Community Services Block Grant Audits

1. Community Services Block Grant Audits March 1, 2012

2. HHS $2B Head Start Early Head Start DOE $5B Weatherization CAAs HHS $1B Community Services HUD $1B Community Development Risk: Increased Funding Levels HHS $2B Child Care & Development HHS $2B Health Centers

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

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

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?