U.S. ELECTION ASSISTANCE 

COMMISSION 

OFFICE OF INSPECTOR GENERAL 

FINAL REPORT: 

ADMINISTRATION OF PAYMENTS 

RECEIVED UNDER THE HELP 

AMERICA VOTE ACT BY 

CALIFORNIA’S SECRETARY OF STATE 

JANUARY 1, 2005 THROUGH DECEMBER 31, 2008 

Report No. 

E-HP-CA-01-09 

December 2009 
 

 


 


 


 

	 

	 

	 

	 

	 

U.S. ELECTION ASSISTANCE COMMISSION
 

OFFICE OF INSPECTOR GENERAL
 

1225 New York Ave. NW - Suite 1100 

Washington, DC 20005
 

December 14, 2009 

Memorandum 

To: Thomas Wilkey 

 Executive Director 

From:	 Curtis W. Crider 

 Inspector General 

Subject: Final Audit Report - Administration of Payments Received under the Help America 

Vote Act by California’s Secretary of State (Assignment Number E-HP-CA-01-09) 

We contracted with the independent certified public accounting firm of Clifton Gunderson 

LLP (Clifton Gunderson) to audit the administration of payments received under the Help America 

Vote Act (HAVA) by California’s Secretary of State (SOS). The contract required that the audit be 

done in accordance with U.S. generally accepted government auditing standards. Clifton 

Gunderson is responsible for the attached auditor’s report and the conclusions expressed therein. 

In its audit of the SOS, Clifton Gunderson concluded that, except for the issues discussed 

below, 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 the 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. 

In its November 12, 2009 response to the draft report, the SOS provided comments to the 

findings and corrective actions, as applicable, to address most of the recommendations; however, 

they did not agree that the printing of voter registration cards was an inappropriate use of HAVA 

funds. 
Please provide us with your written response to the recommendations included in this report 

by February 15, 2010. Your response should contain information on actions taken or planned, 

including target dates and titles of EAC officials responsible for implementing the recommendation. 

The legislation, as amended, creating the Office of Inspector General (5 U.S.C. § App.3) 

requires semiannual reporting to Congress on all audit reports issued, actions taken to implement 

audit recommendations, and recommendations that have not been implemented. Therefore, this 

report will be included in our next semiannual report to Congress. 

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

ADMINISTRATION OF PAYMENTS RECEIVED
 
 

UNDER THE
 
 

HELP AMERICA VOTE ACT
 
 

BY THE
 
 

STATE OF CALIFORNIA
 
 

January 1, 2005 Through December 31, 2008 

UNITED STATES ELECTION
 
 

ASSISTANCE COMMISSION
 
 

a1
TABLE OF CONTENTS 

PAGE
 
 

EXECUTIVE SUMMARY ............................................................................................................1

 

BACKGROUND 

APPENDICES
 
 

..........................................................................................................................2

 

AUDIT OBJECTIVES .................................................................................................................3

 

SCOPE AND METHODOLOGY .................................................................................................4

 

AUDIT RESULTS .......................................................................................................................4

 

Appendix A: Secretary of State Response To Audit Results...............................................10
 
 

Appendix B: Audit Methodology............................................................................................15
 
 

Appendix C: Monetary Impact as of December 31, 2008......................................................17
 
 
	 

	 

	 

U.S. Election Assistance Commission
 
 

Performance Audit of the Administration of Payments Received Under the
 
 

Help America Vote Act by the State of California
 
 

EXECUTIVE SUMMARY 

Clifton Gunderson LLP was engaged by the U.S. Election Assistance Commission (EAC or the 

Commission) Office of Inspector General to conduct a performance audit of the California 

Secretary of State (SOS) for the period January 1, 2005 through December 31, 2008 to 

determine whether the SOS used payments authorized by Sections 101, 102, and 251 of the 

Help America Vote Act of 2002 (HAVA or the Act) in accordance with HAVA and applicable 

requirements; accurately and properly accounted for property purchased with HAVA payments 

and for program income, and met HAVA requirements for Section 251 funds for an election fund 

and for a matching contribution. Although the audit period begin date is designated as January 

1, 2005, since the EAC had contracted for and issued an audit report on a review of 

expenditures for the period from inception of the HAVA program through December 31, 2004, 

our audit also included a review of election fund receipts from April 2003 through December 31, 

2008. We did not include a determination of whether the SOS and its subgrantees met the 

requirements for maintenance of a base level of state outlays because the Commission is 

reviewing its guidance on the applicability of the maintenance of a base level of state outlays to 

the SOS’s subgrantees. 

