Recovery Act: Funds Supported Many Water Projects, and Federal and State Monitoring Shows Few Compliance Problems
Published: 2011-06-29T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The American Recovery and Reinvestment Act of 2009 (Recovery Act) provided $4 billion for the Environmental Protection Agency's (EPA) Clean Water State Revolving Fund (SRF) and $2 billion for the agency's Drinking Water SRF. The Recovery Act requires GAO to review funds made available under the act and comment on recipients' reports of jobs created and retained. These jobs are reported as full-time equivalent (FTE) positions on a Web site created for the Recovery Act on www.Recovery.gov . GAO examined the (1) status and use of Recovery Act SRF program funds nationwide and in nine states; (2) EPA and state actions to monitor the act's SRF program funds; (3) EPA and selected states' approaches to ensure data quality, including for jobs reported by recipients of the act's funds; and (4) challenges, if any, that states have faced in implementing the act's requirements. For this work, GAO, among other things, obtained and analyzed EPA nationwide data on the status of Recovery Act clean and drinking water funds and projects and information from a nonprobability sample of nine states that represent all but 1 of EPA's 10 regions. GAO also interviewed EPA and state officials on their experiences with the Recovery Act SRF program funds.
section_title: What GAO Found
paragraphs: The 50 states have awarded and obligated the almost $6 billion in Clean Water and Drinking Water SRF program funds provided under the Recovery Act, and EPA indicated that all 50 states met the act's requirement to award funds to projects under contract 1 year after the act's passage. States used the funds to support more than 3,000 water quality projects, and according to EPA data, the majority of the funds were used for sewage treatment infrastructure and drinking water treatment and distribution systems. Since the act was passed, states have drawn down almost 80 percent of the SRF program funds provided under the act. According to EPA data, states met the act's requirements that at least (1) 20 percent of the funds be used to support "green" projects and (2) 50 percent of the funds be provided as additional subsidies. In the nine states GAO reviewed, the act's funds paid for 419 infrastructure projects that helped address major water quality problems, but state officials said in some cases the act's requirements changed their priorities for ranking projects or the projects selected. In addition, although not required by the act, the nine states used about a quarter of the funds they received to pay for projects in economically disadvantaged communities, most in additional subsidies. EPA, states, and state or private auditors took actions to monitor Recovery Act SRF program funds. For example, EPA officials reviewed all 50 states' Recovery Act SRF programs at least once and found that states were largely complying with the act's requirements. Also, in part as a response to a GAO recommendation, in June 2010 EPA updated--and is largely following--its oversight plan, which describes monitoring actions for the SRF programs. Furthermore, state officials visited sites to monitor Recovery Act projects, as indicated in the plan, and found few problems. Officials at EPA and in the nine states have also regularly checked the quality of data on Recovery.gov and stated that the quality has remained relatively stable, although GAO identified minor inconsistencies in the FTE data that states reported. Overall, the 50 states reported that the Recovery Act SRF programs funded an increasing number of FTE positions for the quarter ending December 2009 through the quarter ending June 2010, from about 6,000 FTEs to 15,000 FTEs. As projects were completed and funds spent, these FTEs had declined to about 6,000 FTEs for the quarter ending March 2011. Some state officials GAO interviewed identified challenges in implementing the Recovery Act's Clean and Drinking Water SRF requirements for green projects and additional subsidies, both of which were continued with some variation, in the fiscal year 2010 and 2011 appropriations for the SRF programs. Officials in four states said achieving the green-funding goal was difficult, with one suggesting that the 20 percent target be changed. In addition, officials in two of the four states, as well as in two other states, noted that when monies are not repaid into revolving funds to generate future revenue for these funds, the SRF program purpose changes from primarily providing loans for investments in water infrastructure to providing grants.
section_title: What GAO Recommends
paragraphs: GAO is making no recommendations in this report, which was provided to EPA for its review and comment. EPA did not comment on the report.

section_title: Letter
paragraphs: In response to the serious economic crisis that began in 2007, Congress  enacted the American Recovery and Reinvestment Act of 2009 (Recovery  Act). Among other things, the purposes of the Recovery Act were to  preserve and create jobs, promote national economic recovery, and  provide long-term economic benefits through infrastructure investments,  including water infrastructure. In past reports, GAO has identified the  need for stimulus funds to be timely, targeted, and temporary. To this end,  Recovery Act funds were directed to support services and build  infrastructure in a wide range of areas, including health, education,  transportation, energy, and water. In particular, the Recovery Act provided  $6 billion for the Environmental Protection Agency’s (EPA) Clean Water  and Drinking Water State Revolving Fund (SRF) programs. These funds  represented a significant federal investment in the nation’s water  infrastructure at a time when, according to a 2010 Congressional Budget  Office report, overall spending on infrastructure has been declining, and  when reported problems with the quality and safety of water supplies have  raised questions about the condition of the nation’s infrastructure.
The Recovery Act mandates that GAO conduct bimonthly reviews of the  funds used by states and determine whether the act is achieving its stated  purposes. The Recovery Act also requires GAO to comment and report  quarterly on, among other things, estimates of job creation and retention,  counted as full-time equivalent (FTE), as reported by recipients of  Recovery Act funds. In this report, we update our May 2010 report and  add new information on the use of Recovery Act funds provided for the  Clean and Drinking Water SRF programs. Specifically, for this report we  examined the (1) status and use of Clean and Drinking Water Recovery  Act SRF program funds nationwide and in selected states; (2) actions  taken by federal, state, and other agencies to monitor and ensure  accountability of these program funds; (3) approaches federal agencies  and selected states have taken to ensure data quality, including data for  jobs reported by recipients of these program funds; and (4) challenges, if  any, that states have faced in implementing Recovery Act requirements for  the Clean and Drinking Water SRF programs.
To address these objectives we obtained and analyzed nationwide data  from EPA on the status of Recovery Act Clean and Drinking Water SRF  program funds and projects, as well as information from selected states on  their use of Recovery Act funds. We discussed this information and  Recovery Act requirements and reporting with EPA and state officials,  including program officials in state environmental and public health  departments responsible for the SRF programs and state Recovery Act  officials. To develop a more in-depth view of the states’ use of Recovery  Act funds for Clean and Drinking Water SRF programs, we selected a  nonprobability sample of nine states that we had not reviewed in our  previous bimonthly reports, representing all but 1 of EPA’s 10 regions. For  these states, we obtained and analyzed information on the states’  prioritization processes for the programs, the amount of Recovery Act  funds provided to projects, the amount of funding provided to green  projects and additional subsidies, the amount of funds received and spent,  and the FTEs funded for each project and in total. For data gathered from  the nine states, we had state officials review, verify, and correct, when  necessary, data in EPA’s Recovery Act databases; we found the data  sufficiently reliable for our purposes. We also obtained and analyzed  national data from EPA on award amounts, funds drawn down by states,  categories of water infrastructure projects funded, and FTEs. We used  these data to assess the reliability of Recovery.gov data reported by the  states and determined that the data were reliable for our purposes.  Appendix I discusses our scope and methodology in more detail.
Our oversight of programs funded by the Recovery Act has resulted in  more than 100 related products with numerous recommendations since we  began reporting on the Recovery Act. This report updates agency actions  in response to recommendations from previous bimonthly and recipient  reporting reviews that have not been fully implemented (referred to as  open recommendations) in appendix II.
We testified in May 2011 on our preliminary observations concerning this  work, and this report provides our final results. We conducted this  performance audit from September 2010 through June 2011, 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: Both the Clean Water and Drinking Water SRF programs authorize EPA to  provide states and local communities with independent and sustainable  sources of financial assistance. This assistance is typically in the form of  low- or no-interest loans, for projects that protect or improve water quality  and that are needed to comply with federal drinking water regulations and  protect public health. Repayment of these loans replenishes the funds and  provides the ability to fund future loans for additional projects. The Clean  Water SRF program was established in 1987 under the Clean Water Act,  which was enacted to protect surface waters, such as rivers, lakes, and  coastal areas, and to maintain and restore the physical, chemical, and  biological integrity of these waters. The Drinking Water SRF program was  established in 1996 under the Safe Drinking Water Act, which was enacted  to establish national enforceable standards for drinking water quality and  to guarantee that water suppliers monitor water to ensure compliance  with standards.
The Recovery Act provided $6 billion for EPA’s Clean Water and Drinking  Water SRF programs. This amount represents a significant increase over  the federal funds awarded to the non-Recovery Act, or base, SRF programs  in recent years. From fiscal years 2000 through 2009, annual  appropriations averaged about $1.1 billion for the Clean Water SRF  program and about $833 million for the Drinking Water SRF program. In  addition to increasing funds, the Recovery Act included some new  requirements for the SRF programs. First, projects funded with Recovery  Act SRF program funds had to be under contract—ready to proceed— within 1 year of the act’s passage, or by February 17, 2010. Second, states  had to use at least 20 percent of these funds as a “green reserve” to  provide assistance for green infrastructure projects, water- or energy- efficiency improvements, or other environmentally innovative activities.  Third, states had to use at least 50 percent of Recovery Act funds to  provide “additional subsidies” for projects in the form of principal  forgiveness, grants, or negative interest loans. Uses for these additional  subsidies can include helping economically disadvantaged communities  build water projects, although these uses are not a requirement of the act.
With some variation, Congress incorporated two of these requirements— green projects and additional subsidies—into the fiscal year 2010 and 2011  base SRF program appropriations.
In addition to meeting requirements from program-specific provisions,  water projects receiving Recovery Act funds have to meet requirements  from the act’s Buy American and Davis-Bacon provisions. The Recovery  Act generally requires that all of the iron, steel, and manufactured goods  used in a project be produced in the United States, subject to certain  exceptions. Federal agencies can issue waivers for certain projects under  specified conditions, for example, if using American-made goods is  inconsistent with the public interest or if the cost of goods is  unreasonable; the act limits the “unreasonable cost” exception to those  instances when inclusion of American-made iron, steel, or other  manufactured goods will increase the overall project cost by more than 25  percent. Furthermore, recipients do not need to use American-made goods  if they are not sufficiently available or not of satisfactory quality. In  addition, the Recovery Act applies Davis-Bacon provisions to all Recovery  Act-funded projects, requiring contractors and subcontractors to pay all  laborers and mechanics at least the prevailing wage rates in the local area  where they are employed, as determined by the Secretary of Labor.  Contractors are required to pay these workers weekly and submit weekly  certified payroll records.
