Report 2010-002.2 Summary - January 2011
Fiscal Year 2009-10 Single Audit
RESULTS IN BRIEF
On February 17, 2009, the federal government enacted the American Recovery and Reinvestment Act of 2009 (Recovery Act) to help fight the negative effects of the United States' economic recession. California expects that over time its state departments and other entities located within the State will receive $85 billion in Recovery Act funding. With this increased funding comes a strong emphasis on accountability and public transparency to ensure federal funds are spent properly. A key component of such accountability and public transparency is the California State Auditor's Office (State Auditor's Office) annual report on the State's compliance with federal requirements, such as those identified in the Recovery Act.
The State Auditor's Office prepares its annual report in accordance with the requirements described in the U.S. Office of Management and Budget's (OMB) Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. In June 2010 OMB encouraged auditors to communicate promptly any identified internal control deficiencies to management and those charged with governance. By encouraging prompt communication, OMB intends for recipients, including states, to correct these findings as soon as possible to ensure proper accountability and transparency for expenditures of Recovery Act awards. Based on OMB's June 2010 guidance, the State Auditor's Office presents its interim report concerning the State's administration of selected federal programs. Although OMB's guidance regarding prompt communication focused on Recovery Act programs, we have also included audit results for a department that did not receive Recovery Act funding in the interests of maximizing the benefits of prompt communication.
This interim report summarizes audit results pertaining to 14 federal programs administered by four departments. Three of the four departments received Recovery Act funding during fiscal year 2009-10. The State Auditor's Office has currently identified 17 findings regarding the four departments' administration of these federal programs during fiscal year 2009-10. In many cases the findings are recurring issues we identified in past audits. The findings focused on various federal requirements including those regarding eligibility and reporting. We also reported that the departments fully corrected six findings that we included in last year's annual audit report. Finally, we made numerous recommendations to the respective departments.
The Employment Development Department (EDD) administers several programs that have been awarded funds from the Recovery Act during fiscal year 2009-10 including: Unemployment Insurance (Federal Catalog Number 17.225); the Employment Service cluster, which includes Employment Service/Wagner-Peyser Funded Activities (Federal Catalog Number 17.207), the Disabled Veterans' Outreach Program (Federal Catalog Number 17.801), and the Local Veterans' Employment Representative Program (Federal Catalog Number 17.804); and the Workforce Investment Act (WIA) cluster, which includes the WIA Adult Program (Federal Catalog Number 17.258), WIA Youth Activities (Federal Catalog Number 17.259) and WIA Dislocated Workers (Federal Catalog Number 17.260). Additionally, EDD administers the Trade Adjustment Assistance program (Federal Catalog Number 17.245). The State reported that these programs collectively received $25.5 billion for fiscal year 2009-10, including Recovery Act funds totaling approximately $13.6 billion. We cannot conclusively identify Recovery Act dollars because we found that EDD has not been able to track all Recovery Act dollars separately from non-Recovery Act dollars. The State Auditor's Office identified four findings as of December 1, 2010, that pertain to EDD's administration of these federal programs. The findings relate to tracking Recovery Act funds, subrecipient monitoring, suspension and debarment, and eligibility determinations. All four of these findings have been previously reported in our annual audits: this is the fourth year for one, the third year for two more, and the second year for the remaining one.
