1

COMMUNITY SERVICES BLOCK GRANT AUDITS

March 1, 2012

Risk: Increased Funding Levels

2

HHS $2B

Health Centers

HHS $2B

Child Care &

Development

DOE $5BWeatherization

HUD $1BCommunity

Development

HHS $1BCommunity

Services

HHS $2BHead StartEarly Head

Start

CAAs

3

Risk: CSBG Legislation Alert issued to Assistant Secretary for Children and Families requesting

legislative change

Weatherization – an agency identified as in-crisis and/or vulnerable can be disqualified from receiving Recovery Act funding

CSBG – a state cannot withhold, terminate and/or reduce the funding of an eligible entity without going through the corrective action process defined in section 678C of the CSBG Act and CSBG Information Memorandum 109

October 30, 2009: 20 community action agencies classified as in crisis or vulnerable scheduled to receive $44.9 million in Recovery Act funds

State 1: Two at risk agencies funded under CSBG, reduced or withheld funding under weatherization

State 2: Two at risk agencies funded under CSBG, reduced or withheld funding under weatherization

State 3: State IG not willing to fund at risk agency under CSBG

4

Goals

To identify high risk states and determine whether they established adequate internal controls for assessing and monitoring CAAs

To identify high risk community action agencies within these states and assess:

financial viability

capacity to manage and account for Federal funds

capability of operating an HHS program in accordance with Federal regulations

5

State Risk Factors

ACF State ranking (April 2009) Past problems Distance, monitoring efforts, number of CAAs Demographics (poverty) Client population (total served to number of CAAs) Timeliness – late submission of CSBG state plans

Increase in funding

Amount unspent by states

6

State Risk Factors

ACF risk assessment (IM-112) Material weaknesses Financial and operating controls Policies and procedures Compliance monitoring

Timeliness – late submission of risk assessment

Number of high risk CAAs to total CAAs

7

Focus at State Level

Assess controls for ensuring CAAs:

minimize risk of local agencies having to spend Recovery Act funds within short time frames, including the use of the IM 112 risk assessments

ensure Recovery Act funds are only used for services provided by September 30, 2010

ensure Recovery Act funds are only used to pay for eligible services by December 29, 2010

ensure Recovery Act funds not used by local agencies are immediately returned to Federal government

identify the number of local agencies the State has reviewed during the most current 3-year review cycle

determine how many local agencies identified as at risk received Recovery Act funds under CSGB but not under Weatherization

8

State Oversight

No findings 1

No, Undoc-umented

Site Visits 5

Incomplete Risk Assessments 2

Reporting Errors 2

Controls over Funds 4

Inadequate Program Controls 1

9

State Oversight

No or undocumented site visits

No assurance full onsite reviews were completed within the required 3-year period 100% not completed for 3 states

9% not completed for an additional state

Site visits were not adequately documented, limiting ability to determine whether they had actually been conducted for a fifth state

10

State Oversight

Incomplete or inaccurate risk assessments

4 of 13 CAAs receiving $4.3M did not report unresolved audit findings from annual audit reports for one state

13 of 40 CAAs receiving $5.7M did not report material weaknesses, reportable conditions or questioned costs for a second state

11

State Oversight

Reporting errors

Inadequate data reported on Recovery.gov

First state Expenditures overstated by $645,700 Estimated jobs overstated by 124 FTEs for 5 CAAs

tested

Second state Expenditures overstated by $114,000 $2M in CCDBG reported as CSBG funds

12

State Oversight

Poor controls over funds No procedures to recover unspent funds by

CCAs Funds disbursed to 2 CAAs without expense

reports Insufficiently tracked expenditures — $2.7M

per accounting records, $2.5M per grant management records

Monitoring did not begin until March 2010

13

State Oversight

Inadequate program controls State relied on self-certifications to verify

eligibility requirements related to the Federal poverty level

14

Community Action Agencies

Selected and audited 3 community action agencies for each State using a risk-based approach