In addition, the Commission requires states to comply with certain financial management 

requirements, specifically: 

•	 Comply with the Uniform Administrative Requirements For Grants And Cooperative 

Agreements With State And Local Governments (also known as the “Common Rule”) as 

published in the Code of Federal Regulations 41 CFR 105-71. 

•	 Expend payments in accordance with cost principles for establishing the allowance or 

disallowance of certain items of cost for federal participation issued by the Office of 

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

•	 Submit detailed annual financial reports on the use of Title I and Title II payments. 

We conducted this performance audit in accordance with Generally Accepted Government 

Auditing Standards. Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions 

based on our audit objectives. We believe that the evidence obtained provides a reasonable 

basis for our findings and conclusions based on the audit objectives. 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. 

Except for the issues discussed below, our audit concluded that SOS generally accounted for 

and expended HAVA funds in accordance with the requirements mentioned above for the period 

from January 1, 2005 through December 31, 2008 for expenses, and from May 1, 2003 through 

December 31, 2008 for receipts. The exceptions needing SOS’s management attention are as 

follows: 

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•	 The state did not accurately report total cumulative outlays on its Financial Status 

Reports, SF 269s. For the period ended December 31, 2008 total outlays were over 

reported by $141,204 compared to the amounts listed in the state’s accounting system. 

The state also misreported outlays in prior years. Outlays were over reported in some 

years and underreported in other years. 

•	 The state advanced $15.8 million in Section 102 funds to the County of Los Angeles 

before the County was prepared to spend the money. The County deposited the 

advance in its general fund where it accumulated interest which was not deposited into 

the County’s HAVA fund. As of June 30, 2007 the County earned $858,000 in interest on 

the Section 102 funds. 

•	 Six of the seven counties we visited did not maintain voting equipment inventory records 

which conformed to federal regulations. Generally, the records did not include cost, 

acquisition date, percent of federal funding, or condition. In addition, at two of the 

counties, we were unable to locate all of the equipment we sampled for verification. 

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

and university student in the State as required by State law. HAVA funds may not be 

used to print, copy, or revise State voter registration forms. 

We have included in this report the SOS management’s formal response to our draft report dated 

November 12, 2009, as Appendix A. Although we have included the SOS written responses to 

our findings and recommendations, such responses have not been subjected to an audit, and, 

accordingly, we do not provide any form of assurance on the appropriateness of the responses 

or the effectiveness of any corrective actions described therein. 

The SOS, while in general agreement with our findings, took exception to the questioned cost for 

printing voter registration forms. We stand by the conclusions reached in our report. The SOS 

also proposed corrective actions to our findings. 

BACKGROUND 

HAVA created the Commission to assist states and insular areas with the improvement of 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: 

•	 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. 

•	 Title I, Section 102 payments are available only for the replacement of punch card and 

lever action voting systems. 

•	 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. 

2
 
	 

	 

	 

Title II also requires that states must: 

•	 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)]. 

•	 “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)]. 

•	 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)]. 

AUDIT OBJECTIVES 

The objectives of our audit were to determine whether the California Secretary of State: 

1.	 	 Used payments authorized by Sections 101, 102, and 251 of HAVA in accordance with 

HAVA and applicable requirements; 

2.	 	 Accurately and properly accounted for property purchased with HAVA payments and for 

program income; 

3.	 	 Met HAVA requirements for Section 251 funds for an election fund and for a matching 

contribution. We did not determine whether the SOS met the requirement for 

maintenance of a base level of state outlays, because the Commission is reviewing its 

guidance on the applicability of the maintenance of a base level of state outlays to 

subgrantees of the SOS. 

