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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 the 

State of Montana, for the Period June 5, 2003 Through 

September 30, 2009, Report No. E-HP-MT-02-10 

November 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, and supports the distribution of HAVA 

funds to States for the acquisition of voting systems, 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. 
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Audit History 

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

Help America Vote Act (HAVA) by the Montana Secretary of State (SOS) on September 

28, 2010. The audit concluded that except for the maintenance of adequate property 

records, financial reporting errors, lack of approval for capital expenditures, failure of 

selected counties to accrue interest on idle HAVA funds, and the determination of 

whether the SOS and its subgrantees met the requirement for maintenance of a base level 

of state outlays which were specifically omitted from the scope of work, the SOS 

generally accounted for and expended HAVA funds in accordance with the HAVA 

requirements. 

I. Property Records 

The equipment inventory listings provided to the auditors by the State of Montana 

Office of the Secretary of State (SOS) and each of the seven counties visited did not 

contain the minimum information to properly identify and account for property as 

prescribed by Federal regulations. The auditors noted for each county visited, the 

listings included a description of the equipment, serial number and the location, but 

not the other required elements such as use, condition and the federal, state or 

county percentage of ownership. Inventory records for the State Voter Registration 

System held by the SOS also did not contain all of the required elements. As a 

result, there is no assurance that the accounting records accurately reflect the HAVA 

equipment controlled by the SOS and the counties. 

SOS election officials informed the auditors that in 2009 staff reviewed the Common 

Rule and were working on bringing records prepared by previous administrations into 

compliance with the Rule. 

Recommendation: 

1. The auditors recommend that the SOS ensure that the property records at both the state 

and county level include the minimum information required by the Common Rule, and 

implement a procedure to ensure that the counties report changes in equipment listing 

to the SOS. 

SOS’s Response: 

The SOS concurred with the recommendation and stated that the inventory control 

records for electronic voting equipment prepared by previous administrations had been 

revised to include the required minimum information to be compliant with Federal 

requirements. They also indicated that guidance had been issued to county election 

officials to ensure that Federal requirements are followed and changes to the equipment 

listing are reported to the SOS. 
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EAC Management Decision: 

The SOS has modified its inventory control records and issued guidance to county 

election officials to ensure Federal requirements are followed. EAC has reviewed the 

actions of the SOS and considers this matter closed. 

II. Financial Accounting and Reporting 

The Elections Office was not able to reconcile its records of the HAVA funds with the 

state treasurer’s records. The Elections Office uses its records to report to EAC. The 

auditors noted differences between the Elections Office’s records as reported on the 

Financial Status Reports (SF 269) and the Montana State Accounting Budget and Human 

Resources System (SABHRS). As of December 31, 2008 the SABHRS Section 101 Fund 

Balance was $2,002,290 compared to the SF 269 balance of $1,948,837, a difference of 

$53,453. Also, as of September 30, 2008 the SABHRS Section 251 Fund Balance was 

$905,480 compared to the SF 269 Fund Balance of $904,069, a difference of $1,411. 

HAVA receipts and expenditures were comingled in the state’s accounting system 

through September 30, 2007, and were not individually coded as Section 101 and 251 

funds. In preparing the Financial Status Report, SF 269, it was necessary for the staff to 

evaluate the entries in the accounting records for allocation to the appropriate fund, 

utilizing Excel worksheets to accumulate HAVA data for tracking purposes. As of 

December 31, 2008 and September 30, 2008, the accounting data utilized by the election 

office to account for HAVA financial activity did not reconcile to the election fund 

balances provided by the Elections Office from the state’s accounting system. Thus, the 

accuracy of the Financial Status Reports, Form 269, filed with the EAC prior to 2009 is 

in question. 

In addition, at the conclusion of the audit fieldwork, the September 30, 2009 balances 

were not reconciled; however, the Federal Financial Reports (SF 425) for 9/30/09, 

submitted to EAC subsequent to the fieldwork, were reconciled with the State Treasurer’s 

records. 

Recommendations: 

Auditors recommend that the Montana Secretary of State: 

2. Improve internal controls over the accounting and reporting of HAVA financial 

activities to the EAC. For example, all financial reports should be reviewed and 

signed by an SOS official other than the preparer indicating concurrence with the 

data. Excel spreadsheets of HAVA expenditures should also be updated and 

reconciled to SABHRS at least monthly. 

3. Coordinate with EAC to determine whether previously submitted financial status 

reports should be revised and re-submitted. 
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SOS’s Response: 

The SOS concurred with the recommendations and stated that Elections Office staff was 

not able to reconcile its records of the HAVA funds with the state treasurer’s records due 

to funds not being set up properly and accounted for properly in the state accounting 

system. There were also large lump-sum transfers between the HAVA fund and the 

enterprise fund by a previous administration that were not easily tracked to specific 

invoices. 

The SOS also stated that the current administration has done a complete reorganization of 

the SOS Fiscal Services Division, including bringing on a Chief Financial Officer with 

federal program and accounting experience, including expertise to oversee all fiscal 

activity and reporting. The SOS further stated that turnover in staff from previous 

administrations, and many different staff preparing reports, resulted in inconsistencies 

and non-reconciliation of HAVA financial reports with the state accounting system. The 

SOS advised that the reporting process was modified to have the Chief Financial Officer 

prepare the financial reports and the Deputy for Elections review and sign the reports, 

indicating concurrence with the data as compiled by the CFO. 

