and by $5,285,407.69 in 2005. They were 

overstated by $391,106.26 in 2006 and by $141,204 in 2007. 

RECOMMENDATION: 

The SOS should coordinate with the EAC regarding the filing of amended forms SF 269 

to report the correct information and ensure that future Section 101 financial reports 

reconcile to the election fund as of the date of the report. 

SOS’S RESPONSE: 

The SOS disagreed with some elements of the finding, contending that the various 

differences cited were a result of timing and miscoding of expenditures, and the reporting 

thereof, and not the result of inappropriate use of HAVA funds, as set forth in Appendix 

A. The SOS also stated that they have internal controls regarding the appropriate review 

of financial reports prior to filing. However, they did agree that the cumulative reporting 

error needed to be corrected and a revised report was filed with the EAC on September 

22, 2009. 
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AUDITORS’ RESPONSE: 

The auditors commended the SOS for implementing internal control procedures through 

segregation of duties to comply with the financial requirements of the HAVA, and 

encouraged the SOS to implement reconciliation procedures that will ensure financial 

reports filed with the EAC reflect accurate amounts for appropriate assessment of the 

HAVA program in California. 

EAC MANAGEMENT DECISION 

The SOS has internal controls regarding the appropriate review of financial reports prior 

to filing. The EAC has reviewed the most recent SF 269 reports submitted by the SOS. 

The most recent financial reports are complete and accurate. The EAC will ensure that 

the revised reports are on file for the period in question and that reconciliation procedures 

are fully implemented. 

II. Financial Management System – Interest 

The SOS transferred $15.8 million in Section 102 funds to Los Angeles County in May 

2004. The County was required to use these funds to replace its punch card voting 

system. However, because of a delay in the State’s voting certification process, the 

County did not completely spend these advanced funds until fiscal year 2007. The 

County’s single audit for the fiscal year ended June 30, 2007 found that during that 

period, the advanced funds and the related cumulative interest of about $858,000 was 

retained by the County in its general fund. 

The County requested guidance from the California Secretary of State’s office as to the 

disposition of the interest income. The SOS responded to this request on August 27, 

2008. The SOS advised the county that under HAVA it could retain the interest earned 

and use the funds for Section 102 HAVA related expenses. As of March 18, 2009, the 

County had not deposited the accumulated interest in a HAVA account. County election 

officials indicated they were working with the County’s Auditor-Comptroller’s office to 

have the funds transferred. 

RECOMMENDATION: 

The SOS should direct the County of Los Angeles to determine the interest income which 

has accrued in the County’s general fund because of the delay in disbursing Section 102 

funds and to deposit this amount in the County’s HAVA fund to be used for expenses 

related to the replacement of punch card voting machines. The SOS should also verify 

the interest calculations made by the County to assure the correct amount is returned to 

the HAVA fund. We also recommend that in the future the SOS provide funds to 

counties only to reimburse prior county expenditures or when it is clear that the counties 

will be able to spend the funds on a timely basis. 
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SOS’S RESPONSE: 

The SOS agreed that there is accumulated interest on the undisbursed Section 102 funds 

advanced to the County, and that it needs to be transferred to the credit of HAVA funds. 

However, the SOS took exception with the characterization that potential interest income 

had been lost. 

The SOS worked with Los Angeles county officials to ensure that all interest earned on 

the advanced HAVA funds was transferred to the county’s HAVA election fund. The 

County will also be required to submit an annual financial report of the beginning and 

ending balances in the election fund, including support that all expenditures during the 

period comply with Section 102 requirements for voting machine replacement. 

EAC MANAGEMENT DECISION: 

The EAC will verify that all interest earned on the advanced funds was transferred to the 

county’s HAVA election fund. EAC will also ensure that the SOS verifies County 

interest calculations. Additionally, the EAC will review the SOS’s policy for providing 

funding to counties. 

