Recovery Act: As Initial Implementation Unfolds in States and Localities, Continued Attention to Accountability Issues Is Essential
Published: 2009-04-23T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The American Recovery and Reinvestment Act of 2009 (Recovery Act) is estimated to cost about $787 billion over the next several years, of which about $280 billion will be administered through states and localities. The Recovery Act requires GAO to do bimonthly reviews of the use of funds by selected states and localities. In this first report, GAO describes selected states' and localities' (1) uses of and planning of Recovery Act funds, (2) accountability approaches, and (3) plans to evaluate the impact of funds received. GAO's work is focused on 16 states and the District of Columbia--representing about 65 percent of the U.S. population and two-thirds of the intergovernmental federal assistance available through the Recovery Act. GAO collected documents from and interviewed state and local officials, including Governors, "Recovery Czars," State Auditors, Controllers, and Treasurers. GAO also reviewed guidance from the Office of Management and Budget (OMB) and other federal agencies.
section_title: What GAO Found
paragraphs: About 90 percent of the estimated $49 billion in Recovery Act funding to be provided to states and localities in FY2009 will be through health, transportation and education programs. Within these categories, the three largest programs are increased Medicaid Federal Medical Assistance Percentage (FMAP) grant awards, funds for highway infrastructure investment, and the State Fiscal Stabilization Fund (SFSF). The funding notifications for Recovery Act funds for the 16 selected states and the District of Columbia (the District) have been approximately $24.2 billion for Medicaid FMAP on April 3, $26.7 billion for highways on March 2, and $32.6 billion for SFSF on April 2. Fifteen of the 16 states and the District have drawn down approximately $7.96 billion in increased FMAP grant awards for the period October 1, 2008 through April 1, 2009. The increased FMAP is for state expenditures for Medicaid services. The receipt of this increased FMAP may reduce the state share for their Medicaid programs. States have reported using funds made available as a result of the increased FMAP for a variety of purposes. For example, states and the District reported using these funds to maintain their current level of Medicaid eligibility and benefits, cover their increased Medicaid caseloads-which are primarily populations that are sensitive to economic downturns, including children and families, and to offset their state general fund deficits thereby avoiding layoffs and other measures detrimental to economic recovery. States are undertaking planning activities to identify projects, obtain approval at the state and federal level and move them to contracting and implementation. For the most part, states were focusing on construction and maintenance projects, such as road and bridge repairs. Before they can expend Recovery Act funds, states must reach agreement with the Department of Transportation on the specific projects; as of April 16, two of the 16 states had agreements covering more than 50 percent of their states' apportioned funds, and three states did not have agreement on any projects. While a few, including Mississippi and Iowa had already executed contracts, most of the 16 states were planning to solicit bids in April or May. Thus, states generally had not yet expended significant amounts of Recovery Act funds. The states and D.C. must apply to the Department of Education for SFSF funds. Education will award funds once it determines that an application contains key assurances and information on how the state will use the funds. As of April 20, applications from three states had met that determination- South Dakota, and two of GAO's sample states, California and Illinois. The applications from other states are being developed and submitted and have not yet been awarded. The states and the District report that SFSF funds will be used to hire and retain teachers, reduce the potential for layoffs, cover budget shortfalls, and restore funding cuts to programs. Planning continues for the use of Recovery Act funds. State activities indlude appointing Recovery Czars; establishing task forces and other entities, and developing public websites to solicit input and publicize selected projects. GAO found that the selected states and the District are taking various approaches to ensuring that internal controls manage risk up-front; they are assessing known risks and developing plans to address those risks. State auditors are also planning their work including conducting required single audits and testing compliance with federal requirements. Nearly half of the estimated spending programs in the Recovery Act will be administered by non-federal entities. State officials suggested opportunities to improve communication in several areas. Officials in nine of the 16 states and the District expressed concern about determining the jobs created and retained under the Recovery Act, as well as methodologies that can be used for estimation of each.

section_title: Letter
paragraphs: The Nation faces what is generally reported to be the most serious  economic crisis since the Great Depression. In response, the American  Recovery and Reinvestment Act of 2009 (Recovery Act) was enacted to  promote economic recovery, make investments, and to minimize and  avoid reductions in state and local government services. The  Congressional Budget Office (CBO) estimated that the Recovery Act’s  combined spending and tax provisions will cost $787 billion over ten  years, of which more than $580 billion will be in additional federal  spending. The stated purposes of the Recovery Act are to:    preserve and create jobs and promote economic recovery;   assist those most impacted by the recession;    provide investments needed to increase economic efficiency by  spurring technological advances in science and health;  invest in transportation, environmental protection, and other  infrastructure that will provide long-term economic benefits; and  stabilize state and local government budgets, in order to minimize and  avoid reductions in essential services and counterproductive state and  local tax increases.
The Recovery Act specifies several roles for GAO including conducting  bimonthly reviews of selected states’ and localities’ use of funds made  available under the act. Accordingly, our objectives for this report were to  describe (1) selected states’ and localities’ uses of and planning for  Recovery Act funds, (2) the approaches taken by the selected states and  localities to ensure accountability for Recovery Act funds, and (3) states’  plans to evaluate the impact of the Recovery Act funds they received.
To address these objectives, we selected a core group of 16 states and the  District of Columbia (District) that we will follow over the next few years  to provide an ongoing longitudinal analysis of the use of funds provided in  conjunction with the Recovery Act. The states are Arizona, California,  Colorado, Florida, Georgia, Iowa, Illinois, Massachusetts, Michigan,  Mississippi, New Jersey, New York, North Carolina, Ohio, Pennsylvania,  and Texas. These states contain about 65 percent of the U.S. population  and are estimated to receive collectively about two-thirds of the  intergovernmental federal assistance funds available through the Recovery  Act. We selected these states and the District on the basis of outlay  projections, percentage of the U.S. population represented, unemployment  rates and changes, and a mix of states’ poverty levels, geographic  coverage, and representation of both urban and rural areas. In addition,  we visited a non-probability sample of about 60 localities within the 16  selected states.
We collected documents from and conducted semi-structured interviews  with executive-level state and local officials and staff from Governors’  offices, “Recovery Czars,” State Auditors, Controllers, and Treasurers. We  also interviewed staff from state legislatures. In addition, our work  focused on federal, state, and local agencies administering programs  receiving Recovery Act funds. We analyzed data and interviewed officials  from the federal Office of Management and Budget (OMB). We also  analyzed other federal guidance on programs selected for this review and  spoke with relevant program officials at the Centers for Medicare &  Medicaid Services (CMS), the U.S. Department of Transportation and the  U.S. Department of Education. We did not review state legal materials for  this report, but relied on state officials and other state sources for  description and interpretation of relevant state constitutions, statutes,  legislative proposals, and other state legal materials.
We based our selection of the programs to review for this initial report on  Recovery Act funding and potential risks associated with receipt of  additional funds for these programs. An estimated 90 percent of fiscal year  2009 Recovery Act funding provided to states and localities will be for  health, transportation and education programs. The three largest programs  in these categories are the Medicaid Federal Medical Assistance  Percentage (FMAP) awards, the State Fiscal Stabilization Fund, and  highways. These three programs are therefore highlighted throughout this  report. The information obtained from this review cannot be generalized  to all states and localities receiving Recovery Act funding. A detailed  description of our scope and methodology can be found in Appendix I.
We conducted this performance audit from February 17, to April 20, 2009  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 our audit objectives.
subsections: section_title: Background
paragraphs: Recovery Act funds are being distributed to states, localities, other  entities, and individuals through a combination of formula and competitive  grants and direct assistance. Nearly half of the approximately $580 billion  associated with Recovery Act spending programs will flow to states and  localities affecting about 50 state formula and discretionary grants as well  as about 15 entitlement and other countercyclical programs. As noted  above, three of the largest streams of funds flowing to states and localities  are (1) the temporary increase in FMAP funding which will provide states  with approximately $87 billion in assistance; (2) the State Fiscal  Stabilization Fund, which will provide nearly $54 billion to help state and  local governments avert budget cuts, primarily in education; and (3)  highway infrastructure investment funds of approximately $27 billion.
subsections: section_title: Medicaid FMAP
paragraphs: Medicaid is a joint federal-state program that finances health care for  certain categories of low-income individuals, including children, families,  persons with disabilities, and persons who are elderly. The federal  government matches state spending for Medicaid services according to a  formula based on each state’s per capita income in relation to the national  average per capita income. The amount of federal assistance states receive  for Medicaid service expenditures is known as the FMAP. Across states,  the FMAP may range from 50 to no more than 83 percent, with poorer  states receiving a higher federal matching rate than wealthier states.
Under the Recovery Act, states are eligible for an increased FMAP for  expenditures that states make in providing services to their Medicaid  populations. The Recovery Act provides eligible states with this increased  FMAP for 27 months between October 1, 2008, and December 31, 2010. On  February 25, 2009, CMS made increased FMAP grant awards to states, and  states may retroactively claim reimbursement for expenditures that  occurred prior to the effective date of the Recovery Act. Generally, for  fiscal year 2009 through the first quarter of fiscal year 2011, the increased  FMAP, which is calculated on a quarterly basis, provides for: (1) the  maintenance of states’ prior year FMAPs; (2) a general across-the-board  increase of 6.2 percentage points in states’ FMAPs; and (3) a further  increase to the FMAPs for those states that have a qualifying increase in  unemployment rates. For the first two quarters of 2009, the increases in  the FMAP for the 16 states and the District ranged from 7.09 percentage  points in Iowa to 11.59 percentage points in California. (See table 1.)
section_title: Highway Infrastructure Investment
paragraphs: The Recovery Act provides approximately $48 billion to fund grants to  states, localities, regional authorities and others for transportation  projects of which the largest piece is $27.5 billion for highway and related  infrastructure investments. The Recovery Act largely provides for  increased transportation funding through existing programs-such as the  Federal-Aid Highway Surface Transportation Program—a federally  funded, state-administered program. Under this program, funds are  apportioned annually to each state department of transportation (or  equivalent) to construct and maintain roadways and bridges on the  federal-aid highway system. The Federal-Aid Highway Program refers to  the separately funded grant programs mostly funded by formula,  administered by the Federal Highway Administration (FHWA) in the U.S.  Department of Transportation.
section_title: State Fiscal Stabilization Fund
paragraphs: The Recovery Act provided $53.6 billion in appropriations for the State  Fiscal Stabilization Fund (SFSF) to be administered by the U.S.  Department of Education. The Recovery Act requires that the Secretary of  Education set aside $5 billion for State Incentive Grants, referred to by the  department as the Reach for the Top program, and the establishment of an  Innovation Fund. After reserving these and certain other funds, the  remaining funds are to be distributed to states by formula, with 61 percent  of the state award based on the state’s relative share of the population  aged 5 to 24 and 39 percent based on the state’s relative share of the total  U.S. population. The Recovery Act specifies that 81.8 percent (about $39.5  billion) of these remaining funds are to be distributed to states for support  of elementary, secondary, and postsecondary education, and early  childhood education programs. The remaining 18.2 percent of SFSF (about  $8.8 billion) is available for public safety and other government services  including for educational purposes. The Department of Education  announced on April 1, 2009 that it will award the SFSF in two phases. The  first phase—$32.6 billion—represents about two-thirds of the SFSF.
Figure 1 shows the distribution of Recovery Act funds to states by broad  functional categories over the next several years.
The timeline of Recovery Act spending has been a key issue in the debate  and design of the Recovery Act because of the elapsed time between when  policy changes are first proposed and actual spending begins to flow from  enacted changes. Figure 2 shows the projected timing of state and local- administered Recovery Act spending.
Over time, the programmatic focus of Recovery Act spending will change.  As shown in figure 3, about two-thirds of Recovery Act funds expected to  be spent by states in the current 2009 fiscal year will be health related,  primarily temporary increases in Medicaid FMAP funding. Health,  education, and transportation is estimated to account for approximately  90 percent of fiscal year 2009 Recovery Act funding for states and  localities. However, by fiscal year 2012, transportation will be the largest  share of state and local Recovery Act funding. Taken together,  transportation spending, along with investments in the community  development, energy, and environmental areas that are geared more  toward creating long-run economic growth opportunities will represent  approximately two-thirds of state and local Recovery Act funding in 2012.
The administration has stipulated that every taxpayer dollar spent on  economic recovery must be subject to unprecedented levels of  transparency and accountability. To that end, the Recovery Act  established the Recovery Accountability and Transparency Board to  coordinate and conduct oversight of funds distributed under the Act in  order to prevent fraud, waste and abuse. The Board includes a Chairman  appointed by the President, and ten Inspectors General specified by the  Act. The Board has a series of functions and powers to assist it in the  mission of providing oversight and promoting transparency regarding  expenditure of funds at all levels of government. The Board will report on  the use of Recovery Act funds and may also make recommendations to  agencies on measures to avoid problems and prevent fraud, waste and  abuse.
The Board is also charged under the Act with establishing and maintaining  a web site, www.recovery.gov, (Recovery.gov) to foster greater  accountability and transparency in the use of covered funds. The website  currently includes overview information about the Recovery Act, a  timeline for implementation, a frequently asked questions page, and an  announcement page that is to be regularly updated. The administration  plans to develop the site to encompass information about available  funding, distribution of funds, and major recipients. The website is  required to include plans from federal agencies; information on federal  awards of formula grants and awards of competitive grants; and  information on federal allocations for mandatory and other entitlement  programs by state, county, or other appropriate geographical unit.  Eventually, prime recipients of Recovery Act funding will provide  information on how they are using their federal funds. Currently,  Recovery.gov features projections for how, when, and where the funds  will be spent, as well as which states and sectors of the economy are due  to receive what proportion of the funds. As money starts to flow,  additional data will become available. In addition to Recovery.gov, OMB  has also issued guidance directing executive branch agencies to develop a  dedicated portion of their web sites for information related to the  recovery.
To ensure a high level of accountability, OMB has issued guidance to the  heads of federal departments and agencies for implementing and  managing activities enacted under the Recovery Act. OMB has also issued  for comment detailed reporting requirements for Recovery Act fund  recipients that include the number of jobs created and jobs retained as a  result of Recovery Act funding. OMB’s guidance documents are available  on Recovery.gov. In addition, the Civilian Acquisition Council and the  Defense Acquisition Regulations Council have issued an interim rule  revising the Federal Acquisition Regulation (FAR) to require a contract  clause that implements these reporting requirements for contracts funded  with Recovery Act dollars.
The Recovery Act also assigns GAO a range of responsibilities to help  promote accountability and transparency. Some are recurring  requirements such as providing bimonthly reviews of the use of funds  made available under Division A of the Recovery Act by selected states  and localities and reviews of quarterly reports on job creation and job  retention as reported by Recovery Act fund recipients. Other requirements  include targeted studies in several areas such as small business lending,  education, and trade adjustment assistance. We completed the first of  these mandates on April 3, 2009, by announcing the appointment of 13  members to the Health Information Technology Policy Committee, a new  advisory body established by the Recovery Act. The committee will make  recommendations on creating a policy framework for the development  and adoption of a nationwide health information technology  infrastructure, including standards for the exchange of patient medical  information. On April 16, 2009, we issued a report completing a second  mandate to report on the actions of the Small Business Administration  (SBA) to, among other things, increase liquidity in the secondary market  for SBA loans.
section_title: States’ and Localities’ Use of and Plans for Recovery Act Funds Focus on Purposes of the Act and States’ Fiscal Stresses
paragraphs: Officials in the 16 selected states and the District indicated they have used  certain Recovery Act funds and continue planning for the use of additional  funds they have not yet received. States’ existing intergovernmental  programs—such as Medicaid, transportation, and education—have been  among the first programs to receive Recovery Act funds. Planning  continues for the use of Recovery Act funds for these and other program  areas. States’ planning actions include appointing Recovery Czars;  establishing task forces and other entities, and developing public web sites  to solicit input and publicize selected projects. In some cases, according to  state officials, state legislation will be required to receive and expend  funds or to make required changes to programs for eligibility prior to using  the funds. States’ approaches to planning for Recovery Act funds also vary  in response to state legislative and budget processes regarding the use of  federal funds and states’ fiscal situations.
subsections: section_title: States’ Use of Recovery Act Funds by Selected Program Areas
paragraphs: The three largest programs making funds available to the state and  localities so far have been the Medicaid FMAP, highways funds, and the  SFSF. Table 2 shows the breakout of funding available for these three  programs in the 16 selected states and the District that GAO visited.  Recovery Act funding for these 17 jurisdictions accounts for a little less  than two-thirds of total Recovery Act funding for these three programs.
Under the Recovery Act, states are eligible for an increased FMAP for  expenditures that states make in providing services to their Medicaid  populations. The Recovery Act provides eligible states with an increased  FMAP for 27 months between October 1, 2008 and December 31, 2010.  Generally, for fiscal year 2009 through the first quarter of fiscal year 2011,  the increased FMAP, which is calculated on a quarterly basis, provides for:  (1) the maintenance of states’ prior year FMAPs; (2) a general across-the- board increase of 6.2 percentage points in states’ FMAPs; and (3) a further  increase to the FMAPs for those states that have a qualifying increase in  unemployment rates.
In our sample of 16 states and the District, officials from 15 states and the  District indicated that they had drawn down increased FMAP grant  awards, totaling $7.96 billion for the period of October 1, 2008 through  April 1, 2009—47 percent of their increased FMAP grant awards. In our  sample, the extent to which individual states and the District accessed  these funds varied widely, ranging from 0 percent in Colorado to about 66  percent in New Jersey. Nationally, the 50 states and several territories  combined have drawn down approximately $11 billion as of April 1, 2009,  which represents almost 46 percent of the increased FMAP grants  awarded for the first three quarters of federal fiscal year 2009 (Table 3).
In order for states to qualify for the increased FMAP available under the  Recovery Act, they must meet certain requirements. In particular    Maintenance of Eligibility: In order to qualify for the increased  FMAP, states generally may not apply eligibility standards,  methodologies, or procedures that are more restrictive than those in  effect under their state Medicaid programs on July 1, 2008. In  guidance to states, CMS noted that examples of restrictions of  eligibility could include (1) the elimination of any eligibility groups  since July 1, 2008 or (2) changes in an eligibility determination or  redetermination process that is more stringent than what was in effect  on July 1, 2008. States that fail to initially satisfy the maintenance of  eligibility requirements have an opportunity to reinstate their eligibility  standards, methodologies, and procedures before July 1, 2009 and  become retroactively eligible for the increased FMAP.
Compliance with Prompt Payment: Under federal law states are  required to pay claims from health practitioners promptly. Under the  Recovery Act, states are prohibited from receiving the increased FMAP  for days during any period in which that state has failed to meet this  requirement. Although the increased FMAP is not available for any  claims received from a practitioner on each day the state is not in  compliance with these prompt payment requirements, the state may  receive the regular FMAP for practitioner claims received on days of  non-compliance. CMS officials told us that states must attest that they  are in compliance with the prompt payment requirement, but that  enforcement is complicated due to differences across states in  methods used to track this information. CMS officials plan to issue  guidance on reporting compliance with the prompt payment  requirement and are currently gathering information from states on the  methods they use to determine compliance.
Rainy Day Funds: States are not eligible for an increased FMAP if any  amounts attributable (either directly or indirectly) to the increased  FMAP are deposited or credited into any reserve or rainy day fund of  the state.
Percentage Contributions from Political Subdivisions: In some  states, political subdivisions—such as cities and counties—may be  required to help finance the state’s share of Medicaid spending. States  that have such financing arrangements are not eligible to receive the  increased FMAP if the percentage contributions required to be made  by a political subdivision are greater than what was in place on  September 30, 2008.
In addition to meeting the above requirements, states that receive the  increased FMAP must submit a report to CMS no later than September 30,  2011 that describes how the increased FMAP funds were expended, in a  form and manner determined by CMS. In guidance to states, CMS has  stated that further guidance will be developed for this reporting  requirement. CMS guidance to states also indicates that, for federal  reimbursement, increased FMAP funds must be drawn down separately,  tracked separately, and reported to CMS separately. Officials from several  states told us they require additional guidance from CMS on tracking  receipt of increased FMAP funds and on reporting on the use of these  funds.
The increased FMAP available under the Recovery Act is for state  expenditures for Medicaid services. However, the receipt of this  increased FMAP may reduce the state share for their Medicaid programs.  States have reported using these available funds for a variety of purposes.  In our sample, individual states and the District reported that they would  use the funds to maintain their current level of Medicaid eligibility and  benefits, cover their increased Medicaid caseloads—which are primarily  populations that are sensitive to economic downturns, including children  and families, and to offset their state general fund deficits thereby avoiding  layoffs and other measures detrimental to economic recovery. Ten states  and the District reported using these funds to maintain program eligibility.  Nine states and the District reported using these funds to maintain  benefits. Specifically, Massachusetts reported that during a previous  financial downturn, the state limited the number of individuals eligible for  some services and reduced certain program benefits that were optional for  the state to cover. However, with the funds made available as a result of  the increased FMAP, the state did not have to make such reductions.  Similarly, New Jersey reported that the state used these funds to eliminate  premiums for certain children in its State Children’s Health Insurance  Program, allowing it to retain coverage for children whose enrollment in  the program would otherwise have been terminated for non-payment of  premiums. Nine states and the District reported using these funds to cover  increases to their Medicaid caseloads, primarily to populations that are  sensitive to economic downturns, such as children and families. For  example, New Jersey indicated that these funds would help the state meet  the increased demand for Medicaid services. According to a New Jersey  official, due to significant job losses, the state’s proposed 2010 budget  would not have accommodated all the applicants newly eligible for  Medicaid and that the funds available as a result of the increased FMAP  have allowed the state to maintain a “safety net” of coverage for uninsured  and unemployed people. In addition, 10 states and the District indicated  that the increased funds made available would help offset deficits in their  general funds. Pennsylvania reported that because funding for its Medicaid  program is derived, in part, on state revenues, program funding levels  fluctuate as the economy rises and falls. However, the state was able to  use funds made available to offset the effects of lower state revenues.  Arizona officials also reported that the state used funds made available as  a result of the increased FMAP to pay down some of its debt and make  payroll payments, thus allowing the state to avoid a serious cash flow  problem.
Finally, six states in our sample also reported that they used funds made  available as a result of the increased FMAP to comply with prompt  payment requirements. Specifically, Illinois reported that these funds will  permit the state to move from a 90-day payment cycle to a 30-day payment  cycle for all Medicaid providers. Three states also reported using these  funds to restore or to increase provider payment rates.
In our sample, many states and the District indicated that they need  additional guidance from CMS regarding eligibility for the increased FMAP  funds. Specifically, 5 states raised concerns about whether certain  programmatic changes could jeopardize the state’s eligibility for these  funds. For example Texas officials indicated that guidance from CMS is  needed regarding whether certain programmatic changes being considered  by Texas, such as a possible extension of the program’s eligibility period,  would affect the state’s eligibility for increased FMAP funds. Similarly,  Massachusetts wanted clarification from CMS as to whether certain  changes in the timeframe for the state to conduct eligibility re- determinations would be considered a more restrictive standard. Four  states also reported that they wanted additional guidance from CMS  regarding policies related to the prompt payment requirements or changes  to the non-federal share of Medicaid expenditures. For example, California  officials noted that the state reduced Medicaid payments for in-home  support services, but that counties could voluntarily choose to increase  these payments without altering the cost sharing arrangements between  the counties and the state. The state wants clarification from CMS on  whether such an arrangement would be allowable in light of the Recovery  Act requirements regarding the percentage of contributions by political  subdivisions within a state toward the non-federal share of expenditures.
In response to states’ concerns regarding the need for guidance, CMS told  us that it is in the process of developing draft guidance on the prompt  payment provisions in the Recovery Act. One official noted that this  guidance will include defining the term practitioner, describing the types  of claims applicable under the provision, and addressing the principles  that are integral to determining a state’s compliance with prompt payment  requirements. Additionally, CMS plans to have a reporting mechanism in  place through which states would report compliance under this provision.  With regard to Recovery Act requirements regarding political subdivisions,  CMS described their current activities for providing guidance to states.  Due to the variability of state operations, funding processes, and political  structures, CMS has been working with states on a case-by-case basis to  discuss particular issues associated with this provision and to address the  particular circumstances for each state. A CMS official told us that if there  were an issue(s) or circumstance(s) that had applicability across the  states, or if there were broader themes having national significance, CMS  would consider issuing guidance.
subsections: section_title: Highway Infrastructure Investment
paragraphs: Of the $27.5 billion provided in the Recovery Act for highway and related  infrastructure investments, $26.7 billion is provided to the 50 states for  restoration, repair, construction and other activities allowed under the  Federal-Aid Highway Surface Transportation Program and for other  eligible surface transportation projects. Nearly one-third of these funds are  required to be sub-allocated to metropolitan and other areas. States must  follow the requirements for the existing program, and in addition, the  Recovery Act requires that the Governor must certify that the state will  maintain its current level of transportation spending, and the governor or  other appropriate chief executive must certify that the state or local  government to which funds have been made available has completed all  necessary legal reviews and determined that the projects are an  appropriate use of taxpayer funds. The certifications must include a  statement of the amount of funds the state planned to expend from state  sources as of the date of enactment, during the period beginning on the  date of enactment through September 30, 2010, for the types of projects  that are funded by the appropriation.
The U.S. Department of Transportation is reviewing the Governors’  certifications regarding maintaining their level of effort for highways.  According to the Department, of the 16 states in our review and the  District of Columbia, three states have submitted a certification free of  explanatory or conditional language—Arizona, Michigan, and New York.  Eight submitted “explanatory” certifications—certifications that used  language that articulated assumptions used or stated the certification was  based on the “best information available at the time,” but did not clearly  qualify the expected maintenance of effort on the assumptions proving  true or information not changing in the future. Six submitted a  “conditional” certifications, which means that the certification was subject  to conditions or assumptions, future legislative action, future revenues, or  other conditions.
Recovery Act funding for highway infrastructure investment differs from  the usual practice in the Federal-aid Highway Program in a few important  ways. Most significantly, for projects funded under the Recovery Act, the  federal share is 100 percent; typically projects require a state match of 20  percent while the federal share is typically 80 percent. Under the Recovery  Act, priority is also to be given to projects that are projected to be  completed within three years. In addition, within 120 days after the  apportionment by the Department of Transportation to the states (March  2, 2009), and specifically before June 30, 2009, 50 percent of the  apportioned funds must be obligated. Any amount of this 50 percent of  apportioned funding that is not obligated may be withdrawn by the  Secretary of Transportation and redistributed to other states that have  obligated their funds in a timely manner. Furthermore, one year after  enactment the Secretary will withdraw any remaining unobligated funds  and redistribute them based on states’ need and ability to obligate  additional funds. These provisions are applicable only to those funds  apportioned to the state and not those funds required by the Recovery Act  to be suballocated to metropolitan, regional and local organizations.
Finally, states are required to give priority to projects that are located in  economically distressed areas as defined by the Public Works and  Economic Development Act of 1965, as amended. In March 2009, FHWA  directed its field offices to provide oversight and take appropriate action  to ensure that states gave adequate consideration to economically  distressed areas in selecting projects. Specifically, field offices were  directed to discuss this issue with the states and to document its review  and oversight of this process.
States are undertaking planning activities to identify projects, obtain  approval at the state and federal level and move them to contracting and  implementation. However, because of the steps necessary before  implementation, states generally had not yet expended significant amounts  of Recovery Act funds. States are required to reach agreement with the  Department of Transportation (DOT) on a list of projects reimbursement  from DOT for these projects. States will then request reimbursement from  DOT as the state makes payments to contractors working on approved  projects.
As of April 16, 2009, the U.S Department of Transportation reported that  nationally $6.4 billion of the $26.6 billion in Recovery Act highway  infrastructure investment funding provided to the states had been  obligated – meaning Transportation and the states had reached  agreements on projects worth this amount. As shown in Table 4 below, for  the locations that GAO reviewed, the extent to which the Department of  Transportation had obligated funds apportioned to the states and  Washington D.C. ranged from 0 to 65 percent. For two of the states, the  Department of Transportation had obligated over 50 percent of the states’  apportioned funds, for 4 it had obligated 30 to 50 percent of the states’  funds, for 9 states it had obligated under 30 percent of funds, and for three  it had not obligated any funds.
In most states we visited, while they had not yet expended significant  funds, they were planning to solicit bids in April or May. They also stated  that they planned to meet statutory deadlines for obligating the highway  funds. A few states had already executed contracts. As of April 1, 2009, the  Mississippi Department of Transportation (MDOT), for example, had  signed contracts for 10 projects totaling approximately $77 million. These  projects include the expansion of State Route 19 in eastern Mississippi  into a four-lane highway. This project fulfills part of MDOT’s 1987 Four- Lane Highway Program which seeks to link every Mississippian to a four- lane highway within 30 miles or 30 minutes. Similarly, as of April 15, 2009,  the Iowa Department of Transportation had competitively awarded 25  contracts valued at $168 million. Most often, however, we found that  highway funds in the states and the District have not yet been spent  because highway projects were at earlier stages of planning, approval, and  competitive contracting. For example, in Florida, the Department of  Transportation (FDOT) plans to use the Recovery Act funds to accelerate  road construction programs in its preexisting 5- year plan which will result  in some projects being reprioritized and selected for earlier completion.  On April 15, 2009, the Florida Legislative Budget Commission approved  the Recovery Act-funded projects that FDOT had submitted.
For the most part, states were focusing their selection of Recovery Act- funded highway projects on construction and maintenance, rather than  planning and design, because they were seeking projects that would have  employment impacts and could be implemented quickly. These included  road repairs and resurfacing, bridge repairs and maintenance, safety  improvements, and road widening. For example, in Illinois, the  Department of Transportation is planning to spend a large share of its  estimated $655 million in Recovery Act funds for highway and bridge  construction and maintenance projects in economically distressed areas,  those that are shovel-ready, and those that can be completed by February  2012. In Iowa, the contracts awarded have been for projects such as bridge  replacements and highway resurfacing—shovel-ready projects that could  be initiated and completed quickly. Knowing that the Recovery Act would  include opportunities for highway investment, states told us they worked  in advance of the legislation to identify appropriate projects. For example,  in New York, the state DOT began planning to manage anticipated federal  stimulus money in November 2008. A key part of New York’s DOT’s  strategy was to build on existing planning and program systems to  distribute and manage the funds.
section_title: State Fiscal Stabilization Fund
paragraphs: The states and D.C. must apply to the Department of Education for SFSF  funds. Education will award funds once it determines that an application  contains key assurances and information on how the state will use the  funds. As of April 20, applications from three states had met that  determination-South Dakota, and two of GAO’s sample states, California  and Illinois. The applications from other states are being developed and  submitted and have not yet been awarded. The states and the District  report that SFSF funds will be used to hire and retain teachers, reduce the  potential for layoffs, cover budget shortfalls, and restore funding cuts to  programs. The applications to Education must contain certain assurances.  For example, states must assure that, in each of fiscal years 2009, 2010,  and 2011, they will maintain state support at fiscal year 2006 levels for  elementary and secondary education and also for public institutions of  higher education (IHEs). However, the Secretary of Education may waive  maintenance of effort requirements if the state demonstrates that it will  commit an equal or greater percentage of state revenues to education than  in the previous applicable year. The state application must also contain (1)  assurances that the state is committed to advancing education reform in  increasing teacher effectiveness, establishing state-wide education  longitudinal data systems, and improving the quality of state academic  standards and assessments; (2) baseline data that demonstrates the state’s  current status in each of the education reform areas; and (3) a description  of how the state intends to use its stabilization allocation.
Within two weeks of receipt of an approvable SFSF application, Education  will provide the state with 67 percent of its SFSF allocation. Under certain  circumstances, Education will provide the state with up to 90 percent of  its allocation. In the second phase, Education intends to conduct a full  peer review of state applications before awarding the final allocations.
After maintaining state support for education at fiscal year 2006 levels,  states are required to use the education portion of the SFSF to restore  state support to the greater of fiscal year 2008 or 2009 levels for  elementary and secondary education, public IHEs, and, if applicable, early  childhood education programs. States must distribute these funds to  school districts using the primary state education formula but maintain  discretion in how funds are allocated to public IHEs. If, after restoring  state support for education, additional funds remain, the state must  allocate those funds to school districts according to the funding formula  found in Title I, Part A, of the Elementary and Secondary Education Act of  1965 (ESEA), commonly known as the No Child Left Behind Act. However,  if a state’s education stabilization fund allocation is insufficient to restore  state support for education, then a state must allocate funds in proportion  to the relative shortfall in state support to public schools and IHEs.  Education stabilization funds must be allocated to school districts and  public IHEs and cannot be retained at the state level.
Once stabilization funds are awarded to school districts and public IHEs,  they have considerable flexibility over how they use those funds. School  districts are allowed to use stabilization funds for any allowable purpose  under the Elementary and Secondary Education Act (ESEA), (commonly  known as the No Child Left Behind Act), the Individuals with Disabilities  Education Act (IDEA), the Adult Education and Family Literacy Act, or the  Perkins Act, subject to some prohibitions on using funds for, among other  things, sports facilities and vehicles. In particular, because allowable uses  under the Impact Aid provisions of ESEA are broad, school districts have  discretion to use Recovery Act funding for things ranging from salaries of  teachers, administrators, and support staff to purchases of textbooks,  computers, and other equipment. The Recovery Act allows public IHEs to  use SFSF funds in such a way as to mitigate the need to raise tuition and  fees, as well as for the modernization, renovation, and repair of facilities,  subject to certain limitations. However, the Recovery Act prohibits public  IHEs from using stabilization funds for such things as increasing  endowments, modernizing, renovating, or repairing sports facilities, or  maintaining equipment. According to Education officials, there are no  maintenance of effort requirements placed on local school districts.  Consequently, as long as local districts use stabilization funds for  allowable purposes, they are free to reduce spending on education from  local-source funds, such as property tax revenues.
States have broad discretion over how the $8.8 billion in SFSF funds  designated for basic government services are used. The Recovery Act  provides that these funds can be used for public safety and other  government services and that these services may include assistance for  education, as well as for modernization, renovation, and repairs of public  schools or IHEs, subject to certain requirements. Education’s guidance  provides that the funds can also be used to cover state administrative  expenses related to the Recovery Act. However, the Act also places  several restrictions on the use of these funds. For example, these funds  cannot be used to pay for casinos (a general prohibition that applies to all  Recovery Act funds), financial assistance for students to attend private  schools, or construction, modernization, renovation, or repair of stadiums  or other sports facilities.
States’ expected that SFSF uses by school districts and public IHEs would  include retaining current staff and spending on programmatic initiatives,  among other uses. Some states’ fiscal condition could affect their ability to  meet maintenance of effort (MOE) requirements in order to receive SFSF  monies, but they are awaiting final guidance from Education on  procedures to obtain relief from these requirements. For example, due to  substantial revenue shortages, Florida has cut their state budget in recent  years and the state will not be able to meet the maintenance-of-effort  requirement to readily qualify for these funds. The state will apply to  Education for a waiver from this requirement; however, they are awaiting  final instructions from Education on submission of the waiver. Florida  plans to use SFSF funds to reduce the impact of any further cuts that may  be needed in the state education budget.
In Arizona, generally, state officials expect that SFSF recipients, such as  local school districts, will use their allocations to improve the tools they  use to assess student performance and determine to what extent  performance meets federal academic standards, rehire teachers that were  let go because of prior budget cuts, retain teachers, and meet the federal  requirement that all schools have equal access to highly qualified teachers,  among other things. Funds for the state universities will help them  maintain services and staff as well as avoid tuition increases. Illinois  officials stated that the state plans to use all of the $2 billion in State Fiscal  Stabilization funds, including the 18.2 percent allowed for government  services, for K-12 and higher education activities and hopes to avert layoffs  and other cutbacks many districts and public colleges and universities are  facing in their fiscal year 2009 and 2010 budgets. State Board of Education  officials also noted that U.S. Department of Education guidance allows  school districts to use stabilization funds for education reforms, such as  prolonging school days and school years, where possible. However,  officials said that Illinois districts will focus these funds on filling budget  gaps rather than implementing projects that will require long-term  resource commitments. While planning is underway, most of the selected  states reported that they have not yet fully decided how to use the 18.2  percent of the SFSF which is discretionary.
section_title: Localities Report Limited Initial Use of Recovery Act Funds
paragraphs: In addition to funds for Medicaid, transportation, and SFSF which flow  primarily directly to the states, the Recovery Act provided funds for other  program areas ranging from housing to training to alternative energy.  Localities’ planning for the use of Recovery Act education funds varied  according to both the status of federal guidance in place at the time of our  review and individuals states’ and localities’ own planning process. New  Jersey state education officials said they were initially limited in their  ability to provide guidance to local institutions because they were awaiting  guidance from the U.S. Department of Education. As a result, school  district officials we interviewed in Newark and Trenton said they are  waiting for state officials to tell them what their allocations are for each of  the federal Recovery Act education programs. The timing of the federal  and state guidelines for these funds are important as the local schools  districts are planning their upcoming fiscal year budgets and would like to  know how the Recovery Act funds would complement their upcoming  school spending. According to the governor’s chief of staff, the state  already funds local school districts with $8.8 billion in state funds, so  ensuring accountability for the use of state funds to so many school  districts is not a new challenge to the state oversight agencies. On April 1,  2009, the U.S. Department of Education issued guidance to the states on  how Recovery Act funds could be used for education. State officials are  continuing to review the guidance, and on April 16, 2009, issued guidance  to local school districts outlining each district’s allocation of additional  funds made available under the Recovery Act for programs authorized  under Title I of the Elementary and Secondary Education Act (ESEA) and  the Individuals with Disabilities Education Act. In Arizona, Tempe School  District No. 3 plans to use the vast majority of the Recovery Act funding  for ESEA Title I for existing programs, but it has tentative plans to use  portions of it each year to hire two temporary regional facilitators and to  fund five existing preschool programs, among other uses.
Officials from the selected states and the District said there were plans in  place to apply for and use Recovery Act funds. For example, Michigan  plans to apply for $67 million in Recovery Act funds for crime control and  prevention activities under the Department of Justice’s Edward Byrne  Memorial Justice Assistance Grants. Michigan Department of Community  Health officials told us that about $41 million of these funds will support,  among other things, state efforts to reduce the crime lab backlog, funding  for multi-jurisdictional courts, and localities’ efforts regarding law  enforcement programs, community policing, and local correctional  resources. An additional $26 million in Recovery Act funds will go directly  to localities to support efforts against drug-related and violent crime. On  April 13, 2009, Michigan began accepting grant applications for the Byrne  program and will continue to accept them until May 11, 2009. In another  example, officials in the District told us that as of April 3, 2009, the District  Department of Employment Services had received about $1.5 million for  adult Workforce Investment Act (WIA) programs, about $3.8 million for  dislocated workers programs, and almost $4 million for youth programs.  They said that D.C. plans to use these Recovery Act funds in accordance  with the U.S. Department of Labor’s guidance stating the intent of the  Recovery Act to use WIA Adult funds to provide the necessary services to  substantially increased numbers of adults to support their entry or reentry  into the job market, and that WIA Dislocated Worker funds be used to  provide the necessary services to dislocated workers to support their  reentry into the job market.
section_title: Recovery Act Funds Expected to Alleviate Some State Fiscal Pressures As States Continue to Adjust Budget Plans to Address Current and Emerging Challenges
paragraphs: Officials in all of the selected states indicated they were able to reduce or  eliminate expected budget shortfalls through the inclusion of Recovery  Act funds in their budget projections. In Texas, some representatives told  us that absent the availability of Recovery Act funds, state agencies likely  would have been asked to make cuts of about 10 percent for the state’s  fiscal year 2010-2011 biennial budget, in addition to the state drawing upon  the rainy day fund. However, other officials representing the Texas Office  of the Governor said that budget deficit situations do not necessarily result  in the state using its rainy day fund. The officials stressed that—to meet  the requirement to pass a balanced budget—a variety of other solutions  could be considered, such as budget reallocations among state agencies  and programs, as well as spending cuts. Colorado officials said Recovery  Act funds will help prevent cuts to state programs such as transportation.  Illinois officials said the state hopes to avert layoffs and create new jobs  with Recovery Act funds.
Officials in Massachusetts also said that federal Recovery Act funds are  critical to addressing the Commonwealth’s immediate fiscal pressures.  State officials expect to use a significant portion of funds made available  as a result of their state-projected $8.7 billion in Recovery Act funds (over  2 years) for budget stabilization. As of April 2009, the Commonwealth is  addressing a budget shortfall of approximately $3.0 billion, driven largely  by lower-than-anticipated revenues. The combination of funds made  available as a result of the increased FMAP and state rainy day funds— a  reserve fund built up during more favorable economic conditions to be  used during difficult economic times—will help the state avoid cuts in  several areas, including health care, education, and public safety. Faced  with declining revenue projections since fiscal year 2008, Pennsylvania  officials believe that funds made available as a result of the Recovery Act  are critical to help alleviate the immediate fiscal pressure and help balance  the state budget. Based on February 2009 projections, Pennsylvania faces  a $2.3 billion shortfall in fiscal year 2009, largely because of lower-than- expected revenues.
Despite the infusion of Recovery Act funds into state budgets, some state  officials reported that the current fiscal situation still requires action to  maintain balanced budgets. These actions include budget reductions, fee  increases and scaling back of state rebates of local property taxes. In  Georgia, officials amended the state budget by reducing revenue  estimates, using reserves, and cutting program funding. These actions  were necessary despite the inclusion of additional Medicaid funds made  available as a result of the Recovery Act. The largest budget cuts in New  Jersey come from scaling back of state rebates of local property taxes by  $500 million, and reducing state payments to the pension funds by $895  million.
Officials in the selected states acknowledged the Recovery Act’s  contributions to easing immediate fiscal pressures but remain wary of  continued fiscal pressures likely to remain after federal assistance ends.  Officials in several states reported that their planning efforts focused on  maintaining existing services rather than creating new programs or staff  positions which could extend their state’s financial liabilities beyond the  end date for Recovery Act funds. Officials generally expected to use  Recovery Act funds to fill gaps in existing programs rather than funding  new initiatives. In the midst of program budget cuts, state officials  acknowledged the challenge of ensuring that, where required to do so,  they use Recovery Act funds to supplement and not supplant current state  program funds. For example, in Arizona, programs receiving Recovery  Act funds may have a share of the state general fund reduced to help  balance the fiscal year 2010 budget, thus demonstrating the state has met  the prohibition on supplanting state funds could be a challenge. The  Arizona Treasurer’s Office estimated that even with Recovery Act funding,  Arizona’s expenditures were expected to exceed revenues through about  2014, and the state’s “rainy day” fund has been depleted.
In California, even when the state Legislative Analyst’s Office factors in the  state’s anticipated Recovery Act funding and a package of state budget  solutions that will be voted on in a May 19, 2009 special election, it  estimates an $8 billion deficit in fiscal year 2009-10. Further, since the  release of the governor’s budget in January 2009, the state’s economic  condition continues to deteriorate, and the state legislature and governor  may need to develop additional budgetary solutions to rebalance the  2009-10 budget following an update of the budget in May.
section_title: States’ Actions to Plan for Use of Recovery Act Funds Include New and Existing Entities and Processes
paragraphs: All of the 16 selected states and the District reported taking action to plan  for and monitor the use of Recovery Act funding. Some states reported  that Recovery Act planning activities for funds received by the state are  directed primarily by the governor’s office. In New York, for example, the  governor provides program direction to the state’s departments and  offices, and he established a Recovery Act Cabinet comprised of  representatives from all state agencies and many state authorities to  coordinate and manage Recovery Act funding throughout the state. In  North Carolina, Recovery Act planning efforts are led by the newly created  Office of Economic Recovery and Investment, which was established by  the governor to oversee the state’s economic recovery initiatives.
Other states reported that their Recovery Act planning efforts were less  centralized. In Mississippi, the governor has little influence over the state  Departments of Education and Transportation, as they are led by  independent entities. In Texas, oversight of federal Recovery Act funds  involves various stakeholders, including the Office of the Governor, the  Office of the Comptroller of Public Accounts, and the State Auditor’s  Office as well as two entities established within the Texas legislature  specifically for this purpose—the House Select Committee on Federal  Economic Stabilization Funding and the House Appropriations’  Subcommittee on Stimulus.
Several states reported that they have appointed “Recovery Czars” or  identified a similar key official and established special offices, task forces  or other entities to oversee the planning and monitor the use of Recovery  Act funds within their states. In Michigan, the governor appointed a  recovery czar to lead a new Michigan Economic Recovery Office, which is  responsible for coordinating Recovery Act programs across all state  departments and with external stakeholders such as GAO, the federal  OMB, and others.
Some states began planning efforts before Congress passed the Recovery  Act. For example, the state of Georgia recognized the importance of  accounting for and monitoring Recovery Act funds and directed state  agencies to take a number of steps to safeguard Recovery Act funds and  mitigate identified risks. Georgia established a small core team in  December 2008 to begin planning for the state’s implementation of the  Recovery Act. Within 1 day of enactment, the governor appointed a  Recovery Act Accountability Officer, and she formed a Recovery Act  implementation team shortly thereafter. The implementation team  includes a senior management team, officials from 31 state agencies, an  accountability and transparency support group comprised of officials from  the state’s budget, accounting, and procurement offices, and five cross- agency implementation teams. At one of the first implementation team  meetings, the Recovery Act Accountability Officer disseminated an  implementation manual to agencies, which included multiple types of  guidance on how to use and account for Recovery Act funds, and new and  updated guidance is disseminated at the weekly implementation team  meetings.
In contrast, officials in some states are using existing mechanisms rather  than creating new offices or positions to lead Recovery Act efforts. For  example, a District official stated that the District would not appoint a  Recovery Czar, and instead would use its existing administrative  structures to distribute and monitor Recovery Act funds to ensure quick  disbursement of funds. In Mississippi, officials from the Governor’s Office  said that the state did not establish a new office to provide statewide  oversight of Recovery Act funding, in part because they did not believe  that the act provided states with funds for administrative expenses— including additional staff. The Governor did designate a member of his  staff to act as a stimulus coordinator for Recovery Act activities.
All 16 states we visited and the District have established Recovery Act web  sites to provide information on state plans for using Recovery funding,  uses of funds to date, and, in some instances, to allow citizens to submit  project proposals. For example, Ohio has created www.recovery.Ohio.gov,  which represents the state’s efforts to create an open, transparent, and  equitable process for using Recovery Act funds. The state has encouraged  citizens to submit proposals for use of Recovery Act funds, and as of April  8, 2009, individuals and organizations from across Ohio submitted more  than 23,000 proposals. Iowa officials indicated they want to use the state’s  recovery web site (www.recovery.Iowa.gov) to host a “dashboard”  function to report updated information on Recovery Act spending that is  easily searchable by the public. Also in Colorado, the state plans to create  a web-based map of projects receiving Recovery Act funds to help inform  the public about the results of Recovery Act spending in Colorado.
subsections: section_title: States’ Legislatures Approve Use of Recovery Act Funds
paragraphs: In many states we spoke to, officials reported that their planning efforts  were affected by the need for the state legislature to approve state  agencies’ use of Recovery Act funds. For example, in Florida, the state  legislature must authorize the use of all Recovery Act funds received by  the state; including those passed on to local governments. In Colorado,  some Recovery Act funds, including those going to Child Care  Development Block Grants (CDBG) and the Temporary Assistance to  Needy Families (TANF) Emergency Contingency Fund, must be allocated  by the Colorado General Assembly, which is in session only through early  May. Mississippi officials also plan to use Recovery Act funds to address  the state’s fiscal challenges. Mississippi legislative officials we met with  told us that the state legislature was considering adding escalation  language to the current fiscal year’s appropriations bills that would  authorize state agencies to spend any Recovery Act funds received. The  legislature normally conducts its regular session between the beginning of  January and the end of March. However, the legislature recessed early  during the 2009 regular session in part because of uncertainty regarding  how Recovery Act funds that the state will receive should be spent. The  legislature plans to reconvene in early May 2009 to complete its work on  the state’s fiscal year 2010 budget.
section_title: Selected States’ and the District’s Plans to Track Recovery Act Funds
paragraphs: The selected states’ and localities’ tracking and accounting systems are  critical to the proper execution and accurate and timely recording of  transactions associated with the Recovery Act. OMB has issued guidance  to the states and localities that provides for separate “tagging” of Recovery  Act funds so that specific reports can be created and transactions can be  traced. Officials from all 16 of the selected states and the District told us  they have established or were establishing methods and processes to  separately identify (i.e., tag), monitor, track, and report on the use of the  Recovery Act funds they receive. The states and localities generally plan  on using their current accounting system for recording Recovery Act  funds, but many are adding identifiers to account codes to track recovery  act funds separately. Many said this involved adding digits to the end of  existing accounting codes for federal programs. In California for instance,  officials told us that while their plans for tracking, control, and oversight  are still evolving, they intend to rely on existing accountability  mechanisms and accounting systems, enhanced with newly created codes,  to separately track and monitor Recovery Act funds that are received by  and pass through the state. Several officials told us that the state’s  accounting system should be able to track Recovery Act funds separately.
In one state, Arizona, officials told us that state agencies will primarily be  responsible for administering, tracking, reporting on and overseeing  Recovery Act funds for their respective programs because the state  government is highly decentralized. The state’s existing accounting system  will have new accounting codes added in order to segregate and track the  Recovery Act funds separately from other funds that will flow through the  state government. Under Arizona’s decentralized government, some larger  agencies, and program offices within them, have their own accounting  systems that will need to code and track Recover Act funds as well. The  Arizona General Accounting Office has issued guidance to state agencies  on their responsibilities, including how they were to receive, disburse, tag  or code in their accounting systems, track separately, and to some extent  report on these federal resources.
A concern expressed by state officials is that agencies within the state  often use different accounting software making it difficult to ensure  consistent and timely reporting. For example, Georgia officials stated that  the majority of state agencies use the same software; however, some  agencies do not use this software and others have greatly customized the  software. Similarly, officials from the Illinois Office of the Internal Auditor  said that the state is assessing an issue that could affect reporting —  specifically that there are currently more than 100 separate financial  systems used throughout the Illinois state government. Furthermore,  Colorado state officials are concerned that their accounting system is  outdated and said they faced challenges in meeting federal reporting  requirements. Some state departments do not use the state financial  system grant module and therefore manually post aggregate revenue and  expenditure data. As a result, they may have to compile a list of Recovery  Act funding received outside of their central financial management system.  State officials are determining what approach they will use in tracking  funds, and told us they plan to create an accounting fund and a centrally  defined budget coding structure through which to track state agencies’ use  of Recovery Act funds.
section_title: State Concerns Over Accountability of Recovery Act Funds Going to Sub- Recipients or Directly to Localities and Other Non- State Entities
paragraphs: State officials reported a range of concerns regarding the federal  requirements to identify and track Recovery Act funds going to sub- recipients, localities and other non-state entities. These concerns include  their inability to track these funds with existing systems, uncertainty  regarding state officials’ accountability for the use of funds which do not  pass through state government entities, and their desire for additional  federal guidance to establish specific expectations on sub-recipient  reporting requirements.
Officials from many of the 16 selected states and the District told us that  they had concerns about the ability of sub-recipients, localities, and other  non-state entities to separately tag, monitor, track, and report on the  Recovery Act funds they receive. For example, in New Jersey officials  noted that certain towns and cities, as well as regional planning  organizations, can apply for and directly receive federal funds under the  terms of the Recovery Act. According to the state Inspector General, the  risk for waste, fraud and abuse increases the farther removed an  organization is from state government controls. While some state officials  said that they have statewide investigative authority, they would not be  able to readily track the funding going directly to local and regional  government organizations and nonprofits as a result of the funding  delivery and reporting requirements set up in the Recovery Act. In  addition, staff from the State Auditor’s office noted that some smaller  cities and towns in New Jersey are not used to implementing guidance  from the state or federal government on how they are using program funds  and this could result in the localities reporting using funds for ineligible  purposes.
Officials in many states expressed concern about being held accountable  for funds flowing directly from federal agencies to localities or other  recipients. For example, officials in Colorado expressed concern that they  will be held accountable for all Recovery Act funds flowing to the state,  including those funds for which they do not have oversight or even  information about, because some funds flow directly to non-state entities  within Colorado (such as school districts and transportation districts).
Officials in some states said they would like to at least be informed about  funds provided to non-state entities in order to facilitate planning for the  use of these funds and so they can coordinate Recovery Act activities. For  example, Georgia officials do not expect to track and report on funds  going directly to localities, but would like to be informed about these  funds so that the state can coordinate with localities. They cited Recovery  Act-funded broadband initiatives and health funding to nonprofit hospitals  as areas where a lack of coordination could result in a duplication of  services or missed opportunities to leverage resources. Officials at the  Colorado Department of Public Safety told us that, because Colorado and  other states expressed interest in receiving data on localities’ grant  funding, the federal Bureau of Justice Assistance in the U.S. Department of  Justice began providing data to the states on localities’ funding.
In another example, officials told us that the Ohio Administrative  Knowledge System (OAKS) will allow the state to tag Recovery Act  funding. However, they said in many cases state agencies will rely on  grantees and contractors to track the funds to their end use. Because the  state intends to code each Recovery Act funding stream separately and  recipients typically manage more than one funding stream at a time, state  officials said recipients should be able to track Recovery Act funds  separately from other funding sources. However, state and local officials  we interviewed raised concerns about the capacity of grantees and  contractors to track funds spent by sub-recipients. For example, officials  with the Ohio Department of Education said they can track Recovery Act  funds to school districts and charter schools, but they have to rely on the  recipients’ financial systems to be able to track funds beyond that. An  official with the Columbus City Schools said that while they could provide  assurances that Recovery Act funds were spent in accordance with  program rules; they could not report back systematically how each federal  Recovery Act dollar was spent. Officials with the Columbus Metropolitan  Housing Authority also noted limitations in how far they could reasonably  be expected to track Recovery Act funds. They said they could track  Recovery Act dollars to specific projects but could not systematically  track funds spent by subcontractors on materials and labor. These officials  added, however, that if they required the contractors to collect this  information from their subcontractors, they would be able to report back  with great detail. Still, they said, without additional guidance from the  federal government on specific reporting requirements, they were hesitant  to specify requirements for their contractors to collect the data.
Pennsylvania officials said that the state will rely on sub-recipients to meet  reporting requirements at the local level. Recipients and sub-recipients can  be local governments or other entities such as transit agencies. For  example, about $367 million in Recovery Act money for transit capital  assistance and fixed guideway (such as commuter rails and trolleys)  modernization was allocated directly to areas such as Philadelphia,  Pittsburgh, and Allentown. State officials also told us that the state would  not track or report Recovery Act funds that go straight from the federal  government to localities and other entities, such as public housing  authorities.
Officials in several states indicated that either their states would not be  tracking Recovery Act funds going to the local levels or that they were  unsure how much data would be available on the use of these funds. For  example, Massachusetts officials told us that the portion of recovery funds  going directly to recipients other than Massachusetts state government  agencies, such as independent state authorities, local governments, or  other entities, will not be tracked through the Office of the Comptroller.  While state officials acknowledged that the Commonwealth lacks  authority to ensure adequate tracking of these funds, they also are  concerned about the ability of smaller entities to manage Recovery Act  funds, particularly smaller municipalities that traditionally do not receive  federal funds and who are not familiar with Massachusetts tracking and  procurement procedures, and recipients receiving significant increases in  federal funds. In order to address this concern, the state administration  introduced emergency legislation that, according to state officials,  includes a provision requiring all entities within Massachusetts that  receive Recovery Act money to provide information to the state on their  use of Recovery Act funds. Nevertheless, two large non-state government  entities we spoke with—the city of Boston and the Massachusetts Bay  Transportation Authority (an independent authority responsible for the  metropolitan Boston’s transit system)—believe that their current systems,  with some modifications, will allow them to meet Recovery Act  requirements. For example, the city of Boston hosted the Democratic  National Convention in 2004 and officials said that their system was then  capable of segregating and tracking a sudden influx of temporary funds.
This response was common among the selected states. For example,  officials in Florida told us that the state’s accounting system will not track  the portion of Recovery Act funds that flow directly to local entities from  federal agencies. Officials in Michigan’s Auditor General’s Office told us  that their oversight responsibilities do not include most sub-recipients that  receive direct federal funding, so any upfront safeguards to track or  ensure accountability have not been determined. Mississippi officials  also said that although special accounting codes will be added to the  Statewide Automated Accounting System in order to track the expenditure  of Recovery Act funds, the system would not track Recovery Act fund allocated directly to local and regional government organizations and  nonprofit organizations.
In Arizona, the portion of recovery funds going directly to recipients other  than Arizona government agencies, such as independent state authorities,  local governments, or other entities, may not be tracked by the state. State  officials expressed concern that they may not be able to attest to localities’  ability to tag, track, and report on Recovery Act funds when these entities  receive the moneys directly from federal agencies rather than through  state agencies. Department heads and program officials generally  expected that they could require sub-recipients receiving funds from the  state, through agreements, grant applications, and revised contract  provisions, to separately track and report Recovery Act funding. For  example, unemployment program managers said they were issuing new  intergovernmental agreements with localities to cover new reporting  requirements. However, several of the state officials did raise questions  about the ability of some local organizations to do this, such as small, rural  entities, boards or commissions, or private entities not used to doing  business with the federal government. Furthermore, several of the state  department officials acknowledged that either some state agency  information systems have data reliability problems, which will have to be  resolved, or they had sub-recipients who in the past had problems  providing timely and accurate reporting, but said that they would work  with these entities to comply, and also had sanctions to use as a last  resort.
Officials in Arizona, Florida, Georgia, and New York, also expressed  concern that the new requirement to provide reports on use of Recovery  Act funds within 10 days after a quarter ends may be challenging to meet  by both state and local entities. In some program areas, some state  officials raised concerns that the Recovery Act requirement will create  much shorter deadlines for processing financial data that local areas will  have difficultly meeting.
section_title: Selected States’ and Localities’ Internal Controls and Safeguards to Manage and Mitigate the Risk of Mismanagement, Waste, Fraud, and Abuse of Recovery Act Funds
paragraphs: The selected states and the District are taking various approaches to  ensure that internal controls are in place to manage risk up-front, rather  than after problems develop and deficiencies are identified after the fact,  and have different capacities to manage and oversee the use of Recovery  Act funds. Many of these differences result from the underlying  differences in approaches to governance, organizational structures, and  related systems and processes that are unique to each jurisdiction. A  robust system of internal control specifically designed to deal with the  unique and complex aspects of the Recovery Act funds will be key to  helping management of the states and localities achieve the desired  results. Effective internal control can be achieved through numerous  different approaches, and, in fact, we found significant variation in  planned approaches by state. For example,    New York’s Recovery Act cabinet plans to establish a working group  on internal controls; the Governor’s office plans to hire a consultant to  review the state’s management infrastructure and capabilities to  achieve accountability, effective internal controls, compliance and  reliable reporting under the act; and, the state plans to coordinate  fraud prevention training sessions.
Michigan’s Recovery Office is developing strategies for effective  oversight and tracking of the use of Recovery Act funds to ensure  compliance with accountability and transparency requirements.
Ohio’s Office of Internal Audit plans to assess the adequacy and  effectiveness of the current internal control framework and test  whether state agencies adhere to the framework.
Florida’s Chief Inspector General established an enterprise-wide  working group of agency program Inspectors General who are  updating their annual work plans by including the Recovery Act funds  in their risk assessments and will leave flexibility in their plans to  address issues related to funds.
Massachusetts’s Joint Committee on Federal Recovery Act Oversight  will hold hearings regarding the oversight of Recovery Act spending.
