U.S. ELECTION ASSISTANCE 

COMMISSION 

OFFICE OF INSPECTOR GENERAL 

FINAL REPORT: 

Administration of Payments Received 

Under the Help America Vote Act by the 

Michigan Department of State 

MAY 1, 2003 THROUGH FEBRUARY 28, 2009 

Report No. 

E-HP-MI-01-08 

April 2010 
U.S. ELECTION ASSISTANCE COMMISSION

OFFICE OF INSPECTOR GENERAL

1201 New York Ave. NW - Suite 300 

Washington, DC 20005

April 23, 2010 

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 the Michigan Department of State (Assignment Number E-HP-MI-01-08) 

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 the Michigan Department of State (MDOS). 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 MDOS, Clifton Gunderson concluded that, except for the failure of 

MDOS to deposit Section 251 state matching funds in the HAVA fund as required and the shortfall 

in interest on this amount, our audit concluded that 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. The MDOS 

also complied with section 251 requirements. 

In its September 18, 2009 response (Appendix A), the MDOS agreed with the report’s

finding and recommendations, and provided corrective action. In their response to the draft report 

on March 22, 2010, MDOS management stated that they had no additional comments. 

Please provide us with your written response to the recommendation included in this report 

by June 23, 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 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 MICHIGAN
 

May 1, 2003 Through February 28, 2009
 

UNITED STATES ELECTION
 

ASSISTANCE COMMISSION
 

a1
TABLE OF CONTENTS 

PAGE
 

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

BACKGROUND..........................................................................................................................2 

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

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

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

APPENDICES
 

Appendix A: Secretary of State Response to Audit Results..................................................6 

Appendix B: Audit Methodology..............................................................................................8 

Appendix C: Monetary Impact as of July 31, 2009................................................................10 
U.S. Election Assistance Commission
 

Performance Audit of the Administration of Payments Received Under the
 

Help America Vote Act by the State of Michigan
 

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 Michigan 

Department of State (MDOS) for the period May 1, 2003 through February 28, 2009 to 

determine whether the MDOS 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. We did not include a determination of whether the MDOS 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 MDOS’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 failure of MDOS to deposit Section 251 state matching funds in the HAVA fund as 

required and the shortfall in interest on this amount, which is discussed below, our audit 

concluded that MDOS generally accounted for and expended HAVA funds in accordance with 

the requirements mentioned above for the period from May 1, 2003 through February 28, 2009. 

The exception needing MDOS’s management attention is as follows: 

The state did not deposit required matching funds into the election fund prior to receipt of 

each of the four Section 251 distributions from the EAC. The state’s legislature appropriated 

the required matching funds, but retained the dollars in the general fund until a qualifying 

HAVA Section 251 expenditure invoice was received, at which time the state would 

1 
contribute 5% of the total amount billed. The state had a matching fund requirement of 

$4,155,814, and, as of February 28, 2009, total payments of $3,002,555 had been applied 

against this total, resulting in a $1,153,259 shortfall of matching funds in the election fund. In 

addition, the HAVA election fund has lost interest which would have been earned if the 

matching funds had been deposited timely. The MDOS staff has calculated this interest total 

to be $348,956 through February 28, 2009. 

We have included in this report the MDOS managements’ formal response to our findings and 

recommendations dated September 18, 2009, which was included in our draft report submitted 

October 31, 2009. In their response to the draft report on March 22, 2010, MDOS management 

stated they had no additional comments. Although we have included management’s written 

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

audit procedures and, accordingly, we do not provide any form of assurance on the 

appropriateness of the responses or the effectiveness of the corrective actions described therein. 

The MDOS officials agreed with the recommendations and provided corrective action. 

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. 

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)]. 

2 
AUDIT OBJECTIVES 

The objectives of our audit were to determine whether the Michigan Department 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 MDOS 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 MDOS. 

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. 

3.	 Submit detailed annual financial reports on the use of Title I and Title II payments.1 

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 and disbursed by the MDOS from May 1, 2003 through 

February 28, 2009. 