In addition, to accounting for HAVA payments, the Act requires states to maintain records that 

are consistent with sound accounting principles that fully disclose the amount and disposition of 

the payments, that identify the project costs financed with the payments and other sources, and 

that will facilitate an effective audit. The Commission requires states receiving HAVA funds to 

comply with certain financial management requirements, specifically: 

1.	 	 Comply with the Uniform Administrative Requirements For Grants And Cooperative 

Agreements With State and Local Governments (also known as the “Common Rule”) as 

published in the Code of Federal Regulations at 41 CFR 105-71. 

2.	 	 Expend payments in accordance with cost principles for establishing the allowance or 

disallowance of certain items of cost for federal participation issued by the OMB. 

1 

3.	 	 Submit detailed annual financial reports on the use of Title I and Title II payments. 

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. 

3
 
 


 

 

 

 

 

 

 
 

 
 

 

 

 

 

 
 

 
 

 

 

 

 

SCOPE AND METHODOLOGY 

We audited the HAVA funds received from May 1, 2003 through December 31, 2008, and 

disbursed from January 1, 2005 through December 31, 2008. 

Funds received and disbursed from May 1, 2003 (program initiation date) to December 31, 2008 

(68-month period) are shown below: 

FUNDS RECEIVED

TYPE OF EAC PROGRAM STATE INTEREST TOTAL FUNDS DATA
 

PAYMENT PAYMENT INCOME MATCH EARNED AVAILABLE DISBURSED AS OF
 

Section 102

Section 251

Section 101

57,322,707

264,237,124

$ 27,340,830

0

0

$ 0 $

0

0 2

0

1,133,995

34,288,024

$ 2,373,123

58,456,702

298,525,148

$ 29,177,831 1

57,322,707

120,189,059

$ 21,506,753

12/31/2008

12/31/2008

12/31/2008

$348,900,661 $ 0 $ 0 $37,795,142 $386,159,681 $199,018,519 12/31/2008

Notes: 1) 

2) 

Includes a refund from the SOS to the U.S. Treasury for disallowe 

amount of $536,122. Payment was made by SOS on March 21, 2007. 

California met its matching requirement with in-kind payments to count 

of purchases of HAVA Sec. 301 qualifying equipment that was acquired 

Sec. 251 requirements payment. 

d 

ies 

prior to the rec 

expenditures i 

for reimbursement 

eipt of 

n the 

Our audit methodology is set forth in Appendix B. 

AUDIT RESULTS 

We conducted this performance audit in accordance with Generally Accepted Government 

Auditing Standards. Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions 

based on our audit objectives. We believe that the evidence obtained provides a reasonable 

basis for our findings and conclusions based on the audit objectives. 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. 

Except for the accounting and reporting errors, and the questionable use of HAVA funds for the 

printing of voter registration cards, at the state level, and the failure of one county to deposit 

interest on advanced Section 102 funds into its HAVA account and property management 

issues at the county level, our audit concluded that SOS generally accounted for and expended 

HAVA funds in accordance with the requirements mentioned above. This includes compliance 

with section 251 requirements for an election fund. The SOS has taken action on or is working 

to resolve the exceptions described below as set forth in Appendix A: 

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 

4

 
	 

	 

	 

$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. 

We also noted the following: 

•	 The Section 101 SF-269 for the last period of 2006 contained no dates in box 9. 

•	 The Section 101 SF-269 for 2007 was not signed. 

•	 The Section 101 SF 269s for 2003, 2005, and 2008 failed to include information on 

interest earned in the Remarks box #12. 

SOS did not have procedures to ensure that periodic reconciliations were performed to confirm 

that the disbursements listed on spreadsheets of expenditures used as a basis for the SF 269s 

agreed with amounts listed in the state’s accounting system for the election fund. 