To enhance transparency and accountability over Recovery Act funds,  Congress and the administration built numerous provisions into the act,  including a requirement that recipients of Recovery Act funding— including state and local governments, private companies, educational  institutions, nonprofits, and other private organizations—report quarterly  on a number of measures. (Recipients, in turn, may award Recovery Act  funds to subrecipients, which are nonfederal entities.) These reports are  referred to as “recipient reports,” which the recipients provide through  one Web site, www.federalreporting.gov (Federalreporting.gov) for final  publication through a second Web site, www.recovery.gov (Recovery.gov).  Recipient reporting is overseen by the responsible federal agencies, such  as EPA, in accordance with Recovery Act guidance provided by the Office  of Management and Budget (OMB). Under this guidance, the federal  agencies are required to conduct data quality checks of recipient data, and  recipients can correct the data, before they are made available on  Recovery.gov. Furthermore, additional corrections can be made during a  continuous correction cycle after the data are released on Recovery.gov.
A significant aspect of accountability for Recovery Act funds is oversight  of spending. According to the federal standards of internal control,  oversight should provide managers with current information on  expenditures to detect problems and proactively manage risks associated  with unusual spending patterns. In guidance issued in February 2009,  OMB required each federal agency to develop a plan detailing the specific  activities—including monitoring activities—that it would undertake to  manage Recovery Act funds. EPA issued its first version of this plan in  May 2009, as required, and updated this document as OMB issued new  guidance.
section_title: All Recovery Act SRF Program Funds Have Been Awarded and Obligated, and with Some Exceptions, States Reported Supporting Major Infrastructure Projects and Helping Economically Disadvantaged Communities
paragraphs: Nationwide, the 50 states have awarded and obligated the almost $6 billion  in Clean Water and Drinking Water SRF program funds provided under the  Recovery Act and reported using the majority of these funds for sewage  treatment infrastructure and drinking water treatment and distribution  systems, according to EPA data. In the nine states we reviewed, the states  used these funds to pay for infrastructure projects that help to address  major water quality problems, although state officials said that in some  cases, Recovery Act requirements changed their priorities or the projects  selected for funding. The nine states also used their Recovery Act funding  to help economically disadvantaged communities, but state officials  indicated that they continue to have difficulty helping these communities.
subsections: section_title: Nationwide, EPA Data Indicate States Awarded and Obligated the Majority of Recovery Act Water Funds for Sewage Treatment Infrastructure and Drinking Water Treatment and Distribution Systems
paragraphs: As of March 30, 2011, states had awarded funds for contracts and obligated  the $4 billion in Clean Water SRF program funds and $2 billion in Drinking  Water SRF program funds provided under the Recovery Act.
subsections: section_title: Requirement to Award Recovery Act Funds to Projects under Contract within 1 Year
paragraphs: As we reported in May 2010, EPA indicated that all 50 states met the  Recovery Act requirement to award Recovery Act funds to projects under  contract by February 17, 2010, 1 year after the enactment of the Recovery  Act. In the 2 years since the Recovery Act was passed, states have drawn  down from the Treasury approximately 79 percent, or $3.1 billion, of the  Clean Water SRF program funds and approximately 83 percent, or $1.7  billion, of the Drinking Water SRF program funds.
Across the nation, the states have used the almost $6 billion in Recovery  Act Clean and Drinking Water SRF program funds to support more than  3,000 water quality infrastructure projects. As shown in figure 1, the states  used the majority of their Recovery Act Clean Water SRF program funds to  improve secondary and advanced treatment at wastewater treatment  plants, as well as projects to prevent or mitigate sanitary sewer  overflow.
In Montevallo, Alabama, for example, the state provided Clean Water SRF  program funds to upgrade an outdated wastewater treatment plant in  Shelby County that served a population of about 5,000. The upgrade added  two large settlement basins to hold and treat wastewater, replacing a  series of small basins (see fig. 2). The additional treatment is expected to  remove nutrients, such as nitrogen and phosphorus, to help the county  meet higher standards in the nearby waterways receiving the plant’s  discharged water.
As shown in figure 3, the states used about half of their Recovery Act  Drinking Water SRF program funds to construct projects to transmit and  distribute drinking water, including pumps and pipelines to deliver water  to customers. States used about 40 percent of their funds for projects to  treat and store drinking water.
In Baltimore, Maryland, for example, the state provided funds to the city to  cover one of its treated water reservoirs at the Montebello drinking water  treatment plant. Before it was covered, the reservoir was open to birds and  other sources of contamination, and city water managers used a mesh-like  material to try to keep birds from landing on or using the water. When the  project is complete, the reservoir will be a huge, cement tank buried under  soil and vegetation (see fig. 4 for the project under construction in  December 2010).
According to EPA data, all states met the requirement to use at least 20  percent of their Recovery Act funding for green projects, with $1.1 billion  of total Clean Water SRF program funds going to green projects and $544  million of total Drinking Water SRF program funds going to green projects.  According to EPA, the goal of supporting green projects is to promote  green infrastructure, energy or water efficiency, and innovative ways to  sustainably manage water resources. Green infrastructure refers to a  variety of technologies or practices—such as green roofs, porous  pavement, and rain gardens—that use or mimic natural systems to  enhance overall environmental quality. In addition to retaining rainfall and  snowmelt and allowing them to seep into groundwater, these technologies  can mitigate urban heat islands, and sequester carbon. Figure 5 shows the  amount of Clean Water and Drinking Water SRF program funds that states  awarded to green projects by type of project.
In Annapolis, Maryland, for example, city officials used Clean Water SRF  program funds to construct a green parking lot, a project that helped  retain and filter storm water runoff. (See fig. 6.)
In Los Alamos, New Mexico, city officials used Clean Water SRF program  funds to install facilities to recycle water at the city’s wastewater  treatment plant; the recycled water will be used as washwater—water that  is used in the plant to clean equipment (see fig. 7). Because New Mexico is  an arid state, the reuse of water saves operating costs for the plant, as well  as scarce water resources.
Nationwide, the states also met the Recovery Act requirement to provide  at least 50 percent of the Clean Water and Drinking Water SRF program  funds as additional subsidies in the form of principal forgiveness, negative  interest loans, or grants (i.e., not loans to be fully repaid). Of the total  Recovery Act funds awarded, 76 percent of Clean Water SRF Recovery Act  funds and 70 percent of Drinking Water SRF Recovery Act funds were  distributed as additional subsidies. Figure 8 shows the total Clean Water  and Drinking Water Recovery Act funds awarded by the states as principal  forgiveness, negative interest loans, or grants. The remaining 24 percent of  Clean Water SRF Recovery Act funds and 30 percent of Drinking Water  SRF Recovery Act funds will be provided as low- or no-interest loans that  will recycle back into the programs as subrecipients repay their loans.
section_title: Recovery Act Water Funds Generally Addressed Major Water Quality Problems in Nine States, although Recovery Act Requirements Changed Some State Priorities or Projects
paragraphs: In the nine states we reviewed, Recovery Act Clean and Drinking Water  SRF program funds have been used to address some of the major clean  and drinking water problems in the states. These nine states received a  total of about $832 million in Recovery Act SRF program funds—about  $579 million for their Clean Water SRF programs and about $253 million  for their Drinking Water SRF programs. In total, these funds supported 419  clean and drinking water projects.
To award SRF program funds, each of the nine states used a system to  score and rank water projects seeking funds to address water quality  problems that were submitted by local municipalities or utilities. The  projects with the most points are considered the highest priority on the list  of projects for funding. For example, Nevada officials told us that  groundwater contamination is their state’s major clean water quality  problem, which their ranking system addresses by designating the  elimination of existing contamination of groundwater as one of the state’s  highest-scoring priorities. In addition, in most of the nine states we  reviewed, compliance is a key aspect of their ranking system, allowing  points to be awarded to infrastructure projects that help the states  eliminate causes of noncompliance with federal or state water quality  standards and permits. Officials in most of the nine states said that they  generally obtain information on their water systems’ compliance with  federal and state water quality standards through discussions with their  program compliance staff and from state databases. Michigan, for  example, assigns a significant amount of points to clean water projects— such as sewage treatment works—that will help these projects comply  with enforcement actions brought by the state against a municipality.
In the nine states we reviewed, officials said that Recovery Act priorities— including the requirements for projects to be ready to proceed to contract  1 year after the passage of the Recovery Act or for green projects—either  changed their priorities for ranking and funding projects or changed the  projects they funded.
Readiness of a project to proceed to construction requirement. In the nine  states, officials included readiness to proceed and other Recovery Act  requirements in their ranking system and selected projects on the basis of  that ranking system or said that they did not fund—or bypassed—top- ranked projects that were not ready to proceed to construction by  February 17, 2010, 1 year after the passage of the Recovery Act. For  example, Washington State’s two top-ranked clean water projects did not  receive Recovery Act SRF program funds because they could not meet the  February 2010 deadline. The projects were to decommission septic  systems and construct a wastewater treatment plant to reduce phosphorus  discharges to the Spokane River. In Wyoming, many of the projects that  were not ready to proceed were water treatment plants, which state  officials said take longer to design and plan for construction. Although  these higher-ranked projects did not receive Recovery Act funds, at least  two states were able to fund these projects in other ways, such as through  state grants or non-Recovery Act SRF program funds.
Green project requirement. Three states listed green projects separately  from other projects. For example, Washington State officials who manage  the Clean Water SRF program told us that they established a green  projects category because they had anticipated that projects focused  primarily on energy and water efficiency (green projects) would not score  well under their ranking system, which focuses on water quality protection  and improvements. Other states funded green projects ahead of higher- ranked projects. For example, Nevada did not fund a number of higher- ranked projects and funded a lower-ranked drinking water project that  had green components. Similarly, Maryland bypassed many projects to  fund the first green-ranked project on its list.
Buy American and Davis-Bacon provisions. State officials identified a  few projects that did not proceed because potential subrecipients either  did not want to meet one or more Recovery Act requirements, such as the  Buy American and Davis-Bacon provisions, or did not want to increase the  cost of their projects. For example, local officials in Alabama withdrew  their application for a drinking water project because the project was  already contracted without Buy American and Davis-Bacon wage  requirements, and an addendum to the contract to meet the regulations  would have increased the project’s cost. Similarly, officials in all nine  states said that a few communities indicated they preferred to have their  projects funded from the base program, or chose not to apply for or  withdrew from the Recovery Act funding process to avoid paperwork or  the additional costs associated with the act’s Buy American or Davis- Bacon requirements. For example, Wyoming officials said that potential  subrecipients for three clean water projects refused funding, citing time  constraints or difficulty meeting Buy American requirements.