Georgia’s State Auditor plans to provide internal control training to  state agency personnel in late April. The training will discuss basic  internal controls, designing and implementing internal controls for  Recovery Act programs, best practices in contract monitoring, and  reporting on Recovery Act funds.
subsections: section_title: States’ and Localities’ Internal Controls Will Be Critical to Ensuring That Recovery Act Funds Are Used Appropriately
paragraphs: Internal controls include management and program policies, procedures,  and guidance that help ensure effective and efficient use of resources;  compliance with laws and regulations; prevention and detection of fraud,  waste, and abuse; and the reliability of financial reporting. Because  Recovery Act funds are to be distributed as quickly as possible, controls  are evolving as various aspects of the program become operational.  Effective internal control is a major part of managing any organization to  achieve desired outcomes and manage risk. GAO’s Standards for Internal  Control include five key elements: control environment, risk assessment,  control activities, information and communication, and monitoring.
subsections: section_title: Control Environment
paragraphs: The control environment should create a culture of accountability by  establishing a positive and supportive attitude toward improvement and  the achievement of established program outcomes. Control environment  includes the integrity and ethical values maintained and demonstrated by  management, the organizational structure, and management’s philosophy  and operating style. As detailed earlier in this report, although the  implementation has varied, many locations we reviewed have attempted to  enhance their control environment through the appointment of a Recovery  czar or the establishment of boards or working groups that focus on the  Recovery Act. Also, as noted earlier, state officials expressed concerns  about the reliability and accuracy of data coming from localities.
section_title: Risk Assessments
paragraphs: The second feature of strong internal controls is risk assessment—that is,  performing comprehensive reviews and analyses of program operations to  determine if risks exist and the nature and extent of risks have been  identified. Some states told us that they are conducting such risk  assessments and the existing body of work by state auditors and others  provide a good roadmap for states to use to pinpoint key areas of concern  and to strengthen internal controls and subsequent oversight. For  example, the Illinois Office of Internal Audit is performing a risk  assessment of all programs related to the Recovery Act, and North  Carolina’s Office of Internal Audit is assessing the risk of the state  department’s financial management system and internal controls.  Michigan’s major state departments are conducting self assessments of  controls, including identification of internal control and programmatic  weaknesses. In Georgia, the budget office is requiring state agencies to  complete a tool that assesses risk as part of the budget process for the  Recovery Act funds. Selected states have thus far identified various risks  that the Recovery Act funds and programs face, including Georgia officials  identifying three state departments with increased risk—the Georgia  Department of Labor that is on a different accounting system than other  state departments, the Georgia Department of Transportation which had  previously identified accounting problems and is currently being  reorganized, and the Georgia Department of Human Resources, which is  currently being divided into three parts, which increases risk. Additionally,  Massachusetts’ fiscal year 2007 Single Audit report also identified  deficiencies, especially in the Department of Education’s sub-recipient  monitoring.
Officials in several of the selected states told us that risk assessment is  being conducted to look at programs receiving Recovery Act funds.  Officials in Texas’ State Auditor’s Office noted that relatively high risks  generally can be anticipated with certain types of programs such as new  programs with completely new processes and internal controls; programs  that distribute significant amounts of funds to local governments or  boards, and programs that rely on sub-recipients for internal controls and  monitoring. Officials from New York, North Carolina, and Pennsylvania  commented that the weatherization program was an example of a program  at increased risk.
The results of recent audits are a readily available source of information to  use in the risk assessment process. Material weaknesses and other  conditions identified in an audit represent potential risks that can be  analyzed for their significance and occurrence that will allow management  and others to decide how to manage the risk and what actions should be  taken. A readily available source of information on internal control  weaknesses and other risks present in the states and other jurisdictions  receiving Recovery Act funding is the Single Audit report, prepared to  meet the requirements of the Single Audit Act, as amended (Single Audit  Act) and OMB’s implementing guidance in OMB Circular No. A-133, Audits  of States, Local Governments, and Non-Profit Organizations. The Single  Audit Act adopted a single audit concept to help meet the needs of federal  agencies for grantee oversight and accountability as well as grantees’  needs for single, uniformly structured audits. The Single Audit Act requires  states, local governments and nonprofit organizations expending over  $500,000 in federal awards in a year to obtain an audit in accordance with  requirements set forth in the Act.  A single audit consists of (1) an audit  and opinions on the fair presentation of the financial statements and the  Schedule of Expenditures of Federal Awards (SEFA); (2) gaining an  understanding of and testing internal control over financial reporting and  the entity’s compliance with laws, regulations, and contract or grant  provisions that have a direct and material effect on certain federal  programs (i.e., the program requirements), and (3) an audit and an  opinion on compliance with applicable program requirements for certain  federal programs. The audit report also includes the auditor’s schedule of  findings and questioned costs, and the auditee’s corrective action plans  and a summary of prior audit findings that includes planned and  completed corrective actions. Auditors are also required to report on  significant deficiencies in internal control and on compliance associated  with the audit of the financial statements.
For example, in California, the most recent single audit conducted by the  State Auditor for fiscal year 2007 identified 81 material weaknesses, 27 of  which were associated with programs we reviewed for purposes of this  report. The State Auditor plans to use past audit results to target state  agencies and programs with a high number and history of problems,  including data reliability concerns, and is closely coordinating with us on  these efforts. For example, the fiscal year 2007 State Single Audit Report  identified 8 material weaknesses pertaining to the ESEA Title I program  and the Individuals with Disabilities Education Act programs. The audit  findings included a material weakness in the California Department of  Education’s management of cash because it disbursed funds without  assurances from LEAs that the time between the receipt and disbursement  of federal funds was minimized, contrary to federal guidelines. Education  officials told us that they have addressed some of these material  weaknesses and, in other cases, they are still working to correct them. If  these and other material weaknesses are not corrected, they may affect  the state’s ability to appropriately manage certain Recovery Act funds. The  State Auditor’s Office told us that it is in the process of finalizing the fiscal  year 2007 State Single Audit Report and plans to issue the report within  the next 30 days. In addition, the State Auditor’s Office is summarizing the  results of the single audit to identify those programs that continue to have  material weaknesses. Finally, the State Auditor’s Office plans to use the  results of other audits it has conducted in conjunction with the single  audit to develop its approach for determining the state’s readiness to  receive the large influx of federal funds and comply with the requirement  regarding the use of those funds under the Recovery Act.
Arizona’s fiscal year 2007 Single Audit report identified a number of  material weaknesses related to the state Department of Education. The  report identified a material weakness involving IDEA where the state  department had not reviewed sub-recipients to ensure that federal awards  were used for authorized purposes in compliance with laws, regulations,  and the provisions of contracts or grant agreements. The Audit report also  identified one financial reporting material weaknesses related to the state  Department of Administration’s ability to prepare timely financial  statements, including its Comprehensive Annual Financial Report (CAFR).  In fiscal year 2007, the CAFR was issued in June 2008, approximately 6  months after the scheduled deadline. According to the Auditor General’s  Office, the fiscal year 2008 CAFR will also be completed late as the last  agency submitted its financial statement on March 9, 2008. According to  the Auditor General’s Office, this control deficiency affects the timeliness  of financial reporting which affects the needs of users. It is especially  important that Arizona try to address the timeliness issue with regard to  financial statements given the number and strict reporting timelines that  are imposed on states under the Recovery Act.
section_title: Control Activities
paragraphs: The third element of a comprehensive system of internal controls is that of  control activities, which involve taking actions to address identified risk  areas and help ensure that management’s decisions, directives, and plans  are carried out and program objectives met. Various control activities  already exist and are also being put in place in the states related to the  Recovery Act. Control activities for states and localities consist of the  policies, procedures, and guidance that enforce management’s directives  and achieve effective internal control over specific program activities.  Examples of such policies and procedures particularly relevant to the  Recovery Act spending are (1) proper execution and accurate and timely  recording of transactions and events, (2) controls to help ensure  compliance with program requirements, (3) establishment and review of  performance measures and indicators, and (4) appropriate documentation  of transactions and internal control.
Documented policies, procedures and guidance that are effectively  implemented will be critical tools for states and localities management and  staff as well as program recipients for achieving good management of  Recovery Act programs. Control activities are also key in helping to  achieve accurate, reliable reporting of information and results.
Effective control activities and monitoring are key to achieving this  objective. Pennsylvania’s Auditor General also found potential weaknesses  and vulnerabilities in programs expected to receive Recovery Act funds.  For example, a recent Auditor General report found, among other things,  weak internal controls, weaknesses in contracting, and inconsistent  verification and inspection of subcontractor work in the state’s  Weatherization Assistance Program. States and localities that receive and  administer the Recovery Act funds will be expected to minimize fraud,  waste, and abuse in contracting.
According to Florida state officials, the state completed an initiative to  strengthen contracting requirements several years ago. For example, the  majority of state contracts greater than $1 million are required to be  reviewed for certain criteria by the Department of Financial Services’  Division of Accounting and Auditing before the first payment is processed.  The contract must also be negotiated by a contract manager certified by  the Florida Department of Management Services, Division of State  Purchasing Training and Certification Program. In another example of  efforts to enhancing contracting processes and oversight, officials in New  Jersey told us that the controls and reports will be put into place by the  state’s centralized purchasing department, the Division of Purchase and  Property (DPP). The current accounting system will be able to account for  and control the use of Recovery Act funds used for procurement because  DPP will create special accounting codes for these funds. New Jersey  officials stated that their accounting systems had the capability to track  funds using special accounting codes and that they were confident no  special enhancements were needed to their accounting software, although  they would monitor the accounting system to ensure it was functioning  properly. DPP will also publicly advertise bids for projects funded with  Recovery Act funds, include terms and conditions in each request for  proposals and contract for these projects stating detailed reports required  by the Act, and will post contract award notices for Recovery Act-funded  projects.
section_title: Information and Communication
paragraphs: Information should be communicated to management and within the  entity to enable accountable officials and others throughout the entity to  carry out their responsibilities and determine whether they are meeting  their goals of accountability and efficient use of resources. The states have  undertaken a variety of information and communication methods. For the  Recovery Act, internal state communication is being conducted through  newly created task forces or working groups such as those in California  and the District, implementation teams such as in Florida and Georgia, and  state offices such as in North Carolina. Texas also uses a periodic forum of  the internal audit staff of Texas state agencies for another statewide  communication method. Various officials are developing guidance related  to the Recovery Act and dispensing the information to state agencies.
section_title: Monitoring
paragraphs: Monitoring activities include the systemic process of reviewing the  effectiveness of the operation of the internal control system. These  activities are conducted by management, oversight boards and entities,  and internal and external auditors. Monitoring enables stakeholders to  determine whether the internal control system continues to operate  effectively over time. It also improves the organization’s overall  effectiveness and efficiency by providing timely evidence of changes that  have occurred, or might need to occur, in the way the internal control  system addresses evolving or changing risks.
Many of the boards or offices discussed in the control environment above  have responsibilities related to monitoring the Recovery Act funds. States  have undertaken various other activities to monitor Recovery Act funds,  including Arizona’s budget director meeting with the heads of programs  potentially receiving Recovery Act funds to gauge each programs’  preparedness; Arizona’s Comptroller conducting a survey to inventory  current internal controls at state agencies to help ensure controls are in  place to limit the risk of fraud, waste, abuse and mismanagement of  Recovery Act funds; California’s Governor appointing the state’s first  Inspector General specifically to oversee Recovery Act funds as they are  disbursed in the state; Massachusetts’ legislature creating the Joint  Committee on federal Recovery Act Oversight with the goals of ensuring  compliance with federal regulations and reviewing current state laws,  regulations and policies to ensure they allow access to Recovery Act funds  and streamline the processes to quickly stimulate the economy; and Texas  State Auditor’s Office plans to hire 10 additional staff.
An important aspect of monitoring Recovery Act funding includes sub- recipient monitoring. As noted, significant concerns exist regarding sub- recipient monitoring, as this is an area where limited experience and  known vulnerabilities exist. Some state auditors do not have authority to  monitor local operations of internal controls. For example, in  Pennsylvania, officials from the Auditor General’s office have different  views about what authority they have to audit federal money that flows  directly to localities, such as housing authorities and municipalities.
In Texas, the State Auditor’s Office made a recommendation regarding the  monitoring of sub-recipients in its most recent audit of the Texas  Education Agency. The audit report did not find that sub-recipients were  improperly spending federal funds or were not meeting federal  requirements, however the report did note that the agency had “a limited  number of resources available to monitor fiscal compliance.” The audit  report recommended that the Texas Education Agency continue to add  resources, within its budget constraints, to increase the amount of federal  fiscal compliance performed. According to the State Auditor, following the  audit in February 2009, the Texas Education Agency created a  comprehensive correction plan to address this resource issue, which the  agency is implementing.
section_title: Current Single Audit Focus May Not Provide Timely Oversight Information for Recovery Act Funds
paragraphs: OMB’s Circular No. A-133 sets out implementing guidelines for the single  audit and defines roles and responsibilities related to the implementation  of the Single Audit Act, including detailed instructions to auditors on how  to determine which federal programs are to be audited for compliance  with program requirements in a particular year at a given grantee. The  Circular No. A-133 Compliance Supplement is issued annually to guide  auditors on what program requirements should be tested for programs  audited as part of the single audit. OMB has stated that it will use its  Circular No. A-133 Compliance Supplement to notify auditors of program  requirements that should be tested for Recovery Act programs, and will  issue interim updates as necessary.
Both the Single Audit Act and OMB Circular No. A-133 call for a “risk- based” approach to determine which programs will be audited for  compliance with program requirements as part of a single audit. In  general, the prescribed approach relies heavily on the amount of federal  expenditures during a fiscal year and whether findings were reported in  the previous period to determine whether detailed compliance testing is  required for a given program that year. Under the current approach for  risk determination in accordance with Circular No. A-133, certain risks  unique to the Recovery Act programs may not receive full consideration.  Recovery Act funding carries with it some unique challenges. The most  significant of these challenges are associated with (1) new government  programs (2), the sudden increase in funds or programs that are new for  the recipient entity, and (3) the expectation that some programs and  projects will be delivered faster so as to inject funds into the economy.  This makes timely and efficient evaluations in response to the Recovery  Act’s accountability requirements critical. Specifically,    new programs and recipients participating in a program for the first  time may not have the management controls and accounting systems  in place to help ensure that funds are distributed and used in  accordance with program regulations and objectives;    Recovery Act funding that applies to programs already in operation  may cause total funding to exceed the capacity of management  controls and accounting systems that have been effective in past years;  the more extensive accountability and transparency requirements for  Recovery Act funds will require the implementation of new controls  and procedures; and  risk may be increased due to the pressures of spending funds quickly.
In response to the risks associated with Recovery Act funding, the single  audit process needs adjustment to put appropriate focus on Recovery Act  programs to provide the necessary level of accountability over these funds  in a timely manner. The single audit process could be adjusted to require  the auditor to perform procedures such as the following as part of the  routine single audit:    provide for review of the design and implementation of internal  control over compliance and financial reporting for programs under  the Recovery Act;  consider risks related to Recovery Act-related programs in determining  which federal programs are major programs; and  specifically, test Recovery Act programs to determine whether the  auditee complied with laws and regulations.
The first two items above should preferably be accomplished during 2009  before significant expenditures of funds in 2010 so that the design of  internal control can be strengthened prior to the majority of those  expenditures. We further believe that OMB Circular No. A-133 and/or the  Circular No. A-133 Compliance Supplement could be adjusted to provide  some relief on current audit requirements for low-risk programs to offset  additional workload demands associated with Recovery Act funds.
OMB told us that it is developing audit guidance that would address the  above audit objectives. OMB also said that it is considering reevaluating  potential options for providing relief from certain existing audit  requirements in order to provide some balance to the increased  requirements for Recovery Act program auditing.
section_title: State and Local Capacity to Manage Risks
paragraphs: Officials in several states expressed concerns regarding the lack of funding  provided to state oversight entities in the Recovery Act given the  additional federal requirements placed on states to provide proper  accounting, and ensure transparency. Due to fiscal constraints, many  states reported significant declines in the number of management and  oversight staff—limiting states’ ability to ensure proper implementation  and management of Recovery Act funds. To the extent that states’  management infrastructures were already strained due to resource issues,  risks will be exacerbated by increased workloads and new program  implementation. While the majority of states indicated that they lack the  necessary resources to conduct additional management and oversight  related to the Recovery Act, some states indicated that they are taking  measures to either hire new staff or reallocate existing staff to ensure  adequate oversight of Recovery Act funds.
Officials we interviewed in several states said the lack of funding for state  oversight entities in the Recovery Act presents them with a challenge,  given the increased need for oversight and accountability. According to  state officials, state budget and staffing cuts have limited the ability of  state and local oversight entities to ensure adequate management and  implementation of the Recovery Act. For example, Colorado’s state  auditor reported that state oversight capacity is limited, noting that the  Department of Health Care Policy and Financing has had 3 controllers in  the past 4 years and the state legislature’s Joint Budget Committee  recently cut field audit staff for the Department of Human Services in half.  In addition, the Colorado Department of Transportation’s deputy  controller position is vacant, as is the Department of Personnel &  Administration’s internal auditor position. Colorado officials noted that  these actions are, in part, due to administrative cuts during a past  economic downturn in an attempt to maintain program delivery levels.
In Massachusetts, the task forces the Governor convened in December  2008 concluded that it is critical the Inspector General and State Auditor  have resources to audit Recovery Act contracts and management of  Recovery Act funds, as well as recommended that the Attorney General’s  office be provided with the resources to promptly and effectively pursue  fraud and abuse. Massachusetts officials explained that the oversight  community is facing budget cuts of about 10 percent at a time when  increased oversight and accountability is critically needed. To illustrate  the impact of the impending budget situation, the Inspector General stated  that his department does not have the resources to conduct any additional  oversight related to Recovery Act funds. This significantly affects the  Inspector General’s capacity to conduct oversight since the budget is  almost entirely comprised of salaries, and any cuts in funding would result  in fewer staff available to conduct oversight. In addition, the  Massachusetts State Auditor described how their department has had to  resort to staff being furloughed already for 6 days and is anticipating  further layoffs before the end of fiscal year 2009. Similarly, 94 percent of  their department’s budget is labor and any cuts in funding generally result  in cuts in staff. Much like Colorado and Massachusetts, Arizona and  Florida state officials report significant declines in oversight staff. The  Florida Auditor General told us that the office has not been hiring new  staff for over a year and has about 10 percent of the office’s positions  unfilled. In addition, the Office of Policy Analysis and Government  Accountability officials also told us their respective staffs have decreased  by 10 percent in the past two years. State officials stated that these staff  resource constraints may lead them to reassesses priorities and reallocate  staff to ensure adequate oversight of Recovery Act funds.
Officials within Arizona state executive offices that are coordinating  oversight activities—such as the Office of Strategic Planning and  Budgeting, the Office of Economic Recovery, and the Comptroller’s  Office—stated that they will need additional people to help ensure  compliance with Recovery Act funding requirements, but that the state has  a hiring freeze to help address budget deficits. For example, the General  Accounting Office within the state Department of Administration has  experienced a reduction from 74 to 50 staff, posing challenges to its  increased oversight responsibilities, and the state Department of  Economic Security that manages workforce investment programs had  8,214 staff on furloughs of five or nine days, depending on pay grade, and  has laid off about 800 staff members as well. Similarly, a state Department  of Housing official stated that the office currently has a vacancy rate of  about 15 percent because of the hiring freeze. Furthermore, the state  Auditor General reported that its staffing levels are nearly 25 percent  below the authorized staffing level of 229 full time equivalents.
Although most states indicated that they lack the resources needed to  provide effective monitoring and oversight, some states indicated they will  hire additional staff to help ensure the prudent use of Recovery Act funds.  For example, according to officials with North Carolina’s Governor’s  Crime Commission, the current management capacity in place is not  sufficient to implement the Recovery Act. Officials explained that the  Recovery Act funds for the Edward Byrne Memorial Justice Assistance  Grant program have created an increase in workload that the department  will have to hire additional staff to handle over the next 3 years. Officials  explained that these staff will be hired for the short term since the money  will run out in 3 years. Additionally, officials explained that they are able  to use 10 percent of the Justice Assistance Grants funding to pay for the  administrative positions that are needed.
In addition, officials from Ohio’s Office of Budget and Management (OBM)  stated that its Office of Internal Audit plans to increase its internal audit  staff from 9 (current) to 33 by transferring internal audit personnel from  other state agencies and hiring new staff by July 2009. OBM officials say  that the increase in Office of Internal Audit staff will provide the needed  resources to implement its objectives and ensure that current safeguards  are in place and followed as the state manages its Recovery Act funded  programs. Additionally, some Georgia state officials that directly  administer programs stated that overseeing the influx of funds could be a  challenge, given the state’s current budget constraints and hiring freeze.  For example, the State Auditor, whose fiscal year 2009 budget was cut by  11 percent, expressed concerns about the lack of additional funds for  Recovery Act oversight. The Georgia State Auditor noted that, if state  fiscal conditions do not improve or federal funding does not become  available for audit purposes, additional budget and staffing cuts may occur  within the department. In some cases, state officials told us that they  planned to use Recovery Act funds to cover their administrative costs.  Meanwhile, other state officials want additional clarity on when they could  use program funds to cover such costs.
subsections: section_title: Hiring Freezes May Limit Some States’ Capacity to Provide Effective Management and Oversight
paragraphs: A number of states expressed concerns regarding the ability to track  Recovery Act funds due to state hiring freezes, resulting from budget  shortfalls. For instance, New Jersey has not increased its number of state  auditors or investigators, nor has there been an increase in funding  specifically for Recovery Act oversight. In addition, the state hiring freeze  has not allowed many state agencies to increase their Recovery Act  oversight efforts. For example, despite an increase of $469 million in  Recovery Act funds for state highway projects, no additional staff will be  hired to help with those tasks or those directly associated with the  Recovery Act, such as reporting on the number of jobs created. While the  state’s Department of Transportation has committed to shift resources to  meet any expanded need for internal Recovery Act oversight, one person  is currently responsible for reviewing contractor-reported payroll  information for disadvantaged business enterprises, ensuring compliance  with Davis-Bacon wage requirements, and development of the job creation  figures. State education officials in North Carolina also said that greater  oversight capacity is needed to manage the increase in federal funding.  However, due to the state’s hiring freeze, the agency will be unable to use  state funds to hire the additional staff needed to oversee Recovery Act  funds. The North Carolina Recovery Czar said that his office will work  with state agencies to authorize hiring additional staff when directly  related to Recovery Act oversight.
Michigan officials reported that the state’s hiring freeze may not allow  state and local agencies to hire the additional staff needed to increase  Recovery Act oversight efforts. For example, an official with the state’s  Department of Community Health said that because it has been  downsizing for several years through attrition and early retirement, it does  not have sufficient staff to cover its current responsibilities and that  further reductions are planned for fiscal year 2010. However, state officials  told us that they will take the actions necessary to ensure that state  departments have the capacity to provide proper oversight and  accountability for Recovery Act funds.
In contrast, two states indicated that they have or will have sufficient  levels of existing personnel to track funds. Texas state officials noted that  state agencies plan on using existing staff to manage the stimulus funds.  Agency officials will monitor the situations and, as need arises, will  determine whether additional staff should be hired to ensure adequate  oversight of the state Recovery Act funds. Additionally, in preparation of  the infusion of Recovery Act funds, the Illinois Governor is seeking  approximately 350 additional positions state-wide in the fiscal year 2010  budget to help implement Recovery Act programs, according to officials  from the Governor’s Office of Management and Budget.
section_title: Local Oversight Capacity
paragraphs: With respect to oversight of Recovery Act funding at the local level,  varying degrees of preparedness were reported by state and local officials.  While the California Department of Transportation (Caltrans) officials  stated that extensive internal controls exist at the state level, there may be  control weaknesses at the local level. Caltrans is collaborating with local  entities to identify and address these weaknesses. Likewise, Colorado  officials expressed concerns that effective oversight of funds provided to  Jefferson County may be limited due to the recent termination of its  internal auditor and the elimination of its internal control audit function.  Arizona state officials expressed some concerns about the ability of rural,  tribal, and some private entities such as; boards, commissions, and  nonprofit organizations to manage, especially if the Recovery Act does not  provide administrative funding for some programs.
section_title: State Plans to Assess Recovery Act Spending Impact
paragraphs: As recipients of Recovery Act funds and as partners with the federal  government in achieving Recovery Act goals, states and local units of  government are expected to invest Recovery Act funds with a high level of  transparency and to be held accountable for results under the Recovery  Act. As a means of implementing that goal, guidance has been issued and  will continue to be issued to federal agencies, as well as to direct  recipients of funding. To date, OMB has issued two broad sets of guidance  to the heads of federal departments and agencies for implementing and  managing activities enacted under the Recovery Act. OMB has also  issued for public comment detailed proposed standard data elements that  federal agencies will require from all (except individuals) recipients of  Recovery Act funding. When reporting on the use of funds, recipients  must show the total amount of recovery funds received from a federal  agency, the amount expended or obligated to the project, project specific  information including the name and description of the project, an  evaluation of its completion status, the estimated number of jobs created  and retained by the project, and information on any subcontracts awarded  by the recipient, as specified in the Recovery Act. In addition, the Civilian  Acquisition Council and Defense Acquisition Regulations Council have  issued an interim rule revising the Federal Acquisition Regulation (FAR) to  require a contract clause that implements these reporting requirements for  contracts funded with Recovery Act dollars.
State reactions vary widely and often include a mixture of responses to the  reporting requirements. Some states will use existing federal program  guidance or performance measures to evaluate impact, particularly for on- going programs. Other states are waiting for additional guidance from  federal departments or from OMB on how and what to measure to assess  impact. While Georgia is waiting on further federal guidance, the state is  adapting an existing system (used by the State Auditor to fulfill its Single  Audit Act responsibilities) to help the state report on Recovery Act funds.  The statewide web-based system will be used to track expenditures,  project status, and job creation and retention. The Georgia governor is  requiring all state agencies and programs receiving Recovery Act funds to  use this system. Some states indicated that they have not yet determined  how they will assess impact.
Preserving existing jobs and stimulating job creation and promoting  economic recovery are among the Recovery Act’s key objectives.  Officials in 9 of the 16 states and the District expressed concern about the  definitions of jobs retained and jobs created under the Recovery Act, as  well as methodologies that can be used for estimation of each. Officials  from several of the states we met with expressed a need for clearer  definitions of “jobs retained” and “jobs created.” Officials from a few states  expressed the need for clarification on how to track indirect jobs, while  others expressed concern about how to measure the impact of funding  that is not designed to create jobs. Mississippi state officials suggested the  need for a clearly defined distinction for time-limited, part-time, full-time,  and permanent jobs; since each state may have differing definitions of  these two categories. Officials from Massachusetts expressed concern that  contractors may overestimate the number of jobs retained and created.  Some existing programs, such as highway construction, have  methodologies for estimating job creation. But other programs, existing  and new, do not have job estimation methodologies.
State officials that we spoke with are pursuing a number of different  approaches for measuring the effects of Recovery Act funding. For  example, Florida’s state workforce agency is encouraging recipients of  Recovery Act funds throughout the state to list jobs created with the funds  in the state’s existing online job bank. The Iowa Department of  Transportation tracks the number of worker hours by highway project on  the basis of contractor reports and will use these reports to estimate jobs  created. In New Jersey, state and local agencies will collect or estimate  data on the number of jobs created or retained as a result of Recovery Act  funds in different ways. For example, the Newark Housing Authority will  use payroll data to keep track of the exact number of union tradesmen and  housing authority residents employed to turn damaged vacant units into  rentable ones. In contrast, New Jersey Transit is using an academic study  that examined job creation from transportation investment to estimate the  number of jobs that are created by contractors on its Recovery Act-funded  construction projects. Beyond employment issues, some Michigan state  universities and the state’s economic development department are  expected to participate in analyses of the potential impact of Recovery Act  funds.
Some of the questions that states and localities have about Recovery Act  implementation may have been answered in part via the guidance  provided by OMB for the data elements and in the Federal Acquisition  Regulation, as well as by guidance issued by federal departments. For  example, OMB provided definitions for employment, as well as for jobs  retained and jobs created via Recovery Act funding. However, OMB did  not specify methodologies for estimating jobs retained and jobs created,  which has been a concern for some states. Data elements were presented  in the form of templates with section by section data requirements and  instructions. OMB provided a comment period during which it is likely to  receive many questions and requests for clarifications from states,  localities, and other direct recipients of Recovery Act funding. OMB plans  to update this guidance again within 30 to 60 days of its April 3, 2009  issuance. Some federal agencies have also provided guidance to the states.  The U.S. Departments of Education, Housing and Urban Development,  Justice, Labor, Transportation, the Corporation for National and  Community Service, the National Institutes of Health, and the Centers for  Medicare & Medicaid Services have provided guidance for program  implementation, particularly for established programs. Although guidance  is expected, some new programs, such as the Broadband Deployment  Grants, are awaiting issuance of implementation instructions.
section_title: Concluding Observations and Recommendations: Moving Forward to Clarify Recovery Act Roles and Responsibilities
paragraphs: It has been a little over two months since enactment of the Recovery Act  and OMB has moved out quickly. In this period, OMB has issued two sets  of guidance, first on February 18 and next on April 3, with another round  to be issued within 60 days. OMB has sought formal public comment on its  April 3 guidance update and before this, according to OMB, reached out  informally to Congress, federal, state, and local government officials, and  grant and contract recipients to get a broad perspective on what is needed  to meet the high expectations set by Congress and the Administration. In  addition, OMB is standing up two new reporting vehicles, Recovery.gov,  which will be turned over to the Recovery Accountability and  Transparency Board and is expected to provide unprecedented public  disclosure on the use of Recovery Act funds, and a second system to  capture centrally information on the number of jobs created or retained.  As OMB’s initiatives move forward and it continues to guide the  implementation of the Recovery Act, OMB has opportunities to build upon  its efforts to date by addressing several important issues.
These issues can be characterized broadly in three categories: (1)  Accountability and Transparency Requirements, (2) Administrative  Support and Oversight, and (3) Communications.
subsections: section_title: Accountability and Transparency Requirements
paragraphs: Recipients of Recovery Act funding face a number of implementation  challenges in this area. The Act includes many programs that are new or  new to the recipient and, even for existing programs; the sudden increase  in funds is out of normal cycles and processes. Add to this the expectation  that many programs and projects will be delivered faster so as to inject  funds into the economy and it becomes apparent that timely and efficient  evaluations are needed. The following are our recommendations to help  strengthen ongoing efforts to ensure accountability and transparency.
section_title: Single Audit
paragraphs: The single audit process is a major accountability vehicle but should be  adjusted to provide appropriate focus and the necessary level of  accountability over Recovery Act funds in a timelier manner than the  current schedule. OMB has been reaching out to stakeholders to obtain  input and is considering a number of options related to the single audit  process and related issues.
We Would Recommend: To provide additional leverage as an oversight  tool for Recovery Act programs, the Director of OMB should adjust the  current audit process to:  focus the risk assessment auditors use to select programs to test for  compliance with 2009 federal program requirements on Recovery Act  funding;    provide for review of the design of internal controls during 2009 over  programs to receive Recovery Act funding, before significant  expenditures in 2010; and  evaluate options for providing relief related to audit requirements for  low-risk programs to balance new audit responsibilities associated  with the Recovery Act.
section_title: Reporting on Impact
paragraphs: Responsibility for reporting on jobs created and retained falls to non- federal recipients of Recovery Act funds. As such, states and localities  have a critical role in determining the degree to which Recovery Act goals  are achieved. Senior Administration officials and OMB have been soliciting  views and developing options for recipient reporting. In its April 3  guidance, OMB took an important step by issuing definitions, standard  award terms and conditions, and clarified tracking and documenting  Recovery Act expenditures. Furthermore, OMB and the Recovery  Accountability and Transparency Board are developing the data  architecture for the new federal reporting system that will be used to  collect recipient reporting information. According to OMB, state chief  information officers commented on an early draft and OMB expects to  provide an update for further state review.
We Would Recommend: Given questions raised by many state and local  officials about how best to determine both direct and indirect jobs created  and retained under the Recovery Act, the Director of OMB should  continue OMB’s efforts to identify appropriate methodologies that can be  used to:  assess jobs created and retained from projects funded by the Recovery  Act;    determine the impact of Recovery Act spending when job creation is  indirect;  identify those types of programs, projects, or activities that in the past  have demonstrated substantial job creation or are considered likely to  do so in the future. Consider whether the approaches taken to estimate  jobs created and jobs retained in these cases can be replicated or  adapted to other programs.
There are a number of ways that the needed methodologies could be  developed. One option would be to establish a working group of federal,  state and local officials and subject matter experts.
section_title: State and Federal Data Collection
paragraphs: Given that governors have certified to the use of funds in their states, state  officials are uncertain about their reporting responsibilities when  Recovery Act funding goes directly to localities. Additionally, they have  concerns about the capacity of reporting systems within their states,  specifically, whether these systems will be capable of aggregating data  from multiple sources for posting on Recovery.gov. Some state officials  are concerned that too many federal requirements will slow distribution  and use of funds and others have expressed reservations about the  capacity of smaller jurisdictions and non-profits to report data. Even those  who are confident about their own systems are uncertain about the cost  and speed of making any required modifications for Recovery.gov  reporting or further data collection.
Problems also have been identified with federal systems that support the  Recovery Act as well. For example, questions have been raised about the  reliability of www.USAspending.gov (USAspending.gov) and the ability of  Grants.gov to handle the increased volume of grant applications. OMB is  taking concerted actions to address these concerns. It plans to reissue  USAspending guidance shortly to include changes in operations that are  expected to improve data quality. In a memorandum dated March 9, OMB  said that it is working closely with federal agencies to identify system risks  that could disrupt effective Recovery Act implementation and  acknowledged that Grants.gov is one such system. A subsequent  memorandum on April 8, offered a short-term solution to the significant  increase in Grants.gov usage while longer-term alternative approaches are  being explored. GAO has work underway to review differences in agency  policies and methods for submitting grant applications using Grants.gov  and will issue a report shortly.
OMB addressed earlier questions about reporting coverage in its April 3  guidance. According to OMB there are limited circumstances in which  prime and sub recipient reporting will not be sufficient to capture  information at the project level. OMB stated that it will expand its current  model in future guidance. OMB guidance described recipient reporting  requirements under the Recovery Act’s section 1512 as the minimum  which must be collected, leaving it to federal agencies to determine  whether additional information would be required for program oversight.
We Would Recommend: In consultation with the Recovery  Accountability and Transparency Board and States, the Director of OMB  should evaluate current information and data collection requirements to  determine whether sufficient, reliable and timely information is being  collected before adding further data collection requirements. As part of  this evaluation, OMB should consider the cost and burden of additional  reporting on states and localities against expected benefits.
subsections: section_title: Administrative Support and Oversight
paragraphs: At a time when states are experiencing cutbacks, state officials expect the  Recovery Act to incur new regulations, increase accounting and  management workloads, change agency operating procedures, require  modifications to information systems, and strain staff capacity,  particularly for contract management. Although federal program  guidelines can include a percentage of grants funding available for  administrative or overhead costs, the percentage varies by program. In  considering other sources, states have asked whether the portion of the  State Fiscal Stabilization Fund that is available for government services  could be used for this purpose. Others have suggested a global approach  to increase the percentage for all Recovery Act grants funding that can be  applied to administrative costs. As noted earlier, state auditors also are  concerned with meeting increased audit requirements for Recovery Act  funding with a reduced number of staff and without a commensurate  reduction in other audit responsibilities or increase in funding. OMB and  senior administration officials are aware of the states’ concerns and have a  number of options under consideration.
We Would Recommend: The Director of OMB should timely clarify what  Recovery Act funds can be used to support state efforts to ensure  accountability and oversight, especially in light of enhanced oversight and  coordination requirements.
section_title: Communications
paragraphs: State officials expressed concerns regarding communication on the  release of Recovery Act funds and their inability to determine when to  expect federal agency program guidance. Once funds are released, there is  no consistent procedure for ensuring that the appropriate officials in  states and localities are notified. According to OMB, agencies must  immediately post guidance to the Recovery Act web site and inform to the  “maximum extent practical, a broad array of external stakeholders.” In  addition, since nearly half of the estimated spending programs in the  Recovery Act will be administered by non-federal entities, state officials  have suggested opportunities to improve communication in several areas.  For example, they wish to be notified when funds are made available to  prime recipients that are not state agencies.
Some of the uncertainty can be attributed to evolving reports and timing of  these reports at the federal level as well as the recognition that different  terms used by federal assistance programs add to the confusion. A  reconsideration of how best to publicly report on federal agency plans and  actions led to OMB’s decision to continue the existing requirement to  report on the federal status of funds in the Weekly Financial and Activity  Reports and eliminate a planned Monthly Financial Report. The Formula  and Block Grant Allocation Report has been replaced and renamed the  Funding Notification Report. This expanded report includes all types of  awards, not just formula and block grants, and is expected to better  capture the point in the federal process when funds are made available.
We Would Recommend: To foster timely and efficient communications,  the Director of OMB should develop an approach that provides  dependable notification to (1) prime recipients in states and localities  when funds are made available for their use, (2) states, where the state is  not the primary recipient of funds, but has a state-wide interest in this  information, and (3) all non-federal recipients, on planned releases of  federal agency guidance and, if known, whether additional guidance or  modifications are expected.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided the Director of the Office of Management and Budget with a  draft of this report for comment on April 20, 2009. OMB staff responded  the next day, noting that in its initial review, OMB concurred with the  overall objectives of our recommendations. OMB staff also provided some  clarifying information, adding that OMB will complete a more thorough  review in a few days. We have incorporated OMB’s clarifying information  as appropriate. In addition, OMB said it plans to work with us to define the  best path forward on our recommendations and to further the  accountability and transparency of the Recovery Act. The Governors of  each of the 16 states and the Mayor of the District were provided drafts for  comment on each of their respective appendixes in this report. Those  comments are included in the appendixes.
We are sending copies of this report to the Office of Management and  Budget and relevant sections to the selected states and the District.
The report will also be available at no charge on the GAO Web site at  http://www.gao.gov.
If you or your staffs have any questions about this report, please contact  me at (202) 512-5500. Contact points for our offices of Congressional  Relations and Public Affairs may be found on the last page of this report.  GAO staff who made major contributions to this report are listed in  appendix III-XX.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: The Recovery Act specifies several roles for GAO, including conducting  bimonthly reviews of selected states’ and localities’ use of funds made  available under the act. As a result, our objectives for this report were to  describe (1) selected states’ and localities’ uses of and planning for  Recovery Act funds, (2) approaches taken by the selected states and  localities to ensure accountability for Recovery Act funds, and (3) states’  plans to evaluate the impact of the Recovery Act funds they have received  to date.
subsections: section_title: Selection of States
paragraphs: To address our objectives, we selected a core group of 16 states and the  District that we will follow over the next few years to provide an ongoing  longitudinal analysis of the use of funds provided in conjunction with the  Recovery Act. The selected states are Arizona, California, Colorado,  Florida, Georgia, Iowa, Illinois, Massachusetts, Michigan, Mississippi, New  Jersey, New York, North Carolina, Ohio, Pennsylvania, and Texas. We  selected these states and the District on the basis of outlay projections,  percentage of the U.S. population represented, unemployment rates and  changes, and a mix of states’ poverty levels, geographic coverage, and  representation of both urban and rural areas. These states and D.C.  contain about 65 percent of the U.S. population and are estimated to  receive about two-thirds of the intergovernmental grant funds available  through the Recovery Act. Furthermore, they strike a balance between  covering a significant portion of Recovery Act funding and obtaining a mix  that reflects the breadth of circumstances facing states and localities  throughout the country.
section_title: Selection of Programs
paragraphs: To focus our analysis, we examined a set of programs receiving Recovery  Act funding that are administered by states and localities. To do this, we  reviewed analysis and estimates of Recovery Act funds flowing to states  and localities that were done by state and local associations including the  National Governors Association, the National Conference of State  Legislatures, and the Federal Funds Information for States (FFIS). We also  analyzed data from congressional appropriations committees and the  Congressional Budget Office (CBO) on the distribution, allocation, and  spend out rates of Recovery Act funding.
The programs we selected were streams of Recovery Act funding flowing  to states and localities through increased Medicaid Federal Medical  Assistance Percentage (FMAP) grant awards, funding for highway  infrastructure investment, and the State Fiscal Stabilization Fund (SFSF).  Together, they are expected to account for about 91 percent of fiscal year  2009 Recovery Act spending by states and localities. For the FMAP grant  awards, we conducted a web-based inquiry, asking the 16 states and D.C.  to provide data and information on enrollment, expenditures, and changes  to their Medicaid programs and to report their plans to use state funds  made available as a result of the increased FMAP. We reviewed states’  responses for internal consistency and conducted follow-up with the  states as needed. We also spoke with individuals from the U.S. Department  of Health and Human Services regarding the changes to the FMAP and the  disbursement of increased FMAP funds. In addition, we spoke with  individuals from the Centers for Medicare & Medicaid regarding their  oversight and guidance to states. For highways infrastructure investment,  we reviewed status reports and guidance to the states and discussed these  with the U.S. Department of Transportation (DOT) and Federal Highways  Administration (FHWA) officials. To understand how the U.S. Department  of Education is implementing the SFSF, we reviewed relevant laws,  guidance, and communications to the states and interviewed Education  officials. Our review of related documents and interviews with federal  agency officials focused on determining and clarifying how states, school  districts, and public Institutions of Higher Education would be expected to  implement various provisions of the SFSF.
We considered programs with large amounts of funding, programs  receiving significant increases in funding, new programs, and those with  known risks. For example, the Medicaid program is on the GAO high risk  list. In addition, we consulted with our internal program experts and  outside experts including federal agency inspectors general, state and  local auditors, and state and local government associations.
section_title: Approach in States and Localities on Uses and Plans for Recovery Act Funds
paragraphs: Our teams visited the 16 selected states, localities within those states, and  D.C. during March and April 2009 to collect documentation on the plans,  uses, and tracking of Recovery Act funds and to conduct interviews with  state and local officials. The teams met with a variety of state and local  officials from executive-level offices including Governors and their key  staff, Comptrollers’ Offices, Treasurers’ Offices, State Auditors’ Offices,  Recovery Czars, Inspectors Generals, senior finance and budget officials,  and local officials such as from housing authorities, school districts, police  departments, and other key audit community stakeholders to determine  how they planned to conduct oversight of Recovery Act funds. The teams  also met with state and local agencies administering programs receiving  Recovery Act funds, including state Departments of Education,  Transportation, and Health and Human Services, and with selected  legislative offices in the states. In support of these interviews, we  developed a series of program review and semi-structured interview  guides that addressed state plans for management, tracking, and reporting  of Recovery Act funds and activities. These guides focused on  identification of risk, risk mitigation, contracting, the internal control  environment and safeguards against fraud, waste, and abuse. While in the  16 states and D.C., the teams also met with and interviewed a number of  local government officials, whose offices are identified in Appendix 2.
subsections: section_title: Assessing Safeguards and Internal Controls
paragraphs: To determine how states and localities plan to track the receipt of,  planning for, and use of Recovery Act funds, the state and D.C. teams  asked cognizant officials to describe the accounting systems and  conventions that would be used to execute transactions and to monitor  and report on expenditures. In addition, to assist in the planning of the  audit work and for inclusion in their risk assessment framework, we  provided the state and D.C. teams with fiscal year 2007 single audit  summary information, which was the most recent single audit information  available. Single audit information was obtained from the Federal Audit  Clearinghouse (FAC) single audit data collection forms and the single  audit reports. The single audit summary information provided included :  (1) total federal awards expended; (2) whether there were questioned  costs; (3) the financial statement audit opinion, number of material  weaknesses, and a brief description of each material weakness; and (4)  major federal program audit opinion, number of material weaknesses, and  a brief description of each material weakness. We examined the Single  Audit reports to identify these issues and used that information when  interviewing state officials in order to ascertain how they have addressed  or plan to address the weaknesses. We also asked auditors to address how  they planned to monitor and oversee the Recovery Act funds and whether  or not they felt their offices had sufficient capacity to handle any new or  increased responsibilities related to the Recovery Act.
section_title: Recovery Act Reporting Requirements
paragraphs: To understand the reporting requirements of the Recovery Act, we  reviewed the guidance issued by OMB on February 18 and April 3, 2009  and selective federal agency guidance related to grants and to states and  localities. We also reviewed an interim rule amending the Federal  Acquisition Regulation containing interim reporting requirements for the  Recovery Act, issued March 31, 2009. Additionally we studied the OMB  issued Information Collection Requirements: Proposed Collection (April 1,  2009) that contains the data elements for the quarterly recipient reports  specified in Section 1512 of the Recovery Act. Each of the states and D.C.  provided information on its plans to provide assessment data required by  Section 1512.
We conducted this performance audit from February 17, 2009, through  April 20, 2009, 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 our audit objectives. Data on states’ and  localities’ plans, uses, and tracking of Recovery Act funds was provided  during interviews and follow-up meetings with state and local officials.  Given that much of the Recovery Act funding had not yet reached the  states and localities, we could not validate nor test the accuracy of the  statements made by these officials regarding their accounting and tracking  systems. Overall, we determined that the data were sufficiently reliable for  the purposes of providing the background information on Recovery Act  funding for this report. Our sample of selected states is not a random  selection and therefore cannot be generalized to the total population of  state and local governments.
section_title: Appendix II: Localities Visited by GAO in Selected States
paragraphs: Appendix II: Localities Visited by GAO in  Selected States Localities (or Associations Representing Localities)
section_title: Appendix III: Arizona
paragraphs: Use of funds: An estimated 90 percent of fiscal year 2009 Recovery Act  funding provided to states and localities will be for health, transportation  and education programs. The three largest programs in these categories  are the Medicaid Federal Medical Assistance Percentage (FMAP) awards,  the State Fiscal Stabilization Fund, and highways.
Medicaid Federal Medical Assistance Percentage (FMAP) Funds    As of April 3, 2009, the Centers for Medicare & Medicaid Services (CMS) have made about $534.6 million in  Medicaid FMAP grant awards to Arizona.
As of April 1, 2009, the state has drawn down about $286.3 million, or almost 54 percent of its initial  increased FMAP grant awards.
Officials plan to use a significant portion of funds made available as a result of the increased FMAP to offset  statewide general fund shortfalls.
Arizona was apportioned about $522 million for highway infrastructure investment on March 2, 2009, by the  U.S. Department of Transportation.
As of April 16, 2009, the U.S. Department of Transportation had obligated $148.1 million for 26 Arizona    As of April 20, 2009, the Arizona Department of Transportation (ADOT) had selected 41 highway  transportation projects worth almost $350 million and had advertised competitive bids on 27 of these  projects totaling about $190 million.  The earliest bids will close on April 24, 2009, with projects expected to  begin work later this spring.  These projects include activities such as preserving pavement, widening lanes and adding shoulders, and  repairing bridges and interchanges.
Arizona will request reimbursement from the Federal Highway Administration as the state makes payments    U.S. Department of Education State Fiscal Stabilization Fund (Initial Release)
Arizona was allocated about $681.4 million from the initial release of these funds on April 2, 2009, by the  U.S. Department of Education.
Before receiving the funds, states are required to submit an application that provides several assurances to  the Department of Education.  These include assurances that they will meet maintenance of effort  requirements (or that they will be able to comply with waiver provisions) and that they will implement  strategies to meet certain educational requirements, including increasing teacher effectiveness, addressing  inequities in the distribution of highly qualified teachers, and improving the quality of state academic  standards and assessments. The state plans to submit its application by April 24, 2009, once officials review  the latest estimates for the state’s fiscal year 2010 budget situation.   The state expects funds to be used to improve student assessments, obtain more teachers, and meet federal  standards, among other things, in compliance with federal requirements.
Arizona is also receiving additional Recovery Act funds under other  programs, such as programs under Title I, Part A of the Elementary and  Secondary Education Act (ESEA), (commonly known as No Child Left  Behind); programs under the Individuals with Disabilities Education Act  (IDEA); several housing programs such as the Low-Income Housing Tax  Credit (LIHTC) Assistance program; and programs under the Workforce  Investment Act to help provide employment-related services, among other  things. Plans to use these funds are discussed throughout this appendix.
Safeguarding and transparency: The state government created a new  Office of Economic Recovery within the Office of the Governor, the  purpose of which is to coordinate the use of Recovery Act funds across  state agencies and to ensure accountability for and transparency in the use  of these funds. In addition, to meet Recovery Act requirements, the state  comptroller noted that Arizona intends to add new codes to its central  accounting system to track Recovery Act funds separately and work with  state agencies that have their own accounting systems to ensure that they  can also track funds separately. The state has issued guidance on  managing the funds, and has plans to publicly report its Recovery Act  spending, although officials have said that the state may not be aware of  all funds sent directly by federal agencies to other entities, such as  municipalities and independent authorities. The officials also identified  other challenges, such as ensuring that recipients can report on their use  of funds and that, where applicable, funds are used to supplement and not  supplant state funds that support relevant affected programs. State and  local officials noted that they expect to use existing internal controls and  monitoring techniques to safeguard Recovery Act funds, but are  concerned about having enough resources to do so. State departments  were in the early stages of addressing some of these challenges, and are  awaiting further guidance from the federal government on these issues.
Assessing the effects of spending: Arizona state agencies and select  localities that we met with expect to use or enhance existing performance  metrics to assess the results achieved through Recovery Act funding,  unless the federal government requires new metrics that will need to be  developed. State officials were unclear, however, on how to determine the  number of jobs created and saved by certain Recovery Act funds and were  awaiting further guidance from the federal government.
subsections: section_title: Arizona Beginning to Use Recovery Act Funds
paragraphs: Arizona has begun to use some of its Recovery Act funds as follows:  Increased Federal Medical Assistance Percentage Funds: Medicaid is  a joint federal-state program that finances health care for certain  categories of low-income individuals, including children, families, persons  with disabilities, and persons who are elderly. The federal government  matches state spending for Medicaid services according to a formula  based on each state’s per capita income in relation to the national average  per capita income. The amount of federal assistance states receive for  Medicaid service expenditures is known as the Federal Medical Assistance  Percentage (FMAP). Across states, the FMAP may range from 50 to no  more than 83 percent, with poorer states receiving a higher federal  matching rate than wealthier states. The Recovery Act provides eligible  states with an increased FMAP for 27 months between October 1, 2008,  and December 31, 2010. On February 25, 2009, the Centers for Medicare &  Medicaid Services (CMS) made increased FMAP grant awards to states,  and states may retroactively claim reimbursement for expenditures that  occurred prior to the effective date of the Recovery Act. Generally, for  federal fiscal year 2009 through the first quarter of federal fiscal year 2011,  the increased FMAP, which is calculated on a quarterly basis, provides for  (1) the maintenance of states’ prior year FMAPs; (2) a general across-the- board increase of 6.2 percentage points in states’ FMAPs; and (3) a further  increase to the FMAPs for those states that have a qualifying increase in  unemployment rates. The increased FMAP available under the Recovery  Act is for state expenditures for Medicaid services. However, the receipt of  the increased FMAP may reduce the funds that states must use for their  Medicaid programs, and states have reported using these available funds  for a variety of purposes.
As of April 1, 2009, Arizona has drawn down $286.3 million in increased  FMAP grant awards, which is almost 54 percent of its total awards of  $534.5 million. Officials plan to use a significant portion of funds made  available as a result of the increased FMAP to offset shortfalls created by  reductions implemented to balance the budget. The state used the initial  funds made available as a result of the increased FMAP to meet payroll  and to avoid serious cash-flow problems.
Transportation—Highway Infrastructure Investment: The Recovery  Act provides additional funds for highway infrastructure investment using  the rules and structure of the existing Federal-Aid Highway Surface  Transportation Program, which apportions money to states to construct  and maintain eligible highways and to undertake other surface  transportation projects. States must follow the requirements for the  existing programs, and in addition, the governor must certify that the state  will maintain its current level of transportation spending, and the governor  or other appropriate chief executive must certify that the state or local  government to which funds have been made available has completed all  necessary legal reviews and determined that the projects are an  appropriate use of taxpayer funds. Arizona has provided this certification.
As of April 20, 2009, the Arizona Department of Transportation (ADOT)  had selected 41 highway transportation projects to be funded with  Recovery Act dollars. These projects are worth approximately $350  million of the state’s total $521.9 million apportionment. These include  projects such as pavement preservation, widening lanes and adding  shoulders, and bridge and interchange repair. As of April 20, 2009, the  state had advertised 27 projects worth about $190 million with the earliest  bids to close on April 24, 2009, and projects expected to begin work this  spring. Among the projects that have been advertised for bid are the  widening of Interstate 10 in Maricopa County, repaving of state routes,  making safety improvements to a state route, and improving intersections.  Among the first advertisements to close will be the widening of a shoulder  within the Tonto National Forest, on State Route 87. The cost of this  project is estimated at approximately $6.8 million, and is estimated to take  150 days to complete. Bids will close on April 24, 2009.
U.S. Department of Education State Fiscal Stabilization Fund: The  Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be  administered by the U.S. Department of Education (Education). The SFSF  provides funds to states to help avoid reductions in education and other  essential public services. The initial award of SFSF funding requires each  state to submit an application to Education that assures it will take action  to meet certain educational requirements, such as increasing teacher  effectiveness and addressing inequities in the distribution of highly  qualified teachers.
Arizona’s initial SFSF allocation is $681.4 million. The state plans to  submit its application for funds by May 4, 2009, but according to state  education officials, they are waiting for the legislature to propose a 2010  budget for their programs before they can definitely decide how they will  spend the funds. Generally, the state expects that recipients, such as local  school boards, will use their allocations to improve the tools they use to  assess student performance and determine to what extent performance  meets federal academic standards, rehire teachers that were let go  because of prior budget cuts, retain teachers, and meet the federal  requirement that all schools have equal access to highly qualified teachers,  among other things. Funds for the state universities will help them  maintain services and staff as well as avoid tuition increases.
section_title: Recovery Act Funds Supporting Other Programs
paragraphs: In addition to stabilization funding to support education through the state  fiscal stabilization fund, a senior official from the Arizona Department of  Education noted that, as of April 3, 2009, Arizona had received $97.5  million for programs under Title I, Part A of ESEA. The funds will be used  to improve assessments to meet federal standards, enrich teacher  qualifications, avoid more teacher layoffs, improve poorer performing  schools, and ultimately improve student performance, among other things.  The state had also received about $89.2 million for programs under IDEA,  Part B, which provides funds for public education to children with  disabilities. According to state Department of Education officials, these  funds will be used to hire more teachers to serve students with special  needs, among other things. se programs, The state education officials said  that they had prepared estimated allocations for the No Child Left Behind  Recovery Act funds to the local school districts, which in turn will prepare  and submit applications before they can use the funds.
Arizona is also eligible to receive Recovery Act funds for several housing  programs including the Low-Income Housing Tax Credit (LIHTC)  Assistance program. The Arizona Department of Housing received notice  that it will receive approximately $32 million to provide gap financing for  LIHTC projects which provide funding for development of low income  housing. Finally, the state Department of Economic Security had received  approximately $43 million in Recovery Act funding anticipated for  Workforce Investment Act programs to be used for adult, youth (including  a summer youth program), and dislocated worker services.
subsections: section_title: State Agencies and Select Localities Will Use Recovery Act Funds to Restore Programs That Suffered Past Budget Cuts and Will Track These Funds Separately, but Expect Some Challenges
paragraphs: Faced with deteriorating revenue projections, declining consumer  confidence, a depressed real estate market, and a requirement to balance  its budget, Arizona officials believe that much of the money the state will  receive in Recovery Act funds will relieve some of the state’s immediate  fiscal pressures. State officials envision that funds made available as a  result of the Recovery Act will be used to support program budgets that  had been reduced in the state’s efforts to balance the budget. Arizona has  about $7 billion in its General Fund with a current budget of about $10  billion. State officials are working to close a budget gap of about $1.3  billion for fiscal year 2008, an estimated budget gap of about $2.1 billion  for state fiscal year 2009 and about $2.8 billion for fiscal year 2010 through  reductions and other strategies. These strategies were limited to some  extent, because voter propositions protect major programs from  significant cuts, including Medicaid, education, and corrections, meaning  other programs must absorb the cuts. The state’s budget imbalance has  been complicated by lower-than-anticipated revenues. For example, state  fiscal year 2009 revenue is significantly lower than estimated and has left  the state unable to support previously approved spending levels. Arizona’s  Budget Office has estimated its future revenues and expenditures for each  fiscal year through 2014. It projects an increasing deficit in each fiscal  year, from $2.1 billion in 2009 to $4.1 billion in 2014, a situation which  most likely would mean continued cuts. The state’s Budget Stabilization  Fund, known as its “rainy day” fund—a reserve fund built up during more  favorable economic conditions to be used during difficult economic  times—has been depleted.
As of April 13, 2009, decisions about finalizing the fiscal year 2010 budget  were still in flux in part because Governor Brewer—only in office since  January after the former Governor, Janet Napolitano, became Secretary of  the U.S. Department of Homeland Security—has not issued a formal  budget proposal. The Governor recognized that further reductions in  government services may be necessary to help close the significant deficit  between state revenues and expenditures. Given this, in early March, the  Governor certified that the state would accept the funds made available by  the Recovery Act and use certain funds to create jobs and promote  economic growth within the state. Because of the state’s economic and  budgetary challenges, some state agency and local officials we met with  expected to use the funds as they had been using them under their existing  programs and did not expect to use Recovery Act funding on new  initiatives. They also were confident recipients had sufficient critical uses  for the funds and could use them immediately.
However, state officials expressed concerns that using Recovery Act funds  to make longer term operational and program commitments would mean  higher future state spending that would not be sustainable once Recovery  Act funds were no longer available, given the state of the economy. As a  result, officials from one state agency explained that they are advising  subrecipients to spend their funds on shorter term projects. Furthermore,  with program budgets being cut to help relieve fiscal pressures, some state  officials have said it may be challenging to ensure compliance with  provisions requiring certain Recovery Act funds to be used to supplement  and not supplant FY 2010 program funds. Officials with the state  Department of Education, however, had one concern about passing the  supplanting test. They said that it was unclear whether states could treat  Recovery Act funds provided under the fiscal stabilization program as  “state” funds versus “federal” funds. If they could use the funds as state  resources, they would be able to meet the supplanting restrictions, but if  not, they would have serious challenges in complying, jeopardizing the use  of the funds. On the other hand, some state officials and program  managers did not think it would be difficult to demonstrate they were not  supplanting state funds in part because state funding for the programs had  already been cut so significantly—in other words, there were few state  funds to supplant. For example, they did not think it would be difficult to  show that activities supported with Recovery Act resources, such as  keeping teachers, could only be accomplished with federal support.
One issue raised by officials in the Office of the Governor and within some  state and local program offices was covering the costs to oversee and  track the use of the Recovery Act funds, given past budget cuts, staff  reductions, and increasing workloads—for example, increasing numbers  of unemployed individuals who want services. These officials noted that  their service delivery capacity will be challenged to administer funds  flowing into eligible programs. Some of the officials wondered what  flexibility they had to use some of the Recovery Act funds to cover  administrative costs. On the other hand, some state agency officials said  that they expected to be able to oversee and track Recovery Act funds  with existing resources because funding to current programs that had  administrative processes in place would be increased. In still other cases,  Recovery Act funds will be disbursed through existing grant programs that  may provide for a certain percentage of funds to be used for  administration.
section_title: The State Has a System to Track How It Is Using Recovery Act Funds but Cannot Ensure Localities Will Be Able to Meet the Act’s Reporting Requirements
paragraphs: The state comptroller told us that the state’s existing accounting system  will have new accounting codes added in order to segregate and track the  Recovery Act funds separately from other funds that will flow through the  state government. Because some larger agencies and program offices  maintain their own accounting systems, the Arizona General Accounting  Office has issued guidance to state agencies on their responsibilities,  including how they are to receive, disburse, tag, or code funds in their  accounting systems; track funds separately; and, to some extent, report on  these federal resources. State officials we spoke with noted that they do  not foresee that it will be difficult to track Recovery Act funds separately  from other funds. However, an official in the state Department of  Economic Security noted that the Recovery Act funds will stress the  tracking and reporting capacity of the financial management systems they  use because the systems are old, are not very flexible, and were not  designed for these purposes. The official said that the systems must be  enhanced to provide the capacity needed for Recovery Act funds and that  they are working to design a solution for this problem.