HAVA Section 902. AUDITS AND REPAYMENT OF FUNDS, Part (a) – Recordkeeping 

Requirement states that each recipient of a grant or other payment made under this Act shall 

keep such records with respect to the payment as are consistent with sound accounting 

principles, including records which fully disclose the amount and disposition by such recipient of 

funds, the total cost of the project or undertaking for which such funds are used, and the amount 

of that portion of the cost of the project or undertaking supplied by other sources, and such 

other records as will facilitate an effective audit. 

Where the grantee receives federal assistance for HAVA Section 101 and 251 program 

activities, HAVA and the EAC require that SF-269s be filed annually with the EAC for each type 

of funding. HAVA also requires that an election fund be set up in the treasury of the State 

government to receive HAVA program deposits from which HAVA program expenses can be 

paid. The SF-269 for HAVA Section 101 funds is due at the end of February each year for the 

prior calendar year. 

In addition, the EAC has provided guidance on the preparation of the annual reports on its 

website at 

http://www.eac.gov/election/HAVA%20Funds/docs/modelreportingform1.pdf/attachment_download/file. 

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 Sec. 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 the 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 

filed a revised report with the EAC on September 22, 2009. 

Auditors’ Response: 

We commend the SOS for implementing internal control procedures through segregation of 

duties to comply with the financial requirements of the HAVA, and encourage the SOS to 

5

 
implement reconciliation procedures that will ensure financial reports filed with the EAC reflect 

accurate amounts for appropriate assessment of the HAVA program in California. 

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 systems 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 Secretary of State 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 told us they 

were working with the County’s Auditor-Comptroller’s office to have the funds transferred. 

The Uniform Administrative Requirements for Grants and Cooperative Agreements with State 

and Local Governments, 41 CFR 105-71, also known as the Common Rule states in 41 CFR 

105-71.120(b)(7) that “procedures for minimizing the time elapsing between the transfer of 

funds from the U. S. Treasury and disbursement by grantees and subgrantees must be followed 

whenever advance payment procedures are used. Grantees must establish reasonable 

procedures to ensure the receipt of reports on subgrantees’ cash balances and cash 

disbursements in sufficient time to enable them to prepare complete and accurate cash 

transactions reports to the awarding agency.” 

Further, 41 CFR 105-71.121(b) states that “methods and procedures for payment shall minimize 

the time elapsing between the transfer of funds and disbursement by the grantee or subgrantee, 

in accordance with Treasury regulations at 31 CFR part 205.” 

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. 

SOS’s Response: 

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

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

However, the SOS took exception to our characterization that potential interest income had 

been lost. 

6
 
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. 

PROPERTY MANAGEMENT 

Six of the seven counties we 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 price 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 we visited we selected a random sample of the voting machines 

and traced the machines to the warehouse. At two counties we were unable to find all of the 

machines in our 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 our sample were listed on the informal records. As a result, we were able 

to find only two of the thirty items in our sample. 

At another county, we were unable to find five of the 20 Vera Vote printers in our sample. 

According to the county election office staff, the printers had been transferred from the 

Registrar’s office to a remote warehouse. During the move, labels identifying containers in 

which the printers were stored may have fallen off and been put back on the wrong containers 

or not replaced at all. As a result, five of the printers in our sample were not in the containers 

indicated on the county’s inventory records. County staff told us that they did not expect to use 

the voting equipment located at the remote warehouse in the near future and had no plans to 

conduct a physical inventory to assure that all transferred equipment was accounted for. 

The Uniform Administrative Requirements For Grants And Cooperative Agreements With State 

And Local Governments 41 CFR § 105-71.132(d)(2) states that a physical inventory of the 

property must be taken and the results reconciled with the property records at least once every 

two years. 