Despite changes in priorities for ranking and funding projects or in the  projects funded, officials reported that they were able to fund projects  with Recovery Act funds that helped resolve their major water problems.  For example,    Wyoming officials told us that Recovery Act clean and drinking water  funds were used to replace aging sewer and water lines, which they  said was one of their major problems.
Connecticut officials said that Recovery Act funding helped support  four combined sewer overflow projects, which resulted in fewer  discharges of partially treated sewage into the area waterways.
Nevada officials told us that Recovery Act funding will help with the  rehabilitation and relining of sewer ponds in four rural communities,  eliminating groundwater pollution, a major problem in the state.
Washington State officials who manage the Drinking Water SRF  program told us that six of their Recovery Act projects addressed  arsenic drinking water contamination, a major water problem in the  state.
section_title: States Supported Economically Disadvantaged Communities, in Part by Using Additional Subsidies Authorized under the Act, although Officials Cited Continuing Difficulty in Helping These Communities
paragraphs: Although the Recovery Act did not require states to target Clean and  Drinking Water SRF program funds to economically disadvantaged  communities, six of the nine states that we reviewed distributed more than  $123 million in clean water funds, and eight of the nine states distributed  almost $78 million in drinking water funds under the SRF Recovery Act  programs to these communities. This amount represents about 24 percent  of the almost $832 million in Recovery Act funds that the states were  awarded. As shown in table 1, a large majority of the funds provided to  these communities were provided as additional subsidies—grants,  principal forgiveness, and negative interest loans.
According to officials in five of the nine states we reviewed, their states  provided additional subsidies to economically disadvantaged communities  because the communities would otherwise have had a difficult time  funding projects. For example, New Mexico officials told us that they  directed additional drinking water subsidies to economically  disadvantaged communities because these communities have historically  lacked access to capital. Officials in Nevada told us such communities not  only have a difficult time funding projects, they also have some of the  projects with the highest priority for addressing public health and  environmental protection concerns. In addition, officials in a few other  states told us that economically disadvantaged communities often lack the  financial means to pay back loans from the SRF programs or lack funds to  pay for the upfront costs of planning and designing a project. Officials in at  least two states also said that many economically disadvantaged  communities lack full-time staff to help manage the water infrastructure.
Even with the additional subsidies available for projects, officials in a few  states said that economically disadvantaged communities found it difficult  to obtain Recovery Act funds. For example, Missouri officials told us that  the Recovery Act deadline was the single most important factor hindering  the ability of these communities from receiving funding. New Mexico  officials also told us that because these communities typically do not have  funds to plan and develop projects, few could meet the deadline, and  several projects that sought Recovery Act funds could not be awarded  funding owing to the deadline.
We gathered information on economically disadvantaged communities  from the nine states we reviewed because EPA did not collect the  information. In April 2011, the EPA Office of Inspector General (OIG)  reported that EPA could not assess the overall impact of Recovery Act  funds on economically disadvantaged communities because the agency  did not collect data on the amount of Clean and Drinking Water SRF  program funds distributed to these communities nationwide. The OIG  recommended that EPA establish a system that can target program funds  to its objectives and priorities, such as funding economically  disadvantaged communities.
section_title: Number of FTEs Have Declined as Most Recovery Act Funds Are Spent
paragraphs: For the quarter ending December 2009 through the quarter ending June  2010, the number of FTEs paid for with Recovery Act SRF program funds  increased each reporting quarter, from about 6,000 to 15,000 FTEs for  planning, designing, and building water projects (see fig. 9). As projects  were completed and funds spent, the number of FTEs funded had declined  to about 6,000 for the quarter ending March 2011. Following OMB  guidance, states reported on FTEs directly paid for with Recovery Act  funding, not the employment impact on suppliers of materials (indirect  jobs) or on the local communities (induced jobs). In addition, state  officials told us that, although funding varies from project to project, as  much as 80 percent of a project’s funding generally is used for materials— such as cement for buildings and equipment such as turbines, pumps, and  centrifuges—and the remainder pays for labor or FTEs.
section_title: EPA, States, and Other Agencies Took Actions to Monitor SRF Program Funds and Found Projects Largely Complied with Recovery Act Requirements
paragraphs: As Recovery Act Clean Water and Drinking Water SRF program funds have  been spent over the last 2 years, EPA officials have monitored projects and  spending activity and found that states have generally complied with  Recovery Act requirements. Similarly, in the nine states we reviewed, state  officials indicated that the site visits they made to monitor Recovery Act  projects found few problems. Furthermore, state auditors in the nine  states we reviewed continue to monitor and oversee the use of Recovery  Act funds, and their reports showed few significant findings.
subsections: section_title: EPA’s Monitoring Found That States Largely Complied with Recovery Act Requirements
paragraphs: Since the Recovery Act was enacted, EPA officials have reviewed all 50  states’ Recovery Act Clean and Drinking Water SRF programs at least once  and have found that states are largely complying with the act’s  requirements. In our May 2010 report, we recommended that EPA work  with the states to implement specific oversight procedures to monitor and  ensure subrecipients’ compliance with provisions of the Recovery Act- funded Clean Water and Drinking Water SRF programs. EPA updated its  oversight plan for Recovery Act funds, in part, as a response to our  recommendation. The plan describes the following monitoring actions for  the Recovery Act Clean and Drinking Water SRF programs:    EPA headquarters staff should visit both SRF programs in every region  in fiscal years 2010 and 2011, review all states’ Clean Water SRF  programs and all states’ Drinking Water SRF programs for these years,  and provide training and technical assistance, as needed. Although the  oversight plan recommends headquarters staff visit all regions in 2011,  EPA officials decided instead to provide regional training on program  eligibility requirements. The officials said that they had visited the  regions once and saw greater benefit in providing training.
EPA’s Office of Wastewater Management and Office of Ground Water  and Drinking Water will report bimonthly to the Assistant  Administrator for Water on oversight activities.
Regional staff should conduct state reviews twice a year using an EPA- provided checklist or comparable checklist, examine four project files,  and conduct four transaction tests, which can be used to test if an  internal control is working or if a dollar error has occurred in the  processing of a transaction. In addition, regional staff are to discuss  each state’s inspection process and audit findings with state officials,  and update headquarters staff on any findings.
The regions are to submit to headquarters (1) program evaluation  reports, which describe how states are managing their Recovery Act  SRF funds and projects; (2) Recovery Act project review checklists, to  examine compliance with Recovery Act requirements; and (3)  transaction testing forms, to determine if any erroneous payments were  made.
Regional staff should conduct at least one site inspection of a clean  water project and a drinking water project in each state each year.
According to our review of the Clean and Drinking Water SRF program  evaluation reports for the 50 states, EPA regional officials generally  carried out the instructions in EPA’s oversight plan. As of June 1, 2011,  these officials had visited most state programs twice, although they visited  some state programs only once or did not have documentation of the  visits. During visits, officials reviewed the files for proper documentation  pertaining to Davis-Bacon, Buy American, and green project requirements.  Additionally, although not required to do so by the oversight plan, regional  officials attempted to visit at least one clean water and one drinking water  SRF Recovery Act project in every state each year. Headquarters officials  said that the regional staff met this goal for drinking water projects in  2010, but they were not able to visit a clean water project in each state  because of time and budget constraints.
EPA headquarters officials said that they oversaw each region’s activities  by visiting the regional offices to review files on the states. Headquarters  officials told us that when they visited regional offices, they checked  whether key state documents were maintained in the region’s state file,  such as the Recovery Act grant application and any accompanying  amendments; the state’s intended use plan, which details a state’s planned  use of the funds, including the criteria for ranking projects and a list of  ranked projects; and a copy of the grant award and conditions.  Furthermore, headquarters officials said that they used a regional review  checklist to examine each region’s oversight practices by, for example,  determining whether the regions received and reviewed states’ analyses of  costs (business cases) and if the regions ensured that the states updated  key reporting data for their Recovery Act projects each quarter.  Headquarters officials also said that they briefly reviewed the Drinking  Water and Clean Water SRF program evaluation reports when they  reviewed the regions’ activities. Headquarters officials said they had  imposed a 60-day time frame for completing these reports because the  regional staff were not submitting the reports in a timely manner.
Additionally, the EPA OIG is conducting performance audits of EPA’s and  states’ use of Recovery Act funds for the Clean and Drinking Water SRF  programs and unannounced site inspections of Recovery Act-funded  projects. Between May 1, 2010, and May 1, 2011, the OIG has conducted  eight unannounced site visits. Six of the eight visits yielded no findings.  The OIG issued recommendations for the other two projects:  In a visit to Long Beach, California, the OIG found that a contractor did  not fully comply with federal and state prevailing wage requirements,  which resulted in underpayments to employees. The OIG  recommended that EPA require the California State Water Resources  Control Board to verify that the city is implementing controls to ensure  compliance with prevailing wage requirements.
In a visit to Astoria, Oregon, the OIG found that the city understated  the number of FTEs created or retained with Recovery Act funds. In  addition, the OIG found that a change order for one of four contracts  awarded did not meet applicable procurement requirements. The OIG  recommended that EPA Region 10 require the Oregon Department of  Environmental Quality to require the city to correct the number of  FTEs and report the corrected number to the federal government. The  OIG also recommended that the regional administrator of EPA Region  10 require the Oregon Department of Environmental Quality to  disallow the costs incurred under the change order unless Astoria was  able to show that the costs met applicable Oregon requirements.  Officials for EPA, the Oregon Department of Environmental Quality,  and the city concurred with the corrective actions.
