Recovery Act
Funds Supported Many Water Projects, and Federal and State Monitoring Shows Few Compliance Problems Gao ID: GAO-11-608 June 29, 2011The American Recovery and Reinvestment Act of 2009 (Recovery Act) provided $4 billion for the Environmental Protection Agency's (EPA) Clean Water State Revolving Fund (SRF) and $2 billion for the agency's Drinking Water SRF. The Recovery Act requires GAO to review funds made available under the act and comment on recipients' reports of jobs created and retained. These jobs are reported as full-time equivalent (FTE) positions on a Web site created for the Recovery Act on www.Recovery.gov. GAO examined the (1) status and use of Recovery Act SRF program funds nationwide and in nine states; (2) EPA and state actions to monitor the act's SRF program funds; (3) EPA and selected states' approaches to ensure data quality, including for jobs reported by recipients of the act's funds; and (4) challenges, if any, that states have faced in implementing the act's requirements. For this work, GAO, among other things, obtained and analyzed EPA nationwide data on the status of Recovery Act clean and drinking water funds and projects and information from a nonprobability sample of nine states that represent all but 1 of EPA's 10 regions. GAO also interviewed EPA and state officials on their experiences with the Recovery Act SRF program funds.
The 50 states have awarded and obligated the almost $6 billion in Clean Water and Drinking Water SRF program funds provided under the Recovery Act, and EPA indicated that all 50 states met the act's requirement to award funds to projects under contract 1 year after the act's passage. States used the funds to support more than 3,000 water quality projects, and according to EPA data, the majority of the funds were used for sewage treatment infrastructure and drinking water treatment and distribution systems. Since the act was passed, states have drawn down almost 80 percent of the SRF program funds provided under the act. According to EPA data, states met the act's requirements that at least (1) 20 percent of the funds be used to support "green" projects and (2) 50 percent of the funds be provided as additional subsidies. In the nine states GAO reviewed, the act's funds paid for 419 infrastructure projects that helped address major water quality problems, but state officials said in some cases the act's requirements changed their priorities for ranking projects or the projects selected. In addition, although not required by the act, the nine states used about a quarter of the funds they received to pay for projects in economically disadvantaged communities, most in additional subsidies. EPA, states, and state or private auditors took actions to monitor Recovery Act SRF program funds. For example, EPA officials reviewed all 50 states' Recovery Act SRF programs at least once and found that states were largely complying with the act's requirements. Also, in part as a response to a GAO recommendation, in June 2010 EPA updated--and is largely following--its oversight plan, which describes monitoring actions for the SRF programs. Furthermore, state officials visited sites to monitor Recovery Act projects, as indicated in the plan, and found few problems. Officials at EPA and in the nine states have also regularly checked the quality of data on Recovery.gov and stated that the quality has remained relatively stable, although GAO identified minor inconsistencies in the FTE data that states reported. Overall, the 50 states reported that the Recovery Act SRF programs funded an increasing number of FTE positions for the quarter ending December 2009 through the quarter ending June 2010, from about 6,000 FTEs to 15,000 FTEs. As projects were completed and funds spent, these FTEs had declined to about 6,000 FTEs for the quarter ending March 2011. Some state officials GAO interviewed identified challenges in implementing the Recovery Act's Clean and Drinking Water SRF requirements for green projects and additional subsidies, both of which were continued with some variation, in the fiscal year 2010 and 2011 appropriations for the SRF programs. Officials in four states said achieving the green-funding goal was difficult, with one suggesting that the 20 percent target be changed. In addition, officials in two of the four states, as well as in two other states, noted that when monies are not repaid into revolving funds to generate future revenue for these funds, the SRF program purpose changes from primarily providing loans for investments in water infrastructure to providing grants. GAO is making no recommendations in this report, which was provided to EPA for its review and comment. EPA did not comment on the report.
GAO-11-608, Recovery Act: Funds Supported Many Water Projects, and Federal and State Monitoring Shows Few Compliance Problems
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United States Government Accountability Office:
GAO:
Report to the Congress:
June 2011:
Recovery Act:
Funds Supported Many Water Projects, and Federal and State Monitoring
Shows Few Compliance Problems:
GAO-11-608:
GAO Highlights:
Highlights of GAO-11-608, a report to the Congress.
Why GAO Did This Study:
The American Recovery and Reinvestment Act of 2009 (Recovery Act)
provided $4 billion for the Environmental Protection Agency‘s (EPA)
Clean Water State Revolving Fund (SRF) and $2 billion for the agency‘s
Drinking Water SRF.
The Recovery Act requires GAO to review funds made available under the
act and comment on recipients‘ reports of jobs created and retained.
These jobs are reported as full-time equivalent (FTE) positions on a
Web site created for the Recovery Act on [hyperlink,
http://www.Recovery.gov].
GAO examined the (1) status and use of Recovery Act SRF program funds
nationwide and in nine states; (2) EPA and state actions to monitor
the act‘s SRF program funds; (3) EPA and selected states‘ approaches
to ensure data quality, including for jobs reported by recipients of
the act‘s funds; and (4) challenges, if any, that states have faced in
implementing the act‘s requirements.
For this work, GAO, among other things, obtained and analyzed EPA
nationwide data on the status of Recovery Act clean and drinking water
funds and projects and information from a nonprobability sample of
nine states that represent all but 1 of EPA‘s 10 regions. GAO also
interviewed EPA and state officials on their experiences with the
Recovery Act SRF program funds.
GAO is making no recommendations in this report, which was provided to
EPA for its review and comment. EPA did not comment on the report.
What GAO Found:
The 50 states have awarded and obligated the almost $6 billion in
Clean Water and Drinking Water SRF program funds provided under the
Recovery Act, and EPA indicated that all 50 states met the act‘s
requirement to award funds to projects under contract 1 year after the
act‘s passage. States used the funds to support more than 3,000 water
quality projects, and according to EPA data, the majority of the funds
were used for sewage treatment infrastructure and drinking water
treatment and distribution systems. Since the act was passed, states
have drawn down almost 80 percent of the SRF program funds provided
under the act. According to EPA data, states met the act‘s
requirements that at least (1) 20 percent of the funds be used to
support ’green“ projects and (2) 50 percent of the funds be provided
as additional subsidies. In the nine states GAO reviewed, the act‘s
funds paid for 419 infrastructure projects that helped address major
water quality problems, but state officials said in some cases the act‘
s requirements changed their priorities for ranking projects or the
projects selected. In addition, although not required by the act, the
nine states used about a quarter of the funds they received to pay for
projects in economically disadvantaged communities, most in additional
subsidies.
EPA, states, and state or private auditors took actions to monitor
Recovery Act SRF program funds. For example, EPA officials reviewed
all 50 states‘ Recovery Act SRF programs at least once and found that
states were largely complying with the act‘s requirements. Also, in
part as a response to a GAO recommendation, in June 2010 EPA updated”-
and is largely following”-its oversight plan, which describes
monitoring actions for the SRF programs. Furthermore, state officials
visited sites to monitor Recovery Act projects, as indicated in the
plan, and found few problems.
Officials at EPA and in the nine states have also regularly checked
the quality of data on Recovery.gov and stated that the quality has
remained relatively stable, although GAO identified minor
inconsistencies in the FTE data that states reported. Overall, the 50
states reported that the Recovery Act SRF programs funded an
increasing number of FTE positions for the quarter ending December
2009 through the quarter ending June 2010, from about 6,000 FTEs to
15,000 FTEs. As projects were completed and funds spent, these FTEs
had declined to about 6,000 FTEs for the quarter ending March 2011.
Some state officials GAO interviewed identified challenges in
implementing the Recovery Act‘s Clean and Drinking Water SRF
requirements for green projects and additional subsidies, both of
which were continued with some variation, in the fiscal year 2010 and
2011 appropriations for the SRF programs. Officials in four states
said achieving the green-funding goal was difficult, with one
suggesting that the 20 percent target be changed. In addition,
officials in two of the four states, as well as in two other states,
noted that when monies are not repaid into revolving funds to generate
future revenue for these funds, the SRF program purpose changes from
primarily providing loans for investments in water infrastructure to
providing grants.
View [hyperlink, http://www.gao.gov/products/GAO-11-608] or key
components. For more information, contact David C. Trimble at (202)
512-3841 or trimbled@gao.gov.
[End of section]
Contents:
Letter:
Background:
All Recovery Act SRF Program Funds Have Been Awarded and Obligated,
and with Some Exceptions, States Reported Supporting Major
Infrastructure Projects and Helping Economically Disadvantaged
Communities:
EPA, States, and Other Agencies Took Actions to Monitor SRF Program
Funds and Found Projects Largely Complied with Recovery Act
Requirements:
Federal and State Agencies Continue to Oversee the Quality of
Recipient Reporting Data, Including Jobs, in Seventh Round of
Reporting:
The States Identified Challenges in Implementing Recovery Act SRF
Programs That Highlight Potential Future Challenges for SRF Programs:
Agency Comments and Our Evaluation:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Status of Prior Open Recommendations and Matters for
Congressional Consideration:
Appendix III: GAO Contact and Staff Acknowledgments:
Table:
Table 1: Number of Economically Disadvantaged Community Projects
Funded for Nine States under the Recovery Act SRF Programs:
Figures:
Figure 1: Categories of Clean Water SRF Projects Funded by the
Recovery Act Funds in 50 States:
Figure 2: Old and New Settlement Basins at Montevallo, Alabama,
Wastewater Treatment Plant:
Figure 3: Categories of Drinking Water SRF Projects Funded by the
Recovery Act in 50 States:
Figure 4: Montebello Drinking Water Treatment Plant, Treated Water
Reservoir under Construction, December 2010:
Figure 5: Total Recovery Act Funds Awarded to the 50 States for Green
Projects under the Clean Water and Drinking Water SRF Programs, by
Type of Project:
Figure 6: Gotts Court Parking Lot Improvements, Annapolis, Maryland:
Figure 7: Effluent Washwater System in Los Alamos, New Mexico,
Wastewater Treatment Plant:
Figure 8: Amount of Recovery Act Funds Awarded by the 50 States as
Principal Forgiveness, Grants, or Negative Interest Loans and Low-or
No-Interest Loans:
Figure 9: SRF FTEs Reported as Funded with Recovery Act Funds in 50
States from October 2009 through March 2011:
Abbreviations:
CBR: Clean Water Benefits Reporting:
EPA: Environmental Protection Agency:
FTE: full-time equivalent:
OIG: Office of Inspector General:
OMB: Office of Management and Budget:
PBR: Program Benefits Reporting:
Recovery Act: American Recovery and Reinvestment Act of 2009:
SRF: State Revolving Fund:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
June 29, 2011:
Report to the Congress:
In response to the serious economic crisis that began in 2007,
Congress enacted the American Recovery and Reinvestment Act of 2009
(Recovery Act).[Footnote 1] Among other things, the purposes of the
Recovery Act were to preserve and create jobs, promote national
economic recovery, and provide long-term economic benefits through
infrastructure investments, including water infrastructure.[Footnote
2] In past reports, GAO has identified the need for stimulus funds to
be timely, targeted, and temporary.[Footnote 3] To this end, Recovery
Act funds were directed to support services and build infrastructure
in a wide range of areas, including health, education, transportation,
energy, and water. In particular, the Recovery Act provided $6 billion
for the Environmental Protection Agency's (EPA) Clean Water and
Drinking Water State Revolving Fund (SRF) programs. These funds
represented a significant federal investment in the nation's water
infrastructure at a time when, according to a 2010 Congressional
Budget Office report, overall spending on infrastructure has been
declining, and when reported problems with the quality and safety of
water supplies have raised questions about the condition of the
nation's infrastructure.[Footnote 4]
The Recovery Act mandates that GAO conduct bimonthly reviews of the
funds used by states and determine whether the act is achieving its
stated purposes.[Footnote 5] The Recovery Act also requires GAO to
comment and report quarterly on, among other things, estimates of job
creation and retention, counted as full-time equivalent (FTE), as
reported by recipients of Recovery Act funds.[Footnote 6] In this
report, we update our May 2010 report and add new information on the
use of Recovery Act funds provided for the Clean and Drinking Water
SRF programs.[Footnote 7] Specifically, for this report we examined
the (1) status and use of Clean and Drinking Water Recovery Act SRF
program funds nationwide and in selected states; (2) actions taken by
federal, state, and other agencies to monitor and ensure
accountability of these program funds; (3) approaches federal agencies
and selected states have taken to ensure data quality, including data
for jobs reported by recipients of these program funds; and (4)
challenges, if any, that states have faced in implementing Recovery
Act requirements for the Clean and Drinking Water SRF programs.
To address these objectives we obtained and analyzed nationwide data
from EPA on the status of Recovery Act Clean and Drinking Water SRF
program funds and projects, as well as information from selected
states on their use of Recovery Act funds. We discussed this
information and Recovery Act requirements and reporting with EPA and
state officials, including program officials in state environmental
and public health departments responsible for the SRF programs and
state Recovery Act officials. To develop a more in-depth view of the
states' use of Recovery Act funds for Clean and Drinking Water SRF
programs, we selected a nonprobability sample of nine states that we
had not reviewed in our previous bimonthly reports, representing all
but 1 of EPA's 10 regions.[Footnote 8] For these states, we obtained
and analyzed information on the states' prioritization processes for
the programs, the amount of Recovery Act funds provided to projects,
the amount of funding provided to green projects and additional
subsidies, the amount of funds received and spent, and the FTEs funded
for each project and in total. For data gathered from the nine states,
we had state officials review, verify, and correct, when necessary,
data in EPA's Recovery Act databases; we found the data sufficiently
reliable for our purposes. We also obtained and analyzed national data
from EPA on award amounts, funds drawn down by states, categories of
water infrastructure projects funded, and FTEs.[Footnote 9] We used
these data to assess the reliability of Recovery.gov data reported by
the states and determined that the data were reliable for our
purposes. Appendix I discusses our scope and methodology in more
detail.
Our oversight of programs funded by the Recovery Act has resulted in
more than 100 related products with numerous recommendations since we
began reporting on the Recovery Act.[Footnote 10] This report updates
agency actions in response to recommendations from previous bimonthly
and recipient reporting reviews that have not been fully implemented
(referred to as open recommendations) in appendix II.