The Federal Management Regulation (FMR), the successor regulation to the Federal Property 

Management Regulations (FPMR), requires agencies to maintain property records and conduct 

physical inventory of sensitive property (regardless of costs). Assets that do not meet the 

capitalization threshold but are defined as sensitive are required to be accounted for. Each 

agency usually defines what it considers as sensitive property. Examples of sensitive property 

definitions are as follows: 

7
 
� Sensitive property, regardless of its acquisition cost, requires special accountability and 

is subject to more stringent rules because it is considered to be susceptible to theft, loss, 

misuse, or conversion to personal use. 

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 the 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. 

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. 

EAC Advisory Opinion FAO-08-005 states that neither Section 101 nor 251 funds may be used 

to print, copy, or revise State voter registration forms. Providing forms is an activity that States 

have been carrying out for years, is not a requirement imposed by HAVA, is not educational 

(even if there are instructions on the form), is not an improvement to the administration of 

elections for Federal office and must continue to be funded by the State. 

SOS officials told us that they consider the provision of voter registration cards to students to be 

part of their voter education efforts. In the event that EAC should determine that these costs are 

in fact related to voter education, that portion of the cost related to students not yet eligible to 

vote should be determined and returned to the United States Treasury. 

Recommendation: 

The SOS should resolve with 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 we 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 (FAQ) was issued by the EAC regarding the appropriate use of HAVA funds, and that 

8

 
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 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. 

**************************************** 

We provided a draft of our report to the appropriate individuals of the California Secretary of 

State, and the United States Election Assistance Commission. We considered any comments 

received prior to finalizing this report. 

a1

CG performed its work between February 2, 2009 and March 19, 2009. 

Calverton, Maryland 

July 31, 2009 

9

 
DEBRA BOWEN I SECRETARY OF STATE STATE 1 OF CALIFORNIA

1500 nth Street, 6th Floor 1Sacramento, CA 958141Tel (916) 653-72441 Fax (916) 653-46201 www.sos.ca.gov 

November 12,2009 

Mr. Curtis Crider 

Office of Inspector General 

U.S. Election Assistance Commission 

1225 New York Avenue, NW - Suite 1100 

Washington, DC 20005 

Dear Mr. Crider: 

The Secretary of State's office (SOS) has reviewed the U.S. Election Assistance Commission's 

(EAC) draft Notice of Findings and Recommendations (NFR) prepared by Clifton Gunderson, 

LLP (CG) regarding the SOS's administration of the Help America Vote Act of 2002 (HAVA) 

program. The objective of the review was to determine whether California spent HAVA funds in 

accordance with the Act and related administrative requirements from January 1, 2005, through 

December 31, 2008. The Secretary of State would like to thank CG for the professionalism 

demonstrated while performing this important oversight function on behalf of the EAC's Office 

of Inspector Ge'neral (OIG). 

Secretary of State Debra Bowen was elected in November 2006 and took office in January 2007. 

Although the audit covers HA V A spending between 2005 through 2008, we note that virtually 

all of the concerns brought forward by CG relate to activities carried out entirely or initiated 

under prior SOS Administrations. However, there is no question that the current Administration 

is dedicated to resolving any concerns set f6rth in order to comply with HA VA's statutory and 

administrative requirements. 

EAC Audit Finding: Accounting and Reporting Errors 

The OIG asselis that the SOS did not comply with HA V A Section 902, Audits and Repayment 

of Funds, Part (a) between 2003 and 2007. The SOS disputes that there was any failure to 

comply with the restrictions on the use of HA V A funding. However, the SOS agrees that an 

amended Financial Status RepOli is heeded to clarify an accounting anomaly. That Financial 

Status Report was filed with the EACon September 22,2009. 

The SOS submits timely Financial Status Reports known as SF-269s. Asa part of the audit, in 

comparing data from the SOS's published financial reports and the SF-269s that had been 

submitted, it became clear that due to timing. differences in when reports were submitted, 

expenditures inadveliently credited to the incorrect HA V A account, and a 2006 accounting 

system conversion, it appeared as though $141,203.82 in spending had not been accounted for 

correctly. 
Mr. Cmiis Crider 

November 12,2009 

Page 2 

The OIG's assertion does not call into question the validity or propriety of the expenditures, and 

no repayment of funds is suggested or recommended as a result of this finding. Rather, it is a 

boold(eeping error that must be - and has been - corrected.. 