The Chairman of the Recovery Accountability and Transparency Board  testified in June 2011 that there has been a low level of fraud involving  Recovery Act funds. He noted that less than half a percent of all reported  Recovery Act contracts, grants, and loans had open investigations and  only 144 convictions—involving about $1.9 million of total Recovery Act  funds for all programs—had resulted. As the EPA Inspector General  noted in May 2011, however, fraud schemes can take time to surface. The  Inspector General cited an ongoing investigation of a foreign company that  received over $1.1 million in contracts for equipment to be used in  wastewater treatment facilities across the United States after falsely  certifying that the equipment met the Recovery Act Buy American  provision. Furthermore, the Inspector General also testified that EPA  Region 6 officials identified, through a hotline tip, $1 million in  unallowable grant costs charged by seven subrecipients. These funds have  been reprogrammed by the state for other uses.
section_title: State Officials Said They Have Found Few Problems during Site Visits to Monitor Recovery Act Projects
paragraphs: EPA’s oversight plan indicates that state officials should visit each project  site at least once per year, and suggests that state officials review the  items on EPA’s state Recovery Act inspection checklist, or a similar state- specific checklist. According to the plan, state officials should complete  the checklist and inform regional offices of any issues encountered in the  oversight reviews, inspections, or audits.
According to program officials in the nine states we reviewed, the clean  and drinking water SRF projects they reviewed largely complied with  Recovery Act requirements. The officials said that they inspected each  Recovery Act project site at least once during the course of project  construction, and sometimes more frequently, depending on the  complexity of the project. These officials also said that, using the EPA or  other checklist, they evaluated whether the communities or subrecipients  were meeting Recovery Act reporting requirements. For example,  according to the checklist, officials verified whether subrecipients  submitted FTE information to the state each quarter, and whether they  submitted regular reports certifying that the project remained in  compliance with the Davis-Bacon provisions, based on a weekly review of  payroll records. In addition, the officials used the checklist to review the  contents of project files and ensure that key project documents were  present, such as project-specific waivers. Using the checklist, these  officials also confirmed that projects receiving green infrastructure  funding properly incorporated green components. In addition, officials in  Alabama, Connecticut, Nevada, and New Mexico took photographs of  various project components to record compliance with the Buy American  provisions.
A few officials in the nine states that we reviewed said that meeting the  oversight plan requirements, such as increasing the number of site visits,  has been time-consuming. However, a couple of officials said that their  site visits have resulted in better subrecipient compliance with Recovery  Act requirements. For example, as a result of their site visits, state officials  corrected a problem they had identified—subrecipients in three of the  nine states we reviewed had foreign components on site:  In New Mexico, officials told us that foreign components had been  shipped to a project site, and that they had to replace the components  before incorporating them into the project.
Missouri officials said that the EPA inspection checklist had helped to  identify some foreign-made components on a project site, and the  components were replaced.
Connecticut officials told us that they had identified a drinking water  project that contained Chinese and German equipment valued at  $10,000. They said that the project was already in service, making  replacement costly and impractical because it would require  consumers to be without water. The state is working with EPA to  resolve the matter.
section_title: State Audit Reports Covering Clean and Drinking Water Programs Found Few Significant Problems
paragraphs: State auditors—or private auditors contracted by the states—helped  ensure the appropriate use of Recovery Act water funds. For eight of the  nine states that we reviewed, we received state or private audits that  examined the Recovery Act Clean and Drinking Water SRF programs. With  the following two exceptions, the auditors have reported few significant  problems:    Michigan. In its audit of the Michigan Department of Environmental  Quality’s fiscal year 2008 and 2009 financial statements, the Michigan  Office of the Auditor General reported several material weaknesses in  internal controls and material noncompliance with requirements  related to subrecipient monitoring and other special provisions for  Recovery Act-funded expenditures. For example, for the Recovery Act  Clean and Drinking Water SRF programs, the auditors found that the  Michigan Department of Environmental Quality overstated the number  of FTEs for the reporting period ending September 30, 2009, because  its methodology for calculating FTEs was not in accordance with June  2009 OMB guidance. The auditors also found that the department did  not have a process to (1) verify the accuracy of the information  contained in its recipient report; (2) adequately monitor subrecipients’  expending of Recovery Act funds for construction activities to ensure  that the subrecipients complied with the Davis-Bacon provisions; and  (3) adequately monitor subrecipients’ expending of Recovery Act funds  for the construction, alteration, maintenance, or repair of a public  building or public work to ensure that the subrecipients complied with  Buy American provisions. In response to these findings, the auditors  recommended that the department improve its internal control over the  SRF programs to ensure compliance with federal laws and regulations.  The department partially or wholly agreed with these findings, and  anticipated taking the appropriate corrective action by September 30,  2011. One Michigan official said that corrective action has been  implemented for the findings that pertain to the SRF program.
Washington State. In the November 2010 Financial Statements and  Federal Compliance report for the Drinking Water SRF program,  auditors found significant deficiencies in the Department of Health’s  internal control. As a result, they recommended that the Department  of Health train employees on financial reporting preparation and  requirements; establish and follow internal controls, including an  appropriate, independent review of the financial statements and related  schedules; and establish policies and procedures related to the  preparation of the year-end financial statements. The Department of  Health concurred with the finding, and stated that it would take  appropriate action. In the corresponding report for the Clean Water  SRF program, auditors found no internal control weaknesses.
section_title: Federal and State Agencies Continue to Oversee the Quality of Recipient Reporting Data, Including Jobs, in Seventh Round of Reporting
paragraphs: To meet our mandate to comment on recipient reports, we have continued  monitoring recipient-reported data, including data on jobs funded. For this  report, we focused our review on SRF program funds and EPA and state  efforts to conduct data quality reviews and identify and remediate  reporting problems.
subsections: section_title: EPA Continued Performing Data Quality Checks and Said Data Quality Is Relatively Stable
paragraphs: According to EPA officials, the overall quality of the states’ SRF data on  Recovery.gov, which EPA officials have checked each quarter, is stable.  The officials said that the states’ initial unfamiliarity with a newly  developed reporting system has been resolved, the Federalreporting.gov  help desk has improved, and guidance issued by OMB has clarified  reporting issues over time. During the seventh round of reporting, which  ended on March 31, 2011, EPA officials continued to perform data quality  checks as they had in previous quarters. Specifically, EPA used data from  the agency’s grants database, contracts database, and financial  management system to compare with recipient-reported data. These  systems contain authoritative data for every award made to the states,  including the award identification number, award date, award amount,  outlays, Treasury Account Symbol codes, and recipient names. According  to EPA officials, they use the agency data to ensure that recipient-reported  information for a given award corresponds with the information on EPA’s  official award documents. EPA staff can raise questions about any  inconsistent data through the Federalreporting.gov system. State  recipients may make appropriate changes to the data through the end of  the reporting period, and after public release, during the continuous  correction cycle. According to EPA officials, this process has resolved any  questions and comments from EPA’s reviews.
To facilitate its oversight of state-reported data, EPA required states to use  its Clean Water Benefits Reporting (CBR) system and Program Benefits  Reporting (PBR) system to report on certain Recovery Act project  information, such as the project name, contract date, construction start,  Recovery Act funding, jobs created or retained, and project purpose and  anticipated benefits. EPA officials said that they do not routinely collect  state expenditure data in these systems and that they rely on regional  officials to review expenditures reported by the states on Recovery.gov.  We compared EPA’s data on awards and funds drawn down by states with  data reported by states on Recovery.gov and found only a few minor  inconsistencies in the data.
Similarly, in September 2010, EPA’s OIG reported that the Recovery.gov  data for EPA’s SRF programs contained a low rate of errors. The OIG  audited EPA’s controls for reviewing recipient-reported data after the  second round of reporting, which ended December 31, 2009, comparing  EPA data on award type, award number, funding agency code, award  agency code, and award amount to state-reported data on Recovery.gov.  The OIG report found that EPA’s controls helped lower the rate of errors  for these key data and recommended some improvements to EPA’s  process. EPA’s Clean and Drinking Water SRF program officials said that  they have had few errors in the SRF data in the last three rounds of  reporting.
section_title: Nine States Checked Quality of Recovery Act Data Quarterly, but Minor FTE Discrepancies Occurred
paragraphs: Officials in the nine states we reviewed indicated that the quality of  recipient data has remained relatively stable, although we found that the  states differed in how they reported state agencies’ FTE data and did not  report some subrecipients’ FTE data. Water program officials in these  states said that they check the quality of data that are reported on  Federalreporting.gov and then Recovery.gov. In addition, officials in  Alabama, Connecticut, Maryland, Missouri, and New Mexico said that they  examined payroll data submitted by contractors to verify FTE data. In  some cases, state officials said that they contact subrecipients for  clarification about data that are missing or inconsistent.
In addition to department-level checks, in most of the nine states we  reviewed, state-level Recovery Office staff checked the data before  submitting the information to Federalreporting.gov. In four of the nine  states—Alabama, Maryland, Missouri, and New Mexico—Recovery Office  staff monitored Recovery Act implementation and performed independent  data quality checks of the data reported by state agencies. According to  several state officials, this reporting structure provided an additional level  of review of state agency data. In Maryland, for example, officials said that  their state-level reporting system relieves subrecipients of certain  reporting duties. Subrecipients submitted the FTE and payroll information  to Maryland’s StateStat office, and staff in that office reviewed and  validated the data, completed the required federal reports, and submitted  them to Federalreporting.gov. Furthermore, for control purposes, only two  staff members handled the information. In addition, staff in Nevada’s  Recovery Office conducted quality checks; however, each state agency  then submitted its data directly to the appropriate federal agency. The  remaining four states—Connecticut, Michigan, Washington State, and  Wyoming—did not have a Recovery Office staff check data quality.
We found minor problems with the FTE data that some of the nine states  reported. Specifically, (1) states differed in how they reported the FTEs  associated with their own program staff—that is, those who conduct  document reviews, site inspections, and other key program duties; and (2)  three states identified missing or incorrectly reported FTE data on  Recovery.gov, and these data have not been corrected. In particular:    Six of the nine states reported the FTEs for their state employees who  were paid with Recovery Act funds, while two states did not. Officials  in Maryland and Michigan noted that they did not report all the time  their state employees spent on program activities in  Federalreporting.gov, although these FTEs were paid for with  Recovery Act funds. EPA officials said that they provided states with  OMB guidance and that OMB guidance requires states to report FTEs  paid for with Recovery Act funds.
Washington State officials who administer the Clean Water SRF  program changed the time frame for reporting FTE data in the third  round of reporting, and as a result, missed reporting one quarter of  data. During the first two reporting rounds, because some  subrecipients were finding it difficult to submit complete FTE data to  the state by the state’s deadline, staff reported data from 2 months of  the current quarter and 1 month of the previous quarter. During the  third reporting quarter, the state began reporting 3 months of current  data. However, the state received data from a subrecipient after the  deadline for reporting and did not correct the data during the  correction period. As a result, officials said about 18 FTEs remain  unreported. EPA officials told them to keep a record of these FTEs in  case there is an opportunity to correct the data.
