oversight

States' Treasury-State Agreements Might Need to Include AmericanRecovery and Reinvestment Act, Education Jobs Fund, and Other Similarly Funded Programs

Published by the Department of Education, Office of Inspector General on 2011-06-20.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

            U.S. Department of Education 

             Office of Inspector General



     American Recovery and
     Reinvestment Act of 2009
States’ Treasury-State Agreements Might Need to Include American 

 Recovery and Reinvestment Act, Education Jobs Fund, and Other 

                    Similarly Funded Programs 


                    Final Alert Memorandum 





   ED-OIG/L05L0004                               June 2011
       Abbreviations, Acronyms, and Short Forms 

               Used in this Memorandum

___________________________________________________
C.F.R.         Code of Federal Regulations

CMIA           Cash Management Improvement Act of 1990, as amended

OCFO           Office of the Chief Financial Officer

Recovery Act   American Recovery and Reinvestment Act of 2009

Treasury       U.S. Department of the Treasury

TSA            Treasury-State Agreement
                            UNITED STATES DEPARTMENT OF EDUCATION
                                 OFFICE OF INSPECTOR GENERAL

                                                                       AUDIT SERVICES



June 20, 2011

FINAL ALERT MEMORANDUM

TO:             Thomas Skelly
                Acting Chief Financial Officer
                Office of the Chief Financial Officer

FROM:           Keith West /s/
                Assistant Inspector General for Audit

SUBJECT:        States’ Treasury-State Agreements Might Need to Include American Recovery
                and Reinvestment Act, Education Jobs Fund, and Other Similarly Funded
                Programs
                Control Number ED-OIG/L05L0004

The purpose of this alert memorandum is to bring to your attention an issue of concern related to
annual Treasury-State Agreements (TSA) between the U.S. Department of the Treasury
(Treasury) and States. Throughout this alert memorandum, we use the term “State” to mean a
State of the United States, the District of Columbia, the Commonwealth of Puerto Rico, the
Commonwealth of the Northern Mariana Islands, American Samoa, Guam, and the
U.S. Virgin Islands. It includes any agency, instrumentality, or fiscal agent of a State that is
legally and fiscally dependent on the State Executive, State Treasurer, or State Comptroller.

States establish a TSA with Treasury to detail their implementation of the Cash Management
Improvement Act of 1990, as amended (CMIA). CMIA was enacted by Congress to ensure
efficiency, effectiveness, and equity in the exchange of funds between the States and the Federal
government for Federal assistance programs. The main intent of the CMIA is for States to draw
down Federal funds exactly when they are needed and for Federal programs to be “interest-
neutral,” resulting in no gains or losses by either Federal or State governments. Each State’s
TSA establishes the threshold for determining major Federal assistance programs covered by the
TSA, identifies the major Federal assistance programs, and documents the accepted funding
techniques and methods for calculating interest agreed upon by both parties.

Treasury regulations at 31 Code of Federal Regulations (C.F.R) § 205.5(e) provide that
“unless specified otherwise, major Federal assistance programs must be determined from the
most recent Single Audit data available.” (Emphasis added.) Treasury regulations at 31 C.F.R.
§ 205.7(a) provide that “[Treasury] or a State may amend a Treasury-State agreement at any time
if both [Treasury] and the State agree in writing.”

Single Audit data might be sufficient for determining the major Federal assistance programs that
are funded with ongoing annual appropriations. However, Single Audit data might not be the
Final Alert Memorandum
ED-OIG/L05L0004                                                                                          Page 2 of 5

best source for determining the status of programs authorized or funded under large, one-time
appropriations such as the American Recovery and Reinvestment Act of 2009 (Recovery Act)
and the Education Jobs Fund.1 Single Audits reflect a State’s expenditure of funds and are not
finalized until 9 months after the end of the fiscal year that they cover. Therefore, a new
program for which a State has received funding generally will not be considered for inclusion in
the State’s TSA until after the State expends the funds and the Single Audit on which the TSA is
based reflects the expenditures. Because of the lapse between the time the State is initially
awarded program funds and the time the State’s Single Audit reflects the program’s
expenditures, a new program that meets or exceeds the threshold for a major Federal assistance
program generally will not be included in a TSA until at least the second fiscal year after the
State initially received the program funds. Consequently, major Federal assistance programs
funded with large, one-time appropriations might not appear in a State’s TSA until after all or
most of the funds have been expended.