We testified in May 2011 on our preliminary observations concerning
this work, and this report provides our final results. We conducted
this performance audit from September 2010 through June 2011, in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives.
Background:
Both the Clean Water and Drinking Water SRF programs authorize EPA to
provide states and local communities with independent and sustainable
sources of financial assistance. This assistance is typically in the
form of low-or no-interest loans, for projects that protect or improve
water quality and that are needed to comply with federal drinking
water regulations and protect public health. Repayment of these loans
replenishes the funds and provides the ability to fund future loans
for additional projects. The Clean Water SRF program was established
in 1987 under the Clean Water Act, which was enacted to protect
surface waters, such as rivers, lakes, and coastal areas, and to
maintain and restore the physical, chemical, and biological integrity
of these waters. The Drinking Water SRF program was established in
1996 under the Safe Drinking Water Act, which was enacted to establish
national enforceable standards for drinking water quality and to
guarantee that water suppliers monitor water to ensure compliance with
standards.
The Recovery Act provided $6 billion for EPA's Clean Water and
Drinking Water SRF programs.[Footnote 11] This amount represents a
significant increase over the federal funds awarded to the non-
Recovery Act, or base, SRF programs in recent years. From fiscal years
2000 through 2009, annual appropriations averaged about $1.1 billion
for the Clean Water SRF program and about $833 million for the
Drinking Water SRF program. In addition to increasing funds, the
Recovery Act included some new requirements for the SRF programs.
First, projects funded with Recovery Act SRF program funds had to be
under contract--ready to proceed--within 1 year of the act's passage,
or by February 17, 2010. Second, states had to use at least 20 percent
of these funds as a "green reserve" to provide assistance for green
infrastructure projects, water-or energy-efficiency improvements, or
other environmentally innovative activities. Third, states had to use
at least 50 percent of Recovery Act funds to provide "additional
subsidies" for projects in the form of principal forgiveness, grants,
or negative interest loans.[Footnote 12] Uses for these additional
subsidies can include helping economically disadvantaged communities
build water projects, although these uses are not a requirement of the
act. With some variation, Congress incorporated two of these
requirements--green projects and additional subsidies--into the fiscal
year 2010 and 2011 base SRF program appropriations.
In addition to meeting requirements from program-specific provisions,
water projects receiving Recovery Act funds have to meet requirements
from the act's Buy American and Davis-Bacon provisions. The Recovery
Act generally requires that all of the iron, steel, and manufactured
goods used in a project be produced in the United States, subject to
certain exceptions.[Footnote 13] Federal agencies can issue waivers
for certain projects under specified conditions, for example, if using
American-made goods is inconsistent with the public interest or if the
cost of goods is unreasonable; the act limits the "unreasonable cost"
exception to those instances when inclusion of American-made iron,
steel, or other manufactured goods will increase the overall project
cost by more than 25 percent. Furthermore, recipients do not need to
use American-made goods if they are not sufficiently available or not
of satisfactory quality. In addition, the Recovery Act applies Davis-
Bacon provisions to all Recovery Act-funded projects, requiring
contractors and subcontractors to pay all laborers and mechanics at
least the prevailing wage rates in the local area where they are
employed, as determined by the Secretary of Labor.[Footnote 14]
Contractors are required to pay these workers weekly and submit weekly
certified payroll records.
To enhance transparency and accountability over Recovery Act funds,
Congress and the administration built numerous provisions into the
act, including a requirement that recipients of Recovery Act funding--
including state and local governments, private companies, educational
institutions, nonprofits, and other private organizations--report
quarterly on a number of measures. (Recipients, in turn, may award
Recovery Act funds to subrecipients, which are nonfederal entities.)
These reports are referred to as "recipient reports," which the
recipients provide through one Web site, [hyperlink,
http://www.federalreporting.gov] (Federalreporting.gov) for final
publication through a second Web site, [hyperlink,
http://www.recovery.gov] (Recovery.gov). Recipient reporting is
overseen by the responsible federal agencies, such as EPA, in
accordance with Recovery Act guidance provided by the Office of
Management and Budget (OMB). Under this guidance, the federal agencies
are required to conduct data quality checks of recipient data, and
recipients can correct the data, before they are made available on
Recovery.gov. Furthermore, additional corrections can be made during a
continuous correction cycle after the data are released on
Recovery.gov.
A significant aspect of accountability for Recovery Act funds is
oversight of spending. According to the federal standards of internal
control, oversight should provide managers with current information on
expenditures to detect problems and proactively manage risks
associated with unusual spending patterns.[Footnote 15] In guidance
issued in February 2009, OMB required each federal agency to develop a
plan detailing the specific activities--including monitoring
activities--that it would undertake to manage Recovery Act funds. EPA
issued its first version of this plan in May 2009, as required, and
updated this document as OMB issued new guidance.[Footnote 16]
All Recovery Act SRF Program Funds Have Been Awarded and Obligated,
and with Some Exceptions, States Reported Supporting Major
Infrastructure Projects and Helping Economically Disadvantaged
Communities:
Nationwide, the 50 states have awarded and obligated the almost $6
billion in Clean Water and Drinking Water SRF program funds provided
under the Recovery Act and reported using the majority of these funds
for sewage treatment infrastructure and drinking water treatment and
distribution systems, according to EPA data. In the nine states we
reviewed, the states used these funds to pay for infrastructure
projects that help to address major water quality problems, although
state officials said that in some cases, Recovery Act requirements
changed their priorities or the projects selected for funding. The
nine states also used their Recovery Act funding to help economically
disadvantaged communities, but state officials indicated that they
continue to have difficulty helping these communities.
Nationwide, EPA Data Indicate States Awarded and Obligated the
Majority of Recovery Act Water Funds for Sewage Treatment
Infrastructure and Drinking Water Treatment and Distribution Systems:
As of March 30, 2011, states had awarded funds for contracts and
obligated the $4 billion in Clean Water SRF program funds and $2
billion in Drinking Water SRF program funds provided under the
Recovery Act.
Requirement to Award Recovery Act Funds to Projects under Contract
within 1 Year:
As we reported in May 2010, EPA indicated that all 50 states met the
Recovery Act requirement to award Recovery Act funds to projects under
contract by February 17, 2010, 1 year after the enactment of the
Recovery Act.[Footnote 17] In the 2 years since the Recovery Act was
passed, states have drawn down from the Treasury approximately 79
percent, or $3.1 billion, of the Clean Water SRF program funds and
approximately 83 percent, or $1.7 billion, of the Drinking Water SRF
program funds.[Footnote 18]
Across the nation, the states have used the almost $6 billion in
Recovery Act Clean and Drinking Water SRF program funds to support
more than 3,000 water quality infrastructure projects. As shown in
figure 1, the states used the majority of their Recovery Act Clean
Water SRF program funds to improve secondary and advanced treatment at
wastewater treatment plants,[Footnote 19] as well as projects to
prevent or mitigate sanitary sewer overflow.[Footnote 20]
Figure 1: Categories of Clean Water SRF Projects Funded by the
Recovery Act in 50 States:
[Refer to PDF for image: pie-chart]
Secondary treatment: 31%;
Advanced treatment: 17%;
Sanitary sewer overflow: 17%;
New sewers: 15%;
Combined sewer overflow: 8%;
Nonpoint source projects[A]: 8%;
Storm water sewers: 2%;
Recycled water distribution: 2%;
Other: 0%.
Source: GAO analysis of EPA data.
[A] Nonpoint source projects are intended to address nonpoint source
pollution--which refers to water pollutants from nonpoint sources.
These are diffuse sources from a variety of land-based activities,
such as timber harvesting, agriculture, and urban development.
[End of figure]
In Montevallo, Alabama, for example, the state provided Clean Water
SRF program funds to upgrade an outdated wastewater treatment plant in
Shelby County that served a population of about 5,000. The upgrade
added two large settlement basins to hold and treat wastewater,
replacing a series of small basins (see figure 2). The additional
treatment is expected to remove nutrients, such as nitrogen and
phosphorus, to help the county meet higher standards in the nearby
waterways receiving the plant's discharged water.
Figure 2: Old and New Settlement Basins at Montevallo, Alabama,
Wastewater Treatment Plant:
[Refer to PDF for image: 2 photographs]
Old settlement basin;
New settlement basin under construction.
Source: GAO.
[End of figure]
As shown in figure 3, the states used about half of their Recovery Act
Drinking Water SRF program funds to construct projects to transmit and
distribute drinking water, including pumps and pipelines to deliver
water to customers. States used about 40 percent of their funds for
projects to treat and store drinking water.
Figure 3: Categories of Drinking Water SRF Projects Funded by the
Recovery Act in 50 States:
[Refer to PDF for image: pie-chart]
Transmission and distribution: 52%;
Treatment: 26%;
Storage: 13%;
Source: 6%;
Other: 3%;
Restructuring: 0%;
Purchase of systems: 0%;
Planning and design: 0%;
Land acquisition: 0%.
Source: GAO analysis of EPA data.
[End of figure]
In Baltimore, Maryland, for example, the state provided funds to the
city to cover one of its treated water reservoirs at the Montebello
drinking water treatment plant. Before it was covered, the reservoir
was open to birds and other sources of contamination, and city water
managers used a mesh-like material to try to keep birds from landing
on or using the water. When the project is complete, the reservoir
will be a huge, cement tank buried under soil and vegetation (see
figure 4 for the project under construction in December 2010).
Figure 4: Montebello Drinking Water Treatment Plant, Treated Water
Reservoir under Construction, December 2010:
[Refer to PDF for image: 2 photographs]
Montebello Plant 2;
Water reservoir under construction and before being covered with soil
and vegetation.
Source: GAO.
[End of figure]
Requirement to Use at Least 20 Percent of Funding for Green Projects:
According to EPA data, all states met the requirement to use at least
20 percent of their Recovery Act funding for green projects, with $1.1
billion of total Clean Water SRF program funds going to green projects
and $544 million of total Drinking Water SRF program funds going to
green projects. According to EPA, the goal of supporting green
projects is to promote green infrastructure, energy or water
efficiency, and innovative ways to sustainably manage water resources.
Green infrastructure refers to a variety of technologies or practices--
such as green roofs, porous pavement, and rain gardens--that use or
mimic natural systems to enhance overall environmental quality. In
addition to retaining rainfall and snowmelt and allowing them to seep
into groundwater, these technologies can mitigate urban heat islands,
[Footnote 21] and sequester carbon. Figure 5 shows the amount of Clean
Water and Drinking Water SRF program funds that states awarded to
green projects by type of project.
Figure 5: Total Recovery Act Funds Awarded to the 50 States for Green
Projects under the Clean Water and Drinking Water SRF Programs, by
Type of Project:
[Refer to PDF for image: stacked vertical bar graph]
Green investment category: Clean water;
Green infrastructure: $209 million;
Energy efficiency: $607 million;
Water efficiency: $154 million;
Environmentally innovative: $160 million.
Green investment category: Drinking water;
Green infrastructure: $24 million;
Energy efficiency: $137 million;
Water efficiency: $343 million;
Environmentally innovative: $40 million.
Source: GAO analysis of EPA data.
[End of figure]
In Annapolis, Maryland, for example, city officials used Clean Water
SRF program funds to construct a green parking lot, a project that
helped retain and filter storm water runoff. (See figure 6.)
Figure 6: Gotts Court Parking Lot Improvements, Annapolis, Maryland:
[Refer to PDF for image: photograph]
Green parking lot.
Source: GAO.
[End of figure]
In Los Alamos, New Mexico, city officials used Clean Water SRF program
funds to install facilities to recycle water at the city's wastewater
treatment plant; the recycled water will be used as washwater--water
that is used in the plant to clean equipment (see figure 7). Because
New Mexico is an arid state, the reuse of water saves operating costs
for the plant, as well as scarce water resources.
Figure 7: Effluent Washwater System in Los Alamos, New Mexico,
Wastewater Treatment Plant:
[Refer to PDF for image: 2 photographs]
Booster pump station building.
Source: GAO.
[End of figure]
Requirement to Provide at Least 50 Percent of Funding as Additional
Subsidies:
Nationwide, the states also met the Recovery Act requirement to
provide at least 50 percent of the Clean Water and Drinking Water SRF
program funds as additional subsidies in the form of principal
forgiveness, negative interest loans, or grants (i.e., not loans to be
fully repaid). Of the total Recovery Act funds awarded, 76 percent of
Clean Water SRF Recovery Act funds and 70 percent of Drinking Water
SRF Recovery Act funds were distributed as additional subsidies.
Figure 8 shows the total Clean Water and Drinking Water Recovery Act
funds awarded by the states as principal forgiveness, negative
interest loans, or grants. The remaining 24 percent of Clean Water SRF
Recovery Act funds and 30 percent of Drinking Water SRF Recovery Act
funds will be provided as low-or no-interest loans that will recycle
back into the programs as subrecipients repay their loans.
Figure 8: Amount of Recovery Act Funds Awarded by the 50 States as
Principal Forgiveness, Grants, or Negative Interest Loans and Low-or
No-Interest Loans:
[Refer to PDF for image: stacked vertical bar graph]
Additional subsidies: Clean water;
Low or no interest loan: $904 million;
Principal forgiveness, negative interest loan, or grant: $2.906
billion.
Additional subsidies: Drinking water;
Low or no interest loan: $534 million;
Principal forgiveness, negative interest loan, or grant: $1.270
billion.
Source: GAO analysis of EPA data.
[End of figure]
Recovery Act Water Funds Generally Addressed Major Water Quality
Problems in Nine States, although Recovery Act Requirements Changed
Some State Priorities or Projects:
In the nine states we reviewed, Recovery Act Clean and Drinking Water
SRF program funds have been used to address some of the major clean
and drinking water problems in the states. These nine states received
a total of about $832 million in Recovery Act SRF program funds--about
$579 million for their Clean Water SRF programs and about $253 million
for their Drinking Water SRF programs. In total, these funds supported
419 clean and drinking water projects.[Footnote 22]
To award SRF program funds, each of the nine states used a system to
score and rank water projects seeking funds to address water quality
problems that were submitted by local municipalities or utilities. The
projects with the most points are considered the highest priority on
the list of projects for funding. For example, Nevada officials told
us that groundwater contamination is their state's major clean water
quality problem, which their ranking system addresses by designating
the elimination of existing contamination of groundwater as one of the
state's highest-scoring priorities. In addition, in most of the nine
states we reviewed, compliance is a key aspect of their ranking
system, allowing points to be awarded to infrastructure projects that
help the states eliminate causes of noncompliance with federal or
state water quality standards and permits. Officials in most of the
nine states said that they generally obtain information on their water
systems' compliance with federal and state water quality standards
through discussions with their program compliance staff and from state
databases. Michigan, for example, assigns a significant amount of
points to clean water projects--such as sewage treatment works--that
will help these projects comply with enforcement actions brought by
the state against a municipality.