Funds received and disbursed from May 1, 2003 (program initiation date) to February 28, 2009 

(70-month period) are shown below: 

FUNDS RECEIVED 

TYPE OF 

PAYMENT 

EAC 

PAYMENT 

PROGRAM 

INCOME 

STATE 

MATCH 

INTEREST 

EARNED 

TOTAL 

AVAILABLE 

FUNDS 

DISBURSED 

DATA 

AS OF 

Section 101 $ 9,207,323 $ 0 $ 0 $ 1,405,040 $10,612,363 $2,194,720 02/28/09 

Section 102 6,531,284 0 0 408,529 6,939,813 6,432,323 02/28/09 

Section 251 78,960,474 0 3,034,121 1 6,506,450 2 88,501,045 60,682,414 02/28/09 

Total $94,699,081 $0 $3,034,121 $8,320,019 $106,053,221 $69,309,457 02/28/09 

Notes: 1)	 The required state match is $4,155,814. As discussed below, MDOS did not deposit this 

amount in its HAVA fund prior to the receipt of Section 251 funds. Instead, MDOS used its 

general fund to pay for five percent of each expenditure as they occurred. As of February 28, 

2009, the state’s share of these expenditures totaled $3,034,121. As a result there is a 

$1,121,693 shortfall in the HAVA account plus interest that should have been accrued. 

2)	 The $6,506,450 of interest earned on Section 251 funds is based on the HAVA funds 

disbursed to the State of Michigan. Because of the way in which MDOS matched Section 251 

payments no interest has been accrued and credited to the HAVA fund on the state match. 

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 failure of the MDOS to deposit the state match and related interest earnings in 

the HAVA fund as required, 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 our scope of work as explained above, our audit concluded that MDOS generally 

accounted for and expended HAVA funds in accordance with the requirements mentioned 

above. The MDOS has taken action on or is working to resolve the exceptions described below 

as set forth in Appendix A: 

4 
HAVA Section 251 Fund State Match 

MDOS established an election fund to hold HAVA funds in accordance with the requirements of 

HAVA Section 254. The HAVA also requires that the election fund hold the five percent state 

matching funds that enabled MDOS to qualify for federal HAVA Section 251 funds. Furthermore, 

interest earned from the investment of the money in the election fund must also be deposited 

into the election fund. The timely deposit of the state match and of monthly interest earnings 

increases the election fund balance upon which each subsequent month’s interest earnings is 

based, resulting in a compounding effect that adds additional funds to the program. 

MDOS determined that the state had a requirement to provide matching funds totaling 

$4,155,814 to be eligible to receive Section 251 funds. MDOS, however, did not deposit the 

State matching funds into its election fund. The matching funds were appropriated by the State 

but remained in the general fund until expended. The state then paid five percent of each Title II 

qualifying expenditure from its general fund. Thus, as of December 31, 2008. the state had only 

expended $3,011,296 of general funds against the state matching requirement, resulting in a 

shortfall of $1,144,518. Further, the state did not transfer any interest earned on the balances in 

the general funds into the HAVA election fund as required. 

Sec. 253(b)(5) states that, as a condition for receipt of funds (Requirements Payments), the 

state has appropriated funds for carrying out the activities for which the requirements payment 

is made in an amount equal to 5 percent of the total amount to be spent for such activities 

(taking into account the requirements payment and the amount spent by the state) and, in the 

case of a state that uses a requirements payment as a reimbursement under section 251(c)(2), 

an additional amount equal to the amount of such reimbursement. 

Section 254(b)(1) of the HAVA requires that the following monies be deposited into its election 

fund: 

A.	 Amounts appropriated or otherwise made available by the state for carrying out 

the activities for which the requirements payment is made to the state under 

this part (the state five percent match of HAVA Section 251 funds). 

B.	 The requirements payment made to the state under this part. 

C.	 Such other amounts as may be appropriated under law. 

D.	 Interest earned on deposits of the fund. 

MDOS officials told us that rather than deposit the state match in the HAVA account these funds 

were deposited into the MDOS general fund. They then programmed their accounting system to 

automatically charge both the HAVA fund and the MDOS general fund to record Section 251 

expenditures. The HAVA fund is charged for ninety-five percent of the expenditure and the 

MDOS general fund is charged for the remaining five percent. When the Section 251 funds 

received from EAC are expended, only the compounded interest will remain in the HAVA fund. 