Officials in New Mexico did not report a few FTEs for the state’s  Drinking Water SRF program in the first two rounds of reporting. The  officials explained that the revisions were submitted to the state after  the reporting period ended and therefore the FTEs were not captured  in Recovery.gov.
Officials in Wyoming identified incorrectly reported FTEs for two  quarters. The FTEs were incorrect because the state entered the data  for one clean water project for one quarter in the next quarter. As a  result, one quarter’s data were overstated by a few FTEs, and the other  quarter’s data were understated by a few FTEs. The state official  explained that the data changed after they were initially reported in  Recovery.gov and were not updated during the correction period.
As the bulk of Recovery Act funding is spent, EPA officials said that the  states were beginning to complete their projects. Officials said that before  the next reporting round begins in July 2011, they plan to issue a  memorandum to states on how to complete their Recovery Act grants and  when to stop reporting to Recovery.gov. During the seventh round of  reporting, one state in each program indicated in Recovery.gov that the  grant—including all projects that received money from the grant—was  complete. EPA officials told us that as of early May 2011, 629 clean water  and 383 drinking water projects have been completed across all states.
Some state officials charged with coordinating state-level Recovery Act  funds also said that they are winding down their activities. In Michigan, for  example, the Recovery Office was originally a separate office under the  Governor, but has since been moved under the Department of  Management and Budget. In Nevada, the Recovery Act Director said that  his office will be eliminated at the end of June 2011. At that point, the  Department of Administration’s centralized grant office will take  responsibility for Nevada’s remaining Recovery Act efforts. Similarly,  officials at the New Mexico Office of Recovery and Reinvestment said that  their office is currently funded through the Recovery Act State Fiscal  Stabilization Fund through the end of June 2011.
Because of the high-level nature of SRF recipient reporting for  Recovery.gov and the availability of information in its own data systems,  EPA officials do not anticipate using data from Recovery.gov. The officials  said that whereas Recovery.gov summarizes information on many projects  at the state level, the data from CBR and PBR are more useful for  understanding states’ projects than data on Recovery.gov because the  internal data are provided by project and include more detail. EPA  officials said that by the end of 2011 they plan to use information in these  two internal systems to assess anticipated benefits of the Recovery Act  SRF program funds. EPA Clean Water officials said that they would  perform case studies of completed projects and assess anticipated  benefits. Drinking Water officials said that they are considering three  major studies, some joint with the Clean Water SRF program. These  studies may include assessments of project distributions, green projects’  benefits, and subsidy beneficiaries.
section_title: The States Identified Challenges in Implementing Recovery Act SRF Programs That Highlight Potential Future Challenges for SRF Programs
paragraphs: Our May 2010 report identified the challenge of maintaining accountability  for Recovery Act funds and recommended improved monitoring of  Recovery Act funds by EPA and the states. As we note above, our current  work shows that EPA and the nine states we reviewed have made progress  in addressing this challenge. Two challenges EPA and state officials  identified in spending Recovery Act SRF program funds may continue as  requirements introduced with the Recovery Act are incorporated into the  base SRF programs. Specifically, in fiscal years 2010 and 2011, the Clean  and Drinking Water SRF programs were required to include provisions for  green projects and additional subsidies.
Encouraging green projects. The effort to support green projects was  included in EPA’s fiscal year 2010 and 2011 appropriations for the base  Clean and Drinking Water SRF programs. As we discussed above, under  the requirement to fund green projects in the Recovery Act, in certain  cases state officials said they had to choose between a green water project  and a project that was otherwise ranked higher to address water quality  problems. Similarly, in our May 2010 report, we found that officials in  some of the states we reviewed said that they gave preference to green  projects for funding purposes, and sometimes ranked those projects above  another project with higher public health benefits. In addition to  competing priorities for funding, EPA’s OIG found, in its February 2010  report, that a lack of clear guidance on the “green requirement” caused  confusion and disagreements as to which projects were eligible for green  funding. Officials in two of the nine states we reviewed noted that the  goal of supporting green projects was not difficult to achieve because they  had already identified green projects. Officials in four other states said that  while they all met the 20 percent green project goal, it was difficult to  achieve, leading one official to suggest that green projects be encouraged  without setting a fixed percentage of program funds. EPA officials added  that they had also heard that achieving the green requirement may  continue to be difficult in some states, particularly for the Drinking Water  program. However, the officials also said that they were encouraging  states to include green components in their drinking water projects rather  than seeking solely green projects.
Providing additional subsidies. The fiscal years 2010 and 2011  appropriations for the Clean and Drinking Water SRF programs also  continued the requirement to provide additional subsidies in the form of  principal forgiveness, negative interest loans, or grants. The subsidy  provisions reduced the funds available to use as a subsidy from a  minimum of 50 percent of funds required under the Recovery Act to a  minimum of 30 percent of base SRF program funds. As with the Recovery  Act, the appropriations in fiscal years 2010 and 2011 do not require this  additional subsidy to be targeted to any types of projects or communities  with economic need, and as the recent EPA OIG report notes, there are  no requirements for EPA or the states to track how these subsidies are  used. The base Clean and Drinking Water SRF programs were created to  be a sustainable source of funding for communities’ water and wastewater  infrastructure through the continued repayment of loans to states.  Officials in four of the nine states we reviewed identified a potential  challenge in continuing to provide a specific amount of subsidies while  sustaining the Clean and Drinking Water SRF programs as revolving funds.  State officials pointed out that when monies are not repaid into the  revolving fund, the reuse of funds is reduced and the purpose of the  revolving SRF program changes from primarily providing loans for  investments in water infrastructure to providing grants.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of the report to the Environmental Protection Agency  for review and comment. EPA stated that it did not have any comments on  our report.
We are sending copies of this report to the appropriate congressional  committees, Administrator of the Environmental Protection Agency, and  other interested parties. In addition, this report is available at no charge on  the GAO Web site at http://www.gao.gov.
If you or your staff members have any questions about this report, please  contact me at (202) 512-3841 or trimbled@gao.gov. 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.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: The objectives of this review were to examine the (1) status and use of  American Recovery and Reinvestment Act of 2009 (Recovery Act) Clean  and Drinking Water State Revolving Funds (SRF) program funds  nationwide and in selected states; (2) actions taken by federal, state, and  other agencies to monitor and ensure accountability of these program  funds; (3) approaches federal agencies and selected states have taken to  ensure data quality, including data for jobs reported by recipients of these  program funds; and (4) challenges, if any, that states have faced in  implementing Recovery Act requirements for the Clean and Drinking  Water SRF programs.
To examine the status and use of Recovery Act funds nationwide and in  selected states, we reviewed relevant Clean and Drinking Water SRF  federal laws, regulations, and guidance, and examined federal and selected  state program and project documentation. We interviewed Environmental  Protection Agency (EPA) officials responsible for administering programs  in headquarters. We also interviewed state Recovery Act officials and state  program officials, in environmental and public health departments, who  are responsible for revolving loan fund programs.
We obtained and analyzed nationwide Recovery Act data from the EPA  Clean Water SRF Benefits Reporting (CBR) system and the Drinking Water  SRF Project Benefits Reporting (PBR) system for all states. These data  included (1) categories of clean and drinking water infrastructure and  green projects; (2) Recovery Act funds awarded and drawn down from the  Treasury; (3) amount of subsidization (principal forgiveness or grants and  low- or no-interest loans); and (4) number of full-time equivalents (FTE).  We also obtained and analyzed key nationwide data from the EPA National  Information Management System on Recovery Act funding by type of clean  water project. Using these data, we summarized the amount of Recovery  Act funds provided by states to clean and drinking water SRF projects by  category of project (e.g., clean water sanitary sewer overflow and drinking  water treatment). We assessed these data for their reliability and  determined that they were reliable for our purposes.
To develop a more in-depth view of the states’ use of Recovery Act funds  for Clean and Drinking Water SRF programs, we selected a nonprobability  sample of nine states we had not reviewed in our previous bimonthly  reports, representing all but 1 of the 10 EPA regions. The states we  selected were Alabama, Connecticut, Maryland, Michigan, Missouri, New  Mexico, Nevada, Washington State, and Wyoming. For each state, we  interviewed officials from the state environmental department or public  health program (water program officials) to discuss their use of Recovery  Act SRF program funds. We conducted these interviews using a data  collection instrument to obtain consistent information from the states on  their water problems and ranking systems for prioritizing projects for  funding; the amount of funds provided to projects; the allocation of  funding and subsidization to green projects, small communities, and  economically disadvantaged communities; the amount of funds received  and spent, and the number of FTE positions funded for each project and in  total. Additionally, in Alabama, Maryland, and New Mexico, we visited a  total of five clean and drinking water projects funded with Recovery Act  funds.
To examine the actions that federal, state, and other agencies have taken  to monitor and ensure accountability for Recovery Act SRF program  funds, we reviewed and analyzed relevant federal guidance and  documentation, including EPA’s oversight plan for Recovery Act projects.  To determine whether EPA was following its oversight plan, we reviewed  at least one EPA Recovery Act program evaluation report for the Clean  Water and Drinking Water programs for all 50 states for fiscal years 2009  or 2010. We also reviewed EPA headquarters’ reviews of regional reports  that detailed the performance of regional drinking water staff as they  monitored and documented the states’ implementation of the Drinking  Water SRF program, and we asked headquarters staff about the reviews of  regional clean water staff that they conducted, but did not document. To  develop a more in-depth view of the states’ monitoring processes, we  asked program officials in the nine states to respond to questions about  their oversight activities in our data collection instrument. We then  interviewed state program officials who were responsible for monitoring  and oversight about their oversight activities and efforts to ensure that  projects complied with Recovery Act requirements, including their  processes for inspecting project sites and their procedures for collecting  and reporting Recovery Act SRF program data. In addition, we interviewed  Recovery Act officials in the six states that had such staff—Alabama,  Maryland, Missouri, Nevada, New Mexico, and Washington—about their  oversight of program staff, data quality, and federal reporting during  additional interviews. Furthermore, to develop an understanding of the  work that the broader audit community has completed on the Recovery  Act Clean and Drinking Water SRF programs, we reviewed all relevant  EPA Office of Inspector General reports that were published since we  issued our previous report on the Recovery Act SRF programs in May  2010.