Unfiled risk assessments required by IM 112

Unspent CSBG funds provided by State

Financial statement analysis (trend and ratio analysis)

Received CSBG funds but not weatherization funds

Forgiven debt, line-of-credit drawdowns

15

Controls at Community Action Agencies

No findings

Quality Improvement Plan

Other Inadequate Controls

Unaudited Financial Statements

Untimley Financial Reports

Whistle Blower Protection

Poor Segregation of Duties

Financial Viability

Inappropriate Use of Funds

Inadequate Records

Program Deficiencies

Board of Director Deficiencies

Insufficient Policies and Procedures

Reporting Errors

Safeguarding Federal Funds

0 2 4 6 8 10 12 14 16 18 20

1

1

2

2

2

5

6

6

7

8

10

13

13

15

19

16

Controls at Community Action Agencies

Safeguarding Federal funds 8 CAAs maintained Federal funds in excess

of amount protected by FDIC Balance exceeded $12M for one CAA Balance exceeded $3.8M for a second CAA Balance exceeded $2M for a third CAA Balance exceeded $770,000 for a fourth CAA

17

Controls at Community Action Agencies

Safeguarding Federal funds Account balances on audited financial

statements did not tie to accounting records

Allocation of salaries based on budgets Large balances of unspent Recovery Act

funds with a limited number of months left in funding period

$35,200 in undeposited funds

18

Controls at Community Action Agencies

Reporting errors Jobs overstated by 59 FTEs

OMB requirements for reporting job estimates not followed

CAA did not maintain adequate documentation to support data reported to ROMA information that was reported was submitted 4

to 9 days after the due dates

Expenditures overstated by $38,500 in Recovery.gov

19

Controls at Community Action Agencies

Insufficient, unimplemented or incorrectly applied policies and procedures Lack of subrecipient monitoring procedures No procedures for the use of consultants Did not properly account for equipment Did not conduct physical equipment inventories Did not conduct timely physical inventories Inappropriate allocations

100% of time charged when 28% of time spent on ARRA

100% to time charged when 100% of time spent fund raising

20

Controls at Community Action Agencies

Board of Director deficiencies Board does not fully participate in

developing, planning, implementing and evaluating the CSBG program—abdicated responsibilities to Executive Director

Employees used rubber stamps of Board members’ signatures to sign checks

21

Controls at Community Action Agencies

Program deficiencies Did not always ensure that incomes of

individuals receiving CSBG benefits under the Recovery Act were below 200% of the Federal poverty level

22

Controls at Community Action Agencies

Inadequate records $38,500 reported in quarterly financial

support could not be supported by accounting records

Could not assess financial viability because audited financial statements for 3-years were not available

Unable to provide inventory records Independent auditor identified 27 incorrect

adjusting journal entries due to misclassifications, double recording, improperly recorded transactions

23

Controls at Community Action Agencies

Inappropriate use of fund $12,270 in unapproved office furniture $10,540 paid to subrecipients, no services

provided $41,500 paid to subcontractors, no services

provided $18,440 claimed using estimates instead of

actual costs $72,200 used for unapproved incentive awards $58,500 in unsupported subgrantee wages

24

Controls at Community Action Agencies

Financial viability 0.36 current ratio, working capital

decreased by over $7M over 2-year period Debt ratio > 1.0 over 3-years, negative

cash balances for 2-years Declining current ratio over 3-year period

(1.0 to .78), negative working capital and net losses for all 3 years

Negative working capital of ($4.9M) and ($1.2M)

25

Controls at Community Action Agencies

Poor segregation of duties Program directors and managers performed

own physical inventories and maintained own inventory records—inventory valued at $1.4M

Banking and approval of expenditure responsibilities assigned to same individual

26

Next Steps

Multi-state audit to determine whether community action agencies have appropriately used Federal funds, including Recovery Act funds

Identified 27 high risk community action agencies to audit

Audits in various stages of completion

27

Questions?