Minnesota Office of the Legislative Auditor
Financial Audit Division

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Report Summary


Management Letter

Department of Economic Security

Fiscal Year Ended June 30, 2002


Key Findings and Recommendations

  • The department used federal Workforce Investment Act (WIA) program funds to pay the total cost of a consulting contract that involved duties and responsibilities not directly related to the federal program. The department paid $186,321 ($138,321 in fiscal year 2002 and $48,000 for fiscal year 2003) to the head of the transition team on Workforce and Economic Development. The transition team was to make recommendations regarding the transfer of responsibilities of the Department of Economic Security (DES) to other departments. Abolishment of the agency and reorganization of functions affects all of DES' programs, including unemployment insurance and several other federal and state programs. Due to its broader role, the federal WIA program should not have funded the full cost of the consultant contract. Federal allowable cost principles require that costs be allocated in accordance with the relative benefits received by the federal program. While reviewing this issue we also noted concerns with the Office of the Governor's processing of the consulting contract.
  • The department made a $31.5 million error when compiling the Unemployment Insurance (CFDA #17.225) expenses for the federal Single Audit report. An audit adjustment was made to correct the error; however, we recommended that the department compare the unemployment benefit expense reported in its financial statements to the amount reported in the federal Single Audit report.
  • The department did not clearly define its relationship with one recipient receiving federal Employment Services Cluster (CFDA #17.207) moneys. The department entered into a grant agreement with the subrecipient that appeared to be a vendor relationship. The professional-technical contract format and terms were used and invoices were submitted. The contract did not address financial status reports typically required from subgrantees. In addition, the department did not obtain a required certification asserting the receipient had not been disqualified from receiving federal funds.

Management letters address internal control weaknesses and noncompliance issues found during our annual audit of the state's financial statements and federally funded programs. The scope of work in individual agencies is limited. During the fiscal year 2002 audit, our work at the Department of Economic Security focused on financial activities of the Unemployment Insurance Fund and several federal programs administered by the department.

More Information

Office of the Legislative Auditor ♦ Room 140, 658 Cedar St., St. Paul, MN 55155