Department heads and program officials generally expect that they will  require subrecipients, through agreements, grant applications, and revised  contract provisions, to track and report Recovery Act funding separately.  For example, unemployment program managers said they were issuing  new intergovernmental agreements with localities to cover new reporting  requirements. However, several of the state officials raised questions  about the tracking and reporting abilities of some local organizations, such  as small, rural entities, boards or commissions, or private entities not used  to doing business with the federal government. Furthermore, several of the  state department officials acknowledged that either some state agency  information systems have data reliability problems that will have to be  resolved, or they had subrecipients that in the past had problems  providing timely and accurate reporting, but said that they would work  with these entities to comply, and also had sanctions to use as a last  resort. Furthermore, state officials expressed some concern that the new  requirement to provide financial reports on subrecipients’ use of funds  within 10 days after a quarter ends may be challenging to meet by both  state and local entities, because they may not have actual data in time to  meet this reporting time frame.
Finally, the state may lack the ability to track the portion of Recovery Act  funds going directly to recipients other than Arizona government agencies,  such as independent state authorities, local governments, or other entities.  State officials expressed concern that they may not be able to track and  report Recovery Act funds when these entities receive the monies directly  from federal agencies rather than through state agencies.
section_title: State Agencies and Localities Are Expecting to Use Existing Internal Controls to Safeguard Recovery Act Funds, Although in Some Cases, Resource Constraints Could Affect Oversight
paragraphs: Overall, the state agency and local officials that we spoke with expect that  their existing internal controls and techniques to manage any potential  risks posed to Recovery Act funding will be sufficient and effective to  safeguard Recovery Act funds, unless additional requirements are  mandated by the federal government that generate the need to change  business processes. These controls and techniques include submitting  financial and performance reports for review, as well as conducting  supervisory and compliance reviews, on-site inspections, external audits,  and audits by the state Auditor General. Although Arizona is largely  decentralized—state agencies and localities have responsibility for  monitoring and are accountable for their respective Recovery Act funds— the state executives are reaching out to the state agencies to help ensure  they are ready. For example, the state budget director met with the heads  of the programs potentially receiving Recovery Act funds to gauge each  program’s preparedness. In addition, a number of state agencies were  conducting or had plans to conduct meetings, training, and outreach to  funding recipients to help them understand the goals and objectives of the  act and their responsibilities for managing the funding it would provide.  Similarly, in early April 2009, the state’s General Accounting Office  released a technical bulletin, the purpose of which was to establish  consistent policies and procedures that all state agencies receiving  Recovery Act funds must “immediately implement in order to effectively  manage activities under the act.” A senior official in the state comptroller’s  office said that office plans to conduct a survey to inventory current  internal controls at state agencies to help ensure controls are in place to  limit the risk of fraud, waste, abuse, and mismanagement of Recovery Act  funds.
Several risks still to be addressed have been identified as a result of using  audits as an internal control. For example, Arizona’s fiscal year 2007 Single  Audit report identified a number of material weaknesses related to the  state Department of Education. The report identified a material weakness  involving IDEA in which the state department had not reviewed  subrecipients to ensure that federal awards were used for authorized  purposes in compliance with laws, regulations, and the provisions of  contracts or grant agreements. The audit report also identified one  financial reporting material weakness related to the state Department of  Administration’s ability to prepare timely financial statements, including  its Comprehensive Annual Financial Report (CAFR). This is mostly  because many of the larger state agencies maintain separate accounting  systems and submit financial data to the Department of Administration for  inclusion in its consolidated financial statements. In fiscal year 2007, the  CAFR was issued in June 2008, approximately 6 months after the  scheduled deadline. According to the Auditor General’s Office, the fiscal  year 2008 CAFR will also be completed late, as the last agency submitted  its financial statement on March 9, 2008. According to the Auditor  General’s Office, this control deficiency affects the timeliness of financial  reporting, which affects the needs of users. It is especially important that  Arizona try to address the timeliness issue with regard to financial  statements given the number and strict reporting timelines that are  imposed on the state under the Recovery Act. For most of the other  programs, managers stated that they had no outstanding material  weaknesses and that any past weaknesses had been brought into  compliance.
According to state officials, another area of risk that the state agency is  trying to manage is that some Recovery Act funds, particularly in the  transportation area, are reimbursable, meaning that either ADOT or  localities will have to spend funds from their own budgets until they are  reimbursed by Recovery Act funds. Because of the state’s challenging  financial situation, it may be a challenge for some state and local  government entities to spend the funds up front with the limited cash they  have on hand. This is particularly true for rural transit projects. According  to an ADOT official, to address this risk, they are vetting applications for  rural transit funds closely, with an eye toward granting funds only to those  localities that have shown they have the cash on hand to pay up front for  the costs of the rural transit projects.
subsections: section_title: State Agencies and Localities Will Continue or Enhance Current Monitoring Techniques to Oversee Recovery Act Funds, but in Some Cases, Reduced Resources Could Pose Challenges
paragraphs: Representatives of a number of state executive offices, state agencies, and  select localities reported that they would at a minimum continue to  monitor Recovery Act funding as they had monitored federal funding  provided to these same programs in the past. They expected to meet the  financial monitoring, performance measurement, and accountability  requirements using existing systems and reports, unless the federal  government institutes any new requirements that would require changes to  their systems and processes. The entities were still waiting for further  guidance from the federal government to determine any needed changes.  In some cases, agencies had plans to increase monitoring. For example,  according to officials for the Arizona Division of the Federal Highway  Administration (FHWA), they plan on increasing the number of site visits  on projects that use Recovery Act funds. Similarly, state transportation  officials will require that contractors report the Recovery Act dollars spent  and the jobs they created as part of their regular reports to the state.
To some extent, Arizona is providing the public an opportunity to monitor  how the state is using Recovery Act funding and what it is achieving with  these funds through a Web site, azrecovery.gov, where the state has posted  links to program funding levels, guidance, and intended uses of Recovery  Act money, and intends to post reports on the use of funds, among other  things.
However, several state officials expressed concern that the Recovery Act  did not provide funding specifically for state oversight activities, despite  their importance in ensuring that the Recovery Act funds are used  appropriately and effectively. Officials within state executive offices that  are coordinating oversight activities—such as the Office of Economic  Recovery and the Comptroller’s Office—stated that they will be challenged  to oversee compliance with Recovery Act funding requirements within  their existing staffing levels, given that the state currently has a hiring  freeze to help relieve its budget deficits. For example, the Arizona General  Accounting Office within the state Department of Administration has  experienced a reduction of staff from 74 to 50, posing challenges to its  increased oversight responsibilities. The Department of Economic  Security, which manages workforce investment programs and human  services programs, among other responsibilities, has an estimated 8,214  staff on furloughs and has laid off about 800 staff members as well.  Similarly, a Department of Housing official stated that the office currently  has a vacancy rate of about 15 percent because of the hiring freeze.  Furthermore, the state Auditor General reported that its staffing levels are  nearly 25 percent below the authorized staffing level of 229 full time  equivalents.
section_title: State Agencies and Localities Will Use Existing Performance Measures to Gauge the Impacts of Recovery Act Funding and Are Waiting for Federal Guidance on How to Implement New Measures the Act Requires, Especially on Jobs Created and Saved
paragraphs: State agencies and the select localities that we spoke with expected to use  existing performance metrics to assess results achieved through Recovery  Act funding, but were also looking for more guidance from the federal  government on how to comply with new assessment requirements under  the act. Agency officials generally stated that because the Recovery Act  funds are for pre-existing programs, they will continue to use their existing  performance metrics to assess impacts. For example, the Arizona Criminal  Justice Commission, which oversees among other things the Edward  Byrne Memorial Justice Assistance Grants, tracks a wide list of both short- term and long-term performance measures that assess the effectiveness of  law enforcement projects funded by the grants. Short-term measures  include increasing the number of units that report high program quality,  while long-term measures include changing crime rate percentages in  communities. Commission officials stated that they will continue to track  these measures for Recovery Act funding, in addition to any new measures  required under the act. Likewise, administrators at a local school district  we visited stated that they have a department that uses a system to track  the performance for every school and every student in the school district.  The officials stated that they will use the same measures to track school  and student performance improvements using Recovery Act funds.
However, officials were unclear as to how to determine the number of jobs  created and saved by certain Recovery Act funds, new measures required  by the act. State education officials noted that the act is vague about  determining the number of teachers who would have been laid off in the  absence of Recovery Act funding. Although a state housing official  expected that her office would have the capabilities to assess results, such  as job creation and economic output, local housing officials stated they  may have difficulty doing so. State and local officials were waiting for  additional guidance from the federal government on how to implement  measures for jobs created and saved, as well as any new measures  required under the act.
section_title: Arizona’s Comments on This Summary
paragraphs: We provided the Governor of Arizona with a draft of this appendix on  April 17, 2009. The Director of the Office of Economic Recovery  responded for the Governor on April 20, 2009. In general, the state agreed  with our draft and provided some clarifying information which we  incorporated.  The state also provided technical suggestions that were  incorporated, as appropriate.
section_title: GAO Contacts
section_title: Staff Acknowledgments
paragraphs: In addition to the contacts named above, Kirk Kiester, Assistant Director;  Joseph Dewechter, analyst-in-charge; Lisa Brownson; Aisha Cabrer;  Alberto Leff; Jeff Schmerling; and Margaret Vo made major contributions  to this report.
section_title: Appendix IV: California
paragraphs: Use of funds: An estimated 90 percent of fiscal year 2009 Recovery Act  funding provided to states and localities will be for health, transportation  and education programs. The three largest programs in these categories  are the Medicaid Federal Medical Assistance Percentage (FMAP) awards,  the State Fiscal Stabilization Fund, and highways.
Medicaid Federal Medical Assistance Percentage (FMAP) Funds    As of April 3, 2009, Centers for Medicare & Medicaid Services (CMS) had made  about $3.331 billion in  increased Federal Medical Assistance Percentage (FMAP) grant awards to California.
As of April 1, 2009, the state has drawn down about $1.5 billion, or 45.4 percent of its initial increased FMAP  grant awards.  Funds made available as a result of increased FMAP will help offset the state’s general fund budget deficit,  according to California officials.
California was apportioned about $2.570 billion for highway infrastructure investment on March 2, 2009 by  the U.S. Department of Transportation.
Under a state law enacted in late March 2009, 62.5 percent of funds ($1.606 billion) will go to local  governments for projects of their selection.
Of the remaining 37.5 percent ($964 million), $625 million will go to State Highway Operation and Protection  Program (SHOPP) projects for highway rehabilitation, eligible maintenance and repair; $29 million will fund  Transportation Enhancement projects; and $310 million will be loaned to fund stalled capacity expansion  projects.
As of April 16, 2009, the U.S. Department of Transportation had obligated $261.4 million for 20 California    California will request reimbursement from the U.S. Department of Transportation as the state makes  payments to contractors.
U.S. Department of Education State Fiscal Stabilization Fund (Initial Release)
California was allocated about $3.993 billion from the initial release of these funds on April 2, 2009 by the  U.S. Department of Education.
Before receiving the funds, states are required to submit an application that provides several assurances to  the Department of Education.  These include assurances that they will meet maintenance of effort  requirements (or that they will be able to comply with waiver provisions) and they will implement strategies  to meet certain educational requirements, including teacher effectiveness, addressing inequities in the  distribution of highly qualified teachers, and improving the quality of state academic standards and  assessments.  California’s application was approved by the U.S. Department of Education on April 17, 2009  and the state is now eligible to draw funds for local school districts and universities.
Approximately $3.266 billion of the $3.993 billion (81.8 percent) must be spent on education.  The remaining  $727 million (18.2 percent) can be spent at the Governor’s discretion and is expected to be directed to public  safety.  Of the funds devoted to education, the majority will be spent on primary and secondary education.
California is receiving additional Recovery Act funds under other  programs, such as Title I, Part A of the Elementary and Secondary  Education Act of 1965 (ESEA), (commonly known as No Child Left  Behind); the Individuals with Disabilities Education Act, Part B, and  workforce training programs under the Workforce Investment Act (WIA).
Safeguarding and transparency: The Governor established the  California Federal Economic Stimulus Task Force to ensure both  accountability and transparency in how funds are spent, consistent with  the Recovery Act and the state’s own goals. The Task Force will also  manage California’s recovery Web site (www.recovery.ca.gov), the state’s  principal vehicle for reporting on the use and status of Recovery Act  funds. In addition, on April 3, 2009, California appointed a Recovery Act  Inspector General to make sure Recovery Act funds are used as intended  and to identify instances of waste, fraud, and abuse. California intends to  use its existing accounting system to track funds flowing through the state  government. Although California will publicly report its Recovery Act  spending, officials have said that the state may not be aware of all federal  funds sent directly to other entities, such as municipalities and  independent authorities. The California State Auditor has raised concerns  about internal controls at various state agencies that could affect  accountability for Recovery Act funds, and will take this into account  when assessing risk during her current audit planning efforts.
Assessing the effects of spending: According to state officials,  California has begun to develop plans to assess the effects of Recovery Act  spending.  However, they are waiting for further guidance from the federal  government, particularly related to measuring job creation.
subsections: section_title: California Beginning to Use Recovery Act Funds
paragraphs: California has begun to use some of its Recovery Act funds, as follows:  Increased Federal Medical Assistance Percentage Funds: Medicaid is  a joint federal-state program that finances health care for certain  categories of low-income individuals, including children, families, persons  with disabilities, and persons who are elderly. The federal government  matches state spending for Medicaid services according to a formula  based on each state’s per capita income in relation to the national average  per capita income. The amount of federal assistance states receive for  Medicaid service expenditures is known as the Federal Medical Assistance  Percentage (FMAP). Across states, the FMAP may range from 50 to no  more than 83 percent, with poorer states receiving a higher federal  matching rate than wealthier states. The Recovery Act provides eligible  states with an increased FMAP for 27 months between October 1, 2008,  and December 31, 2010. On February 25, 2009, the Centers for Medicare &  Medicaid Services (CMS) made increased FMAP grant awards to states,  and states may retroactively claim reimbursement for expenditures that  occurred prior to the effective date of the Recovery Act. Generally, for  federal fiscal year 2009 through the first quarter of federal fiscal year 2011,  the increased FMAP, which is calculated on a quarterly basis, provides for  (1) the maintenance of states’ prior year FMAPs; (2) a general across-the- board increase of 6.2 percentage points in states’ FMAPs; and (3) a further  increase to the FMAPs for those states that have a qualifying increase in  unemployment rates. The increased FMAP available under the Recovery  Act is for state expenditures for Medicaid services. However, the receipt of  the increased FMAP may reduce the funds that states must use for their  Medicaid programs, and states have reported using these available funds  for a variety of purposes.
Under the Recovery Act, California will receive increased FMAP grant  awards of at least 61.6 percent, up from 50 percent. As of April 1, 2009,  California has drawn down $1.5 billion, or 45.4 percent of its initial FMAP  grant awards. Initially, the state could not obtain increased FMAP funds  because the state reduced its eligibility period for children from 12 months  of continuous eligibility to 6 months, effective January 1, 2009. However,  because this change was suspended on March 27, 2009 and eligibility was  restored to any children affected, the state has been able to draw down  increased FMAP funds. Officials plan to use funds made available as a  result of the increased FMAP to offset the state’s general fund budget  deficit.
Transportation—Highway Infrastructure Investment: The Recovery  Act provides funds for highway infrastructure investment using the rules  and structure of the existing Federal-Aid Highway Surface Transportation  Program, which apportions money to states to construct and maintain  eligible highways and for other surface transportation projects. States  must follow the requirements for the existing programs, and in addition,  the governor must certify that the state will maintain its current level of  transportation spending, and the governor or other appropriate chief  executive must certify that the state or local government to which the  funds have been made available has completed all necessary legal reviews  and determined that the projects are an appropriate use of taxpayer funds.  California provided these certifications but noted that the state’s level of  funding was based on the best information available at the time of the  state’s certification.
According to state sources, under a state law enacted in late March 2009,  62.5 percent of funds ($1.606 billion) will go to local governments for  projects of their selection. Of the remaining 37.5 percent ($964 million),  $625 million will go to State Highway Operation and Protection Program  (SHOPP) projects for highway rehabilitation, eligible maintenance and  repair; $29 million will fund transportation enhancement projects; and  $310 million will be loaned to fund stalled capacity expansion projects. As  of April 16, 2009, the U.S. Department of Transportation had obligated  $261.4 million for 20 California projects. These projects consist of  rehabilitating roadways, pavement, and rest areas as well as upgrading  median barriers and guardrails. For example, a $33 million project is being  funded to rehabilitate a road in San Jose.
U.S. Department of Education State Fiscal Stabilization Fund: The  Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be  administered by the U.S. Department of Education (Education). The SFSF  provides funds to states to help avoid reductions in education and other  essential public services. The initial award of SFSF funding requires each  state to submit an application to Education that assures it will take action  to meet certain educational requirements, such as increasing teacher  effectiveness and addressing inequities in the distribution of highly  qualified teachers.
California’s initial SFSF allocation is $3.993 billion. Approximately $3.266  billion of this money (81.8 percent) must be spent on education. The  remaining $727 million (18.2 percent) can be spent on public safety and  other government services (including education).  California officials told  us that the Governor plans to recommend to the State Legislature that the  funds be spent on the Department of Corrections. Like other states,  California will receive its SFSF funds in two phases. California’s  application was approved by the U.S. Department of Education on April  17, 2009, and the state is now eligible to draw funds for local school  districts and universities. Of the $3.266 billion for education, the state  plans to spend the maximum amount possible under Recovery Act  formulas--approximately $2.57 billion on primary and secondary education  and $537 million on higher education, for the purpose of restoring funding  to 2008-2009 levels. The remaining $164 million will be used to restore  education funding in future years. These funds will help ensure that  primary and secondary schools and institutions of higher education have  the resources they need to avert cuts and retain teachers and professors.
subsections: section_title: Overall Management and Reporting of Recovery Act Funds Are Being Centrally Coordinated
paragraphs: The Governor and his administration are setting the overall policy for  coordination of and accountability for Recovery Act funds. Prior to the  enactment of the Recovery Act, the Governor’s office formed nine working  groups organized around broad program areas (e.g., transportation,  environment, etc.) and comprising representatives of the Department of  Finance, program departments, the legislative branch, and California’s  Washington, D.C. office. The working groups worked with the California  congressional delegation to estimate the effects of the Recovery Act and to  lobby for changes helpful to the state. The Recovery Act was enacted on  February 17, 2009, and California signed a state certification letter on  March 5 stating that the state would request and use certain Recovery Act  funds to create jobs and promote economic growth (California was the  first state to do so).
Initially, the Department of Finance, the Director of which is appointed by  the Governor, was the focal point for working with state agencies to  prepare to meet Recovery Act accountability and reporting requirements.  In late March 2009, the Governor’s office established the California  Federal Economic Stimulus Task Force, which is responsible both for  tracking Recovery Act funds that come into the state and ensuring that  those funds are spent efficiently and effectively. The task force is chaired  by the Deputy Chief of Staff to the Governor and Director of the  Governor’s Office of Planning and Research, and will include one  representative from the administration for each of the main program areas  that will receive funds. The Chief Deputy Director of Finance will serve as  deputy coordinator of the task force and will be responsible for, among  other things, tracking the funds coming into the state. The Chief Operating  Officer of the Department of Finance will oversee the accountability and  auditing functions of the task force.
section_title: State Agencies and Localities Are Developing Spending Plans, but in Some Cases Are Awaiting Further Guidance and Final Determination of Amounts to Be Received
paragraphs: In total, as of March 27, 2009, the state of California estimates that the  state and its localities will receive approximately $48.3 billion for various  programs, including health, education, and infrastructure. (see figure 4.)  Of this, about $14 billion will go directly to local governments and the  other $34 billion will go to the state.
The extent to which spending decisions have been made varies by  program in California, with some uses determined while others are still  unknown. For example, for some funding, like the $10 billion made  available as a result of the increased FMAP, all or most is formula driven,  and the application of funds is already determined. Likewise, for public  transit investment grants and fixed-guideway infrastructure programs (due  to receive approximately $1.019 billion in Recovery Act funds, according  to Federal Transit Administration officials), all or most of the funding is  formula driven, but local priority-setting processes will determine which  projects will be funded. For education (receiving about $11.8 billion in  Recovery Act funds), while the majority of allocations to school districts  are based on formulas, education officials told us that spending decisions  will largely be made at the local level. Officials from the Sacramento  Housing and Redevelopment Agency (SHRA)—one of the state’s 55 public  housing authorities hoping to receive a portion of Recovery Act funding  from the formula-based Public Housing Capital Fund—stated that they  have begun to prioritize how funds will be used. Contracts will be awarded  by SHRA for bids received within 120 days on projects listed in its 5-year  Capital Fund Plan. State officials from the Department of Housing and  Community Development are not sure how much funding another  program, the Neighborhood Stabilization Program, will receive. Officials  told us that their plans for spending the money will be determined by the  amount received.
In some instances, state officials have sought federal guidance on the use  of certain funds. For example, California Employment Development  Department (EDD) officials told us that they hoped to receive additional  federal guidance clarifying whether California, through its legislative  budget process, can use all discretionary Workforce Investment Act  funding through Recovery Act funds to offset employment and training  program general fund costs in either the California Department of  Corrections and Rehabilitation or the California Conservation Corps. EDD  officials noted that using the discretionary funds in this way might  contradict recent U.S. Department of Labor guidance, which only allows  funds to be used for new programs and not to replace state or local  funding for existing programs. State officials are also seeking guidance  from CMS regarding policies on payments for in home support services  funded by Medicaid. State officials are also uncertain whether Recovery  Act funds can help pay for the increased costs of administering,  overseeing, and auditing Recovery Act program funds and stated that  federal guidance, thus far, has not addressed these questions.
In some cases, state agencies face deadlines for using their funds. Caltrans  must obligate at least half of certain Recovery Act funds within 120 days of  when the funds were apportioned by the Department of Transportation or  the funds will be redistributed to other states. Caltrans did not foresee  problems meeting this deadline. Caltrans officials further stated that most  projects could be completed within 1 year; however, project completion  time lines and specific project funding outlays by year have not been  finalized. Caltrans officials stated that some project construction may  begin by early-May 2009. In another case, the Tax Credit Allocation  Committee (TCAC) must commit at least 75 percent of the $325.9 million  in Recovery Act’s Tax Credit Assistance Program funds by February 17,  2010. TCAC did not foresee problems meeting this deadline. TCAC  officials told us that they have a system in place to quickly identify  recipients and that they are planning to make sure to comply with the  timeline as reflected in regulations.
section_title: Recovery Act Funds Will Help but Not Resolve California State Budgetary Pressures
paragraphs: The state’s economy and California state revenues have been severely  affected by the national recession and financial market credit crunch. In  March 2009, California’s unemployment rate rose to 11.2 percent, 2.7  percentage points higher than the national average. In February, according  to RealtyTrac, California posted the nation’s third highest state foreclosure  rate, behind Nevada and Arizona, with 1 in every 165 housing units in  foreclosure. On March 19, Fitch Investor Services downgraded California  General Obligation bonds to an “A” rating, the lowest current rating of any  state.
State general fund revenues are projected to fall in state fiscal year 2008- 2009 by $15.1 billion, or 14.7 percent, from fiscal year 2007-2008. In  January 2009, the fiscal year 2009-2010 Governor’s Budget projected that  the state would end the state fiscal year with a $41.6 billion deficit if no  corrective actions were taken. In response, the State Legislature and the  Governor agreed to a $42 billion package of solutions. As described by  state sources, this package includes reducing spending, temporarily  increasing taxes, using funds made available as a result of the Recovery  Act, and borrowing from future lottery profits. The budget package  depends, in part, on voter approval of six different propositions at a May  19, 2009, special election. If three of these propositions are approved, the  state Legislative Analyst’s Office (LAO) estimates the package will reduce  the state’s budget deficit by $6 billion.
Unfortunately, the state’s economic condition since the release of the  Governor’s budget in January 2009 has continued to deteriorate. Even if  the May 19, 2009, propositions pass, and the state uses $8.2 billion in funds  made available as a result of the Recovery Act, the LAO estimates an $8  billion deficit in 2009-2010. Consequently, the State Legislature and the  Governor may need to work on additional budgetary solutions to  rebalance the 2009-2010 budget following the May 2009 budget update. On  February 3, 2009, the California State Auditor added the state’s budget  condition to its list of high-risk issues facing the state.
section_title: Plans for Oversight and Control of Recovery Funds Are Still Evolving
paragraphs: State officials are working to get the necessary guidance and systems up  and running that will allow for a comprehensive and accurate accounting  of California Recovery Act funds. As previously mentioned, the California  Federal Economic Stimulus Task Force is responsible for tracking  Recovery Act funds and ensuring that they are spent efficiently and  effectively. The state’s new recovery Web site (www.recovery.ca.gov) will  serve as the primary tool to fulfill federal reporting and accountability  requirements consistently throughout the state. A representative from  each state agency is tasked with ensuring that data required by federal  Recovery Act reporting requirements are available on the state Web site.  Development of the related processes and procedures to accumulate and  consolidate the spending data is underway. State officials also plan to use  the Web site to provide the public with up-to-date information about  federal funds received by the state, how those dollars are being spent, and,  through the use of digital mapping, the geographic distribution of  expenditures.
subsections: section_title: Internal Control and Tracking Is Expected to Be Achievable for State-Level Funds, but Concerns Exist Over Funds Provided to Localities
paragraphs: The state intends to rely heavily on existing systems to track and account  for Recovery Act funds. State agency officials generally told us that their  existing accounting systems, enhanced with newly created codes for  Recovery Act funds, will enable them to separately track and monitor how  state and local agencies spend Recovery Act funds that pass through the  state. For example, California Department of Education officials told us  that the department already has a consistent accounting structure in place  for tracking and reporting on how federal funds are used. The department  plans to create separate accounting codes within that structure to track  and report how the different programmatic funds received through the  Recovery Act are used. According to the officials, the department will  provide those codes to the local education agencies (LEA), as well as  instruct them on what the codes mean. However, some officials still  expressed concerns about the ability of LEAs to consistently maintain  accountability for funds. For example, a Department of Finance official  with responsibility for education program budgets stated that there are  over 1,000 school districts in California, and they possess varying levels of  sophistication in their accounting systems. While the state will be  providing guidance to help ensure proper accountability, this official  expects some districts may face challenges complying.
Most state program officials told us that they will apply the same controls  and oversight processes that they currently apply to other program funds.  For example, the California Employment and Development Department  has an independent division that conducts monitoring, audits, and  evaluations to guard against mismanagement, waste, fraud, and abuse. The  effectiveness of internal controls at the local level, however, is unknown  for some programs. Caltrans officials, for example, stated that while  extensive internal controls exist at the state level, there may be control  weaknesses at the local level. Caltrans is collaborating with local entities  to identify and address these weaknesses. Additionally, Caltrans has  conducted workshops and other outreach activities to ensure that regions  and localities are fully informed regarding requirements for the tracking  and expenditure of Recovery Act funds, and would like to increase its  capacity to provide oversight, particularly at the local level.
section_title: Various Audit Functions Will Provide Oversight
paragraphs: California intends to use existing internal and independent audit functions  and a new inspector general to oversee Recovery Act funds received by  the state. The Office of State Audits and Evaluations (OSAE) is an internal  audit function within the Department of Finance which performs audits of  various state funds and programs, including those receiving Recovery Act  funds. According to state officials, OSAE is also responsible for ensuring  compliance with the state’s Financial Integrity and State Manager’s  Accountability Act of 1983 (FISMA) and oversees the activities of internal  audit functions within most state agencies. According to state sources,  FISMA requires each state agency to maintain effective systems of internal  accounting and administrative control, to evaluate the effectiveness of  these controls on an ongoing basis, and to review and report biennially on  the adequacy of the agency’s systems of internal accounting and  administrative control. OSAE has not yet determined the scope or  approach for its review of Recovery Act funds or the extent to which it can  utilize FISMA in assessing compliance with Recovery Act requirements. In  addition, the State Controller audits claims for payment submitted by state  agencies and provides internal audit services to some state agencies, such  as Caltrans, for Recovery Act funds.
The State Auditor, California’s independent audit and evaluation office,  conducts financial and performance audits as authorized or required by  law and requested by the State Legislature. The State Auditor is also  annually responsible for conducting California’s statewide single audit of  numerous federal programs administered in California. Based on the  State Auditor’s initial analysis of Recovery Act funds the state expects to  receive and the formula for determining which programs require an audit,  the State Auditor anticipates it will likely need to expand single audit  coverage to capture additional programs receiving Recovery Act funds.  Finally, on April 3, 2009, the Governor appointed the nation’s first  Recovery Act Inspector General, whose role is to make sure Recovery Act  funds are used as intended and to identify instances of waste, fraud, and  abuse.
section_title: Prior Work of State Auditor Indicates Areas Requiring Additional Oversight
paragraphs: The most recent single audit, conducted by the State Auditor for fiscal  year 2007, identified 81 material weaknesses, 27 of which were associated  with programs we reviewed for purposes of this report. The State Auditor  plans to use past audit results to target state agencies and programs with a  high number and history of problems, including data reliability concerns,  and is closely coordinating with us on these efforts. For example, the fiscal  year 2007 State Single Audit Report identified eight material weaknesses  pertaining to the ESEA Title I program and the Individuals with  Disabilities Education Act programs. The audit findings included a  material weakness in the California Department of Education’s  management of cash because it disbursed funds without assurances from  LEAs that the time between the receipt and disbursement of federal funds  was minimized, contrary to federal guidelines. Education officials told us  that they have addressed some of these material weaknesses and, in other  cases, they are still working to correct them. If these and other material  weaknesses are not corrected, they may affect the state’s ability to  appropriately manage certain Recovery Act funds. The State Auditor’s  Office told us that it is in the process of finalizing the fiscal year 2008 State  Single Audit Report and plans to issue the report within the next 30 days.  In addition, the State Auditor’s Office is summarizing the results of the  single audit to identify those programs that continue to have material  weaknesses. Finally, the State Auditor’s Office plans to use the results of  other audits it has conducted in conjunction with the single audit to assess  risk and develop its approach for determining the state’s readiness to  receive the large influx of federal funds and comply with the requirement  regarding the use of those funds under the Recovery Act.
section_title: State Officials Expressed Concerns about Lack of Guidance and Ability to Measure the Impacts of Recovery Act Funds
paragraphs: State officials with whom we spoke have not yet established plans or  processes for assessing the impacts of Recovery Act funds. According to  Department of Finance officials, the newly created California Federal  Economic Stimulus Task Force will assume this responsibility. Several  state agency officials and a local public housing authority believe that  additional guidance is needed from the U.S. Office of Management and  Budget (OMB) before they can fully address the issue of impact  assessments. State officials told us that assessing the impact of Recovery  Act funds on job creation in particular will be difficult. That is, while they  believe that tracking the impact for contracts, grants, or discrete projects  is possible, it is extremely difficult to separate out the specific impact of  Recovery Act funds when they are combined with other federal, state, or  local funds, as they will be in many situations.
The state program officials with whom we spoke raised a number of  specific concerns about their ability to measure the impact of Recovery  Act funds. For example,    California education officials told us they did not yet know how the  state will measure the impact of the Recovery Act funds spent on  education. The officials said that, although it should be possible to  track Recovery Act education spending separately from non-Recovery  Act money, this does not mean that they will be able to report on  specific outcomes that result from this spending. One concern  mentioned by several officials is that it may not be possible to link the  spending categories used in the accounting system to specific  outcomes. Furthermore, even if such links could be made, another  difficulty would be determining the extent to which an outcome was  the result of the Recovery Act funds received in April 2009 versus the  non-Recovery Act funds received earlier in the year for the same  program. Finally, officials expressed concern about the incompatibility  between desired Recovery Act outcomes and Recovery Act funding.  One of the Recovery Act’s desired outcomes is job creation and  preservation, which requires ongoing funds, but the Recovery Act  provides only temporary funds.
According to Caltrans officials, measuring the full economic impact of  highway funds presents challenges. Caltrans officials told us that since  Recovery Act funds may be combined with other funds to complete  projects, isolating the number of jobs created using just the Recovery  Act funds may be difficult. In addition, Caltrans officials told us that  guidance on measuring and reporting the effect of Recovery Act funds  for transit and fixed-guideway investments has not yet been issued,  however they anticipate it will be difficult to report on jobs preserved  or created.
California Employment Development Department officials told us that  its existing accounting system can report output, such as how many  more participants are registered and enrolled in Workforce Investment  Act programs and the level of program services increased due to the  Recovery Act. They also said that the existing system can track certain  performance indicators for program participants, such as successful  employment, wage increases, and job retention. However, these  officials noted that they anticipate challenges determining whether  such outcomes are specifically due to services supported by the  additional Recovery Act funds versus services previously or currently  provided to program participants through existing Workforce  Investment Act funds.
section_title: California’s Comments on This Summary
paragraphs: We provided the Governor of California with a draft of this appendix on  April 17, 2009. Members of the California Federal Economic Stimulus Task  Force responded for the Governor on April 20, 2009. These officials  provided clarifying and technical comments that we incorporated where  appropriate.
section_title: GAO Contacts
section_title: Staff Acknowledgments
paragraphs: In addition to the contacts named above, Paul Aussendorf, Candace  Carpenter, Joonho Choi, Brian Chung, Nancy Cosentino, Kerry Dunn,  Michelle Everett, Chad Gorman, Richard Griswold, Bonnie Hall, Delwen  Jones, Brooke Leary, Jeff Schmerling, Steve Secrist, and Eddie Uyekawa  made major contributions to this report.
section_title: Appendix V: Colorado
paragraphs: Use of funds: An estimated 90 percent of Recovery Act funding provided  to states and localities nationwide in fiscal year 2009 (through Sept. 30,  2009) will be for health, transportation and education programs. The three  largest programs in these categories are the Medicaid Federal Medical  Assistance Percentage awards, the State Fiscal Stabilization Fund, and  highways.
Medicaid Federal Medical Assistance Percentage (FMAP) Funds    As of April 3, 2009, the Centers for Medicare & Medicaid Services had made about $227 million in increased  FMAP grant awards to Colorado.
As of April 16, 2009, the state had not drawn down any of its increased FMAP grant awards.
State officials noted they are working to ensure that the state is in compliance with Recovery Act provisions  governing eligibility for the increased FMAP.
Colorado was apportioned about $404 million for highway infrastructure investment on March 2, 2009, by the  U.S. Department of Transportation.
As of April 16, 2009, the U.S. Department of Transportation had obligated $118.4 million for 19 projects; the  Colorado Department of Transportation had advertised 17 of these projects, and 5 of the 17 had been  awarded.
Colorado’s Recovery Act transportation funds are being directed to projects that can be advertised within 90  to 180 days of the passage of the act, can be completed within 3 years, and will result in job creation.   Projects include resurfacing roads and replacing highway bridges in the Denver metropolitan area, as well as  improvements to mountain highways.
Colorado will request reimbursement from the U.S. Department of Transportation as the state makes  payments to contractors.
U.S. Department of Education State Fiscal Stabilization Fund (Initial Release)
Colorado was allocated about $509 million from the initial release of these funds on April 2, 2009, by the U.S.
Department of Education.
Before receiving the funds, states are required to submit an application that provides several assurances to  the U.S. Department of Education. These include assurances that they will meet maintenance of effort  requirements (or that they will be able to comply with waiver provisions) and that they will implement  strategies to meet certain educational requirements, including increasing teacher effectiveness, addressing  inequities in the distribution of highly qualified teachers, and improving the quality of state academic  standards and assessments.  The Governor is working with the state legislature on a plan for spending the fiscal stabilization funds  Colorado will receive to support education. Once legislative concurrence is obtained, the plan will be  submitted to the U.S. Department of Education. A state official estimated that could happen as early as the  week of April 20, 2009.
Colorado is also receiving additional Recovery Act funds under other  programs, such as those under Title I, Part A of the Elementary and  Secondary Education Act of 1965 (ESEA) (commonly known as No Child  Left Behind); programs under the Individuals with Disabilities Education  Act (IDEA), Part B; programs under the Workforce Investment Act; and  Edward Byrne Memorial Justice Assistance Grants. These are described  throughout this appendix.
Safeguarding and transparency: As the state makes its plans, some  officials raised concerns about how well the state is positioned to track  and oversee Recovery Act expenditures and identified general areas of  vulnerability in spending Recovery Act funds. For example, Colorado’s  accounting system is 18 years old, which will make it challenging for the  state to tag and track Recovery Act funds, according to state officials.  State officials are determining what approach they will use in tracking  funds and told us they currently plan to create an accounting fund to track  state agencies’ use of Recovery Act funds, employing a centrally defined  budget-coding structure to distinguish between Recovery Act and non- Recovery Act federal funds. State officials were also concerned about  tracking funds that bypass the state and flow directly to local entities.
Assessing the effects of spending: The state is making plans to assess  the effects of Recovery Act spending on Colorado’s economy. Some  agencies plan to use their existing performance indicators to assess the  effects of recovery, while others have received guidance including new  indicators. Some officials identified concerns with recipients’ ability to  submit reports more quickly or more frequently than normal, while some  questioned how precisely economic effects can be measured.
subsections: section_title: Colorado Beginning to Use Recovery Act Funds
paragraphs: Colorado has begun to use some of its Recovery Act funds, as follows:  Increased Federal Medical Assistance Percentage Funds: Medicaid is  a joint federal-state program that finances health care for certain  categories of low-income individuals, including children, families, persons  with disabilities, and persons who are elderly. The federal government  matches state spending for Medicaid services according to a formula  based on each state’s per capita income in relation to the national average  per capita income. The amount of federal assistance states receive for  Medicaid service expenditures is known as the Federal Medical Assistance  Percentage (FMAP). Across states, the FMAP may range from 50 percent  to no more than 83 percent, with poorer states receiving a higher federal  matching rate than wealthier states. The Recovery Act provides eligible  states with an increased FMAP for 27 months between October 1, 2008,  and December 31, 2010. On February 25, 2009, the Centers for Medicare &  Medicaid Services (CMS) made increased FMAP grant awards to states,  and states may retroactively claim reimbursement for expenditures that  occurred prior to the effective date of the Recovery Act. Generally, for  fiscal year 2009 through the first quarter of fiscal year 2011, the increased  FMAP, which is calculated on a quarterly basis, provides for (1) the  maintenance of states’ prior year FMAPs; (2) a general across-the-board  increase of 6.2 percentage points in states’ FMAPs; and (3) a further  increase to the FMAPs for those states that have a qualifying increase in  unemployment rates. The increased FMAP available under the Recovery  Act is for state expenditures for Medicaid services. However, the receipt of  this increased FMAP may reduce the funds that states must use for their  Medicaid programs, and states have reported using these available funds  for a variety of purposes.
As of April 3, 2009, CMS had made about $227 million in increased FMAP  grant awards to Colorado. As of April 16, 2009, state officials had not  drawn down any of the state’s increased FMAP grant awards. State  officials noted they are working to ensure that the state is in compliance  with Recovery Act provisions governing eligibility for the increased FMAP.  Officials also indicated that, in order to account for the increased FMAP  funds available through the Recovery Act, the state has created unique  codes that will calculate the additional federal reimbursement. The state  will use these codes to assist with the proper drawing down and reporting  of these expenditures on quarterly Medicaid reports.
Transportation—Highway Infrastructure Investment: The Recovery  Act provides additional funds for highway infrastructure investment using  the rules and structure of the existing Federal-Aid Highway Surface  Transportation Program, which apportions money to states to construct  and maintain eligible highways and to undertake other surface  transportation projects. States must follow the requirements for the  existing programs, and in addition, the Governor must certify that the state  will maintain its current level of transportation spending, and the  Governor or other appropriate chief executive must certify that the state  or local government to which funds have been made available has  completed all necessary legal reviews and determined that the projects are  an appropriate use of taxpayer funds. Colorado provided this certification  but noted that the state’s level of funding was based on “planned nonbond  state expenditures” and represented the best information available at the  time of the state’s certification.
Colorado was apportioned about $404 million in Highway Infrastructure  Investment Recovery Act funds by the U.S. Department of Transportation  on March 2, 2009. As of April 16, 2009, the U.S. Department of  Transportation had obligated $118.4 million for 19 Colorado projects.  Seventeen of these projects, which include resurfacing roads and  replacing highway bridges in the Denver metropolitan area and  improvements to mountain highways, had been advertised for bid, and 5 of  the 17 projects had been awarded. According to Colorado Department of  Transportation officials, the department has a well-established process for  distributing funds and contracting projects and has already begun to use  this process in applying for Recovery Act funds. In order to spend funds  quickly and create jobs, Colorado is directing Recovery Act transportation  funds to projects that can be advertised within 90 to 180 days of the  passage of the Recovery Act, can be completed within 3 years, and will  result in job creation. Department officials told us they are emphasizing  construction projects rather than projects in planning or design phases, in  order to maximize job creation.
U.S. Department of Education State Fiscal Stabilization Fund: The  Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be  administered by the U.S. Department of Education (Education). The SFSF  provides funds to states to help avoid reductions in education and other  essential public services. The initial award of SFSF funding requires each  state to submit an application to Education that assures it will take action  to meet certain educational requirements such as increasing teacher  effectiveness and addressing inequities in the distribution of highly  qualified teachers.
The Governor has proposed a plan for spending the majority of the $760  million in stabilization funds Colorado will receive to support education,  focusing on offsetting current and planned reductions in state funding for  higher education. Officials told us that funding cuts were directed  primarily toward higher education rather than kindergarten through 12th  grade education because of a state constitutional provision requiring  guaranteed annual increases in state funding of kindergarten through 12th  grade education—and as a result, SFSF funds are more urgently needed  in higher education. The state will receive its first allocation of funds— $509 million or 67 percent of the total—after it has applied to Education,  which it plans to do once the Governor’s office and legislature agree on  the plan and the state’s budget. As of April 20, 2009, the state’s General  Assembly was negotiating the final budget and a school finance bill that  could affect the specific use of the SFSF funds. A Colorado official said  that if the state approves a budget the week of April 20, 2009, the propo could go to Education soon after that date. The Governor is also  developing a plan for the Government Services Fund, a component of  the  SFSF, which will provide $138 million of SFSF funds that may be used for  public safety and other government services.
subsections: section_title: Colorado Will Manage Recovery Act Funds through an Oversight Board and State Executive Departments
paragraphs: Following passage of the Recovery Act, Colorado’s Governor established  an oversight board, the Colorado Economic Recovery Accountability  Board, to oversee Colorado’s Recovery Act funding and ensure funds are  spent effectively and transparently. The board is chaired by the Director of  the Colorado Office of Economic Development, who has also been  charged with being Colorado’s recovery coordinator. The board is  composed of 12 public- and private-sector leaders from across the state,  including the state treasurer, a state senator and a state representative,  and a number of business leaders. To date, the board has held three public  meetings during which members discussed the short time frames for  disbursing Recovery Act funds and a lack of federal guidance, among  other issues. The board has also developed a Web site to publicize  information about the Recovery Act.
Management of and decisions about Recovery Act funds are the  responsibility of the Governor, according to state officials. The Governor’s  office is directly responsible for exercising discretion with regard to  certain funds such as portions of the SFSF. The Governor is working in  consultation with the executive directors of Colorado’s state departments  and agencies to develop plans for spending Recovery Act funds, which are  to be publicly available on the state’s Web site. Officials told us the  Governor has directed that all departmental decisions on spending  Recovery Act funds are to be made in line with the original charge of the  Recovery Act to promote job creation or preservation and economic  development, as well as the Governor’s agenda. The decision process for  using Recovery Act funds depends on the program, consistent with federal  and state statutes and guidance. Officials from several departments, such  as the Departments of Public Safety, Labor and Employment, and Local  Affairs, told us they have made initial programmatic decisions for  Recovery Act funds. Other programs have not made such decisions; for  example, Colorado Department of Education officials told us the  department will distribute funds such as those under the ESEA and IDEA  programs directly to local school districts to make programmatic  decisions about the funds.
Many Colorado officials said the Recovery Act would increase their  departments’ workloads and said they would like to add personnel and  perhaps systems to manage the funds, but the overall extent to which  Recovery Act funds are permitted to be used for those costs is uncertain.  While some officials we interviewed said their departments had received  or would receive Recovery Act funds to cover administrative or  management activities, officials in other departments did not know  whether they would receive funds for that purpose. Officials at the  Colorado Department of Labor and Employment, for example, said they  can spend about $1.5 million in Recovery Act funding to cover  administrative costs associated with Workforce Investment Act programs,  consistent with their normal procedures for administration of the  programs, while officials from the Colorado Department of Education said  they were uncertain what, if any, funds they were going to receive to  administer and manage recovery programs. State officials told us they  believe the government services portion of the SFSF can be used by the  Colorado Department of Education and other state departments to cover  administrative costs.
section_title: Colorado Officials Expressed Concerns Related to Tracking of, Internal Controls over, and Safeguards for Recovery Act Funds
paragraphs: Colorado officials identified general areas of vulnerability in spending  Recovery Act funds, as well as specific concerns about their ability to  oversee Recovery Act funds coming into the state. Areas of vulnerability  include new programs and localities that may be ill-equipped to manage  the influx of new funds. In addition, state officials are concerned about  their ability to oversee Recovery Act funds because of three primary  challenges: (1) the state’s accounting system is 18 years old, which may  make it challenging to tag and track Recovery Act funds; (2) adequate  resources to administer and audit expenditures of Recovery Act funds may  not be available; and (3) state officials are still determining what they will  be required to track and report on and are particularly concerned about  tracking funds that bypass the state and flow directly to local entities.
subsections: section_title: Colorado Officials Identified Potential Areas of Vulnerability in Spending Recovery Act Funds
paragraphs: The state’s departments have begun to identify potential areas of  vulnerability in spending Recovery Act funds, according to officials. One  area that officials identified is the influx of new Recovery Act funds that  must be adequately managed as they are spent quickly. For example, some  programs, such as Medicaid, already have known weaknesses in managing  existing funds (identified, for example, in audits conducted by the  Colorado state auditor) and may be challenged in managing large amounts  of additional funds. A second vulnerable area, according to officials,  involves new programs that do not have well-established processes, or  programs that will need to establish additional processes, to accommodate  significant funding increases, such as the state’s energy program, which  will receive funds for weatherization and other energy projects. Funds that  go directly to localities are a third area that may be vulnerable because,  according to officials, the state does not currently oversee these funds and  cannot provide assistance to local entities, some of which may not be well- equipped to manage the increased funds.
section_title: Colorado’s Accounting System Is Outdated
paragraphs: State officials were concerned that Colorado’s accounting system—the  Colorado Financial Reporting System (COFRS)—is 18 years old, which  may make it difficult for the state to use and track Recovery Act funds. For  example, state officials are concerned about Colorado’s ability to report  quickly on Recovery Act expenditures. Because of limitations associated  with COFRS, officials told us the state will have difficulties meeting  reporting requirements established for certain Recovery Act expenditures,  such as the requirement in section 1512 of Title I, Division A of the  Recovery Act calling for recipient reports within 10 days of the end of the  calendar quarter. In addition, some individual state departments do not  use the COFRS grant module and therefore must manually post aggregate  revenue and expenditure data to COFRS. Consequently, given the state’s  current capabilities, data on total Recovery Act funding received by the  state may not be able to be drawn from COFRS and may have to be  compiled through a manual exercise outside of the central financial  management system, raising internal control concerns among some  officials we talked with. These concerns include inadequate audit  documentation on how the information is compiled, potential human error  in inputting and aggregating information, and potentially inconsistent or  duplicative reporting from various agencies on the extent and nature of  Recovery Act funding received and used. Finally, state officials also voiced  concerns that COFRS uses Catalog of Federal Domestic Assistance  numbers to track grants from each federal agency, but some federal  departments are not establishing unique Catalog of Federal Domestic  Assistance numbers for some Recovery Act funds, which will make  automated reporting difficult.
section_title: Procurement and Audit Resources May Be Inadequate
paragraphs: Officials with the Colorado Department of Personnel & Administration  were concerned that vacancies in procurement positions posed an  impediment to effective tracking and control over the state’s Recovery Act  funds. Many Colorado state agencies have vacancies for procurement  officers, which have been left unfilled due to the state budget shortfall and  a consequent hiring freeze. For example, the Department of Personnel &  Administration, which administers statewide contracts and supports  several state agencies that have little or no purchasing authority, currently  has three vacancies in its purchasing agent and contracting positions.  Filling these vacancies would enable this department to better assist state  agencies receiving Recovery Act funds, according to department officials.  Similar purchasing agent vacancies exist, according to these officials, in  the Colorado Departments of Corrections, Education, Human Services,  Labor and Employment, and Local Affairs. Colorado Department of  Personnel & Administration officials hope to hire former or retired state  employees with procurement experience on a 6-month basis to alleviate  this problem, but additional funding—and possibly legislative and  budgetary approval—may be needed in order to hire temporary  procurement personnel, which could potentially delay hiring if the state  needs to await legislative action.
State officials were also concerned with the amount of audit coverage  throughout the state. For example, officials with the Colorado state  auditor’s office told us their office would have difficulty absorbing  additional work associated with the Recovery Act, and believed that state  oversight capacity was limited. For example, according to these officials,  the Department of Health Care Policy and Financing (the state’s Medicaid  agency) has had three controllers in the past 4 years; these officials also  told us the state legislature’s Joint Budget Committee recently cut field  audit staff levels for the state Department of Human Services in half.  Officials with the Department of Personnel & Administration told us their  department’s internal auditor position is vacant, while officials with the  Colorado Department of Transportation told us that two of their  department’s financial management positions, including the deputy  controller position, are vacant. At the county level, Jefferson County  recently terminated its internal auditor and eliminated its internal control  audit office.
The reduced number of staff in oversight positions resulted in part from  budget cuts and staffing decisions during the state’s last economic  downturn, and state officials told us certain positions would be difficult to  fill because of the state’s current hiring freeze. Officials said because the  “ratchet effect” of Colorado’s constitutional and legislative requirements  limits the growth of spending, it can be difficult to re-establish and fill  positions that are eliminated during economic downturns. Officials told  us, for example, that some state agencies have not refilled all of the staff  positions they lost to budget cuts during Colorado’s 2001-2003 downturn.
section_title: Colorado Officials Are Still Determining State Reporting Requirements
paragraphs: Colorado officials said they have not received state-specific guidance on  Recovery Act reporting from the federal Office of Management and  Budget. They said the guidance provided in February and April 2009 was  addressed to federal departments and agencies, and it was necessary to  determine whether and how this guidance applied to state governments.  Officials wondered, for example, whether the state would be required to  report centrally on all funds coming through the state or whether state  agencies will report as normal through federal departments, or both; what  the frequency and form of reports will be; and the level to which funds will  need to be tracked and reported (e.g., at the recipient level, subrecipient  level, etc.). Officials were especially concerned that a substantial portion  of funds provided to Colorado will go directly to local entities, making it  difficult for state officials to be aware of and track all funds within the  state.
In the absence of state-specific guidance, state officials were taking some  steps on their own to track the use of Recovery Act funds. Department of  Personnel & Administration officials said they anticipated that statewide  reporting on the use of Recovery Act funds will be necessary, in addition  to having individual state departments and agencies reporting directly to  their respective federal granting agencies. The department discussed  various tracking and reporting methodologies with state department  controllers to determine what tracking method would be the most  effective and least disruptive; the department determined that the state  would create an accounting fund through which it could track state  agencies’ use of Recovery Act funds and would employ a centrally defined  budget-coding structure for Recovery Act funds, which should be able to  distinguish between Recovery Act funds and other federal non-Recovery  Act funds. This accounting process would capture only those funds  flowing through state agencies. State officials said they are still  determining how they will capture funds that do not flow through the state  and said that guidance will be important in order to prevent duplicate  reporting of Recovery Act funds by state and federal agencies. Although  they are moving forward, state officials are hesitant to establish statewide  reporting requirements for fear they could waste state resources  developing and implementing an approach that is not consistent with the  federal guidance ultimately established.
section_title: Colorado Is Developing Plans to Assess the Effects of Recovery Act Funds
paragraphs: Colorado’s state departments with responsibility for the funds we  examined described a range of approaches to assess and report on the  effects of recovery spending in the state. Some agencies plan to use their  existing performance indicators to assess the effects of Recovery Act  funding, as they have not yet received reporting guidance from the federal  departments involved. For example, Colorado Housing and Finance  Authority officials said they plan to use existing indicators, such as the  number of affordable housing units created and the relative income levels  of populations served by those units, to assess the effects of Recovery Act  funding for the Low-Income Housing Tax Credit. Other agencies, such as  the Colorado Department of Transportation, have received guidance to  report on existing and new indicators, such as direct jobs associated with  Recovery Act projects; the indicators will involve a significant increase in  data collection and reporting by the department, including gathering data  from more entities and reporting more frequently than the department has  reported in the past, according to department officials. In another  example, the Colorado Department of Public Safety, which did not report  on jobs in the past, will report on the jobs created or retained with the  spending of justice assistance grants. In addition, it will report on a set of  new performance measures being developed by the federal Department of  Justice Bureau of Justice Assistance. Department of Public Safety officials  are concerned about the timing of reporting job creation and retention  data, however, because the Recovery Act requires states to report 10  calendar days after the end of each quarter, which is faster than the  normal reporting time frames and, according to officials, will necessitate  that recipients report to the department within 5 calendar days of the end  of the quarter. Some grantees will have difficulty reporting within such  short time frames, according to one department official, because they still  mail or hand deliver their reports.
State and local officials raised other concerns about tracking the  economic effects of Recovery Act funds. Officials with the state auditor’s  office, for example, said that tying specific funding to the creation of  particular jobs is problematic. One state official pointed out that increased  FMAP available under the Recovery Act would reduce the amount of funds  that Colorado will need to spend on its Medicaid program, allowing the  state to use these funds for other purposes and avoid cutting other  programs to balance the state budget. However, because specific program  cuts were not determined, identifying the preserved programs and their  economic effects is impossible. While some state departments have  received guidance on counting jobs created or retained, officials from at  least one local department said they needed more guidance about how to  measure the number of new jobs created. Another official said that her  department will report jobs created or retained but questioned how  indirect jobs would be counted. According to this official, spending  Recovery Act funds to purchase items such as equipment or vehicles will  have substantial economic effects, particularly the creation of indirect  jobs, but she was not certain how these jobs would be counted and asked  whether clarification would come through Office of Management and  Budget or other guidance. To measure such impacts for the state, an  economic impact assessment would need to be conducted, according to a  member of the Colorado Economic Recovery Accountability Board. The  board is considering contracting for such an assessment, according to the  member, but has not yet decided on whether or when to do it.
section_title: Colorado’s Comments on This Summary
paragraphs: We provided the Governor of Colorado with a draft of this appendix on  April 17, 2009. State officials from the Governor’s office responded for the  Governor on April 20, 2009. In general, they agreed with this summary of  Colorado’s recovery efforts to date. The officials also provided technical  comments that were incorporated, as appropriate.
section_title: GAO Contacts
section_title: Staff Acknowledgments
paragraphs: In addition to the contacts named above, Steve Gaty, Susan Iott, Tony  Padilla, Ellen Phelps Ranen, Lesley Rinner, Glenn Slocum, and Mary Welch  made significant contributions to this report.
section_title: Appendix VI: Florida
paragraphs: Use of funds: An estimated 90 percent of Recovery Act funding provided  to states and localities nationwide in fiscal year 2009 (through Sept. 30,  2009) will be for health, transportation and education programs. The three  largest programs in these categories are the Medicaid Federal Medical  Assistance Percentage (FMAP) awards, the State Fiscal Stabilization Fund,  and highways.
Medicaid Federal Medical Assistance Percentage (FMAP) Funds    As of April 3, 2009, the Centers for Medicare & Medicaid Services (CMS) had made about $1.4 billion in  increased FMAP grant awards to Florida.
As of April 1, 2009, Florida has drawn $817 million, or 58.6 percent of its increased FMAP grant awards to  date.   From January 2008 to January 2009, the state’s Medicaid enrollment increased from 2,151,917 to 2,391,569,  with most enrollment changes attributable to two population groups: (1) children and families and (2) other  individuals, including those with disabilities.
While funds are made available as a result of the increased FMAP, the state legislature is still determining  how to make use of these funds.
Florida was apportioned about $1.3 billion for highway infrastructure investment on March 2, 2009, by the  U.S. Department of Transportation.
As of April 16, 2009, the U.S. Department of Transportation had not obligated any Recovery Act funds for    On April 1, 2009, the Florida Department of Transportation (FDOT) prepared a final listing of potential  Recovery Act funded projects and on April 15, 2009, the Florida Legislative Budget Commission approved  the list of projects. The U.S. Department of Transportation, Federal Highway Administration must also  approve the final listing of projects before the state can advertise bids for contracts.  These projects include activities such as resurfacing roads, expanding existing highways, repairing bridges  and installing sidewalks.
U.S. Department of Education State Fiscal Stabilization Fund (Initial Release)
Florida was allocated about $1.8 billion from the initial release of these funds on April 2, 2009, by the U.S.  Department of Education.
Before receiving the funds, states are required to submit an application that provides several assurances to  the Department of Education. These include assurances that they will meet maintenance-of-effort  requirements (or that they will be able to comply with waiver provisions) and that they will implement  strategies to meet certain educational requirements, including increasing teacher effectiveness, addressing  inequities in the distribution of highly qualified teachers, and improving the quality of state academic  standards and assessments. According to Florida officials, Florida plans to apply for a waiver to obtain these  funds after the Department of Education issues final instructions for waiver applications.
Florida is also receiving Recovery Act funds under other programs, such  as programs under Title I, Part A of the Elementary and Secondary  Education Act of 1965 (ESEA) (commonly known as No Child Left  Behind); programs under the Individuals with Disabilities Education Act  (IDEA); and Workforce Investment Act employment and training  programs. The status of plans for using these funds is described  throughout this appendix.
Safeguarding and transparency: The Governor has created the Florida  Office of Economic Recovery to oversee, track and provide transparency  in how Recovery Act funds are spent. In addition, according to Florida  officials, Florida’s accounting system will be able to separately track the  Recovery Act funds flowing through the state government. Florida plans to  publicly report its Recovery Act spending on a state Web site. Florida state  accountability organizations have identified areas where Recovery Act  funds may be at greater risk of fraud, waste, and abuse, such as Medicaid,  and have begun to collaborate in developing plans for oversight.
Assessing the effects of spending: Florida state officials are in the early  stages of developing plans to assess the effects of Recovery Act spending  and told us that guidance from the federal government would be  instrumental in developing their plans. On April 3, 2009, the U.S. Office of  Management and Budget (OMB) issued guidance indicating that it will be  developing a comprehensive system to collect information, including jobs  retained and created, on Recovery Act funds sent to all recipients. Florida  state officials told us that they will ask OMB to allow the state to obtain  data from this system on local entities in Florida that receive Recovery Act  funds directly from federal agencies.
subsections: section_title: Florida Beginning to Use Recovery Act Funds
paragraphs: Florida has begun to use some of its funds made available as a result of the  Recovery Act, as follows:  Increased Federal Medicaid Assistance Percentage Funds: Medicaid  is a joint federal-state program that finances health care for certain  categories of low-income individuals, including children, families, persons  with disabilities, and persons who are elderly. The federal government  matches state spending for Medicaid services according to a formula  based on each state’s per capita income in relation to the national average  per capita income. The amount of federal assistance states receive for  Medicaid service expenditures is known as the Federal Medical Assistance  Percentage (FMAP). Across states, the FMAP may range from 50 percent  to no more than 83 percent, with poorer states receiving a higher federal  matching rate than wealthier states. The Recovery Act provides eligible  states with an increased FMAP for 27 months between October 1, 2008 and  December 31, 2010. On February 25, 2009, the Centers for Medicare &  Medicaid Services (CMS) made increased FMAP grant awards to states,  and states may retroactively claim reimbursement for expenditures that  occurred prior to the effective date of the Recovery Act. Generally, for  federal fiscal year 2009 through the first quarter of federal fiscal year 2011,  the increased FMAP, which is calculated on a quarterly basis, provide for:  (1) the maintenance of states’ prior year FMAPs; (2) a general across-the- board increase of 6.2 percentage points in states’ FMAPs; and (3) a further  increase to the FMAPs for those states that have a qualifying increase in  unemployment rates. The increased FMAP available under the Recovery  Act is for state expenditures for Medicaid services. However, the receipt of  this increased FMAP may reduce the funds that the state must use for their  Medicaid programs, and states have reported using these available funds  for a variety of purposes.