In the nine states we reviewed, officials said that Recovery Act
priorities--including the requirements for projects to be ready to
proceed to contract 1 year after the passage of the Recovery Act or
for green projects--either changed their priorities for ranking and
funding projects or changed the projects they funded.
Readiness of a project to proceed to construction requirement. In the
nine states, officials included readiness to proceed and other
Recovery Act requirements in their ranking system and selected
projects on the basis of that ranking system or said that they did not
fund--or bypassed--top-ranked projects that were not ready to proceed
to construction by February 17, 2010, 1 year after the passage of the
Recovery Act. For example, Washington State's two top-ranked clean
water projects did not receive Recovery Act SRF program funds because
they could not meet the February 2010 deadline. The projects were to
decommission septic systems and construct a wastewater treatment plant
to reduce phosphorus discharges to the Spokane River. In Wyoming, many
of the projects that were not ready to proceed were water treatment
plants, which state officials said take longer to design and plan for
construction. Although these higher-ranked projects did not receive
Recovery Act funds, at least two states were able to fund these
projects in other ways, such as through state grants or non-Recovery
Act SRF program funds.
Green project requirement. Three states listed green projects
separately from other projects. For example, Washington State
officials who manage the Clean Water SRF program told us that they
established a green projects category because they had anticipated
that projects focused primarily on energy and water efficiency (green
projects) would not score well under their ranking system, which
focuses on water quality protection and improvements. Other states
funded green projects ahead of higher-ranked projects. For example,
Nevada did not fund a number of higher-ranked projects and funded a
lower-ranked drinking water project that had green components.
Similarly, Maryland bypassed many projects to fund the first green-
ranked project on its list.
Buy American and Davis-Bacon provisions. State officials identified a
few projects that did not proceed because potential subrecipients
either did not want to meet one or more Recovery Act requirements,
such as the Buy American and Davis-Bacon provisions, or did not want
to increase the cost of their projects. For example, local officials
in Alabama withdrew their application for a drinking water project
because the project was already contracted without Buy American and
Davis-Bacon wage requirements, and an addendum to the contract to meet
the regulations would have increased the project's cost. Similarly,
officials in all nine states said that a few communities indicated
they preferred to have their projects funded from the base program, or
chose not to apply for or withdrew from the Recovery Act funding
process to avoid paperwork or the additional costs associated with the
act's Buy American or Davis-Bacon requirements.[Footnote 23] For
example, Wyoming officials said that potential subrecipients for three
clean water projects refused funding, citing time constraints or
difficulty meeting Buy American requirements.
Despite changes in priorities for ranking and funding projects or in
the projects funded, officials reported that they were able to fund
projects with Recovery Act funds that helped resolve their major water
problems. For example,
* Wyoming officials told us that Recovery Act clean and drinking water
funds were used to replace aging sewer and water lines, which they
said was one of their major problems.
* Connecticut officials said that Recovery Act funding helped support
four combined sewer overflow projects, which resulted in fewer
discharges of partially treated sewage into the area waterways.
[Footnote 24]
* Nevada officials told us that Recovery Act funding will help with
the rehabilitation and relining of sewer ponds in four rural
communities, eliminating groundwater pollution, a major problem in the
state.
* Washington State officials who manage the Drinking Water SRF program
told us that six of their Recovery Act projects addressed arsenic
drinking water contamination, a major water problem in the state.
States Supported Economically Disadvantaged Communities, in Part by
Using Additional Subsidies Authorized under the Act, although
Officials Cited Continuing Difficulty in Helping These Communities:
Although the Recovery Act did not require states to target Clean and
Drinking Water SRF program funds to economically disadvantaged
communities, six of the nine states that we reviewed distributed more
than $123 million in clean water funds, and eight of the nine states
distributed almost $78 million in drinking water funds under the SRF
Recovery Act programs to these communities.[Footnote 25] This amount
represents about 24 percent of the almost $832 million in Recovery Act
funds that the states were awarded.[Footnote 26] As shown in table 1,
a large majority of the funds provided to these communities were
provided as additional subsidies--grants, principal forgiveness, and
negative interest loans.[Footnote 27]
Table 1: Number of Economically Disadvantaged Community Projects
Funded for Nine States under the Recovery Act SRF Programs:
SRF Programs: Clean Water;
Number of projects funded: 261;
Amount of SRF funds provided to projects: $579 million;
Number of projects funded in economically disadvantaged communities:
70;
Amount of SRF funds provided to economically disadvantaged projects:
$123 million;
Amount of SRF funds provided to economically disadvantaged projects as
additional subsidies: $101 million;
Percent of additional subsidies provided to economically disadvantaged
projects: 82%.
SRF Programs: Drinking Water;
Number of projects funded: 158;
Amount of SRF funds provided to projects: $253 million;
Number of projects funded in economically disadvantaged communities:
63;
Amount of SRF funds provided to economically disadvantaged projects:
$78 million;
Amount of SRF funds provided to economically disadvantaged projects as
additional subsidies: $66 million;
Percent of additional subsidies provided to economically disadvantaged
projects: 85%.
SRF Programs: Total;
Number of projects funded: 419[A];
Amount of SRF funds provided to projects: $832 million;
Number of projects funded in economically disadvantaged communities:
133;
Amount of SRF funds provided to economically disadvantaged projects:
$201 million;
Amount of SRF funds provided to economically disadvantaged projects as
additional subsidies: $167 million;
Percent of additional subsidies provided to economically disadvantaged
projects: 83%.
Source: GAO analysis of state-provided data.
[A] All 50 states funded more than 3,000 such projects.
[End of table]
According to officials in five of the nine states we reviewed, their
states provided additional subsidies to economically disadvantaged
communities because the communities would otherwise have had a
difficult time funding projects. For example, New Mexico officials
told us that they directed additional drinking water subsidies to
economically disadvantaged communities because these communities have
historically lacked access to capital. Officials in Nevada told us
such communities not only have a difficult time funding projects, they
also have some of the projects with the highest priority for
addressing public health and environmental protection concerns. In
addition, officials in a few other states told us that economically
disadvantaged communities often lack the financial means to pay back
loans from the SRF programs or lack funds to pay for the upfront costs
of planning and designing a project. Officials in at least two states
also said that many economically disadvantaged communities lack full-
time staff to help manage the water infrastructure.
Even with the additional subsidies available for projects, officials
in a few states said that economically disadvantaged communities found
it difficult to obtain Recovery Act funds. For example, Missouri
officials told us that the Recovery Act deadline was the single most
important factor hindering the ability of these communities from
receiving funding. New Mexico officials also told us that because
these communities typically do not have funds to plan and develop
projects, few could meet the deadline, and several projects that
sought Recovery Act funds could not be awarded funding owing to the
deadline.
We gathered information on economically disadvantaged communities from
the nine states we reviewed because EPA did not collect the
information. In April 2011, the EPA Office of Inspector General (OIG)
reported that EPA could not assess the overall impact of Recovery Act
funds on economically disadvantaged communities because the agency did
not collect data on the amount of Clean and Drinking Water SRF program
funds distributed to these communities nationwide.[Footnote 28] The
OIG recommended that EPA establish a system that can target program
funds to its objectives and priorities, such as funding economically
disadvantaged communities.
Number of FTEs Have Declined as Most Recovery Act Funds Are Spent:
For the quarter ending December 2009 through the quarter ending June
2010, the number of FTEs paid for with Recovery Act SRF program funds
increased each reporting quarter, from about 6,000 to 15,000 FTEs for
planning, designing, and building water projects (see figure 9). As
projects were completed and funds spent, the number of FTEs funded had
declined to about 6,000 for the quarter ending March 2011. Following
OMB guidance, states reported on FTEs directly paid for with Recovery
Act funding, not the employment impact on suppliers of materials
(indirect jobs) or on the local communities (induced jobs). In
addition, state officials told us that, although funding varies from
project to project, as much as 80 percent of a project's funding
generally is used for materials--such as cement for buildings and
equipment such as turbines, pumps, and centrifuges--and the remainder
pays for labor or FTEs.
Figure 9: SRF FTEs Reported as Funded with Recovery Act Funds in 50
States from October 2009 through March 2011:
[Refer to PDF for image: multiple line graph]
Reporting quarters: October-December, 2009;
Clean water: 3,416;
Drinking water: 2,317;
Grand total: 5,734.
Reporting quarters: January-March, 2010;
Clean water: 5,271;
Drinking water: 3,204;
Grand total: 8,475.
Reporting quarters: April-June, 2010;
Clean water: 9,136;
Drinking water: 5,549;
Grand total: 14,684.
Reporting quarters: July-September, 2010;
Clean water: 8,644;
Drinking water: 4,941;
Grand total: 13,585.
Reporting quarters: October-December, 2010;
Clean water: 6,285;
Drinking water: 3,409;
Grand total: 9,694.
Reporting quarters: December-March, 2011;
Clean water: 4,141;
Drinking water: 1,651;
Grand total: 5,791.
Source: GAO analysis of EPA data.
Note: We did not include data from the first reporting quarter because
of concerns about comparability. Nearly all recipients reported
funding at least a partial FTE with Recovery Act funds. In comparing
clean and drinking water funds across the reporting quarters from
October 2009 through March 2011, we found that the percentage of
recipients who reported funding at least a partial FTE ranged from 97
percent to 100 percent.
[End of figure]
EPA, States, and Other Agencies Took Actions to Monitor SRF Program
Funds and Found Projects Largely Complied with Recovery Act
Requirements:
As Recovery Act Clean Water and Drinking Water SRF program funds have
been spent over the last 2 years, EPA officials have monitored
projects and spending activity and found that states have generally
complied with Recovery Act requirements. Similarly, in the nine states
we reviewed, state officials indicated that the site visits they made
to monitor Recovery Act projects found few problems. Furthermore,
state auditors in the nine states we reviewed continue to monitor and
oversee the use of Recovery Act funds, and their reports showed few
significant findings.
EPA's Monitoring Found That States Largely Complied with Recovery Act
Requirements:
Since the Recovery Act was enacted, EPA officials have reviewed all 50
states' Recovery Act Clean and Drinking Water SRF programs at least
once and have found that states are largely complying with the act's
requirements.[Footnote 29] In our May 2010 report, we recommended that
EPA work with the states to implement specific oversight procedures to
monitor and ensure subrecipients' compliance with provisions of the
Recovery Act-funded Clean Water and Drinking Water SRF programs.
[Footnote 30] EPA updated its oversight plan for Recovery Act funds,
in part, as a response to our recommendation. The plan describes the
following monitoring actions for the Recovery Act Clean and Drinking
Water SRF programs:
* EPA headquarters staff should visit both SRF programs in every
region in fiscal years 2010 and 2011, review all states' Clean Water
SRF programs and all states' Drinking Water SRF programs for these
years, and provide training and technical assistance, as needed.
Although the oversight plan recommends headquarters staff visit all
regions in 2011, EPA officials decided instead to provide regional
training on program eligibility requirements. The officials said that
they had visited the regions once and saw greater benefit in providing
training.
* EPA's Office of Wastewater Management and Office of Ground Water and
Drinking Water will report bimonthly to the Assistant Administrator
for Water on oversight activities.
* Regional staff should conduct state reviews twice a year using an
EPA-provided checklist or comparable checklist, examine four project
files, and conduct four transaction tests, which can be used to test
if an internal control is working or if a dollar error has occurred in
the processing of a transaction. In addition, regional staff are to
discuss each state's inspection process and audit findings with state
officials, and update headquarters staff on any findings.
* The regions are to submit to headquarters (1) program evaluation
reports, which describe how states are managing their Recovery Act SRF
funds and projects; (2) Recovery Act project review checklists, to
examine compliance with Recovery Act requirements; and (3) transaction
testing forms, to determine if any erroneous payments were made.
* Regional staff should conduct at least one site inspection of a
clean water project and a drinking water project in each state each
year.
According to our review of the Clean and Drinking Water SRF program
evaluation reports for the 50 states, EPA regional officials generally
carried out the instructions in EPA's oversight plan. As of June 1,
2011, these officials had visited most state programs twice, although
they visited some state programs only once or did not have
documentation of the visits. During visits, officials reviewed the
files for proper documentation pertaining to Davis-Bacon, Buy
American, and green project requirements. Additionally, although not
required to do so by the oversight plan, regional officials attempted
to visit at least one clean water and one drinking water SRF Recovery
Act project in every state each year. Headquarters officials said that
the regional staff met this goal for drinking water projects in 2010,
but they were not able to visit a clean water project in each state
because of time and budget constraints.
EPA headquarters officials said that they oversaw each region's
activities by visiting the regional offices to review files on the
states. Headquarters officials told us that when they visited regional
offices, they checked whether key state documents were maintained in
the region's state file, such as the Recovery Act grant application
and any accompanying amendments; the state's intended use plan, which
details a state's planned use of the funds, including the criteria for
ranking projects and a list of ranked projects; and a copy of the
grant award and conditions. Furthermore, headquarters officials said
that they used a regional review checklist to examine each region's
oversight practices by, for example, determining whether the regions
received and reviewed states' analyses of costs (business cases) and
if the regions ensured that the states updated key reporting data for
their Recovery Act projects each quarter. Headquarters officials also
said that they briefly reviewed the Drinking Water and Clean Water SRF
program evaluation reports when they reviewed the regions' activities.
Headquarters officials said they had imposed a 60-day time frame for
completing these reports because the regional staff were not
submitting the reports in a timely manner.
