GAO Update

by Jeanette Franzel and Maxine Hattery**

Auditing for the American Recovery and Reinvestment Act:
A Real-Time Challenge

Recovery Act
“The American people are watching,” President Obama told the mayors after signing the American Recovery and Reinvestment Act on February 17, 2009. And Rep. Edolphus Towns, chairman of the House Committee on Oversight and Government Reform opened a March 19, 2009, hearing on Recovery Act oversight with a warning: “The risk of fraud increases when billions of dollars go out the door quickly.”

Large amounts of federal dollars are being distributed throughout the country with a sense of urgency. Of the $787 billion in Recovery Act spending and tax provisions over the next 10 years, more than $580 billion will be in additional federal spending, $280 billion of which will be administered through states and localities. Congress and the administration have pledged, and the act establishes means for, high levels of transparency and accountability in the safeguarding and use of Recovery Act funds. GAO plays an important role in that effort.

The Recovery Act states that the funds are to be used to preserve and create jobs and promote economic recovery; help those most affected by the recession; invest in increasing economic efficiency by spurring technological advances in science and health; invest in transportation, environmental protection, and other infrastructure to provide long-term economic benefits; and stabilize state and local government budgets. An estimated 90 percent of funding for states and localities in fiscal year 2009 will be for health, transportation, and education. The three largest programs are the Medicaid Federal Medical Assistance Percentage (FMAP) awards, the State Fiscal Stabilization Fund, and highways.

Accountability and Transparency
To see that stimulus funds are used as intended, the Recovery Act allocates funds to oversight organizations, including the federal inspectors general (IGs); a new Recovery Accountability and Transparency Board; and GAO. To coordinate these efforts, Acting Comptroller General Gene Dodaro has reached out to federal, state, and local auditors; the Council of Inspectors General on Integrity and Efficiency, and the Recovery Accountability and Transparency Board.

Real-Time Auditing
GAO’s has a challenging role in Recovery Act oversight in its requirement to review the use of funds in the 50 states and the District of Columbia and report to Congress every 60 days. The result is near–real time auditing that has GAO auditors and analysts in 16 states (along with a sample of localities within those states) and the District of Columbia—representing about 65 percent of the U.S. population and two-thirds of the Recovery Act’s intergovernmental federal assistance. The states are Arizona, California, Colorado, Florida, Georgia, Iowa, Illinois, Massachusetts, Michigan, Mississippi, New Jersey, New York, North Carolina, Ohio, Pennsylvania, and Texas. In addition to the core 17 field locations, GAO will monitor expenditure reports submitted by all 50 states and conduct additional work as required. GAO has assembled multidisciplinary teams assigned to each state. Those teams include experts in education, health care, transportation, and other key programs, as well as financial management experts.

On April 23, 2009, GAO met its first deadline, issuing its first bimonthly report. The review found that OMB has moved quickly to guide implementation of the Recovery Act, and GAO offered recommendations for addressing important issues involving accountability and transparency, administrative support and oversight, and communications with states and recipients.
In this first report, GAO describes selected states’ and localities’ (1) uses of and planning for Recovery Act funds, (2) accountability approaches, and (3) plans to evaluate the impact of funds received. Each recipient of Recovery Act funding is required to report quarterly to each of its funding agencies on the use of funds, project status, rationale for infrastructure investments, and jobs preserved and created. To determine how recipients planned to collect and analyze the data for this oversight, GAO teams met with state and local officials, including Governors and their key staff; officials in Comptrollers, Treasurers, and State Auditors offices; “recovery czars;” senior finance and budget officials; and local officials such as those from housing authorities, school districts, transit agencies, and other key audit community stakeholders. The teams also coordinated with oversight entities such as inspectors general and met with officials in state and local agencies administering programs receiving Recovery Act funds, including state departments of education, transportation, and health and human services, and with selected legislative officials. In support of these interviews, a multidisciplinary effort by GAO staff with programmatic expertise developed a series of program review and semistructured interview guides that addressed state plans for management, tracking, and reporting of Recovery Act funds and activities. The guides focused on, among other things, identification of risk, risk mitigation, contracting, the internal control environment and safeguards against fraud, waste, and abuse.

The GAO teams are now making their second rounds through the states to monitor progress, focusing on internal controls, safeguards, risk assessment, monitoring, and Single Audit issues. They are drilling down, looking at the codes being used to track Recovery Act funds, controls in place over the use of funds, and, as the funds begin to reach Main Street and beyond, the impact. Then back to the states and localities again, with the teams building on their growing understanding of how the Act is being implemented within each state.   