For example, a State with a fiscal year ending June 30 that received Recovery Act program funds
in April 2009 would have seen Recovery Act program expenditures reflected, at the earliest, in
its Single Audit for the fiscal year that ended June 30, 2009 (FY 2009 Single Audit). The State’s
FY 2009 Single Audit was due on March 31, 2010, and was the audit on which the State’s TSA
for the period July 1, 2010, through June 30, 2011 (FY 2011 TSA), was based. Thus, the State’s
FY 2011 TSA would have been the first TSA to include Recovery Act programs, provided these
programs’ expenditures met or exceeded the threshold for a major Federal assistance program.
However, if the State expended little or no Recovery Act program funds between April and
June 2009, then its FY 2011 TSA would not have included Recovery Act programs, either
because Recovery Act program expenditures were not reflected in the State’s FY 2009
Single Audit or because the Recovery Act program expenditures did not meet or exceed the
threshold for a major Federal assistance program. The State’s TSA likely would not reflect
Recovery Act funded programs until FY 2012 (July 1, 2011, through June 30, 2012), more than
2 years after the funds were initially awarded, and the State had expended most or all of its
Recovery Act funds.

We reviewed the TSAs of 12 States where we conducted Recovery Act audit work. For 10 of
the 12 States, the Single Audit data did not include any of the Recovery Act awards that we
reviewed during our Recovery Act audit work. Because the TSAs were based on
Single Audit data, the TSAs for those 10 States did not include any of the Recovery Act
programs that we reviewed even though those States received Recovery Act funding that met or
exceeded the major Federal assistance program thresholds identified in their TSAs. (See the
following table.)




1
 The Education Jobs Fund is a formula grant that provides funds to States to assist local educational agencies in
saving or creating education jobs for school year 2010 – 2011. The total obligation for FY 2010 was $10 billion,
and the average State grant award was about $190.4 million.
Final Alert Memorandum
ED-OIG/L05L0004                                                                                       Page 3 of 5

 Table: States with Recovery Act Programs That Met the Threshold to Be Included as a Major
        Federal Assistance Program as Defined in Their Existing TSAs
                                                 TSA Threshold For a Major         Recovery Act Programs
     State          Effective Date of TSA        Federal Assistance Program           Included in TSA

   Alabama             10/01/09–9/30/10                   $41,484,940                        None

   California           7/01/10–6/30/11                  $323,000,000             Title I, SFSF-ED, SFSF-GS*

    Illinois            7/01/09–6/30/10                   $60,000,000                        None

   Louisiana            7/01/09–6/30/10                   $60,000,000                        None

   Maryland             7/01/09–6/30/10                   $51,509,710                        None

   Missouri             7/01/09–6/30/10                   $56,470,000                        None

   Oklahoma         7/01/09 until terminated              $34,378,592                        None

 Pennsylvania           7/01/10–6/30/11                   $77,374,170                        None

 South Carolina         7/01/09–6/30/10                   $45,179,481                        None

     Utah               7/01/10–6/30/11                   $22,597,823                      SFSF-ED

    Virginia            5/01/09–6/30/10                   $43,828,884                        None

   Wisconsin        7/01/09 until indefinitely              $25,000,000                       None
 * TITLE I        Title I, Part A of the Elementary and Secondary Education Act of 1965, as amended
   SFSF-ED        State Fiscal Stabilization Fund, Education Stabilization Fund
   SFSF-GS        State Fiscal Stabilization Fund, Government Services Fund

Including Recovery Act and other programs funded under large, one-time appropriations
(such as the Education Jobs Fund) in the TSAs would protect State and Federal interests by
either specifying interest-neutral funding techniques or by requiring one party to compensate the
other for the early or late transfer of Federal funds. If Recovery Act and other similarly funded
programs are excluded from States’ TSAs, States must then comply with the Education
Department General Administrative Regulations at 34 C.F.R. §§ 80.20 and 80.21. These
regulations require States to maintain proper cash management procedures that include
calculating the interest earned on Federal funds drawn in advance of need and remitting that
interest to the Federal government at least quarterly.