Additionally, the EPA OIG is conducting performance audits of EPA's
and states' use of Recovery Act funds for the Clean and Drinking Water
SRF programs and unannounced site inspections of Recovery Act-funded
projects. Between May 1, 2010, and May 1, 2011, the OIG has conducted
eight unannounced site visits.[Footnote 31] Six of the eight visits
yielded no findings.[Footnote 32] The OIG issued recommendations for
the other two projects:
* In a visit to Long Beach, California, the OIG found that a
contractor did not fully comply with federal and state prevailing wage
requirements, which resulted in underpayments to employees. The OIG
recommended that EPA require the California State Water Resources
Control Board to verify that the city is implementing controls to
ensure compliance with prevailing wage requirements.[Footnote 33]
* In a visit to Astoria, Oregon, the OIG found that the city
understated the number of FTEs created or retained with Recovery Act
funds. In addition, the OIG found that a change order for one of four
contracts awarded did not meet applicable procurement requirements.
The OIG recommended that EPA Region 10 require the Oregon Department
of Environmental Quality to require the city to correct the number of
FTEs and report the corrected number to the federal government. The
OIG also recommended that the regional administrator of EPA Region 10
require the Oregon Department of Environmental Quality to disallow the
costs incurred under the change order unless Astoria was able to show
that the costs met applicable Oregon requirements. Officials for EPA,
the Oregon Department of Environmental Quality, and the city concurred
with the corrective actions.[Footnote 34]
The Chairman of the Recovery Accountability and Transparency Board
testified in June 2011 that there has been a low level of fraud
involving Recovery Act funds. He noted that less than half a percent
of all reported Recovery Act contracts, grants, and loans had open
investigations and only 144 convictions--involving about $1.9 million
of total Recovery Act funds for all programs--had resulted.[Footnote
35] As the EPA Inspector General noted in May 2011, however, fraud
schemes can take time to surface. The Inspector General cited an
ongoing investigation of a foreign company that received over $1.1
million in contracts for equipment to be used in wastewater treatment
facilities across the United States after falsely certifying that the
equipment met the Recovery Act Buy American provision.[Footnote 36]
Furthermore, the Inspector General also testified that EPA Region 6
officials identified, through a hotline tip, $1 million in unallowable
grant costs charged by seven subrecipients. These funds have been
reprogrammed by the state for other uses.[Footnote 37]
State Officials Said They Have Found Few Problems during Site Visits
to Monitor Recovery Act Projects:
EPA's oversight plan indicates that state officials should visit each
project site at least once per year, and suggests that state officials
review the items on EPA's state Recovery Act inspection checklist, or
a similar state-specific checklist. According to the plan, state
officials should complete the checklist and inform regional offices of
any issues encountered in the oversight reviews, inspections, or
audits.
According to program officials in the nine states we reviewed, the
clean and drinking water SRF projects they reviewed largely complied
with Recovery Act requirements. The officials said that they inspected
each Recovery Act project site at least once during the course of
project construction, and sometimes more frequently, depending on the
complexity of the project. These officials also said that, using the
EPA or other checklist, they evaluated whether the communities or
subrecipients were meeting Recovery Act reporting requirements. For
example, according to the checklist, officials verified whether
subrecipients submitted FTE information to the state each quarter, and
whether they submitted regular reports certifying that the project
remained in compliance with the Davis-Bacon provisions, based on a
weekly review of payroll records. In addition, the officials used the
checklist to review the contents of project files and ensure that key
project documents were present, such as project-specific waivers.
Using the checklist, these officials also confirmed that projects
receiving green infrastructure funding properly incorporated green
components. In addition, officials in Alabama, Connecticut, Nevada,
and New Mexico took photographs of various project components to
record compliance with the Buy American provisions.
A few officials in the nine states that we reviewed said that meeting
the oversight plan requirements, such as increasing the number of site
visits, has been time-consuming. However, a couple of officials said
that their site visits have resulted in better subrecipient compliance
with Recovery Act requirements. For example, as a result of their site
visits, state officials corrected a problem they had identified--
subrecipients in three of the nine states we reviewed had foreign
components on site:
* In New Mexico, officials told us that foreign components had been
shipped to a project site, and that they had to replace the components
before incorporating them into the project.
* Missouri officials said that the EPA inspection checklist had helped
to identify some foreign-made components on a project site, and the
components were replaced.
* Connecticut officials told us that they had identified a drinking
water project that contained Chinese and German equipment valued at
$10,000. They said that the project was already in service, making
replacement costly and impractical because it would require consumers
to be without water. The state is working with EPA to resolve the
matter.
State Audit Reports Covering Clean and Drinking Water Programs Found
Few Significant Problems:
State auditors--or private auditors contracted by the states--helped
ensure the appropriate use of Recovery Act water funds. For eight of
the nine states that we reviewed, we received state or private audits
that examined the Recovery Act Clean and Drinking Water SRF programs.
With the following two exceptions, the auditors have reported few
significant problems:[Footnote 38]
* Michigan. In its audit of the Michigan Department of Environmental
Quality's fiscal year 2008 and 2009 financial statements, the Michigan
Office of the Auditor General reported several material weaknesses in
internal controls and material noncompliance with requirements related
to subrecipient monitoring and other special provisions for Recovery
Act-funded expenditures. For example, for the Recovery Act Clean and
Drinking Water SRF programs, the auditors found that the Michigan
Department of Environmental Quality overstated the number of FTEs for
the reporting period ending September 30, 2009, because its
methodology for calculating FTEs was not in accordance with June 2009
OMB guidance. The auditors also found that the department did not have
a process to (1) verify the accuracy of the information contained in
its recipient report; (2) adequately monitor subrecipients' expending
of Recovery Act funds for construction activities to ensure that the
subrecipients complied with the Davis-Bacon provisions; and (3)
adequately monitor subrecipients' expending of Recovery Act funds for
the construction, alteration, maintenance, or repair of a public
building or public work to ensure that the subrecipients complied with
Buy American provisions. In response to these findings, the auditors
recommended that the department improve its internal control over the
SRF programs to ensure compliance with federal laws and regulations.
The department partially or wholly agreed with these findings, and
anticipated taking the appropriate corrective action by September 30,
2011.[Footnote 39] One Michigan official said that corrective action
has been implemented for the findings that pertain to the SRF program.
* Washington State. In the November 2010 Financial Statements and
Federal Compliance report for the Drinking Water SRF program, auditors
found significant deficiencies in the Department of Health's internal
control.[Footnote 40] As a result, they recommended that the
Department of Health train employees on financial reporting
preparation and requirements; establish and follow internal controls,
including an appropriate, independent review of the financial
statements and related schedules; and establish policies and
procedures related to the preparation of the year-end financial
statements. The Department of Health concurred with the finding, and
stated that it would take appropriate action. In the corresponding
report for the Clean Water SRF program, auditors found no internal
control weaknesses.
Federal and State Agencies Continue to Oversee the Quality of
Recipient Reporting Data, Including Jobs, in Seventh Round of
Reporting:
To meet our mandate to comment on recipient reports, we have continued
monitoring recipient-reported data, including data on jobs funded. For
this report, we focused our review on SRF program funds and EPA and
state efforts to conduct data quality reviews and identify and
remediate reporting problems.
EPA Continued Performing Data Quality Checks and Said Data Quality Is
Relatively Stable:
According to EPA officials, the overall quality of the states' SRF
data on Recovery.gov, which EPA officials have checked each quarter,
is stable. The officials said that the states' initial unfamiliarity
with a newly developed reporting system has been resolved, the
Federalreporting.gov help desk has improved, and guidance issued by
OMB has clarified reporting issues over time. During the seventh round
of reporting, which ended on March 31, 2011, EPA officials continued
to perform data quality checks as they had in previous quarters.
Specifically, EPA used data from the agency's grants database,
contracts database, and financial management system to compare with
recipient-reported data. These systems contain authoritative data for
every award made to the states, including the award identification
number, award date, award amount, outlays, Treasury Account Symbol
codes, and recipient names. According to EPA officials, they use the
agency data to ensure that recipient-reported information for a given
award corresponds with the information on EPA's official award
documents. EPA staff can raise questions about any inconsistent data
through the Federalreporting.gov system. State recipients may make
appropriate changes to the data through the end of the reporting
period, and after public release, during the continuous correction
cycle. According to EPA officials, this process has resolved any
questions and comments from EPA's reviews.
To facilitate its oversight of state-reported data, EPA required
states to use its Clean Water Benefits Reporting (CBR) system and
Program Benefits Reporting (PBR) system to report on certain Recovery
Act project information, such as the project name, contract date,
construction start, Recovery Act funding, jobs created or retained,
and project purpose and anticipated benefits.[Footnote 41] EPA
officials said that they do not routinely collect state expenditure
data in these systems and that they rely on regional officials to
review expenditures reported by the states on Recovery.gov. We
compared EPA's data on awards and funds drawn down by states with data
reported by states on Recovery.gov and found only a few minor
inconsistencies in the data.
Similarly, in September 2010, EPA's OIG reported that the Recovery.gov
data for EPA's SRF programs contained a low rate of errors.[Footnote
42] The OIG audited EPA's controls for reviewing recipient-reported
data after the second round of reporting, which ended December 31,
2009, comparing EPA data on award type, award number, funding agency
code, award agency code, and award amount to state-reported data on
Recovery.gov. The OIG report found that EPA's controls helped lower
the rate of errors for these key data and recommended some
improvements to EPA's process. EPA's Clean and Drinking Water SRF
program officials said that they have had few errors in the SRF data
in the last three rounds of reporting.
Nine States Checked Quality of Recovery Act Data Quarterly, but Minor
FTE Discrepancies Occurred:
Officials in the nine states we reviewed indicated that the quality of
recipient data has remained relatively stable, although we found that
the states differed in how they reported state agencies' FTE data and
did not report some subrecipients' FTE data. Water program officials
in these states said that they check the quality of data that are
reported on Federalreporting.gov and then Recovery.gov. In addition,
officials in Alabama, Connecticut, Maryland, Missouri, and New Mexico
said that they examined payroll data submitted by contractors to
verify FTE data. In some cases, state officials said that they contact
subrecipients for clarification about data that are missing or
inconsistent.
In addition to department-level checks, in most of the nine states we
reviewed, state-level Recovery Office staff checked the data before
submitting the information to Federalreporting.gov. In four of the
nine states--Alabama, Maryland, Missouri, and New Mexico--Recovery
Office staff monitored Recovery Act implementation and performed
independent data quality checks of the data reported by state
agencies. According to several state officials, this reporting
structure provided an additional level of review of state agency data.
In Maryland, for example, officials said that their state-level
reporting system relieves subrecipients of certain reporting duties.
Subrecipients submitted the FTE and payroll information to Maryland's
StateStat office, and staff in that office reviewed and validated the
data, completed the required federal reports, and submitted them to
Federalreporting.gov. Furthermore, for control purposes, only two
staff members handled the information. In addition, staff in Nevada's
Recovery Office conducted quality checks; however, each state agency
then submitted its data directly to the appropriate federal agency.
The remaining four states--Connecticut, Michigan, Washington State,
and Wyoming--did not have a Recovery Office staff check data quality.
We found minor problems with the FTE data that some of the nine states
reported. Specifically, (1) states differed in how they reported the
FTEs associated with their own program staff--that is, those who
conduct document reviews, site inspections, and other key program
duties; and (2) three states identified missing or incorrectly
reported FTE data on Recovery.gov, and these data have not been
corrected. In particular:
* Six of the nine states reported the FTEs for their state employees
who were paid with Recovery Act funds, while two states did not.
[Footnote 43] Officials in Maryland and Michigan noted that they did
not report all the time their state employees spent on program
activities in Federalreporting.gov, although these FTEs were paid for
with Recovery Act funds. EPA officials said that they provided states
with OMB guidance and that OMB guidance requires states to report FTEs
paid for with Recovery Act funds.
* Washington State officials who administer the Clean Water SRF
program changed the time frame for reporting FTE data in the third
round of reporting, and as a result, missed reporting one quarter of
data. During the first two reporting rounds, because some
subrecipients were finding it difficult to submit complete FTE data to
the state by the state's deadline, staff reported data from 2 months
of the current quarter and 1 month of the previous quarter. During the
third reporting quarter, the state began reporting 3 months of current
data. However, the state received data from a subrecipient after the
deadline for reporting and did not correct the data during the
correction period. As a result, officials said about 18 FTEs remain
unreported. EPA officials told them to keep a record of these FTEs in
case there is an opportunity to correct the data.
* Officials in New Mexico did not report a few FTEs for the state's
Drinking Water SRF program in the first two rounds of reporting. The
officials explained that the revisions were submitted to the state
after the reporting period ended and therefore the FTEs were not
captured in Recovery.gov.
* Officials in Wyoming identified incorrectly reported FTEs for two
quarters. The FTEs were incorrect because the state entered the data
for one clean water project for one quarter in the next quarter. As a
result, one quarter's data were overstated by a few FTEs, and the
other quarter's data were understated by a few FTEs. The state
official explained that the data changed after they were initially
reported in Recovery.gov and were not updated during the correction
period.
As the bulk of Recovery Act funding is spent, EPA officials said that
the states were beginning to complete their projects. Officials said
that before the next reporting round begins in July 2011, they plan to
issue a memorandum to states on how to complete their Recovery Act
grants and when to stop reporting to Recovery.gov. During the seventh
round of reporting, one state in each program indicated in
Recovery.gov that the grant--including all projects that received
money from the grant--was complete. EPA officials told us that as of
early May 2011, 629 clean water and 383 drinking water projects have
been completed across all states.
Some state officials charged with coordinating state-level Recovery
Act funds also said that they are winding down their activities. In
Michigan, for example, the Recovery Office was originally a separate
office under the Governor, but has since been moved under the
Department of Management and Budget. In Nevada, the Recovery Act
Director said that his office will be eliminated at the end of June
2011. At that point, the Department of Administration's centralized
grant office will take responsibility for Nevada's remaining Recovery
Act efforts. Similarly, officials at the New Mexico Office of Recovery
and Reinvestment said that their office is currently funded through
the Recovery Act State Fiscal Stabilization Fund through the end of
June 2011.
Because of the high-level nature of SRF recipient reporting for
Recovery.gov and the availability of information in its own data
systems, EPA officials do not anticipate using data from Recovery.gov.
