MARCH 14, 2000 00-12
Financial Audit Division
The Office of the Legislative Auditor (OLA) is a professional, nonpartisan office in the legislative branch of Minnesota State government. Its principal responsibility is to audit and evaluate the agencies and programs of state government (the State Auditor audits local governments). OLA's Financial Audit Division annually audits the state's financial statements and, on a rotating schedule, audits agencies in the executive and judicial branches of state government, three metropolitan agencies, and several "semi-state" organizations. The division also investigates allegations that state resources have been used inappropriately. The division has a staff of approximately fifty auditors, most of whom are CPAs. The division conducts audits in accordance with standards established by the American Institute of Certified Public Accountants and the Comptroller General of the United States.
Consistent with OLA's mission, the Financial Audit Division works to:
· Promote Accountability, · Strengthen Legislative Oversight, and
· Support Good Financial Management.
Through its Program Evaluation Division, OLA conducts several evaluations each year and one best practices review.
OLA is under the direction of the Legislative Auditor, who is appointed for a six-year term by the Legislative Audit Commission (LAC). The LAC is a bipartisan commission of Representatives and Senators. It annually selects topics for the Program Evaluation Division, but is generally not involved in scheduling financial audits.
All findings, conclusions, and recommendations in reports issued by the Office of the Legislative Auditor are solely the responsibility of the office and may not reflect the views of the LAC, its individual members, or other members of the Minnesota Legislature.
This document can be made available in alternative formats, such as large print, Braille, or audio tape, by calling 651-296-1727 (voice), or the Minnesota Relay Service at 651-297-5353 or 1-800-627-3529. All OLA reports are available at our Web Site: http:// www. auditor. leg. state. mn. us
If you have comments about our work, or you want to suggest an audit, investigation, evaluation, or best practices review, please contact us at 651-296-4708 or by e-mail at auditor@ state. mn. us
OFFICE OF THE LEGISLATIVE AUDITOR State of Minnesota ° James Nobles, Legislative Auditor
Department of Economic Security Fiscal Year Ended June 30, 1999
Key Findings and Recommendations:
· The Department of Economic Security did not provide adequate oversight to two vendors of the American Learning Exchange Grant (CFDA 17.207) to ensure these vendors complied with grant provisions. The Department did not receive timely progress reports and adequate documentation to support reimbursement requests totaling $840,000 in fiscal year 1999. We also noted certain overhead rates and fees submitted by the vendors were not specified in the grant agreement. We recommended improved oversight and clarification of overhead rates not specified in the grant agreements. (Finding 1, page 3)
· The Department of Economic Security and the U. S. Department of Labor have not resolved a potential funding usage issue for the Local Veterans Employment Representative (LVER) Program (CFDA 17.804). The two agencies do not agree whether time spent taking employer job orders is allowed under the LVER Program. We recommended that the department work with the federal government to revolve the personnel funding issue. (Finding 2, page 3)
· The department reimbursed certain Employment Services Program (CFDA 17.207) subgrantees for expenditures incurred after the grant period ended. We found that the department disbursed $113,681 to four subgrantees from August 1998 through January 1999 for work completed after the grant ended on June 30, 1998. We recommended better monitoring of subgrantee progress and extension of individual grant agreements when appropriate. (Finding 3, page 4)
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 1999 audit, our work at the Department of Economic Security focused on financial activities of the Reemployment Insurance Trust Fund and eight federal programs administered by the department. The department's response to our recommendations is included in the report.
Room 140, 658 Cedar Street, St. Paul, Minnesota 55155-1603 ° Tel: 651/ 296-4708 ° Fax: 651/ 296-4712 E-mail: auditor@ state. mn. us ° TDD Relay: 651/ 297-5353 ° Website: www. auditor. leg. state. mn. us
Department of Economic Security Table of Contents
Status of Prior Audit Issues
Department of Economic Security Response
The following members of the Office of the Legislative Auditor prepared this report: Claudia Gudvangen, CPA Deputy Legislative Auditor Brad White, CPA, CISA Audit Manager
Susan Rumpca, CPA Auditor-in-Charge Mike Byzewski Auditor Dan Kingsley Auditor Loren Louwagie Auditor Mark Mathison, CPA, CISA Auditor Tory Monson Auditor Ellen Sibley Auditor
The findings and recommendations in this report were discussed with the following officials of the Department of Economic Security at an exit conference held on March 2, 2000:
Earl Wilson Commissioner Al St. Martin Deputy Commissioner
Mick Coleman Associate Deputy Commissioner John Stavros Chief Financial Officer
Tim Langlie Accounting Director
OFFICE OF THE LEGISLATIVE AUDITOR State of Minnesota ° James Nobles, Legislative Auditor
Representative Dan McElroy, Chair Legislative Audit Commission Members of the Legislative Audit Commission Mr. Earl Wilson, Commissioner Department of Economic Security
We have performed certain audit procedures at the Department of Economic Security as part of our audit of the financial statements of the State of Minnesota for the year ended June 30, 1999. We also have audited certain federal financial assistance programs administered by the Department of Economic Security as part of our audit of the state's compliance with the requirements described in the U. S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement. We emphasize that this has not been a comprehensive audit of the Department of Economic Security. Table 1 identifies the financial activities within the Department of Economic Security that were material to the state's financial statements. We performed certain audit procedures on these programs as part of our objective to obtain reasonable assurance about whether the State of Minnesota's financial statements for the year ended June 30, 1999, were free of material misstatement.