As of April 1, 2009, Florida has drawn down $817 million in increased  FMAP grant awards, which is about 58.6 percent of its awards to date.  The state is determining how to make use of the state funds made  available as a result of the increased FMAP grant awards. Officials told us  that each state agency with a budget impact resulting from Recovery Act  funding has prepared budget amendments for the current state fiscal year  (July 1, 2008, to June 30, 2009) for consideration by the Executive Office the Governor and the Legislative Budget Commission (LBC). On April 15,  2009, the LBC approved 17 amendments to the 2008-2009 state  appropriation to authorize the use of Recovery Act funds. The state has  drawn down funds that are for Medicaid expenditures retroactive to  October 1, 2008. Florida officials told us they require additional guidance  from CMS on the prompt payment requirements, and for CMS to provide   of  the state guidance, if applicable, on any additional reporting  requirements.
Transportation—Highway Infrastructure Investment: The Recovery  Act provides additional funds for highway infrastructure investment using  the rules and structure of the existing Federal-Aid Highway Surface  Transportation Program, which apportions money to states to construct  and maintain eligible highways and for other surface transportation  projects. States must follow the requirements for the existing programs,  and in addition, the governor must certify that the state will maintain its  current level of transportation spending, and the governor or other  appropriate chief executive must certify that the state or local government  to which funds have been made available has completed all necessary  legal reviews and determined that the projects are an appropriate use of  taxpayer funds. Florida provided this certification, but conditioned it,  noting that state funding for the transportation programs is provided from  dedicated funding sources that are subject to fluctuations resulting from  economic conditions.
On April 15, 2009, the Florida LBC approved the Recovery Act funded  projects that the FDOT had submitted. As of April 16, 2009, the U.S.  Department of Transportation had not obligated any Recovery Act funds  for Florida projects. The Federal Highway Administration must approve  this final listing of projects before the FDOT can advertise bids or request  reimbursement from the Federal Highway Administration. The state’s  projects include activities such as resurfacing roads, expanding existing  highways, repairing bridges, and installing sidewalks.
U.S. Department of Education State Fiscal Stabilization Fund: The  Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be  administered by the U.S. Department of Education (Education). The SFSF  provides funds to states to help avoid reductions in education and other  essential public services. The initial award of SFSF funding requires each  state to submit an application to Education that assures, among other  things, it will take actions to meet certain educational requirements such  as increasing teacher effectiveness and addressing inequities in the  distribution of highly qualified teachers. Florida’s initial SFSF allocation is  about $1.8 billion. However, according to Florida officials, the state will  not be able to meet the maintenance-of-effort requirement to readily  qualify for these funds because revenue declines led to cuts in the state’s  education budget in recent years. The state will apply to Education for a  waiver from this requirement; however, they are awaiting final instructions  from Education on submission of the waiver. Florida plans to use SFSF  funds to reduce the impact of any further cuts that may be needed in the  state’s education budget.
section_title: Florida’s Planning Process Has Set the Stage for Decisions on Spending of Recovery Act Funds
paragraphs: Florida state officials began preparing for the use of Recovery Act funds  prior to the receipt of the funds. Florida officials believe that Recovery Act  funds are critical to addressing the state’s budgetary crisis and maintain  necessary services to its citizens. According to state officials, the state  plans to use about $3 billion of Recovery Act funds to reduce the state’s $6  billion budget shortfall for state fiscal year 2009-2010. One reason for this  shortfall is the significant declines in revenue Florida has faced in recent  years—23 percent since state fiscal year 2005-2006, from about $27.1  billion to $20.9 billion in state fiscal year 2008-2009—due to such factors as  the recession and housing crisis. State officials estimate that Florida will  receive about $15 billion in Recovery Act funds over 3 state fiscal years.  Florida estimates that approximately $14.1 billion of this amount will flow  through state agencies, with at least $4.7 billion of this amount allocated to  local entities. In addition, approximately $1.2 billion in funding will be  directly allocated to local entities from federal agencies.
On March 3, 2009, the Governor established the Florida Office of  Economic Recovery that is responsible for overseeing, tracking and  providing transparency of Florida’s Recovery Act funds. The office is  headed by the Special Advisor to the Governor for the Implementation of  the American Recovery and Reinvestment Act (Recovery Czar) and  includes three other staff members on loan from state agencies. The  Florida Office of Economic Recovery also established an implementation  team that meets twice a week and includes representatives from each of  the state’s program agencies and administrative offices, such as the Office  of Policy and Budget, the Chief Inspector General, the State Auditor  General, the Department of Financial Services, as well as representatives  from the Florida Association of Counties and the Florida League of Cities.  On March 17, 2009, pursuant to Section 1607 of division A, title XVI of the  Recovery Act, the Governor certified that the state would request and use  funds provided by the act. Additional certifications for transportation,  energy, and unemployment compensation have also been submitted.
According to state officials, before Florida agencies can use the Recovery  Act funds, the Florida legislature must authorize the use of all funds  received by state agencies, including those passed-through to local  governments. On April 15, 2009, the joint Legislative Budget Commission  met and approved 17 amendments to the 2008-2009 state budget  authorizing appropriations totaling almost $4 billion in Recovery Act  funds. The Florida state legislature is still in session and developing the  state’s fiscal year 2009-2010 budget. As explained by state officials, if the  legislature does not pass the authorization for the Recovery Act funds  before the end of the session (May 1, 2009), a joint legislative budget  committee can later amend the Appropriation Act and authorize the use of  the Recovery Act funds or the legislature can reconvene.
To promote transparency, the Florida Office of Economic Recovery  implemented a state Recovery Act Web site that became operational on  March 19, 2009. The Web site is intended to provide information to the  public on the amount and uses of Recovery Act funds the state receives  and on resources being made available to citizens, such as unemployment  compensation and workforce training.
subsections: section_title: Florida Has a System to Track Recovery Act Funds but Anticipates Challenges in Obtaining Timely Data from Localities
paragraphs: Officials from Florida’s Department of Financial Services said that the  state’s accounting system—Florida Accounting Information Resource  (FLAIR)—will be used to track Recovery Act funds that will flow through  the state government. The state agencies will record the Recovery Act  funds separately from other state and federal funds using selected  identifiers in FLAIR such as grant number or project number. Officials in  some Florida state program agencies raised concerns that local areas will  not be able to provide timely data to enable state agencies to meet  financial reporting deadlines for the quarterly reports required by the  Recovery Act. These reports on the uses of Recovery Act funds are due 10  days after the end of each quarter. In addition, Florida officials and a  group representing local school superintendents were particularly  concerned about the ability of school districts to meet these deadlines  after having experienced reductions in administrative staff due to recent  budget cuts.
Florida officials submitted feedback to OMB suggesting that OMB  consider providing guidance on reconciling the information provided in  the Recovery Act quarterly reports with other federal reporting  requirements to avoid confusion. According to Florida officials, quarterly  reports on many federal grants are due 45 days after the end of the quarter  and reporting systems are currently oriented towards these requirements.  Florida officials added that it is likely that meeting the Recovery Act  quarterly reporting requirement will necessitate the submission of  preliminary reports.
section_title: State Agencies Are Providing Guidance to Localities on Use of Funds
paragraphs: Some state agencies have issued or are developing guidance to assist local  areas in planning for the use of Recovery Act funds that will be passed  through the state to local areas. For example, on April 1, 2009, Florida  received about $580 million for Title I, Part A of ESEA and for IDEA,  which will be passed through to local school districts. In anticipation of  these funds, the Florida Department of Education provided guidance to  school districts on strategies for using education funds, such as assigning  high-performing teachers to low-performing schools, providing reading  coaches to schools, and investing in intensive professional development  for teachers.
On March 19, 2009, Florida received almost $143 million for the Workforce  Investment Act Adult, Youth, and Dislocated Worker employment and  training programs and made $121 million available to regional workforce  areas the next day. As of April 13, 2009, regional workforce areas had  drawn down about $744,000 of these funds, according to a Florida official.  Florida’s Agency for Workforce Innovation had previously established  various task teams, composed of state and regional workforce officials  that created action plans for implementing these funds. For example, to  facilitate the rapid expansion of summer youth employment programs, the  state plans to develop a local implementation checklist and a toolkit of  summer youth materials.
section_title: Plans for Safeguards and Controls Being Developed at State Level
paragraphs: Florida has various oversight entities responsible for monitoring, tracking,  and overseeing financial expenditures, assessing internal controls and  ensuring compliance with state and federal laws and regulations: the  Office of the Chief Inspector General, Auditor General, Office of Program  Policy Analysis and Government Accountability (OPPAGA), and the  Department of Financial Services. Each state agency has an Office of  Inspector General (OIG) that is responsible for conducting audits,  investigations, and technical assistance, and promoting accountability,  integrity and efficiency in the state government. The Auditor General has  broad audit authority with respect to audits of government agencies in  Florida and routinely conducts Single Audits of the State of Florida  reporting entities and of the state’s district school boards. The single  audits include determining if federal and state expenditures are in  compliance with applicable laws and regulations and assessing the  effectiveness of key internal controls. Florida’s OPPAGA—the research  unit of the state’s legislature—is responsible for conducting studies on the  performance of state agencies and programs to identify ways to improve  services and cut costs. In addition, the Florida Department of Financial  Services is responsible for overseeing state expenditures and financial  reporting. Independent certified public accountants also conduct annual  financial audits of local governmental entities, such as counties and  municipalities. According to state officials, Florida law requires that the  scope of such audits encompass federal and state Single Audit  requirements, as applicable.
subsections: section_title: Potential Areas of Vulnerability with Florida Recovery Act Funds
paragraphs: Past experience has highlighted financial management vulnerabilities in  agencies that will receive Recovery Act funds. Auditor General and state  OIG reports identified several high-risk areas that are vulnerable to fraud,  waste, and abuse. For example, in 2008:    State officials identified Medicaid as the highest risk program. The  Auditor General reported breakdowns in internal controls over the  Medicaid program because state Medicaid program officials failed to  properly document and verify recipients’ income, which increased the  risk of ineligible individuals receiving program benefits.
The Auditor General reported that, for some federal programs, the  Florida Department of Education failed to provide monitoring that  reasonably ensured sub-recipient adherence to program requirements.
The Auditor General reported that the Florida Department of  Community Affairs failed to provide information that was needed to  assess the success or progress of its federal low-income housing  community development block grant program.
The agency OIGs continue to provide oversight through audits and  investigations of contracting and grant activities associated with  federal funds. For instance, FDOT and Florida’s Department of  Education OIG reported on contractors’ inaccurate reporting of  expenditures and inadequate oversight of sub-contractors. Moreover,  in July 2008, the FDOT OIG reported their review of contract files  disclosed that differences between the state’s accounting system  payments and the recipient expenditures were not adequately  explained.
State officials also expressed some broader concerns about other potential  risks. For example, state officials identified new programs in the Recovery  Act as potentially risky and noted that the state’s fiscal year 2009 Single  Audit report that will cover such new programs will not be completed until  spring 2010. State officials also expressed concern about potential risk in  programs receiving large funding increases under the Recovery Act. For  example, Florida Department of Law Enforcement officials stated that the  amount of Recovery Act funds received for the Edward Byrne Memorial  Justice Assistance Grant Program, which is designed to help prevent and  control crime and improve the operations of the criminal justice system  will be four to five times the amounts received in prior years. For these  programs, they estimate that about $52 million will be passed through to  67 local Florida counties, which have had grants collectively totaling only  $12 million to $15 million in past years.
section_title: Plans for Oversight of Florida Recovery Act Funds
paragraphs: In response to the Recovery Act, Florida’s Chief Inspector General  established an enterprisewide working group of agency OIG’s to evaluate  risk assessments, and promote fraud prevention, awareness, and training.  The group members are updating their annual work plans by including the  Recovery Act funds in their risk assessments and will leave flexibility in  their plans to address issues related to these funds. In preparing to  conduct the Single Audits for 2008-2009 and subsequent fiscal years, the  Auditor General is monitoring the state’s plans for accounting for and  expending Recovery Act funds, tracking the expected changes in OMB’s  Single Audit requirements, and participating in the National State Auditors  Association’s efforts to provide input on Recovery Act accounting,  reporting, and auditing issues. The Auditor General expects the number of  major federal programs to increase as a result of the large infusion of  Recovery Act funds into the state, thus increasing the number of federal  programs that the Auditor General must audit as part of the state’s annual  Single Audit. Officials from Florida’s OPPAGA expect an increase in the  number of legislative requests for their studies—particularly those focused  on education programs—as Recovery Act funds are disbursed to  recipients.
The OIGs are developing and refining strategies to ensure oversight of  Recovery Act funds. For example, the FDOT OIG is developing plans to  increase its up-front monitoring activities for transportation funds to  mitigate the potential risk of fraud, waste, and abuse. Some of these  activities include:    Designating a team of seven auditors to monitor Recovery Act  expenditures and other related activities;    Developing fraud awareness training specifically for Recovery Act    Conducting risk assessments of Recovery Act transportation projects;    Monitoring and providing oversight for the pre-construction,  advertisement, bid, award, and contract-letting activities for Recovery  Act projects.
Florida officials told us that separate accounts have been established for  receipt of increased FMAP grant awards. The OIG in the Agency for Health  Care Administration will follow established recovery protocol and  processes to prevent and detect Medicaid overpayments by conducting  detection analyses and audits, imposing sanctions, and making referrals to  the Medicaid Fraud Control Unit and other regulatory and investigative  agencies as appropriate.
According to Florida state officials, the state completed an initiative to  strengthen contracting requirements several years ago. For example, the  majority of state contracts greater than $1 million are required to be  reviewed for certain criteria by the Department of Financial Services’  Division of Accounting and Auditing before the first payment is processed.  The contract must also be negotiated by a contract manager certified by  the Florida Department of Management Services, Division of State  Purchasing Training and Certification Program.
section_title: Availability of Resources for Oversight
paragraphs: In light of decreased state budgets that have resulted in prior staff  reductions, Florida state auditing officials expressed concern about the  adequacy of staff resources to provide oversight of Recovery Act funds  beyond that required under existing federal Single Audit Act requirements.  For example, the Auditor General told us that the office has not hired new  staff for over a year and about 10 percent of the office’s positions remain  unfilled. In addition, OPPAGA officials told us their staff has decreased by  10 percent in the past 2 years. State officials told us that the efficient use  of existing and projected resource levels will require an ongoing  assessment of risks and priorities and the allocation of staff resources to  ensure the required oversight of state and federal funds, including  Recovery Act funds.
section_title: Plans to Assess Impact of Recovery Act Funds Are in Initial Stages
paragraphs: Florida state agencies were in the early stages of developing plans to  assess the effects of the Recovery Act spending because they were waiting  for guidance from OMB on how to measure jobs retained and created with  Recovery Act funds. For example, Florida Department of Law  Enforcement (FDLE) officials said that they could count the number of  staff hired to implement a new program, but they did not know how to  count the number of jobs retained or created if Recovery Act funds are  used for purchases of goods such as new police cruisers. In addition,  FDLE and other state officials said they needed clear OMB guidance in  order to build this information upfront into the data reporting  requirements. Florida’s Department of Education has created a new form  that school districts will use to report quarterly Recovery Act expenditures  and the number of jobs retained and created, but they need additional  guidance from OMB to develop instructions for school districts on how to  count these jobs.
Florida’s Agency for Workforce Innovation is encouraging recipients of  Recovery Act funds throughout the state to list jobs created with the funds  in the state’s existing online job bank. By including tags in the system to  identify the jobs linked to Recovery Act funds, the agency expects to be  able to count specific jobs created with the funds. A local workforce  investment board official told us that the board is publicizing the use of  the job bank for Recovery Act jobs through radio and town hall  appearances and mailings to potential recipients of Recovery Act funds.
Because Florida is only required to collect data on jobs created with  Recovery Act funds for which Florida is the recipient, Florida officials  plan to include data on the state Recovery Act Web site on all jobs created  with Recovery Act funds in Florida. On April 3, 2009, OMB issued guidance  indicating that it will be developing a comprehensive system to collect  information, including jobs retained and created, from all recipients of  Recovery Act funds. The state plans to ask OMB if they can obtain data  relevant to Florida collected by the national reporting system on jobs  retained and created with Recovery Act funds. According to Florida  officials, this will reduce duplication and increase the efficiency of their  reporting.
section_title: Florida’s Comments on This Summary
paragraphs: We provided the Governor of Florida with a draft of this appendix on April  17, 2009. The Special Advisor to Governor Charlie Christ, Florida Office of  Economic Recovery, responded for the Governor on April 20, 2009. In  general, the Florida official concurred with the information in the  appendix. The official also provided technical suggestions that were  incorporated, as appropriate.
section_title: GAO Contacts
section_title: Staff Acknowledgments
paragraphs: In addition to the contacts named above, Fannie Bivins, Carmen Harris,  Kathy Peyman, Robyn Trotter, and Cherie’ Starck made major  contributions to this report.
section_title: Appendix VII: Georgia
paragraphs: Use of funds: An estimated 90 percent of Recovery Act funding provided  to states and localities nationwide in fiscal year 2009 (through Sept. 30,  2009) will be for health, transportation and education programs. The three  largest programs in these categories are the Medicaid Federal Medical  Assistance Percentage (FMAP) awards, the State Fiscal Stabilization Fund,  and highways.
Medicaid Federal Medical Assistance Percentage (FMAP) Funds    As of April 3, 2009, the Centers for Medicare & Medicaid Services (CMS) had made about $521 million in  increased FMAP grant awards to Georgia.
As of April 1, 2009, Georgia had drawn down about $312 million, or 60 percent of its initial increased FMAP  grant awards.  State officials plan to use funds made available as a result of the increased FMAP to address increased  caseloads, offset general fund needs, and maintain current benefit levels and provider reimbursement rates in  the state’s Medicaid program.
Georgia was apportioned about $932 million for highway infrastructure investment on March 2, 2009, by the  U.S. Department of Transportation.
As of April 16, 2009, the U.S. Department of Transportation had not obligated any Recovery Act funds for    On April 7, 2009, the Governor certified that the Georgia Department of Transportation plans to spend $208  million on 67 projects throughout the state.  The department plans to award contracts for most of these  projects by May 22, 2009.  These projects include maintenance, bridge work, and other activities.
U.S. Department of Education State Fiscal Stabilization Fund (Initial Release)
Georgia was allocated about $1 billion from the initial release of these funds on April 2, 2009, by the U.S.
Department of Education.
Before receiving the funds, states are required to submit an application that provides several assurances to  the Department of Education. These include assurances that they will meet maintenance of effort  requirements (or that they will be able to comply with waiver provisions) and that they will implement  strategies to meet certain educational requirements, including increasing teacher effectiveness, addressing  inequities in the distribution of highly qualified teachers, and improving the quality of state academic  standards and assessments. Georgia plans to submit its application in late April or early May.  The state’s fiscal year 2010 budget, which passed on April 3, 2009, included $521 million in state fiscal  stabilization funds for education.
Georgia also is receiving Recovery Act funds under other programs, such  as Title I, Part A of the Elementary and Secondary Education Act of 1965  (ESEA) (commonly known as No Child Left Behind); the Individuals with  Disabilities Education Act, Part B; and the Tax Credit Assistance Program.  The status of plans for using these funds is discussed throughout this  appendix.
Safeguarding and transparency: A small core team consisting of  representatives from the Office of Planning and Budget, State Accounting  Office, and Department of Administrative Services (the department  responsible for procurement) is taking steps to establish safeguards for  Recovery Act funds and mitigate identified areas of risk. For example, the  State Accounting Office has issued guidance on tracking Recovery Act  funds separately, and the Office of Planning and Budget is developing a  state-level strategy to monitor high-risk agencies. The State Auditor and  Inspector General will monitor the use of Recovery Act funds.
Assessing the effects of spending: While waiting for additional federal  guidance, the state has taken some steps to assess the impact of Recovery  Act funds on the state, including adapting an automated system currently  used for financial management to meet Recovery Act reporting  requirements.
subsections: section_title: Georgia Beginning to Use Recovery Act Funds
paragraphs: Although Georgia is still awaiting final information from the federal  government, the state estimates it will receive about $7.3 billion in funding  under the Recovery Act. Of that amount, about $467 million (or 6 percent)  will be awarded by federal agencies directly to localities and other  nonstate entities. As shown in figure 5, the majority of Recovery Act funds  will support education (36 percent), health programs (35 percent, of which  23 percent will go toward Medicaid), and transportation (15 percent). The  Governor completed the blanket certification for Recovery Act funds on  March 25, 2009, confirming that the state will use the funds to create jobs  and promote economic growth.
The state has begun to use or plans to use funds for the following  purposes:  Increased Federal Medical Assistance Percentage Funds: Medicaid is  a joint federal-state program that finances health care for certain  categories of low-income individuals, including children, families, persons  with disabilities, and persons who are elderly. The federal government  matches state spending for Medicaid services according to a formula  based on each state’s per capita income in relation to the national average  per capita income. The amount of federal assistance states receive for  Medicaid service expenditures is known as the Federal Medical Assistance  Percentage (FMAP). Across states, the FMAP may range from 50 percent  to no more than 83 percent, with poorer states receiving a higher federal  matching rate than wealthier states. The Recovery Act provides eligible  states with an increased FMAP for 27 months between October 1, 2008,  and December 31, 2010. On February 25, 2009, the Centers for Medicare &  Medicaid Services (CMS) made increased FMAP grant awards to states,  and states may retroactively claim reimbursement for expenditures that  occurred prior to the effective date of the Recovery Act. Generally, for  fiscal year 2009 through the first quarter of fiscal year 2011, the increased  FMAP, which is calculated on a quarterly basis, provides for (1) the  maintenance of states’ prior year FMAPs, (2) a general across-the-board  increase of 6.2 percentage points in states’ FMAPs, and (3) a further  increase to the FMAPs for those states that have a qualifying increase in  unemployment rates. The increased FMAP available under the Recovery  Act is for state expenditures for Medicaid services. However, the receipt of  this increased FMAP may reduce the funds that states must use for their  Medicaid programs, and states have reported using these available funds  for a variety of purposes.
As of April 1, 2009, Georgia had drawn down $311.5 million in increased  FMAP grant awards, which is about 59.8 percent of its awards to date.  Officials noted that these funds were drawn down retroactively for the  period October 1, 2008, through February 25, 2009, but funds can now be  drawn down on a more frequent basis. Georgia officials reported they plan  to use funds made available as a result of the increased FMAP to address  increased caseloads, offset general fund deficits, and maintain current  eligibility and benefit levels in the state Medicaid program.
Transportation—Highway Infrastructure Investment: The Recovery  Act provides additional funds for highway infrastructure investment using  the rules and structure of the existing Federal-Aid Highway Surface  Transportation Program, which apportions money to states to construct  and maintain eligible highways and for other surface transportation  projects. States must follow the requirements for the existing programs,  and in addition, the governor must certify that the state will maintain its  current level of transportation spending, and the governor or other  appropriate chief executive must certify that the state or local government  to which funds have been made available has completed all necessary  legal reviews and determined that the projects are an appropriate use of  taxpayer funds. Georgia provided these certifications, but qualified its  maintenance of effort certification, noting that the Georgia General  Assembly still was considering the Georgia Department of  Transportation’s (GDOT) fiscal year 2010 budget, which could impact the  state’s highway spending plans for that year.
Georgia has been apportioned $932 million for highway infrastructure. On  April 7, 2009, the Governor certified the first round of projects to be  funded with Recovery Act funds. As of April 16, 2009, the U.S. Department  of Transportation had not obligated any Recovery Act funds for Georgia  projects. Georgia plans to spend $208 million on 67 projects throughout  the state. Of that amount, $97 million will be spent in economically  distressed areas. The funds will be spent on maintenance (53 percent),  bridges (23 percent), capacity projects (17 percent), safety projects (6  percent), and enhancements (1 percent). The Georgia Department of  Transportation plans to award contracts for the majority of these projects  (73 percent) by May 22, 2009. Figure 6 illustrates the implementation time  line for Recovery Act highway projects.
subsections: section_title: Federal Appropriation of Funds
paragraphs: Pre-Construction Conference Contractor assembles  materials and workers U.S. Department of Education State Fiscal Stabilization Fund: The  Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be  administered by the U.S. Department of Education (Education). The SFSF  provides funds to states to help avoid reductions in education and other  essential public services. The initial award of SFSF funding requires each  state to submit an application to Education that assures, among other  things, it will take actions to meet certain educational requirements such  as increasing teacher effectiveness and addressing inequities in the  distribution of highly qualified teachers.
Georgia’s initial SFSF allocation was about $1 billion. According to state  officials, the state’s fiscal year 2010 budget passed on April 3, 2009, and  included $521 million in state fiscal stabilization funds for education and  $140 million in state fiscal stabilization funds for public safety. Georgia  plans to use the education funds for elementary, secondary, and public  higher education. For instance, Georgia intends to use three established  formulas to allocate funds to local education agencies, universities, and  technical colleges. Georgia plans to use the public safety funds to help  maintain safe staffing levels at state prisons, appropriately staff the state’s  forensic laboratory system, and avoid cuts in the number of state troopers.  Georgia plans to submit its application for fiscal stabilization funds in late  April or early May.
In addition to the major programs we discussed earlier, table 6 shows how  Georgia and two local entities plan to use Recovery Act funds for other  selected programs.
Funds will be used to help with needs that were deferred as a result of  budget cuts, such as bus replacement and the purchase of cleaner fuel  vehicles.
Funds will go to the Metropolitan Atlanta Rapid Transit Authority.
State will encourage local education agencies to focus on professional  learning opportunities for staff and intervention programs for students  who need help with math and writing.
Among other things, the state plans to encourage local education  agencies to (1) provide professional development for special education  teachers, (2) expand the availability and range of inclusive placement  options for preschoolers, and (3) obtain state-of-the-art assistive  technology devices and provide training in their use to enhance access  to the general curriculum for students with disabilities.
State plans to use a portion for administration, oversight of local  workforce agencies, as well as rapid response during major layoffs; the  majority of the funds will be allocated to the 20 local areas within the  state for adult, youth, and dislocated worker programs.
The Atlanta Regional Workforce Board—the local workforce board for  seven counties in the Atlanta metropolitan area—is concentrating on  plans for using the $3.1 million it will receive for summer youth  programs.
State will focus on fiscal year 2008 projects that received tax credits  and those on the waiting list; for projects that received tax credits but  are having difficulty using them, the state will either provide gap  financing or exchange the tax credits for grants.
The Atlanta Housing Authority will use $18.6 million to rehabilitate 13  public housing developments and an additional $8 million to complete  the demolition of 3 public housing developments.
subsections: section_title: To be determined
paragraphs: State plans to apply, but the competition criteria have not yet been  published.
State is currently developing a strategy to allocate the funds that must  be passed through to local governments.
The anticipated funds are based on federal agency announcements as of April 17, 2009.
section_title: In Addition to Addressing Specific Program Areas, Recovery Act Funding Also Will Help Mitigate Ongoing Fiscal Challenges
paragraphs: The recent economic downturn adversely affected Georgia in a number of  ways:    Higher unemployment rate—as of February 2009, the state’s  unemployment rate was 9.3 percent. This rate surpassed the national  unemployment rate (8.1 percent) and was almost double the state  unemployment rate from a year earlier (5.4 percent).
Increases in Medicaid enrollment—from January 2008 to January 2009,  the state’s Medicaid enrollment increased from 1,265,136 to 1,314,689,  with increased enrollment attributable to three population groups: (1)  children and families, (2) disabled individuals, and (3) other  populations, which includes refugees and women with breast and/or  cervical cancer.
Declining revenue—through March 2009, the state’s net revenue  collections for fiscal year 2009 were 8 percent less than they were for  the same time period in fiscal year 2008, representing a decrease of  approximately $1 billion in total taxes and other revenues collected.
Use of reserves—to offset shortages in revenue, the state used $200  million from its Revenue Shortfall Reserve, or “rainy day” fund, in  fiscal year 2009 and will use an additional $259 million in fiscal year  2010.
Recent budget cuts—overall, the state’s budget was cut by 8 percent  from fiscal year 2008 to fiscal year 2009. As shown in table 2, some  individual agencies were cut more significantly than others. Georgia  officials plan to use Recovery Act funds to limit additional budget cuts.
section_title: Georgia Has Adapted Existing Processes to Approve Uses of Recovery Act Funding
paragraphs: Georgia moved quickly to implement an infrastructure to manage  Recovery Act funds. A small core team was in place as of December 2008  to begin planning for implementation. Within 1 day of enactment, the  Governor had appointed a Recovery Act Accountability Officer, and she  formed a Recovery Act implementation team shortly thereafter. The  implementation team includes a senior management team, officials from  31 state agencies, a group to support accountability and transparency, and  cross-agency teams (see fig. 7). The Recovery Act Accountability Officer  and senior management team are responsible for analyzing and  disseminating federal and state guidance to the state agencies receiving  Recovery Act funds. The accountability and transparency support group  comprises representatives from the Office of Planning and Budget, State  Accounting Office, and Department of Administrative Services. The State  Auditor will serve as the primary auditor of the funds, and the Inspector  General will provide investigative support and respond to complaints of  fraud. The first implementation team meeting was held on February 24,  2009. Since then, the implementation team has met almost every week.
According to state officials, each year the Governor is required to present  to the General Assembly a recommended state budget for the upcoming  fiscal year and an amended budget for the current fiscal year. Prior to  submitting the budget for the upcoming year, the Governor sets the state’s  revenue estimate, which when added to surplus and reserve funds,  determines the size of the forthcoming appropriations bill. Furthermore,  state officials told us that the Governor has the authority to approve the  appropriations bill in its entirety or choose individual expenditure items to  veto.
To approve the use of Recovery Act funds, Georgia has enhanced its  existing budget process. The majority of Recovery Act funds will be added  into state budgets via an amendment process through the Governor’s  Office of Planning and Budget. A monthly Recovery Act budgeting and  amendment process has been established to account for federal dollars.  The Recovery Act approval process requires that each state agency submit  an action plan to the Office of Planning and Budget that includes  information on the agency, funding sources, accountability measures, and  details on individual projects funded (see fig. 8). For Recovery Act funds  the state government receives, the budget office also is requiring state  agencies to complete a tool that assesses risk. The budget office then  reviews the plans submitted by the agency, provides feedback to the  agency, and, in conjunction with the agency, finalizes the plans and risk  assessment tool. The Governor, the Recovery Act Accountability Officer,  budget office staff, and agency officials meet to vet the action plan and  make a final decision on applying for funding. As of April 17, 2009, all state  agencies had submitted action plans, and the budget office had begun its  review of these plans.
section_title: Georgia Has Been Establishing Internal Controls for Recovery Act Funds
paragraphs: Georgia’s most recent Single Audit Act report identified a number of  material weaknesses. Recognizing the risks associated with the influx of  Recovery Act funds, the state has taken a number of steps to establish  internal controls and safeguards for these funds.
subsections: section_title: Georgia’s Most Recent Single Audit Report Identified Material Weaknesses
paragraphs: Georgia’s most recent Single Audit Act findings indicate that the state may  have difficulty accounting for the use of some Recovery Act funds. In its  fiscal year 2008 Single Audit report, the State Auditor identified 28  financial material weaknesses and 7 compliance material weaknesses.  Three state agencies that expect to receive a substantial amount of  Recovery Act funds were cited for most of the financial material  weaknesses—the Department of Transportation (10), Department of Labor  (4), and Department of Human Resources (2). For example, the  Department of Transportation’s financial accounting system was deemed  unsuitable for day-to-day management. It also did not have a system in  place to correctly identify fund sources, and as a result, auditors found  that $138 million of federal funds were misclassified.
In addition, auditors found that the Department of Labor was unable to  provide detailed account balances for the Unemployment Insurance  Program because it maintained an inadequate general ledger that  consisted of manually updated spreadsheets. The auditors also found  that the Department of Human Resources’ process of allocating indirect  costs to programs had multiple deficiencies. They noted that inadequate  internal controls and failure to follow established policies increases the  risk of material misstatement in the financial statements, including  misstatements due to fraud and noncompliance with federal regulation. In addition, the Department of Human Resources was cited for four  compliance material weaknesses, such as requesting federal funds in  excess of program expenditures.
To ensure that the affected state agencies will address these material  weaknesses, the State Accounting Office will be monitoring corrective  action plans developed in response to the Single Audit report. The office  plans to issue guidance on the monitoring process by the end of April 2009  and has asked agencies to start tracking actions taken to address material  weaknesses.
section_title: State Agencies Are Taking Steps to Safeguard and Oversee Recovery Act Funds
paragraphs: Georgia recognizes the importance of accounting for and monitoring  Recovery Act funds and, despite recent budget cuts, has directed state  agencies to safeguard Recovery Act funds and mitigate identified risks. At  one of the first implementation team meetings, the Recovery Act  Accountability Officer disseminated an implementation manual to  agencies, which included multiple types of guidance on how to use and  account for Recovery Act funds. For example, the Office of Planning and  Budget provided details on the budgeting process for Recovery Act funds.  New and updated guidance is disseminated at the weekly implementation  team meetings. At the direction of the Recovery Act Accountability  Officer, the three agencies tasked with accountability support—the Office  of Planning and Budget, State Accounting Office, and Department of  Administrative Services—and other state agencies have instituted the  following safeguards:    The Office of Planning and Budget, in collaboration with the State  Accounting Office and others, is developing a state-level strategy to  monitor high-risk agencies. Additional risk-mitigation strategies will  be developed and implemented for these agencies.
The State Accounting Office issued two accounting directives to all  state agencies. The first provides guidance on accounting for Recovery  Act funds separately from other funds. The state plans to use Catalog  of Federal Domestic Assistance numbers to track Recovery Act funds  separately. Funds will also be segregated through a set of unique  Recovery Act fund sources in the state’s financial accounting system.  For example, the state is tracking increased FMAP funds for Medicaid  through the development of a unique identifier for each grant award.  The second accounting directive supplies language that should be  included in all contracts issued under the Recovery Act. In addition,  the office is reviewing the current accounting internal controls and  assessing how they can be enhanced for Recovery Act funds.
The Georgia Department of Administrative Services plans to issue a  communication alert stating that any state agency planning to award  contracts with Recovery Act funds should contact the department for  guidance. The department has developed standard contract language  that should be included in all Recovery Act contracts and plans to  publicize and offer training for state agency contracting staff. Further,  the department plans to continue its compliance reviews of agencies  with delegated purchasing authority to ensure they are following  proper policies and procedures.
All of the agencies we met with that directly administer programs had  monitoring processes in place that they plan to adapt or enhance for  Recovery Act oversight. For example, the Georgia Department of  Community Affairs’ plans for monitoring the Tax Credit Assistance  Program include a front-end analysis of costs, third-party inspections  prior to the release of funds, and an audit of the general contractor by  a certified public accountant. The last requirement is unique to  projects funded with Recovery Act tax credits.
In addition, the State Auditor, Inspector General, and internal audit  divisions within state agencies have taken or plan to take the following  steps to mitigate risk and oversee the use of Recovery Act funds:    The State Auditor issued two audit risk alerts. One urged all agency  officials to include appropriate contractual provisions in Recovery Act  contracts and to not rush the distribution of Recovery Act funds before  adhering to proper internal control processes and understanding  federal guidelines. The other alert discussed limits on the use of funds.  The State Auditor also plans to provide internal control training to  state agency personnel in late April. The training will discuss basic  internal controls, designing and implementing internal controls for  Recovery Act programs, best practices in contract monitoring, and  reporting on Recovery Act funds.
Currently, the State Auditor conducts routine statewide risk  assessments as a means of identifying high-risk agencies and  determining where to best focus audit resources. Officials plan to  target future risk assessments on programs receiving Recovery Act  funding and are awaiting additional audit guidance from the Office of  Management and Budget (OMB).
The Inspector General issued a directive requiring all state agencies to  insert new contractual language in any contracts, subcontracts, grants,  and bid solicitations financed with Recovery Act funds. The new  language specifically gives her the right to inspect all records of  outside vendors, subcontractors, and consultants.
In conjunction with the State Accounting Office, the Inspector General  plans to conduct unannounced visits to state agencies receiving  Recovery Act funding.
The Inspector General also developed a database to specifically track  Recovery Act complaints and a public service announcement to alert  the public of how to report fraud, waste, and abuse.
Some state agencies, such as the Departments of Human Resources  and Transportation, have internal audit divisions that plan to monitor  the use of Recovery Act funds. For instance, the Department of Human  Resources’ internal auditor has developed a plan to assess the risk of  each program prior to receiving Recovery Act funding.
section_title: Resources Available for Oversight May Be Limited
paragraphs: As these actions and plans indicate, Georgia recognizes the importance of  instituting safeguards for Recovery Act funds. However, state officials also  stressed the costs of such efforts. Both the Governor’s Office and the State  Auditor noted that they had not received additional funding for Recovery  Act oversight. As shown in table 2, several agencies with oversight  responsibilities experienced significant budget reductions in fiscal year  2009, including the State Accounting Office (43 percent), Inspector  General (19 percent), Office of Planning and Budget (11 percent), and  State Auditor (11 percent).
The State Auditor noted that, if state fiscal conditions do not improve or  federal funding does not become available for audit purposes, additional  budget and staffing cuts may occur within the department. Directives from  OMB, due by May 1, will provide guidance on the audit requirements for  Recovery Act programs. Officials noted that the scope of pending audit  requirements may greatly impact the State Auditor’s ability to audit  Recovery Act programs on top of existing audit requirements. In addition,  some state officials that directly administer programs told us that  overseeing the influx of funds could be a challenge, given the state’s  current budget constraints and hiring freeze. In some cases, state agencies  told us that they planned to use Recovery Act funds to cover their  administrative costs. Other state agencies wanted additional clarity on  when they could use program funds to cover such costs.
section_title: Plans to Assess Impact of Recovery Act Funds Are in Initial Stages
paragraphs: In general, Georgia is awaiting additional federal guidance on reporting  requirements before making detailed plans to assess impact. However, the  State Auditor is adapting an existing system (used to fulfill its Single Audit  Act responsibilities) to help the state report on Recovery Act funds. The  statewide Web-based system will be used to track expenditures, project  status, and job creation and retention. The state will make data from this  system available on its Recovery Web site. The Governor is requiring all  state agencies and programs receiving Recovery Act funds to use this  system. State officials do not expect to track and report on funds going  directly to localities, but some said they would like to be informed of these  funds so that the state can coordinate with localities. They cited  broadband initiatives and health funding to nonprofit hospitals as areas  where a lack of coordination could result in a duplication of services or  missed opportunities to leverage resources.
In addition, some state agencies appear to have more experience tracking  jobs than others. For example, the Georgia Department of Community  Affairs has experience tracking jobs for the Community Development  Block Grant program; therefore, agency officials do not expect to have  difficulty tracking jobs for the Neighborhood Stabilization Program. For  another program it will administer, the Tax Credit Assistance Program,  Community Affairs surveyed potential applicants in March 2009 to gain a  better understanding of performance measures that could be tracked as a  part of its monitoring efforts, including job creation. In contrast, officials  from other programs, such as the Edward Byrne Memorial Justice  Assistance Grant program and the Transit Capital Assistance Grant  program expressed concerns about identifying appropriate measures of  job creation and retention within the purpose of their programs and were  waiting for more guidance from federal agencies and OMB.
section_title: Georgia’s Comments on This Summary
paragraphs: We provided the Governor of Georgia with a draft of this appendix on  April 17, 2009. The Recovery Act Accountability Officer responded for the  Governor on April 19, 2009. In general, she noted that the report accurately  and succinctly captures the implementation status of the Recovery Act  process in Georgia.
section_title: GAO Contacts
section_title: Staff Acknowledgments
paragraphs: In addition to the contacts named above, Paige Smith, Assistant Director;  Nadine Garrick, analyst-in-charge; Stephanie Gaines; Alma Laris; Marc  Molino; Barbara Roesmann; Robyn Trotter; and Mark Yoder made major  contributions to this report.
section_title: Appendix VIII: Illinois
paragraphs: Use of funds: An estimated 90 percent of Recovery Act funding provided  to states and localities nationwide in fiscal year 2009 (through Sept. 30,  2009) will be for health, transportation and education programs. The three  largest programs in these categories are the Medicaid Federal Medical  Assistance Percentage (FMAP) awards, highways, and the State Fiscal  Stabilization Fund.
Medicaid Federal Medical Assistance Percentage (FMAP) Funds    As of April 3, 2009, the Centers for Medicare & Medicaid Services (CMS) had made about $992 million in  increased FMAP grant awards to Illinois.
As of April 1, 2009, Illinois has drawn down about $117.1 million, or about 12 percent of its initial increased  FMAP grant awards.  Illinois plans to use funds made available as a result of the increased FMAP in fiscal years 2009 and 2010 to  fill a Medicaid budget gap, permitting the state to move from an average 90-day payment cycle to a cycle of  no more than 30 days for all of its providers, including payments hospitals and nursing homes.
Illinois was apportioned about $936 million for highway infrastructure investment on March 2, 2009, by the  U.S. Department of Transportation.
As of April 16, 2009, the U.S. Department of Transportation had obligated $606.3 million for 214 Illinois  projects. Illinois Department of Transportation officials stated that they will award most contracts based on  a competitive bidding process, but they will use a quality based selection process for approximately $27  million in engineering services contracts.   These projects include activities such as resurfacing highways and repairing bridge decks.  Illinois will request reimbursement from the U.S. Department of Transportation as the state makes payments  to contractors.
U.S. Department of Education State Fiscal Stabilization Fund (Initial Release)
Illinois was allocated about $1.4 billion from the initial release of these funds on April 2, 2009 by the U.S.  Department of Education. On April 20, 2009, these funds became available to the state. Illinois is expecting  to receive an additional $678 million by September 30, 2009.
Before receiving the funds, states are required to submit an application that provides several assurances to  the Department of Education. These include assurances that they will meet maintenance of effort  requirements (or that they will be able to comply with waiver provisions) and that they will implement  strategies to meet certain educational requirements, including increasing teacher effectiveness, addressing  inequities in the distribution of highly qualified teachers, and improving the quality of state academic  standards and assessments. The state submitted its application on April 10, 2009.      Illinois plans to use all of its $2 billion in State Fiscal Stabilization funds for K-12 and higher education  activities to address the layoffs and other cutbacks many district and public colleges and universities are  facing in their fiscal year 2009 and 2010 budgets.
Illinois is also receiving additional Recovery Act funds under other  programs, such as programs under Title I, Part A of the Elementary and  Secondary Education Act of 1965 (ESEA) (commonly known as No Child  Left Behind); programs under the Individuals with Disabilities Education  Act (IDEA); and two programs of the U.S. Department of Agriculture—one  for administration of the Temporary Food Assistance Program and one for  competitive equipment grants targeted to low income districts from the  National School Lunch Program.
Safeguarding and transparency: To provide accountability and  transparency in how these funds are being spent, the state has established  a high level Executive Committee and a separate working group to oversee  Recovery Act compliance across agencies and departments. It has also  developed a Web site (www.recovery.illinois.gov) that contains  information about the use of Recovery Act funds. The state is in the  process of performing a risk assessment of all state programs receiving  Recovery Act funds to identify potential vulnerabilities. It will use the  state’s Single Audit—a state-level audit of the largest programs receiving  federal money—as a tool in identifying these risks. State agencies also  reported that they are capable of tracking their Recovery Act funds  separately from other program funds by tagging them with a special  accounting or funding code. For the most part, these codes will permit  agencies to then rely on existing processes to monitor and report on how  these funds are being spent.
Assessing the effects of spending: Officials at several state agencies  indicated that they can track various performance measures for projects  funded through the Recovery Act by utilizing existing systems. However,  according to officials in the Governor’s office and other state agencies,  more guidance is needed on definitions for job creation and retention  measures to adequately measure their impact.
subsections: section_title: Illinois Beginning to Use Recovery Act Funds
paragraphs: Illinois has started to use some of its Recovery Act funds, and high level  state officials we spoke with described several overarching priorities and  goals that the state plans to achieve through use of these funds. These  include averting layoffs and creating new jobs, concentrating resources on  economically distressed areas, and funding infrastructure improvements,  as described below.
Increased Federal Medical Assistance Percentage Funds: Medicaid  is a joint federal-state program that finances health care for certain  categories of low-income individuals, including children, families, persons  with disabilities, and persons who are elderly. The federal government  matches state spending for Medicaid services according to a formula  based on each state’s per capita income in relation to the national average  per capita income. The amount of federal assistance states receive for  Medicaid service expenditures is known as the Federal Medical Assistance  Percentage (FMAP). Across states, the FMAP may range from 50 percent  to no more than 83 percent, with poorer states receiving a higher federal  matching rate than wealthier states. The Recovery Act provides eligible  states with an increased FMAP for 27 months between October 1, 2008,  and December 31, 2010. On February 25, 2009, the Centers for Medicare &  Medicaid Services (CMS) made increased FMAP grant awards to states,  and states may retroactively claim reimbursement for expenditures that  occurred prior to the effective date of the Recovery Act. Generally, for  federal fiscal year 2009 through the first quarter of federal fiscal year 2011,  the increased FMAP, which is calculated on a quarterly basis, provides for  (1) the maintenance of states’ prior year FMAPs; (2) a general across-the- board increase of 6.2 percentage points in states’ FMAPs; and (3) a further  increase to the FMAPs for those states that have a qualifying increase in  unemployment rates. The increased FMAP available under the Recovery  Act is for state expenditures for Medicaid services. However, the receipt of  the increased FMAP may reduce the funds that states must use for their  Medicaid programs, and states have reported using these available funds  for a variety of purposes.
From January 2008 to January 2009, Illinois’s Medicaid enrollment  increased slightly from 2,184,963 to 2,298,802, with the highest share of the  enrollment increase attributable to two population groups: (1) children  and families and (2) non-disabled non-elderly adults. Illinois is estimated  to receive a total of $2.9 billion in increased FMAP funding, of which $992  million has already been awarded to the state for the first three quarters of  federal fiscal year 2009. For the second quarter of federal fiscal year 2009,  Illinois received an FMAP of 60.48 percent—an increase of 10.48  percentage points over its fiscal year 2008 FMAP. As of April 1, 2009,  Illinois has drawn down $117.1 million in Recovery Act funds, which is  almost 12 percent of the amount awarded to Illinois to date. Illinois state  officials indicated that the main focus in using funds made available as a  result of the Recovery Act will be to meet financial obligations and to  ensure compliance with the prompt payment provisions of the Recovery  Act. Specifically, Illinois is using funds made available as a result of the  Recovery Act to fill a Medicaid budget gap, permitting the state to move  from a 90-day payment cycle to a 30-day cycle for all of its providers,  including payments to hospitals and nursing homes. The state has also  decided to include pharmacists in its prompt payment initiative. These  actions will also help avoid potential layoffs in provider organizations.
Transportation—Highway Infrastructure Investment: The Recovery  Act provides additional funds for highway infrastructure investment using  the rules and structure of the existing Federal-Aid Highway Surface  Transportation Program, which apportions money to states to construct  and maintain eligible highways and for other surface transportation  projects. States must follow the requirements for the existing programs,  and in addition, the governor must certify that the state will maintain its  current level of transportation spending. The governor or other  appropriate chief executive must also certify that the state or local  government to which funds have been made available has completed all  necessary legal reviews and determined that the projects are an  appropriate use of taxpayer funds. Illinois provided the first of these  certifications but noted that the state’s level of funding was based on the  best information available at the time of the state’s certification.
The Illinois Department of Transportation (IDOT) is planning to spend a  large share of its estimated $655 million in Recovery Act funds for  highway and bridge construction and maintenance projects in  economically distressed areas. Equally important criteria are that projects  must be shovel-ready and can be completed by February 2012. These  funds will expand the amount of money the state can invest in highway  projects beyond the amounts the state had listed in its State  Transportation Improvement Program. The projects will include  resurfacing roads across the state, repairing bridge decks, replacing  guardrail sections, and improving pavement markings. As of April 16, 2009,  the U.S. Department of Transportation had obligated $606.3 million for 214  Illinois projects. IDOT officials stated that they will award most contracts  based on a competitive bidding process, but they will use a quality based  selection process for approximately $27 million in engineering services  contracts.
U.S. Department of Education State Fiscal Stabilization Fund: The  Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be  administered by the U.S. Department of Education (Education). The SFSF  provides funds to states to help avoid reductions in education and other  essential public services. The initial award of SFSF funding requires each  state to submit an application to Education that assures, among other  things, it will take actions to meet certain educational requirements, such  as increasing teacher effectiveness and addressing inequities in the  distribution of highly qualified teachers. The Illinois Office of the Governor  submitted the state’s application for these funds to Education on April 10,  2009. On April 20, 2009, these funds became available to the state. Illinois  is expecting to receive an additional $678 million by September 30, 2009.
The U.S. Department of Education has allocated a total of about $2 billion  in SFSF monies to Illinois. Approximately $1.4 billion of this amount was  allocated in an initial release on April 2, 2009. Illinois plans to use all of the  $2 billion from the SFSF for K-12 and higher education activities and  hopes to avert layoffs and other cutbacks many districts and public  colleges and universities are facing in their fiscal year 2009 and 2010  budgets. State Board of Education officials also noted that U.S.  Department of Education guidance allows school districts to use  stabilization funds for education reforms, such as prolonging school days  and school years, where possible. However, officials said that Illinois  districts will focus these funds on filling budget gaps rather than  implementing projects that will require long-term resource commitments.
subsections: section_title: Additional Plans for Use of Funds Made Available as a Result of the Recovery Act Include Offsetting State’s Budget Deficit and Implementing New Capital Plan
paragraphs: The State of Illinois has been in a recession since December 2007 and  continues to face financial difficulties. The state’s unemployment rate  surged by 46 percent from 5.9 percent in February 2008 to 8.6 percent in  February 2009. Major job losses are expected to continue in  manufacturing, construction, and retail. On the housing front, foreclosure  filings in February 2009 were up 62 percent over 2008. While state general  fund revenue grew 4.5 and 5.7 percent in fiscal years 2007 and 2008,  respectively, revenues declined by 0.5 percent in fiscal year 2009. The state  estimates that it faces a projected $11.6 billion operating budget deficit for  fiscal years 2009 and 2010. To address this deficit, the Governor has  proposed a number of measures in the state’s 2010 budget proposal,  including the following:    Spending cuts, including 4 furlough days for state employees and a 2- percent spending reduction in grant programs;    State employee pension reform, including provisions that would align  the state’s eligible age for full benefits with that of Social Security,  adjust benefit formulas, and increase contribution rates for current  employees;    Creation of a taxpayer board to improve accountability and efficiency  across state programs; and    Revenue increases, including income tax increases that would raise an  estimated $2.8 billion from individuals and $350 million from  corporations in fiscal year 2010; higher health care contributions from  current and retired state employees; and higher vehicle registration,  title, and license fees.
Illinois officials expect that the state will receive at least $9 billion in  direct Recovery Act funds to the state, and those local entities—such as  public housing and transit authorities—will receive additional Recovery  Act funds. State officials said they have identified about $4.3 billion of  Recovery Act funds, including use of the previously mentioned SFSF, that  could be utilized to address the operating budget shortfall for fiscal years  2009 and 2010. They noted that these funds would potentially reduce  pressure on the state for further tax increases and spending cuts. In  addition, the state plans to use some of the remaining Recovery Act funds  to help launch the Governor’s proposed infrastructure building program— a $26.5 billion proposal to fund schools, roads and bridges, public transit,  and energy and environmental capital projects during Illinois fiscal years  2010 through 2015. The $26.5 billion plan would be paid for with funds  from the state ($10.6 billion), federal sources ($11.6 billion), local sources  ($2.4 billion), and the Recovery Act ($2.0 billion).
In addition to funds administered by state agencies, local entities will also  receive funds through the Recovery Act for programs administered at the  local level. We met with one local agency that will receive Recovery Act  funds and will use its funds to address overdue capital improvements. The  Chicago Transit Authority (CTA), an independent governmental agency  that provides rail and bus service in the greater Chicago area, has already  put plans in place to spend its $240 million. CTA has a backlog of $6.8  billion in unfunded capital projects necessary to update its infrastructure  and fleet. The agency has begun work on an $87.8 million project that will  replace rails, ties, and fasteners for one subway line. The agency also  expects to complete hybrid bus purchases, a bus and rail car fleet  overhaul, and numerous facility improvements by the end of 2009. Finally,  reconstruction of at least one rail station is expected to be completed by  late 2010.
While we found examples of programs that have received Recovery Act  funds and have projects that are already underway, we spoke with state  officials who said they needed more guidance about how they should use,  track, and report on these funds at their agencies. State Board of  Education officials said that understanding the reporting requirements and  eligible uses for Recovery Act funds is the biggest challenge they face as  they prepare to disseminate funds to the local school districts. They also  expressed concern with the Recovery Act’s dual emphases on  accountability and quick expenditure of funds. The Illinois Criminal  Justice Information Authority expressed similar concerns about the need  for federal guidance in regard to reporting time frames that may not  completely align with previous reporting procedures.
section_title: Illinois Is Taking Steps to Assess Risk and Develop Plans for Safeguards Related to Recovery Act Funds
paragraphs: During our meetings with high-level state officials, they said that efforts  are underway to ensure accountability and transparency in the use of  Recovery Act funds. The Governor’s office has established an Executive  Committee and working group to identify concerns across state agencies  and help them implement Recovery Act provisions. Also, state internal  audit officials are developing a variety of internal control techniques to  assure compliance with the Recovery Act’s requirements. To properly  track funds, state agency officials explained that they plan to use unique  identifiers or codes so that these funds can be separately tracked in their  existing financial or grants management systems.
subsections: section_title: Illinois Has Established a Recovery Act Executive Committee and Working Group
paragraphs: To ensure accountability and transparency in the use of Recovery Act  funds, the state has established an Executive Committee, a Recovery Act  Working Group, and an Illinois Recovery Web site. The Executive  Committee is comprised of state executives, including the Deputy Chief of  Staff for Economic Recovery, the Chief Internal Auditor, the Budget  Director, and the Chief Information Officer. According to state officials we  spoke with, the Executive Committee is working to identify common risks  to all state agencies in the use of Recovery Act funds. To address  crosscutting Recovery Act issues, such as legal matters and procurement,  the committee is also establishing subcommittees with agency subject  matter experts to review critical information and develop policies on these  subject matters. The Recovery Act Working Group consists of a contact  point for each state agency for Recovery Act related matters and,  according to state officials, meets to communicate requirements,  guidance, and implementation related to the act.
The Governor’s Office has also established an Illinois Recovery Web site at  www.recovery.illinois.gov, which contains information on the programs  receiving Recovery Act funds, amounts available through the act, and  certifications signed by the Governor. The Web site will also include  reports on Recovery Act program expenditures, and eventually users will  have the ability to download raw data on project or program descriptions,  budgets, spending, and job creation. Another feature of Illinois’s Web site  is that it allows the public to submit suggestions for projects that the state  could fund through the Recovery Act.
section_title: State Audit Officials Are Developing Internal Control Measures
paragraphs: Every state is required to have an annual Single Audit in accordance with  U.S. Office of Management and Budget (OMB) requirements. This audit is  required when $500,000 or more in federal funds is expended in any fiscal  year. Officials from the Illinois Office of Internal Audit (OIA) stated that  they will utilize the Office of the Auditor General’s (OAG) single audits to  identify programs that may require additional scrutiny. In Illinois’s fiscal  year 2007 Single Audit, the OAG identified four material weaknesses in  internal controls over financial reporting and classified 46 findings as  significant deficiencies and material weaknesses in internal controls  related to compliance. Significant agency findings classified as a material  weakness that are relevant to the Recovery Act and recipients of Recovery  Act funds included    The State Board of Education not sanctioning a Local Education  Agency that did not meet the comparability of services requirement  under the Title I Grants to Local Educational Agencies Program;  IDOT not obtaining certifications from subrecipients for not having  been suspended or debarred from participation for the Airport  Improvement Program;    Multiple agencies inadequately conducting or failing to conduct on-site  monitoring of subrecipient awards for federal programs; and    Multiple agencies inadequately monitoring subrecipient audit reports  for federal programs.
The OAG explained that to the extent that federal programs receiving  Recovery Act funds are addressed in the OMB compliance supplement, it  will be performing its required audit procedures. The OAG stated that  OMB guidance will be critical for planning future audits of federal funds.  Furthermore, the OAG conducted an analysis of programs receiving  Recovery Act funds, and found that a few additional programs will likely  be included in future single audits. OIA officials told us that they are using  the Single Audit results to assist in conducting a risk assessment of all  state-administered programs receiving Recovery Act funds. OIA officials  said that they will use the results of this risk assessment to target their  audit efforts to programs that demonstrate a high level of risk. OIA and  OAG officials said that they plan to follow up on their respective prior  audit findings to make sure that state agencies have taken appropriate  corrective action. OIA officials said that in addition to large programs, they  plan to follow up on prior internal audit findings on federal Recovery Act  programs under $30 million that are not covered by the statewide single  audit.
section_title: State Agencies Plan to Use Unique Identifiers or Codes to Track Recovery Act Funds
paragraphs: Most agency officials we spoke with stated that their systems are capable  of tracking Recovery Act funds separately from other funds for the same  programs. For example, IDOT officials stated that Recovery Act projects  are being noted in different systems, typically with special funding codes.  In addition, when IDOT officials access Recovery Act funds, those  transactions will have special codes and notations. Similarly, officials at  the Illinois Department of Human Services told us that any funds the  agency receives through the Recovery Act for the Neighborhood  Stabilization Program will have accounting codes separate from any  previous funds received through the program. In order to track increased  FMAP funds, Illinois officials said they will use the state’s existing  accounting systems and will use existing processes to review and  reconcile expenditures. For example, state officials will record draw  downs of increased FMAP funds separately from other Medicaid funds.  State officials will also use special receipt, expenditure, and contract  codes for all increased FMAP funds and related Medicaid expenditures. A  CTA official we spoke with stated that his agency will use its existing  financial system to track Recovery Act funds by unique project numbers or  descriptions. Finally, officials from the State Comptroller’s Office told us  that separate appropriation codes will likely be used to track Recovery Act  expenditures statewide. One agency official indicated that while funds can  easily be tagged at the state level, he was concerned that this might not be  the case once funds are distributed to subrecipients.
section_title: Agencies Are Considering Ways to Assess Impacts, but Additional Guidance Is Needed
paragraphs: Officials at several state agencies we spoke with indicated that they can  use various performance measures for projects funded through the  Recovery Act by utilizing existing systems. For example, IDOT officials  stated that they will track and monitor data for Recovery Act projects in  the same manner as they do for regular program reporting, and should be  able to report on and provide evidence regarding the status of project  goals and objectives. Officials with the Illinois Housing Development  Authority stated that they also track performance and goals for each  project through current systems and should be able to build on these  systems to customize reports as necessary for the Recovery Act.