The officials said that whereas Recovery.gov summarizes information on
many projects at the state level, the data from CBR and PBR are more
useful for understanding states' projects than data on Recovery.gov
because the internal data are provided by project and include more
detail. EPA officials said that by the end of 2011 they plan to use
information in these two internal systems to assess anticipated
benefits of the Recovery Act SRF program funds. EPA Clean Water
officials said that they would perform case studies of completed
projects and assess anticipated benefits. Drinking Water officials
said that they are considering three major studies, some joint with
the Clean Water SRF program. These studies may include assessments of
project distributions, green projects' benefits, and subsidy
beneficiaries.
The States Identified Challenges in Implementing Recovery Act SRF
Programs That Highlight Potential Future Challenges for SRF Programs:
Our May 2010 report identified the challenge of maintaining
accountability for Recovery Act funds and recommended improved
monitoring of Recovery Act funds by EPA and the states.[Footnote 44]
As we note above, our current work shows that EPA and the nine states
we reviewed have made progress in addressing this challenge. Two
challenges EPA and state officials identified in spending Recovery Act
SRF program funds may continue as requirements introduced with the
Recovery Act are incorporated into the base SRF programs.
Specifically, in fiscal years 2010 and 2011, the Clean and Drinking
Water SRF programs were required to include provisions for green
projects and additional subsidies.
Encouraging green projects. The effort to support green projects was
included in EPA's fiscal year 2010 and 2011 appropriations for the
base Clean and Drinking Water SRF programs. As we discussed above,
under the requirement to fund green projects in the Recovery Act, in
certain cases state officials said they had to choose between a green
water project and a project that was otherwise ranked higher to
address water quality problems. Similarly, in our May 2010 report, we
found that officials in some of the states we reviewed said that they
gave preference to green projects for funding purposes, and sometimes
ranked those projects above another project with higher public health
benefits. In addition to competing priorities for funding, EPA's OIG
found, in its February 2010 report, that a lack of clear guidance on
the "green requirement" caused confusion and disagreements as to which
projects were eligible for green funding.[Footnote 45] Officials in
two of the nine states we reviewed noted that the goal of supporting
green projects was not difficult to achieve because they had already
identified green projects. Officials in four other states said that
while they all met the 20 percent green project goal, it was difficult
to achieve, leading one official to suggest that green projects be
encouraged without setting a fixed percentage of program funds. EPA
officials added that they had also heard that achieving the green
requirement may continue to be difficult in some states, particularly
for the Drinking Water program. However, the officials also said that
they were encouraging states to include green components in their
drinking water projects rather than seeking solely green projects.
Providing additional subsidies. The fiscal years 2010 and 2011
appropriations for the Clean and Drinking Water SRF programs also
continued the requirement to provide additional subsidies in the form
of principal forgiveness, negative interest loans, or grants. The
subsidy provisions reduced the funds available to use as a subsidy
from a minimum of 50 percent of funds required under the Recovery Act
to a minimum of 30 percent of base SRF program funds.[Footnote 46] As
with the Recovery Act, the appropriations in fiscal years 2010 and
2011 do not require this additional subsidy to be targeted to any
types of projects or communities with economic need,[Footnote 47] and
as the recent EPA OIG report notes, there are no requirements for EPA
or the states to track how these subsidies are used. The base Clean
and Drinking Water SRF programs were created to be a sustainable
source of funding for communities' water and wastewater infrastructure
through the continued repayment of loans to states. Officials in four
of the nine states we reviewed identified a potential challenge in
continuing to provide a specific amount of subsidies while sustaining
the Clean and Drinking Water SRF programs as revolving funds. State
officials pointed out that when monies are not repaid into the
revolving fund, the reuse of funds is reduced and the purpose of the
revolving SRF program changes from primarily providing loans for
investments in water infrastructure to providing grants.
Agency Comments and Our Evaluation:
We provided a draft of the report to the Environmental Protection
Agency for review and comment. EPA stated that it did not have any
comments on our report.
We are sending copies of this report to the appropriate congressional
committees, Administrator of the Environmental Protection Agency, and
other interested parties. In addition, this report is available at no
charge on the GAO Web site at [hyperlink, http://www.gao.gov].
If you or your staff members have any questions about this report,
please contact me at (202) 512-3841 or trimbled@gao.gov. Contact
points for our Offices of Congressional Relations and Public Affairs
may be found on the last page of this report. GAO staff who made major
contributions to this report are listed in appendix III.
Signed by:
David C. Trimble Acting Director:
Natural Resources and Environment:
Congressional Committees:
The Honorable Daniel K. Inouye:
Chairman:
The Honorable Thad Cochran:
Vice Chairman:
Committee on Appropriations:
United States Senate:
The Honorable Harold Rogers:
Chairman:
The Honorable Norman D. Dicks:
Ranking Member:
Committee on Appropriations:
House of Representatives:
The Honorable Joseph I. Lieberman:
Chairman:
The Honorable Susan M. Collins:
Ranking Member:
Committee on Homeland Security and Governmental Affairs:
United States Senate:
The Honorable Darrell E. Issa:
Chairman:
The Honorable Elijah Cummings:
Ranking Member:
Committee on Oversight and Government Reform:
House of Representatives:
The Honorable Barbara Boxer:
Chairwoman:
The Honorable James M. Inhofe:
Ranking Member:
Committee on Environment and Public Works:
United States Senate:
The Honorable Fred Upton:
Chairman:
The Honorable Henry Waxman:
Ranking Member:
Committee on Energy and Commerce:
House of Representatives:
The Honorable John L. Mica:
Chairman:
The Honorable Nick J. Rahall:
Ranking Member:
Committee on Transportation and Infrastructure:
House of Representatives:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
The objectives of this review were to examine the (1) status and use
of American Recovery and Reinvestment Act of 2009 (Recovery Act) Clean
and Drinking Water State Revolving Funds (SRF) program funds
nationwide and in selected states; (2) actions taken by federal,
state, and other agencies to monitor and ensure accountability of
these program funds; (3) approaches federal agencies and selected
states have taken to ensure data quality, including data for jobs
reported by recipients of these program funds; and (4) challenges, if
any, that states have faced in implementing Recovery Act requirements
for the Clean and Drinking Water SRF programs.
To examine the status and use of Recovery Act funds nationwide and in
selected states, we reviewed relevant Clean and Drinking Water SRF
federal laws, regulations, and guidance, and examined federal and
selected state program and project documentation. We interviewed
Environmental Protection Agency (EPA) officials responsible for
administering programs in headquarters. We also interviewed state
Recovery Act officials and state program officials, in environmental
and public health departments, who are responsible for revolving loan
fund programs.
We obtained and analyzed nationwide Recovery Act data from the EPA
Clean Water SRF Benefits Reporting (CBR) system and the Drinking Water
SRF Project Benefits Reporting (PBR) system for all states. These data
included (1) categories of clean and drinking water infrastructure and
green projects; (2) Recovery Act funds awarded and drawn down from the
Treasury; (3) amount of subsidization (principal forgiveness or grants
and low-or no-interest loans); and (4) number of full-time equivalents
(FTE). We also obtained and analyzed key nationwide data from the EPA
National Information Management System on Recovery Act funding by type
of clean water project. Using these data, we summarized the amount of
Recovery Act funds provided by states to clean and drinking water SRF
projects by category of project (e.g., clean water sanitary sewer
overflow and drinking water treatment). We assessed these data for
their reliability and determined that they were reliable for our
purposes.
To develop a more in-depth view of the states' use of Recovery Act
funds for Clean and Drinking Water SRF programs, we selected a
nonprobability sample of nine states we had not reviewed in our
previous bimonthly reports, representing all but 1 of the 10 EPA
regions.[Footnote 48] The states we selected were Alabama,
Connecticut, Maryland, Michigan, Missouri, New Mexico, Nevada,
Washington State, and Wyoming. For each state, we interviewed
officials from the state environmental department or public health
program (water program officials) to discuss their use of Recovery Act
SRF program funds. We conducted these interviews using a data
collection instrument to obtain consistent information from the states
on their water problems and ranking systems for prioritizing projects
for funding; the amount of funds provided to projects; the allocation
of funding and subsidization to green projects, small communities, and
economically disadvantaged communities; the amount of funds received
and spent, and the number of FTE positions funded for each project and
in total. Additionally, in Alabama, Maryland, and New Mexico, we
visited a total of five clean and drinking water projects funded with
Recovery Act funds.
To examine the actions that federal, state, and other agencies have
taken to monitor and ensure accountability for Recovery Act SRF
program funds, we reviewed and analyzed relevant federal guidance and
documentation, including EPA's oversight plan for Recovery Act
projects. To determine whether EPA was following its oversight plan,
we reviewed at least one EPA Recovery Act program evaluation report
for the Clean Water and Drinking Water programs for all 50 states for
fiscal years 2009 or 2010. We also reviewed EPA headquarters' reviews
of regional reports that detailed the performance of regional drinking
water staff as they monitored and documented the states'
implementation of the Drinking Water SRF program, and we asked
headquarters staff about the reviews of regional clean water staff
that they conducted, but did not document. To develop a more in-depth
view of the states' monitoring processes, we asked program officials
in the nine states to respond to questions about their oversight
activities in our data collection instrument. We then interviewed
state program officials who were responsible for monitoring and
oversight about their oversight activities and efforts to ensure that
projects complied with Recovery Act requirements, including their
processes for inspecting project sites and their procedures for
collecting and reporting Recovery Act SRF program data. In addition,
we interviewed Recovery Act officials in the six states that had such
staff--Alabama, Maryland, Missouri, Nevada, New Mexico, and
Washington--about their oversight of program staff, data quality, and
federal reporting during additional interviews. Furthermore, to
develop an understanding of the work that the broader audit community
has completed on the Recovery Act Clean and Drinking Water SRF
programs, we reviewed all relevant EPA Office of Inspector General
reports that were published since we issued our previous report on the
Recovery Act SRF programs in May 2010.[Footnote 49]
To examine approaches federal agencies and selected states have taken
to ensure data quality for jobs reported by Recovery Act recipients,
we conducted work at both the national and state level. The recipient
reporting section of this report responds to the Recovery Act's
mandate that we comment on the estimates of jobs created or retained
by direct recipients of Recovery Act funds. For our national review of
the seventh submission of recipient reports, covering the period from
January 1, 2011, through March 31, 2011, we continued our monitoring
of errors or potential problems by repeating many of the analyses and
edit checks reported in our six prior reviews covering the period from
February 2009 through December 31, 2010.[Footnote 50] To examine how
the quality of jobs data reported by recipients of Clean and Drinking
Water SRF grants has changed over time, we compared the seven quarters
of recipient reporting data that were publicly available at
Recovery.gov on April 30, 2011. We performed edit checks and other
analyses on the Clean and Drinking Water SRF prime recipient reports
and compared funding data from EPA with funding amounts reported on
the recipient reports. We also reviewed documentation and interviewed
federal agency officials from EPA who are responsible for ensuring a
reasonable degree of quality across their programs' recipient reports.
At the state level, we interviewed state officials in the nine states
we reviewed about the policies and procedures they had in place to
ensure that FTE information for Recovery Act projects was reported
accurately. For selected Recovery Act data fields, we asked state
program officials in the nine states to review and verify EPA's
Recovery Act data from CBR and PBR and provide corrected data where
applicable. For the nine states, we compared state-reported Clean and
Drinking Water SRF FTE data from the sixth submission of recipient
reports, the period covering October 1, 2010, through December 31,
2010, with corresponding data reported on Recovery.gov. We addressed
any discrepancies between these two sets of data by contacting state
program officials. Our national and state work in selected states
showed agreement between EPA recipient information and the information
reported by recipients directly to Federalreporting.gov. In general,
we consider the data used to be sufficiently reliable for purposes of
this report. The results of our FTE analyses are limited to the two
SRF water programs and time periods reviewed and are not generalizable
to any other program's FTE reporting.
To examine challenges that states have faced in implementing Recovery
Act requirements, we interviewed state SRF program officials using a
data collection instrument and obtained information on challenges
state program officials told us pertaining to the 20 percent green
project requirement and the subsidization requirement.
We conducted this performance audit from September 2010 through June
2011 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit
to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives.
[End of section]
Appendix II: Status of Prior Open Recommendations and Matters for
Congressional Consideration:
In this appendix, we update the status of agencies' efforts to
implement the 26 open recommendations, and 2 newly implemented
recommendations from our previous bimonthly and recipient reporting
reviews.[Footnote 51] Recommendations that were listed as implemented
or closed in a prior report are not repeated here. Lastly, we address
the status of our Matters for Congressional Consideration.
Department of Energy:
Open Recommendations[Footnote 52]:
Given the concerns we have raised about whether program requirements
were being met, we recommended in May 2010 that the Department of
Energy (DOE), in conjunction with both state and local weatherization
agencies, develop and clarify weatherization program guidance that:
* clarifies the specific methodology for calculating the average cost
per home weatherized to ensure that the maximum average cost limit is
applied as intended.
* accelerates current DOE efforts to develop national standards for
weatherization training, certification, and accreditation, which is
currently expected to take 2 years to complete.
* develops a best practice guide for key internal controls that should
be present at the local weatherization agency level to ensure
compliance with key program requirements.
* sets time frames for development and implementation of state
monitoring programs.
* revisits the various methodologies used in determining the
weatherization work that should be performed based on the
consideration of cost-effectiveness and develops standard
methodologies that ensure that priority is given to the most cost-
effective weatherization work. To validate any methodologies created,
this effort should include the development of standards for accurately
measuring the long-term energy savings resulting from weatherization
work conducted.
In addition, given that state and local agencies have felt pressure to
meet a large increase in production targets while effectively meeting
program requirements and have experienced some confusion over
production targets, funding obligations, and associated consequences
for not meeting production and funding goals, we recommended that DOE
clarify its production targets, funding deadlines, and associated
consequences while providing a balanced emphasis on the importance of
meeting program requirements.
Agency Actions:
DOE generally concurred with these recommendations and has made some
progress on implementing them. For example, to clarify the methodology
for calculating the average cost per home, DOE has developed draft
guidance to help grantees develop consistency in their average cost
per unit calculations. The guidance further clarifies the general cost
categories that are included in the average cost per home. DOE
anticipates issuance of the guidance in June 2011.
DOE has also taken steps to address our recommendation that it develop
and clarify guidance to generate a best practice guide for key
internal controls. DOE distributed a memorandum dated May 13, 2011 to
grantees reminding them of their responsibilities to ensure compliance
with internal controls and the consequences of failing to do so. This
memo is currently under internal review and DOE anticipates it will be
released in May 2011.
