American Recovery and Reinvestment Act

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American Recovery and Reinvestment Act

• Preparation, Roles, Responsibilities
• General Accounting Office
• May 7, 2009

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April 2009

• Addressing State and Local Fiscal Challenges
• Through the American Recovery and Reinvestment Act

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Federal Grants to State and Local Governments by
Function
Source Budget of the U.S. Government, Fiscal
Year 2009, H. Doc. 110-84, Vol. III. Note Data
shown are 2007 Actual Outlays.
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State and Local Governments Face Increasing
Fiscal Challenges
Percent of GDP
Operating Surplus/Deficit Fall 2008
Operating Surplus/Deficit Jan 2009
Source Historical data from National Income and
Product Accounts. Historical data from 1980
2007, Sept. 2008 January, 2009 GAO projections
from 2008 2050 using many CBO projections and
assumptions, particularly for next 10 years.
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State and Local Fiscal Difficulties Are Largely
Driven by Rising Health Costs
Percent of GDP
State and Local Government Non-Health Care
Expenditures
State and Local Government Health Care
Expenditures
Source Historical data from National Income and
Product Accounts. Historical data from 2000
2007, projections from 2008 2050. Note
Health care expenditures include health care
benefits for employees and retirees and medical
spending on behalf of individuals, such as
Medicaid and SCHIP Non-Health Care Expenditures
include all expenditures with the exception of
health care and interest payments.
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State and Local Tax Receipts Would Have to Rise
Well Above Projections under Current Law to
Maintain Balance
Taxes as a percent of GDP
Maintain Balance
Historical Growth Relative to GDP
Base Case (current law)
Source Historical data from National Income and
Product Accounts Note Historical data from 2000
2007, projections from 2008 2050
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The American Recovery and Reinvestment Act of
2009 (Recovery Act)

• Has several provisions that may mitigate the
  fiscal difficulties that state and local
  governments are facing
• Provides about 787 in spending and tax
  provisions
• Over 580 billion in additional spending
• More than 275 billion in grants to states
  (including grants that go through states to
  individuals)

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Purposes of the Recovery Act

1. To preserve and create jobs and promote economic
   recovery.
2. To assist those most impacted by the recession.
3. To provide investments needed to increase
   economic efficiency by spurring technological
   advances in science and health.
4. To invest in transportation, environmental
   protection, and other infrastructure that will
   provide long-term economic benefits.
5. To stabilize state and local government budgets,
   in order to minimize and avoid reductions in
   essential services.

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Unique Requirements

• Normally in Federal Contracts
• New to Grants
• Davis-Bacon Wages
• Buy American

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Recovery Act Emphasizes Accountability
Transparency

• Enhanced Transparency
• Normal Reporting to Federal Grantor Agency
• Recovery.gov
• Reporting
• Federal Agency
• State and Local Recipients
• Individual Recipients

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Entities Contributing to Reporting Requirements

• Office of Management and Budget
• Recovery Board
• Federal Agency Inspectors General
• Federal Agencies
• Council of Economic Advisors
• Congressional Budget Office
• State and Local Auditors
• State, Local, and Individual Recipients
• GAO

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Recovery Act Promotes Enhanced Oversight Role

• Oversight
• Recovery Board
• GAO
• Inspectors General
• State and Local Auditors
• Auditor General
• State and Local Governments
• Governors Office of Economic Recovery
• General Accounting Office

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Coordination of Oversight Activities

• Coordination of oversight activities
• GAO has developed a well-coordinated,
  non-duplicative, risk-based approach
• Reached out to the Accountability Community and
  state associations
• IGs are best able to provide perspective of
  federal programs/agencies
• GAO best positioned to give perspective of
  federal, state, and local governments use of
  funds
• State auditors provide on-the-ground perspective

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GAOs Recovery Act Reporting Strategy

• 1. Bimonthly reports on State and local use of
  funds
• 2. Comment (with CBO) on quarterly recipient
  reports
• 3. Short-term reporting requirements, including
• Appointments to the Health Information Technology
  Policy Committee (due within 45 days of signing)
• Small Business Administrations efforts to
  increase liquidity in the secondary market for
  SBA loans (due within 60 days of signing)
• 4. Longer-term reporting requirements, including
• Current and past economic downturns since 1974
  and make recommendations for addressing state
  needs during these periods (due April 2011)

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GAOs State and Local Reporting Strategy