To examine approaches federal agencies and selected states have taken to  ensure data quality for jobs reported by Recovery Act recipients, we  conducted work at both the national and state level. The recipient  reporting section of this report responds to the Recovery Act’s mandate  that we comment on the estimates of jobs created or retained by direct  recipients of Recovery Act funds. For our national review of the seventh  submission of recipient reports, covering the period from January 1, 2011,  through March 31, 2011, we continued our monitoring of errors or  potential problems by repeating many of the analyses and edit checks  reported in our six prior reviews covering the period from February 2009  through December 31, 2010. To examine how the quality of jobs data  reported by recipients of Clean and Drinking Water SRF grants has  changed over time, we compared the seven quarters of recipient reporting  data that were publicly available at Recovery.gov on April 30, 2011. We  performed edit checks and other analyses on the Clean and Drinking  Water SRF prime recipient reports and compared funding data from EPA  with funding amounts reported on the recipient reports. We also reviewed  documentation and interviewed federal agency officials from EPA who are  responsible for ensuring a reasonable degree of quality across their  programs’ recipient reports.
At the state level, we interviewed state officials in the nine states we  reviewed about the policies and procedures they had in place to ensure  that FTE information for Recovery Act projects was reported accurately.  For selected Recovery Act data fields, we asked state program officials in  the nine states to review and verify EPA’s Recovery Act data from CBR  and PBR and provide corrected data where applicable. For the nine states,  we compared state-reported Clean and Drinking Water SRF FTE data from  the sixth submission of recipient reports, the period covering October 1,  2010, through December 31, 2010, with corresponding data reported on  Recovery.gov. We addressed any discrepancies between these two sets of  data by contacting state program officials. Our national and state work in  selected states showed agreement between EPA recipient information and  the information reported by recipients directly to Federalreporting.gov. In  general, we consider the data used to be sufficiently reliable for purposes  of this report. The results of our FTE analyses are limited to the two SRF  water programs and time periods reviewed and are not generalizable to  any other program’s FTE reporting.
To examine challenges that states have faced in implementing Recovery  Act requirements, we interviewed state SRF program officials using a data  collection instrument and obtained information on challenges state  program officials told us pertaining to the 20 percent green project  requirement and the subsidization requirement.
We conducted this performance audit from September 2010 through June  2011 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.
section_title: Appendix II: Status of Prior Open Recommendations and Matters for Congressional Consideration
paragraphs: In this appendix, we update the status of agencies’ efforts to implement  the 26 open recommendations, and 2 newly implemented  recommendations from our previous bimonthly and recipient reporting  reviews. Recommendations that were listed as implemented or closed in a  prior report are not repeated here. Lastly, we address the status of our  Matters for Congressional Consideration.
subsections: section_title: Department of Energy
subsections: section_title: Open Recommendations
paragraphs: Given the concerns we have raised about whether program requirements  were being met, we recommended in May 2010 that the Department of  Energy (DOE), in conjunction with both state and local weatherization  agencies, develop and clarify weatherization program guidance that    clarifies the specific methodology for calculating the average cost per  home weatherized to ensure that the maximum average cost limit is  applied as intended.    accelerates current DOE efforts to develop national standards for  weatherization training, certification, and accreditation, which is currently  expected to take 2 years to complete.    develops a best practice guide for key internal controls that should be  present at the local weatherization agency level to ensure compliance with  key program requirements.    sets time frames for development and implementation of state monitoring  programs.  revisits the various methodologies used in determining the weatherization  work that should be performed based on the consideration of cost- effectiveness and develops standard methodologies that ensure that  priority is given to the most cost-effective weatherization work. To  validate any methodologies created, this effort should include the  development of standards for accurately measuring the long-term energy  savings resulting from weatherization work conducted.
In addition, given that state and local agencies have felt pressure to meet a  large increase in production targets while effectively meeting program  requirements and have experienced some confusion over production  targets, funding obligations, and associated consequences for not meeting  production and funding goals, we recommended that DOE clarify its  production targets, funding deadlines, and associated consequences while  providing a balanced emphasis on the importance of meeting program  requirements.
DOE generally concurred with these recommendations and has made  some progress on implementing them. For example, to clarify the  methodology for calculating the average cost per home, DOE has  developed draft guidance to help grantees develop consistency in their  average cost per unit calculations. The guidance further clarifies the  general cost categories that are included in the average cost per home.  DOE anticipates issuance of the guidance in June 2011.
DOE has also taken steps to address our recommendation that it develop  and clarify guidance to generate a best practice guide for key internal  controls. DOE distributed a memorandum dated May 13, 2011 to grantees  reminding them of their responsibilities to ensure compliance with  internal controls and the consequences of failing to do so. This memo is  currently under internal review and DOE anticipates it will be released in  May 2011.
section_title: Open Recommendations
paragraphs: To better ensure that Energy Efficiency and Conservation Block Grant  (EECBG) funds are used to meet Recovery Act and program goals, we  recommended in April 2011 that DOE, take the following actions:    Explore a means to capture information on the monitoring processes of all  recipients to make certain that recipients have effective monitoring  practices.
Solicit information from recipients regarding the methodology they used  to calculate their energy-related impact metrics and verify that recipients  who use DOE’s estimation tool use the most recent version when  calculating these metrics.
DOE generally concurred with these recommendations, stating that  “implementing the report’s recommendations will help ensure that the  Program continues to be well managed and executed.” DOE also provided  additional information on steps it has initiated or planned to implement. In  particular, with respect to our first recommendation, DOE elaborated on  additional monitoring practices it performs over high dollar value grant  recipients, such as its reliance on audit results obtained in accordance  with the Single Audit Act and its update to the EECBG program  requirements in the Compliance Supplement to OMB Circular No. A-133.  However, these monitoring practices only focus on larger grant recipients,  and we believe that the program could be more effectively monitored if  DOE captured information on the monitoring practices of all recipients.  With respect to our second recommendation, DOE officials said that in  order to provide a reasonable estimate of energy savings, the program  currently reviews energy process and impact metrics submitted each  quarter for reasonableness, works with grantees to correct unreasonable  metrics, and works with grantees through closeout to refine metrics. In  addition, DOE officials said that they plan to take a scientific approach to  overall program evaluation during the formal evaluation process at the  conclusion of the program, which will occur in December 2012. However,  DOE has not yet identified any specific plans to solicit information from  recipients regarding the methodology they used to calculate their energy- related impact metrics or to verify that recipients who use DOE’s  estimation tool use the most recent version when calculating.
section_title: Environmental Protection Agency
subsections: section_title: Newly Implemented Recommendation
paragraphs: We recommended that the Environmental Protection Agency (EPA)  Administrator work with the states to implement specific oversight  procedures to monitor and ensure subrecipients’ compliance with the  provisions of the Recovery Act-funded Clean Water and Drinking Water  State Revolving Fund (SRF) program.
In part in response to our recommendation, EPA provided additional  guidance to the states regarding their oversight responsibilities, with an  emphasis on enhancing site-specific inspections. Specifically, in June 2010,  the agency developed and issued an oversight plan outline for Recovery  Act projects that provides guidance on the frequency, content, and  documentation related to regional reviews of state Recovery Act programs  and regional and state reviews of specific Recovery Act projects. We found  that EPA regions have reviewed all 50 states’ Clean and Drinking Water  SRF programs at least once since the Recovery Act was enacted, and have  generally carried out the oversight instructions in EPA’s plan. For  example, regional officials reviewed files with state documents and  information to ensure proper controls over Davis-Bacon, Buy American,  and other Recovery Act requirements. Regional staff also visited one  drinking water project in every state, but did not meet this goal for clean  water projects due to time and budget constraints. We also found that EPA  headquarters officials have been reviewing the regions’ performance  evaluation reports for states, and the officials said that they implemented a  60-day time frame for completing these reports. In the nine states that we  reviewed in this report, program officials described their site visits to  projects and the use of the EPA inspection checklist (or state equivalent),  according to EPA’s oversight plan. State officials told us that they visit  their Recovery Act projects at least once during construction and  sometimes more frequently depending on the complexity of the project.  We consider these agency actions to have addressed our recommendation.
section_title: Department of Health and Human Services: Office of Head Start
subsections: section_title: Open Recommendation
paragraphs: To oversee the extent to which grantees are meeting the program goal of  providing services to children and families and to better track the  initiation of services under the Recovery Act, we recommended that the  Director of the Office of Head Start (OHS) should collect data on the  extent to which children and pregnant women actually receive services  from Head Start and Early Head Start grantees.
The Department of Health and Human Services (HHS) disagreed with our  recommendation. OHS officials stated that attendance data are adequately  examined in triennial or yearly on-site reviews and in periodic risk  management meetings. Because these reviews and meetings do not collect  or report data on service provision, we continue to believe that tracking  services to children and families is an important measure of the work  undertaken by Head Start and Early Head Start service providers.
section_title: Open Recommendation
paragraphs: To help ensure that grantees report consistent enrollment figures, we  recommended that the Director of OHS should better communicate a  consistent definition of “enrollment” to grantees for monthly and yearly  reporting and begin verifying grantees’ definition of “enrollment” during  triennial reviews.
OHS issued informal guidance on its Web site clarifying monthly reporting  requirements to make them consistent with annual enrollment reporting.  While this guidance directs grantees to include in enrollment counts all  children and pregnant mothers who have received a specified minimum of  services, it could be further clarified by specifying that counts should  include only those children and pregnant mothers. According to HHS  officials, OHS is considering further regulatory clarification.
section_title: Open Recommendation
paragraphs: To provide grantees consistent information on how and when they will be  expected to obligate and expend federal funds, we recommended that the  Director of OHS should clearly communicate its policy to grantees for  carrying over or extending the use of Recovery Act funds from one fiscal  year into the next.
HHS indicated that OHS will issue guidance to grantees on obligation and  expenditure requirements, as well as improve efforts to effectively  communicate the mechanisms in place for grantees to meet the  requirements for obligation and expenditure of funds.
section_title: Open Recommendation
paragraphs: To better consider known risks in scoping and staffing required reviews of  Recovery Act grantees, we recommended that the Director of OHS should  direct OHS regional offices to consistently perform and document Risk  Management Meetings and incorporate known risks, including financial  management risks, into the process for staffing and conducting reviews.
