A Report on a Review of State and Federal Oversight of American Recovery and Reinvestment Act Funds in Texas
April 2011
Report Number 11-028
Overall Conclusion
On February 13, 2009, the U.S. Congress passed the American Recovery and Reinvestment Act of 2009 (Recovery Act) to provide $787.0 billion in federal funds to stimulate the economy. Federal and state governments aimed to provide transparency and accountability over Recovery Act funds. Prior to the Recovery Act's inception, the U.S. Office of Management and Budget (OMB) initiated guidance for establishing internal controls and oversight mechanisms to help provide this transparency and accountability. As of February 14, 2011, the State of Texas had been awarded $22.6 billion in Recovery Act funds. The Health and Human Services Commission, the Texas Education Agency, the Texas Workforce Commission, and the Department of Transportation were awarded the majority of those funds.
Recovery Act funds in Texas have received a significant level of audit coverage. The audit scopes and structures varied among the audit reports released through February 2011; as a result, the findings also varied among the reports.
Federal and state oversight efforts related to Recovery Act funds included:
- Statewide Single Audits.
- U.S. Government Accountability Office (GAO) and federal offices of inspectors general audits and reviews.
- State Auditor's Office audits and reports.
- Entities' internal audit reports.
- Office of the Comptroller of Public Accounts (Comptroller) post-payment audits.
In addition to the audits and reports included in this review, the Office of the Governor provides technical assistance to Texas state entities related to Recovery Act funds. This includes meeting with key state agencies; serving as a single point of contact for federal entities, such as the GAO; and providing guidance to state entities about federal and state reporting requirements. Individual state entities may also conduct internal monitoring activities of Recovery Act funds that are not included in this review.
Statewide Single Audit
The Statewide Single Audit is the most encompassing of the Recovery Act-related oversight efforts. Of the Recovery Act funds expended by the State of Texas during the fiscal year ending August 31, 2010, approximately 97.1 percent received some audit coverage in the fiscal year 2010 Single Audit.
The Single Audit Act Amendments of 1996 (Single Audit Act) requires certain non-federal entities to obtain an annual audit of federal programs. OMB Circular A-133 provisions from the Single Audit Act were in place prior to the implementation of the Recovery Act; however, the OMB Circular A-133 Compliance Supplement 2010 included additional audit requirements for Recovery Act-funded programs. The State Auditor's Office and its contractor conducted the Single Audits for fiscal years 2009 and 2010. The reports from those audits included findings related to the state entities' non-compliance with program expenditure requirements or other program-specific requirements, federal reporting requirements, subrecipient monitoring requirements, and weaknesses in internal controls. Specifically:
- The State of Texas Federal Portion of the Statewide Single Audit Report for the Fiscal Year Ended August 31, 2009 (State Auditor's Office Report No. 10-339, March 2010) covered 8 federal programs and 11 federal program clusters that included Recovery Act funding. The report contained 18 findings related to those Recovery Act-funded programs.
- The State of Texas Federal Portion of the Statewide Single Audit Report for the Fiscal Year Ended August 31, 2010 (State Auditor's Office Report No. 11-318, February 2011) covered 8 federal programs and 18 federal program clusters that included Recovery Act funding and contained 38 findings related to those Recovery Act-funded programs.
Federal Oversight Efforts
The Recovery Act included a new requirement that the GAO conduct bi-monthly reviews of how Recovery Act funds are being used and whether they are achieving their stated purposes. Based on the reports from the bi-monthly reviews released through February 28, 2011, the GAO determined that, in general, the Recovery Act programs reviewed in Texas had internal controls in place and that monitoring and oversight efforts were underway to help ensure accountability of Recovery Act funds. However, all three other GAO reports identified areas of improvement related to specific programs' oversight of Recovery Act funds. Those included recommendations for strengthening internal controls and following specific Recovery Act requirements.
In addition, the offices of inspectors general at various federal departments provide oversight of Recovery Act funds. State auditors identified six offices of inspectors general reports related to Recovery Act funding and Texas state agencies that noted some weaknesses in internal controls, specifically in the areas of subrecipient monitoring and complying with federal reporting requirements.
State Oversight Efforts
Additional Recovery Act oversight is conducted at the state level by the State Auditor's Office, state entities' internal auditors, and the Comptroller. Specifically:
- The State Auditor's Office conducted two performance audits in fiscal year 2010 related to Recovery Act funds that identified weaknesses in the agencies' internal controls and in subrecipients' reporting of jobs created and/or retained using Recovery Act funds.
- Twenty-one of the 23 internal audit reports reviewed by state auditors included an assessment of internal controls and concluded that, generally, the state entity had adequate internal controls in place over Recovery Act funds.
- Thirty post-payment audits of Recovery Act funds conducted by the Comptroller indicated that all of the state entities audited demonstrated due diligence over Recovery Act fund revenues, expenditures, and the allocation of costs to Recovery Act funding.