• Recovery Act requires GAO to conduct bimonthly
  reviews and prepare reports on such reviews on
  the use by selected States and localities of
  funds made available in this Act.
• Strategy
• Longitudinal study of 16 states and the District
  of Columbia
• Selection criteria based on the stated purposes
  of the Recovery Act
• Additional states added as other events dictate,
  including ongoing GAO work.
• Localities sampled within selected states
• GAO senior executives to coordinate with each
  selected state

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Reporting Objectives

• What improvements, if any, could be made to OMB's
  guidance to make it more clear and complete to
  states and local governments?
• How are states and localities planning to spend
  Recovery Act funds and ensure that such spending
  is consistent with the stated purposes of the
  act?
• What up front safeguards (i.e., before the money
  is spent), as well as ongoing monitoring, audits,
  and evaluations, do the selected states and
  localities have or are putting in place to guard
  against mismanagement and waste, fraud, and
  abuse?
• What are the selected states and localities
  reported uses and plans to evaluate the impact of
  the funds they have received to date?

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Recovery Act Funds
Using Tracking Safeguarding Assessing
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Baseline information Amount of funds states
received as of (date) by source program
Amount of funding disbursed or steps that are
needed prior to disbursement How states will
track funds received, how keep funds separate
Any modification to accounting or reporting
systems? Any cuff systems? Describe procedures
and controls to help ensure accuracy Known
weaknesses single audits, program reviews, etc.
Single Audit Results
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Internal Control Internal control is an
integral part of an organizations management
that provides reasonable assurance that the
agencys objectives are being met in the
following categories - Effectiveness and
efficiency - Compliance with laws and
regulations - Safeguarding of assets -
Reliability of financial reporting Internal
control helps managers achieve program results
through effective stewardship of public
resources providing assurance that funds are
used properly for their intended purposes.
Internal control serves as the first line of
defense in preventing fraud, waste, and abuse.
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GAO Analysts Role The audit function is key to
accountability of public programs and use of
public funds. Obtaining an understanding of
internal control is considered a basic audit
requirement for financial and performance audits,
in U.S. and international standards. Yellow Book
has specific requirement for considering
Internal control in the planning phase, when
determining the objectives, scope and methodology
for the job.
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Control Environment The Control environment sets
the tone for an organization, influencing staff
awareness of good controls, procedures,
accountability, and program management. It is the
foundation for all other components of internal
control, providing discipline and
structure. Elements of the Control environment
are Personal and professional integrity and
ethical values of management and staff, including
a supportive attitude toward doing things
right Commitment to competence Tone at the
top Organizational structure Human resources
policies and practices
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Control Environment Relevant questions How is
management dealing with competing demands-get the
funding out fast while maintaining
accountability? Are sufficient, qualified
personnel on board to handle the new program
activities? Is the current organizational
structure sufficient and appropriate to implement
the new responsibilities? What types of changes
are needed? How will the office handle
coordination of oversight activities with
stakeholders?
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Control Environment The following are
indicators of risk that the agency or program may
not have a strong control environment Has
recently undergone major change e.g. new
responsibilities, reorganization, cuts in
funding, expansion of programs, changes in
management Management does not address indicators
of problems. Employees do not understand what
behavior is acceptable or unacceptable, or are
generally disgruntled. Top management is unaware
of actions taken at the lower level of the
organization. It is difficult to determine the
organizations or individuals that control
programs or particular parts of a program. The
organizational structure is inefficient or
dysfunctional
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Risk Assessment is the identification and
analysis of relevant risks from both external
and internal sources that could negatively
impact the organizations ability to achieve
program or agency objectives. generally
includes estimating the risks significance,
assessing the likelihood of its occurrence, and
deciding how to manage the risk and what actions
should be taken. is generally part of an
overall strategic approach to management and is
important for decisions on allocating resources
and responsibility (accountability)
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Risk Assessment Relevant questions has the
state used a risk based approach to identify
strengths and vulnerabilities? How are risks
being mitigated? Does ARRA funding present new
or increased risks? How will the state assess
risks that subawardees wont use ARRA funding
appropriately?
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Risk Assessment Red Flags include when the
agency or program does not have well-defined
objectives adequate performance measures an
adequate strategic plan
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Control Activities Control activities are the
policies and procedures established to achieve
the entitys objectives. They help ensure that
managements directives are carried out in daily
program operations. Examples of control
activities include Authorization and approvals
for transactions and other events. Verifications
and reconciliations. Controls over access to
assess, resources, and records. Management-level
reviews of program performance and other