On the other hand, several state officials said that additional guidance is  needed for measuring the potential impact of Recovery Act funds.  According to officials from the Governor’s office and state agencies we  spoke with, additional guidance is needed on definitions of “jobs saved,”  “jobs created,” “jobs sustained,” and other similar terms included in the  Recovery Act. Illinois Department of Commerce and Economic  Opportunity officials stated that they had concerns regarding the  evaluation of job retention as it relates to the Workforce Investment Act  program. Specifically, they said OMB Recovery Act guidance focuses on  quick job placement, but jobs created through the act may have lower  retention than those under past program grants. Furthermore, while  officials at most agencies we visited stated that they are considering plans  to track the impact of Recovery Act funds, none of these plans have been  finalized. Officials at two state agencies said that their systems do not  track such specific performance measures, and they may need to develop  additional mechanisms to link Recovery Act funds with their performance  results.
section_title: Illinois’s Comments on This Summary
paragraphs: We provided the Governor of Illinois with a draft of this appendix on April  17, 2009. The Deputy Chief Of Staff responded for the Governor on April  20, 2009. In general, the state concurred with our statements and  observations. The official also provided technical suggestions that were  incorporated, as appropriate.
section_title: GAO Contacts
section_title: Staff Acknowledgments
paragraphs: In addition to the contacts named above, Paul Schmidt, Assistant Director;  Tarek Mahmassani, Analyst-in-Charge; Rick Calhoon; Katherine Iritani;  David Lehrer; Lisa Reynolds; and Mark Ryan made major contributions to  this report.
section_title: Appendix IX: Iowa
paragraphs: Use of funds:  An estimated 90 percent of Recovery Act funding provided  to states and localities nationwide in fiscal year 2009 (through Sept. 30,  2009) will be for health, transportation, and education programs. The three  largest programs in these categories are the Medicaid Federal Medical  Assistance Percentage (FMAP) awards, the State Fiscal Stabilization Fund,  and highways.
Medicaid Federal Medical Assistance Percentage Funds    As of April 3, 2009, Centers for Medicare and Medicaid Services (CMS) had made about $84 million in  increased FMAP grant awards to Iowa.     From January 2008 to January 2009, Iowa’s Medicaid enrollment increased from 358,112 to 392,813, with the  highest enrollment increase attributable to two population groups: (1) children and families and (2)  nondisabled nonelderly individuals.
As of April 15, 2009, Iowa had drawn down about $86 million, or 63 percent of its increased FMAP grant    Officials plan to use funds made available as a result of the increased FMAP to cover increased caseloads,  maintain existing populations of recipients, and avoid reductions to benefits for Medicaid recipients.
Iowa was apportioned about $358 million for highway infrastructure investment on March 2, 2009, by the  U.S. Department of Transportation.
As of April 16, 2009, the U.S. Department of Transportation had obligated $221.2 million for 107 Iowa    As of April 15, 2009, the Iowa Department of Transportation had competitively awarded 25 contracts valued  at $168 million, or 47 percent of the Recovery Act funds apportioned.
Contracts were awarded for projects such as bridge replacements and highway resurfacing—“shovel ready”  projects that could be initiated and completed quickly.
U.S. Department of Education State Fiscal Stabilization Fund (Initial Release)
Iowa was allocated about $316 million from the initial release of these funds on April 2, 2009, by the U.S.  Department of Education.
Before receiving the funds, states are required to submit an application that provides several assurances to  the Department of Education.  These include assurances that they will meet maintenance of effort  requirements (or that they will be able to comply with waiver provisions) and that they will implement  strategies to meet certain educational requirements, including increasing teacher effectiveness, addressing  inequities in the distribution of highly qualified teachers, and improving the quality of state academic  standards and assessments.      Iowa plans to submit its application as soon as it can be accurately completed.    Iowa’s Department of Education plans to use these funds to maintain spending for grades K-12 and  postsecondary education at fiscal year 2009 levels for fiscal years 2010 and 2011.
In addition, Iowa estimates that other funding will be provided to the state  under the Recovery Act for the following program areas:    Education—$214 million (includes programs such as those to provide  grants to local education agencies and assist individuals with  disabilities).
Housing and infrastructure—$252 million (includes programs such as  the Weatherization Assistance Program).
Agriculture/natural resources—$152 million (includes programs such  as the clean water state revolving fund).
Economic development—$94 million (includes programs such as the  unemployment insurance program).
The status of plans for using these funds is discussed throughout this  appendix.
Safeguarding and transparency: Iowa has a foundation of safeguards  and controls that could help assure proper spending of Recovery Act  funds. For example, the State Auditor is responsible for audits of state and  local entities, such as counties, cities, and school districts, and must  provide guidelines to public accounting firms that perform such audits. In  addition, many state agencies have internal audit groups that focus on  programmatic and financial issues. Furthermore, according to state  officials, administrative and statutory mechanisms are in place that could  oversee Recovery Act funds and provide information to the public on how  these funds are being spent. For example, while previous audits have  shown few financial weaknesses, the State Auditor is updating its 2009  audit plan risk assessment to reflect the increased risk associated with  Recovery Act funding. Iowa is also enhancing its accounting systems to  track all Recovery Act funds that will flow through the state government to  ensure that the state can adjust its spending plans as needed. Furthermore,  Iowa is developing or planning systems to track funds provided to cities,  counties, local governments, and other entities. Finally, Iowa is working to  establish a framework that will provide transparency on the use of  Recovery Act funds. This framework includes the state’s Recovery Act  Web site, which is designed to provide up-to-date information on the use  of Recovery Act funds by program, a state board to recommend  improvements to existing practices to prevent fraud, waste, and abuse and  oversee the spending of Recovery Act funds, and mechanisms provided  through the state’s Accountable Government Act.
Assessing the effects of spending: State agencies have begun to  consider how to measure outcomes and assess the effect of the Recovery  Act. Some agencies have mechanisms in place to collect data in order to  calculate outcomes. Other state agencies are awaiting guidance such as a  consistent approach to quantifying the number of jobs created and  sustained. In the meantime, Iowa’s Legislative Services Agency plans to  work closely with the Iowa Department of Management to create outcome  measures for the Recovery Act and report results.
subsections: section_title: Iowa Beginning to Use Recovery Act Funds
paragraphs: Most Iowa state officials said they plan to follow established allocation  formulas while waiting for federal guidance on the use and tracking of  Recovery Act funds. For example, the Iowa Department of Economic  Development, which manages the state’s Community Development Block  Grants and Neighborhood Stabilization Program, intends to follow the  state-established allocation formula for the Community Development  Block Grants program. This formula allocates funding in thirds: one-third  to affordable housing, one-third to economic development, and one-third  to infrastructure.
Some agencies have gone even further in their spending of Recovery Act  funds. For example, the Iowa Department of Transportation has funded  some “shovel ready” projects within 3 days of the enactment of the  Recovery Act. Additionally, the Iowa Department of Economic  Development has already established guidance for allocating  Neighborhood Stabilization Program funding to eligible entities, should the  state be awarded competitive grant funds.
As of April 15, 2009, Iowa had drawn down about $86 million of its  increased FMAP grant awards for the Medicaid program, which is 63  percent of its awards to date. The state plans to use funds made available  as a result of the increased FMAP to cover increased caseloads and  maintain current levels of benefits, noting that without these funds, the  program would have faced budget shortfalls. Additionally, the state plans  to use $110 million of funds made available as a result of the increased  FMAP to fully fund Medicaid in the current fiscal year and $145 million of  these funds to fully fund Medicaid in fiscal year 2010.
Iowa has begun to use some of its Recovery Act funds, as follows.
Increased Federal Medical Assistance Percentage Funds: Medicaid  is a joint federal-state program that finances health care for certain  categories of low-income individuals, including children, families, persons  with disabilities, and persons who are elderly. The federal government  matches state spending for Medicaid services according to a formula  based on each state’s per capita income in relation to the national average  per capita income. The amount of federal assistance states receive for  Medicaid service expenditures is known as the Federal Medical Assistance  Percentage (FMAP). Across states, the FMAP may range from 50 percent  to no more than 83 percent, with poorer states receiving a higher federal  matching rate than wealthier states. The Recovery Act provides eligible  states with an increased FMAP for 27 months between October 1, 2008,  and December 31, 2010. On February 25, 2009, CMS made increased  FMAP grant awards to states, and states may retroactively claim  reimbursement for expenditures that occurred prior to the effective date  of the Recovery Act. Generally, for fiscal year 2009 through the first  quarter of fiscal year 2011, the increased FMAP, which is calculated on a  quarterly basis, provides for (1) the maintenance of states’ prior year  FMAPs; (2) a general across-the-board increase of 6.2 percentage points in  states’ FMAPs; and (3) a further increase to the FMAPs for those states  that have a qualifying increase in unemployment rates. The increased  FMAP available under the Recovery Act is for state expenditures for  Medicaid services. However, the receipt of this increased FMAP may  reduce the funds that states must use for their Medicaid programs, and  states have reported using these available funds for a variety of purposes.
For the first two quarters of 2009, Iowa’s FMAP rate was 68.82 percent, a  7.09 percentage point increase over fiscal year 2008. Iowa has received  increased FMAP grant awards of $136 million for fiscal year 2009, and, as  of April 15, 2009, Iowa had drawn down $86 million in increased FMAP  grant awards, which is about 63 percent of its awards to date. Iowa  officials indicated they will use funds made available as a result of the  increased FMAP to cover increased caseloads, maintain existing  populations of recipients, avoid cuts to eligibility, and maintain current  levels of benefits. In addition, such funds will provide Iowa officials with  the means to offset budget shortfalls, including shortfalls for the state’s  Medicaid program. Iowa officials indicated that they expect the recession  to continue longer for the state than for the nation as a whole, and if the  increased FMAP funds are not available for all of federal fiscal year 2011,  the resulting deficit will likely be addressed through the use of reserve  funds or cuts in program funding. According to state officials, the use of  FMAP funds requires an appropriation from the state legislature.
Transportation—Highway Infrastructure Investment: The Recovery  Act provides additional funds for highway infrastructure investment using  the rules and structure of the existing Federal-Aid Highway Surface  Transportation Program, which apportions money to states to construct  and maintain eligible highways and for other surface transportation  projects. States must follow the requirements for existing programs, and in  addition, the Governor must certify that the state will maintain its current  level of transportation spending, and the Governor or other appropriate  chief executive must certify that the state or local government to which  funds have been made available has completed all necessary legal reviews  and determined that the projects are an appropriate use of taxpayer funds.  Iowa’s Governor certified that the state would “maintain its efforts” for  Department of Transportation programs funded under the Recovery Act.  However, Iowa noted in its certification that transportation spending  would be influenced by the difference in the definition of the word  “expend” for different covered programs; the uncertainty of the amount  collected from state user fees to fund the programs; and variables (such as  weather) that may affect the state’s timeline for spending Recovery Act  transportation funds.
Within 3 days of the enactment of the Recovery Act, the Iowa Department  of Transportation competitively awarded contracts for 19 highway and  bridge projects valued at about $56 million. Contracts were awarded for  projects such as bridge replacements and highway resurfacing—shovel- ready projects that could be initiated and completed quickly. As of April  15, 2009, Iowa had competitively awarded a total of 25 contracts valued at  $168 million, or 47 percent of the Recovery Act funds apportioned. As of  April 16, 2009, the U.S. Department of Transportation had obligated $221.2  million for 107 Iowa projects. According to Iowa transportation officials,  the agency could begin spending Recovery Act funds quickly because it  maintained an inventory of shovel-ready projects and its accounting  system needed few changes to track the projects.
U.S. Department of Education State Fiscal Stabilization Fund: The  Recovery Act created a State Fiscal Stabilization Fund (SFSF), to be  administered by the U.S. Department of Education. The SFSF provides  funds to states to help avoid reductions in education and other essential  public services. The initial award of SFSF funding requires each state to  submit an application to the U.S. Department of Education that assures,  among other things, that it will take actions to meet certain educational  requirements, such as increasing teacher effectiveness and addressing  inequities in the distribution of highly qualified teachers.
On April 2, Iowa was allocated $316 million for the education portion of  the SFSF. Overall, Iowa expects that the state’s total SFSF allocation will  be $472 million. In April, the Governor proposed using almost 82 percent  of this amount, or $386 million, to support elementary, secondary, and  higher education, as required. These funds will be used for activities such  as updating standards and implementing a new data system. For the  remaining 18 percent of the SFSF allocation, or $86 million, the Governor  proposes to fund universities and community colleges, law enforcement,  and corrections in fiscal year 2010. The Governor also proposed using  $600,000 of the $86 million to oversee Recovery Act funds. Iowa plans to  submit its application as soon as the application can be accurately  completed.
subsections: section_title: Iowa Has Established a Strategy for Spending Recovery Act Funds
paragraphs: Beginning in April 2008, unemployment began to rise and in October 2008,  state revenues began to slow. As of February 2009, Iowa’s unemployment  rate was 4.9 percent, up from 3.9 percent in February 2008. According to a  March 27, 2009, report by the Rural Policy Research Institute, the nation’s  rural economy is losing jobs at a rate faster than the rest of the United  States. Iowa state budget officials estimated that the state’s unemployment  rate could increase to 7 percent by December 2009.
Regardless of this economic downturn, Iowa’s Governor and General  Assembly have statutory responsibility to balance the budget and meet  expenditure limitations and are required to use the revenue estimates  agreed to by Iowa’s Revenue Estimating Conference, which convenes  quarterly, as the basis for determining the budget for the general fund,  according to state officials. If revenue estimates are revised downward for  the current fiscal year, state officials explained that the law still requires  the budget to be balanced. In the current fiscal year, and for the first time  since fiscal year 2003, Iowa’s general fund revenues of almost $6 billion  are expected to be lower than in the previous fiscal year, a decrease of 1.9  percent from fiscal year 2008 to fiscal year 2009. In response to this  downturn, in December 2008, the Governor directed an across-the-board  1.5 percent reduction in the state’s general fund appropriations, effective  December 22, 2008.  On April 3, 2009, the Governor released a revised  budget for fiscal year 2010 of $5.9 billion for the state’s general fund,  representing a 7.9 percent reduction for many state programs, even with  the addition of more than $535 million in Recovery Act funds. According to  state officials, decisions regarding the use of Recovery Act funds require  approval by the General Assembly. Since the Iowa General Assembly is  scheduled to adjourn on or around May 1, 2009, it may have to develop  strategies if funding decisions are necessary after adjournment. For  example, the Governor may request that the General Assembly return for a  special session.
In March 2009, the Governor established a Recovery Act implementation  working group to provide a coordinated process for (1) reporting on  Recovery Act funds available to Iowa through various federal grants and  (2) tracking the federal requirements and deadlines associated with those  grants. The implementation working group comprises representatives  from nearly two dozen state agencies, led by an executive-level working  group, and assisted by groups that will focus on implementation issues  such as budget and tracking, intergovernmental coordination, and  communications. The implementation working group includes several  issue-specific small groups focusing on key program areas: education,  energy, environment, health care, housing, information technology, public  safety, transportation and infrastructure, and workforce. On April 14, 2009,  the working group issued a progress report on Recovery Act funds in  Iowa. For example, the working group reported on the planned and spent  funding of the state’s energy program to reduce per capita energy  consumption, loans for wastewater infrastructure projects, and  neighborhood stabilization programs to provide emergency assistance to  acquire and redevelop foreclosed properties.
In addition to FMAP, Transportation, and the State Fiscal Stabilization  Fund programs, the Governor’s office estimates that the state will receive  Recovery Act funding as follows:    Education: Of $214 million, a large majority involves two formula grant  programs—grants to local education agencies ($52 million) and special  education grants to assist individuals with disabilities ($122 million).
Housing and infrastructure: Of $252 million, 32 percent ($81 million) is  for the Weatherization Assistance Program to provide energy-related  improvements to homes and educate residents about energy  conservation.
Agriculture/natural resources: Of $152 million, more than one-third (36  percent or $54 million) is for the clean water state revolving fund.
Economic development: Of $94 million, more than three-quarters (76  percent or $71 million) is to modernize the unemployment insurance  program.
To supplement Recovery Act funds, Iowa is considering other stimulus  proposals, such as the Iowa Infrastructure Investment Initiative, or I-JOBS,  and another bonding initiative. I-JOBS is designed to create jobs,  strengthen the state’s economy, and rebuild the state’s infrastructure over  3 years. If approved by the General Assembly, I-JOBS, as described by  state officials, is expected to provide funding for various infrastructure  projects, such as transportation, public buildings, and wastewater  improvements, and will be funded through 20-year tax-exempt bonds paid  for by gaming revenue, current tax revenue, or both. The General  Assembly is also considering another bonding initiative to provide  economic stimulus. As of April 17, 2009, the Iowa General Assembly had  not authorized the issuance of bonds for either of these initiatives.
In the absence of OMB and program-specific guidance, associations and  organizations have provided guidance and assistance to Iowa on the use  and reporting of Recovery Act funds. Among these associations are the  National Association of Crime Victim Compensation Boards, the National  Association of Victims of Crime Act Assistance Administrators, and the  Association for Stop Violence Against Women Administrators. For  example, justice associations have helped the Iowa Attorney General’s  Office complete grant applications.
section_title: Iowa Is Developing Systems to Track Recovery Act Funds
paragraphs: Many Iowa agencies expect that they will be able to track the Recovery  Act funds they use through the state’s central accounting system. The state  is also evaluating options for reporting Recovery Act funds provided to  cities, counties, local governments, and other entities that will help satisfy  reporting requirements for these funds. Specifically, state accounting  officials are developing special codes to track Recovery Act funds and  have begun to train state agencies’ accounting officials in the use of these  new codes. However, Iowa’s central accounting system does not track  Recovery Act funds provided directly to some agencies because they are  not part of the system. For example, the central accounting system does  not track Recovery Act funding provided to the Iowa Department of  Transportation. In this case, Iowa transportation officials said the agency  is establishing separate accounting codes to track Recovery Act funds by  project. Similarly, the central accounting system does not track Recovery  Act funds provided to state-funded universities. The state and Board of  Regents are discussing how to track these funds. While local governing  authorities are not required to report through the state, the Iowa  Department of Management is in discussions with these entities to report  Recovery Act spending on the state’s Web site.  At the local level, some  agencies can track these funds, while others are developing guidance to  require such tracking, according to state officials.
In order to track increased FMAP funds, Iowa is adapting its existing  systems. In addition, Iowa’s state Medicaid agency uses a data warehouse  for Medicaid payments made to counties, subcontractors, and medical  facilities, and U.S. Health and Human Services’ Office of Inspector General  has audited the state’s data warehouse.
The General Assembly may also track Recovery Act spending. In  particular, the assembly’s Legislative Services Agency—a nonpartisan  analysis and research agency serving the Iowa General Assembly— assisted members in interpreting the Recovery Act and provided  preliminary estimates of funds provided to the state. Furthermore, the  Legislative Services Agency will be able to access Iowa’s central  accounting system to monitor agencies’ spending in real time.
Even as Iowa plans for tracking Recovery Act funds, state officials said  that they continue to have some questions about how to report Recovery  Act funds.  For example, Iowa officials noted that they need additional  guidance on reporting increased FMAP funds to CMS.  Specifically, Iowa  officials said that they need guidance on the timing for drawing down  increased FMAP grant awards, reporting receipts and expenditures, and  submitting claims for expenditures made retroactively to October 2008.
section_title: Iowa Has a Foundation of Safeguards and Controls That Could Help Assure Proper Spending of Recovery Act Funds
paragraphs: There are various entities in Iowa that are responsible for monitoring,  tracking, and overseeing financial expenditures, including the Iowa State  Accounting Enterprise (collects and reports state financial information  and processes financial transactions); the State Auditor (audits state and  local entities, such as counties, cities, and school districts, and provides  guidelines to public accounting firms that perform such audits); and the  Attorney General (prevents and prosecutes fraud). Finally, many state  agencies have internal audit groups that focus on programmatic and  financial issues.
subsections: section_title: While Prior Audits Indicate Few Financial Weaknesses, State Auditor Is Identifying Potential Areas Needing Oversight
paragraphs: Prior years’ audits indicate few weaknesses in Iowa’s financial  management systems and controls. Iowa’s fiscal year 2007 single audit  found one material weakness in internal controls related to a public  assistance grant provided to the Iowa Department of Transportation: a  computer program error resulted in a $3.6 million overpayment to the  agency by the Federal Emergency Management Agency for materials  related to disaster recovery. In 2009, Iowa refunded the $3.6 million.  Iowa’s fiscal year 2008 single audit did not identify any material  weaknesses.
While prior audits indicate few financial weaknesses, the Office of the  State Auditor is updating its 2009 audit plan risk assessment to reflect the  increased risk associated with Recovery Act funding. Of great concern to  officials of the State Auditor’s office are possible limits on the ability to  charge fees for audit services. According to state officials, these limits  would significantly reduce the effectiveness of the State Auditor to audit  federal funds received, including those under the Recovery Act, as  required by the Single Audit Act. If limits on audit fees were enacted,  officials said that the state’s comprehensive annual financial report and  the single audit report are likely to result in qualified opinions.
section_title: Iowa Has Administrative and Statutory Mechanisms in Place That Could Help Oversee Iowa’s Recovery Act Funds
paragraphs: The Iowa state government is working to establish a framework to provide  transparency on the use of Recovery Act funds. In March 2009, the  Governor’s office launched an economic Recovery Act Web site— recovery.iowa.gov—to provide information on Recovery Act funding by  program. Iowa plans to add a “dashboard” feature to the Web site—a user- friendly search capability that will provide detailed information on how  and where Recovery Act funds are spent. The Governor’s office expects  OMB to provide guidance on how to report information on Iowa’s  Recovery Act Web site, including the dashboard feature, and how to  forward that information to the national Recovery Act Web site. In  addition, the state is developing a system that will allow information on  Recovery Act funding that does not come through the state government,  such as grants federal agencies provide directly to localities, to be  available on the state’s Web site.
On April 14, the Governor created the Iowa Accountability and  Transparency Board—which has similarities to the federal Recovery  Accountability and Transparency Board—to, among other duties, assess  existing practices to prevent fraud, waste, and abuse; recommend  opportunities for improvement in these areas; and oversee real-time audits  and reporting. The board will be made up of 14 members. Voting members  include the Governor or his designee, the State Auditor or his designee,  the State Treasurer or his designee, three local government members, and  three citizens. Nonvoting members of the board include the Director of  Iowa’s Department of Management or his designee and four members of  the state’s General Assembly. The Iowa Accountability and Transparency  Board will recommend improvements and oversee the spending of  Recovery Act funds.
Iowa’s Accountable Government Act could serve as a mechanism to  safeguard Recovery Act funding. Under this act, Iowa is required to  provide for the efficient and effective use of state funds. Among other  things, Iowa’s Accountable Government Act requires grant recipients to  certify that information on internal controls relating to processes are  available for inspection by the state agency, and the Legislative Services  Agency if the recipients provide a service of more than $500,000 that is  paid for with local, state, or federal funds. In addition, recipients must  report on financial information, reportable conditions in internal control  or material noncompliance, and corrective actions taken or planned in  response to these reportable conditions. State agencies can enforce this  monitoring by terminating payments and recovering any expended  government funds. Furthermore, the Legislative Services Agency tracks  personnel services contracts—that is, contracts for consulting services or  temporary hires—within all state agencies (except the Iowa Department of  Transportation and the Iowa Board of Regents) regardless of the value of  the contract. State officials could require a similar certification and  monitoring of Recovery Act funds.
Iowa officials said that they recognize the need for greater oversight and  proper management of programs in light of the infusion of significant  funds under the Recovery Act. According to state officials, the Recovery  Act did not provide funds for oversight.  For example, one state agency  official in the Iowa Department of Education expressed concern about the  adequacy of resources available for ensuring the appropriate use of the  Recovery Act funds—an estimated $386 million from the state fiscal  stabilization program for education—particularly because the agency  anticipates further state-imposed staff reductions. Recognizing that the  Recovery Act did not specifically provide funds for state oversight, the  Governor proposed using $600,000 of the $86 million in fiscal stabilization  funds in his 2010 budget to be made available for general government  services to oversee Recovery Act funds.
Iowa officials indicated that they are identifying ways to use the state’s  internal audit functions to address Recovery Act-related issues.  Iowa state  audit officials indicated that state programs that receive significant  Recovery Act funds while maintaining a high level of discretion over use of  those funds—such as the state’s Medicaid program—present an increased  risk to the state and will receive greater scrutiny during internal state  audits.
section_title: State Agencies Are Considering How to Assess the Effects of Recovery Act Funds
paragraphs: Iowa has just begun to consider how to measure outcomes and assess the  effect of Recovery Act funding while it awaits federal guidance on a  consistent approach to measuring the number of jobs created and  sustained. State officials identified Iowa’s Accountable Government Act as  a mechanism that has familiarized state agencies with results-oriented  management and could help them assess the impact of Recovery Act  funds. The Iowa Accountable Government Act requires each state agency  to measure and monitor progress toward achieving program goals and  report the progress toward those goals. In addition, the Iowa Department  of Management, in consultation with the Legislative Services Agency, the  State Auditor, and agencies, must periodically conduct performance  reviews to assess the effectiveness of programs and make  recommendations to improve agency performance.
State agency officials said that they expect to be able to track information  on the number of jobs created while others said they need further  guidance. For example, the Iowa Department of Transportation tracks the  number of worker hours by highway project on the basis of contractor  reports. An Iowa Transportation official said that this information may be  used to calculate the number of jobs created.  Iowa education officials, in  contrast, may need more guidance. Iowa teachers are notified by school  districts in mid-March whether their jobs are guaranteed for the next  school year, pending passage of school budgets. Once the budgets are  passed, teachers are asked to return for the following school year.
Officials said that they believed that federal guidance would help them  determine how to characterize whether these jobs would be created or  sustained.
According to Iowa’s Department of Management, once it receives federal  guidance on how to assess the impact of Recovery Act funding, it plans to  disseminate the information across state agencies. It intends to measure  the impact of Recovery Act funds through the state’s Recovery Act Web  site and current tracking software. The Legislative Services Agency plans  to work closely with the Department of Management to create outcome  measures for the Recovery Act and report the results. Additionally, the  Iowa Department of Economic Development has already established  output and outcome measures for the Neighborhood Stabilization  Program.
Although most state agencies are waiting for federal guidance on how to  assess results from Recovery Act funding, officials from some state  agencies told us that they have accounting systems in place to measure  programmatic outcomes. For example, the Iowa Department of Economic  Development will monitor its Recovery Act funds by using systems  adopted for tracking federal disaster recovery funds, including systems  that the federal Department of Housing and Urban Development uses to  monitor and report on funding spent to recover from natural disasters. The  Iowa Department of Economic Development plans to put in place  procedures for working with the State Auditor to leverage oversight of  stimulus funds. Similar procedures have been established to oversee  funding the state expects to receive to recover from disastrous floods in  2008. The Department of Economic Development expects a 20-fold  increase in Community Development Block Grants in 2009 to help the  recovery effort from these floods.
Officials noted the potential difficulty of measuring Recovery Act  outcomes separately from other recovery initiatives, such as Iowa’s  proposed I-JOBS program. While state officials said that they believe there  are benefits to supplementing federal efforts, the state may find it difficult  to separate outcomes among the recovery programs.
section_title: Iowa’s Comments on This Summary
paragraphs: We provided the Governor of Iowa with a draft of this appendix on April  17, 2009. The Director, Iowa Office of State-Federal Relations and the  Director for Performance Results, Department of Management responded  for the Governor on April 20, 2009. In general, officials agreed with our  findings and conclusions.  The officials also offered several technical  suggestions that we have incorporated, as appropriate.
section_title: GAO Contacts
section_title: Staff Acknowledgments
paragraphs: In addition to the individuals named above, Thomas Cook, Assistant  Director; Christine Frye, Analyst-in-Charge; Alisa Beyninson; Gary Brown;  Daniel Egan; Nancy Glover; Marietta Mayfield; Mark Ryan; and Carol  Herrnstadt Shulman made key contributions to this appendix.
section_title: Appendix X: Massachusetts
paragraphs: Use of funds: An estimated 90 percent of fiscal year 2009 Recovery Act  funding provided to states and localities will be for health, transportation,  and education programs. The three largest programs in these categories  are the Medicaid Federal Medical Assistance Percentage (FMAP) awards,  the State Fiscal Stabilization Fund, and highways.
Medicaid Federal Medical Assistance Percentage Funds    As of April 1, 2009, Centers for Medicare & Medicaid Services (CMS) had made about $1.2 billion in  increased FMAP grant awards to Massachusetts.
As of April 1, 2009, the state had drawn down about $273 million, or 23 percent, of its initial increased FMAP    Officials plan to use funds made available as a result of the increased FMAP to avoid additional cuts in  health care and social service programs, restore certain provider rates, and provide caseload mitigation for  Medicaid and Commonwealth Care (an expansion of its Medicaid program).
Massachusetts was apportioned about $425 million for highway infrastructure investment as of April 16,  2009, by the U.S. Department of Transportation.
As of April 16, 2009, the U.S. Department of Transportation had obligated about $63.9 million for 19 projects    As of April 4, 2009, the Massachusetts Executive Office of Transportation had advertised 19 projects for  competitive bids totaling more than $62 million; the earliest announcements were scheduled to close on  April 14, 2009, and work on the projects is expected to begin this spring.  These projects include activities such as road repaving and sign replacement.
Massachusetts will request reimbursement from the U.S. Department of Transportation as project phases  are completed by contractors.
U.S. Department of Education State Fiscal Stabilization Fund (Initial Release)
Massachusetts was allocated about $666 million from the initial release of these funds on April 2, 2009, by  the U.S. Department of Education.
Before receiving the funds, states are required to submit an application that provides several assurances to  the Department of Education. These include assurances that they will meet maintenance of effort  requirements (or that they will be able to comply with waiver provisions) and that they will implement  strategies to meet certain educational requirements, including increasing teacher effectiveness, addressing  inequities in the distribution of highly qualified teachers, and improving the quality of state academic  standards and assessments. In early April 2009, state officials reported that the commonwealth will file its  application for this money around April 15, 2009, when it would better understand the state fiscal year 2010  budget situation.  The Governor has announced that he intends to provide funds to 166 school districts to help them increase  spending to prior levels and avoid program cuts and teacher layoffs in fiscal year 2010.  He also intends to  use some of these funds at public colleges and universities to reduce layoffs, program cuts, and student fee  hikes.
The commonwealth of Massachusetts is also receiving additional Recovery  Act funds under programs, such as Title I, Part A of the Elementary and  Secondary Education Act of 1965 (ESEA, commonly known as No Child  Left Behind); the Individuals with Disabilities Education Act, Part B  (IDEA); and two programs of the U.S. Department of Agriculture—one for  administration of the Temporary Food Assistance Program and one for  competitive equipment grants targeted to low-income districts from the  National School Lunch Program. The status of plans for using Recovery  Act funds is discussed throughout this appendix.
Safeguarding and transparency: Task forces, established by the  Governor, encouraged the state to adopt accountability and transparency  measures. Further, Massachusetts is expanding its accounting system to  track funds flowing through the state government. Although  Massachusetts has plans to publicly report its Recovery Act spending,  officials have said that the state may not be aware of all funds sent directly  to other entities, such as municipalities and independent authorities. The  commonwealth’s oversight community has identified situations that raise  concerns about the adequacy of safeguards, such as funding for larger  projects and new programs, but is waiting for further information on what  specific programs will receive funding before developing plans to address  those concerns.
Assessing the effects of spending: Massachusetts agencies are in the  early stages of developing plans to assess the effects of Recovery Act  spending. According to state officials, they are awaiting further guidance  from the federal government, particularly related to measuring job  creation.
subsections: section_title: Massachusetts Beginning to Use Recovery Funds
paragraphs: Massachusetts has begun to use some of its Recovery Act funds, as  follows.
Increased Federal Medical Assistance Percentage Funds: Medicaid  is a joint federal-state program that finances health care for certain  categories of low-income individuals, including children, families, persons  with disabilities, and persons who are elderly. The federal government  matches state spending for Medicaid services according to a formula  based on each state’s per capita income in relation to the national average  per capita income. The amount of federal assistance states receive for  Medicaid service expenditures is known as the Federal Medical Assistance  Percentage (FMAP). Across states, the FMAP may range from 50 percent  to no more than 83 percent, with poorer states receiving a higher federal  matching rate than wealthier states. The Recovery Act provides eligible  states with an increased FMAP for 27 months between October 1, 2008,  and December 31, 2010. On February 25, 2009, the Centers for Medicare &  Medicaid Services (CMS) made increased FMAP grant awards to states,  and states may retroactively claim reimbursement for expenditures that  occurred prior to the effective date of the Recovery Act. Generally, for  fiscal year 2009 through the first quarter of fiscal year 2011, the increased  FMAP, which is calculated on a quarterly basis, provides for (1) the  maintenance of states’ prior year FMAPs; (2) a general across-the-board  increase of 6.2 percentage points in states’ FMAPs; and (3) a further  increase to the FMAPs for those states that have a qualifying increase in  unemployment rates. The increased FMAP available under the Recovery  Act are for state expenditures for Medicaid services. However, the receipt  of the increased FMAP may reduce the funds that states must use for their  Medicaid programs, and states have reported using these available funds  for a variety of purposes.
Under the Recovery Act, the commonwealth’s FMAP will increase to at  least 56.2 percent, up from 50 percent. As of April 1, 2009, Massachusetts  had drawn down $272.6 million, or 23 percent, of its increased FMAP grant  awards. In fiscal years 2009 and 2010, officials plan to use a significant  portion of funds made available as a result of the increased FMAP funds to  avoid additional cuts in health care and social service programs, restore  certain provider rates, and provide caseload mitigation for Medicaid and  Commonwealth Care.
Transportation—Highway Infrastructure Investment: The Recovery  Act provides additional funds for highway infrastructure investment using  the rules and structure of the existing Federal-Aid Highway Surface  Transportation Program, which apportions money to states to construct  and maintain eligible highways, and for other surface transportation  projects. States must follow the requirements for the existing programs,  and in addition, the governor must certify that the state will maintain its  current level of transportation spending, and the governor or other  appropriate chief executive must certify that the state or local government  to which funds have been made available has completed all necessary  legal reviews and determined that the projects are an appropriate use of  taxpayer funds. Massachusetts provided these certifications, but  conditioned the state’s level of funding for these programs, noting that this  spending will be financed through issuing bonds and may need to be  decreased, depending on the state of the economy. The commonwealth’s  debt affordability policy will determine the amount of debt that can be  issued.
As of April 4, 2009, the Massachusetts Executive Office of Transportation  had advertised 19 projects for competitive bid totaling more than $62  million. These projects included, for example, replacing traffic and guide  signs along sections of Route I-95 and paving Route 6 in southeastern  Massachusetts. As of April 16, 2009, the U.S. Department of Transportation  had obligated about $63.9 million for 19 projects in Massachusetts.  Massachusetts will request reimbursement from the U.S. Department of  Transportation as project phases are completed by contractors.
U.S. Department of Education State Fiscal Stabilization Fund: The  Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be  administered by the U.S. Department of Education (Education). The SFSF  is intended to help states avoid reductions in education and other essential  public services. The initial award of SFSF funding requires each state to  submit an application to Education that assures, among other things, it  will take actions to meet certain educational requirements, such as  increasing teacher effectiveness and addressing inequities in the  distribution of highly qualified teachers.
Massachusetts’ initial SFSF allocation is $666,152,997. In early April 2009,  state officials reported that the state would file its application for this  money around April 15, 2009, when it would better understand the state’s  revenue projections and after the Massachusetts House issues its fiscal  year 2010 budget proposal. In March 2009, the Governor of Massachusetts  had announced he intended to fund $168 million in SFSF to 166 school  districts to help them increase funding and avoid program cuts and  teacher layoffs in fiscal year 2010. He also announced he intended to  provide $162 million in SFSF to public university and college campus  budgets to reduce layoffs, program cuts, and student fee hikes.
subsections: section_title: Massachusetts’ Planning Process Has Set the Stage for Decisions on Spending of Recovery Act Funds
paragraphs: Massachusetts officials began preparing for receipt of federal Recovery  Act funds prior to enactment of the act. Faced with deteriorating revenue  projections, the potential for expanding caseloads in some safety net  programs, such as Medicaid, and a requirement to balance the budget,  Massachusetts officials believe that funds made available as a result of the  Recovery Act are critical to addressing the commonwealth’s immediate  fiscal pressures. State officials envision a sizable portion of the state- projected $8.7 billion in Recovery Act funds (over 2 years) going directly  toward budget stabilization. According to state officials, as of April 2009,  the state is addressing a budget gap of approximately $3.0 billion. This gap  is driven largely by lower-than-anticipated revenues. State fiscal year 2009  revenue is significantly lower than budgeted and has left the state unable  to support previously approved spending levels, and revenues are  expected to fall short of planned expenditures for 2010, as well.
In December 2008, anticipating a major infusion of federal funding,  especially for infrastructure projects, the Governor established task forces  to identify “shovel-ready” projects and address obstacles to project  implementation. Ten task forces were created—seven focused on specific  types of infrastructure investment, such as transportation, energy, and  information technology, and three focused on crosscutting issues like  workforce mobilization and procurement. In conducting their work, the  task forces were guided by several principles, including investing for the  long term and limiting investments to those that would not add to the  state’s operating budget.
Although other program areas, such as Medicaid and education, likely will  receive more funding than will infrastructure, the work of the task forces  was influential. The task forces developed work plans for projects that  could be implemented using the anticipated funding and were  instrumental in the appointment of a director of infrastructure investment  (a “recovery czar”) to coordinate and monitor state agencies’ and  municipalities’ implementation of projects. The task forces also  encouraged the creation of a central Web site to enhance transparency,  called for the involvement of the oversight community in contract  oversight to ensure accountability, and prompted the introduction of  legislation (now being considered by the legislature) intended to ease  some of the procurement and contracting processes that might delay quick  implementation of construction projects. The task force efforts helped  prepare the state to submit several certifications required under the  Recovery Act to the federal government. In late February, the Governor  certified that the state would request and use all funds provided by the act.  Additional certifications for transportation and energy have also been  submitted.
Revenue from the state’s “rainy-day” fund, a reserve fund built up during  more favorable economic conditions to be used during difficult economic  times, will give the commonwealth additional flexibility to avoid some cuts  in fiscal year 2010. The commonwealth’s budget already calls for using  about $925 million from the rainy-day fund in fiscal year 2009, and the  Governor’s proposed 2010 budget calls for using about $489 million of the  rainy-day funds. According to budget documents, the combination of funds  made available as a result of the increased FMAP and rainy-day funds will  help the state avoid cuts in several areas, including health care, education,  and public safety.
State documents suggest that officials are concerned about using one-time  federal and rainy-day funds to make longer-term operational and program  commitments that could require additional revenue in the future to avoid  job and service cuts. State officials note that using temporary funds, such  as Recovery Act and rainy-day funds, make budgeting uncertain and  require strategic fiscal management.
section_title: Massachusetts Has a System to Track Recovery Act Funds but Cannot Ensure Local Entities’ Ability to Meet Recovery Act Reporting Requirements
paragraphs: The commonwealth is expanding the use of its existing accounting system  to track all Recovery Act funds that will flow through the state  government. New codes are being added to the existing system in order to  segregate and track the Recovery Act funds. The Office of the Comptroller  has issued guidance on the required use of these newly created account  codes for all Recovery Act transactions and has stipulated that all the  Recovery Act-funded contracts include provisions to segregate Recovery  Act money. While these changes have been made, officials were still  testing the system and developing reporting capabilities as of April 13,  2009.
The portion of Recovery Act funds going directly to recipients other than  Massachusetts government agencies, such as independent state  authorities, local governments, or other entities, will not be tracked  through the state comptroller’s office. While state officials acknowledged  that the commonwealth lacks authority to ensure adequate tracking of  these funds, they are concerned about the ability of smaller entities to  manage Recovery Act funds—particularly municipalities that traditionally  do not receive federal funds and that are not familiar with Massachusetts’  tracking and procurement procedures, as well as recipients receiving  significant increases in federal funds. In order to address this weakness,  the administration introduced emergency legislation that, according to  state officials, includes a provision requiring all entities within  Massachusetts that receive Recovery Act money to provide information to  the state on their use of Recovery Act funds. Alternatively, the two large  nonstate government entities we spoke with to date—the city of Boston  and the Massachusetts Bay Transportation Authority (MBTA, a quasi- independent authority responsible for metropolitan Boston’s transit  system)—believe that their current systems, with some modifications, will  allow them to meet Recovery Act requirements. For example, the city of  Boston hosted the Democratic National Convention in 2004, and city  officials said that their system was then capable of segregating and  tracking a sudden influx of one-time funds.
section_title: State Agencies Have Made Some Spending Decisions
paragraphs: Some state programs have received actual allocations of federal Recovery  Act funds, while for other state programs, officials have developed  spending plans based on preliminary figures provided by federal  departments. The U.S. Department of Transportation, through the Federal  Transit Administration, published apportionment amounts for the Transit  Capital Assistance and the Fixed Guidance Infrastructure Investment  Programs on March 5, 2009. The Massachusetts Executive Office of  Transportation (EOT) and the MBTA have been able to develop spending  plans with a degree of certainty and EOT has advertised requests for bids  on 19 projects totaling about $62 million. Other program officials have had  to develop plans with preliminary estimates. For example, as of mid-March  2009, state officials from the Department of Elementary and Secondary  Education said that local education officials reported that one of their  biggest challenges was a lack of reliable information on federal Recovery  Act allocations that they could use to plan their budgets. However, on  April 1, 2009, Education announced the release of state allocations of  ESEA Title I and IDEA funds, along with more detailed guidance for these  programs.
Some state and local officials said that while clear, specific guidance takes  time to develop, the lack of guidance from federal agencies had limited  their ability to make spending decisions. Officials from some of the entities  we spoke with, including the state Department of Elementary and  Secondary Education, the Department of Housing and Community  Development, and the city of Boston, said they are comfortable making  spending decisions with money slated to flow through pre-existing grant  programs. However, the lack of specific guidance for federal Recovery Act  funds for some programs has presented challenges, according to some  state officials. An area of significant challenge for education officials  concerns how to use federal Recovery Act funding to supplement state  and local revenues for existing educational programs, rather than use  these funds to supplant state and local revenue. State education officials  said they anticipated that to prove funds have not been supplanted will be  very challenging for local school districts and have requested additional  guidance from the U.S. Department of Education to help them make better  decisions about spending priorities. For example, state housing officials  are seeking clarification from the U.S. Department of Housing and Urban  Development (HUD) on whether the Tax Credit Assistance Program can  be used to provide loans rather than grants to subrecipients, and state  transportation officials are waiting for guidance on whether competitive  grants can be used for “signature projects.”
Some state agencies told us they anticipate they will be able to manage  additional Recovery Act funding coming through well-established grant  programs with existing agency resources but, in some cases, will hire  additional staff to manage Recovery Act programs. For example, the  state’s Department of Housing and Community Development (DHCD)  reported it is expecting to receive significant Recovery Act funds and has  plans to hire staff to help manage the programs. DHCD has well- established methods for managing expenditures and accomplishments, so  agency officials believe they can effectively administer Recovery Act funds  using existing structures. MBTA officials told us that given the enhanced  transparency and reporting requirements associated with an additional  $230 million in project spending, they anticipate that managing these  Recovery Act projects will present some new challenges and will require  that they hire a project management firm. Finally, a Department of  Elementary and Secondary Education official told us they anticipate a  need to hire additional staff, for a limited term, to manage competitive  grant programs funded under the Recovery Act.
section_title: Plans for Safeguards and Controls Being Developed at State Level
paragraphs: The commonwealth has entities responsible for monitoring, tracking, and  overseeing financial expenditures. The comptroller, who is responsible for  implementing accounting policies and practices, oversees fiscal  management functions, including internal controls. The State Auditor  audits the administration and expenditure of state funds, ands partners  with an accounting firm to perform the state’s annual Single Audit—a  comprehensive review of all state agencies’ accounts and activities. The  state Inspector General, with a broad mandate to prevent fraud, waste, and  abuse, conducts operational and management reviews and has authority to  examine independent authorities and municipalities. The Attorney General  also plays a role, including preventing and prosecuting fraud. Further,  according to state officials, some state departments have internal audit  groups that focus on programmatic issues. In addition to these entities, the  commonwealth has laws that provide further safeguards.
subsections: section_title: Potential Areas of Vulnerability with Massachusetts Recovery Act Funds
paragraphs: Past experience has shown financial management vulnerability involving  organizations that will receive funds under the Recovery Act. The Office of  the Attorney General has documented improper Medicaid payments and  has concerns regarding the funds from the Recovery Act going to the  Medicaid program. They plan to take a risk-based approach, but are  waiting for firm information on which programs and recipients will receive  Recovery Act funds. The Inspector General stated that his office will need  to emphasize oversight of larger procurement projects, which may be  vulnerable. In addition, officials pointed to the multibillion-dollar cost  overruns on a federally funded highway project in Boston (the “Big Dig”)  as an example of what can go wrong when a large project lacks sufficient  oversight. The Massachusetts fiscal year 2007 Single Audit report  identified vulnerabilities that included insufficient monitoring of  subrecipients of federal grants to the state. For example, the  Massachusetts Department of Early Education and Care programs, which  will receive Recovery Act funds, did not conduct any on-site monitoring of  the Child Care Resource and Referral Agencies (subrecipients), which  received approximately $11 million in child care development funds and  $122 million in Temporary Assistance for Needy Families funds. Since that  audit, the department has implemented numerous improvements and  controls to address these issues. The State Auditor has also identified  financial management concerns with nonprofit entities that receive federal  funds and will receive additional funds under the Recovery Act.
In addition, oversight officials noted some more general situations raising  concerns. For example, some oversight officials identified new programs  as potentially risky; however, new programs would have little impact on  the fiscal year 2009 Single Audit report. New programs would probably be  included on the fiscal year 2010 Single Audit report, which typically comes  out some months after the end of the state’s fiscal year. Oversight officials  also expressed concern about programs receiving large increases under  the Recovery Act, and recipients that do not typically receive federal  funds—and therefore may not have systems in place to track them—are  also at risk.
In order to better understand areas of potential vulnerability, the Governor  asked all commonwealth agencies in late January 2009 to conduct self- assessments identifying existing oversight and accountability mechanisms.  Most agencies submitted reports, which included varying levels of detail.  The reports we reviewed showed that the agencies are generally  comfortable with the mechanisms currently in place. One report expressed  a need for additional resources to oversee any new funding. The self- assessments were shared with the State Auditor, Inspector General, and  Comptroller’s offices. The State Auditor has provided comments to the  Governor’s office, noting that while the self-assessments indicated existing  control mechanisms in place to manage, account for, and monitor the  spending of the Recovery Act funds, he expressed two areas of concern.  He was concerned about tracking funds that bypass the state government  and, based on past audits, about subgrantee monitoring. The Inspector  General plans to provide comments on the needs assessments to the  Governor’s office by the end of April. The Comptroller is using the  assessments to monitor agencies’ controls over Recovery Act funds on an  ongoing basis.
section_title: Plans for Oversight of Massachusetts’ Recovery Act Funds
paragraphs: While the commonwealth’s oversight community has come together to  discuss issues such as avoiding areas of duplication and preventing  oversight gaps, as a whole, it has yet to develop a coordinated plan  describing which programs and departments it will focus on or how it will  conduct critically needed oversight. Both the Inspector General and  Attorney General recognize the need for training for local officials,  specifically related to procurement. The Inspector General stated that his  department would continue its training of local procurement officials and  announced in its March 2009 Procurement Bulletin that his office should  be contacted regarding any questions on procurement or Recovery Act  expenditures. While the Inspector General identified the need for  increased oversight, particularly related to procurements, oversight  officials generally stated that once they determine the total distribution of  Recovery Act money, they then would begin selecting areas for review.  The Attorney General has convened a task force to coordinate on  oversight issues with the federal and state oversight community.
The state legislature will also provide oversight of the Recovery Act funds  through the newly created Joint Committee on Federal Stimulus Oversight.  This committee has already held three hearings with plans to hold more  regarding the oversight of Recovery Act spending. According to committee  members, the impetus for creating this committee was Massachusetts’  failure to control fraud, waste, and abuse in the federally funded “Big Dig”  construction project. The purpose of the joint committee is to ensure  compliance with federal regulations and to review current state laws,  regulations, and policies to ensure they allow the commonwealth to access  Recovery Act funding and streamline processes to quickly stimulate the  economy. In addition to the co-chairmen having the capability to subpoena  individuals, a co-chairman said that the Joint Committee has broad  authority and its jurisdiction extends to wherever public federal, state, and  local money is spent.
Massachusetts’ administration has emphasized transparency of Recovery  Act spending and identified the state recovery Web site as a transparency  tool. In addition, the Web site has links to planning documents, guidance,  and intended uses of Recovery Act money, and officials are planning to  enhance the Web site with a goal of making it the central portal for all  Recovery Act information and reporting. Their goal is to include the ability  to track Recovery Act money by town and by project, as well as to include  each project’s budget, schedule, awarded contracts (with contract details),  and its on-time status. In addition, the public can send e-mails regarding  stimulus issues to this site and the Recovery czar’s staff is responsible for  replying.
section_title: Availability of Resources for Oversight
paragraphs: Several Massachusetts officials expressed concern that the Recovery Act  did not provide funding specifically for state oversight activities, despite  the importance of ensuring that Recovery Act funds are used appropriately  and effectively. In addition, the task forces the Governor convened in  December 2008 concluded that it is critical the Inspector General and  State Auditor have resources to audit Recovery Act contracts and  management of Recovery Act funds, as well as recommended that the  Attorney General’s office should be provided with the resources to  promptly and effectively pursue fraud and abuse.
However, due to the present economic conditions, state officials said the  Massachusetts oversight community is facing budget cuts of about 10  percent at a time when increased oversight and accountability is critically  needed. To illustrate the impact of the impending budget situation, the  Inspector General told us that his department does not have the resources  to conduct any additional oversight related to Recovery Act funds. This  significantly impacts the Inspector General’s capacity to conduct oversight  since the budget of the Inspector General’s office is almost entirely  composed of salaries, and any cuts in funding would result in fewer staff  available to conduct oversight. In addition, the State Auditor described  how his office has already furloughed staff for 6 days and anticipates  further layoffs before the end of fiscal year 2009. Similar to the Inspector  General’s office, 94 percent of his department’s budget is for labor and any  cuts in funding generally result in cuts in staff.
Some of these vulnerabilities may be mitigated by emergency legislation  that the Governor recently filed, which included a provision to allow the  pooling of administrative costs. This new legislation may make some  Recovery Act funds available to the audit community for oversight, as long  as federal law permits. Meanwhile, officials stated they are moving  forward with developing and implementing enhancements to the  Massachusetts recovery Web site, yet they are doing so without any  Recovery Act funds. One senior state official stated she did not believe the  Recovery Act provided funding for any state-level centralized information  technology planning or development but noted that the Recovery Act  provided a considerable level of funding for information technology  development at the program level.
section_title: Plans to Assess Impact of Recovery Act Funds Are in Initial Stages
paragraphs: Although they are awaiting federal guidance on how to assess the impact  of the Recovery Act, Massachusetts agencies are in the process of  considering how to assess the number of jobs that will be created. For  example, officials from DHCD are examining different methodologies for  identifying job creation, while the city of Boston is using an economic  forecasting model to evaluate job creation and other economic effects of  projects. In addition, DHCD officials told us that they asked Tax Credit  Assistance Program project managers to report estimates on the number  of jobs, by trade, that will be needed to complete projects and are also  looking for a reliable economic forecasting model to use for this reporting  objective. DHCD officials also said they are waiting for guidance from  HUD on how to calculate and document job creation for programs funded  under the Neighborhood Stabilization Program. DHCD officials said they  plan to use a pre-existing process developed for community action  programs to collect information on job creation for projects funded by the  Weatherization Program. MBTA officials said they feel confident they can  estimate the number of new jobs created using Recovery Act funds;  however, they are waiting for specific guidance from the U.S. Federal  Transit Administration or the Office of Management and Budget on what  to include in job creation calculations, as well as how to track indirect  (jobs created to manufacture goods used in the project) and leveraged  jobs (jobs created by new building projects that result from transportation  improvements). MBTA officials also said they are looking to outsource  some of the required oversight, including documenting job creation.  Finally, state transportation officials are concerned that incentives may  encourage contractors to overinflate the number of jobs created by their  projects. They told us that, in the absence of specific guidance on how to  account for job creation, some smaller contractors might overreport the  number of jobs created. Furthermore, the cold weather conditions in the  commonwealth can prohibit construction from continuing during the  winter months. Officials suggested the pressure to show that the projects  are contributing to the recovery may encourage some contractors to  inflate the number of jobs created in some months when weather  conditions decrease employment.
section_title: Massachusetts’s Comments on This Summary
paragraphs: We provided the Governor of Massachusetts and representatives of  oversight agencies with a draft of this appendix on April 17, 2009, and  representatives from the Governor’s office and the oversight agencies  responded that day. In general, they agreed with our draft and provided  some clarifying information, which we incorporated. The officials also  provided technical suggestions that were incorporated, as appropriate.
section_title: GAO Contacts
section_title: Staff Acknowledgments
paragraphs: In addition to the contacts named above, Carol L. Patey, Assistant  Director; Ramona L. Burton, analyst-in-charge; Kathleen M. Drennan;  Salvatore F. Sorbello, Jr.; and Robert D. Yetvin made major contributions  to this report.
section_title: Appendix XI: Michigan
paragraphs: Use of funds: In estimated 90 percent of fiscal year 2009 Recovery Act  funding provided to states and localities nationwide will be for health,  transportation, and education programs. The three largest programs in  these categories are the Medicaid Federal Medical Assistance percentage  (FMAP) awards, the State Fiscal Stabilization Fund, and highways.
Medicaid Federal Medical Assistance Percentage (FMAP) Funds    As of April 3, 2009, the Centers for Medicare & Medicaid Services (CMS) had made about $701 million in  increased FMAP grant awards to Michigan.  From January 2008 to January 2009, the state’s Medicaid enrollment increased from 1,547,259 to 1,624,245  with the highest share of increased enrollment attributable to two population groups: (1) children and  families and (2) disabled individuals.
As of April 1, 2009, Michigan has drawn down about $463 million—which represents funds drawn down for  two quarters—or 66.1 percent of its initial increased FMAP grant awards.
Officials plan to use funds made available as a result of the increased FMAP to cover increased caseloads,  offset general fund shortfalls, ensure compliance with prompt payment provisions, maintain existing  populations of Medicaid recipients, avoid eligibility restrictions, increase provider payments, maintain  current levels of benefits, and avoid benefit cuts.
Michigan was apportioned about $847 million for highway infrastructure investment on March 2, 2009, by  the U.S. Department of Transportation.
As of April 16, 2009 the U.S. Department of Transportation had obligated $110.8 million for 27 Michigan    As of April 13, 2009, the Michigan Department of Transportation had advertised 16 projects for competitive  bid totaling more than $41 million. These projects included resurfacing I-196 in Grand Rapids and M-13 in  Genesee County.
U.S. Department of Education State Fiscal Stabilization Fund (Initial Release)
Michigan was allocated about $1.1 billion from the U.S. Department of Education’s initial release of these  funds on April 2, 2009.
Before receiving the funds, states are required to submit an application that provides several assurances to  the Department of Education. These include assurances that they will meet maintenance of effort  requirements (or that they will be able to comply with waiver provisions) and that they will implement  strategies to meet certain educational requirements, including increasing teacher effectiveness, addressing  inequities in the distribution of highly qualified teachers, and improving the quality of state academic  standards and assessments. Michigan plans to submit its application on or after May 15, 2009, once it  completes its review of all program priorities for which it intends to use stabilization funds.
Michigan Department of Education officials told us they consulted with local education agencies to develop  plans and establish priorities for the use of State Fiscal Stabilization Fund funds that were consistent with  the state’s priorities, policies and programs, such as increasing support for the lowest performing schools.
Michigan is receiving additional Recovery Act funds under other  programs, such as programs under Title I, Part A of the Elementary and  Secondary Education Act of 1965 (ESEA) (commonly known as No Child  Left Behind); the Individuals with Disabilities Education Act (IDEA), Part  B; Federal Transit Administration Transit Grants; and the Edward Byrne  Justice Assistance Grants. These are described in this appendix.
Safeguarding and transparency: All of the state and local agency  officials we interviewed indicated they plan to use existing systems to  separately identify and track Recovery Act funding. State officials were  confident that their existing processes, modified to incorporate specific  Recovery Act codes, would be sufficient to allow them to separately  account for funds as required by the act. However, officials were uncertain  whether local entities have the capacity to similarly track federal funds  that go directly to local entities rather than through the state.
Michigan also plans to continue using existing internal controls and  processes to provide assurances over Recovery Act spending. Michigan  has established a new Recovery Office to, among other things, provide  oversight and enhance transparency over the availability and use of funds  and maintain a Web site on Michigan’s Recovery and Reinvestment Plan  (www.michigan.gov/recovery). Michigan’s existing processes also include  ongoing risk-based self-assessments of controls by major state agencies  that are next due on May 1, 2009. However, these assessments are limited  to state agencies. In addition, the state Auditor General has identified  material weaknesses in two key departments that have received Recovery  Act funds—Michigan’s Department of Human Services and Department of  Community Health. The state Auditor General plans to continue working  on a biennial basis, reviewing and reporting on about one-half of the state  agencies each year. The state Auditor General’s oversight responsibilities  do not include efforts to ensure accountability over federal funds going  directly to localities. For example, the U.S. Department of Education’s  Inspector General identified weak internal controls that resulted in  problems in how the city of Detroit school district used federal funds for  programs under Tile I of ESEA. Specifically, its July 2008 report found  that Detroit Public Schools, among other things, did not always properly  support compensation charges against ESEA Title I funds. Detroit Public  Schools officials told us that in the spring of 2009 they hired new staff to  develop corrective action plans for addressing existing internal control  weaknesses.
Assessing the effects of spending: Michigan officials have some  experience in measuring the impact of funds in creating jobs and  promoting economic growth. The state plans to rely on experts in  economic modeling. The state’s financial management system, however, is  old and does not have the capability to track impacts, so the state will  have to rely upon its agencies for this. State officials also told us that the  state information technology group will implement a database system at  the end of April 2009 that will support its financial management system in  recording the impact of Recovery Act funds.
subsections: section_title: Michigan Beginning to Use Recovery Act Funds
paragraphs: Faced with the highest unemployment rate of all the states (as of February  2009), heavy reliance on the deteriorating car manufacturing sector, and  declining tax revenue, Michigan officials plan to use Recovery Act funds to  address the state’s immediate fiscal needs as well as to help develop long- term capacity. From an employment peak in June 2000, Michigan had lost  about 520,000 jobs as of December 2008. Unemployment sharply increased  from 7.4 percent in February 2008 to 12 percent in February 2009, and  several local communities had even higher rates. For example, since  domestic auto manufacturing dominates Detroit’s economy, the  unemployment levels in the city have been consistently higher than in the  rest of the state. As of December 2008, the city’s jobless rate was 18.6  percent and according to Detroit officials reached nearly 22.8 percent in  March 2009. To help address these issues, prior to the enactment of the  Recovery Act on February 17, 2009, the federal government provided $23.7  billion to two auto companies and two financing companies operating in  Michigan as part of the Troubled Asset Relief Program.
Michigan has been experiencing declines in state revenues. In January  2009, Michigan reported an expected budget gap of approximately $1.4  billion for fiscal year 2010. In response, the Governor has proposed budget  cuts for fiscal year 2010 of $670 million in key state programs such as  public education, corrections, and community health; $232 million in  revenue enhancements, such as tax increases and elimination of tax  exemptions; and using funds made available as a result of $500 million in  increased FMAP funds to offset the budget gap.