Open Recommendations[Footnote 53]:
To better ensure that Energy Efficiency and Conservation Block Grant
(EECBG) funds are used to meet Recovery Act and program goals, we
recommended in April 2011 that DOE, take the following actions:
* Explore a means to capture information on the monitoring processes
of all recipients to make certain that recipients have effective
monitoring practices.
* Solicit information from recipients regarding the methodology they
used to calculate their energy-related impact metrics and verify that
recipients who use DOE's estimation tool use the most recent version
when calculating these metrics.
Agency Actions:
DOE generally concurred with these recommendations, stating that
"implementing the report's recommendations will help ensure that the
Program continues to be well managed and executed." DOE also provided
additional information on steps it has initiated or planned to
implement. In particular, with respect to our first recommendation,
DOE elaborated on additional monitoring practices it performs over
high dollar value grant recipients, such as its reliance on audit
results obtained in accordance with the Single Audit Act and its
update to the EECBG program requirements in the Compliance Supplement
to OMB Circular No. A-133. However, these monitoring practices only
focus on larger grant recipients, and we believe that the program
could be more effectively monitored if DOE captured information on the
monitoring practices of all recipients. With respect to our second
recommendation, DOE officials said that in order to provide a
reasonable estimate of energy savings, the program currently reviews
energy process and impact metrics submitted each quarter for
reasonableness, works with grantees to correct unreasonable metrics,
and works with grantees through closeout to refine metrics. In
addition, DOE officials said that they plan to take a scientific
approach to overall program evaluation during the formal evaluation
process at the conclusion of the program, which will occur in December
2012. However, DOE has not yet identified any specific plans to
solicit information from recipients regarding the methodology they
used to calculate their energy-related impact metrics or to verify
that recipients who use DOE's estimation tool use the most recent
version when calculating.
Environmental Protection Agency:
Newly Implemented Recommendation[Footnote 54]:
We recommended that the Environmental Protection Agency (EPA)
Administrator work with the states to implement specific oversight
procedures to monitor and ensure subrecipients' compliance with the
provisions of the Recovery Act-funded Clean Water and Drinking Water
State Revolving Fund (SRF) program.
Agency Actions:
In part in response to our recommendation, EPA provided additional
guidance to the states regarding their oversight responsibilities,
with an emphasis on enhancing site-specific inspections. Specifically,
in June 2010, the agency developed and issued an oversight plan
outline for Recovery Act projects that provides guidance on the
frequency, content, and documentation related to regional reviews of
state Recovery Act programs and regional and state reviews of specific
Recovery Act projects. We found that EPA regions have reviewed all 50
states' Clean and Drinking Water SRF programs at least once since the
Recovery Act was enacted, and have generally carried out the oversight
instructions in EPA's plan. For example, regional officials reviewed
files with state documents and information to ensure proper controls
over Davis-Bacon, Buy American, and other Recovery Act requirements.
Regional staff also visited one drinking water project in every state,
but did not meet this goal for clean water projects due to time and
budget constraints. We also found that EPA headquarters officials have
been reviewing the regions' performance evaluation reports for states,
and the officials said that they implemented a 60-day time frame for
completing these reports. In the nine states that we reviewed in this
report, program officials described their site visits to projects and
the use of the EPA inspection checklist (or state equivalent),
according to EPA's oversight plan. State officials told us that they
visit their Recovery Act projects at least once during construction
and sometimes more frequently depending on the complexity of the
project. We consider these agency actions to have addressed our
recommendation.
Department of Health and Human Services: Office of Head Start:
Open Recommendation[Footnote 55]:
To oversee the extent to which grantees are meeting the program goal
of providing services to children and families and to better track the
initiation of services under the Recovery Act, we recommended that the
Director of the Office of Head Start (OHS) should collect data on the
extent to which children and pregnant women actually receive services
from Head Start and Early Head Start grantees.
Agency Actions:
The Department of Health and Human Services (HHS) disagreed with our
recommendation. OHS officials stated that attendance data are
adequately examined in triennial or yearly on-site reviews and in
periodic risk management meetings. Because these reviews and meetings
do not collect or report data on service provision, we continue to
believe that tracking services to children and families is an
important measure of the work undertaken by Head Start and Early Head
Start service providers.
Open Recommendation[Footnote 56]:
To help ensure that grantees report consistent enrollment figures, we
recommended that the Director of OHS should better communicate a
consistent definition of "enrollment" to grantees for monthly and
yearly reporting and begin verifying grantees' definition of
"enrollment" during triennial reviews.
Agency Actions:
OHS issued informal guidance on its Web site clarifying monthly
reporting requirements to make them consistent with annual enrollment
reporting. While this guidance directs grantees to include in
enrollment counts all children and pregnant mothers who have received
a specified minimum of services, it could be further clarified by
specifying that counts should include only those children and pregnant
mothers. According to HHS officials, OHS is considering further
regulatory clarification.
Open Recommendation[Footnote 57]:
To provide grantees consistent information on how and when they will
be expected to obligate and expend federal funds, we recommended that
the Director of OHS should clearly communicate its policy to grantees
for carrying over or extending the use of Recovery Act funds from one
fiscal year into the next.
Agency Actions:
HHS indicated that OHS will issue guidance to grantees on obligation
and expenditure requirements, as well as improve efforts to
effectively communicate the mechanisms in place for grantees to meet
the requirements for obligation and expenditure of funds.
Open Recommendation[Footnote 58]:
To better consider known risks in scoping and staffing required
reviews of Recovery Act grantees, we recommended that the Director of
OHS should direct OHS regional offices to consistently perform and
document Risk Management Meetings and incorporate known risks,
including financial management risks, into the process for staffing
and conducting reviews.
Agency Actions:
HHS reported that OHS is reviewing the risk management process to
ensure it is consistently performed and documented in its centralized
data system and that it has taken related steps, such as requiring the
Grant Officer to identify known or suspected risks prior to an on-site
review.
Newly Implemented Recommendation[Footnote 59]:
To facilitate understanding of whether regional decisions regarding
waivers of the program's matching requirement are consistent with
Recovery Act grantees' needs across regions, we recommended that the
Director of OHS should regularly review waivers of the nonfederal
matching requirement and associated justifications.
Agency Actions:
HHS reports that it has taken actions to address our recommendation.
For example, HHS reports that OHS has conducted a review of waivers of
the nonfederal matching requirement and tracked all waivers in the Web-
based data system. HHS further reports that OHS has determined that
they are reasonably consistent across regions.
Department of Housing and Urban Development:
Open Recommendation[Footnote 60]:
Because the absence of third-party investors reduces the amount of
overall scrutiny Tax Credit Assistance Program (TCAP) projects would
receive and the Department of Housing and Urban Development (HUD) is
currently not aware of how many projects lacked third-party investors,
we recommended that HUD should develop a risk-based plan for its role
in overseeing TCAP projects that recognizes the level of oversight
provided by others.
Agency Actions:
HUD responded to our recommendation by saying it will identify
projects that are not funded by the HOME Investment Partnerships
Program (HOME) funds and projects that have a nominal tax credit
award. However, HUD said it will not be able to identify these
projects until it could access the data needed to perform the
analysis, and it does not receive access to those data until after
projects have been completed. HUD currently has not taken any action
on this recommendation because it only has data on the small
percentage of projects completed to date. It is too early in the
process to be able to identify projects that lack third-party
investors. The agency will take action once they are able to collect
the necessary information from the project owners and the state
housing finance agencies.
Department of Labor:
Open Recommendations[Footnote 61]:
To enhance the Department of Labor's (Labor) ability to manage its
Recovery Act and regular Workforce Investment Act (WIA) formula grants
and to build on its efforts to improve the accuracy and consistency of
financial reporting, we recommended that the Secretary of Labor take
the following actions:
* To determine the extent and nature of reporting inconsistencies
across the states and better target technical assistance, conduct a
one-time assessment of financial reports that examines whether each
state's reported data on obligations meet Labor's requirements.
* To enhance state accountability and to facilitate their progress in
making reporting improvements, routinely review states' reporting on
obligations during regular state comprehensive reviews.
Agency Actions:
Labor agreed with both of our recommendations and has begun to take
some actions to implement them. To determine the extent of reporting
inconsistencies, Labor awarded a contract in September 2010 to perform
an assessment of state financial reports to determine if the data
reported are accurate and reflect Labor's guidance on reporting of
obligations and expenditures. Since then, Labor has completed
interviews with all states and is preparing a report of the findings.
To enhance states' accountability and facilitate their progress in
making improvements in reporting, Labor has drafted guidance on the
definitions of key financial terms such as "obligations," which is
currently in final clearance. After the guidance is issued, Labor
plans to conduct a systemwide webinar and interactive training on this
topic to reinforce how accrued expenditures and obligations are to be
reported.
Open Recommendation[Footnote 62]:
Our September 2009 bimonthly report identified a need for additional
federal guidance in defining green jobs and we made the following
recommendation to the Secretary of Labor:
* To better support state and local efforts to provide youth with
employment and training in green jobs, provide additional guidance
about the nature of these jobs and the strategies that could be used
to prepare youth for careers in green industries.
Agency Actions:
Labor agreed with our recommendation and has begun to take several
actions to implement it. Labor's Bureau of Labor Statistics has
developed a definition of green jobs which was finalized and published
in the Federal Register on September 21, 2010. In addition, Labor
continues to host a Green Jobs Community of Practice, an online
virtual community available to all interested parties. As part of this
effort, in December 2010, Labor hosted its first Recovery Act Grantee
Technical Assistance Institute, which focused on critical success
factors for achieving the goals of the grants and sustaining the
impact into the future. The department also hosted a symposium on
April 28-29, 2011, with the green jobs state Labor Market Information
Improvement grantees. Symposium participants shared recent research
findings, including efforts to measure green jobs, occupations, and
training in their states. In addition, the department released a new
career exploration tool called "mynextmove" [hyperlink,
http://www.mynextmove.gov] in February 2011. This Web site includes
the Occupational Information Network (O*NET) green leaf symbol to
highlight green occupations. Furthermore, Labor's implementation study
of the Recovery Act-funded green jobs training grants is still
ongoing. The interim report is expected in late 2011.
Executive Office of the President: Office of Management and Budget:
Open Recommendation:
To leverage Single Audits as an effective oversight tool for Recovery
Act programs, we recommended that the Director of the Office of
Management and Budget (OMB):
1. provide more direct focus on Recovery Act programs through the
Single Audit to help ensure that smaller programs with higher risk
have audit coverage in the area of internal controls and compliance;
[Footnote 63]
2. take additional efforts to provide more timely reporting on
internal controls for Recovery Act programs for 2010 and beyond;
[Footnote 64]
3. evaluate options for providing relief related to audit requirements
for low-risk programs to balance new audit responsibilities associated
with the Recovery Act;[Footnote 65]
4. issue Single Audit guidance in a timely manner so that auditors can
efficiently plan their audit work;[Footnote 66]
5. issue the OMB Circular No. A-133 Compliance Supplement no later
than March 31 of each year;[Footnote 67]
6. explore alternatives to help ensure that federal awarding agencies
provide their management decisions on the corrective action plans in a
timely manner;[Footnote 68] and:
7. shorten the timeframes required for issuing management decisions by
federal agencies to grant recipients.[Footnote 69]
Agency Actions:
(1) To provide more direct focus on Recovery Act programs through the
Single Audit to help ensure that smaller programs with higher risk
have audit coverage in the area of internal controls and compliance,
the OMB Circular No. A-133, Audits of States, Local Governments, and
Non-Profit Organizations 2010 Compliance Supplement (Compliance
Supplement) required all federal programs with expenditures of
Recovery Act awards to be considered as programs with higher risk when
performing standard risk-based tests for selecting programs to be
audited.[Footnote 70] The auditor's determination of the programs to
be audited is based upon an evaluation of the risks of noncompliance
occurring that could be material to an individual major program. The
Compliance Supplement has been the primary mechanism that OMB has used
to provide Recovery Act requirements and guidance to auditors.
[Footnote 71] One presumption underlying the guidance is that smaller
programs with Recovery Act expenditures could be audited as major
programs when using a risk-based audit approach. The most significant
risks are associated with newer programs that may not yet have the
internal controls and accounting systems in place to help ensure that
Recovery Act funds are distributed and used in accordance with program
regulations and objectives. Since Recovery Act spending is projected
to continue through 2016, we believe that it is essential that OMB
provide direction in Single Audit guidance to help to ensure that
smaller programs with higher risk are not automatically excluded from
receiving audit coverage based on their size and standard Single Audit
Act requirements.
In May 2011, we spoke with OMB officials and reemphasized our concern
that future Single Audit guidance provide instruction that helps to
ensure that smaller programs with higher risk have audit coverage in
the area of internal controls and compliance. OMB officials agreed and
stated that such guidance is included in the 2011 Compliance
Supplement which was to be issued by March 31, 2011. On June 1, 2011,
OMB issued the 2011 Compliance Supplement which contains language
regarding the higher-risk status of Recovery Act programs,
requirements for separate reporting of findings, and a list of
Recovery Act programs to aid the auditors. We will continue to monitor
OMB's efforts to provide more direct focus on Recovery Act programs
through the Single Audit to help ensure that smaller programs with
higher risk have audit coverage in the area of internal controls and
compliance.
(2) To address the recommendation for taking additional efforts to
encourage more timely reporting on internal controls for Recovery Act
programs for 2010 and beyond, OMB commenced a second voluntary Single
Audit Internal Control Project (project) in August 2010 for states
that received Recovery Act funds in fiscal year 2010.[Footnote 72]
Fourteen states volunteered to participate in the second project. One
of the project's goals is to achieve more timely communication of
internal control deficiencies for higher-risk Recovery Act programs so
that corrective action can be taken more quickly. Specifically, the
project encourages participating auditors to identify and communicate
deficiencies in internal control to program management 3 months sooner
than the 9-month time frame currently required under OMB Circular No.
A-133. Auditors were to communicate these through interim internal
control reports by December 31, 2010. The project also requires that
program management provide a corrective action plan aimed at
correcting any deficiencies 2 months earlier than required under
statute to the federal awarding agency. Upon receiving the corrective
action plan, the federal awarding agency has 90 days to provide a
written decision to the cognizant federal agency for audit detailing
any concerns it may have with the plan. Each participating state was
to select a minimum of four Recovery Act programs for inclusion in the
project.