Also, the EAC has been contacted regarding amendments to previously submitted 

financial status reports and the reports submitted for fiscal year 2009 have been updated 

to reflect adjustments to previously submitted reports according to discussions with the 

EAC. 

EAC Management Response: 

In addition to reorganizing the Fiscal Services Division, the SOS has improved internal 

controls over the accounting and reporting of HAVA financial activities and has amended 

previously submitted financial status reports. Financial reporting to the EAC is current. 

Based on the actions of the SOS, the EAC considers this matter closed. 

III. Subgrants to Counties 

The state did not execute formal written agreements with counties prior to disbursing 

HAVA funds. Counties were notified by email or other written correspondence of the 

purpose of HAVA funds awarded to them. However, counties were not advised of 

Federal requirements for prompt expenditure of these funds and to maintain the funds in 

interest bearing HAVA accounts. The auditors found that three counties visited had 

maintained undisbursed HAVA advances for 15 to 48 months at the time of the audit, 

totaling approximately $14,500, that were deposited in non-interest bearing accounts. As 

a result, these funds did not accrue interest which could be used for future HAVA 

activities. Staff of the SOS told auditors they were not aware of this requirement. 

Federal regulations at 41 CFR 105-71.137(a) require that states shall ensure that every 

subgrant includes any clauses required by Federal statute and executive orders and their 

implementing regulations, that subgrantees are aware of requirements imposed upon 
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them by Federal statute and regulations and conform any advances of grant funds to 

subgrantees substantially to the same standards of timing and amount that apply to cash 

advances by Federal agencies. 

Recommendations: 

We recommend that the Montana Secretary of State: 

4. Survey all counties to determine the extent to which unspent advances are being held 

and require the counties to either return unneeded funds or to deposit the funds into 

interest bearing accounts; 

5. Execute subgrant agreements with counties for any future HAVA advances, which 

detail all applicable Federal requirements, and require that any HAVA funds 

advanced to the counties be deposited into an election fund which accrues interest to 

be used for HAVA related activities; 

6. Require counties holding unspent HAVA funds to determine the interest earnings lost 

during the period funds have been held and reimburse the election funds for this lost 

interest, and ensure that any funds repaid to the state include interest earnings. 

SOS’s Response: 

The SOS concurred with our recommendations and stated that although grant 

applications for polling place accessibility improvements contained information that the 

project must be completed within six months of receiving funding, counties were not 

specifically advised of Federal requirements for prompt expenditure of these funds and to 

maintain the funds in interest bearing HAVA accounts 

The SOS also said that previous administrations had information on the application for 

polling place accessibility grants stating that the project must be completed within six 

months, and each county signed the application. They further advised that the current 

administration was ensuring compliance by issuing a subgrant agreement to each county 

applying for HAVA project funding, and SOS staff was monitoring expenditures made to 

ensure no unspent funds remained at the county level once a project is completed. 

Specifically the SOS said that: 

1) They have surveyed counties and requested them to supply information about any 

unspent HAVA funds, and indicated the SOS would issue guidance, accordingly; 

2) They had created and are providing subgrant agreements advising recipients of the 

federal cash management requirements; 

3) They investigated unspent HAVA funds held by the counties and are working with any 

counties holding funds to determine and monitor repayment of lost interest. 
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EAC Management Response: 

The EAC has reviewed the actions taken by the SOS. EAC will follow up with the SOS 

to ensure guidance was issued regarding prompt expenditure of HAVA funds. 

Additionally, the EAC will work with the SOS to determine whether counties have repaid 

any lost interest. 

IV. Approval of Capital Expenditures 

The state provided grants to its counties for improving security of voting equipment and 

polling place accessibility, and counties used some of these funds to make capital 

improvements such as building cages to store voting equipment, paving parking lots, 

constructing handicap accessible ramps, and installing automatic sliding doors. 

According to SOS officials the state did not request approval for these capital 

improvements from the Election Assistance Commission. The state provided a total of 

$832,467 in polling place accessibility grants to its counties. However, the auditors could 

not determine how much of these distributions were used for capital improvements 

subject to EAC pre-approval. 

OMB Circular A-87, Cost Principles for State, Local, and Indian Tribal Governments, 

Attachment B, Section 15 (b)(3) states that capital expenditures for improvements to 

land, buildings, or equipment which materially increase their value or useful life are 

unallowable as a direct cost except with the prior approval of the awarding agency. 

Recommendation: 

7. The state should conduct a survey of all counties to determine which counties used 

security and polling place accessibility grants to make unapproved capital 

expenditures and submit this information to EAC for resolution. 

SOS’s Response: 

The SOS concurred with the recommendation and said that the state had not requested 

approval of these capital improvements, because the grants were under $5,000 each, and 

the state considered $5,000 and over to be the threshold for a project to be considered a 

capital improvement needing prior approval, and because indication from the 

Commission seemed to confirm the $5,000 threshold. 

The SOS concurred with the recommendation, even though prior guidance from the 

Commission had indicated that any grants under $5,000 were not considered capital 

improvements and therefore not subject to preapproval. The SOS stated that they would 

review all security and polling place grants to determine if any grants were made for 

capital improvements. They will compile and submit information to the EAC for 

consideration and resolution, and will request pre-approval from the EAC for any future 

grants made for polling place accessibility or security capital improvements. 
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EAC Management Response: 

The EAC has reviewed the response of the SOS and has followed up with them regarding 

the misunderstanding of a dollar threshold for capital improvements. EAC will work 

with the SOS to determine if any grants were made for capital improvements.