Table 1 Programs Material to the State's Financial Statements Fiscal Year 1999 (in thousands)
Amount Reemployment Insurance Cash $621,651
Reemployment Insurance Taxes $380,287
Reemployment Insurance Investment Income $ 39,906
Reemployment Insurance Grants $369,115
Source: State of Minnesota Comprehensive Annual Financial Report for fiscal year 1999.
Table 2 identifies the State of Minnesota's major federal programs administered by the Department of Economic Security. We performed certain audit procedures on these programs as part of our objective to obtain reasonable assurance about whether the State of Minnesota complied with the types of requirements that are applicable to each of its major federal programs.
Table 2 Major Federal Programs Administered by the Department of Economic Security Fiscal Year 1999 (in thousands)
CFDA # Program Name Federal
17.225 Unemployment (Reemployment) Insurance (1) $408,052
84.126 Rehabilitation Services Basic Support 47,495
96.00X Social Security Disability Insurance/
Supplemental Security Insurance 17,611
Employment Services Cluster:
17.207 Employment Services $18,074
17.801 Disabled Veterans' Outreach Program 1,579
17.804 Local Veterans' Employment 1,799
Total Employment Service Cluster $21,452
Job Training Partnership Act Cluster:
17.250 Job Training Partnership Act (JTPA Title II) $19,168
17.246 Employment and Training Assistance –
Dislocated Workers (JTPA Title III) 9,359
Total Job Training Partnership Act Cluster $28,527
Note: (1) Expenditures include $364,667 of state reemployment insurance grants, $3,278 in federal reemployment insurance grants, and $40,107 of federal administrative reimbursements.
Source: State Employment Security Agency Cost Accounting System for fiscal year 1999.
We conducted our audit in accordance with generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States.
Our December 1, 1999, report included an unqualified opinion on the general purpose financial statements included in the State of Minnesota's Comprehensive Annual Financial Report for fiscal year 1999. In accordance with Government Auditing Standards, we also issued our report, dated December 1, 1999, on our consideration of the State of Minnesota's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grants. At a later date, we will issue our report on compliance with requirements applicable to each major federal program and internal control over compliance in accordance with OMB Circular A-133.
As a result of our procedures, we identified the following instances of noncompliance with finance-related legal provisions or program requirements and the following weaknesses in internal control at the Department of Economic Security.
1. The Department of Economic Security did not provide adequate oversight to two vendors of the American Learning Exchange Grant.
The department did not adequately control payments to two vendors of the American Learning Exchange Grant to ensure they complied with grant provisions. The U. S. Department of Labor funded American Learning Exchange Grants as part of the Employment Services Program (CFDA 17.207). The Department of Economic Security disbursed approximately $840,000 to the two vendors during fiscal year 1999. We found that the department did not receive timely and adequate documentation to support the vendor reimbursement requests. According to the grant agreements, the department would reimburse the vendors after submission of monthly invoices that provide a financial status report and a report of project progress. The vendors did not submit invoices or financial status reports each month. In addition, the invoices did not provide sufficient detail of the project costs. Some invoices did not provide the timeframe for services billed, details of services provided, or other supporting information. Also, one vendor applied a fringe and overhead rate of 92 percent of labor costs and a general and administrative rate of 6.9 to 7 percent to all invoices. Some of the invoices from this vendor also contained an additional fee of 4.5 percent. The grant agreement did not specify any of these rates.
· The Department of Economic Security should actively oversee the American Learning Exchange Grant by obtaining timely progress reports and other detailed support. The department should also clarify use of overhead rates and fees that are not specified in the grant agreement.
2. The Department of Economic Security and the U. S. Department of Labor have not resolved a question on funding certain personnel costs.