In March 2009, Michigan’s legislature estimated that the state would  receive approximately $7 billion in Recovery Act funding. These estimates  show that the majority of Recovery Act funds would support education (36  percent), Medicaid (32 percent), and transportation (14 percent), with  smaller amounts of funding available for other programs (18 percent).
Michigan has begun to use some of its Recovery Act funds, as follows.
Increased Federal Medical Assistance Percentage Funds: Medicaid is  a joint federal-state program that finances health care for certain  categories of low-income individuals, including children, families, persons  with disabilities, and persons who are elderly. The federal government  matches state spending for Medicaid services according to a formula  based on each state’s per capita income in relation to the national average  per capita income. The amount of federal assistance states receive for  Medicaid service expenditures is known as the Federal Medical Assistance  Percentage (FMAP). Across states, the FMAP may range from 50 percent  to no more than 83 percent, with poorer states receiving a higher federal  matching rate than wealthier states. The Recovery Act provides eligible  states with an increased FMAP for 27 months between October 1, 2008,  and December 31, 2010. On February 25, 2009, the Centers for Medicare &  Medicaid Services (CMS) made increased FMAP grant awards to states,  and states may retroactively claim reimbursement for expenditures that  occurred prior to the effective date of the Recovery act. Generally, for  federal fiscal year 2009 through the first quarter of federal fiscal year 2011,  the increased FMAP, which is calculated on a quarterly basis, provides for  (1) the maintenance of states’ prior year FMAPs; (2) a general across-the- board increase of 6.2 percentage points in states’ FMAPs; and (3) a further  increase to the FMAPs for those states that have a qualifying increase in  unemployment rates. The increased FMAP available under the Recovery  Act is for state expenditures for Medicaid services. However, the receipt of  this increased FMAP may reduce the funds that states must use for their  Medicaid programs, and states have reported using these available funds  for a variety of purposes.
Under the Recovery Act, Michigan’s FMAP will increase to at least 69  percent, up from 58 percent in 2008. From January 2008 to January 2009,  the state’s Medicaid enrollment increased from 1,547,259 to 1,624,245, with  the highest share of increased enrollment attributable to two population  groups: (1) children and families and (2) disabled individuals. As of April 1,  2009, Michigan has drawn down $463 million, 66.1 percent, of its awards to  date. Michigan officials indicated that they will use funds made available  as a result of the increased FMAP to cover increased caseloads, offset  general fund shortfalls, ensure compliance with prompt payment  provisions, maintain existing populations of Medicaid recipients, avoid  eligibility restrictions, increase provider payments, maintain current levels  of benefits, and avoid benefit cuts.
Transportation—Highway Infrastructure Investment: The Recovery  Act provides additional funds for highway infrastructure investment using  the rules and structure of the existing Federal-Aid Highway Surface  Transportation Program, which apportions money to states to construct  and maintain eligible highways and for other surface transportation  projects. States must follow the requirements for the existing programs,  and in addition, the governor must certify that the state will maintain its  current level of transportation funding, and the governor or other  appropriate chief executive must certify that the state or local government  to which funds have been made available has completed all necessary  legal reviews and determined that the projects are an appropriate use of  taxpayer funds. Michigan has submitted these certifications.
As of April 16, 2009, the U.S. Department of Transportation had obligated  $110.8 million for 27 Michigan projects. On March 31, 2009, the Governor  signed state legislation authorizing the use of federal Recovery Act funds  for transportation projects that are expected to create about 25,000 jobs.  As of April 13, 2009, the Michigan Department of Transportation (MDOT)  had advertised 16 projects totaling more than $41 million for competitive  bidding. These projects included resurfacing I-196 in Grand Rapids and M- 13 in Genesee County. Michigan was apportioned about $982 million for  transportation projects, including $847 million for highway infrastructure  investment projects and $135 million for urban and rural transit projects.  MDOT was apportioned about 75 percent of Recovery Act highway  infrastructure investment funds and remaining funds will be suballocated  to metropolitan, regional, and local organizations.
MDOT identified 178 road and bridge projects that would, among other  things, improve road pavement conditions on 1,300 lane miles of  roadways, add lanes to four major roads to reduce congestion, and  perform work on 112 bridges, of which 41 are structurally deficient.  According to MDOT officials, the priority was to select shovel-ready  projects that could be initiated and completed quickly. In Michigan,  Recovery Act funds are being used primarily to fund transportation  projects in fiscal year 2009 that were originally scheduled to begin in fiscal  year 2010 or beyond, as well as some projects that had been identified but  had no source of funding. MDOT officials told us they intend to complete  selecting and approving specific road and bridge projects to be funded  with Recovery Act money by May 1, 2009.
U.S. Department of Education State Fiscal Stabilization Fund: The  Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be  administered by the U.S. Department of Education (Education). The SFSF  provides funds to states to help avoid reductions in education and other  essential public services. The initial award of SFSF funding requires each  state to submit an application to Education that assures, among other  things, it will take action to meet certain educational requirements, such  as increasing teacher effectiveness and addressing inequities in the  distribution of highly qualified teachers.
Michigan’s initial SFSF allocation is $1.1 billion. The Recovery Act  provided State Fiscal Stabilization Funds to increase funding for education  over the next several years and avoid program cuts and teacher layoffs in  fiscal year 2010. The amount of funding for each of the initiatives has not  yet been determined. Michigan plans to submit its application for SFSF  funds on or after May 15, 2009, once the state completes its review of all  program priorities for which it intends to use stabilization funds. Michigan  Department of Education officials told us they consulted with local  education agencies to develop plans and establish priorities for the use of  SFSF funds that were consistent with the state’s priorities, policies, and  programs, such as increasing support for the lowest performing schools.
U.S Department of Education ESEA Title I and Individuals with  Disabilities Education Act (IDEA) Funds: Michigan Department of  Education officials told us that although the amount of funding for each of  these two initiatives has not yet been determined they anticipate that  Recovery Act funds for ESEA Title I ($390 million) and IDEA ($426  million) will generally be used to support the same priorities that are  funded in part by U.S. Department of Education funds that the state now  receives. The state plans to use Recovery Act funds to support specified  educational outcomes—reading, mathematics, and other learning  proficiencies—and foster enhanced access to education programs for  special needs students. Michigan’s Department of Education also intends  to use Recovery Act funds to support professional development among  teachers that can help sustain achievement of educational outcomes  beyond the time limits of Recovery Act funding.
U.S. Department of Justice Edward Byrne Memorial Justice  Assistance Grant Program: Michigan plans to apply for $67 million in  Recovery Act funds for crime control and prevention activities. Michigan  Department of Community Health officials told us that about $41 million  of these funds will support, among other things, state efforts to reduce the  crime lab backlog, funding for multi-jurisdictional courts, and localities’  efforts regarding law enforcement programs, community policing, and  local correctional resources. An additional $26 million in Recovery Act  funds will go directly to localities to support efforts against drug-related  and violent crime. On April 13, 2009, Michigan began accepting grant  applications from local Michigan jurisdictions for Byrne Justice Assistance  grants funding administered by the state and will continue to accept them  until May 11, 2009.
section_title: Michigan Is Augmenting Its Approach to Safeguarding and Transparency of Recovery Act Funds but Gaps Exist
paragraphs: All state and local agency officials we interviewed indicated that they plan  to use their existing systems to tag and track Recovery Act funding,  including increased FMAP funds. State officials were confident that their  existing processes for receiving, coding, and monitoring federal funds  could be used to separately account for the use of Recovery Act funds as  required by the Act. For example, Michigan’s Department of Education has  used the Michigan Electronic Grants System since 2001 to generate  recipient reports on the use of ESEA Title I, IDEA, and State Fiscal  Stabilization Funds. According to its officials, Michigan Department  Education plans to continue to use the grants system for reporting on  recipients’ use of Recovery Act funds by creating new accounting codes  for Recovery Act funds.
Although state government officials told us they believed that their  departments have sufficient capabilities to segregate Recovery Act funds,  many expressed less confidence in the capabilities of sub-recipients to  separately account for the use of Recovery Act funds. State officials  expressed concerns about the capacity of smaller agencies and  organizations to separately track and monitor Recovery Act funds. For  example, Detroit Public Schools officials told us that the school district  has not had a clearly specified process for segregating funds from different  funding streams and for how it intends to use Recovery Act funds.  According to the officials, in the last several years, the district has  commingled ESEA Title I funds with its general funds, making it difficult  to track the use of ESEA Title I funds and show that they were used only  for allowable expenditures. In addition, according to Detroit Public  Schools officials, without improvements to its oversight of these funds,  Detroit Public Schools may continue experiencing oversight challenges  with respect to Recovery Act funds provided through ESEA Title I and  IDEA funding streams. For example, according to a July 2008 report from  the U.S. Department of Education’s Office of Inspector General, the  Detroit Public Schools district, among other things, did not always  properly support compensation expenses charged to ESEA Title I funds.  District officials told us that in April 2009 they hired new staff to develop  corrective action plans for addressing existing internal control  weaknesses.
subsections: section_title: Safeguarding Recovery Act Funds
paragraphs: In anticipation of the opportunity to receive additional federal funding and  the need to act quickly, Michigan began preparations before the Recovery  Act was enacted. For example, the Governor established a working group  of executive branch officials from Michigan state agencies and  departments, known as Economic Recovery Coordinators (ERC), to plan  for the use of anticipated Recovery Act funds.
On February 13, 2009, the Governor established a Recovery Office for  coordination of all Recovery Act activities, including communication with  stakeholders within and outside the state. The Recovery Office is  responsible for helping develop priorities for the use of Recovery Act  funds by the state consistent with the objectives of the Recovery Act and  with the state’s priorities identified to fully maximize the impact of these  federal funds. Similarly, Detroit officials told us that they began planning  in November 2008 for the receipt of Recovery Act funds and identified  over 160 city projects that could be funded by working closely with city  departments and community action organizations. Lansing Schools  District officials told us that they began planning early for use of Recovery  Act funding for the district’s 34 schools. The Recovery Office has also been  working with state agencies to develop strategies for overseeing and  tracking the use of Recovery Act funds to comply with requirements of the  act and minimize fraud, waste, and abuse of funds and to help ensure  consistent, timely, and accurate compliance with all reporting and  certification requirements under the Recovery Act. Michigan is also  maintaining a Web site on Michigan’s Recovery and Reinvestment Plan  (www.michigan.gov/recovery).
According to state officials, Recovery Act funds must be appropriated by  the state legislature before the state is authorized to spend the money. In  addition, the Michigan Senate created a special committee, known as the  Senate Federal Stimulus Oversight subcommittee, to oversee Recovery Act  funds.
Michigan Department of Management and Budget officials told us that  they are prepared to manage Recovery Act funds because they plan to use  existing processes for purchasing goods and services. For example,  Michigan will use existing processes to obtain competitive bids for  contracts awarded by state agencies under the Recovery Act in  accordance with state law, which state officials described as requiring  competitive bids (other than certain exceptions such as emergencies or  imminent protection). In January 2009, Michigan created a  prequalification program for vendors to provide an inventory of  prequalified vendors ready to quickly respond to bids for work that will  spend Recovery Act funds. As part of preparing to spend Recovery Act  funds, Michigan Department of Management and Budget officials also told  us they have been looking at ways to further streamline awarding  contracts. Michigan also allows local units of government to join state  contracts to leverage the state’s negotiating and purchasing power.
section_title: Michigan Using Existing Internal Controls
paragraphs: Michigan will continue to use existing internal controls to provide  assurances over Recovery Act spending, including ongoing self- assessments of controls by major state departments that are next due to  the state Auditor General on May 1, 2009. The self-assessments include  identification of internal controls and programmatic weaknesses and  developing and tracking actions taken in response to corrective action  plans.
The state Auditor General told us his office will include specific audit  procedures to address Recovery Act funding as part of the planned  procedures for its ongoing federal Single Audits of state departments  which will start again in July 2009. However the state Auditor General  does not yet have specific plans to audit Recovery Act funds. The state  Auditor General’s Single Audit approach is to audit and report on  individual state departments. Approximately one-half of Michigan’s 18  departments are audited each year, with the audits covering 2 fiscal years  of departmental activity.
Recent state Auditor General Single Audit Act reports identified numerous  material weaknesses in key state operations that are slated to receive  significant amounts of Recovery Act funds. For example, the state Auditor  General reported in August 2007 that, for fiscal years 2005 and 2006,  Michigan’s Department of Human Services did not materially comply with  federal program requirements regarding allowed or unallowed costs,  subrecipient monitoring, and eligibility. The October 2008 Single Audit  report on Michigan’s Department of Community Health stated that internal  controls were not sufficient to ensure the accuracy of financial accounting  and reporting and compliance with federal requirements for 10 of 11 major  programs.
The Michigan Auditor General’s oversight responsibilities do not include  most subrecipients that receive federal funding, so any upfront  safeguards to track or ensure accountability over Recovery Act funds  going directly to localities have not been determined. Officials from  Detroit’s Office of the Auditor General told us that they intend to audit the  use of Recovery Act funds. The superintendent of the Lansing school  district told us the district, along with all the other 840 local school  districts in the state, contract with independent public accountants to  perform annual financial statement audits.
subsections: section_title: State Has Identified Staffing and Resource Constraints as a Significant Challenge in Monitoring the Use of Recovery Act Funds
paragraphs: A lack of staff and uncertainty of funding available under the Recovery Act  to oversee the use of federal funds may pose challenges for Michigan.  Michigan officials reported that a hiring freeze may not allow some state  agencies to hire staff to increase their Recovery Act oversight efforts.  Officials with the state’s Departments of Community Health and Education  and the Lansing School District are concerned about available  administrative resources to cover increased oversight activities on the use  of Recovery Act funds. For example, the state Department of Community  Health said that because it has been downsizing for several years through  attrition and early retirement, it does not have sufficient staff to cover its  current responsibilities and that further reductions are planned for fiscal  year 2010. However, state officials told us that they will take the actions  necessary to ensure that state departments have the capacity to provide  proper oversight and accountability for Recovery Act funds.
section_title: Michigan Officials Concerned about the Lack of Federal Guidance
paragraphs: Michigan officials we spoke with in March 2009 wanted additional federal  guidance related to state responsibilities and reporting requirements under  the Recovery Act and expressed concern about spending funds before  they had received such guidance. For example, officials were unclear  about the state’s responsibilities concerning tracking or reporting on funds  that go directly to local entities, such as transportation funding going  directly to localities for urban transit. In addition, Michigan Department of  Education officials expressed concern about the lack of guidance from the  U.S. Department of Education regarding several aspects of how to manage  the receipt, allocation, use, and reporting of Recovery Act funds. In  particular, state officials said they had not yet received guidance on  tracking funds under IDEA, Part C and were concerned that recipients of  grant funds might report information inconsistently. On April 1, 2009, the  U.S. Department of Education issued additional guidance on the use of  Recovery Act funds.
section_title: Plans to Assess Impact of the Recovery Act Are Preliminary
paragraphs: Michigan may face challenges in assessing the impact of Recovery Act  funds because the state’s financial management system is old and does not  have the capability to track impacts, so the state will have to rely upon its  agencies for this. Furthermore, state officials said they are aware of the  requirement that the state measure the extent that certain Recovery Act  funds create jobs and promote economic growth and have identified  prospective participants to estimate the impact of Recovery Act funds.  State officials also told us that the state information technology group will  implement a database system at the end of April 2009 that will support its  financial management system in recording the impact of Recovery Act  funds. They told us that the Michigan Economic Development  Corporation, universities in the state and other experts in economic  modeling are expected to participate in prospective analysis supporting  the potential impact of Recovery Act funds on a project basis.  Additionally, the Department of Energy, Labor and Economic Growth and  the state Treasurer will also be involved in analysis related to the impact  of Recovery Act’s funds.
section_title: Michigan’s Comments on This Summary
paragraphs: We provided the Governor of Michigan with a draft of this appendix on  April 17, 2009. Michigan’s Recovery Czar responded for the Governor on  April 20, 2009, stating that staff in the Michigan Governor’s office and the  Michigan Economic Recovery Office have reviewed the draft appendix  and, in general, agree with its overview of the state’s preparations for  receiving and spending Recovery Act funding.  These officials provided  technical comments on the draft which were incorporated, as appropriate.
section_title: GAO Contacts
section_title: Staff Acknowledgments
paragraphs: In addition to the contacts named above, Robert Owens, Assistant  Director; Jeffrey Isaacs, Analyst-in-Charge; Manuel Buentello; Leland  Cogliani; Anthony Patterson; and Mark Ward made major contributions to  this report.
section_title: Appendix XII: Mississippi
paragraphs: Use of funds: An estimated 90 percent of Recovery Act funding provided  to states and localities nationwide in fiscal year 2009 (through Sept. 30,  2009) will be for health, transportation and education programs. The three  largest programs in these categories are the Medicaid Federal Medical  Assistance Percentage (FMAP) awards, the State Fiscal Stabilization Fund,  and highways.
Medicaid Federal Medical Assistance Percentage (FMAP) Funds    As of April 1, 2009, Centers for Medicare and Medicaid Services (CMS) had made about $225.5 million in  increased FMAP grant awards to Mississippi.
As of April 1, 2009, the state had drawn down $114.1 million, or just more than 50 percent of its initial  increased FMAP grant awards.   State officials reported that they plan to use funds made available as a result of the increased FMAP to cover  their increased Medicaid caseload and to offset expected state budget deficits due to lower general fund  revenue collections.
On March 2, 2009, the U.S. Department of Transportation apportioned Mississippi about $355 million for  highway infrastructure investment.
As of April 16, 2009, the U.S. Department of Transportation had obligated approximately $137 million for 32    As of April 1, 2009, Mississippi had signed contracts for 10 projects totaling approximately $77 million. The  Mississippi Department of Transportation (MDOT) used a competitive and transparent process to select  projects. These projects include activities such as road construction and road maintenance.
U.S. Department of Education State Fiscal Stabilization Fund (Initial Release)
On April 2, 2009, the U.S. Department of Education allocated Mississippi about $321 million from the initial  release of these funds.
Before receiving the funds, states are required to submit an application that provides several assurances to  the Department of Education.  These include assurances that they will meet maintenance of effort  requirements or will be able to comply with waiver provisions and that they will implement strategies to  meet certain educational requirements, including increasing teacher effectiveness, addressing inequities in  the distribution of highly qualified teachers, and improving the quality of state academic standards and  assessments. Mississippi plans to submit its application for state fiscal stabilization funds after it receives  and reviews the final program guidance.
Mississippi expects to use these funds to help restore funding for elementary, secondary, and public higher  education to prior levels in order to minimize reductions in education services in fiscal years 2009, 2010, and  2011. The state does not foresee having leftover funds for additional subgrants to local education agencies.
Mississippi is receiving additional Recovery Act dollars to fund other  programs, including employment and training programs under the  Workforce Investment Act, capital and management activities under the  Public Housing Capital Fund, and gap financing for low-income housing  tax credit projects under the Taxpayer Credit Assistance Program. The  status of Mississippi’s plans for using these funds is described throughout  this appendix.
Safeguarding and transparency: The State Auditor’s office has taken  steps to ensure accountability. For example, the office hosted a meeting  with state agency heads to discuss accountability requirements and  expectations, and the office plans to conduct training seminars on  accounting for and controlling the use of Recovery Act funds. In addition,  officials with the auditor’s office said Mississippi plans to add special  accounting codes to the statewide accounting system in order to track the  expenditure of Recovery Act funds. The state also plans to publicly report  Recovery Act spending that state agencies receive directly. State officials  noted that the statewide accounting system would not capture those funds  that the federal government allocates directly to local and regional  governmental organizations, nonprofit organizations, or higher education  entities. According to the Governor’s office, the state is developing a  framework that would require these entities to report Recovery Act  revenues and expenses to a central website.
Assessing the effects of spending: According to state officials, they are  waiting for the federal government to provide more specific guidance for  measuring job creation and retention. For example, the officials noted that  the federal government’s Office of Management and Budget (OMB) should  provide more guidance for estimating job creation and retention.
subsections: section_title: Mississippi Beginning to Use Recovery Act Funds
paragraphs: Mississippi has begun to use some of its Recovery Act funds, as follows.
Increased Federal Medical Assistance Percentage Funds: Medicaid is  a joint federal-state program that finances health care for certain  categories of low-income individuals, including children, families, persons  with disabilities, and persons who are elderly. The federal government  matches state spending for Medicaid services according to a formula  based on each state’s per capita income in relation to the national average  per capita income. The amount of federal assistance states receive for  Medicaid service expenditures is known as the Federal Medical Assistance  Percentage (FMAP). Across states, the FMAP may range from 50 percent  to no more than 83 percent, with poorer states receiving a higher federal  matching rate than wealthier states. The Recovery Act provides eligible  states with an increased FMAP for 27 months between October 1, 2008,  and December 31, 2010. On February 25, 2009, the Centers for Medicare &  Medicaid Services (CMS) made increased FMAP grant awards to states,  and states may retroactively claim reimbursement for expenditures that  occurred prior to the effective date of the Recovery Act. Generally, for  federal fiscal year 2009 through the first quarter of federal fiscal year 2011,  the increased FMAP, which is calculated on a quarterly basis, provides for  (1) the maintenance of states’ prior year FMAPs; (2) a general across-the- board increase of 6.2 percentage points in states’ FMAPs; and (3) a further  increase to the FMAPs for those states that have a qualifying increase in  unemployment rates. The increased FMAP available under the Recovery  Act is for state expenditures for Medicaid services. However, the receipt of  the increased FMAP may reduce the funds that states must use for their  Medicaid programs, and states have reported using these available funds  for a variety of purposes.
Under the Recovery Act, Mississippi’s FMAP will increase to 83.62 percent,  an increase of 7.33 percentage points over its fiscal year 2008 FMAP. As of  April 1, 2009, Mississippi had drawn down $114.1 million or just more than  50 percent of its initial increased FMAP grant awards. Mississippi officials  plan to use funds made available as a result of the increased FMAP to  cover their increased Medicaid caseload and to offset expected state  budget deficits due to lower general fund revenue collections, avoiding  cuts in services. Mississippi officials indicated that simplifications to CMS  expenditure reporting systems are needed to automatically generate the  increased FMAP applicable to qualifying expenditures. Officials also  reported a need for CMS guidance regarding programmatic changes that  were made to its Family Planning Waiver since July 1, 2008, and whether  these changes affect the state’s ability to draw down the increased FMAP.
Transportation—Highway Infrastructure Investment: The Recovery  Act provides additional funds for highway infrastructure investment using  the rules and structure of the existing Federal-Aid Highway Surface  Transportation program, which apportions money to states to construct  and maintain eligible highways and for other surface transportation  projects that could affect highways. States must follow the requirements  for the existing programs, and in addition, the governor must certify that  the state will maintain its current level of transportation spending, and the  governor or other appropriate chief executive must certify that the state or  local government to which funds have been made available has completed  all necessary legal reviews and determined that the projects are an  appropriate use of taxpayer funds. Mississippi’s Governor provided this  certification in a letter dated March 17, 2009. The Governor noted that  transportation spending authority in Mississippi is granted annually by the  state Legislature to the Mississippi Department of Transportation (MDOT),  which operates under the guidance of independently elected  transportation commissioners. As such, MDOT’s Executive Director also  provided this certification.
As of April 1, 2009, MDOT had signed contracts for 10 projects totaling  approximately $77 million. The agency used a transparent and  competitive process for awarding contracts for these projects. MDOT  issued an advance notice on its Web site to inform contractors of the  opportunity to bid on the projects. Furthermore, MDOT used cost as a key  criterion for awarding contracts. MDOT awarded the contract to the  lowest bid, provided that the lowest bid did not exceed the state’s cost  estimate for the project by more than 10 percent. These projects include  the expansion of State Route 19 in eastern Mississippi into a four-lane  highway. This project fulfills part of MDOT’s 1987 Four-Lane Highway  Program, which seeks to link every Mississippian to a four-lane highway  within 30 miles or 30 minutes. In addition, MDOT plans to upgrade a  section of a major road, US-78, which runs across northern Mississippi. An  MDOT official anticipated the project would have major economic benefits  for Mississippi.
U.S. Department of Education State Fiscal Stabilization Fund: The  Recovery Act created a State Fiscal Stabilization Fund (SFSF), to be  administered by the U.S. Department of Education (Education). The SFSF  provides funds to states to help avoid reductions in education and other  essential public services. The initial award of SFSF funding requires each  state to submit an application to Education that assures, among other  things, it will take actions to meet certain educational requirements, such  as increasing teacher effectiveness and addressing inequities in the  distribution of highly qualified teachers.
Mississippi’s initial SFSF allocation is about $321 million. The Recovery  Act specifies that 81.8 percent is to be used for support of elementary,  secondary and postsecondary education, and early childhood programs.  The Recovery Act also authorizes the Governor to use 18.2 percent of  these funds for “public safety and other government services,” which may  include education. Mississippi’s Governor has not yet announced specific  plans for the use of these other government services funds. According to  state education officials, Mississippi will file its application for these funds  after receiving and reviewing sufficient guidance. The funds will be  appropriated to the state education agencies by the Mississippi State  Legislature when it returns to session later this spring. The funding is  expected to be used to stabilize education budgets in fiscal years 2009,  2010, and 2011 to help avoid reductions in education services. Restoring  funding in those years to required levels is expected to consume all of the  stabilization funds to be received by the state.
subsections: section_title: Mississippi Is Planning for Recovery Act Funding
paragraphs: Mississippi began planning for how the state would provide oversight of  Recovery Act funding in February 2009. Officials from the Governor’s  Office said that the state did not establish a new office to provide  statewide oversight of Recovery Act funding, in part because they did not  believe that the act provided states with funds for administrative  expenses—including additional staff. The Governor’s Director of Federal  Policy is serving as the stimulus coordinator for the state with support  from a loaned executive from a statewide business development  association. The stimulus coordinator told us she met individually with  state agency heads to discuss their plans for spending funds allocated  under the Recovery Act. In late March 2009, the Governor submitted a  letter certifying that Mississippi would request funds available under the  Recovery Act and such funds will be used to create jobs and promote  economic growth. The Governor added in the certification letter that the  state would continue to examine the various guidelines and fund-specific  requirements associated with the Recovery Act funds. In April 2009, the  Governor hosted a Mississippi Stimulus Summit where state agency heads  provided information on the detailed steps that were already being taken  or were planned regarding the use of Recovery Act funds. Finally, the  Governor established a state stimulus Web site (www.stimulus.ms.gov) to  provide information to the public on the Recovery Act funding received by  the state.
section_title: Addressing State’s Fiscal Challenges Is Mississippi’s Goal for Using Recovery Act Funding
paragraphs: Mississippi officials plan to use the anticipated $2.8 billion in Recovery Act  funding to address fiscal challenges the state has experienced due to a  weakened economy. State officials reported that Mississippi entered a  recession in late 2008. One indicator of Mississippi’s weakened economy is  the state’s unemployment rate, which was 8.7 percent in January 2009  compared with 6.9 percent in June 2008. The state’s weakened economy  has also resulted in lower-than-expected tax revenues for the state’s  current fiscal year. According to the Governor, Mississippi’s Revenue  Estimating Committee projected that the state’s fiscal year 2009 general  fund revenue will fall $301 million, or 5.9 percent, short of expectations. In  response to anticipated budget shortfalls, the Governor made two cuts to  most state agency budgets. In November 2008, the Governor cut most  agency budgets by 2 percent, or $42 million. In January 2009, the Governor  cut state agencies’ budgets by an additional $158.3 million, bringing the  total cuts to date for the fiscal year to $200 million. Each agency or  department received a budget cut of up to 5 percent (see table 8).  Although the Governor anticipated that Congress would pass a stimulus  package, he ordered the cuts in agency budgets to comply with state law  that requires a balanced budget for the fiscal year, which ends on June 30.
To mitigate the impact of economic fluctuations on state revenues,  Mississippi has historically set aside 2 percent of projected revenues into a  budget stabilization fund. In 2008, however, the state did not set aside any  revenues for this fund, which made available an additional $100 million for  Mississippi’s 2009 fiscal year budget. Going forward, Mississippi faces  budgetary challenges for fiscal year 2010. According to the Governor, the  state’s Revenue Estimating Committee projects that Mississippi’s revenues  will be $402.7 million, or 7.9 percent, short of expectations. State officials  anticipate that the recession will increase the demand for certain  government services, including unemployment benefits, Medicaid, food  stamps, and rental assistance. Some Mississippi officials believe that the  state’s recession could continue through fiscal year 2012.
Most of the Recovery Act funds that Mississippi will receive are directed  toward education, Medicaid, and transportation programs (see fig. 9).  According to the Governor’s office, state law provides for state agencies to  escalate their spending plans to account for federal funds received under  the Recovery Act. State officials also told us that the Legislature was  considering adding further escalation language to the current fiscal year’s  appropriations bills that would authorize state agencies to spend any  Recovery Act funds received. The Legislature normally conducts its  regular session between the beginning of January and the end of March.  However, the Legislature recessed early during the 2009 regular session in  part because of uncertainty regarding how the state’s portion of Recovery  Act funds should be spent. The Legislature plans to reconvene in early May  2009 to complete its work on the state’s fiscal year 2010 budget.
section_title: Mississippi Has an Accounting System to Track Recovery Act Spending
paragraphs: Officials with the State Auditor’s office told us that special accounting  codes will be added to the Statewide Automated Accounting System  (SAAS) in order to track the expenditure of Recovery Act funds. The state  also plans to publicly report Recovery Act spending that state agencies  receive directly. However, state officials noted that SAAS would not track  Recovery Act funds allocated directly to local and regional governmental  organizations, nonprofit organizations, or higher education entities. For  example, cities with a population of more than 50,000 residents can apply  directly to federal agencies for certain programs, such as Community  Development Block Grants. In addition, Mississippi has 10 regional  planning and development districts that may receive funding directly from  federal agencies. Finally, Mississippi localities may receive Recovery Act  funds directly from the Appalachian Regional Commission or Delta  Regional Authority, federally chartered regional commissions charged  with promoting economic development in certain parts of the state.  According to the Governor’s office, the state is developing a framework  that would require these entities to report Recovery Act revenues and  expenses to a central website.
section_title: Some State Agencies Have Made Spending Decisions for Recovery Act Funds
paragraphs: A few state agencies have made spending decisions for Recovery Act fund  apportionments received:    The Mississippi Department of Employment Security (MDES) received  about $40.7 million in Recovery Act funding for adult, dislocated  worker, and youth activity programs under the Workforce Investment  Act. MDES officials told us they planned to use the youth activity  funding to provide summer youth programs across the state.
The Jackson Public Housing Authority received a $1.1 million  allocation to its Public Housing Capital Fund from the Department of  Housing and Urban Development (HUD) for capital and management  activities, including modernization and development of public housing  projects. The officials told us they planned to use the Recovery Act  allocation to fund projects already included in their 5-year Capital  Fund Plan—for instance, one project will redevelop housing in  Jackson’s North Midtown Community.
The Mississippi Home Corporation (MHC) was allocated  approximately $21.9 million to provide additional gap financing to Low  Income Housing Tax Credit (LIHTC) projects under the Taxpayer  Credit Assistance Program (TCAP). MHC officials told us they had  provided an initial notice to developers of LIHTC projects in the state  about the additional funding provided under the Recovery Act for the  TCAP but were waiting for HUD to issue final guidance before  releasing details on their plans for administering the Recovery Act  funding.
section_title: State Auditor Coordinating Plans for Safeguards and Controls
paragraphs: The State Auditor’s office has taken and plans to take a number of steps to  establish accountability. For example, in March 2009 the office hosted a  meeting with staff from state agencies that are expected to receive  Recovery Act funds to discuss accountability requirements and  expectations. The office is planning to conduct training seminar for local  officials and others concerned about accounting for and controlling the  use of Recovery Act funds. Overall, the State Auditor believes the state has  adequate controls for the use of Recovery Act funds but is concerned that  the funding of new programs and the significant increase in funding of  current programs will stress the control system. In addition to the State  Auditor, a legislative oversight committee and internal audit offices within  each agency may provide oversight of Recovery Act funds. For example,  the legislative committee staff in March 2009 said they began tracking the  Recovery Act and the state’s Recovery Act-related legislation and funding  provided to Mississippi.
Mississippi’s most recent Single Audit Act findings highlight two material  weaknesses in internal control over financial reporting at one state agency  that will receive Recovery Act funds. In its Single Audit report for fiscal  year 2008, the State Auditor found that the Mississippi Department of  Employment Security did not record the tax liens receivable account and  corresponding Unemployment Insurance Premiums revenue account on  the department’s financial statements in accordance with generally  accepted accounting principles. As a result, the State Auditor proposed,  and management made an audit adjustment of, approximately $35.5  million to properly state the department’s current year financial  statements. In addition, the State Auditor found that the department’s  internal controls over its tax lien receivable system were inadequate, and  management proposed audit adjustments totaling approximately $6.4  million to properly state the department’s tax lien receivables. The State  Auditor also identified one material weakness in internal control over  compliance at the Mississippi Department of Human Services for the  department’s failure to verify and document compliance with the Davis- Bacon Act requirements for the Social Services Block Grant, which could  result in questioned costs and funds due back to the federal granting  agency.
section_title: Resources for Conducting Oversight Are Limited
paragraphs: State officials stated that the Recovery Act does not provide funding to  oversight entities, but the federal government expects states to ensure  accountability and transparency over expenditures. For example, officials  from the State Auditor’s office told us they had experienced significant  staff turnover in recent years and relied on less-experienced staff to  conduct audit work. In addition, the Lieutenant Governor expressed  concern about whether the State Auditor could be funded to conduct  additional Recovery Act-related auditing responsibilities, as was done for  Hurricane Katrina related oversight. Officials from the State Auditor’s  office added that they normally charged the audit agency for the cost of  audit services provided, but they were not sure whether Recovery Act  funds could be used for this purpose. The State Auditor noted that the  office would like to hire certified public accounting firms to conduct  Recovery Act oversight work rather than increase staff. Further, the  officials noted that OMB should provide guidance regarding state level  oversight, auditing, and administrative costs—such as how costs should be  paid for and with what funds.
The legislative oversight committee also expressed concerns about the  capabilities of the State Auditor’s office and some state agency internal  audit functions. For example, in a recent report, the committee noted that  low staffing levels and high turnover in the office’s Department of Audit’s  Financial and Compliance Audit Division had resulted in a decreased  experience level of audit staff and reduced institutional knowledge to use  in forming auditor judgment. In addition, the committee noted there were  limitations in the internal audit functions of some state agencies—for  instance, state law required 19 agencies to establish an internal audit  function; 13 had done so as of December 2008. Further, the committee  reviewed the internal audit functions of 8 agencies and found that most  focused on reviewing agency programs rather than testing internal  controls. Finally, the committee found that the Executive Director for  these agencies reviewed and approved the plans for their internal audit  function, but this could limit the internal auditor’s freedom to determine  the internal controls tested and programs reviewed.
section_title: Assessing the Impact of Recovery Act Funds Requires Clear Federal Guidance
paragraphs: Officials from the State Auditor’s office recommended that the federal  government provide specific guidance for reporting on the use of  Recovery Act funds to support job creation or retention because the  reliability of such estimates depends critically on using a solid  methodology. Furthermore, the officials recommended that OMB provide  a clear definition of time-limited, part-time, full-time, and permanent jobs.  Another concern was how to report on jobs created from the use of funds  for programs, such as unemployment, food stamps, and Medicaid. These  funds make up a large portion of the Recovery Act funding, but, according  to state officials, the purpose of these programs is not job creation and  retention.
The State Auditor’s office also expressed concerns about data reliability.  For example, staff noted that standardization of data was lacking and the  various decentralized reporting mechanisms, while certainly cheaper and  less burdensome on state agencies, will not likely provide meaningful data  on the impact of Recovery Act funds. Additionally, the staff noted that, if  state agencies require their subrecipients to provide nonstandardized and  nonuniform data, it will be difficult to identify trends at the state level.  They also expressed concern that decentralized reporting would bypass  the state-level efforts of accountability. Ultimately, they said state-level,  centralized reporting using standardized and uniform data collection  elements would be beneficial for state and federal oversight and would  raise both the actual and perceived level of accountability.
As an example of state efforts to assess the impact of Recovery Act funds,  MDOT hired a contractor to conduct an economic impact analysis of  projects MDOT had preselected to receive Recovery Act funding.  According to one of the contractor’s staff, these projects were preselected  on the basis that they were “shovel ready” during the first 90 days of the  state receiving stimulus funds. The contractor used a forecasting model to  measure the impact that an estimated $726 million in transportation  stimulus funding would have on the state of Mississippi with regard to  increased economic spending and the number of jobs from 2009 through  2011.
section_title: Mississippi’s Comments on This Summary
paragraphs: We provided the Governor of Mississippi with a draft of this appendix on  April 17, 2009. The Director of Federal Policy, who serves as the stimulus  coordinator, responded for the Governor on April 20, 2009. The official  provided technical suggestions that were incorporated, as appropriate.
section_title: GAO Contacts
section_title: Staff Acknowledgments
paragraphs: In addition to the contacts named above, Chris Keisling, assistant director;  Marshall Hamlett, analyst-in-charge; David Adams; Michael O’Neill; Carrie  Rogers, and Erin Stockdale made major contributions to this report.
section_title: Appendix XIII: New Jersey
paragraphs: Use of funds: An estimated 90 percent of Recovery Act funding provided  to states and localities nationwide in fiscal year 2009 (through Sept. 30,  2009) will be for health, transportation and education programs. The three  largest programs in these categories are the Medicaid Federal Medical  Assistance Percentage (FMAP) awards, the State Fiscal Stabilization Fund,  and highways.
Medicaid Federal Medical Assistance Percentage (FMAP) Funds  As of April 3, 2009, the Centers for Medicare & Medicaid Services (CMS) had made about $550 million in increased  FMAP grant awards to New Jersey.  As of April 1, 2009, the state has drawn down $362.2 million, which is almost 66  percent of its awards to date.
Officials stated that the funds made available as a result of the increased FMAP allow the state to cover the increase in  caseload and maintain current populations and benefits.  In addition, these funds will help balance the state’s budget  and allow the state to eliminate premiums for children in families with incomes less than 200 percent of the federal  poverty level in New Jersey’s State Children’s Health Insurance Program.
subsections: section_title: New Jersey Beginning to Use Recovery Act Funds
paragraphs: New Jersey has begun to use some of its Recovery Act funds, as follows. and December 31, 2010. On February 25, 2009, the Centers for Medicare &  Medicaid Services (CMS) made increased FMAP grant awards to states,  and states may retroactively claim reimbursement for expenditures that  occurred prior to the effective date of the Recovery Act. Generally, for  fiscal year 2009 through the first quarter of fiscal year 2011, the increased  FMAP, which is calculated on a quarterly basis, provides for (1) the  maintenance of states’ prior year FMAPs; (2) a general across-the-board  increase of 6.2 percentage points in states’ FMAPs; and (3) a further  increase to the FMAPs for those states that have a qualifying increase in  unemployment rates. The increased FMAP available under the Recovery  Act is for state expenditures for Medicaid services. However, the receipt of  the increased FMAP may reduce the funds that states must use for their  Medicaid programs, and states have reported using these available funds  for a variety of purposes. (SCHIP). This will help the state retain children in SCHIP who would  otherwise be terminated from the program for nonpayment of premiums.
Transportation—Highway Infrastructure Investment: The Recovery  Act provides additional funds for highway infrastructure investment using  the rules and structure of the existing Federal-Aid Highway Surface  Transportation Program, which apportions money to states to construct  and maintain eligible highways and for other surface transportation  projects that could affect highways. States must follow the requirements  for the existing programs, and in addition, the governor must certify that  the state will maintain its current level of highway spending and the  governor or other appropriate chief executive must certify that the state or  local government to which funds have been made available has completed  all necessary legal reviews and determined that the projects are an  appropriate use of taxpayer funds. New Jersey provided these  certifications but noted that the state’s level of funding was based on the  best information available at the time of the state’s certification.
Recovery Act transportation funding to 3 large projects, including one in  an economically distressed area. As of April 16, 2009, 10 projects totaling  about $269.5 million have been put out for bid through a competitive  process. NJDOT officials estimate that Recovery Act funds will save the  state about $100 million in interest charges over 12 years for one of the  selected projects, as the state will not have to borrow to start and  complete it. Not all of the selected projects were on the State  Transportation Improvement Plan (STIP), but New Jersey, in consultation  with the Federal Highway Administration, amended its STIP to include all  of the selected projects.
U.S. Department of Education State Fiscal Stabilization Fund: The  Recovery Act created a State Fiscal Stabilization Fund (SFSF), to be  administered by the U.S. Department of Education (Education). The SFSF  provides funds to states to help avoid reductions in education and other  essential public services. The initial award of SFSF funding requires each  state to submit an application to Education that assures, among other  things, it will take actions to meet certain educational requirements, such  as increasing teacher effectiveness and addressing inequities in the  distribution of highly qualified teachers.
The state expects to receive $891.4 million in SFSF funds, about 82 percent  of which is for education and about 18 percent of which is for the state to  use for “public safety and other government services.” State officials said  that, pending a New Jersey Supreme Court decision on the state’s new  education funding formula, the SFSF funds for primary education would  follow that formula. The state’s use of SFSF funds for higher education is  unclear. The Governor’s Chief of Staff stated that New Jersey is currently  trying to determine what portion of the SFSF education and other  government services funds will be used for higher education and will not  submit its application for SFSF funding until it completes this  determination. New Jersey expects those determinations to be made  sometime in April. The state expects that the receipt of stabilization funds  will help balance its fiscal year 2009 budget and avoid layoffs or tax  increases. currently planning their upcoming fiscal year budgets and would like to  know how the Recovery Act funds would complement their upcoming  school spending. On April 1, 2009, Education issued guidance to the states  on how Recovery Act funds could be used for education.  State officials  are continuing to review the guidance and on April 16, 2009, issued  guidance to local school districts outlining each district’s allocation of  additional funds made available under the Recovery Act for programs  authorized under Title I of the Elementary and Secondary Education Act  and the Individuals with Disabilities Education Act.
Transportation—Urban/Rural Transit Capital Assistance and Fixed  Guideway Modernization Grants: New Jersey Transit (NJT), the  primary public operator of bus and commuter rail transit lines in the state,  was apportioned all of the Recovery Act funds for transit for New Jersey,  which amounted to about $425 million in three pre-existing federal transit  programs. NJT has selected 15 projects that will use Recovery Act funds,  all of which were on their 20-year capital plan. About 70 percent of the  funds are allocated to capacity expansion and improvement projects, with  the remainder allocated to maintenance projects, as its regular funds are  concentrated on safety, security and maintenance needs. According to NJT  officials, NJT can move quickly to use these funds as the Federal Transit  Administration (FTA), through its preaward authority, will reimburse the  agency for funds expended for the selected projects, even though the  funding for those projects has not yet been obligated by the FTA. The  largest allocation of NJT’s Recovery Act funds ($130 million) will be used  toward designing and undertaking some construction activity for new train  tunnels under the Hudson River. The tunnels are expected to double the  number of NJT trains going into and out of New York City.
Housing and Urban Development—Housing Capital Assistance:  HUD allocated approximately $104 million to 86 public housing authorities  in New Jersey for capital and management activities, including  modernization and development of public housing developments. Officials  from the Newark Housing Authority (NHA), which is receiving an  allocation of about $27.4 million, told us they planned to use the allocation  to fund projects already included in their 5-year capital plan—including  rehabbing 700 vacant units and 300 occupied units—which will generate  income and additional HUD subsidies to NHA and provide new and  improved affordable units for additional families.
Justice—Edward Byrne Memorial Justice Assistance Grants: State  officials expect to receive a Recovery Act allocation of $48 million from  the Byrne Justice Assistance Grant Program. Local law enforcement  officials stated that this program may provide for some additional facilities  and other law enforcement equipment. For example, the Trenton Police  Department is planning to use its Byrne Justice Assistance Grant funds on  projects that will enhance its crime reduction efforts by sharing  information with Mercer County’s Prosecutor’s Office and enhancing the  department’s forensic crime analysis capabilities. In contrast, according to  Newark’s Chief of Police, the amount of Byrne Justice Assistance Grants  allocated to the Newark Police Department may be sufficient to provide  some new equipment but not fund a major capital program.
subsections: section_title: New Jersey’s Plans for Spending Recovery Act Funds Are Forming As Funds Are Being Distributed
paragraphs: Anticipating even less revenue in fiscal year 2010, which begins on July 1,  2009, the Governor has proposed a $29.8 billion budget. According to the  Governor, if New Jersey did nothing to curtail growth in state spending or  adjust its mandatory obligations, the fiscal year 2010 budget would be  about $36 billion, or $7 billion above anticipated revenues. In response to  declining revenue, the Governor has proposed about $4 billion in cuts to  programs, rebates, pension payments, and state worker personnel costs. In  all, more than 850 line items in the budget have been cut. The largest cuts  will come from scaling back state rebates of local property taxes by $500  million and reducing state payments to the pension fund by $895 million.  The Governor is also proposing to save $400 million in personnel costs  through a wage freeze and furloughs for state employees, avoiding an  otherwise anticipated layoff of up to 7,000 state workers.
Some New Jersey officials began preparing for receipt of Recovery Act  funds prior to passage of the Recovery Act. Anticipating federal stimulus  spending for infrastructure, the Governor asked NJDOT to identify  projects that could be ready for federal funding and quick implementation  in November 2008. NJDOT officials identified about $1.4 billion in  potential eligible projects but had to scale this list back to meet New  Jersey’s eventual apportionment of Recovery Act transportation funds.  The city of Newark also prepared a process with evaluative criteria for  selecting local projects for Recovery Act funds before the Recovery Act  was enacted. fiscal year 2010 budget, which is currently being debated by the state  legislature.
New Jersey officials have been and are planning to continue submitting  certifications for the state’s use of Recovery Act funds. The Governor  issued a certification memo to the Secretary of the U.S. Department of  Transportation that the state would maintain its efforts with regard to  state funding for the types of projects funded under the Recovery Act.  Other local officials told us they would issue or had issued similar  certifications for Recovery Act funds for which they are directly  responsible. For example, NHA staff told us their Executive Director  signed a certification letter for the Recovery Act funds that the NHA was  responsible for.
section_title: New Jersey Will Use Existing Resources for Recovery Act Oversight, but Lack of Additional State Funding May Hinder Its Efforts
paragraphs: the state Inspector General, who is responsible for investigations of  fraud related to state government; and  the internal audit offices that exist within most agencies, including the  state Medicaid Inspector General and the contract compliance audit  units within the Division of Purchase and Property (DPP) ad the  Division of Property Management and Construction (DPMC).
According to the state’s Comptroller, the legislature’s State Commission  on Investigation, which is concerned with investigations on enforcement  of state law, particularly regarding racketeering and organized crime, will  also be among the agencies helping to ensure that the state’s public  employees who administer Recovery Act funds do so effectively and in  compliance with federal or state requirements. In addition, the state  legislature, state agencies, and many local entities (e.g., housing  authorities, school districts, and metropolitan planning organizations) also  have a role in overseeing these funds.
As described by state officials, Recovery Act funds must be used by state  agencies pursuant to appropriation by the state legislature, and Recovery  Act funds were appropriated in legislation enacted in March 2009.Under  that legislation, the specific programs and activities conducted by those  agencies with Recovery Act funds are also subject to approval by the  legislature’s Joint Budget Oversight Committee. However, according to  state officials, any Recovery Act funds directly received by local  governments or other entities in the state would not be budgeted or  appropriated by the state legislature. State officials describe New Jersey as  a strong “home rule” state and its constitution as giving localities many  rights and responsibilities for providing local services. Therefore, New  Jersey has more than 1,900 cities, counties, towns, townships, and local  authorities or taxing districts, including 86 housing authorities, 566  municipal governments, and 616 school districts that can apply for, use,  and potentially be held accountable for Recovery Act funds. mandated limitations on compensation practices and proficiency targets  for state assessments have been raised. Additionally, the state has a  significant amount of oversight over the three districts that are under state  control to review and control their budgets. The U.S. Department of  Education and the county superintendent have the authority to review  these school districts budgets, as well.  Further, according to the  Governor’s Chief of Staff, because the state already funds local school  districts with $8.8 billion in state funds, ensuring accountability for the use  of state funds by school districts is not a new challenge to the state  oversight agencies.
Many of the state and local agencies interviewed stated that their current  accounting systems can track Recovery Act funds by program and project  and can generate reports showing the use of those funds:    Both the Newark and Trenton Housing Authorities stated that they use  the Line of Credit Control System (LOCCS) accounting system, which  HUD uses to provide funds to public housing authorities. LOCCS  includes special accounting codes under which housing authorities can  track Recovery Act funds by program and by type of use. Housing  authorities can also use LOCCS to generate the required reports back  to HUD showing how they have used Recovery Act funds.
Both NJDOT and NJT stated that their accounting systems can track  Recovery Act funds separately from their regular funds because they  have created separate accounting codes to track these funds.  Furthermore, most of the selected projects will be funded primarily  with Recovery Act funds, making the process of tracking them easier. they were confident no special enhancements were needed to their  accounting software, although they would monitor the accounting  system to ensure it was functioning properly. DPP will also publicly  advertise bids for projects funded with Recovery Act funds, include  terms and conditions in each request for proposals and contract for  these projects stating detailed reports required by the act, and will post  contract award notices for Recovery Act funded projects.
To track increased FMAP funds, New Jersey has established a discrete  identifier in the state accounting system. The state has begun the  process of adjusting systems, so that the additional FMAP funds can be  tracked and monitored by specific service category. Despite these  adjustments, tracking of these funds will not be dramatically different  from how the state tracks funds for their overall budget. Additionally,  the state is monitoring increased FMAP funds and comparing them  against actual expenditures. According to New Jersey officials, the  state is also monitoring unemployment levels to anticipate and project  future FMAP levels.
New Jersey has not increased its number of state auditors or investigators,  and there has not been an increase in funding specifically for Recovery Act  oversight. Additionally, the state hiring freeze has not allowed many state  agencies to increase their Recovery Act oversight efforts. For example,  despite an increase of $469 million in Recovery Act funds for state  highway projects, no additional staff will be hired to help with those tasks  or those directly associated with the act, such as reporting on the number  of jobs that the Recovery Act funds created. While NJDOT has committed  to shift resources to meet any expanded need for internal Recovery Act  oversight, currently one person is responsible for reviewing contractor- reported payroll information for disadvantaged business enterprises,  ensuring compliance with Davis-Bacon wage requirements, and job  creation figures.
section_title: Potential Areas of Vulnerability of New Jersey Recovery Act Funds
paragraphs: 2005, the state Inspector General’s review of the now-dissolved School  Construction Corporation, which was responsible for more than $8.66  billion in school construction funds, found the authority had “weak  financial controls, glaring internal control deficiencies and lax or non- existent oversight and accountability” after it had disbursed $4.3 billion in  contracts and approved approximately $540 million in changes to those  contracts. In its place, in 2007, the state created a Schools Development  Authority with a completely different management and accountability  structure.
State officials noted that certain towns and cities, as well as regional  planning organizations, can apply for and directly receive federal recovery  funds under the terms of the Recovery Act. According to the state  Inspector General, the risk for waste, fraud, and abuse increases the  farther removed an organization is from state government controls. While  some state officials said they have statewide investigative authority, they  would not be able to readily track the funding going directly to local and  regional government organizations and nonprofits as a result of the  funding delivery and reporting requirements set up in the Recovery Act. In  addition, staff from the state Auditor’s office noted that some smaller  cities and towns in New Jersey are not used to implementing guidance  from the state or federal government on how they are using program  funds, which could result in the localities reporting using funds for  ineligible purposes. However, state Department of Education officials  stated that although the sheer number of school districts in the state raises  concerns, sufficient internal controls (state audits, Single Audits, state  oversight, etc.) exist to prevent most instances of fraud and other illegal  uses of funds. programs are being designed and how they are using the funds. For  example, state officials are emulating the federal oversight effort, in part  by trying to build internal controls at the outset of the process and to use  merit-based selection criteria for Recovery Act projects. The state  Inspector General, in coordination with the New Jersey Recovery  Accountability Task Force, will be conducting training at New Jersey  government agencies concerning Recovery Act related internal control  issues. As of April 17, the Inspector General hopes to present the first  trainings by mid-May.
section_title: Plans to Assess Impact of Recovery Act Funds Are in Initial Stages and Vary across State and Local Agencies
paragraphs: The Governor’s Chief of Staff stated that different state agencies are  planning to evaluate the impact of Recovery Act funds. Assessing the  impact of the increased FMAP funds will involve the extent to which the  Medicaid program is able to accommodate additional applicants as a result  of these funds. A New Jersey official noted that the state will have  benchmark numbers on how many additional people are served and that  this approach is no different from how the state would currently report  impact. The state Auditor and the state Comptroller have also committed  to carrying out audits and assessments of the impact of Recovery Act  funds.
Officials we interviewed at New Jersey state agencies have different ways  of either collecting or estimating data on the number of jobs created or  retained as a result of Recovery Act funds. For example, the NHA will use  payroll data to keep track of the exact number of union tradesmen and  housing authority residents employed to turn damaged vacant units into  rentable ones. In contrast, NJT is using an academic study that examined  job creation from transportation investment to estimate the number of  jobs created by contractors on its Recovery Act-funded construction  projects. Finally, officials stated that both DPP and DPMC both have  methodology and mechanisms in place to track jobs created and  maintained for goods and services procured under Recovery Act  contracts.
section_title: New Jersey’s Comments on this Summary
paragraphs: We provided the Governor of New Jersey with a draft of this appendix on  April 17, 2009.  The Governor’s Chief of Staff responded for the Governor  on April 20, 2009.  In general, the Chief of Staff substantially agreed with  the draft and provided technical comments that were incorporated, as  appropriate.
section_title: GAO Contacts
section_title: Staff Acknowledgments
paragraphs: In addition to the contacts names above, Raymond Sendejas, Assistant  Director; Greg Hanna, analyst-in-charge; Jeremy Cox; Colin Fallon;  Tarunkant Mithani; and Cheri Truett made major contributions to this  report.
section_title: Appendix XIV: New York
paragraphs: Use of funds: An estimated 90 percent of fiscal year 2009 Recovery Act  funding provided to states and localities will be for health, transportation  and education programs.  The three largest funding categories are the  Medicaid increased Federal Medical Assistance Percentage (FMAP) grant  awards, the State Fiscal Stabilization Fund, and highways.
Medicaid Federal Medical Assistance Percentage (FMAP) Funds    As of April 13, 2009, the Centers for Medicare & Medicaid Services (CMS) had made about $3.14 billion in  increased FMAP grant awards to New York.
As of April 13, 2009, New York had drawn down about $1.74 billion, or 55 percent of its initial increased    Nearly $1.3 billion of the funds made available as a result of the increased FMAP were used to close the  state’s budget deficit for the fiscal year ending on March 31, 2009, or applied to lower the deficit for the  current fiscal year.  In addition, $440 million was returned to the counties for their contributions towards the  non-federal share of  Medicaid expenditures that qualified for the increased FMAP.
New York was apportioned about $1.12 billion for highway infrastructure investment on March 2, 2009, by  the U.S. Department of Transportation.
As of April 16, 2009, the U.S. Department of Transportation had obligated about $276.5 million for 108  projects to the New York State Department of Transportation. New York will request reimbursement from  the U.S. Department of Transportation as the state makes payments to contractors.
As of April 13, 2009, the New York State Department of Transportation had advertised for bids on 38  projects. Work on all of these projects is expected to begin this spring.  The state will target Recovery Act transportation funds to infrastructure rehabilitation, including preventive  maintenance and reconstruction, such as bridge repairs and replacement, drainage improvements, repaving  and roadway construction. State officials emphasized that these projects extend the life of infrastructure  and can be contracted for and completed relatively easily in the 3-year time frame required by the act. Some  Recovery Act funds will go to more typical “shovel-ready” highway construction projects for which there  were insufficient funds.
By the end of April 2009, New York expects to have a complete list of transportation projects that Recovery  Act funds will support.
U.S. Department of Education State Fiscal Stabilization Fund (Initial Release)
As of April 13, 2009, New York had been allocated about $2.0 billion from the initial release of these funds by  the U.S. Department of Education.
Before receiving the funds, states are required to submit an application that provides several assurances to  the Department of Education. These include assurances that the states will meet maintenance-of-effort  requirements (or that they will be able to comply with waiver provisions) and that they will implement  strategies to meet certain educational requirements, including increasing teacher effectiveness, addressing  inequities in the distribution of highly qualified teachers, and improving the quality of state academic  standards and assessments. As of April 13, 2009, New York had not submitted its application for these funds.
New York plans to use the majority of Fiscal Stabilization funding to support K-12 education costs for the  2009-2010 and 2010-2011 school years beginning July 1, 2009.   New York education officials told us that  most of the funds will be used to offset expected budget cuts throughout the school system that were  caused by the downturn in the economy and in state revenues.
New York is also receiving additional Recovery Act funds under other  programs, such as programs under Title I, Part A, of the Elementary and  Secondary Education Act (ESEA) (commonly known as No Child Left  Behind), and the Individuals with Disabilities Education Act, Part B  (IDEA). These are described throughout this appendix.  Overall, New York  expects to receive about $26.5 billion in Recovery Act funds plus possible  additional discretionary program funds over the next 3 years (fiscal years  2009-2011).
Safeguarding and transparency: New York plans to track and monitor  Recovery Act funds mostly through its existing internal control, audit, and  accounting systems, although the new Recovery Cabinet and other state  institutions have initiated several steps to coordinate the oversight of  Recovery Act projects. For example, the Office of the State Comptroller  (OSC) is using its accounting system to tag and track these funds, while  the New York State Department of Transportation (NYSDOT) is  conducting a federal-aid risk assessment to focus its internal and contract  audit resources on projects and contracts that may be most vulnerable to  fraud, waste, and abuse. New York officials, however, expressed concerns  about monitoring Recovery Act funds that do not pass through state  offices but flow directly from federal agencies to local agencies or  authorities. For example, the Metropolitan Transportation Authority,  which provides transportation services for the New York City  metropolitan area, expects to receive directly about $1 billion in federal  transit funds under the Recovery Act.
Assessing the effects of spending: Officials have taken some initial  steps to meet the Recovery Act’s reporting requirements, but generally  they are awaiting further federal guidance. Officials throughout the state  government expressed concerns about how to consistently report on the  impact of Recovery Act funds.
subsections: section_title: New York Beginning to Use Recovery Act Funds
paragraphs: Percentage (FMAP). Across states, the FMAP may range from 50 percent  to no more than 83 percent, with poorer states receiving a higher federal  matching rate than wealthier states. The Recovery Act provides eligible  states with an increased FMAP for 27 months between October 1, 2008,  and December 31, 2010. On February 25, 2009, the Centers for Medicare &  Medicaid Services (CMS) made increased FMAP grant awards to states,  and states may retroactively claim reimbursement for expenditures that  occurred prior to the effective date of the Recovery Act.
Generally, for federal fiscal year 2009 through the first quarter of federal  fiscal year 2011, the increased FMAP, which is calculated on a quarterly  basis, provides for (1) the maintenance of states’ prior year FMAPs; (2) a  general across-the-board increase of 6.2 percentage points in states’  FMAPs; and (3) a further increase to FMAPs for those states that have a  qualifying increase in unemployment rates. The increased FMAP available  under the Recovery Act is for state expenditures for Medicaid services.  However, the receipt of the increased FMAP may reduce the funds that  states must use for their Medicaid programs, and states have reported  using these available funds for a variety of purposes. For the second  quarter of fiscal year 2009, New York’s FMAP was 58.78 percent, an  increase of 8.78 percentage points over its fiscal year 2008 FMAP.