. Related to this finding, the SOS notes there is no internal control deficiency between the SF-269 

preparer and signer. Since California first began receiving HA V A funds, the SOS has employed 

an Accounting Officer who maintains HA V A financial records. This person is also responsible 

for HA V A reconciliations and reporting. Based on CG corrective action recommendation No.1, 

CG staff has the mistaken impression that Linda Arviso-Hunt both prepares and signs SF-269 

reports. In fact, Ms. Arviso-Hunt is the SOS Fiscal Manager and the second-line supervisor over 

the SF-269 preparer (HA V A Accounting Officer). SF 269 reports are prepared by the 

Accounting Officer and reviewed and approved by the Fiscal Manager. This separation of duties 

demonstrates that no internal control deficiency exists in the current environment. 

The SOS agrees an amended SF-269 should be submitted to reduce the cumulative expenditure 

amount by $141,203.82. That amended SF-269 was filed with the EAC on September 22, 2009. 

EAC Audit Finding: Financial Management System - Interest 

The EAC Office of Inspector General has determined that in 2004, a previous SOS 

Administration "advanced Section 102 funds to the County of Los Angeles before the county 

was able to utilize the funds on a timely basis, resulting in lost interest earnings to the HA V A 

program." 

The SOS disputes the characterization of this finding as a loss of potential interest because of the 

prior Administration's actions. The audit itself makes clear that the HA V A program did not lose 

the opportunity to earn interest because the funds were advanced to Los Angeles County. As the 

finding states: "[T]he advanced funds were maintained'in a trust fund and the related cumulative 

interest of about $858,000 was retained by the County in its general fund." Advance payment to 

the County in 2004 appears to have been motivated primarily by the fact that in a December 

2004 performance audit conducted by the California Bureau of State Audits, the prior, 

Administration was criticized for not disbursing funds to counties in a timely manner in the face 

of looming federal deadlines to replace voting equipment. . 

The SOS worked with Los Angeles County to ensure the County transferred all interest earned 

on the advanced HA V A ftmds to a County HA V A election fund. The SOS verified the 

methodology used to calculate the interest to ensure the correct amount was deposited in the 

County HA V A election fund. Furthermore, to increase oversight and internal controls over 

HA VA funds, the SOS requires the Los Angles County Registrar of Voters to submit an atmual 

financial data report, verifying the establishInent of the beginning and ending balances of the 

interest earned in that fund. In addition, the SOS requires Los Angles County to submit a 

summary cover sheet, including paid vendor invoi,ces, as evidence that expenditures from the 

interest earned strictly comply with Section 102 and are spent only for replacing its punch card 
Mr. Curtis Crider 

November 12,2009 

Page 3 

voting system. These actions and conditions were certified via written correspondence by Los 

Angeles County on November 3, 2009. 

EAC Audit Finding: Property Management 

The EAC Office of Inspector General determined that in December 2005, when contracts for 

HAVA reimbursement to California counties were initiated, the Secretary of State's office did 

not require certain counties to comply with the Common Rule (41 CFR 105-71.132) regarding 

inventory controls for voting equipment. As noted previously, the general rules regarding 

disbursement and accounting of funds are not explicitly stated in HA V A. It was not until July 

17,2006, more than three years after the enactment of HAVA, when states were provided notice 

viae-mail of available information regarding the use of HAV A funds. That information, which 

was posted on the EAC's website in the form of a "Frequently Asked Questions" (FAQ) 

document, includes the admonishment that states should consult Office of Management and 

Budget Circulars A-87, A-102 (the Common Rule), A-122 and A-133, which establish general 

rules on the use of federal funds. In contrast to this information, HA V A itself includes language 

that makes it a somewhat unique federal program by explicitly prohibiting the EAC from 

enacting regulations or. rules (Section 209) and language making states responsible for 

determining the methods of complying with HAVA (Sections 253(c) and 305). It appears the 

prior SOS Administration, facing looming compliance deadlines on January 1, 2006, controversy 

over voting systems and demands to conduct statewide elections annually, was unaware or did 

not focus on inventory control requirements for counties to monitor voting equipment after its 

purchase. 

