Summary of Report 10-037

July 2010

Report Number 10-037

On February 13, 2009, the U.S. Congress passed the American Recovery and Reinvestment Act of 2009 (ARRA) to stimulate the economy.

The Texas Workforce Commission (TWC) received 13 grants totaling $3.9 billion in ARRA funds from the U.S. Department of Labor and the U.S. Department of Health and Human Services (see Appendix 2 for more information about these grants). Auditors reviewed three TWC Workforce Investment Act (WIA) programs that received ARRA-funded grants for compliance with ARRA-related federal and state requirements. These were:

- WIA Youth Activities program, which provides funds to help low income youth between the ages of 14 and 24 acquire the educational and occupational skills, training, and support needed to achieve academic and employment success. TWC was awarded $82,000,708 in ARRA funds for this program.

- WIA Adult Program, which provides funds to reduce welfare dependency and increase the occupational skills, employment, retention, and earnings of clients. TWC was awarded $34,344,771 in ARRA funds for this program.

- WIA Dislocated Worker Program, which provides funds to re-employ dislocated workers. TWC was awarded $53,768,305 in ARRA funds for this program.

TWC provides WIA Youth Activities, Adult, and Dislocated Worker programs services through 28 local workforce development boards (local boards) (see Appendix 3 for a map of the local boards' geographical locations). As of June 7, 2010, TWC reported that it served 44,953 clients in its WIA Youth Activities, Adult, and Dislocated Worker programs using ARRA funds (see Appendix 4 for the number of clients serviced by each local board).

TWC established adequate processes for collecting and reporting information on ARRA-related expenditures and jobs created and retained (self-reported by local boards) in its ARRA Section 1512 Quarterly Reports for the quarters ending September 30, 2009, and December 31, 2009. However, TWC did not document its processes for collecting and reporting the required information, and it overreported the number of jobs created and retained for the two local boards visited by auditors because it relied on the local boards to provide complete and accurate data.

TWC complied with other requirements such as tracking ARRA funds separately from other federal funds; providing a link on its Web site to the State Auditor's Office for the reporting of suspected fraud, waste, and abuse of ARRA funds; and providing timely guidance to local boards on how to calculate and report the number of jobs created and retained using ARRA funds.

TWC also had adequate procedures to monitor local boards' use of federal funds, including ARRA funds, in compliance with federal requirements; however, as of May 2010, TWC's documented monitoring procedures did not include validating local boards' self-reported information on jobs created and retained using ARRA funds. Also, TWC's monitoring procedures were not sufficiently detailed to ensure that all program eligibility requirements are fully considered, which increases the risk that eligibility errors are not detected. TWC also should closely monitor the local boards to ensure that ARRA funds are spent in a timely manner in compliance with TWC-established spending benchmarks.

Reporting of ARRA Funds by Local Boards

Auditors audited two local boards that received ARRA funds: the Lower Rio Grande Valley Workforce Development Board (Lower Rio Board) and the Capital Area Workforce Development Board (Capital Area Board).

Both the Lower Rio Board and Capital Area Board had adequate controls to help ensure that ARRA funds were tracked separately from other federal funds, and they consistently followed their cost allocation processes. However, the Capital Area Board's written procedures did not adequately describe its current cost allocation methodology, and the local boards' contractors did not consistently follow their written methodology, which may result in some programs paying for a disproportional share of administrative expenses and inaccuracies in the contractors' reported number of jobs created and retained using ARRA funds.

TWC's intent was for the local boards to spend 80.00 percent of their ARRA-funded grants for the WIA Adult and Dislocated Worker programs by June 30, 2010. However, as of December 31, 2009, the Lower Rio Board had requested reimbursement for only 20.23 percent of its WIA Adult Program ARRA funding and 16.06 percent of its WIA Dislocated Worker Program ARRA funding, placing the unspent ARRA funds at risk of lapsing. The Capital Area Board was on target to meet the TWC benchmarks.

The Lower Rio Board's and its contractor's processes for reviewing expenditures were not sufficient to ensure that ARRA funds were expended only for allowable costs. Auditors also identified weaknesses in the contractor's process for determining client eligibility. The Capital Area Board had adequate processes to ensure that ARRA-related expenditures tested complied with federal and state requirements. However, it did not identify errors in cost allocation and payroll processes at two contractors.

Both the Lower Rio Board and Capital Area Board made significant improvements in their reporting of information on jobs created and retained using ARRA funds for the quarter ending December 31, 2009. TWC guidance requires that local boards report jobs created and retained as full-time equivalent positions (FTEs). For the quarter ending September 30, 2009, the Lower Rio Board reported that 1,971.00 FTE were created and retained using ARRA funds. Based on available data, auditors were not able to recalculate the Lower Rio Board's number of FTEs created and retained using ARRA funds. The Capital Area Board reported that 691.00 FTEs were created and retained using ARRA funds; however, based on auditors' calculations, the Capital Area Board overreported the number of FTEs created and retained by approximately 562.27 FTEs, or 436.78 percent.

For the quarter ending December 31, 2009, the Lower Rio Board reported that it created and retained 10.96 FTEs using ARRA funds, which differed from auditors' calculations by only 0.08 FTEs, or 0.74 percent. The Capital Area Board reported that it created and retained 31.79 FTEs using ARRA funds, a difference of 3.38 FTEs, or 11.90 percent, from auditors' calculations.

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