Because the fiscal year for many States is July 1 to June 30, States might have already begun
determining whether to amend their TSAs for FY 2012, which would be effective
July 1, 2011.

RECOMMENDATION

We recommend that the Chief Financial Officer—

1.1 Work with Treasury to encourage Treasury and the States to (a) determine whether TSAs for
    FY 2012 and subsequent fiscal years should be amended to include applicable Recovery Act,
Final Alert Memorandum
ED-OIG/L05L0004                                                                      Page 4 of 5

   Education Jobs Fund, and other similarly funded programs; and, (b) if so, consider amending
   TSAs as soon as possible rather than waiting until these programs are included in a Single
   Audit.

Office of the Chief Financial Officer Comments

A draft of this alert memorandum was provided to the Office of the Chief Financial Officer
(OCFO) for comment. In its comments, OCFO stated that including Recovery Act programs in
TSAs would protect State and Federal interests. However, OCFO stated that it has very little
influence over TSAs because the agreements are negotiated between States and the Treasury.
Therefore, OCFO proposed a revision to the recommendation contained in the draft copy of the
alert memorandum. Instead of stating that the Chief Financial Officer should “Work with all
States and Treasury to determine whether TSAs should be amended . . . ,” OCFO suggested that
the recommendation should be that the Chief Financial Officer “Work with Treasury to
encourage Treasury and the States to determine whether TSAs should be amended. . . .” We
have included OCFO’s comments in their entirety as an Enclosure to this memorandum.

OIG Response

We agreed with OCFO’s suggestion to change the draft recommendation, and we revised the
report accordingly. We also revised this alert memorandum to include the Education Jobs Fund
and other similarly funded programs. In addition, we clarified the memorandum to better explain
why Single Audit data might not be the best source for determining whether large, one-time
appropriations such as the Recovery Act and Education Jobs Fund should be included in TSAs.

Administrative Matters

We conducted our work in accordance with the OIG’s quality standards for an alert
memorandum.

Corrective actions proposed (resolution phase) and implemented (closure phase) by your office
will be monitored and tracked through the U.S. Department of Education’s Audit Accountability
and Resolution Tracking System. Alert memoranda issued by the Office of Inspector General
will be made available to members of the press and general public to the extent information
contained in the memorandum is not subject to exemptions in the Freedom of Information Act
(Title 5, United States Code, § 552).

Should you have any questions or require additional information, please do not hesitate to
contact me at (202) 245-7041 or Gary D. Whitman, Regional Inspector General for Audit, at
(312) 730-1658.

Enclosure
Final Alert Memorandum
ED-OIG/L05L0004                                                                          Page 5 of 5

Enclosure

                        UNITED STATES DEPARTMENT OF EDUCATION
                            OFFICE OF THE CHIEF FINANCIAL OFFICER




MEMORANDUM

DATE:	         February 17, 2011

TO: 	          Gary D. Whitman
               Regional Inspector General for Audit

FROM: 	        Thomas P. Skelly /s/
               Delegated to Perform the Functions and Duties of Chief Financial Officer

SUBJECT:       	Draft Alert Memorandum
               States’ Treasury-State Agreements Might Need to Include American Recovery
               and Reinvestment Act Programs.
               ED-OIG/L05L0004


We reviewed the draft Alert Memorandum entitled “States’ Treasury-State Agreements Might
Need to Include American Recovery and Reinvestment Act Programs.” Clearly, including
Recovery Act programs in Treasury-State Agreements (TSA’s) would protect State and Federal
interests. While we have very little influence regarding the actual negotiation of Treasury-State
Agreements, as these agreements are directly negotiated between the States and Treasury, we
certainly recommend and encourage the inclusion of Recovery Act programs in Treasury-State
Agreements.

As a result, we propose the following revision to the recommendation contained in the draft Alert
Memorandum:

        Work with Treasury to encourage Treasury and the States to determine whether TSA’s
        should be amended to include applicable Recovery Act programs that will meet or exceed
        the dollar threshold of a major Federal assistance program as defined in their TSAs.

We will begin the preparation of a corrective action plan to be used in the resolution process
upon issuance of the final Alert Memorandum. If you have any questions please contact Gary
Wood at (202) 245-8118.


CC: 	 Keith West
      Rich Rasa
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