New York expects to receive about $11 billion in federal Medicaid funds as  a result of the increase in its FMAP. As of April 13, 2009, CMS had made  about $3.14 billion in increased FMAP grant awards to New York and the  state had drawn down about $1.74 billion of its grant awards. Nearly $1.3  billion of the funds made available as a result of the increased FMAP was  used to close the state’s budget deficit for the state fiscal year ending on  March 31, 2009, while $440 million was returned to the counties for their  contributions towards the non-federal share of Medicaid expenditures  eligible for the increased FMAP. towards the nonfederal share of Medicaid expenditures. The state’s  counties provide this local share. According to state officials, in 2006, in  order to control Medicaid spending at the local level, the state instituted a  cap on local Medicaid expenditures that constituted about 33 percent of  the nonfederal share of expenditures at the time. This cap, unique to New  York, basically limits the annual increase in a locality’s Medicaid  expenditures to 3 percent of what it spent in 2005. The result has been that  the localities’ percentage share of Medicaid expenditures has slightly  declined each year since 2006.
The  2009-2010 enacted state budget  plans to use nearly half of the  enhanced FMAP funding expected to be received through March 31, 2010  on (1) health care to avoid certain difficult provider reimbursement cuts,  and (2) other savings actions proposed by the Governor in his initial  budget proposal in December 2008.  These funds will also help pay for  unanticipated rising Medicaid costs, primarily driven by rising caseloads  resulting from the current economic downturn.  In addition, the FMAP  funds (1) helped avoid proposed cuts to important human services and  mental hygiene programs, (2) were used to maintain revenue sharing  funding for New York City, and (3) avoided several proposed tax increases  that would have impacted middle class families and small businesses.
Transportation—Highway Infrastructure Investment: The Recovery  Act provides additional funds for highway infrastructure investment using  the rules and structure of the existing federal-aid highway Surface  Transportation Program, through which money is apportioned to states for  the construction and maintenance of eligible highways and for other  surface transportation projects. States must follow the requirements for  the existing programs, and in addition, the governor must certify that the  state will maintain its current level of transportation spending, and the  governor or other appropriate chief executive must certify that the state or  local government to which funds have been made available has completed  all necessary legal reviews and determined that the projects are an  appropriate use of taxpayer funds.
As of April 16, 2009, the Federal Highway Administration had obligated  about $276.5 million to New York State for 108 transportation projects.  The state has been able to move quickly on these projects largely because  NYSDOT, as required by federal surface transportation legislation, has a  planning mechanism that routinely identifies needed transportation  projects and performs preconstruction activities, such as obtaining  required environmental permits. A NYSDOT official told us that as of April  13, 2009, 38 projects approved in March 2009 had been advertised for bids  for contracts.
In late 2008, NYSDOT began preparing to manage potential stimulus  funding in transportation programs. NYSDOT, which oversees over  113,000 miles of highway, 16,000 bridges, and more than 130 transit  operators, initially established a working group that began reviewing or  “scrubbing” core projects in the state’s transportation improvement plan  (STIP) in late 2008 to make sure projects would be fully permitted and  “shovel ready,” should funding be made available. Because of an  approximately 8 percent per year increase in construction costs during the  last 3 years and the state’s declining fiscal position, New York has a large  backlog of planned transportation projects. As of April 16, 2009, the  Governor had certified that 108 projects met the objectives of the act and  that the state will maintain its planned level of effort within its  transportation program. support. NYSDOT officials noted that the list of projects would be fluid  depending on bid results, budget overruns, and the ability of localities to  start and complete planned projects within expected time frames.
Consistent with the Governor’s goal of leveraging the impact of Recovery  Act funds, NYSDOT has also begun working with rural public  transportation systems to identify eligible Federal Transit Administration  activities.  Recovery Act transit funds will be used to replace a significant  number of vehicles that currently exceed their federally rated service life  with new cleaner-fuel buses that comply with the Americans with  Disabilities Act.  NYSDOT will use a statewide bus contract to procure the  majority of these new vehicles.  This cooperative effort would also allow  the communities to take advantage of the state’s procurement expertise  and presumably lower overall procurement costs.
U.S. Department of Education State Fiscal Stabilization Fund: The  Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be  administered by the U.S. Department of Education (Education). SFSF is  intended to help avoid reductions in education and other essential public  services. The initial award of SFSF funding requires each state to submit  an application to Education that assures it will take actions to meet certain  educational requirements, such as increasing teacher effectiveness and  addressing inequities in the distribution of highly qualified teachers. As of  April 13, 2009, New York’s SFSF allocation was about $2.0 billion;  however, the state had not drawn down any of this amount. The state has  not applied for these funds and they will not be allocated to public entities  such as K-12 school districts and public higher education institutions until  the school year begins on July 1, 2009. The Governor’s office said that this  application is expected to be submitted soon.
The New York State Education Department (NYSED), which has an annual  budget of about $30 billion, expects to receive about $5 billion in Recovery  Act funds. About half of the amount—approximately $2.5 billion—is  expected to be provided through SFSF. These funds can be used to help  avert elementary, secondary, and higher education reductions, such as the  loss of teachers. NYSED officials told us that they believe most of these  funds will be used to offset expected budget cuts throughout school  systems that were caused by the downturn in the economy and in state  revenues. State officials also have discretion over an additional 18 percent  of the stabilization funds–approximately $549 million--and can use this  portion for a wide range of government services, including school  modernization.
As of April 13, 2009, New York had also been allocated an additional $1.7  billion in Recovery Act funds for programs under Title I, Part A of the  Elementary and Secondary Education Act of 1965 (ESEA), as amended by  the No Child Left Behind Act, and the Individuals with Disabilities  Education Act (IDEA).
subsections: section_title: New York Has Established a Recovery Cabinet to Manage Recovery Act Funds
paragraphs: The key New York institutions involved in managing Recovery Act funds  are the governor’s office, the state program departments and agencies, and  OSC. In addition, localities, transit, or housing authorities will play a role  in managing some Recovery Act funds that do not pass through state  offices. Because of the timing of New York’s annual fiscal year and the  February 17, 2009, enactment of the Recovery Act, the state had to quickly  incorporate Recovery Act funding into the budget for the fiscal year  beginning April 1, 2009. New York’s Governor, in anticipation of the  Recovery Act, established a Recovery Cabinet in February 2009. The  Recovery Cabinet is led by the Governor’s Senior Advisor for  Transportation and Infrastructure. All state agencies and many state  authorities are represented on the cabinet, which is charged with  coordinating and managing Recovery Act funding throughout the state.  Similarly, New York City officials developed a City Hall Working Group  comprising city management and individuals from the relevant agencies  that are planning to receive Recovery Act funding to coordinate and  manage the funding.
Recovery Act administrative and monitoring costs might strain existing  financial and human resources.
The Recovery Cabinet also serves as a focal point of contact for counties  and other localities throughout the state—informing them of the types of  projects that could be eligible for stimulus funding and soliciting ideas and  proposals for such funding. In addition, New York established an  economic recovery Web site in February 2009—www.recovery.ny.gov. By  using the Web site, New Yorkers have been able to enter their project  ideas directly into a project database and track Recovery Act funding and  its impact. This database currently contains over 16,000 project ideas.
Other key players in New York’s management of Recovery Act funds  include OSC, an independently elected office that is charged with issuing  the state’s internal control standards, managing the central accounting  system, and directing internal audits throughout the state’s departments  and agencies, among other responsibilities. OSC will be responsible for  tracking and monitoring the progress of Recovery Act funding and  ensuring that the funding meets established internal controls.
State authorities and metropolitan planning organizations that are not  directly managed by the Governor are also key players in the delivery of  New York State services and are therefore central to the management of  some Recovery Act funds. For example, the Metropolitan Transportation  Authority will manage about $1 billion of Recovery Act funds.
section_title: New York Plans to Oversee and Safeguard Recovery Act Funds Using Existing Control Mechanisms Where Possible
paragraphs: concerned about their ability to consistently report on the impact of  Recovery Act funding.
subsections: section_title: New York Will Use Existing Control Structure
paragraphs: Several New York government entities are responsible for the  management, implementation, and oversight of internal controls and for  safeguarding taxpayers’ money. These entities include OSC, individual  state agencies, and the governor’s office. For example,    OSC is responsible for the state’s Central Accounting System,  disburses funds, and audits state agencies and authorities, among  other responsibilities.
Each large state agency, such as NYSDOT, has a director of internal  audit, as well as an internal control officer who reports to the head of  the agency, coordinates internal control activities, and helps ensure  internal control program compliance.
The head of each state agency and public authority must annually  certify compliance with the State’s Internal Control Act.
Each state agency operates its own financial management and  reporting system and has its own procurement officer. However, OSC  must review and approve all contracts over $50,000. appropriate for recovery. OSC had also identified about $17 million in  potential overpaid claims in 2007. State officials told us, however, that  many of the instances of potential Medicaid overpayments were  without basis and were, in fact, made consistent with federal  requirements.
NYSDOT did not adequately document audit extensions that it granted  subrecipients. Furthermore, the department did not have a sanction  policy in effect for subrecipients that were not in compliance with  audit requirements. Effective August 2008, NYSDOT established a  formal sanctioning policy.
The Housing Trust Fund Corporation did not have procedures in place  to adequately monitor the compliance requirements of the Single Audit  Act, as amended, and OMB’s implementing guidance in OMB Circular  No. A-133, for grant subrecipients.
Several programs, including Temporary Assistance for Needy Families,  the Child Care and Development Block Grant, and the Office of  Children and Family Services, did not adequately complete forms  documenting the transfer of funds awarded by the federal government.
The Department of Education’s Vocational Rehabilitation Services  program had not determined individuals’ eligibility for the program  services within a reasonable period of time.
The Single Audit did not provide 10 federal programs, including the  Medical Assistance, Low-Income Home Energy Assistance, and Food  Stamp Cluster Programs, an unqualified opinion because of various  findings, including cost allocation plans that were not approved by the  federal government. New York also received an unqualified opinion on  OSC’s comprehensive annual financial statements for the state fiscal year  that ended March 31, 2008. The audit reported control deficiencies but  disclosed no instances of noncompliance that would be material to the  basic financial statements. may rely on multiple databases for handling transactional and  performance data, making data reliability difficult to ascertain. According  to this official, state agencies vary in their capabilities, and the  independent financial management systems that operate distinctly from  the Central Accounting System have varying degrees of sophistication and  accessibility.
section_title: The Governor Plans to Implement Several Internal Control Initiatives for Recovery Act Funding
paragraphs: In addition to existing control systems, the Governor’s office has planned  several new initiatives for ensuring accountability of Recovery Act funds.  First, drawing on past efforts of New York state agencies and the New  York State Internal Control Association to improve the state’s internal  controls, transparency, and data integrity, the Recovery Cabinet plans to  establish a working group on internal controls. This working group will be  made up of internal control officers from major agencies in the cabinet  and will meet regularly to provide additional guidance to those agencies  receiving and or administering Recovery Act funds. Second, the  Governor’s office plans to hire a consultant to review the state’s  management infrastructure and capabilities to achieve accountability,  effective internal controls, compliance, and reliable reporting under the  Recovery Act. Third, the Director of State Operations provided initial  guidance to the state agencies and authorities on the Recovery Act  accountability and transparency requirements. According to state officials,  all agencies and departments that expect to receive Recovery Act funds  have been asked to review and report on their practices for fraud  prevention, contract management, and grants accountability to assess  their current vulnerabilities and to ensure that the state is prepared to  meet the Recovery Act requirements. Finally, the state plans to coordinate  fraud prevention training sessions.
section_title: Office of the State Comptroller Issued Guidance for Safeguarding Recovery Act Funds
paragraphs: OSC says that it will continue to advise and provide technical assistance to  local governments as the requirements of the Recovery Act become  clearer.
section_title: Examples of State Agencies’ Planned Oversight and Reporting of Recovery Act Funds
paragraphs: Guided by the Recovery Cabinet working groups, state agencies are  planning to implement various types of oversight and reporting  mechanisms to comply with the Recovery Act. For example:    NYSDOT is relying heavily on existing program oversight controls,  such as normal highway project procurement requirements, to manage  and control Recovery Act spending. In addition to those oversight  controls, as described above, NYSDOT is conducting a risk assessment  of federal-aid projects to direct future internal audit and contract  reviews. NYSDOT officials said that special emphasis will be placed on  high-risk areas, such as projects developed by local public agencies,  and that a formal plan for overseeing Recovery Act subrecipients will  include training, technical assistance, and regular reviews of  subrecipients’ documents and processes. With regard to reporting,  NYSDOT is developing a dataset that is expected to contain all data  elements required to fully meet state reporting requirements. NYSDOT  is also putting a reporting requirement in existing recovery project  contracts alerting contractors that they are responsible for meeting all  Recovery Act reporting requirements.
NYSED officials said that they have been meeting with OSC to ensure  proper accounting codes are used in tracking and reporting Recovery  Act funds. However, officials are concerned that once the funds reach  localities, the funds may lose their accounting codes and get rolled up  with other state and federal funds. In addition, state education officials  said that they have established a waste, fraud, and abuse work team to  examine risks and identify areas of concern associated with Recovery  Act funds. The officials said that the biggest challenge that they  foresee is district reporting at the school level. According to the  officials, risk assessments for schools with higher spending per  student will need to be developed. need to hire subcontractors, many of which will be new to the  program. Specifically, New York State expects to receive $395 million  in additional weatherization funds from the Recovery Act, compared  with a little over $60 million allocated to the program in the previous  state fiscal year. In addition, the Recovery Act increased the maximum  amount that can be spent for each housing unit qualifying for the  program from $2,500 to $6,500. Officials said they are concerned about  their ability to effectively manage the program, given the major funding  and program changes caused by the Recovery Act, when their existing  staff is already stretched. Housing officials said that they are assessing  the risk to the weatherization program.
According to New York officials, increased FMAP grant awards are  segregated from other Medicaid funds received by the state. These  funds have received a distinct code to identify them as part of the  funding received from the Recovery Act in OSC’s Central Accounting  System. Additionally, the increased FMAP grant awards received by  the state and local governments are tracked separately in the  accounting system. OSC has instructed localities to maintain a  separate account for FMAP funds. As of April 13, 2009, the comptroller  had not disclosed plans for auditing the increased FMAP funds.
section_title: Plans to Assess Impact Are Still Being Developed
paragraphs: State transportation, education, and housing agency officials are just  beginning to consider plans to assess the impact of Recovery Act funds.  They are generally waiting for the Office of Management and Budget to  provide guidance or methods to help in assessing impact, such as job  retention and creation, increases in tax revenues, and savings from  weatherization or other energy projects. For instance, state housing  officials said that they typically track dollars and that they will require  additional guidance from the Department of Housing and Urban  Development on how to track job creation. State education officials said  that it would be difficult to isolate the impact of Recovery Act funds on  student achievement from the impact of other initiatives the state is  undertaking. State officials also expressed concerns about how to  consistently measure the impact of funding, such as how to count job  creation and how to track the ripple effect of funding. level. Officials said that the purpose of the database is to provide  transparency for New York City residents and to fulfill future reporting  requirements. The database is expected to provide such details on a  Recovery Act-funded program as the number of additional beds at a  homeless shelter. However, New York City officials said that it is difficult  to begin planning how to assess impact until they know what measures  will be called for by federal reporting guidelines. Furthermore, New York  City officials recommended relaxing the reporting deadlines and  requirements for the first quarter after Recovery Act funds are received so  states and localities have more time to understand new guidance.
section_title: New York’s Comments on This Summary
paragraphs: We provided the Governor of New York with a draft of this appendix on  April 17, 2009. The Senior Advisor for Transportation and Infrastructure  responded for the Governor on April 20, 2009 by providing technical  suggestions that were incorporated, as appropriate.
section_title: GAO Contacts
section_title: Staff Acknowledgments
paragraphs: In addition to the contacts named above, Ronald Stouffer, Assistant  Director; Barbara Shields, analyst-in-charge; Jeremiah Donoghue, Colin  Fallon, Summer Pachman, Frank Putallaz, Jeremy Rothgerber, and Cheri  Truett made major contributions to this report.
section_title: Appendix XV: North Carolina
paragraphs: Use of funds: An estimated 90 percent of Recovery Act funding provided  to states and localities nationwide in fiscal year 2009 (through Sept. 30,  2009) will be for health, transportation and education programs. The three  largest programs in these categories are the Medicaid Federal Medical  Assistance Percentage (FMAP) awards, the State Fiscal Stabilization Fund,  and highways.
Medicaid Federal Medical Assistance Percentage (FMAP) Funds    As of April 3, 2009, Centers for Medicare & Medicaid Services (CMS) had made about $657 million in  increased FMAP grant awards to North Carolina.
As of April 1, 2009, North Carolina had drawn down $414.6 million in increased FMAP grant awards, or 63  percent of its awards to date.
North Carolina officials reported that they plan to use funds made available as a result of the increased FMAP  to maintain current populations and benefits and to offset the state’s general fund deficit.
North Carolina was apportioned about $736 million for infrastructure investment on March 2, 2009, by the  U.S. Department of Transportation.
As of April 16, 2009, the U.S. Department of Transportation had obligated about $165 million for 53 projects in    As of April 16, 2009 the North Carolina Department of Transportation had selected 138 projects estimated to  utilize about 90 percent of its allocated Recovery Act funds.   These projects include activities such as repaving highways and replacing bridges.
North Carolina Department of Transportation officials told us they identified these projects based on  Recovery Act criteria that priority is to be given to projects that are anticipated for completion within a 3-year  time frame and that are located in economically distressed areas.
U.S. Department of Education State Fiscal Stabilization Fund (Initial Release)
North Carolina was allocated about $952 million from the initial release of these funds on April 2, 2009, by the  U.S. Department of Education.
Before receiving the funds, states are required to submit an application that provides several assurances to  the Department of Education. These include assurances that they will meet maintenance of effort  requirements (or that they will be able to comply with waiver provisions) and that they will implement  strategies to meet certain educational requirements, including increasing teacher effectiveness, addressing  inequities in the distribution of highly qualified teachers, and improving the quality of state academic  standards and assessments. North Carolina officials said that they would apply for fiscal stabilization funds  by the end of April 2009.   The state had not yet determined how fiscal stabilization funds will be used.
North Carolina is also receiving additional Recovery Act funds under other  programs, such as Edward Byrne Memorial Justice Assistance Grant  program to improve the functioning of the criminal justice system; the Tax  Credit Assistance Program for low-income housing; and Workforce  Investment Act Youth, Adult, and Dislocated Worker Programs that  provide employment and training services. The status of state plans for  using these funds is described throughout this appendix.
Safeguarding and transparency: The state has set up the Office of  Economic Recovery and Investment (OERI) to help agencies track,  monitor, and report on Recovery Act funds, and the North Carolina Senate  and House of Representatives have established committees to provide  legislative oversight of these funds. In addition, the state has a number of  initiatives under way that will improve accountability and transparency for  Recovery Act funds, and the state will track Recovery Act funds separately  to ensure accountability for those funds. North Carolina officials identified  several potential concerns about the safeguarding of funds. For example,  several officials said that they were concerned about whether there were  enough staff members to meet additional management and oversight  responsibilities under the Recovery Act.
Assessing the effects of spending: North Carolina agencies are in the  early stages of developing plans to assess the impact of Recovery Act  expenditures. According to state officials, they have been awaiting  guidance from the federal government, particularly related to measuring  job creation.
subsections: section_title: North Carolina Beginning to Use Recovery Act Funds
paragraphs: and December 31, 2010. On February 25, 2009, the Centers for Medicare &  Medicaid Services (CMS) made increased FMAP grant awards to states,  and states may retroactively claim reimbursement for expenditures that  occurred prior to the effective date of the Recovery Act. Generally, for  federal fiscal year 2009 through the first quarter of federal fiscal year 2011,  the increased FMAP, which is calculated on a quarterly basis, provides for  (1) the maintenance of states’ prior year FMAPs, (2) a general across-the- board increase of 6.2 percentage points in states’ FMAPs, and (3) a further  increase to the FMAPs for those states that have a qualifying increase in  unemployment rates. The increased FMAP available under the Recovery  Act are for state expenditures for Medicaid services. However, the receipt  of the increased FMAP may reduce the funds that states must use for their  Medicaid programs, and states have reported using these available funds  for a variety of purposes.
As of April 1, 2009, North Carolina had drawn down $414.6 million in  increased FMAP grant awards, or 63 percent of its awards to date. North  Carolina officials reported that they plan to use funds made available as a  result of the increased FMAP to maintain current populations and benefits  and to offset the state’s general fund deficit. The state has received  guidance on the requirements for reporting Medicaid expenditures under  the Recovery Act. However, the state would like additional guidance on  other types of reporting requirements, such as performance information. legal reviews and determined that the projects are an appropriate use of  taxpayer funds. North Carolina provided these certifications, but  conditioned the level of funding from state sources for the Recovery Act  covered programs on future revenue collections in the state.
The North Carolina Department of Transportation (NCDOT) was  apportioned about $736 million in Recovery Act funds for highways and  bridges. As of April 16, 2009, the U.S. Department of Transportation had  obligated about $165 million for 53 projects in North Carolina. The  department has plans to award 70 contracts for Recovery Act projects  between March and June, which are estimated to cost $466 million.  NCDOT officials told us that they identified these projects based on  Recovery Act direction that priority is to be given to projects that are  anticipated to be completed within a 3-year time frame and that are  located in economically distressed areas. Projects were also evaluated  based on several criteria, including alignment with long-range investment  plans and considerations about geographical diversity and economic  impact. Based on the estimated costs of the initially selected projects,  about one-third of costs are for projects not located in economically  distressed areas, according to state officials. qualified teachers. North Carolina officials said that they would apply for  fiscal stabilization funds by the end of April 2009.
The state has been allocated $952 million under the SFSF program.  Officials from the state education agency, the North Carolina Department  of Public Instruction, said that 81.8 percent of the SFSF would be  distributed to school districts and institutions of higher education in  accordance with Recovery Act requirements. State officials are in the  process of determining how to calculate the relative amount of funding  that school districts and public institutions of higher education would  receive. Regarding the other 18.2 percent of SFSF, state officials said that  a decision had not yet been made about how these funds would be  allocated. State officials have emphasized in their communications with  school districts that funds should be used for short-term investments with  potential for long-term programmatic gains, echoing federal guidance.
U.S. Department of Justice Edward Byrne Memorial Justice  Assistance Grant Program: The Edward Byrne Memorial Justice  Assistance Grant Program (Byrne Grant Program) was established to  streamline justice funding and grant administration, and allows states,  tribes, and local governments to support a broad range of activities to  prevent and control crime based on their own local needs and conditions.  According to officials of the North Carolina Governor’s Crime  Commission, the office expects to receive an allocation of $34.5 million  through the Byrne Grant Program. The Governor’s Crime Commission is  allowed to use 10 percent of that total, or about $3.5 million, for  administrative purposes. This leaves a balance of $31 million. Of this  amount, 42.4 percent, or $13.2 million, must be passed through by formula  to local governments and the remainder of $17.9 million will go to other  state agencies and institutions. North Carolina officials for the Byrne  Grant Program are planning to fund programs based on the state’s list of  program priorities, which include programs such as the Criminal Justice  System Improvement, Crime Victims’ Services, Juvenile Justice Planning,  and North Carolina Gang Prevention Initiative. Also, the localities within  the state will receive $21.9 million, which will be awarded by the U.S.  Department of Justice. housing credit agencies in each state distribute these funds competitively  and according to their qualified allocation plan. According to officials with  the North Carolina Housing Finance Agency (NCHFA), the state has  identified potential projects for the Tax Credit Assistance Program  (TCAP), focusing initially on 40 to 50 tax credit projects that were stalled  due to a lack of financing from other sources. NCHFA officials said they  are waiting on guidance from the U.S. Department of Housing and Urban  Development and Department of the Treasury before they begin the  application process for developers. NCHFA officials said that  environmental review requirements could pose a challenge to meeting  federal timelines for making awards, but that they would not know for  certain until final federal guidance has been issued.
Workforce Investment Act Youth, Adult, and Dislocated Worker  Programs: The Workforce Investment Act (WIA) provides funds for  employment and training services to youth, adults, and dislocated  workers. North Carolina was allocated nearly $80 million through these  WIA programs under the Recovery Act. The North Carolina Department of  Commerce (DOC) has been working with local workforce development  boards since January to help them plan and prioritize the use of these  Recovery Act funds. The state has communicated these priorities to the  local workforce development boards: (1) increasing the number of people  served and trained, (2) targeting programs toward underserved  populations, including those receiving public assistance, (3) implementing  a statewide summer youth employment program, and (4) increasing  support services, such as child care and transportation. As necessary, the  department has worked with other state departments to coordinate  efforts. For example, DOC has coordinated with the state community  college system to create short-term course offerings in 12 high-growth  occupations that lead to certificates at each of the 58 state community  colleges. DOC officials are also developing plans to use state-level funds  received under the Recovery Act, and anticipate using those funds to help  conduct outreach to inform the public of available programs and services  funded through the Recovery Act.
subsections: section_title: Background Information on North Carolina
paragraphs: on health and human services, and about 10 percent of state spending on  education.
North Carolina is expecting to receive an estimated $6.1 billion of the  Recovery Act funding going to states. North Carolina’s fiscal situation is  not unlike many other states. In the midst of its economic crisis, the  Governor’s proposed biennial budget contains $2.6 billion in spending  reductions and $1.3 billion in revenue increases, and proposes to use $2.9  billion of federal recovery funds to support education and other mission- critical services over the biennium. The Governor’s budget proposal  indicated that most programs face reduced or level funding, but  recommended continued focus on growing North Carolina’s economy,  improving public education, keeping higher education accessible and  affordable, and protecting the state’s most vulnerable citizens.
North Carolina, after 3 consecutive years of growth, suffered a significant  economic decline in 2008. As reported in the Governor’s budget proposal,  the state lost over 120,000 jobs—a nearly 3 percent decline—in 2008,  pushing its unemployment rate up to about 10 percent. Job losses were  particularly steep in the manufacturing sector, but the state reported that  its housing sector, while also suffering a decline, was less affected by the  housing downturn than other states. The Governor’s budget proposal  projects the economy to continue its decline, but to stabilize in 2010 and  begin to grow in 2011. In general, the state projects economic performance  to outpace the U.S. average.
The North Carolina state government operates on a biennial budget cycle,  which begins on July 1 of odd-numbered years. The North Carolina  constitution requires the Governor to submit a balanced budget, and state  statute requires the General Assembly to pass a balanced budget,  according to the National Association of State Budget Officers. North  Carolina’s General Assembly must pass an appropriations bill in order for  state agencies to disburse federal funds, according to state officials,  according to NASBO.
Treasurer and the Superintendent of Public Instruction, are selected  through statewide elections. Also, the State Auditor, who is responsible for  providing independent evaluations and audits of state agencies and  programs, is selected by statewide election. North Carolina has a  bicameral General Assembly, with members of both the House and Senate  being elected to 2-year terms. The General Assembly typically meets for a  full session in odd-numbered years and a shorter session in even- numbered years. There is no concluding date for either session, according  to state officials.
section_title: North Carolina’s Planning Process Is Being Led by the Newly Created Office of Economic Recovery and Investment
paragraphs: On February 17, 2009—the same day the Recovery Act was enacted— Governor Perdue created the OERI to oversee North Carolina’s handling  of federal stimulus funds as well as state-level economic recovery  initiatives. OERI’s responsibilities include, among other things,  coordinating state efforts to track and report on Recovery Act funds and  maximizing the state’s use of Recovery Act funds. Another of OERI’s major  responsibilities is to provide guidance to state departments and localities  on how to monitor, track, and report the use of Recovery Act funds. On  March 30, 2009, the state issued a memorandum on budgeting and  accounting for Recovery Act funds. This memorandum is the first of what  is anticipated to be a continuing series of information and directives to  ensure that state agencies and subrecipients comply with federal and state  requirements. Specifically, this memorandum provides guidance requiring  that Recovery Act funds may not be commingled with other funds and that  Recovery Act expenditures will require review and approval by the Office  of State Budget and Management (OSBM). In addition, OERI has  established two management directives requiring agencies to make weekly  reports on Recovery Act funds, and to submit grant applications to OERI  for review. management team with representatives from state agencies to exchange  information and facilitate Recovery Act implementation.
Governor Perdue’s budget proposal, which according to state documents  incorporated an anticipated $6.1 billion in Recovery Act formula funds, is  currently being considered and reviewed by the General Assembly. In an  effort to monitor and oversee these Recovery Act funds, the North  Carolina Senate established the Select Committee on Economic Recovery.  According to the committee’s Chairman, the new committee was  established to have legislative review of how the Recovery Act funds will  be used and the effect the funds may have on the state’s budget. The North  Carolina House of Representatives has established a similar committee.
section_title: Plans for Safeguards and Controls Being Developed at the State Level and at State Agencies Administering Federal Programs
paragraphs: As North Carolina prepares for the receipt, tracking, monitoring, and  reporting of Recovery Act funds, it currently faces a number of known  financial management challenges and other risks. For example, North  Carolina’s 2007 Single Audit report had 18 findings for material  weaknesses and material noncompliance related to issues with federal  program compliance for the North Carolina Departments of Health and  Human Services (16) and Crime Control and Public Safety (2). Five of the  18 findings were related to insufficient subrecipient monitoring. The state  auditor’s office also noted that single audit findings have consistently  found issues related to subrecipient monitoring by state agencies.  Insufficient subrecipient monitoring and other deficiencies such as these  may leave Recovery Act funds vulnerable to fraud, waste, and abuse.
1965 (ESEA, commonly known as No Child Left Behind). However,  officials in other agencies, such as the North Carolina Department of  Commerce, which administers Workforce Investment Act funds, felt that  they would be able to absorb additional responsibilities with current staff  and resources. State officials also identified programs that were receiving  a significant increase in program funding as a risk. For example, several  officials noted that the weatherization program is receiving a substantial  increase in funding. Finally, state officials told us that state agency  guidance and communications with local governments are areas that will  bear watching, as ensuring that local governments understand how to  properly account for and segregate federal and state funds will be critical.
subsections: section_title: Plans for Oversight of North Carolina’s Recovery Act Funds
paragraphs: Within the state of North Carolina, a variety of efforts are under way to  establish new safeguards over Recovery Act funds, including some that  will build on current systems and recent initiatives. For example, officials  at North Carolina’s OSC and OSBM told us that several state agency  accounting systems will need to be modified to track Recovery Act funds  as required by the Recovery Act. OSBM officials told us that they have  been waiting for Office of Management and Budget (OMB) guidance on the  reporting requirements, which was released by OMB on April 3, 2009.  These officials have not identified any state agency accounting systems  that are incapable of adding a unique identifier code to separately track  Recovery Act funds, but said that nearly all systems will need some  modifications. A bigger concern is that Recovery Act reporting time  frames may not be aligned to the state departments’ normal accounting  cycles, which may delay the departments’ ability to provide monthly or  quarterly reports to OSBM and OERI. this Web site include the ability to provide additional information about  how funds will be distributed, information on how to apply for funds or  contracts, a mechanism to track spending on individual projects, and  estimates of the economic impact and jobs created. Additionally, OSBM, in  consultation with the state Department of Administration, Division of  Purchase and Contract, is reviewing a statewide procurement process to  streamline the process and identify any areas that need to be improved.  The results of this review may indicate either systemic statewide or  individual agency needs related to the Recovery Act. Finally, the OSC is  phasing in a statewide internal control program called EAGLE (Enhancing  Accountability in Government through Leadership and Education), which  is intended to establish adequate internal controls and increase fiscal  accountability. Under the EAGLE program, each agency will be required to  perform an annual assessment of internal controls over financial reporting  and identify risks.
North Carolina’s State Auditor told us that, given current staffing levels,  her office will conduct as many oversight reviews and audits of Recovery  Act funds as they can. In order to handle the new Recovery Act work, it  will be necessary to cut back on some of the other fiscal control audits.  The State Auditor told us that she uses a risk-based approach to auditing  and plans to focus the State Auditor’s Recovery Act work on subrecipient  monitoring and on how the Recovery Act funds are being segregated from  other federal funds coming through traditional funding streams. The State  Auditor’s office also noted that OMB and other federal agency guidance  may identify areas that may merit closer scrutiny.
section_title: Plans to Assess Impact of Recovery Act Funds Are Just Being Developed
paragraphs: State officials across agencies told us that that the state Office of  Economic Recovery and Investment was developing guidance on the  Recovery Act reporting requirements, but that the state has not yet begun  assessing the effects of Recovery Act funds. The state provided localities  with guidance on a number of Recovery Act-related topics on March 30,  2009, but the guidance has not yet specifically addressed Recovery Act  reporting requirements. State officials told us that they needed federal  guidance about how to assess the effects of Recovery Act funds before  they can release state guidance. For example, the state’s Chief  Procurement Officer said that the state needs guidance about how to  measure specific reporting requirements such as jobs created and jobs  saved.
section_title: North Carolina’s Comments on This Summary
paragraphs: We provided the Governor of North Carolina with a draft of this appendix  on April 17, 2009. The Director of OERI responded for the Governor on  April 20, 2009. In general, the comments were either technical or were  status updates. The official also provided technical suggestions that were  incorporated, as appropriate.
section_title: GAO Contacts
section_title: Staff Acknowledgments
paragraphs: In addition to the contacts named above, Bryon Gordon, Assistant  Director; Scott Spicer, analyst-in-charge; Carleen Bennett; George Depaoli;  Bonnie Derby; Leslie Locke; Stephanie Moriarty; and Anthony Patterson  made major contributions to this report.
section_title: Appendix XVI: Ohio
paragraphs: Use of funds: An estimated 90 percent of Recovery Act funding provided  to states and localities nationwide in fiscal year 2009 (through Sept. 30,  2009) will be for health, transportation and education programs. The three  largest programs in these categories are the Medicaid Federal Medical  Assistance Percentage (FMAP) awards, the State Fiscal Stabilization Fund,  and highways.
Medicaid Federal Medical Assistance Percentage (FMAP) Funds  As of April 3, 2009, the Centers for Medicare & Medicaid Services (CMS) had made about $760 million in  increased FMAP grant awards to Ohio.
As of April 1, 2009, Ohio has drawn down about $420.6 million, or 55.3 percent of its initial increased FMAP    Ohio officials indicated that they will use Recovery Act funds made available as a result of the increased  FMAP to cover increased caseloads, offset general fund shortfalls due to state budget deficits, ensure  compliance with prompt payment provisions, maintain existing populations, avoid eligibility restrictions,  increase provider payments, and maintain and increase current levels of benefits.
Ohio was apportioned about $935.7 million for highway infrastructure investment on March 2, 2009 by the  U.S. Department of Transportation.
Of the $935.7 million, about $774.2 million was apportioned to the Ohio Department of Transportation    On March 26, 2009, ODOT announced that it will fund 149 projects with $774.2 million in Recovery Act  funding. According to ODOT officials, they are currently meeting with all project sponsors and performing  detailed reviews of project documentation, confirming federal eligibility, assessing project delivery, and  establishing project schedules.
As of April 16, 2009, the U.S. Department of Transportation had not obligated any Recovery Act funds for    ODOT expects to begin advertising for bids during the week of April 20, 2009.
U.S. Department of Education State Fiscal Stabilization Fund (Initial Release)
Ohio was allocated $1,198,882 from the initial release of these funds on April 2, 2009, by the U.S. Department    As of April 17, 2009, Recovery Act funds for education and some child care programs had not been  appropriated by the legislature. Officials with the Governor’s office and Ohio’s Office of Budget and  Management (OBM) said these funds would be included in the budget for state fiscal years 2010-2011 and  must pass by June 30, 2009.
Before receiving the funds, states are required to submit an application that provides several assurances to  the Department of Education. These include assurances that they will meet maintenance of effort  requirements (or that they will be able to comply with waiver provisions) and that they will implement  strategies to meet certain educational requirements, including increasing teacher effectiveness, addressing  inequities in the distribution of highly qualified teachers, and improving the quality of state academic  standards and assessments.   State officials said that they intend to apply for State Fiscal Stabilization Funds sometime in the future.
The state of Ohio expects to receive a total of $8.2 billion from the  Recovery Act over the next 3 years (fiscal years 2009-2011). In addition to  the funding described above, Ohio is also receiving Recovery Act funds  under other programs, such as programs under Title I, Part A of the  Elementary and Secondary Education Act (ESEA) (commonly known as  No Child Left Behind); programs under the Individuals with Disabilities  Education Act (IDEA); and two programs of the U.S. Department of  Agriculture—one for administration of the Temporary Food Assistance  Program and one for competitive equipment grants targeted to low-income  districts from the National School Lunch Program. The status of plans for  using some of these funds is described in this appendix.
Before passage of the Recovery Act, Ohio created a Web site at  Recovery.Ohio.gov, which represents the state’s effort to create an open,  transparent, and equitable process for allocating Recovery Act funds.  Through the Web site, the state has encouraged proposals for uses of  Recovery Act funds, and as of April 8, 2009, individuals and organizations  from across Ohio have submitted over 23,000 proposals. While still  receiving proposals, new submissions to the Web site have dropped in  number dramatically, as guidance from federal agencies has clarified  details about funding opportunities. By mid-April, approximately 26 state  agencies with programmatic expertise had sorted the 23,000 submissions  for response.  Ohio regularly updates its Web site to provide timetables  and information on applying for funds from state and federal agencies.
State agencies are beginning to identify specific projects to fund. On April  1, 2009, the Governor signed House Bill 2. As described by state officials,  the bill appropriates $1.9 billion in Recovery Act resources for 11 state  agencies. According to state officials, additional appropriations are needed  to spend Recovery Act funds for education and some child care programs,  including Ohio’s share of the State Fiscal Stabilization Fund. According to  state officials, these appropriations are included in House Bill 1, which is  part of the state’s biennial budget and must be approved by June 30. As of  April 1, 2009,    The Ohio Department of Public Safety received about 730 proposals  for Edward Byrne Memorial Justice Assistance Grant projects through  the Ohio Recovery Web site. Applications for the state-administered  funds are due on May 1, 2009; the department issued its request for  proposals with caveats that specific reporting requirements are  forthcoming from OMB and the U.S. Department of Justice.
The Ohio Department of Job and Family Services (ODJFS) plans to  allocate Workforce Investment Act (WIA) funds directly to local area  workforce boards, and ODJFS provided these boards with estimates  early so they could begin the planning process. Before funds were  appropriated, some local areas began their efforts to procure providers  for youth programs, particularly for work sites.
Safeguarding and transparency: Ohio is planning to use existing  systems and safeguards to track Recovery Act funds, but reliance on  subrecipients to provide data for enhanced reporting requirements may  present challenges. For example, the fiscal year 2007 single state audit  identified material weaknesses with a number of the systems that Ohio’s  Department of Jobs and Family Services uses to record and process  eligibility and financial information for all their major federal programs.  Moreover, officials with the Columbus Metropolitan Housing Authority  (CMHA) noted limitations in how far they could reasonably be expected to  track Recovery Act funds. They said they could track Recovery Act dollars  to specific projects but could not systematically track funds spent by  subcontractors on materials and labor.
Assessing the effects of spending: Ohio continues to explore ways to  assess the impact of Recovery Act funds, but officials anticipate  challenges. Specifically, in the absence of guidance on the types of data to  collect, funding could be released before state officials have determined  reporting requirements. Moreover, Ohio officials are concerned that,  without uniform reporting requirements, each state will develop their own  methodologies for assessing the impact of the federal stimulus, eliminating  any possibility of making assessments that are comparable nationwide.
subsections: section_title: Ohio Beginning to Use Recovery Act Funds
paragraphs: Ohio has begun to use some of its Recovery Act funds, as follows:  Increased Federal Medical Assistance Percentage (FMAP) Funds:  Medicaid is a joint federal-state program that finances health care for  certain categories of low-income individuals, including children, families,  persons with disabilities, and persons who are elderly. The federal  government matches state spending for Medicaid services according to a  formula based on each state’s per capita income in relation to the national  average per capita income. The amount of federal assistance states receive  for Medicaid service expenditures is known as the Federal Medical  Assistance Percentage (FMAP). Across states, the FMAP may range from  50 to no more than 83 percent, with poorer states receiving a higher  federal matching rate than wealthier states. The Recovery Act provides  eligible states with an increased FMAP for 27 months between October 1,  2008, and December 31, 2010. On February 25, 2009, the Centers for  Medicare & Medicaid Services (CMS) made increased FMAP grant awards  to states, and states may retroactively claim reimbursement for  expenditures that occurred prior to the effective date of the Recovery  Act. Generally, for fiscal year 2009 through the first quarter of fiscal year  2011, the increased FMAP, which is calculated on a quarterly basis,  provides for (1) the maintenance of states’ prior year FMAPs; (2) a genera across-the-board increase of 6.2 percentage points in states’ FMAPs; and l  (3) a further increase to the FMAPs for those states that have a qualifyingincrease in unemployment rates. The increased FMAP available under theRecovery Act is for state expenditures for Medicaid services. However, the  receipt of this increased FMAP may reduce the funds that states must use for their Medicaid programs, and states have reported using these  available funds for a variety of purposes.
Ohio began the planning process to spend these funds before the  enactment of the Recovery Act. In December 2008, to mitigate a budget  revision resulting from a 3.3 percent drop in estimated state tax revenues,  the Governor’s office assumed that additional federal assistance would be  forthcoming. By including funds made available as a result of the  increased FMAP in the assumptions used to revise the budget, cuts to state  agency budgets and services were less severe. As of April 1, 2009, Ohio has  drawn $420.6 million in Medicaid Recovery Act funds or 55.3 percent of its  initial FMAP funds. Ohio officials indicated that as of March 31, 2009, they  will use Recovery Act funds to cover increased caseloads, offset general  fund shortfalls due to state budget deficits, ensure compliance with  prompt payment provisions, maintain existing populations, avoid eligibility  restrictions, increase provider payments, and maintain and increase  current levels of benefits.
Transportation—Highway Infrastructure Investment: The Recovery  Act provides additional funds for highway infrastructure investment using  the rules and structure of the existing Federal-Aid Highway Surface  Transportation Program, which apportions money to states to construct  and maintain eligible highways and for other surface transportation  projects. States must follow the requirements for the existing programs,  and in addition, the governor must certify that the state will maintain its  current level of transportation spending, and the governor or other  appropriate chief executive must certify that the state or local government  to which funds have been made available has completed all necessary  legal reviews and determined that the projects are an appropriate use of  taxpayer funds. Ohio provided this certification, but conditioned it, noting  that future highway spending would depend on: the state’s collection of  transportation revenues, state budgeting levels, ability to sell bonds,  construction inflation, pending state legislation and the solvency of the  federal highway trust fund.
On March 26, 2009, the Governor announced that Ohio will fund 149  projects with $774.2 million in Recovery Act funding. At least 113 of these  projects, costing $605.5 million, involve roadway repaving and bridge  repair. Specific roadway projects range from $200 million, for the  Cleveland Innerbelt Bridge in Cuyahoga County, to $50,000, for pavement  markings in Belmont County. The remaining transportation funds, nearly  $170.0 million, are to be spent for railroad, maritime, intermodal, and  engineering projects. ODOT officials told us that they are currently  meeting with all project sponsors and performing detailed reviews of  project documentation, confirming federal eligibility, assessing project  delivery, and establishing project schedules. ODOT expects to begin  advertising for bids during the week of April 20, 2009. In addition to the  more than $774 million apportioned to ODOT, another $161.5 million was  directly suballocated to Ohio’s eight major metropolitan planning  organizations in Akron, Canton, Cincinnati, Cleveland, Columbus, Dayton,  Toledo, and Youngstown. As of April 16, 2009, the U.S. Department of  Transportation had not obligated any Recovery Act funds for Ohio  projects.
U.S. Department of Education State Fiscal Stabilization Fund: The  Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be  administered by the U.S. Department of Education (Education). The SFSF  provides funds to states to help avoid reductions in education and other  essential public services. The initial award of SFSF funding requires each  state to submit an application to Education that assures, among other  things, it will take actions to meet certain educational requirements such  as increasing teacher effectiveness and addressing inequities in the  distribution of highly qualified teachers.
Ohio’s initial SFSF allocation is $1,198,882. According to state officials, the  Ohio legislature has not passed the appropriations bills for Recovery Act- funded education programs and some child care programs. Those funds  are expected to be appropriated, along with the rest of the state budget, by  June 30, 2009. State officials said that they intend to apply for the State  Fiscal Stabilization Funds sometime in the future.
To provide guidance on key Recovery Act requirements and assure that  the state is maximizing its access to and use of Recovery Act funds, a  number of statewide teams have formed to aid the planning process. The  Governor’s office organized a team of policy advisors, information  technology specialists, and agency program staff to work on the  application, program administration, reporting, and accountability related  to the Recovery Act funds. This team is to ensure coordination with other  offices, state agencies, or federal government entities and will work to  ensure that Ohio appropriately applies for Recovery Act funding for which  the state is eligible. In addition to the Governor’s teams, Ohio’s Office of  Budget and Management (OBM) mandated that state agencies establish  Recovery Act teams and recommended including fiscal, program, and  compliance staff. The Governor also appointed an Infrastructure Czar to  advise on the creation of an open, transparent process and to assist the  state’s leaders in the strategic use of infrastructure dollars.  As the  infrastructure awards moved toward completion, state officials said he has  turned his attention to assisting in competitive grant opportunities for  entities in Ohio, including state agencies. The Czar will head a process for  determining the most efficient and effective distribution of Recovery Act  funds for competitive projects.
section_title: Ohio Is Planning to Use Existing Systems and Safeguards to Track Recovery Act Funds, But Reliance on Subrecipients to Provide Data for Enhanced Reporting Requirements Could Present Challenges
paragraphs: The Ohio OBM will have primary responsibility for collecting and  presenting financial data from state agencies through its Ohio  Administrative Knowledge System (OAKS). OBM has issued guidance to  state agencies on Recovery Act reporting requirements and risk  management and accountability responsibilities. To ensure that Recovery  Act funds are segregated from other program funds and accounted for  separately, OBM will create a centralized system to report all accounting  data through OAKS. To facilitate tracking, OBM assigns an OAKS program  number (for both revenues and expenses) unique to Recovery Act funds.  OBM plans to develop a series of program reports that state agencies can  use to regularly monitor Recovery Act revenues and spending metrics to  ensure the agency is in compliance.
Although OAKS will allow the state to tag Recovery Act funding, in many  cases the state agencies will rely on grantees and contractors to track the  funds to the end use. Because the state intends to code each Recovery Act  funding stream separately, and because these recipients typically manage  more than one funding stream at a time, state officials said that the  recipients should be able to track Recovery Act funds and other funding  sources separately.
However, some state departments may not be able to rely on data from a  number of the complex information systems they use. For example, the  fiscal year 2007 single state audit identified material weaknesses with a  number of the systems that ODJFS uses to record and process eligibility  and financial information for all their major federal programs. Auditors  found that without sufficient, experienced internal personnel possessing  the appropriate technical skills to independently analyze, evaluate, and  test these complex information systems, ODJFS management may not be  reasonably assured these systems are processing transactions accurately.  In its response, ODJFS replied that it did not have the resources to create  a separate independent office, but said that it had protocols in place to  provide some assurances that its systems were processing transactions  accurately. State officials said they are aware of the weakness listed and  are taking action to remedy it. Further, OBM has instructed its own  internal audit office to provide additional resources to assist the agency.
Moreover, state and local officials we talked to raised some concerns  about the ability of some localities to track Recovery Act funds to their  end use. Specifically, they raised concerns about the capacity of grantees  and contractors to track funds spent by subrecipients. For example,  officials with the Ohio Department of Education said that they can track  Recovery Act funds to school districts and charter schools, but they have  to rely on the recipients’ financial systems to be able to track funds  beyond that. An official with the Columbus City Schools said that its  accounting system might be challenged to meet enhanced reporting  requirements. While they could provide assurances that Recovery Act  funds were spent in accordance with program requirements, they could  not report systemwide how each federal Recovery Act dollar was spent.  Officials with the Columbus Metropolitan Housing Authority (CMHA) also  noted limitations in how far they could reasonably be expected to track  Recovery Act funds. They said they could track Recovery Act dollars to  specific projects but could not systematically track funds spent by  subcontractors on materials and labor. These officials added, however,  that if they required the contractors to collect this information from their  subcontractors, they would be able to report back with great detail. Still,  without guidance from the federal government on specific reporting  requirements, they were hesitant to burden their contractors with  collecting the data.
On March 27, 2009, OBM directed state agencies to put in place risk  management strategies for programs receiving Recovery Act funds. The  guidance stresses the importance of having risk mitigation strategies in  place that assure (1) management controls are operating to identify and  prevent wasteful spending and minimize fraud, waste, and abuse; (2)  adequate program monitoring by qualified personnel occurs; (3) awards  are competed; (4) revenues and expenses are accurately reported; and (5)  cost overruns and improper payments are minimized.
To ensure that existing safeguards are followed, OBM’s Office of Internal  Audit (OIA) plans to (1) provide training and education to state agency  personnel, (2) assess the adequacy and effectiveness of the current  internal control framework, (3) test whether state agencies adhere to the  current framework, and (4) coordinate multiagency reviews with both  federal and state officials. According to OIA officials, pursuant to its  statutory implementation plans, OIA will increase its internal audit staff  from 9 (current) to 33 by transferring internal audit personnel from other  state agencies and hiring new staff by July 2009. OBM officials said that  the increase in OIA staff will help provide the needed resources to  implement its objectives and ensure that current safeguards are in place  and followed as the state manages it Recovery Act-funded programs.
Separately, both the Ohio State Auditor’s office and the Ohio Office of  Inspector General are to provide independent reviews of the use of  Recovery Act funds. The Ohio State Auditor’s office has created a Web- based database for all state agencies and local governments to report on  Recovery Act funding and project expenditure activity. This database will  also allow for public viewing of Recovery Act funds activity in the future.   The State Auditor plans to use this information in helping assess risks and  determine which programs to test as part of its single audit requirements.  In addition, the State Auditor’s office plans to conduct interim audit work  over controls and compliance at various state agencies and local  governments. According to state officials, as part of House Bill 2, the Ohio  General Assembly created in the Office of Inspector General the position  of Deputy Inspector General for funds received through the Recovery Act.  The Deputy Inspector General is charged with monitoring state agency  distribution of Recovery Act funds, conducting a program of random  reviews of the processing of contracts associated with Recovery Act  projects, and investigating all wrongful acts or omissions committed by  officers, employees, or contractors.
section_title: Ohio Is Exploring Ways to Assess Impact of Recovery Act Funds, but Officials Anticipate Challenges
paragraphs: OBM officials said that the emphasis on measuring the impact of certain  Recovery Act funding has focused, thus far, on job creation; however, they  noted that there are other goals of the Recovery Act. They argued that  without comprehensive reporting guidance, states will struggle to assess  impact on some of these other outcomes. States will not be able to go back  later in the process to assess the impact of the Recovery Act on these  other outcomes if they do not have guidance on what data to collect.
While some state agencies have identified options for reporting on job  creation, there are concerns about the soundness of some of the  methodologies. The Ohio Department of Transportation, for example,  identified a study from 1979 which projects how many jobs will be created  by a given expenditure. Other models have also been identified; however,  in the absence of uniform guidance from the federal government, Ohio  officials are concerned that states and localities will use a variety of  methods that will ultimately not be comparable and will make nationwide  assessment of the Recovery Act difficult.
section_title: Ohio’s Comments on This Summary
paragraphs: We provided the Governor of Ohio with a draft of this appendix on April  17, 2009.  The Chief Legal Council for OBM responded for the Governor on  April 20, 2009.  In general, the comments were either technical or were  status updates. The Auditor of State also reviewed the draft and provided  technical suggestions.  We incorporated these comments, as appropriate.
section_title: GAO Contacts
section_title: Staff Acknowledgments
paragraphs: In addition to the contacts named above, Bill J. Keller, Assistant Director;  Sanford F. Reigle, Analyst-in-Charge; Matthew Drerup; Laura Jezewski;  Myra Watts-Butler; Lindsay Welter; Charles Willson; and Doris Yanger  made major contributions to this report.
section_title: Appendix XVII: Pennsylvania
paragraphs: Use of funds: An estimated 90 percent of Recovery Act funding provided to  states and localities nationwide in fiscal year 2009 (through Sept. 30, 2009) will  be for health, transportation and education programs. The three largest funding  categories are the Medicaid increased Federal Medical Assistance Percentage  (FMAP) grant awards, the State Fiscal Stabilization Fund, and highways.
Medicaid Federal Medical Assistance Percentage (FMAP) Funds    As of April 3, 2009, Centers for Medicare & Medicaid Services (CMS) had made about $1 billion in increased  FMAP grant awards to Pennsylvania.
As of April 3, 2009, Pennsylvania has drawn down about $330.8 million, or nearly 32 percent of its initial  increased FMAP grant awards.
Officials plan to use funds made available as a result of the increased FMAP grant awards to help cover the  state’s increased Medicaid caseload, ensure prompt claims payments, and to offset Pennsylvania’s general  fund budget deficit.
Pennsylvania was apportioned about $1.0 billion for highway infrastructure investment on March 2, 2009, by  the U.S. Department of Transportation.
As of April 16, 2009, the U.S. Department of Transportation had obligated $308.6 million for 108  Pennsylvania projects.
As of April 16, 2009, the Pennsylvania Department of Transportation had advertised competitive bids on 97  projects totaling about $260 million, and the earliest contract was awarded on March 20, 2009.   These projects include activities such as highway repaving as well as bridge replacement and painting.  Pennsylvania will request reimbursement from the U.S. Department of Transportation as the state makes  payments to contractors.
U.S. Department of Education State Fiscal Stabilization Fund (Initial Release)
Pennsylvania was allocated about $1.3 billion from the initial release of these funds on April 2, 2009, by the  U.S. Department of Education.
Before receiving the funds, states are required to submit an application that provides several assurances to  the Department of Education. These include assurances that they will meet maintenance of effort  requirements (or that they will be able to comply with waiver provisions) and that they will implement  strategies to meet certain educational requirements, including increased teacher effectiveness, addressing  inequities in the distribution of highly qualified teachers, and improving the quality of state academic  standards and assessments. Pennsylvania plans to submit its application by April 25, 2009.   The Governor plans to use the funds to increase state funding for school districts and restore state funding  for public colleges. The Governor also plans to use some funds to pay operating costs for the Department of  Corrections.
Pennsylvania is receiving additional Recovery Act funds under other  programs, such as programs under Title I, Part A of the Elementary and  Secondary Education Act of 1965 (ESEA) (commonly known as No Child  Left Behind); programs under the Individuals with Disabilities Education  Act (IDEA); Transit Capital Assistance and the Fixed Guideway  Infrastructure Investment Programs; Workforce Investment Act; the U.S.  Department of Housing and Urban Development Neighborhood  Stabilization Program; the U.S. Department of Justice Edward Byrne  Memorial Justice Assistance Grants; and the U.S. Department of Energy  Weatherization Assistance Program. Plans to use these funds are  described throughout this appendix.
Safeguarding and transparency: On March 4, 2009, the Governor named  the Secretary of General Services as the state’s Chief Implementation  Officer responsible for the effective and efficient delivery of all Recovery  Act-funded initiatives and projects. Additionally, the Governor set up a  Recovery Management Committee to report to him on the progress of  recovery efforts. According to the Chief Implementation Officer, this body  meets regularly to discuss the status of the program, troubleshoot areas of  concern, and report to the Governor on the progress of recovery efforts. In  addition, Pennsylvania officials said they would use their existing  integrated accounting system to track Recovery Act funds flowing through  the state government. Although Pennsylvania has plans to publicly report  its Recovery Act spending through a Web site (www.recovery.pa.gov),  officials have said that the state may not be aware of all Recovery Act  funds sent directly by the federal agencies to municipalities and  independent authorities. In late March 2009, the Governor appointed a  Chief Accountability Officer who will be responsible for reporting on  Pennsylvania’s use of Recovery Act funds. Pennsylvania plans to conduct  several risk assessments for Recovery Act programs by June 2009.  Pennsylvania’s Auditor General also anticipates work auditing and  investigating Recovery Act funds received by state and local agencies.
Assessing the effects of spending: Pennsylvania state departments are  in the early stages of developing plans to assess the effects of Recovery  Act spending. According to state officials, they are awaiting further  guidance from the federal government, particularly related to measuring  job creation.
subsections: section_title: Pennsylvania Beginning to Use Recovery Act Funds
paragraphs: Pennsylvania has begun to use some of its Recovery Act funds, as follows:  Increased Federal Medical Assistance Percentage Funds: Medicaid is  a joint federal-state program that finances health care for certain  categories of low-income individuals, including children, families, persons  with disabilities, and persons who are elderly. The federal government  matches state spending for Medicaid services according to a formula  based on each state’s per capita income in relation to the national average  per capita income. The amount of federal assistance states receive for  Medicaid service expenditures is known as the Federal Medical Assistance  Percentage (FMAP). Across states, the FMAP may range from 50 percent  to no more than 83 percent, with poorer states receiving a higher federal  matching rate than wealthier states. The Recovery Act provides eligible  states with an increased FMAP for 27 months between October 1, 2008,  and December 31, 2010. On February 25, 2009, the Centers for Medicare &  Medicaid Services (CMS) made increased FMAP grant awards to states,  and states may retroactively claim reimbursement for expenditures that  occurred prior to the effective date of the Recovery Act. Generally, for  federal fiscal year 2009 through the first quarter of federal fiscal year 2011,  the increased FMAP, which is calculated on a quarterly basis, provides for  (1) the maintenance of states’ prior year FMAPs; (2) a general across-the- board increase of 6.2 percentage points in states’ FMAPs; and (3) a further  increase to the FMAPs for those states that have a qualifying increase in  unemployment rates. The increased FMAP available under the Recovery  Act is for state expenditures for Medicaid services. However, the receipt of  this increased FMAP may reduce the funds that states must use for their  Medicaid programs, and states have reported using these available funds  for a variety of purposes.
As of April 1, 2009, Pennsylvania has drawn down $330.8 million in  increased FMAP grant awards, which is almost 32 percent of its awards to  date. Pennsylvania officials reported that they plan to use funds made  available as a result of the increased FMAP to cover the state’s increased  Medicaid caseload and maintain current populations and benefits. State  officials also noted that such funds are allowing them to forgo reductions  that they otherwise would have had to make because state funding  streams are smaller this year. For example, Pennsylvania officials  indicated that the state's share for Medicaid expenditures is 20 percent of  their state revenues; thus this funding fluctuates as the economy rises and  falls. Funding made available as a result of the increased FMAP will also  be used to offset the state’s general fund deficit and to help ensure that the  Medicaid prompt payment requirements are met. Pennsylvania officials  noted that early notification from CMS regarding any reporting forms that  the state will be required to complete would be beneficial to ensure that  the state’s accounting systems are properly aligned to produce needed  reports.
Transportation—Highway Infrastructure Investment: The Recovery  Act provides additional funds for highway infrastructure investment using  the rules and structure of the existing Federal-Aid Highway Surface  Transportation Program, which apportions money to states to construct  and maintain eligible highways and other surface transportation projects.  States must follow the requirements for the existing program, and in  addition, the governor must certify that the state will maintain its current  level of transportation spending, and the governor or other appropriate  chief executive must certify that the state or local government to which  funds have been made available has completed all necessary legal reviews  and determined that the projects are an appropriate use of taxpayer funds.  Pennsylvania provided the first of these certifications but noted that the  state’s level of funding was based on “planned non-bound state  expenditures” (sic) and represented the best information available at the  time of the state’s certification.
As of April 16, 2009, the U.S. Department of Transportation had obligated  $308.6 million for 108 Pennsylvania projects. As of April 16, 2009, the  Pennsylvania Department of Transportation (PennDOT) had advertised 97  projects for competitive bid totaling about $260 million. These projects  included highway repaving as well as bridge replacement and painting.  Pennsylvania will request reimbursement from the U.S. Department of  Transportation as the state makes payments to contractors.