Related Publications
American Recovery and Reinvestment Act: “Following the Money: GAO’s Oversight of the Recovery Act,” http://www.gao.gov/recovery.

Recovery Act: GAO’s Efforts to Work with the Accountability Community to Help Ensure Effective and Efficient Oversight, GAO-09-672T, May 5, 2009.

Recovery Act: Initial Results on States’ Use of and Accountability for Transportation Funds, GAO-09-597T, April 29, 2009.

Recovery Act: Consistent Policies Needed to Ensure Equal Consideration of Grant Applications, GAO-09-590R, April 29, 2009.

Recovery Act: As Initial Implementation Unfolds in States and Localities, Continued Attention to Accountability Issues Is Essential, GAO-09-580, April 23, 2009.

GAO’s Role in Helping to Ensure Accountability and Transparency, GAO-09-453T, March 5, 2009.

Reporting Potential Fraud Related to the Recovery Act
In addition to GAO’s financial and performance audits of the Recovery Act, targeted investigations are being conducted by Forensic Audits and Special Investigations (FSI) in program areas determined to be especially vulnerable to fraud. As part of this effort, GAO’s FraudNet has been employed as a means for citizens to submit allegations of misused funds. GAO is urging private citizens, government workers, contractors, and others to report waste, fraud, abuse, or mismanagement of Recovery Act funds to the hotline.

Begun in 1979 as a toll-free phone number, FraudNet has expanded in recent years to receive allegations through the Internet, fax, or letter.

Evidence or suspicions of abuse may be provided anonymously through FraudNet, and GAO treats all inquiries confidentially. Internet information is transmitted over a secure connection. GAO may refer allegations for follow-up to its own investigative units, appropriate inspector general offices, or to the Justice Department. Past reports of alleged mismanagement and wrongdoing have covered topics as varied as the misappropriation of funds, security violations, and contractor fraud.
The public can call 1-800-424-5454 (an automated answering system); send an e-mail to fraudnet@gao.gov; send a fax to (202) 512-3086; or write to: GAO FraudNet 441 G Street, NW, Mail Stop 4T21, Washington, DC 20548. The public may also visit the FraudNet page of our website at http://www.gao.gov/fraudnet/fraudnet.htm

GAO Finds Financial Literacy Commission Struggling
Following up on a 2006 report, GAO has looked at the Financial Literacy Commission’s action to address the report's recommendations.

The Commission, comprising 20 federal agencies, was established in 2003 by the Financial Literacy and Education Improvement Act. The 2008-2009 review followed up on the December 2006 recommendations, finding that action had been taken on some, while others remain, for example:

• Revisions to the Commission’s National Strategy for Financial Literacy since GAO’s 2006 report do not incorporate recommendations on roles, funding, and activities and remains a fundamentally descriptive document that does not serve as a true functional strategy.
• The report called the creation of the National Financial Education Network, which focuses on the state and local level, and the President’s Advisory Council on Financial Literacy, which focuses on the private and nonprofit sectors, a positive step toward developing partnerships.
• Treasury has enlisted a volunteer doctoral student to conduct independent reviews on the overlap of federal activities and on the availability of financial literacy materials, but the student will not assess the impact of the materials, as called for in the act. Treasury staff told GAO that they used a volunteer because they lacked the funds to hire a paid professional.
• Responding to GAO’s recommendation, the Commission conducted a survey of users of its MyMoney.gov Web site with limited response. The Commission has not conducted usability testing, a recommended best practice for federal public Web sites, although it says it is looking into doing so later this year.

The Commission faces the challenge of limited resources. The Commission has no independent budget, and Congress has not provided targeted funds since 2005. With little staff, the Commission also faces the challenge of coordinating 20 individual federal agencies, each with its own set of interests, resources, and constituencies.

Related Publications
Financial Literacy and Education Commission: Progress Made in Fostering Partnerships, but National Strategy Remains Largely Descriptive Rather Than Strategic, GAO-09-638T,  April 29, 2009.

Financial Literacy and Education Commission: Further Progress Needed to Ensure an Effective National Strategy, GAO-07-777T, April 30, 2007

Financial Literacy and Education Commission: Further Progress Needed to Ensure an Effective National Strategy, GAO-07-100, December 4, 2006

**Jeanette Franzel, Director, Financial Management and Assurance;
Maxine Hattery, Financial Management and Assurance; U.S. Government
Accountability Office

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