We assessed the results of the first OMB Single Audit Internal Control
Project for fiscal year 2009 and found that it was helpful in
communicating internal control deficiencies earlier than required
under statute. We reported that 16 states participated in the first
project and that the states selected at least two Recovery Act
programs for the project. We also reported that the project's
dependence on voluntary participation limited its scope and coverage
and that voluntary participation may also bias the project's results
by excluding from analysis states or auditors with practices that
cannot accommodate the project's requirement for early reporting of
control deficiencies. Overall, we concluded that although the
project's coverage could have been more comprehensive, the analysis of
the project's results provided meaningful information to OMB for
better oversight of the Recovery Act programs selected and information
for making future improvements to the Single Audit guidance.
OMB's second Single Audit Internal Control Project is in progress and
its planned completion date is June 2011. OMB plans to assess the
project's results after its completion date. The 14 participating
states have met the milestones for submitting interim internal control
reports by December 31, 2010 and their corrective action plans by
January 31, 2011. By April 30, 2011, the federal awarding agencies
were to provide their interim management decisions to the cognizant
agency for audit. We discussed the preliminary status of these interim
management decisions with OMB officials and, as of May 24, 2011, only
1 of the 10 federal awarding agencies had submitted some management
decisions on the auditees' corrective action plans as required by the
project's guidelines. On May 24, 2011, officials from the cognizant
agency for audit, HHS, reemphasized to the federal awarding agencies
their responsibilities for providing management decisions in
accordance with the project's due dates. In our review of the 2009
project, we noted similar concerns that federal awarding agencies
submitted management decisions on proposed corrective actions in an
untimely manner and made recommendations in this area, which are
discussed later in this report. We will continue to monitor the status
of OMB's efforts to implement this recommendation and believe that OMB
needs to continue taking steps to encourage timelier reporting on
internal controls through Single Audits for Recovery Act programs.
(3) We previously recommended that OMB evaluate options for providing
relief related to audit requirements for low-risk programs to balance
new audit responsibilities associated with the Recovery Act. OMB
officials have stated that they are aware of the increase in workload
for state auditors who perform Single Audits due to the additional
funding to Recovery Act programs and corresponding increases in
programs being subject to audit requirements. OMB officials stated
that they solicited suggestions from state auditors to gain further
insights to develop measures for providing audit relief. However, OMB
has not yet put in place a viable alternative that would provide
relief to all state auditors that conduct Single Audits. For state
auditors that are participating in the second OMB Single Audit
Internal Control Project, OMB has provided some audit relief by
modifying the requirements under Circular No. A-133 to reduce the
number of low-risk programs to be included in some project
participants' risk assessment requirements.
OMB is taking initiatives to examine the Single Audit process. OMB
officials have stated that they have created a workgroup which
combines the Executive Order 13520--Reducing Improper Payments Section
4 (b) Single Audit Recommendations Workgroup (Single Audit Workgroup),
and the Circular No. A-87--Cost Principles for State, Local, and
Indian Tribal Governments Workgroup (Circular No. A-87 Workgroup). The
Single Audit Workgroup is comprised of representatives from the
federal audit community; federal agency management officials involved
in overseeing the Single Audit process and programs subject to that
process; representatives from the state audit community; and staff
from OMB. OMB officials tasked the Single Audit Workgroup with
developing recommendations to improve the effectiveness of Single
Audits of nonfederal entities that expend federal funds in order to
help identify and reduce improper payments. In June 2010, the Single
Audit Workgroup developed recommendations, some of which are targeted
toward providing audit relief to auditors who conduct audits of
grantees and grants that are under the requirements of the Single
Audit Act. OMB officials stated that the recommendations warrant
further study and that the workgroup is continuing its work on the
recommendations. OMB officials also stated that the Circular No. A-87
Workgroup has also made recommendations which could impact Single
Audits and that the workgroups have been collaborating to ensure that
the recommendations relating to Single Audit improvements are
compatible and could improve the Single Audit process. The combined
workgroups plan to issue a report to OMB by August 29, 2011. We will
continue to monitor OMB's progress to achieve this objective.
(4)(5) With regard to issuing Single Audit guidance in a timely
manner, and specifically the OMB Circular No. A-133 Compliance
Supplement, we previously reported that OMB officials intended to
issue the 2011 Compliance Supplement by March 31, 2011.[Footnote 73]
In December 2010, OMB provided to the American Institute of Certified
Public Accounts (AICPA) a draft of the 2011 Compliance Supplement
which the AICPA published on its Web site. In January 2011, OMB
officials reported that the production of the 2011 Compliance
Supplement was on schedule for issuance by March 31, 2011. OMB issued
the 2011 Compliance Supplement on June 1, 2011. We spoke with OMB
officials regarding the reasons for the delay of this important
guidance to auditors. OMB officials stated that its efforts were
refocused toward priorities relating to the expiration of several
continuing resolutions[Footnote 74] that temporarily funded the
federal government for fiscal year 2011, and the Department Of Defense
And Full-Year Continuing Appropriations Act, 2011, which was passed by
the Congress in April 2011, averting a governmentwide shutdown. OMB
officials stated that, as a result, although they had taken steps to
issue the 2011 Compliance Supplement by the end of March, such as
starting the process earlier in 2010 and giving agencies strict
deadlines for program submissions, they were only able to issue it on
June 1, 2011. We will continue to monitor OMB's progress to achieve
this objective.
(6)(7) In October 2010, OMB officials stated that, based on their
assessment of the results of the project, they had discussed
alternatives for helping to ensure that federal awarding agencies
provide their management decisions on the corrective action plans in a
timely manner, including possibly shortening the time frames required
for federal agencies to provide their management decisions to grant
recipients.[Footnote 75] However, OMB officials have yet to decide on
the course of action that they will pursue to implement this
recommendation. OMB officials acknowledged that the results of the
2009 OMB Single Audit Internal Control Project confirmed that this
issue continues to be a challenge. They stated that they have met
individually with several federal awarding agencies that were late in
providing their management decisions in the 2009 project to discuss
the measures that the agencies will take to improve the timeliness of
their management decisions. Earlier in this report, we discussed that
preliminary observations of the results of the second project have
identified that several federal awarding agencies' management
decisions on the corrective actions that were due April 30, 2011, have
also not been issued in a timely manner.
In March 2010, OMB issued guidance under memo M-10-14, item 7,
[hyperlink,
http://www.whitehouse.gov/sites/default/files/omb/assets/memoranda_2010/
m1014.pdf] that called for federal awarding agencies to review reports
prepared by the Federal Audit Clearinghouse regarding Single Audit
findings and submit summaries of the highest-risk audit findings by
major Recovery Act program, as well as other relevant information on
the federal awarding agency's actions regarding these areas. In May
2011, we reviewed selected reports prepared by federal awarding
agencies that were titled Use of Single Audit to Oversee Recipient's
Recovery Act Funding. These reports were required by memo M-10-14 for
reports from the Federal Audit Clearinghouse for fiscal year 2009. The
reports were developed for entities where the auditor issued a
qualified, adverse, or disclaimer audit opinion. The reports
identified items such as (1) significant risks to the respective
program that was audited; (2) material weaknesses, instances of
noncompliance, and audit findings that put the program at risk; (3)
actions taken by the agency; and (4) actions planned by the agency.
OMB officials have stated that they plan to use this information to
identify trends that may require clarification or additional guidance
in the Compliance Supplement.
OMB officials also stated that they are working on a metrics project
with the Recovery Accountability and Transparency Board to develop
metrics for determining how federal awarding agencies are to use
information available in the Single Audit and which can serve as
performance measures. We attended a presentation of the OMB Workgroup
that is working with the Recovery Accountability and Transparency
Board in developing the metrics project in May 2011 and note that it
is making progress. OMB officials have stated that the metrics could
be applied at the agency level, by program, to allow for analysis of
Single Audit findings, along with other uses to be determined. One
goal of the metrics project is to increase the effectiveness and
timeliness of federal awarding agencies' actions to resolve single
audit findings. We will continue to monitor the progress of these
efforts to determine the extent that they improve the timeliness of
federal agencies' actions to resolve audit findings so that risks to
Recovery Act funds are reduced and internal controls in Recovery Act
programs are strengthened.
Department of Transportation:
Open Recommendations[Footnote 76]:
To ensure that Congress and the public have accurate information on
the extent to which the goals of the Recovery Act are being met, we
recommended that the Secretary of Transportation direct FHWA to take
the following two actions:
* Develop additional rules and data checks in the Recovery Act Data
System, so that these data will accurately identify contract
milestones such as award dates and amounts, and provide guidance to
states to revise existing contract data.
* Make publicly available--within 60 days after the September 30,
2010, obligation deadline--an accurate accounting and analysis of the
extent to which states directed funds to economically distressed
areas, including corrections to the data initially provided to
Congress in December 2009.
Agency Actions:
In its response, DOT stated that it implemented measures to further
improve data quality in the Recovery Act Data System, including
additional data quality checks, as well as providing states with
additional training and guidance to improve the quality of data
entered into the system. DOT also stated that as part of its efforts
to respond to our draft September 2010 report in which we made this
recommendation on economically distressed areas, it completed a
comprehensive review of projects in these areas, which it provided to
GAO for that report. DOT recently posted an accounting of the extent
to which states directed Recovery Act transportation funds to projects
located in economically distressed areas on its Web site, and we are
in the process of assessing these data.
Open Recommendation[Footnote 77]:
To better understand the impact of Recovery Act investments in
transportation, we believe that the Secretary of Transportation should
ensure that the results of these projects are assessed and a
determination made about whether these investments produced long-term
benefits. Specifically, in the near term, we recommended that the
Secretary direct FHWA and FTA to determine the types of data and
performance measures they would need to assess the impact of the
Recovery Act and the specific authority they may need to collect data
and report on these measures.
Agency Actions:
In its response, DOT noted that it expected to be able to report on
Recovery Act outputs, such as the miles of road paved, bridges
repaired, and transit vehicles purchased, but not on outcomes, such as
reductions in travel time, nor did it commit to assessing whether
transportation investments produced long-term benefits. DOT further
explained that limitations in its data systems, coupled with the
magnitude of Recovery Act funds relative to overall annual federal
investment in transportation, would make assessing the benefits of
Recovery Act funds difficult. DOT indicated that, with these
limitations in mind, it is examining its existing data availability
and, as necessary, would seek additional data collection authority
from Congress if it became apparent that such authority was needed.
DOT plans to take some steps to assess its data needs, but it has not
committed to assessing the long-term benefits of Recovery Act
investments in transportation infrastructure. We are therefore keeping
our recommendation on this matter open.
Matters for Congressional Consideration:
Matter[Footnote 78]:
To the extent that appropriate adjustments to the Single Audit process
are not accomplished under the current Single Audit structure,
Congress should consider amending the Single Audit Act or enacting new
legislation that provides for more timely internal control reporting,
as well as audit coverage for smaller Recovery Act programs with high
risk.
We continue to believe that Congress should consider changes related
to the Single Audit process.
Matter[Footnote 79]:
To the extent that additional coverage is needed to achieve
accountability over Recovery Act programs, Congress should consider
mechanisms to provide additional resources to support those charged
with carrying out the Single Audit Act and related audits.
We continue to believe that Congress should consider changes related
to the Single Audit process.
Matter[Footnote 80]:
To provide housing finance agencies (HFA) with greater tools for
enforcing program compliance, in the event the Section 1602 Program is
extended for another year, Congress may want to consider directing the
Department of the Treasury to permit HFAs the flexibility to disburse
Section 1602 Program funds as interest-bearing loans that allow for
repayment.
We continue to believe that Congress should consider directing the
Department of the Treasury to permit HFAs the flexibility to disburse
Section 1602 Program funds as interest-bearing loans that allow for
repayment.
[End of section]
Appendix III: GAO Contact and Staff Acknowledgments:
GAO Contact:
David C. Trimble, (202) 512-3841 or trimbled@gao.gov:
Staff Acknowledgments:
In addition to the individual named above, Susan Iott, Assistant
Director; Tom Beall; Jillian Fasching; Sharon Hogan; Susan Iott;
Thomas James; Yvonne Jones; Jonathan Kucskar; Kirsten Lauber; Carol
Patey; Cheryl Peterson; Brenda Rabinowitz; Beverly Ross; Kelly Rubin;
Carol Herrnstadt Shulman; Dawn Shorey; Kathryn Smith; Jonathan Stehle;
Kiki Theodoropoulos; and Ethan Wozniak made key contributions to this
report.
[End of section]
Footnotes:
[1] Pub. L. No. 111-5, 123 Stat. 115.
[2] As of June 3, 2011, the Department of the Treasury had paid out
$217.5 billion in Recovery Act funds for use by states and localities.
For updates, see [hyperlink, http://gao.gov/recovery].
[3] GAO, Physical Infrastructure: Challenges and Investment Options
for the Nation's Infrastructure, [hyperlink,
http://www.gao.gov/products/GAO-08-763T] (Washington D.C.: May 8,
2008).
[4] Congressional Budget Office, Public Spending on Transportation and
Water Infrastructure (Washington, D.C., November 2010).
[5] Pub. L. No. 111-5, § 901(a)(1).
[6] Pub. L. No. 111-5 § 1512(e). FTE data provide insight into the use
and impact of the Recovery Act funds, but recipient reports cover only
direct jobs funded by the Recovery Act. These reports do not include
the employment impact on suppliers (indirect jobs) or on the local
community (induced jobs). Both data reported by recipients and other
macroeconomic data and methods are necessary to understand the overall
employment effects of the Recovery Act.
[7] This month we are also reporting on the status and use of Recovery
Act funds for transportation programs. See GAO, Recovery Act: Funding
Used For Transportation Infrastructure Projects, but Some Requirements
Proved Challenging, [hyperlink,
http://www.gao.gov/products/GAO-11-600] (Washington, D.C.: June 29,
2011). We last reported on the use of Recovery Act Clean and Drinking
Water SRF program funds for water in GAO, Recovery Act: States' and
Localities' Uses of Funds and Actions Needed to Address Implementation
Challenges and Bolster Accountability, [hyperlink,
http://www.gao.gov/products/GAO-10-604] (Washington, D.C.: May 26,
2010).