It is also not clear that voting equipment falls under the provisions of the Common Rule with 

respect to inventory controls. The OMB circulars cited by the EAC in its F AQ document do not 

specifically address the issue of inventory control, but circular A-87 defines equipment subject to 

these requirements as property with a per unit purchase price (capitalization cost) of $5,000 or 

more. The direct recording electronic (DRE) voting units purchased by counties cited in the 

NFR cost less than $5,000. In fact, the NFR suggests that the SOS contact the EAC to inquire 

whether voting equipment below the $5,000 threshold is considered "sensitive equipment" that 

would be subject to these type of inventory controls. As suggested in the NFR, the SOS sought 

EAC guidance on this question by providing a draft copy of a statewide policy on inventory 

controls for HAVA equipment for counties to the EAC director of grants on September 29, 2009. 

This situation further illustrates the difficulty in understanding when or whether requirements 

such as these apply to HA V A programs. 

Nonetheless~ the SOS supports the need to provide assistance and oversight to ensure counties· 

comply with applicable rules, laws, and regulations. Although the SOS's contracts with the 

counties specifically require county adherence to federal requirements suchas these, the SOS, in 

advance of submitting the draft inventory control to the EAC, notified all 58 counties on June 4, 
Mr. Curtis Crider 

November 12,2009 

Page 4 

2009, of requirements for inventory controls as stated in the Common Rule (41 CFR 105­

71.132), which includes the following: 

• Description of property; 

• Serial number or other identification.number; 

• Source of property; 

• Titleholder of property; 

• Date of acquisition; 

• Property cost; 

• Percentage of Federal participation in the cost of the property; 

• Location of property; 

• Use and condition ofpropeliy; and 

• Disposition data and sale price of the property. 

Once the statewide policy has been reviewed by the EAC grants director, and any comments 

from the grants director have been taken into account, the SOS will work with the counties 

identified by auditors on the deficiencies in inventory control systems cited, and will follow-up 

with all counties to ensure that controls are in place that satisfy these federal regulatory 

requirements. These counties each received a letter on June 4,2009, informing the county of the 

need to address inventory control issues identified in the audit and several have contacted the 

SOS to indicate they were taking remedial action. 

EAC Audit Finding: Procurement 

The EAC Office of Inspector General states a former SOS Administration improperly spent 

$81,374 in HA VA funds in 2004 to print voter registration cards for graduating high school and 

college seniors. The SOS disputes this finding. 

The invoice in question is from the Office of State Printing, dated July 29,2004. At the time this 

program was initiated, the EAC had not provided any guidance or advisories that would have 

precluded the use of HA V A Section 101 funds for this purpose. 

Explicit language of HA V A Title III permits this type of expenditure. Pursuant to HA V A 

Section 101 (b), funds granted to states under this section can be used for educating voters 

concerning voting procedures and voting rights. HAVA Title III, Section 303(a)(4) specifies the 

requirements for mail-in registration forms; Section 303(d)(2) requires a state to make these 

materials available to voters by 2004. At the time that these voter registration cards were 

requested and printed by the Office of State Printing, California's voter registration cards did not 

conform to these Title III requirements, meaning already printed blank voter registration 

affidavits had to be replaced with these new, HA V A-compliant voter registration affidavits. 

States were first provided EAC guidance on the appropriate use of HA V A funds via e-mail on 

July 17,2006, nearly two years after the expenditure in question was made. The guidance was a 
Mr. Curtis Crider 

November 12,2009 

Page 5 

frequently asked questions (FAQ) document and nothing in the FAQ precluded the use ofHAVA 

funds for printing voter registration cards to comply with HA V A requirements. However, in the 

preamble to specific questions, the F AQ restates the purposes for which Section 101 funds may 

be used, which include complying with Title III requirements and educating voters about voting 

procedures. 