MDOS will then request an appropriation adequate to allow it continue to pay the five percent 

state match against the accumulated interest. 

5 
Recommendations: 

We recommend that the Secretary of State’s Office: 

1) Comply with HAVA by depositing into the election fund the state match shortfall of 

$1,144,518 or such amount as determined at the date of the transfer. 

2) Determine the amount of compounded interest that would have been earned on the 

state matching funds from the date they should have been timely deposited in the 

election fund through the date of the transfer, and periodically deposit these interest 

earnings. 

MDOS’s Response: 

The MDOS said that the Michigan Office of Financial Management would deposit the state 

match balance as of September 31, 2009 into a new interest-bearing HAVA fund on October 1, 

2009. As of August 31, 2009, the state match balance was $1,103,885.35. 

The amount of lost interest was determined to be $348,955.98. The MDOS stated that they do 

not plan to deposit this lost interest into the election fund since MDOS has increased the 

amount paid for HAVA maintenance of effort activities by state funds by significantly more than 

this amount. According to information provided to us by the MDOS, Michigan had made 

cumulative expenditures toward maintenance of effort activities of $1,947,525.69 in excess of its 

required maintenance of effort from Fiscal Years 2004 through 2008. 

Auditor’s Response: 

EAC should review the reasonableness of MDOS’s assertion that excess maintenance of effort 

from Fiscal years 2004 through 2008 could be used to offset the lost interest of $348,955.98. 

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

We provided a draft of our report to the appropriate individuals of the Michigan Department of 

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

received prior to finalizing this report. 

CG performed its initial field work between October 13, 2008 and October 24, 2008; however 

questions arose concerning the maintenance of effort at the local jurisdictions, and the 

completeness of inventory records of five jurisdictions we visited. The issues concerning the 

inventory records were resolved, and, as mentioned above, the EAC is developing guidelines on 

how maintenance of effort should be assessed. Therefore, we performed followup fieldwork 

between April 6, 2009 and April 17, 2009 to address inventory and to update financial data 

through February 28, 2009. 

a1ure

Calverton, Maryland 

December 18, 2009 

6 
Appendix A 

SECRETARY OF STATE RESPONSE 

1) The Michigan Office of Financial Management will deposit the state match balance as of 

September 31, 2009 into a new interest-bearing HAVA fund on October 1, 2009. As of 

August 31, 2009, the state match balance is $1,103,885.35. (NFR Attachment 1) 

2) Based on the response above, the state match balance will begin earning interest on 

October 1st, 2009. The $348,955.98 in lost interest (NFR Attachment 1) will not be 

deposited into the election fund since MDOS has increased the amount paid for HAVA 

maintenance of effort with state funds by significantly more than this amount. (NFR 

Attachment 2) 

Auditor Note: 

The two attachments noted above are Excel spreadsheets that are not included with this report: 

NFR Attachment 1 is the detailed computation of the interest shortfall of $348,955.98. 

NFR Attachment 2 is a listing of the state’s totals by year for MOE, that shows an excess 

aggregate total of $1,947,525 which the SOS contends should be offset against the 

shortfall in interest shown above. 

7 
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 MDOS 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 MDOS’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. 

• 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. 

8 
• 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 MDOS to ensure proper cash management 

� Test procurement of voting equipment for competitive bid process 

� Ensure compliance with HAVA Act. 

9 
Appendix C 

MONETARY IMPACT AS OF JULY 31, 2009
 

Description 

Questioned 

Costs 

Additional Funds for 

Program 

Interest on state matching funds $0 $348,956 

Totals $0 $348,956 

Note: The interest total above is the amount due through July 31, 2009, and additional interest 

would be due for the lapse of time to when the shortfall is deposited. 

10 
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 

1201 New York Ave. NW - Suite 300 

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 

 1201 New York Ave. NW - Suite 300 

 Washington, DC 20005 

E-mail: eacoig@eac.gov 

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

FAX: 202-566-0957