HHS reported that OHS is reviewing the risk management process to  ensure it is consistently performed and documented in its centralized data  system and that it has taken related steps, such as requiring the Grant  Officer to identify known or suspected risks prior to an on-site review.
section_title: Newly Implemented Recommendation
paragraphs: To facilitate understanding of whether regional decisions regarding  waivers of the program’s matching requirement are consistent with  Recovery Act grantees’ needs across regions, we recommended that the  Director of OHS should regularly review waivers of the nonfederal  matching requirement and associated justifications.
HHS reports that it has taken actions to address our recommendation. For  example, HHS reports that OHS has conducted a review of waivers of the  nonfederal matching requirement and tracked all waivers in the Web- based data system. HHS further reports that OHS has determined that they  are reasonably consistent across regions.
section_title: Department of Housing and Urban Development
subsections: section_title: Open Recommendation
paragraphs: Because the absence of third-party investors reduces the amount of overall  scrutiny Tax Credit Assistance Program (TCAP) projects would receive  and the Department of Housing and Urban Development (HUD) is  currently not aware of how many projects lacked third-party investors, we  recommended that HUD should develop a risk-based plan for its role in  overseeing TCAP projects that recognizes the level of oversight provided  by others.
HUD responded to our recommendation by saying it will identify projects  that are not funded by the HOME Investment Partnerships Program  (HOME) funds and projects that have a nominal tax credit award.  However, HUD said it will not be able to identify these projects until it  could access the data needed to perform the analysis, and it does not  receive access to those data until after projects have been completed.  HUD currently has not taken any action on this recommendation because  it only has data on the small percentage of projects completed to date. It is  too early in the process to be able to identify projects that lack third-party  investors. The agency will take action once they are able to collect the  necessary information from the project owners and the state housing  finance agencies.
section_title: Department of Labor
subsections: section_title: Open Recommendations
paragraphs: To enhance the Department of Labor’s (Labor) ability to manage its  Recovery Act and regular Workforce Investment Act (WIA) formula grants  and to build on its efforts to improve the accuracy and consistency of  financial reporting, we recommended that the Secretary of Labor take the  following actions:    To determine the extent and nature of reporting inconsistencies across the  states and better target technical assistance, conduct a one-time  assessment of financial reports that examines whether each state’s  reported data on obligations meet Labor’s requirements.
To enhance state accountability and to facilitate their progress in making  reporting improvements, routinely review states’ reporting on obligations  during regular state comprehensive reviews.
Labor agreed with both of our recommendations and has begun to take  some actions to implement them. To determine the extent of reporting  inconsistencies, Labor awarded a contract in September 2010 to perform  an assessment of state financial reports to determine if the data reported  are accurate and reflect Labor’s guidance on reporting of obligations and  expenditures. Since then, Labor has completed interviews with all states  and is preparing a report of the findings. To enhance states’ accountability  and facilitate their progress in making improvements in reporting, Labor  has drafted guidance on the definitions of key financial terms such as  “obligations,” which is currently in final clearance. After the guidance is  issued, Labor plans to conduct a systemwide webinar and interactive  training on this topic to reinforce how accrued expenditures and  obligations are to be reported.
section_title: Open Recommendation
paragraphs: Our September 2009 bimonthly report identified a need for additional  federal guidance in defining green jobs and we made the following  recommendation to the Secretary of Labor:    To better support state and local efforts to provide youth with  employment and training in green jobs, provide additional guidance about  the nature of these jobs and the strategies that could be used to prepare  youth for careers in green industries.
Labor agreed with our recommendation and has begun to take several  actions to implement it. Labor’s Bureau of Labor Statistics has developed a  definition of green jobs which was finalized and published in the Federal  Register on September 21, 2010. In addition, Labor continues to host a  Green Jobs Community of Practice, an online virtual community available  to all interested parties. As part of this effort, in December 2010, Labor  hosted its first Recovery Act Grantee Technical Assistance Institute, which  focused on critical success factors for achieving the goals of the grants  and sustaining the impact into the future. The department also hosted a  symposium on April 28-29, 2011, with the green jobs state Labor Market  Information Improvement grantees. Symposium participants shared recent  research findings, including efforts to measure green jobs, occupations,  and training in their states. In addition, the department released a new  career exploration tool called “mynextmove” (www.mynextmove.gov) in  February 2011. This Web site includes the Occupational Information  Network (O*NET) green leaf symbol to highlight green occupations.  Furthermore, Labor’s implementation study of the Recovery Act-funded  green jobs training grants is still ongoing. The interim report is expected in  late 2011.
section_title: Executive Office of the President: Office of Management and Budget
subsections: section_title: Open Recommendation
paragraphs: To leverage Single Audits as an effective oversight tool for Recovery Act  programs, we recommended that the Director of the Office of Management  and Budget (OMB)  1.  provide more direct focus on Recovery Act programs through the  Single Audit to help ensure that smaller programs with higher risk have  audit coverage in the area of internal controls and compliance;  2.  take additional efforts to provide more timely reporting on internal  controls for Recovery Act programs for 2010 and beyond;  3.  evaluate options for providing relief related to audit requirements for  low-risk programs to balance new audit responsibilities associated  with the Recovery Act;  4. issue Single Audit guidance in a timely manner so that auditors can  efficiently plan their audit work;  5. issue the OMB Circular No. A-133 Compliance Supplement no later  than March 31 of each year;  6.  explore alternatives to help ensure that federal awarding agencies  provide their management decisions on the corrective action plans in a  timely manner; and  7.  shorten the timeframes required for issuing management decisions by  federal agencies to grant recipients.  (1) To provide more direct focus on Recovery Act programs through the  Single Audit to help ensure that smaller programs with higher risk have  audit coverage in the area of internal controls and compliance, the OMB  Circular No. A-133, Audits of States, Local Governments, and Non-Profit  Organizations 2010 Compliance Supplement (Compliance Supplement)  required all federal programs with expenditures of Recovery Act awards to  be considered as programs with higher risk when performing standard  risk-based tests for selecting programs to be audited. The auditor’s  determination of the programs to be audited is based upon an evaluation  of the risks of noncompliance occurring that could be material to an  individual major program. The Compliance Supplement has been the  primary mechanism that OMB has used to provide Recovery Act  requirements and guidance to auditors. One presumption underlying the  guidance is that smaller programs with Recovery Act expenditures could  be audited as major programs when using a risk-based audit approach.  The most significant risks are associated with newer programs that may  not yet have the internal controls and accounting systems in place to help  ensure that Recovery Act funds are distributed and used in accordance  with program regulations and objectives. Since Recovery Act spending is  projected to continue through 2016, we believe that it is essential that  OMB provide direction in Single Audit guidance to help to ensure that  smaller programs with higher risk are not automatically excluded from  receiving audit coverage based on their size and standard Single Audit Act  requirements.
In May 2011, we spoke with OMB officials and reemphasized our concern  that future Single Audit guidance provide instruction that helps to ensure  that smaller programs with higher risk have audit coverage in the area of  internal controls and compliance. OMB officials agreed and stated that  such guidance is included in the 2011 Compliance Supplement which was  to be issued by March 31, 2011. On June 1, 2011, OMB issued the 2011  Compliance Supplement which contains language regarding the higher- risk status of Recovery Act programs, requirements for separate reporting  of findings, and a list of Recovery Act programs to aid the auditors. We  will continue to monitor OMB’s efforts to provide more direct focus on  Recovery Act programs through the Single Audit to help ensure that  smaller programs with higher risk have audit coverage in the area of  internal controls and compliance.  (2) To address the recommendation for taking additional efforts to  encourage more timely reporting on internal controls for Recovery Act  programs for 2010 and beyond, OMB commenced a second voluntary  Single Audit Internal Control Project (project) in August 2010 for states  that received Recovery Act funds in fiscal year 2010. Fourteen states  volunteered to participate in the second project. One of the project’s goals  is to achieve more timely communication of internal control deficiencies  for higher-risk Recovery Act programs so that corrective action can be  taken more quickly. Specifically, the project encourages participating  auditors to identify and communicate deficiencies in internal control to  program management 3 months sooner than the 9-month time frame  currently required under OMB Circular No. A-133. Auditors were to  communicate these through interim internal control reports by December  31, 2010. The project also requires that program management provide a  corrective action plan aimed at correcting any deficiencies 2 months  earlier than required under statute to the federal awarding agency. Upon  receiving the corrective action plan, the federal awarding agency has 90  days to provide a written decision to the cognizant federal agency for audit  detailing any concerns it may have with the plan. Each participating state  was to select a minimum of four Recovery Act programs for inclusion in  the project.
We assessed the results of the first OMB Single Audit Internal Control  Project for fiscal year 2009 and found that it was helpful in communicating  internal control deficiencies earlier than required under statute. We  reported that 16 states participated in the first project and that the states  selected at least two Recovery Act programs for the project. We also  reported that the project’s dependence on voluntary participation limited  its scope and coverage and that voluntary participation may also bias the  project’s results by excluding from analysis states or auditors with  practices that cannot accommodate the project’s requirement for early  reporting of control deficiencies. Overall, we concluded that although the  project’s coverage could have been more comprehensive, the analysis of  the project’s results provided meaningful information to OMB for better  oversight of the Recovery Act programs selected and information for  making future improvements to the Single Audit guidance.
OMB’s second Single Audit Internal Control Project is in progress and its  planned completion date is June 2011. OMB plans to assess the project’s  results after its completion date. The 14 participating states have met the  milestones for submitting interim internal control reports by December 31,  2010 and their corrective action plans by January 31, 2011. By April 30,  2011, the federal awarding agencies were to provide their interim  management decisions to the cognizant agency for audit. We discussed the  preliminary status of these interim management decisions with OMB  officials and, as of May 24, 2011, only 1 of the 10 federal awarding agencies  had submitted some management decisions on the auditees’ corrective  action plans as required by the project’s guidelines. On May 24, 2011,  officials from the cognizant agency for audit, HHS, reemphasized to the  federal awarding agencies their responsibilities for providing management  decisions in accordance with the project’s due dates. In our review of the  2009 project, we noted similar concerns that federal awarding agencies  submitted management decisions on proposed corrective actions in an  untimely manner and made recommendations in this area, which are  discussed later in this report. We will continue to monitor the status of  OMB’s efforts to implement this recommendation and believe that OMB  needs to continue taking steps to encourage timelier reporting on internal  controls through Single Audits for Recovery Act programs.  (3) We previously recommended that OMB evaluate options for providing  relief related to audit requirements for low-risk programs to balance new  audit responsibilities associated with the Recovery Act. OMB officials have  stated that they are aware of the increase in workload for state auditors  who perform Single Audits due to the additional funding to Recovery Act  programs and corresponding increases in programs being subject to audit  requirements. OMB officials stated that they solicited suggestions from  state auditors to gain further insights to develop measures for providing  audit relief. However, OMB has not yet put in place a viable alternative  that would provide relief to all state auditors that conduct Single Audits.  For state auditors that are participating in the second OMB Single Audit  Internal Control Project, OMB has provided some audit relief by modifying  the requirements under Circular No. A-133 to reduce the number of low- risk programs to be included in some project participants’ risk assessment  requirements.