The first EAC guidance on the specific question of using HA V A funds to print voter registration 

cards was issued in August 2008, four years after the expenditure in question was made. 

Although F AO 08-005 says that Section 101 funds may not be used to print voter registration 

forms, it also states: "[E]ducating voters on voting procedures would include providing 

instructions on how to register to vote ..." It ·further states: "Section 101 funds may be used at 

any time to instruct individuals on how to register to vote." The particular voter registration 

affidavits in question, which include instructions on how to register to vote, were customized for 

distribution to high school and college graduating seniors, the groups most likely to be impacted 

by new HA V A identification requirements for first-time voters who register by mail. HA V A 

itself attempts to foster participation of this demographic in the electoral process by authorizing 

outreach programs under Title V and Title VI of the Act, which seek to encourage college and 

high school students to become poll workers. The voter outreach effort undertaken by a prior 

Administration was in the spirit of encouraging paliicipation from this group. 

We appreciate the opportunity to review and comment on the draft NFRs. Please contact Daniel 

Abbott, the Secretary of State's Internal Auditor, at (916) 651-9482 ifthere is a need to discuss 

this response. 

Sincerely, 

Jalt;:d~ Deputy Secretary of State, Operations 
	 

	 

	 

	 

	 

	 

	 

	 

	 

	 

	 

	 

	 

	 

	 

	 

	 

	 

	 

	 

	 

	 

	 

	 

	 

	 

	 

	 

	 

	 

	 

	 

Appendix B 

AUDIT METHODOLOGY 

Our audit methodology included: 

•	 Assessing audit risk and significance within the context of the audit objectives. 

•	 Obtaining an understanding of internal control that is significant to the administration of the 

HAVA funds. 

•	 Understanding relevant information systems controls as applicable. 

•	 Identifying sources of evidence and the amount and type of evidence required. 

•	 Determining whether other auditors have conducted, or are conducting, audits of the 

program that could be relevant to the audit objectives. 

To implement our audit methodology, below are some of the audit procedures we performed: 

•	 Interviewed appropriate SOS employees about the organization and operations of the HAVA 

program. 

•	 Reviewed prior single audit report and other reviews related to the state’s financial 

management systems and the HAVA program for the last 2 years. 

•	 Reviewed policies, procedures and regulations for the SOS’s management and accounting 

systems as they relate to the administration of HAVA programs. 

•	 Analyzed the inventory lists of equipment purchased with HAVA funds. 

•	 Tested major purchases and supporting documentation. 

•	 Tested randomly sampled payments made with the HAVA funds. 

•	 Verified support for reimbursements to local governments (counties, cities, and 

municipalities). 

•	 Reviewed certain state laws that impacted the election fund. 

•	 Examined 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. 

•	 Evaluated compliance with the requirements for accumulating financial information reported 

to the Commission on the Financial Status Reports, Form SF-269, accounting for property, 

purchasing HAVA related goods and services, and accounting for salaries. 

•	 Verified the establishment and maintenance of an election fund. 

15
 
• Conducted site visits of selected counties to perform the following: 

� Observe equipment purchased with HAVA funds for proper accounting and 

safeguarding 

� Test disbursement of HAVA funds for allowability and compliance 

� Test cash receipts from SOS to ensure proper cash management 

� Test procurement of voting equipment for competitive bid process 

� Ensure compliance with HAVA Act. 

16
 
 
Appendix C 

MONETARY IMPACT AS OF DECEMBER 31, 2008
 
 

Questioned Additional Funds for 

Description Costs Program 

Interest Income at the County Level $858,000 

Cost of Voter Registration Forms $81,374 

Totals $81,370 $858,000 

Note:		 The interest income amount was based on the estimated amount at the date of audit 

fieldwork. The exact amount will be determined to the date the funds are transferred to 

the HAVA account. 

17
 
 
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) 566-0957 

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