III. Property Management 

Six of the seven counties visited did not maintain adequate records of equipment 

purchased with HAVA funds in compliance with the Common Rule. Part 41 CFR 105-

71.132 states that property records must be maintained that include a description of the 

property, a serial number or other identification number, the source of property, who 

holds title, the acquisition date, and cost of the property, percentage of Federal 

participation in the cost of the property, the location, use and condition of the property, 

and any ultimate disposition data including the date of disposal and sale of the property. 

The Common Rule also requires that a physical inventory of the property must be taken 

and the results reconciled with the property records at least once every two years. 

Further, the Common Rule requires that a control system must be developed to ensure 

adequate safeguards to prevent loss, damage or theft of the property. Any loss, damage 

or theft shall be investigated. 

At each of the seven counties visited, the auditors selected a random sample of the voting 

machines and traced the machines to the warehouse. At two counties, auditors were 

unable to find all of the machines in the sample. At one of the counties, the specific 

location within the warehouse of each machine in the inventory was not identified in the 

inventory listings maintained by the county. The County stored over two thousand voting 

machines in the warehouse. Warehouse staff did have informal records of the specific 

locations of some of the machines. However, only two of the 30 items in the sample 

were listed on the informal records. As a result, auditors were able to find only two of 

the 30 items in the sample. 
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RECOMMENDATION: 

The SOS should insure that property management records of the counties have the 

information required by the Common Rule. The SOS should require Riverside and 

Sacramento counties to conduct a physical inventory of all HAVA-funded equipment in 

their possession and use the results to correct their property records. The SOS should 

also verify that other counties in the State are in compliance with federal regulations.

SOS’S RESPONSE: 

Although the SOS took exception with certain elements of the finding regarding the 

applicability of the “Common Rule” and other guidance to counties, and the 

determination of the dollar values to be included in the inventory records, they agreed to 

work with the counties to ensure that HAVA property inventories reflect the standards as 

set forth in the guidance. 

EAC MANAGEMENT DECISION: 

EAC will work with the SOS to ensure property inventories reflect standards as set forth 

in the Common Rule and guidance to counties. EAC will verify the correction of 

incorrect property records. 

IV. Procurement 

The State improperly spent $81,374 to print voter registration forms to be sent to every 

college and high school student in the State. California’s Student Voter Registration Act

of 2003, (AB 593, ch819, Stats 2003) requires that the Secretary of State annually 

provide every high school, community college, California State University and 

University of California campus with voter registration forms. The act requires that the 

number of forms shall be consistent with the number of students enrolled at each school. 

RECOMMENDATION: 

The SOS should resolve with the EAC the issue of whether the costs associated with the 

printing of voter registration forms sent to state high schools and colleges are allowable 

HAVA expenditures. EAC should also require the State to determine if additional 

HAVA funds beyond the $81,374 identified have been used to print voter registration 

forms for the same purpose. 

SOS’S RESPONSE: 

The SOS disagreed that the payment for the registration forms should not be allowed 

stating that the cost was incurred two years before definitive guidance in the form of 

frequently asked questions (FAQs) was issued by the EAC regarding the appropriate use 

of HAVA funds, and that the FAQs did not address the specific issue using HAVA funds 

for registration forms until August 2008. They also state that the printed forms contain 
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customized information directed at high school and college graduating seniors on how to 

register to vote, that is allowable based on the EAC’s FAQ 08-005. This FAQ also 

disallows the cost of printing voter registration forms. 

AUDITORS’ RESPONSE: 

The SOS is correct in that the voter registration forms provide information instructing 

individuals on how to register to vote; however, the EAC guidance is clear that the cost 

of printing voter registration forms is not allowed. We encourage the SOS to work with 

the EAC to evaluate the $81,374 payment to determine if all or a part of the expense is an 

appropriate use of HAVA funds. 

EAC MANAGEMENT DECISION: 

The EAC will determine if additional HAVA funds beyond the $81,374 identified have 

been used to print voter registration forms. Additionally, EAC will work with the SOS to 

determine if all or part of the $81,374 expense is an appropriate use of HAVA funds.