U.S. Department of Education State Fiscal Stabilization Fund: The  Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be  administered by the U.S. Department of Education (Education). The SFSF  provides funds to states to help avoid reductions in education and other  essential public services. The initial award of SFSF funding requires each  state to submit an application to Education that assures, among other  things, it will take actions to meet certain educational requirements such  as increasing teacher effectiveness and addressing inequities in the  distribution of highly qualified teachers.
Pennsylvania’s initial SFSF allocation is $1.3 billion. According to the  Chief Implementation Officer, Pennsylvania plans to file its application for  these monies by April 25, 2009. According to the Governor’s proposal, $418  million in SFSF will support state funding to elementary and secondary  schools and $317 million to improve basic programs operated by local  educational agencies in state fiscal year 2010. Similarly, $44 million will  help restore state funding for higher education. The Governor proposes to  spend $173 million on Department of Corrections operations in state fiscal  year 2009 and reserve $324 million for appropriation in fiscal year 2010.
subsections: section_title: Some State Agencies and Localities Have Started Planning and in Some Cases Made Decisions for Using Recovery Act Funds
paragraphs: Faced with declining revenue projections since fiscal year 2008,  Pennsylvania officials believe that federal funds are critical to help  alleviate the immediate fiscal pressure and help balance the state budget.  Based on February 2009 projections, Pennsylvania faces a $2.3 billion  shortfall in fiscal year 2009, largely because of lower-than-expected  revenues. Since September 2008, the Governor has cut state spending by  more than $500 million, imposed a state hiring freeze, and banned out-of- state travel and new vehicle purchases. Pennsylvania plans to draw $250  million from the state rainy day fund—one-third of the current balance— to help avoid further cuts in fiscal year 2009. According to Pennsylvania’s  Secretary of the Budget, state revenues continue to decline and this may  necessitate using even more rainy day funds during the current fiscal year.  For fiscal year 2010, the Governor proposes to draw $375 million from the  rainy day fund. The Governor’s budget proposal for fiscal year 2010,  among other things, includes program cuts, layoffs, and reduced  contributions for employees’ health care. According to budget documents,  federal fiscal relief would be used to prevent even deeper cuts throughout  the budget. As part of the budget process, the Pennsylvania General  Assembly generally must appropriate federal funds, including Recovery  Act amounts.
The Governor’s office and state agencies have begun planning for the use  of Recovery Act funds in Pennsylvania. As noted previously, in March  2009, the Governor named a Chief Implementation Officer who is  responsible for the effective and efficient delivery of all Recovery Act- funded initiatives and projects. According to the Chief Implementation  Officer, the Recovery Management Committee meets regularly to discuss  the status of the program, troubleshoot areas of concern, and report to the  Governor on the progress of recovery efforts. Pennsylvania plans to apply  for competitive grants available under the Recovery Act, and the  Governor’s Secretary for Planning and Policy is coordinating this strategy.
Some state programs have received federal Recovery Act funds, and in  some cases they have made funding decisions. For example, the U.S.  Department of Transportation, through the Federal Highway  Administration and the Federal Transit Administration, published final  apportionments for the federal-aid highway program and Transit Capital  Assistance and the Fixed Guideway Infrastructure Investment Programs  March 2 and March 5, 2009, respectively. PennDOT officials said that they  have been working closely with metropolitan and rural transportation  planning organizations to develop spending plans. On March 17, 2009,  PennDOT released its final list of 241 highway and bridge projects to be  funded by the $1.0 billion Recovery Act investment in highways. Youth  activities under the Workforce Investment Act have also received a  funding allocation, and local Workforce Investment Boards must quickly  establish summer youth programs for the Recovery Act Funding.  According to local officials in the Harrisburg region, planning challenges  include identifying eligible youth (some of whom are out of school and  difficult to locate), identifying employment opportunities that fit the  requirements of the Recovery Act and the Workforce Investment Act, and  performing required background checks on staff before the summer  program begins.
The Pennsylvania Department of Education estimated allocations for their  school districts while waiting for their final Recovery Act allocations. The  Recovery Act funding will not be available to schools until the state  General Assembly appropriates the funds.
section_title: Some Programs Are Waiting for Clear Recovery Act Guidance and Some Have Questions about Using Funds for Administrative Purposes
paragraphs: Program officials with whom we spoke provided varying levels of  satisfaction with the guidance they had received from federal agencies, but  some agencies were waiting for federal guidance to make spending and  programmatic decisions. Officials from PennDOT stated that they have  received guidance and have been able to administer Recovery Act funds.  For the two new low-income housing tax credit financing programs  created under the Recovery Act, the Pennsylvania Housing Finance  Authority received initial information from the U.S. Department of  Housing and Urban Development but no information from the U.S.  Department of the Treasury; the housing finance agency is waiting for  formal guidance before releasing implementation plans. Pennsylvania  Department of Education officials also stated that although they received  guidance on April 1, 2009, from the U.S. Department of Education on  Recovery Act funds, they are concerned about certain provisions, such as  the maintenance of effort provision, and are anticipating additional  guidance.
Some agency officials were unclear about whether Recovery Act funds  could be used to fund administrative costs. Even though a good portion of  the Recovery Act funds is flowing through established grant programs,  some state agency officials were concerned about paying for the increased  administrative costs associated with program implementation, including  increased reporting and tracking requirements. For example,    Pennsylvania Department of Education officials were unclear if  Recovery Act funds could be spent on state administrative costs and  anticipated applying to the U.S. Department of Education for a waiver  for these costs. State department officials were specifically concerned  that they might need to build an entirely new reporting system to  evaluate teachers and principals to meet Recovery Act requirements.
Pennsylvania Department of Community and Economic Development  officials said they had not received guidance from the U.S. Department  of Housing and Urban Development about implementation of the  Recovery Act portion of the Neighborhood Stabilization Program, and  were unsure of how much Recovery Act funds could be used for  administrative purposes.
PennDOT officials told us that, in some instances, non-Recovery Act  funds were used to pay administrative costs for Recovery Act  initiatives. This was the case in hiring two consultants to assess  potential transit projects for Recovery Act funding.
section_title: Pennsylvania Developing Plans for Safeguards and Controls
paragraphs: Pennsylvania has entities responsible for tracking, monitoring, and  overseeing financial expenditures. The Office of the Budget oversees the  state’s uniform accounting, payroll, and financial reporting systems.  Pennsylvania is reorganizing and centralizing its internal audit and  comptroller functions within the Governor’s Office of the Budget. The  state’s elected Treasurer has a pre-audit function to review disbursements  to be paid out by state agencies prior to payment. The state Inspector  General—who works for the Governor—is charged with investigating  fraud, waste, abuse, and mismanagement. The state’s elected Auditor  General, who is responsible for ensuring that all state money is spent  legally and properly, performs performance audits, financial audits, and  investigations of state and local government entities. The Auditor General  also partners with an accounting firm to perform Pennsylvania’s annual  single audit of the federal money that Pennsylvania receives to ensure the  funds are spent according to federal laws and guidelines.
subsections: section_title: Pennsylvania Has System to Track Recovery Act Funds, but Will Rely on Subrecipients to Meet Reporting Requirements at Local Level
paragraphs: Pennsylvania will use its existing accounting system to track Recovery Act  funds and state officials are confident that it will adequately identify  Recovery Act funds received and how they are used. Pennsylvania has an  enterprise resource planning (ERP) system that is used by all state  agencies to account for federal and state funding.  The integrated  accounting system will be used to track Recovery Act funds. To  accommodate the Recovery Act, on March 10, 2009, Pennsylvania’s Office  of the Budget issued an administrative circular to all agencies under the  Governor’s jurisdiction describing the specific accounting codes they must  use to separately identify the expenditure of Recovery Act funds.  Individual agencies are also taking action to ensure that Recovery Act  funds are tracked separately. For example, PennDOT issued an  administrative circular in March 2009 that established specific Recovery  Act program codes to track highway and bridge construction spending.  The department also established four new funds to account for Recovery  Act fund reimbursements to local governments.
Pennsylvania officials said that the state will rely on subrecipients to meet  reporting requirements at the local level. Recipients and subrecipients can  be local governments or other entities such as transit agencies. For  example, about $367 million in Recovery Act money for transit capital  assistance and fixed guideway infrastructure investment was apportioned  directly to areas such as Philadelphia, Pittsburgh, and Allentown. State  officials also told us that the state would not track or report Recovery Act  funds that go straight from the federal government to localities and other  entities, such as public housing authorities.
section_title: Past Audits Have Identified Vulnerabilities, and Pennsylvania Plans to Identify and Assess Risks Associated with Recovery Act Funds
paragraphs: Past audits have identified vulnerabilities in Pennsylvania’s financial  reporting and noncompliance with requirements for federal money.  Pennsylvania’s fiscal year 2007 single audit report had an unqualified  opinion on financial reporting, but auditors found material weaknesses in  the accounting controls. For example, auditors found weaknesses in  segregating duties among staff and monitoring user activities to reduce the  risk of inappropriate changes to accounting data or misappropriation of  assets. Pennsylvania’s Secretary of the Budget told us that to mitigate this  risk, internal auditors now are to work closely with the Office of  Administration and the Office of Information Technology on all new  system changes to ensure internal controls are built into the application.  The single audit scope was limited in that auditors could not obtain key  documentation needed to check compliance with procurement regulations  for competitively bid contracts for goods and services. The Secretary of  the Budget told us that, beginning in January 2009 under Pennsylvania’s  Right to Know law, information related to losing bids and scoring by  participants of the procurement committees will now be available for  audit purposes.
In 2007, Pennsylvania had a qualified opinion due to noncompliance with  major federal programs. For example, auditors identified 13 weaknesses in  which state agencies, such as the Department of Community and  Economic Development, did not adequately monitor subrecipients or  failed to document procedures for performing on-site monitoring for  subrecipients or subgrantees. It is important to correct these weaknesses  for Pennsylvania to be able to provide reasonable assurance that its  subrecipients comply with requirements for Recovery Act funding, when  appropriate. Pennsylvania’s Secretary of the Budget told us that the Office  of Budget monitors the agencies’ corrective action plans and provides  additional program monitoring and training for agency program staff as  appropriate. As of April 2009, the Office of the Budget’s auditors were  reviewing the status of implementing corrective action plans for past  single audit findings.
Pennsylvania officials also cited potential risks, based on experience with  existing structures, with programs receiving Recovery Act funding.  Pennsylvania’s Governor told us that he is concerned that school districts  may use Recovery Act funds to start or expand education programs that  are fiscally unsustainable when the federal funds expire. Several  Pennsylvania officials, including the Governor, were specifically  concerned about the Weatherization Assistance Program. Under the  Recovery Act, the program is receiving a significant increase in funding  and will make substantial use of contractors to weatherize properties. A  2007 Pennsylvania Auditor General report found that the program had,  among other things, weak internal controls, weaknesses in contracting,  and inconsistent verification and inspection of subcontractor work.
According to the Chief Implementation Officer, Pennsylvania plans to  conduct several risk assessments by June 2009, including assessments of  potential contractor capacity challenges for transportation projects and  the capacity of current weatherization providers and contractors. The  Office of Chief Counsel is reviewing all construction contracts and grants  to ensure compliance with the Recovery Act requirements as well as  guidance issued by the U.S. Office of Management and Budget (OMB) and  federal agencies. According to Pennsylvania’s Secretary of the Budget, the  new Bureau of Audits within the Office of the Budget will develop a risk- based approach for Recovery Act audits with measurable criteria and  develop a matrix of risks for each Recovery Act program by the end of  June 2009.
section_title: Plans for Oversight and Transparency of Pennsylvania’s Recovery Act Funds
paragraphs: Pennsylvania has established structures to oversee Recovery Act funds  and provide transparency to the public. On March 31, 2009, the Governor  appointed a Chief Accountability Officer who will be responsible for  reporting on Pennsylvania’s use of Recovery Act funds and working with  the Office of Budget to ensure funds are spent in accordance with  Recovery Act requirements. To serve as a portal for transparency of state  Recovery Act spending, Pennsylvania also established a Web site  (www.recovery.pa.gov) that makes available updates on funding and  solicits public input on funding use. The Chief Accountability Officer will  be responsible for identifying ways to present visual evidence, such as  photographs and mapping, to help citizens track Recovery Act projects in  Pennsylvania.
A new Pennsylvania Stimulus Oversight Commission was created by the  Governor—by executive order on March 27, 2009—after outreach to the  Pennsylvania congressional delegation, the state legislature, and others. In  addition to the Chief Accountability Officer, the commission is composed  of the Governor, the Recovery Act Chief Implementation Officer, four  representatives selected by Pennsylvania’s congressional delegation,  members of each of the four caucuses in Pennsylvania’s General  Assembly, and representatives from the Pennsylvania Chamber of  Business and Industry, United Way of Pennsylvania, and Pennsylvania  AFL-CIO. The commission was established to, among other things,  monitor Pennsylvania’s efforts to ensure compliance with the Recovery  Act and to review the state’s approach to allocating and disbursing funds,  tracking funds, transparency, performance, and grants management and  oversight. The commission met for the first time on March 31, 2009, and  has not announced its oversight plans; the next commission meeting will  be on April 23, 2009.
Other state offices are generally not expecting new staff or resources for  Recovery Act oversight. The Auditor General anticipates work auditing  and investigating Recovery Act funds received by state and local agencies.   For example, the Auditor General will audit Recovery Act funds during the  annual single audit and will initiate additional compliance audits for  Recovery Act programs. The Auditor General observed that the Recovery  Act did not provide funding for his office to undertake work related to the  act. In addition, officials of the Auditor General's office have different  views about what authority they have to audit federal money that flows  directly to localities, such as housing authorities and municipalities.  Pennsylvania is also in the process of reorganizing and centralizing its  internal audit and comptroller functions within the Governor’s Office of  the Budget. According to the Secretary of Budget, the Bureau of Audits is  not expected to dramatically change audit responsibilities in the state but  rather provide a more focused, risk-based approach, particularly for  Recovery Act funding. This office is expected to employ 95 people, about  70 of whom will be field auditors. The remaining staff will be responsible,  among other things, for subrecipient desk reviews and agency risk  assessments.
The number of staff devoted to program oversight, and implementation in  some state agencies has been affected by the state’s hiring freeze. For  example, Workforce Investment Act program officials said monitoring  efforts will need to increase under the Recovery Act and they have applied  to the Governor for a waiver to hire additional staff. Department of  Community and Economic Development officials told us that they have  requested to hire 12 people, 3 or 4 of whom will be devoted to Recovery  Act work related to the Neighborhood Stabilization Program. The  Pennsylvania Commission on Crime and Delinquency, which administers  the Edward Byrne Memorial Justice Assistance Grants, is trying to  maximize the use of its existing staff and sought advice from the U.S.  Department of Justice Inspector General; the latter will give a  presentation, share checklists, and train program staff in monitoring  subrecipients. PennDOT officials told us that they meet weekly to oversee  the highway and bridge program funded through the Recovery Act. These  meetings cover such things as the status of obligating program funds and  potential problems. The department also has a special “war room” that  tracks each project in each state district.
section_title: Plans to Assess Impact of Recovery Act Funds Depend on Federal Guidance
paragraphs: Agency officials stated that, although they are emphasizing the planning  and allocating of Recovery Act funds quickly, they are aware of  requirements to assess the economic and other impacts of these funds.  The new Chief Accountability Officer will be responsible for developing  and using performance measures to demonstrate outcomes associated  with Recovery Act spending and projects. Some agency officials with  whom we met—at the Pennsylvania Department of Education and the  Department for Community and Economic Development—are generally  waiting for additional guidance from the federal government on  performance measures, especially on how to measure and report jobs  created and sustained.
section_title: Pennsylvania’s Comments on This Summary
paragraphs: We provided the Governor of Pennsylvania with a draft of this appendix  on April 17, 2009. The Chief Implementation Officer and the Secretary of  the Budget responded for the Governor on April 20, 2009. These officials  provided clarifying and technical comments that we incorporated where  appropriate. We also provided the Auditor General's staff with portions of  the draft that addressed the Auditor General's past work and plans related  to Recovery Act funding. We incorporated those technical comments as  appropriate.
section_title: GAO Contacts
section_title: Staff Acknowledgments
paragraphs: In addition to the contacts named above, MaryLynn Sergent, Assistant  Director; Richard Jorgenson, Analyst-in-Charge; Andrea E. Richardson;  George A. Taylor, Jr.; Laurie F. Thurber; and Lindsay Welter made major  contributions to this report.
section_title: Appendix XVIII: Texas
paragraphs: Use of funds: An estimated 90 percent of fiscal year 2009 Recovery Act  funding provided to states and localities will be for health, transportation,  and education programs. The three largest programs in these categories  are the Medicaid Federal Medical Assistance Percentage (FMAP) awards,  the State Fiscal Stabilization Fund, and highways.
Medicaid Federal Medical Assistance Percentage (FMAP) Funds    As of April 3, 2009, the Centers for Medicare & Medicaid Services (CMS) had made approximately $1.45  billion in increased FMAP grant awards to Texas.
As of April 1, 2009, the state has drawn down about $665.7 million, or 46 percent, of its initial increased  FMAP grant awards.   Texas officials noted that the funds made available as a result of the increased FMAP will allow the state to  maintain the program’s level of service and eligibility standards in fiscal year 2009.
Texas was apportioned about $2.25 billion for highway infrastructure investments on March 2, 2009, by the  U.S. Department of Transportation.
As of April 16, 2009, the U.S. Department of Transportation had obligated $533.7 million for 159 projects in    According to Texas Department of Transportation officials, the department is scheduled to receive bids in  April 2009 on 137 contracts that would total approximately $400 million in Recovery Act funds.   Texas will request reimbursement from the U.S. Department of Transportation as the state makes payments  to contractors.
U.S. Department of Education State Fiscal Stabilization Fund   Texas was allocated about $2.66 billion from the initial release of these funds on April 2, 2009, by the U.S.  Department of Education.
Before receiving the funds, states are required to submit an application that provides several assurances to  the Department of Education. These include assurances that they will meet maintenance of effort  requirements (or that they will be able to comply with waiver provisions) and that they will implement  strategies to meet certain educational requirements, including increasing teacher effectiveness, addressing  inequities in the distribution of highly qualified teachers, and improving the quality of state academic  standards and assessments. According to Texas officials, the state’s application likely would not be  submitted before the state legislature (which is in session until June 1, 2009) has finalized an appropriation  for public and higher education.   Texas officials indicated that the state plans to use its allocated federal funds to assist in continuing the  historical levels of support for elementary, secondary, and higher education in the state. Education Agency  officials said funds could be used, for example, to support efforts related to assessing school performance,  teacher incentives, and teacher equity. Higher education officials anticipate using the funds to mitigate  tuition and fee increases; support modernization, repair, and renovation of facilities; and provide incentive  funding based on degrees awarded.
Texas is receiving additional Recovery Act funds under other programs,  such as programs under Title I, Part A of the Elementary and Secondary  Education Act (ESEA), commonly known as No Child Left Behind;  programs under the Individuals with Disabilities Education Act (IDEA);  two programs of the U.S. Department of Agriculture—one for the  administration of the Temporary Food Assistance Program and one for  competitive equipment grants targeted to low income districts from the  National School Lunch program; housing programs, including  weatherization assistance; and justice assistance grants. The status of  plans for using selected funds is discussed throughout this appendix.
Safeguarding and transparency: To help ensure accountability and  transparency, the Texas legislature’s forthcoming general appropriations  act—expected to be passed by June 2009 to function as the state’s fiscal  2010-2011 biennium budget—will have a provision for tracking Recovery  Act funds allocated to the state, according to the executive and legislative  branch officials we contacted in Texas. To provide additional  accountability and transparency, the Comptroller of Public Accounts has  established a centralized budget account (with a unique funding code) for  Recovery Act funds and has also established a Web page,  www.window.state.tx.us/recovery, with links to www.recovery.gov/. To  further help ensure accountability and transparency, Texas officials  suggested that federal authorities provide concurrent notification to the  state’s key stakeholders—particularly the Office of the Governor, the  Comptroller of Public Accounts, the State Auditor’s Office, and the  Legislative Budget Board—when Recovery Act funds are periodically  distributed to Texas agencies and/or localities. Also, Texas officials told us  that despite U.S. Office of Management and Budget (OMB) guidance, the  increased FMAP funds the state has received through the Recovery Act, to  date, have not been separately identified by the federal government.
Assessing the effects of spending: Texas officials commented that— under the state’s performance-based budgeting process—agencies already  have measures in place for assessing the performance of programs.  Officials also believe that the state’s current monitoring and control  processes and procedures are adequate to administer initiatives funded  under the Recovery Act. The officials recognized, however, that some  adjustments to performance measures may be needed for assessing the  impact of Recovery Act funds.
subsections: section_title: Texas Beginning to Use Recovery Act Funds
paragraphs: Texas has begun to use some of its Recovery Act funds, as follows:  Increased Federal Medical Assistance Percentage Funds: Medicaid is  a joint federal-state program that finances health care for certain  categories of low-income individuals, including children, families, persons  with disabilities, and persons who are elderly. The federal government  matches state spending for Medicaid services according to a formula  based on each state’s per capita income in relation to the national average  per capita income. The amount of federal assistance states receive for  Medicaid service expenditures is known as the Federal Medical Assistance  Percentage (FMAP). Across states, the FMAP may range from 50 to no  more than 83 percent, with poorer states receiving a higher federal  matching rate than wealthier states. The Recovery Act provides eligible  states with an increased FMAP for 27 months between October 1, 2008,  and December 31, 2010. On February 25, 2009, the Centers for Medicare &  Medicaid Services (CMS) made increased FMAP grant awards to states,  and states may retroactively claim reimbursement for expenditures that  occurred prior to the effective date of the Recovery Act. Generally, for  federal fiscal year 2009 through the first quarter of federal fiscal year 2011,  the increased FMAP, which is calculated on a quarterly basis, provides for  (1) the maintenance of states’ prior year FMAPs, (2) a general across-the- board increase of 6.2 percentage points in states’ FMAPs, and (3) a further  increase to the FMAPs for those states that have a qualifying increase in  unemployment rates. The increased FMAP available under the Recovery  Act is for state expenditures for Medicaid services. However, the receipt of  the increased FMAP may reduce the funds that states must use for their  Medicaid programs, and states have reported using these available funds  for a variety of purposes.
As of April 1, 2009, Texas had drawn down $665,665,000, or 46 percent, of  its initial increased FMAP grant awards of $1,448,824,000 in FMAP funds.  Texas officials commented that the funds made available as a result of the  increased FMAP will allow the state to maintain the program’s level of  service and eligibility standards and cover increased caseloads, among  other uses. Texas officials indicated that guidance from CMS is needed  regarding whether certain programmatic changes being considered by  Texas, such as a possible extension of the program’s eligibility period,  would affect the state’s eligibility for increased FMAP funds.
Transportation—Highway Infrastructure Investment: The Recovery  Act provides additional funds for highway infrastructure investment using  the rules and structure of the existing Federal-Aid Highway Surface  Transportation Program, which apportions money to states to construct  and maintain eligible highways and for other surface transportation  projects. States must follow the requirements for the existing programs,  and in addition, the governor must certify that the state will maintain its  current level of transportation spending, and the governor or other  appropriate chief executive must certify that the state or local government  to which funds have been made available has completed all necessary  legal reviews and determined that the projects are an appropriate use of  taxpayer funds. Texas provided this certification but noted that the state’s  level of funding was based on the best information available at the time of  the state’s certification.
Texas was apportioned about $2.25 billion of Recovery Act funds for  highway infrastructure investments on March 2, 2009, by the U.S.  Department of Transportation. As of April 16, 2009, the U.S. Department of  Transportation had obligated $533.7 million of Recovery Act funds for 159  projects in Texas. According to Texas Department of Transportation  officials, the department is scheduled to receive bids in April 2009 on 137  contracts that would total approximately $400 million in Recovery Act  funds. Texas will request reimbursement from the U.S. Department of  Transportation as the state makes payments to contractors.
U.S. Department of Education State Fiscal Stabilization Fund: The  Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be  administered by the U.S. Department of Education (Education). The SFSF  provides funds to states to help avoid reductions in education and other  essential public services. The initial award of SFSF funding requires each  state to submit an application to Education that assures, among other  things, it will take actions to meet certain educational requirements such  as increasing teacher effectiveness and addressing inequities in the  distribution of highly qualified teachers.
Texas’ initial SFSF allocation is $2,662,203,000. According to Texas  officials, the state generally plans to use its SFSF allocation to assist in  continuing the historical levels of support for elementary, secondary, and  higher education in the state. In April 2009, officials from the Office of the  Governor informed us that the state was in the process of preparing its  application for submission to the U.S. Department of Education—and that  the application would reflect the fact that providing funding for public  education is a priority in the state. The officials noted that the state’s  application likely would not be submitted until the state legislature (which  is in session until June 1, 2009) has finalized an appropriation for  elementary, secondary, and higher education. Also, the officials  commented that the state was awaiting further federal guidance on the  appropriate use of Recovery Act funds. Generally, however, Texas  Education Agency officials said that the federal funds could be used, for  example, to support efforts related to high-quality assessment  performance in schools, teacher incentives, and teacher equity. Also,  according to the Texas Higher Education Coordinating Board, public  institutions of higher education in Texas anticipate expending Recovery  Act funds for three purposes—mitigating tuition and fee increases;  supporting modernization, repair, and renovation of facilities; and  providing incentive funding based on degrees awarded. To provide  tracking and oversight of the Recovery Act funds, board officials  commented that existing systems for implementing policies for  accountability, internal controls, compliance, and reporting would be  leveraged to the maximum extent possible to avoid the administrative  burden associated with creating a completely new system. These officials  explained that the proposed uses of the Recovery Act funds are not  dissimilar to other well-established programs within the agency.
Overall, throughout the multiyear time frame covered by the Recovery Act,  Texas’ share of the total federal funds is estimated to be more than $15  billion for supporting a variety of program areas, such as health and  human services, state fiscal stabilization, transportation, and education.  (See table 9.)
In his letter certifying acceptance of federal Recovery Act funds, the Texas  Governor voiced opposition to “using these funds to expand existing  government programs, burdening the state with ongoing expenditures long  after the funding has dried up.” Similarly, during our review in Texas,  legislative branch officials generally acknowledged that most of the  federal Recovery Act funds appear to be one time in nature and that the  state must avoid spending the funds for ongoing projects that would result  in unsustainable future costs to the state’s budget. An illustration of such  avoidance involves unemployment insurance. While the Texas Governor  accepted some Recovery Act funds for unemployment insurance, he did  not request Unemployment Insurance Modernization funds because the  Governor believed that receiving those funds would place additional tax  burdens on businesses, which would impede job creation and hamper the  economy.
Even though Texas generally continues to fare better economically than  most states, nearly all available data suggest that the Texas economy is in  recession, according to the Federal Reserve Bank in Dallas. In January  2009, the Office of the Comptroller of Public Accounts reported that the  state’s fiscal 2010-2011 biennium budget will have $9 billion less in revenue  than the current biennium budget. For perspective, officials with the  Governor’s office told us that the $9 billion represents a 5 percent  adjustment to the budget.
In January 2009, anticipating that Texas faced a likely budget shortfall, the  co-chairs of the state’s Legislative Budget Board requested that state  agencies look for ways to reduce fiscal year 2009 expenditures by 2.5  percent. The co-chairs further noted that the state legislature should  prudently plan on having a reasonable reserve in the state’s economic  stabilization fund so that the state does not face a large deficit in the next  biennium, ending August 31, 2011. In response to the co-chairs’ request for  ways to reduce spending in fiscal year 2009, state agencies identified  approximately $396 million in potential budget reductions based on hiring  freezes, reduced services, delayed capital purchases, and other cost- cutting efforts. At the time of their request, the co-chairs noted that the  Recovery Act—which was being debated in Washington, D.C.—could not  responsibly be factored into the state’s budget process because many  details were not known.
In discussions with our review team in March 2009, representatives of the  Office of the Lieutenant Governor commented that because of Recovery  Act funds, state agencies were not required to implement the 2.5 percent  spending reductions anticipated for state fiscal year 2009 and, further, the  state did not have to tap into its rainy day fund. The representatives told us  that absent the availability of Recovery Act funds, state agencies likely  would have been asked to make cuts of about 10 percent for the fiscal  2010-2011 biennium budget, in addition to the state drawing upon the rainy  day fund.
On the other hand, officials representing the Office of the Governor  commented that budget deficit situations do not necessarily result in the  state using its rainy day fund. The officials stressed that—to meet the  requirement to pass a balanced budget—a variety of other solutions could  be considered, such as budget reallocations among state agencies and  programs, as well as spending cuts. As an example, these officials noted  that even though the state’s overall budget was reduced in 2003, the state  raised education spending by $1 billion that year. Additionally, the officials  explained that use of the rainy day fund is not an option readily available  because it requires approval by two-thirds of the state legislature.
section_title: Texas Is Taking Steps to Help Ensure Accountability and Transparency and Address Potential Areas of Vulnerability
paragraphs: Texas is taking various steps to help ensure accountability and  transparency and address areas of vulnerability potentially associated with  Recovery Act spending.
subsections: section_title: Steps to Help Ensure Accountability and Transparency
paragraphs: Texas officials noted that Recovery Act funding will flow generally  through existing federal-state agency partnerships or programs. Thus, to  the extent possible, the state plans to use existing systems, processes, or  mechanisms to provide Recovery Act funding accountability and  transparency, according to the executive and legislative branch officials  we contacted in Texas. In further reference to accountability and  transparency, oversight of federal Recovery Act funds in Texas involves  various stakeholders, including the Office of the Governor, the State  Auditor’s Office, and the Office of the Comptroller of Public Accounts as  well as two entities established within the Texas legislature specifically for  this purpose—the House Select Committee on Federal Economic  Stabilization Funding and the House Appropriations’ Subcommittee on  Stimulus. Also, according to executive and legislative branch officials in  Texas, the state plans to ensure that the forthcoming biennial general  appropriations bill has a provision designed to specifically facilitate the  tracking of federal Recovery Act funds distributed to Texas—that is, the  act will have a separate section (“article”) that identifies, by applicable  state agency, Recovery Act funds allocated to Texas. At the time of our  study in April 2009, the Texas legislature was in session (81st regular  session) and had not finished its work to complete and submit to the  Governor a general appropriations bill for the state’s fiscal 2010-2011  biennium (Sept. 1, 2009, through Aug. 31, 2011).
To further facilitate tracking, in March 2009, the Office of the Comptroller  of Public Accounts established a centralized budget account for federal  Recovery Act funds, with a unique funding code (0369). In turn,  according to Texas officials, state agencies are modifying their financial  systems to enable tracking of Recovery Act funds. Also, after the Recovery  Act passed, the Office of the Governor began hosting regularly scheduled  meetings (twice weekly) of a Stimulus Working Group comprising  representatives of major state agencies to help ensure statewide  communication of the need for accountability and transparency regarding  Recovery Act funds. Similarly, a periodic forum of the internal audit staff  of Texas state agencies serves as another means of statewide  communication. Also, in March 2009, the Office of the Comptroller of  Public Accounts scheduled training regarding federal awards and financial  statements—training that included representatives from the Office of the  Governor to discuss Recovery Act funds. Further, the Comptroller’s Office  plans to hire 5 to 10 additional staff to help account for Recovery Act  funds, according to office officials. In April 2009, the Comptroller’s Office  issued policies and procedures to state agencies related to use and  subsequent reporting on Recovery Act funds.
The State Auditor’s Office is taking additional steps to ensure  accountability. Anticipating that federal Recovery Act funding will  increase its scope of responsibilities, the State Auditor’s Office plans to  hire 10 additional staff (9 auditors and 1 investigator). The office intends  to audit Recovery Act funds through the Single Audit of the State of Texas’  expenditures of federal awards—that is, the audit required by the Single  Audit Act and to which OMB Circular A-133, Audits of States, Local  Governments, and Non-Profit Organizations, relates. Also, the State  Auditor’s Office may conduct discretionary audits based, for example, on  (1) discussions with internal auditors at state agencies or (2) risk  assessments that consider previously reported material weaknesses in  program compliance and internal controls, as well as risk assessments of  programs that have not been tested before. Furthermore, the State  Auditor’s Office noted that, as warranted, it pursues leads generated by  complaint letters, hotline calls, and other information received from the  public. In this regard, the State Auditor’s Office has Web-based and  telephone “hotline” contacts for the general public to use in reporting  possible fraud, waste, and abuse. In March 2009, the State Auditor told us  that he was preparing a letter to send to state agencies regarding their  general fraud responsibilities related to state funds. Moreover, in April  2009, the State Auditor’s Office informed us that a provision for reporting  Recovery Act-related fraud is being added to the state’s fiscal 2010-2011  biennium appropriations bill. Among other requirements, this legislative  provision, according to the State Auditor’s Office, will require that state  agencies’ Web sites provide information on how to report suspected fraud,  waste, and abuse directly to the State Auditor’s Office.
According to state officials, in March 2009, a bill was filed in the Texas  legislature that proposed creating a new office—the Texas Fiscal  Responsibility Office—to oversee or monitor the spending of federal  Recovery Act funds in Texas. As of early April 2009, the bill’s status had  not been determined by the state legislature, which was scheduled to be in  regular session until June 1, 2009.
section_title: Potential Areas of Vulnerability of Recovery Act Funds in Texas
paragraphs: In response to our inquiry, the State Auditor’s Office provided us its views  regarding accountability risks and other challenges potentially associated  with the expenditure of federal Recovery Act funds in Texas. Based on its  experience in auditing Texas’ use of previous federal awards and reporting  internal control deficiencies or material weaknesses, the State Auditor’s  Office noted that relatively high risks generally can be anticipated with  certain types of programs—such as (1) new programs with completely  new processes and internal controls, (2) programs that lack clear guidance  on allowable uses of Recovery Act funds, (3) programs that distribute  significant amounts of funds to local governments or boards, and (4)  programs that rely on subrecipients for internal controls and monitoring.  The State Auditor’s Office also noted that general economic stability and  public education programs are considered to be high risk because they are  new programs and federal guidance regarding the state’s appropriate use  of the funds the funds is uncertain. The State Auditor’s Office further  noted that highway construction and workforce programs are also high  risk because funds flow through contractors or to local entities,  respectively.
Officials from Office of the Governor acknowledged that there are  inherent risks associated with large, complex programs as well as  programs that involve a large number of contracts and rely on  subrecipients. However, the officials emphasized that Texas has  experience in monitoring these types of programs, and officials noted that  state agencies have controls in place to mitigate these risks. Regarding the  Medicaid program, for example, the officials noted that in 2003, the  Governor appointed an Inspector General for the Texas Health and Human  Services Commission and charged the Inspector General with monitoring  and preventing fraud, waste, and abuse. Also, the officials noted that the  state’s Attorney General’s Office has a Medicaid Fraud Investigation Unit.
The Texas State Auditor’s Office made a recommendation regarding the  monitoring of subrecipients for risk in its most recent audit of the Texas  Education Agency. The audit report did not find that subrecipients were  improperly spending federal funds or were not meeting federal  requirements; however, the report did note, however, that the agency had  “a limited number of resources available to monitor fiscal compliance.”  The audit report recommended that the Texas Education Agency continue  to add resources, within its budget constraints, to increase its monitoring  of federal fiscal compliance performed. According to the State Auditor’s  Office, following the audit in February 2009, the Texas Education Agency  created a comprehensive correction plan, which the agency is  implementing to address this resource issue.
After the Recovery Act was enacted, the Texas Education Agency  announced in March 2009 that it was creating a task force on federal  stimulus and stabilization to coordinate the agency’s plans. Also in March  2009, the agency reported that it had established new accounting codes for  tracking Recovery Act funds. Furthermore, the agency indicated that its  application guidance for the temporary funding would specify that (1)  grantees are expected to expend funds in ways that do not result in  unsustainable continuing commitments after the funding expires and (2)  the funds must be separately tracked and monitored.
Generally, state officials recognized that a potential vulnerability can be  associated with significant increases in funding levels. An example is the  weatherization assistance program. As noted in table 1, of the estimated  $1.2 billion in Recovery Act funds to be used for housing and  infrastructure programs in Texas, weatherization assistance is the largest  component program in terms of funding ($327 million). This funding level  represents about a 25-fold increase over the estimated annual amount ($13  million) that existed before the Recovery Act, according to Texas  Department of Housing and Community Affairs data. Tentatively, the  department indicated that its program implementation plan will include  using an existing network of 34 weatherization assistance program  providers (e.g., various community action entities) as well as awarding  other contracts to cities with populations over 75,000. Under the program,  subrecipients have 2 years to fully expend the weatherization funding. The  Texas Department of Housing and Community Affairs noted that it intends  to periodically assess progress and determine if unobligated funds need to  be moved to high-performing entities.
More broadly, a particular challenge or difficulty cited by the executive  and legislative branch officials we contacted in Texas is the need for more  guidance from OMB and other applicable federal agencies. Regarding  quarterly recipient reports, for example, the officials said that there is a  lack of clarity regarding whether all agencies in the state must submit  reports to OMB or whether each state must submit a consolidated report.
The officials also noted that it would be useful to have a reporting  “template” that specifies the specific data fields or information to be  reported. Furthermore, the officials commented that rather than simply  being directed to a Web site, it would be helpful to have a centralized point  of contact in Washington, D.C., for receiving and addressing questions. In  April 2009, the Governor’s Office and State Comptroller of Public  Accounts officials continued to express concerns to us about unclear  guidance from federal agencies on allowable uses and reporting  requirements. Also in April 2009, the officials informed us that the Office  of the Governor had hired a consulting company, and six consultants had  been staffed to track deadlines and work with state agencies to assist  Texas in meeting Recovery Act reporting requirements.
Regarding other opportunities for enhancing Recovery Act funding  accountability, the executive and legislative branch officials we contacted  in Texas advocated that various oversight entities in the state be  concurrently notified when funds are distributed. As mentioned  previously, in Texas, the state-level decision-making process regarding use  (and accountability and transparency) of federal Recovery Act funds  involves several entities or key stakeholders, particularly the Office of the  Governor, the Office of the Comptroller of Public Accounts, the State  Auditor’s Office, and the Legislative Budget Board. Generally, in our  meetings with representatives of these entities, a common theme  expressed has been a desire to be notified by federal authorities when  Recovery Act funds are distributed to Texas state agencies and/or  localities. The representatives stated that concurrent notification to the  state’s key stakeholders would help to further ensure accountability and  transparency.
In April 2009, officials from the Office of the Governor and the State  Comptroller’s Office told us that, in its disbursement of Recovery Act  funds to the state, the federal government was not identifying these funds  separately from other federal funds. The Texas officials cited increased  FMAP funding as an example. Absent separate coding from the disbursing  federal agency, the Texas officials said that the state relies on the Texas  Health and Human Services Commission to inform the State Comptroller’s  Office of what portion of the combined funds are Recovery funds. The  Texas officials commented that it would be helpful if the federal  government put in place the coding structure to identify Recovery Act  funds separately from other federal funds—as they believe the Act  requires—before Recovery Act funds are disbursed to Texas.
section_title: Plans for Assessing the Impact of Recovery Act Funds Are Evolving
paragraphs: The executive and legislative branch officials we contacted in Texas— including officials from the Office of the Governor, the Office of the  Comptroller of Public Accounts, the State Auditor’s Office, the Legislative  Budget Board, and various program agencies—recognized the importance  of the state taking steps to assess the impact of Recovery Act funds in  terms of preserving and creating jobs, assisting those individuals most  impacted by the recession, and so forth. In late January 2009, for example,  in preparing to implement the transportation components of the  anticipated national economic recovery program, the Texas  Transportation Commission recognized that a primary purpose of the  recovery program is to “create and sustain jobs.”
Texas officials commented that agencies in Texas—a state that has a  performance-based budgeting process—already have performance  measures in place for their respective programs and operations, although  some Recovery Act-related adjustments or modifications may be needed.  Texas Department of Transportation officials noted, for example, that  contracts involving the use of Recovery Act funds will have special  provisions requiring contractors to report on jobs created. These officials  also cited potential difficulties in measuring the impact of Recovery Act  funds used for programs that commingle these funds with other federal or  state funds.
Finally, Texas officials told us that the Governor’s Office has taken the  lead in administering the state’s responsibilities under the Recovery Act.   As mentioned previously, the Governor’s Office chairs a Stimulus Working  Group with representatives from the state agencies that have a role under  the Recovery Act. Texas officials were uncertain as to whether a specific  agency would be designated to be responsible for compiling an overall  assessment of the impact of Recovery Act funds in the state. The officials  added, however, that the state’s legislature was still in session and that the  forthcoming biennial general appropriations bill—which will have a  separate section specifically for Recovery Act funds—could perhaps  assign such responsibility to an agency.
section_title: Texas’s Comments on This Summary
paragraphs: We provided the Governor of Texas with a draft of this appendix on April  17, 2009. A Senior Advisor, designated as the state's point of contact for  the Recovery Act, responded for the Governor on April 20, 2009. In  general, the Senior Advisor agreed with the information in this appendix  but wanted us to provide more context for the views of the State Auditor  regarding potential areas of vulnerability with Recovery Act funds. We  added contextual perspectives to address this concern and the Senior  Advisor’s belief that Texas is equipped to meet its responsibilities under  the Recovery Act. The Senior Advisor also provided technical suggestions  that we incorporated where appropriate.
section_title: GAO Contacts
section_title: Staff Acknowledgments
paragraphs: In addition to the contacts named above, Danny Burton, Assistant  Director; K. Eric Essig, auditor-in-charge; Yecenia Camarillo; Camille  Chaires; Sharhonda Deloach; Michael O’Neill; Daniel Silva; Gabriele  Tonsil; and Christy Tyson made major contributions to this report.
section_title: Appendix XIX: Washington, D.C.
paragraphs: XIX: Washington, D.C.
subsections: section_title: Overview
paragraphs: Use of funds: An estimated 90 percent of Recovery Act funding provided  to states and localities nationwide in fiscal year 2009 (through Sept. 30,  2009) will be for health, transportation, and education programs. The three  largest programs in these categories are the Medicaid Federal Medical  Assistance Percentage (FMAP) awards, highways, and the State Fiscal  Stabilization Fund.
Medicaid Federal Medical Assistance Percentage (FMAP) Funds     As of April 3, 2009, the Centers for Medicare and Medicaid Services (CMS) had made about $87.8 million in  increased FMAP grant awards to the District of Columbia.
As of April 1, 2009, the District had drawn down about $49.9 million, or about 57 percent of its initial  increased FMAP grant awards.
District officials plan to use funds made available as a result of the increased FMAP to cover an increased  caseload, offset general fund deficits, and maintain current Medicaid eligibility and benefit levels.
The District of Columbia was apportioned $123.5 million for highway infrastructure investment on March 2,  2009, by the U.S. Department of Transportation.
As of April 16, 2009, the U.S. Department of Transportation had obligated $36.6 million for one project in the  District of Columbia.  The District of Columbia plans to use these funds for reviewed and vetted “shovel ready” projects, such as  pavement restoration and resurfacing work on federal roadways, once the appropriate contracting processes  have been completed.
U.S. Department of Education State Fiscal Stabilization Fund   The District of Columbia was allocated $89.4 million from the initial release of these funds on April 2, 2009, by  the U.S. Department of Education. District officials intend to use these funds to increase aid across all  schools in the District. As of April 2, 2009, about $59.9 million of this allocation was available for the District  to draw down upon.
Before receiving the funds, states are required to submit an application that provides several assurances to  the U.S. Department of Education. These include assurances that they will meet maintenance of effort  requirements, or that they will be able to comply with waiver provisions, and that they will implement  strategies to meet certain educational requirements, including increasing teacher effectiveness, addressing  inequities in the distribution of highly qualified teachers, and improving the quality of state academic  standards and assessments. As of April 15, 2009, the District was awaiting a response from the U.S.  Department of Education on the District’s proposed plan for using the funds before submitting an application.
Appendix XIX: Washington, D.C.
In addition to the funding for these three programs, the District of  Columbia is receiving Recovery Act funds under other programs, such as  programs under Title I, Part A, of the Elementary and Secondary  Education (ESEA), commonly known as the No Child Left Behind Act;  programs under the Individuals with Disabilities Education Act (IDEA);  and two programs of the U.S. Department of Agriculture—one for  administration of the Temporary Food Assistance Program and one for  competitive equipment grants targeted at low income districts from the  National School Lunch Program. The District’s plans for using these and  other Recovery Act funds are discussed throughout this appendix.
Safeguarding and transparency: The District plans to use its existing  financial systems to track the use of Recovery Act funds, and plans to use  an ongoing accountability program to monitor District agency efforts to  ensure that funds are used as intended. District officials are working to  correct 89 material weaknesses in internal controls over both financial  reporting and compliance with requirements applicable to major federal  programs that were identified in the Fiscal Year 2007 Single Audit Report  for the District of Columbia. The major federal programs in which these  weaknesses were identified include programs that will be receiving  Recovery Act funds, such as Medicaid’s FMAP, ESEA Title I Education  grants, and Workforce Investment Act programs. At present, it is not clear  whether corrective actions will be completed before the Recovery Act  funds are received by the District. This could increase the risk that  Recovery Act funds may not be used properly. The District’s Inspector  General has also identified a number of District agencies with internal  control and management issues that place them at risk for misusing  Recovery Act funds. The District has initiated a Recovery Act Web site to  help ensure that its Recovery Act efforts are transparent to the public.
Assessing the effects of spending: The District plans to assess the  impact of Recovery Act funds by using the information in reports required  by federal agencies under the Recovery Act, including information on the  economic impact of the funds, such as on job creation. The District has  provided initial guidance to city agencies on the tracking and use of  Recovery Act funds and is awaiting further guidance from the federal  government, particularly information related to measuring jobs. District  officials stated that the Office of Management and Budget (OMB) should  provide a common definition of “job” and a metric to measure the number  of jobs that are created by Recovery Act funds. District officials are also  concerned about the lack of guidance for the methodology of tracking the  new jobs created.
Appendix XIX: Washington, D.C.
section_title: District of Columbia Beginning to Use Recovery Act Funds
paragraphs: The Mayor of the District of Columbia has established 13 work groups to  oversee the use of Recovery Act funds in each program area. Each work  group is led by the head of a District agency or department, or their  designee, who reports to the City Administrator through his Recovery Act  coordinator. The work groups will collaborate to make decisions on the  use of Recovery Act funds. As of April 3, 2009, the District had been  allocated about $240 million in Recovery Act funds. The City  Administrator stated that the District is committed to taking full advantage  of the opportunities provided by the Recovery Act, and is committed to  doing so in a manner that is fiscally responsible, efficient, effective, and  transparent, while addressing the goals of the statute and the needs of  District residents. The District has begun to use the Recovery Act funds as  follows.
Appendix XIX: Washington, D.C. expenditures for Medicaid services. However, the receipt of the increased  FMAP may reduce the funds that states must use for their Medicaid  programs, and states have reported using these available funds for a  variety of purposes.
As of April 1, 2009, the District of Columbia had drawn down $49.9 million  in increased FMAP grant awards, which was 56.8 percent of its awards to  date. District of Columbia officials reported that they plan to use funds  made available as a result of the increased FMAP to cover an increased  caseload, offset general fund deficits, and maintain current eligibility and  benefit levels in the District’s Medicaid program.
Transportation—Highway Infrastructure Investment: The Recovery  Act provides additional funds for highway infrastructure investment using  the rules and structure of the existing Federal-Aid Highway Surface  Transportation Program, which apportions money to states to construct  and maintain eligible highways and for other surface transportation  projects. States must follow the requirements for the existing programs,  and in addition, the governor or other appropriate chief executive must  certify that the state or local government to which funds have been made  available has completed all necessary legal reviews and determined that  the projects are an appropriate use of taxpayer funds.
As of March 2, 2009, the District’s Department of Transportation was  apportioned $123.5 million in Recovery Act funds for highway  infrastructure and has identified “shovel ready” projects for these funds.  According to the District of Columbia’s certification, approximately $56  million in projects have been fully reviewed and vetted. As of April 16,  2009, the U.S. Department of Transportation had obligated $36.6 million  for one District project—the demolition and reconstruction of the existing  New York Avenue Bridge over the railroad.
Appendix XIX: Washington, D.C. things, it will take actions to meet certain educational requirements, such  as increasing teacher effectiveness and addressing inequities in the  distribution of highly qualified teachers.
As of April 15, 2009, the District was awaiting a response from Education  on the District’s proposed plan for using the funds to increase funding for  education on a per student basis. Once this response is received, the  District will submit an application to the federal government and expects  to receive about $89.4 million in fiscal stabilization funds. The District is  home to about 220 schools in 60 local education agencies (LEAs). The  District’s 60 LEAs include one large public school system (District of  Columbia Public Schools, or DCPS) and 59 smaller LEAs that are mostly  single public charter schools. For the 2008-2009 school year, about 64  percent of District students were enrolled in DCPS, while about 36 percent  were in public charter schools. District officials stated that they intend to  distribute stabilization funds across all 60 LEAs.
Other Education Funds: The District expects to receive about $37  million in Recovery Act funds for its ESEA Title I program. Title I, Part A  of the Elementary and Secondary Education Act of 1965 (ESEA), as  amended by the No Child Left Behind Act provides funds to LEAs for  schools that have high concentrations of students from families living in  poverty in order to help improve teaching and learning. District officials  told us that it may be a challenge to disburse funds rapidly while also  meeting programmatic requirements. They also told us they did not yet  know how the LEAs were planning on using these funds.
The District also expects to receive about $18.8 million in stimulus funds  for Individuals with Disabilities Education Act (IDEA) programs. About  $16.4 million will be used for Part B grants to states, and about $260,000  for Part B grants for preschool children. The other $2.1 million will be  used for Part C (state grants for infants and families). Officials told us that  they were unsure of how IDEA funds would be used, but they anticipate  being able to serve more children under each program, improve methods  for assessing the performance of students with disabilities, and improve  services to children and compliance with IDEA’s requirements.
Appendix XIX: Washington, D.C. approximately $202 million in Recovery Act funding from FTA. WMATA  plans to use these funds for 29 projects, including improving information  technology and operating systems, maintenance, repair and replacement  of buses, and renovation of passenger facilities in disrepair. According to  its Web site, WMATA expects to make its first Recovery Act purchase of 45  hybrid-electric buses at the end of April 2009.
Workforce Investment Act (WIA): As of April 3, 2009, the District’s  Department of Employment Services had been allocated about $1.5 million  for adult Workforce Investment Act (WIA) programs, about $3.8 million for  dislocated workers programs, and almost $4 million for youth programs.  The District plans to use these Recovery Act funds in accordance with the  U.S. Department of Labor’s Guidance Letter Number 14-08. This guidance  states that it is the intent of the Recovery Act that WIA adult funds be used  to provide the necessary services to substantially increase the number of  adults to support their entry or reentry into the job market, and that WIA  dislocated worker funds be used to provide the necessary services to  dislocated workers to support their reentry into the recovering job market.  The guidance also emphasizes Congress’s interest in using WIA youth  funds to create summer employment opportunities for youth.
The District has also developed a plan that includes an increase in weekly  benefits for the unemployed and an expansion of city services to help  those filing unemployment claims and looking for work. The new benefits  for the unemployed include additional compensation in the form of a  supplemental $25 weekly benefit outlined in the Recovery Act. In addition,  the District announced an extension for those who have exhausted their  unemployment benefits and are actively seeking work. According to  District officials, the Mayor plans to forward legislation to the D.C. City  Council that will enable those who will exhaust their unemployment  benefits by late spring to extend them until December 2009. Both the new  supplemental compensation and the extension of benefits are 100 percent  federally funded as part of the Recovery Act.
Appendix XIX: Washington, D.C.
DHCD officials said they have questions about how the program will be  implemented and that the answers to their questions could require  revisions to state qualified allocation plans and procedures. As a result,  further guidance from IRS will be needed to understand whether DHCD  would use the program and, if so, what management changes, if any, will  be needed for its implementation. As required by the Recovery Act, HUD  allocated about $27 million to the District of Columbia Housing Authority  (DCHA) for capital and management activities, including modernization  and rehabilitation of public housing projects. DCHA officials told us that  they planned to use the allocation to fund improvements at ongoing  projects included in their 5-year construction plan.
Homeland Security and Justice Programs: District officials expect to  receive an additional allocation of about $11.7 million through the  Department of Justice’s Edward Byrne Memorial Justice Assistance Grant  Formula Program, which nearly doubles the total amount of grant funding  awarded by the District’s Justice Grants Administration in the last fiscal  year. The District plans to use these funds in several areas, including  prisoner reentry, detention and incarceration diversion initiatives, and  court diversion services for at-risk youth. The District plans to change its  funding priority targets by phasing out small discrete grants and instead  focus on awarding grants that invest in long-term projects. According to  District officials, they have collaborated with local criminal justice  stakeholders and community groups to identify funding priorities.
section_title: The District Plans to Use Existing Systems to Track Recovery Act Funds
paragraphs: District officials plan to track Recovery Act funds using existing financial  systems. According to District officials, the financial system already has  the infrastructure to track, monitor, and report the source of funds  distributed to recipients to ensure strict compliance with the requirements  of the Recovery Act and to monitor the flow of Recovery Act funds from  the federal government to District agencies. District officials plan to  account for Recovery Act funds in a manner similar to the way they track  and manage grant funds, using a unique four-digit code. Officials from the  District’s Office of the Chief Financial Officer told us that they had notified  District agency officials of the need to closely monitor Recovery Act funds.  The District has not provided guidance to recipients regarding the tracking  and use of Recovery Act funds. The District will determine what guidance  needs to be provided to recipients once the District receives guidance  from OMB.
Appendix XIX: Washington, D.C.
section_title: District Web site Used to Promote Transparent Use of Recovery Act Funds
paragraphs: The District has developed a Recovery Act Web site  (www.recovery.dc.gov) that is intended to allow the public to track  Recovery Act efforts. The Web site contains information on the  management process the District plans to use to oversee Recovery Act  spending, and provides the public a way to track Recovery Act spending  and get information on grants and contracts that are available. The Web  site also offers the public a means to submit ideas and to identify any  waste or fraud. Further, the Mayor’s certification of the use of the funds is  also posted on the Web site, as is the testimony of the City Administrator  and the Chief Procurement Officer on Recovery Act efforts before the D.C.  Council—the District’s legislative body.
section_title: District Plans for Ensuring that Adequate Safeguards and Internal Controls Are in Place
subsections: section_title: The District Plans to Use Existing Accountability Program for Recovery Funds
paragraphs: The District will continue to use CapStat, a performance-based  accountability program designed to make the District government run  more efficiently and to ensure accountability, effectiveness of internal  controls, compliance with reporting requirements, and reliable reporting  about uses of Recovery Act funds. The CapStat process takes the form of  weekly accountability sessions where the Mayor and City Administrator  bring into one room all the executives responsible for improving  performance on an issue to examine performance data and explore ways  to improve government services, as well as to make commitments for  follow-up actions. Each District agency participates in the program.  Agency directors prepare for a session by examining their agency’s  performance measures and analyzing how they can improve their results.
section_title: Single Audit Identified Many Weaknesses in District Internal Controls
paragraphs: Appendix XIX: Washington, D.C. weaknesses in compliance with requirements applicable to major federal  programs including Medicaid’s FMAP, ESEA Title I Education grants, and  Workforce Investment Act programs, all of which will be receiving  Recovery Act funds. The findings were significant enough to result in a  qualified opinion for that section of the report. In addition, Education  designated the District as a high-risk grantee in April 2006 because of its  poor management of federal grants. If the District continues to be  designated as a high-risk grantee, Education could respond by taking  several actions, such as discontinuing one or more federal grants made to  the District or having a third party take control over the administration of  federal grants. OCFO officials told us that they are in the process of  working with the federal agencies to address these material weaknesses,  but it is unlikely the corrective actions will be completed before the  District programs with these weaknesses begin receiving Recovery Act  funds. This could increase the risk that Recovery Act funds may not be  used properly.
section_title: District’s Office of Inspector General Intends to Monitor Recovery Act Funds During Ongoing and Planned Work
paragraphs: Appendix XIX: Washington, D.C. did not receive any additional funds or resources to carry out specific  Recovery Act reviews.
section_title: Role of the D.C. Auditor for Recovery Act Accountability Is Limited Due to Legislative Directive and Resource Constraints
paragraphs: The Office of the District of Columbia Auditor is the legislative auditor for  the District. The office exists to support the District City Council in  meeting its legislative oversight responsibilities and to help improve the  performance and accountability of the District government. The Auditor  has the authority to conduct audits on District funds, including those used  by the D.C. Charter schools, but is not set up to provide comprehensive  services regarding federal funds except in instances of D.C. Council  requests and pre-existing mandates. The D.C. Auditor’s main body of work  is developed on a rotating basis, where the Auditor selects specific  activities or accounts to review every 3 years, concentrating on financial  accounting and reporting. According to the D.C. Auditor, due to limited  resources, they only plan to conduct audits based on scheduled rotations  and requests, and they have no plans to audit Recovery Act funds. If,  however, a planned audit concerns a program receiving Recovery Act  funds, then the Auditor may adjust audit plans accordingly.
section_title: Plans to Assess Impact of Recovery Act Funds Have Not Yet Been Developed
paragraphs: Appendix XIX: Washington, D.C.
OMB provide a template for the format and required information for  Recovery Act Web sites as well.
District officials also plan to use the CapStat performance-based  accountability program to examine the impact of the use of Recovery Act  funds on District agencies and programs.
section_title: District of Columbia’s Comments on This Appendix
paragraphs: We provided the Office of the Mayor of the District of Columbia with a  draft of this appendix on April 15, 2009. On April 17, 2009, the City  Administrator’s office provided technical suggestions on the appendix that  were incorporated, as appropriate.
section_title: GAO Contacts
section_title: Staff Acknowledgments
paragraphs: In addition to the contacts named above, John Hansen, Assistant Director;  Mark Tremba, analyst-in-charge; Maria Strudwick; Shawn Arbogast;  Marisol Cruz; Nagla’a El-Hodiri; Sunny Chang; Nancy Glover; Justin  Monroe; Ellen Phelps Ranen; and Melissa Schermerhorn made major  contributions to this report.
section_title: Appendix XX: GAO Contacts and Staff Acknowledgments
subsections: section_title: Acknowledgments
paragraphs: The names of GAO staff who served on the teams for the selected states  and the District are listed at the end of each respective appendix. In  addition, the following staff contributed to this report: Stanley J.  Czerwinski, Denise Fantone, and Yvonne Jones (Directors); Thomas  James, James McTigue, and Michelle Sager (Assistant Directors); and  Allison Abrams, David Alexander, Peter Anderson, Thomas Beall, Joanna  Berry, Sandra Beattie, Bonnie Beckett, Pedro Briones, Kimberly Brooks,  Kay Brown, Marcia Buchanan, Ted Burik, Steven Cohen, Nancy Cosentino,  Robert Cramer, Michael Derr, Kevin Dooley, Heather Dowey, Colin Fallon,  Alice Feldesman, Andy Finkel, Shannon Finnegan, Jim Fuquay, Vicky  Green, Brandon Haller, Anita Hamilton, Tracy Harris, Laura Heald,  Michael Hrapsky, Mary Catherine Hult, Susan Irving, Shirley Jones, Stuart  Kaufman, Karen Keegan, Martha Kelly, Ba Lin, Edward Leslie, Leslie  Locke, Steve Martin, JoAnn Martinez, Kim McGatlin, John McGrail, Donna  Miller, Sheila Miller, Clarita Mrena, Elizabeth Morrison, Andy O’Connell,  Lisa Pearson, Janice Poling, Brenda Rabinowitz, Carl Ramirez, Mathew  Scire, Thomas Short, Michael Springer, George Stalcup, Andrew Stephens,  Hemi Tewarson, Patrick Tobo, Gabriele Tonsil, Cheri Truett, Susan  Wallace, Lindsay Welter, Michelle Woods, and Carolyn Yocom.