The Department of Health Care Services (Health Care Services) administers the State Medicaid Fraud Control Units program (Federal Catalog Number 93.775); the State Survey and Certification of Health Care Providers and Suppliers program (Federal Catalog Number 93.777); and the Medical Assistance Program (Federal Catalog Number 93.778), which collectively comprise the Medicaid Cluster of federal programs and is commonly referred to as Medi-Cal in California. The objective of Medi-Cal is to pay for medical assistance to low-income persons who are age 65 or over; as well as others that meet certain criteria. In fiscal year 2009-10 Health Care Services received $28.4 billion for this program, including $4.6 billion in Recovery Act funds. The State Auditor's Office identified six findings as of November 19, 2010, that pertain to Health Care Services' administration of Medi-Cal. The findings focused on a variety of issues, such as internal control deficiencies relating to the State's practice of granting temporary Medi-Cal benefits to individuals who are "presumptively eligible" for such services. Although Health Care Services has taken steps to address some of the issues we reported in last year's annual report, it still needs to do more to fully correct these issues. For example, in last year's annual audit we reported that Health Care Services was not submitting drug rebate information to drug manufacturers on a timely basis, limiting the State's ability to obtain rebates in a timely manner and earn interest on these funds. During our testing for fiscal year 2009-10, we found that Health Care Services continued to submit drug rebate information after federally prescribed deadlines. Finally, our testing revealed that Health Care Services corrected two findings from last year's annual audit report.
The California Department of Transportation (Caltrans) administers the Highway Planning and Construction Cluster, which includes the Highway Planning and Construction program (Federal Catalog Number 20.205). The objectives of this program are to assist states in the planning and development of an integrated, interconnected transportation system important to interstate commerce and travel by constructing and rehabilitating the National Highway System (NHS), including interstate highways and most other public roads. Caltrans uses federal funds under this program for a variety of activities, such as making capital improvements to certain designated highways and providing subgrants to local agencies, such as cities and counties, for similar projects. During fiscal year 2009-10, Caltrans received more than $2.6 billion, of which approximately $589 million was provided by the Recovery Act. The State Auditor's Office has identified three findings as of December 20, 2010, that pertain to Caltrans' administration of this federal program. These findings discuss deficiencies in internal control and instances of noncompliance with federal requirements concerning cash management, matching, and subrecipient monitoring. For instance, we noted that Caltrans lacked adequate internal controls to ensure that local agencies had audits performed under the Single Audit Act as required by OMB Circular A-133. Our review also found that 24 local agencies receiving more than $500,000—and in some cases receiving more than $1 million—did not submit audit reports to the federal government for fiscal year 2008-09. We also noted that Caltrans lacked policies and procedures to impose sanctions on local agencies who fail to submit required audits. The lack of audit reports by local agencies limits Caltrans' ability to review and issue management decisions on potential audit findings and exercise effective oversight for this federal program.
The California Department of Veterans Affairs (Veterans Affairs) administers the Grants to States for Construction of State Home Facilities (construction grant) and Veterans Housing—Guaranteed and Insured Loans (loan guaranty) programs (Federal Catalog numbers 64.005 and 64.114, respectively). The objectives of this construction grant program include providing financial assistance to states to acquire or construct state veterans home facilities, while the loan guaranty program offers home loans to eligible veterans that are guaranteed in part by the U.S. Department of Veterans Affairs (VA). Through the loan guarantee program, as of June 30, 2010, the VA provided guarantees for loans held by Veterans Affairs totaling $112.5 million. These guarantees are considered federal assistance to the State for fiscal year 2009-10. Additionally, the State reported receiving during that period $26.6 million in federal funds for the construction grant program. Neither program received Recovery Act funds. As of December 1, 2010, the State Auditor's Office identified one finding relating to reporting requirements that pertains to Veterans Affairs' administration of the loan guaranty program. For example, Veterans Affairs reported to the VA several events related to veterans with delinquent loans after the applicable deadlines. In the one case we reviewed in which a borrower filed for bankruptcy, Veterans Affairs reported the filing more than eight months late. The State Auditor's Office also identified three findings that pertain to the construction grant program, which concerned a variety of different federal regulations including those governing allowable costs, the Davis-Bacon Act, and reporting. Although Veterans Affairs has taken certain steps to address the issues we reported in last year's annual audit related to these findings, concerns in these areas continued to exist during fiscal year 2009-10.
We summarized the departments' responses. In general, the departments concurred with the audit findings discussed in this interim report and plan to take corrective action.