activities. Documentation of transactions,
approvals, and other significant management
involvement in program activities. Supervision,
including assigning, reviewing work,
training. Development of formal policies and
procedures to govern the above.
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Control Activities Relevant questions What
control activities will help ensure that funding
will be used for intended purposes? What control
activities are in place to minimize fraud, waste,
and abuse? (eligibility of recipients,
prescreening of grantees and contractors,
oversight of use of funds by grantees and
contractors) Methods the state plans to use for
competing grants and contracts Excluded Parties
List (suspended and disbarred business and
individuals)
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Control Activities Red Flags The agency or
program has recently undergone major change e.g.
new responsibilities, reorganization, cuts in
funding, expansion of programs, changes in
management. Agency or program is understaffed
and/or workload has drastically increased, and
staff are having difficulties handling
operational workload. There have been previous
issues with fraud, waste, or abuse. Employees are
unaware of policies and procedures, but do things
the way they have always been done. Operating
policies and procedures have not been developed
or are outdated. Key documentation is often
lacking or does not exist. Control environment
is bad Employee morale is bad
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Information and Communication Information is
needed by management and employees to monitor
program implementation while maintaining proper
accountability and internal control. Pertinent
information should be regularly tracked and
communicated throughout the organization (down,
up, and across) so that employees in all levels
of the organization understand their role in
achieving the organizations mission and
objectives, and their roles and responsibilities
in maintaining proper internal controls.
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Information and Communication Relevant
Questions Is adequate written policies and
guidance available to those who are implementing
the program and monitoring uses of funds? What
type of program status and monitoring information
will be distributed, who will be using it? Has
the state established financial reporting
requirements on the use of ARRA funds? What
information does management use for decision
making about program implementation, monitoring,
and oversight? How is the status of program
implementation and any known risks and weaknesses
communicated to those who are in a position to
mitigate those risks?
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Information and Communication Red Flags- When
top management needs information, there is a mad
scramble to assemble the information, or the
process is handled through ad hoc mechanisms.
Key information requests for basic information
on the status of operations are difficult for
the agency to respond to and require extra
resources or special efforts. Management is
using poor quality information or outdated
information for making decisions. Staff are
frustrated by requests for information because it
is time consuming and difficult to provide the
information. Management does not have reasonable
assurance that the information it is using is
accurate
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Monitoring Internal control systems should be
monitored to assess their effectiveness and to
modify procedures as appropriate based on results
of the monitoring activities (feedback).
Monitoring is accomplished through routine,
ongoing activities, separate evaluations, or
both, and should be built into the normal,
recurring operating activities of an entity. The
monitoring process should also be used to ensure
that audit findings and recommendations are
adequately and promptly resolved.
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Monitoring Relevant questions How will the
state monitor status of funds, and performance?
How will this be linked with state goals? What
resources will be dedicated to monitoring
Recovery Act funds and what opportunity costs are
associated with this? What types of oversight,
onsite visits, and project inspections will be
conducted for grantees and contractors?
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Monitoring Red Flags Significant problems exist
in controls and management was not aware of those
problems until a big problem occurred or until
another outside party brought it to their
attention (e.g. a recipient of funding, or an
external audit). The agency or program has
recently undergone major change e.g. new
responsibilities, reorganization, cuts in
funding, expansion of programs, changes in
management. There are problems with the other
control elements control environment, risk
assessment, control activities, information and
communications. Previous audit findings are not
being resolved adequately or timely. Program is
in general chaos.
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Sub-Recipient Monitoring

• Partnership for Intergovernmental Management and
  Accountability
• New Guidance
• Risk Assessment Monitoring Tool-
• http//www.agacgfm.org/intergovernmental/downloads
  /riskassessmentmonitoringtool.pdf
• Financial and Administrative Monitoring Tool-
• http//www.agacgfm.org/intergovernmental/downloads
  /financialadministrativemonitoringtool.pdf

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Arizona Specific

• Coordinate with Governors Office of Economic
  Recovery
• Coordinate with ADOA-GAO
• GAO Policies Current and Future
• GAO Website Required to Subscribe
• Still Evolving Watch for Developments
• Communication (3 Basic Rules Communicate,
  Communicate, Communicate)
• Future Meetings

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Agency Issues

• What can agencies do?
• Coordinate with Governors Office GAO
• Who is the agency point person?
• Who is responsible for oversight?
• Consider multiple perspectives agency
  activity, sub-recipients, etc.
• How do we plan to report?
• What can our agency be doing now?
• Stay Tuned!
• Be flexible and ready to change!

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Questions Comments

• What are your concerns?
• How are you preparing?
• What can we do to help?
• Have you considered resource requirements?
• Other?