[8] These states were Alabama, Connecticut, Maryland, Michigan,
Missouri, New Mexico, Nevada, Washington State, and Wyoming. We did
not select any states in EPA Region 2--which includes New Jersey, New
York, and Puerto Rico--because we had reviewed New Jersey and New York
in previous Recovery Act reports.
[9] In addition to our analyses of EPA recipient report data, we
continued, as in prior rounds, to perform edit checks and analyses on
all prime recipient reports to assess data logic and consistency and
identify unusual or atypical data.
[10] See [hyperlink, http://gao.gov/recovery] for related GAO products.
[11] The $6 billion in Recovery Act funds includes about $39 million
in Clean Water Act Section 604(b) Water Quality Management Planning
Grants. Section 604(b) of the Clean Water Act requires the reservation
each fiscal year of a small portion of each state's Clean Water SRF
allotment--usually 1 percent--to carry out planning under Sections
205(j) and 303(e) of the Clean Water Act. States generally use 604(b)
grants to fund regional comprehensive water quality management
planning activities to improve local water quality. In addition, the
$6 billion includes a small amount of funding for trust territories,
tribal governments, and the District of Columbia. Any reference to
Recovery Act funds in this report excludes these water quality
planning, territorial, tribal, and District of Columbia funds.
[12] These are loans for which the rate of interest is such that the
total payments over the life of the loans are less than the principal
of the loans. In contrast to these additional subsidies, financial
assistance typically replenishes funds and provides the ability to
fund future loans for additional projects.
[13] Pub. L. No. 111-5, § 1605.
[14] Pub. L. No. 111-5, §1606.
[15] GAO, Standards for Internal Control in the Federal Government,
[hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1]
(Washington, D.C.: November 1999).
[16] The most recent version of the plan is EPA, Environmental
Protection Agency Recovery Act Plan: A Strong Economy and a Clean
Environment (Washington, D.C., June 1, 2010).
[17] [hyperlink, http://www.gao.gov/products/GAO-10-604].
[18] The states draw down funds from the Treasury to reimburse
contractors for work already conducted on projects.
[19] Wastewater treatment involves several processes, including
primary treatment to remove suspended solids; secondary treatment to
further remove contaminants using biological processes; and tertiary
or advanced treatment to remove additional material in wastewater,
such as nutrients or toxic chemicals.
[20] Sanitary sewer overflows can occur as a result of inclement
weather and can pose significant public health and pollution problems,
according to EPA.
[21] Urban heat islands are metropolitan areas that are significantly
warmer than the surrounding rural areas.
[22] In our May 2010 report, the 14 states we reviewed distributed
more than $2.8 billion in Recovery Act funds among nearly 1,400 water
projects through their Clean Water and Drinking Water SRF programs.
[23] Our February 2010 report on the Davis-Bacon provisions of the
Recovery Act found that program officials had mixed views on the
effect of the provisions on program costs. See GAO, Recovery Act:
Officials' Views Vary on Impacts of Davis-Bacon Act Prevailing Wage
Provision, [hyperlink, http://www.gao.gov/products/GAO-10-421]
(Washington, D.C.: Feb. 24, 2010).
[24] These flows can contain untreated human and industrial waste.
[25] States differ in how they define disadvantaged communities. In
general, disadvantaged community status takes into account factors
such as median household income and community size.
[26] In our May 2010 report, we found that the 14 states in that
review provided $1.2 billion, or about 43 percent of total funds, for
assistance in disadvantaged communities.
[27] In total, the nine states we reviewed provided more than $558
million of their Recovery Act funds--67 percent--in the form of
additional subsidies to all projects. Of this money, 30 percent was
awarded to projects in economically disadvantaged communities.
[28] EPA Office of Inspector General, Evaluation Report: EPA Faced
Multiple Constraints to Targeting Recovery Act Funds, Report No. 11-R-
0208 (Washington, D.C.: Apr. 11, 2011).
[29] Examples of the issues raised include missing Davis-Bacon or Buy
American clauses or paperwork, inappropriate payments, or instances in
which paperwork was missing to show that debarment lists had been
checked. The reports identified corrective actions that the states
planned to take or showed that the issues had been resolved through
the review process.
[30] [hyperlink, http://www.gao.gov/products/GAO-10-604].
[31] According to the OIG, site visits included a tour of the project,
interviews with the subrecipient and contractor personnel, a review of
the subrecipient's systems used for reporting purposes, and review of
procurement documentation.
[32] These visits took place in Waleska, Georgia; Ball, Louisiana;
Saugus, Massachusetts; Newark, Ohio; Parma, Ohio; and Bremerton,
Washington.
[33] EPA Office of Inspector General, American Recovery and
Reinvestment Act Site Inspection of the Clean Water State Revolving
Fund Projects at the City of Long Beach, California, 11-R-0082 (Feb.
1, 2011).
[34] EPA Office of Inspector General, American Recovery and
Reinvestment Act Site Visit of the Denver Street Storage Project, City
of Astoria, Oregon, 11-R-0172 (Mar. 22, 2011).
[35] The Honorable Earl E. Devaney, Chairman, Recovery Accountability
and Transparency Board, Testimony before the Committee on Oversight
and Government Reform, U.S. House of Representatives, June 14, 2011.
[36] EPA Office of Inspector General, Stimulus Status: Two Years and
Counting, Statement of Arthur A. Elkins, Jr. Inspector General, Before
the Committee on Transportation and Infrastructure, U.S. House of
Representatives, May 4, 2011.
[37] EPA Office of Inspector General, Stimulus Status: Two Years and
Counting, Statement of Arthur A. Elkins, Jr. Inspector General, Before
the Committee on Transportation and Infrastructure, U.S. House of
Representatives, May 4, 2011.
[38] According to one official, Nevada has not conducted an audit on
the Recovery Act Clean and Drinking Water SRF program and is
considering auditing the program in fiscal year 2011. Auditors in
Alabama, Connecticut, Maryland, Missouri, New Mexico, and Wyoming
reported no significant problems.
[39] Michigan Office of the Auditor General, Financial Audit Including
the Provisions of the Single Audit Act of the Department of
Environmental Quality, October 1, 2007 through September 30, 2009, No.
761-0100-10, (June 2010).
[40] Washington State Auditor's Office, Financial Statements and
Federal Compliance Report, Department of Health Drinking Water State
Revolving Fund, July 1, 2008 through July 30, 2009, No. 1004482
(November 1, 2010).
[41] The CBR system was an existing system the states used to report
information on clean water SRF projects, while the PBR system was a
new system being tested to allow states to report drinking water SRF
project information.
[42] EPA Office of Inspector General, EPA Effectively Reviewed
Recovery Act Recipient Data but Opportunities for Improvement Exist
(Washington, D.C., Sept. 27, 2010).
[43] One state did not take Recovery Act funds to pay for its state
employees' time on Recovery Act work.
[44] [hyperlink, http://www.gao.gov/products/GAO-10-604].
[45] EPA Office of Inspector General, Evaluation Report: EPA Needs
Definitive Guidance for Recovery Act and Future Green Reserve
Projects, Report No. 10-R-0057 (Washington, D.C., Feb. 1, 2010).
[46] For the Clean Water SRF program, the 30 percent minimum only
applies to the portion of appropriated funds exceeding $1 billion.
[47] The Drinking Water SRF program had a subsidy provision that
allowed states to use up to 30 percent of their annual grant to
provide additional subsidies to help economically disadvantaged
communities. 42 U.S.C. § 300j-12(d).
[48] We did not select any states in EPA Region 2--which includes New
Jersey, New York, and Puerto Rico--because we had reviewed New Jersey
and New York in previous Recovery Act reports.
[49] [hyperlink, http://www.gao.gov/products/GAO-10-604[.
[50] As we did with the prior reviews, we conducted these checks and
analyses on all prime recipient reports to assess data logic and
consistency and identify unusual or atypical data. For this seventh
review, we continued to see similar results with minor variations in
the number or percent of reports appearing atypical or showing some
form of data discrepancy.
[51] GAO, Recovery Act: As Initial Implementation Unfolds in States
and Localities, Continued Attention to Accountability Issues Is
Essential, [hyperlink, http://www.gao.gov/products/GAO-09-580]
(Washington, D.C.: Apr. 23, 2009); Recovery Act: States' and
Localities' Current and Planned Uses of Funds While Facing Fiscal
Stresses, [hyperlink, http://www.gao.gov/products/GAO-09-829]
(Washington, D.C.: July 8, 2009); Recovery Act: Funds Continue to
Provide Fiscal Relief to States and Localities, While Accountability
and Reporting Challenges Need to Be Fully Addressed, [hyperlink,
http://www.gao.gov/products/GAO-09-1016] (Washington, D.C.: Sept. 23,
2009); Recovery Act: Recipient Reported Jobs Data Provide Some Insight
into Use of Recovery Act Funding, but Data Quality and Reporting
Issues Need Attention, [hyperlink,
http://www.gao.gov/products/GAO-10-223] (Washington, D.C.: Nov. 19,
2009); Recovery Act: Status of States' and Localities' Use of Funds
and Efforts to Ensure Accountability, [hyperlink,
http://www.gao.gov/products/GAO-10-231] (Washington, D.C.: Dec. 10,
2009); Recovery Act: One Year Later, States' and Localities' Uses of
Funds and Opportunities to Strengthen Accountability, [hyperlink,
http://www.gao.gov/products/GAO-10-437] (Washington, D.C.: Mar. 3,
2010); Recovery Act: States' and Localities' Uses of Funds and Actions
Needed to Address Implementation Challenges and Bolster
Accountability, [hyperlink, http://www.gao.gov/products/GAO-10-604]
(Washington, D.C.: May 26, 2010); Recovery Act: Opportunities to
Improve Management and Strengthen Accountability over States' and
Localities' Uses of Funds, [hyperlink,
http://www.gao.gov/products/GAO-10-999] (Washington, D.C.: Sept. 20,
2010); Recovery Act: Head Start Grantees Expand Services, but More
Consistent Communication Could Improve Accountability and Decisions
about Spending, [hyperlink, http://www.gao.gov/products/GAO-11-166]
(Washington, D.C.: Dec. 15, 2010); and Recovery Act: Energy Efficiency
and Conservation Block Grant Recipients Face Challenges Meeting
Legislative and Program Goals and Requirements, [hyperlink,
http://www.gao.gov/products/GAO-11-379] (Washington, D.C.: Apr. 7,
2011).
[52] [hyperlink, http://www.gao.gov/products/GAO-11-379], 48-50.
[53] [hyperlink, http://www.gao.gov/products/GAO-11-379], 36-47.
[54] [hyperlink, http://www.gao.gov/products/GAO-10-604], 246-247.
[55] [hyperlink, http://www.gao.gov/products/GAO-10-604], 184.
[56] [hyperlink, http://www.gao.gov/products/GAO-11-166], 39.
[57] [hyperlink, http://www.gao.gov/products/GAO-11-166], 39.
[58] [hyperlink, http://www.gao.gov/products/GAO-11-166], 39.
[59] [hyperlink, http://www.gao.gov/products/GAO-10-604], 184.
[60] [hyperlink, http://www.gao.gov/products/GAO-10-999], 189.
[61] [hyperlink, http://www.gao.gov/products/GAO-10-604], 244.
[62] [hyperlink, http://www.gao.gov/products/GAO-09-1016], 78.
[63] [hyperlink, http://www.gao.gov/products/GAO-09-829], 127.
[64] [hyperlink, http://www.gao.gov/products/GAO-10-604], 247.
[65] [hyperlink, http://www.gao.gov/products/GAO-09-829], 127.
[66] [hyperlink, http://www.gao.gov/products/GAO-10-604], 247.
[67] [hyperlink, http://www.gao.gov/products/GAO-10-999], 194.
[68] [hyperlink, http://www.gao.gov/products/GAO-10-604], 247-248.
[69] [hyperlink, http://www.gao.gov/products/GAO-10-999], 194.
[70] Congress passed the Single Audit Act, as amended, 31 U.S.C. ch.
75, to promote, among other things, sound financial management,
including effective internal controls, with respect to federal awards
administered by nonfederal entities. The Single Audit Act requires
states, local governments, and nonprofit organizations expending
$500,000 or more in federal awards in a year to obtain an audit in
accordance with the requirements set forth in the act. A Single Audit
consists of (1) an audit and opinions on the fair presentation of the
financial statements and the Schedule of Expenditures of Federal
Awards; (2) gaining an understanding of and testing internal control
over financial reporting and the entity's compliance with laws,
regulations, and contract or grant provisions that have a direct and
material effect on certain federal programs (i.e., the program
requirements); and (3) an audit and an opinion on compliance with
applicable program requirements for certain federal programs.
[71] In addition to the annual edition of the Compliance Supplement,
OMB may issue Compliance Supplement addendums during the year to
update or provide further Recovery Act guidance.
[72] OMB's second project is similar to its first Single Audit
Internal Control project which started in October 2009. Sixteen states
participated in the first project. We assessed the results of the
project and reported them in GAO-10-999.
[73] The Compliance Supplement is updated annually. The 2010
Compliance Supplement was issued in July 2010 and is applicable to
audits of fiscal years beginning after June 30, 2009.
[74] Continuing resolutions (also known as "CRs") are appropriations
acts that provide budget authority for federal agencies, specific
activities, or both to continue in operation when Congress and the
President have not completed action on the regular appropriations acts
by the beginning of the fiscal year. A CR may be enacted for the full
year, up to a specified date, or until regular appropriations are
enacted.
[75] The project's guidelines called for the federal awarding agencies
to complete (1) performing a risk assessment of the internal control
deficiency and identify those with the greatest risk to Recovery Act
funding and (2) identifying corrective actions taken or planned by the
auditee. OMB guidance requires this information to be included in a
management decision that the federal agency was to have issued to the
auditee's management, the auditor, and the cognizant agency for audit.
[76] [hyperlink, http://www.gao.gov/products/GAO-10-999], 187-188.
[77] [hyperlink, http://www.gao.gov/products/GAO-10-604], 241-242.
[78] [hyperlink, http://www.gao.gov/products/GAO-09-829], 128.
[79] [hyperlink, http://www.gao.gov/products/GAO-09-829], 128.
[80] [hyperlink, http://www.gao.gov/products/GAO-10-604], 251.
[End of section]
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