The Department of Economic Security and the U. S. Department of Labor have not resolved a question on allowable uses of funds for the Local Veterans Employment Representative (LVER) Program (CFDA 17.804). The two agencies do not agree whether time spent taking employer job orders is allowed under the LVER Program. The U. S. Department of Labor classifies this as a clerical function and believes it is not an acceptable job duty under the LVER program. 38 U. S. C. 4104( b) states "Local veterans' employment representatives shall functionally supervise the providing of services to eligible veterans and eligible persons by local employment service staff."
The U. S. Department of Labor requested that the department discontinue assigning LVER employees to the employer job order desk, back out the charges for days LVER employees were scheduled to work the desk, and develop a corrective action. The two agencies have not agreed on a resolution.
· The Department of Economic Security should work with the U. S. Department of Labor to resolve the questions on allowable use of LVER program funding.
3. The Department of Economic Security reimbursed subgrantees for expenditures incurred after the grant period.
The department disbursed funds to subgrantees of the One-Stop Grant for work completed after the grant ended. The grant is part of the Employment Services Program (CFDA 17.207) and was used for startup funding for the Workforce Centers. The department disbursed $113,681 to four subgrantees from August 1998 through January 1999 for work completed after the grant ended. The individual grant agreements remained in effect until June 30, 1998. The department did not work with the subgrantees to extend their individual grant agreements. Recommendation
· The Department of Economic Security should monitor subgrantees' progress within the timetable of the grant and modify grant agreements when appropriate.
This report is intended for the information of the Legislative Audit Commission and the management of the Department of Economic Security. This restriction is not intended to limit the distribution of this report, which was released as a public document on March 14, 2000.
/s/ James R. Nobles /s/ Claudia J. Gudvangen
James R. Nobles Claudia J. Gudvangen, CPA Legislative Auditor Deputy Legislative Aud itor
End of Fieldwork: February 1, 2000
Report Signed On: March 9, 2000
Status of Prior Audit Issues As of February 1, 2000
March 1999, Legislative Audit Report 99-21 examined the department's activities and programs material to the State of Minnesota's Comprehensive Annual Financial Report and the Single Audit for the year ended June 30, 1998. The scope included material selected activities for the Reemployment Insurance Fund and the following federal programs: Unemployment Insurance Administration, Rehabilitation Services Basic Support, Social Security Disability Insurance, Senior Community Service Employment, Employment Services Cluster (Employment Services, Disabled Veterans' Outreach Program, Local Veterans' Employment Program), and Job Training Partnership Cluster (Job Training Partnership Act Title II, Dislocated Workers Title III).
The report contained four findings. The department resolved Findings 1 and 3. Finding 1 addressed the lack of federal suspension and debarment certifications from certain subrecipients and Finding 3 identified improvements needed for controls over privileged logonID records. The department is in the process of resolving Findings 2 and 4 pertaining to ACF2 security administration procedures and the development of a comprehensive written disaster recovery plan. The department developed a multi-year plan during fiscal year 1998 to address these audit issues and is proceeding with the plan.
State of Minnesota Audit Follow-Up Process
The Department of Finance, on behalf of the Governor, maintains a quarterly process for following up on issues cited in financial audit reports issued by the Legislative Auditor. The process consists of an exchange of written correspondence that documents the status of audit findings. The follow-up process continues until Finance is satisfied that the issues have been resolved. It covers entities headed by gubernatorial appointees, including most state agencies, boards, commissions, and Minnesota state colleges and universities. It is not applied to audits of the University of Minnesota, any quasi-state organizations, such as the metropolitan agencies, or the State Agricultural Society, the state constitutional officers, or the judicial branch.
State of Minnesota Department of Economic Security Office of the Commissioner
March 7, 2000
Mr. James R. Nobles
First Floor, Centennial Office Building
658 Cedar Street
St. Paul, Minnesota 55155
Dear Mr. Nobles:
The following information is offered in response to your draft report for the fiscal year ended June 30, 1999.
° The Department of Economic Security did not provide adequate oversight to two vendors of the America's Learning Exchange Grant.
We agree. We will ensure that, prior to payment, all subgrantees provide timely and detailed documentation of their activities as agreed to in their subgrant.
° The Department of Economic Security and the U. S. Department of Labor have not resolved a question on funding certain personnel costs.
We agree. We will work with the U. S. Departmant of Labor to clarify the duties of Local Veteran's Representative.
° The department of Economic Security reimbursed subgrantees for expenditures incurred after the grant period.
390 North Robert Street Saint Paul, Minnesota 55101
March 7, 2000
We agree. It is our policy and practice to only allow subgrantees to expend funds during the grant period. Due to the unique nature and handling of these subgrants, a verbal extension was given, but not documented with a formal grant modification. However, it should be noted that the federal funds had not exceeded their period of availability.
/s/ Earl R. Wilson
Earl R. Wilson