OMB is taking initiatives to examine the Single Audit process. OMB  officials have stated that they have created a workgroup which combines  the Executive Order 13520—Reducing Improper Payments Section 4 (b)  Single Audit Recommendations Workgroup (Single Audit Workgroup), and  the Circular No. A-87—Cost Principles for State, Local, and Indian Tribal  Governments Workgroup (Circular No. A-87 Workgroup). The Single Audit  Workgroup is comprised of representatives from the federal audit  community; federal agency management officials involved in overseeing  the Single Audit process and programs subject to that process;  representatives from the state audit community; and staff from OMB. OMB  officials tasked the Single Audit Workgroup with developing  recommendations to improve the effectiveness of Single Audits of  nonfederal entities that expend federal funds in order to help identify and  reduce improper payments. In June 2010, the Single Audit Workgroup  developed recommendations, some of which are targeted toward  providing audit relief to auditors who conduct audits of grantees and  grants that are under the requirements of the Single Audit Act. OMB  officials stated that the recommendations warrant further study and that  the workgroup is continuing its work on the recommendations. OMB  officials also stated that the Circular No. A-87 Workgroup has also made  recommendations which could impact Single Audits and that the  workgroups have been collaborating to ensure that the recommendations  relating to Single Audit improvements are compatible and could improve  the Single Audit process. The combined workgroups plan to issue a report  to OMB by August 29, 2011. We will continue to monitor OMB’s progress  to achieve this objective.  (4) (5) With regard to issuing Single Audit guidance in a timely manner,  and specifically the OMB Circular No. A-133 Compliance Supplement, we  previously reported that OMB officials intended to issue the 2011  Compliance Supplement by March 31, 2011. In December 2010, OMB  provided to the American Institute of Certified Public Accounts (AICPA) a  draft of the 2011 Compliance Supplement which the AICPA published on  its Web site. In January 2011, OMB officials reported that the production of  the 2011 Compliance Supplement was on schedule for issuance by March  31, 2011. OMB issued the 2011 Compliance Supplement on June 1, 2011.  We spoke with OMB officials regarding the reasons for the delay of this  important guidance to auditors. OMB officials stated that its efforts were  refocused toward priorities relating to the expiration of several continuing  resolutions that temporarily funded the federal government for fiscal year  2011, and the Department Of Defense And Full-Year Continuing  Appropriations Act, 2011, which was passed by the Congress in April 2011,  averting a governmentwide shutdown. OMB officials stated that, as a  result, although they had taken steps to issue the 2011 Compliance  Supplement by the end of March, such as starting the process earlier in  2010 and giving agencies strict deadlines for program submissions, they  were only able to issue it on June 1, 2011. We will continue to monitor  OMB’s progress to achieve this objective.  (6) (7) In October 2010, OMB officials stated that, based on their  assessment of the results of the project, they had discussed alternatives  for helping to ensure that federal awarding agencies provide their  management decisions on the corrective action plans in a timely manner,  including possibly shortening the time frames required for federal agencies  to provide their management decisions to grant recipients. However,  OMB officials have yet to decide on the course of action that they will  pursue to implement this recommendation. OMB officials acknowledged  that the results of the 2009 OMB Single Audit Internal Control Project  confirmed that this issue continues to be a challenge. They stated that they  have met individually with several federal awarding agencies that were  late in providing their management decisions in the 2009 project to discuss  the measures that the agencies will take to improve the timeliness of their  management decisions. Earlier in this report, we discussed that  preliminary observations of the results of the second project have  identified that several federal awarding agencies’ management decisions  on the corrective actions that were due April 30, 2011, have also not been  issued in a timely manner.
In March 2010, OMB issued guidance under memo M-10-14, item 7,  (http://www.whitehouse.gov/sites/default/files/omb/assets/memoranda_20 10/m1014.pdf) that called for federal awarding agencies to review reports  prepared by the Federal Audit Clearinghouse regarding Single Audit  findings and submit summaries of the highest-risk audit findings by major  Recovery Act program, as well as other relevant information on the federal  awarding agency’s actions regarding these areas. In May 2011, we  reviewed selected reports prepared by federal awarding agencies that  were titled Use of Single Audit to Oversee Recipient’s Recovery Act  Funding. These reports were required by memo M-10-14 for reports from  the Federal Audit Clearinghouse for fiscal year 2009. The reports were  developed for entities where the auditor issued a qualified, adverse, or  disclaimer audit opinion. The reports identified items such as (1)  significant risks to the respective program that was audited; (2) material  weaknesses, instances of noncompliance, and audit findings that put the  program at risk; (3) actions taken by the agency; and (4) actions planned  by the agency. OMB officials have stated that they plan to use this  information to identify trends that may require clarification or additional  guidance in the Compliance Supplement.
OMB officials also stated that they are working on a metrics project with  the Recovery Accountability and Transparency Board to develop metrics  for determining how federal awarding agencies are to use information  available in the Single Audit and which can serve as performance  measures. We attended a presentation of the OMB Workgroup that is  working with the Recovery Accountability and Transparency Board in  developing the metrics project in May 2011 and note that it is making  progress. OMB officials have stated that the metrics could be applied at  the agency level, by program, to allow for analysis of Single Audit findings,  along with other uses to be determined. One goal of the metrics project is  to increase the effectiveness and timeliness of federal awarding agencies’  actions to resolve single audit findings. We will continue to monitor the  progress of these efforts to determine the extent that they improve the  timeliness of federal agencies’ actions to resolve audit findings so that  risks to Recovery Act funds are reduced and internal controls in Recovery  Act programs are strengthened.
section_title: Department of Transportation
subsections: section_title: Open Recommendations
paragraphs: To ensure that Congress and the public have accurate information on the  extent to which the goals of the Recovery Act are being met, we  recommended that the Secretary of Transportation direct FHWA to take  the following two actions:    Develop additional rules and data checks in the Recovery Act Data  System, so that these data will accurately identify contract milestones  such as award dates and amounts, and provide guidance to states to revise  existing contract data.
Make publicly available—within 60 days after the September 30, 2010,  obligation deadline—an accurate accounting and analysis of the extent to  which states directed funds to economically distressed areas, including  corrections to the data initially provided to Congress in December 2009.
In its response, DOT stated that it implemented measures to further  improve data quality in the Recovery Act Data System, including additional  data quality checks, as well as providing states with additional training and  guidance to improve the quality of data entered into the system. DOT also  stated that as part of its efforts to respond to our draft September 2010  report in which we made this recommendation on economically distressed  areas, it completed a comprehensive review of projects in these areas,  which it provided to GAO for that report. DOT recently posted an  accounting of the extent to which states directed Recovery Act  transportation funds to projects located in economically distressed areas  on its Web site, and we are in the process of assessing these data.
section_title: Open Recommendation
paragraphs: To better understand the impact of Recovery Act investments in  transportation, we believe that the Secretary of Transportation should  ensure that the results of these projects are assessed and a determination  made about whether these investments produced long-term benefits.  Specifically, in the near term, we recommended that the Secretary direct  FHWA and FTA to determine the types of data and performance measures  they would need to assess the impact of the Recovery Act and the specific  authority they may need to collect data and report on these measures.
In its response, DOT noted that it expected to be able to report on  Recovery Act outputs, such as the miles of road paved, bridges repaired,  and transit vehicles purchased, but not on outcomes, such as reductions in  travel time, nor did it commit to assessing whether transportation  investments produced long-term benefits. DOT further explained that  limitations in its data systems, coupled with the magnitude of Recovery  Act funds relative to overall annual federal investment in transportation,  would make assessing the benefits of Recovery Act funds difficult. DOT  indicated that, with these limitations in mind, it is examining its existing  data availability and, as necessary, would seek additional data collection  authority from Congress if it became apparent that such authority was  needed. DOT plans to take some steps to assess its data needs, but it has  not committed to assessing the long-term benefits of Recovery Act  investments in transportation infrastructure. We are therefore keeping our  recommendation on this matter open.
section_title: Matters for Congressional Consideration
subsections: section_title: Matter
paragraphs: To the extent that appropriate adjustments to the Single Audit process are  not accomplished under the current Single Audit structure, Congress  should consider amending the Single Audit Act or enacting new legislation  that provides for more timely internal control reporting, as well as audit  coverage for smaller Recovery Act programs with high risk.
We continue to believe that Congress should consider changes related to  the Single Audit process.
section_title: Matter
paragraphs: To the extent that additional coverage is needed to achieve accountability  over Recovery Act programs, Congress should consider mechanisms to  provide additional resources to support those charged with carrying out  the Single Audit Act and related audits.
We continue to believe that Congress should consider changes related to  the Single Audit process.
section_title: Matter
paragraphs: To provide housing finance agencies (HFA) with greater tools for enforcing  program compliance, in the event the Section 1602 Program is extended for  another year, Congress may want to consider directing the Department of  the Treasury to permit HFAs the flexibility to disburse Section 1602  Program funds as interest-bearing loans that allow for repayment.
We continue to believe that Congress should consider directing the  Department of the Treasury to permit HFAs the flexibility to disburse  Section 1602 Program funds as interest-bearing loans that allow for  repayment.
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Susan Iott, Assistant Director;  Tom Beall; Jillian Fasching; Sharon Hogan; Susan Iott; Thomas James;  Yvonne Jones; Jonathan Kucskar; Kirsten Lauber; Carol Patey; Cheryl  Peterson; Brenda Rabinowitz; Beverly Ross; Kelly Rubin; Carol Herrnstadt  Shulman; Dawn Shorey; Kathryn Smith; Jonathan Stehle; Kiki  Theodoropoulos; and Ethan Wozniak made key contributions to this  report.