In fiscal year (FY) 2002-03, the State of Wisconsin administered more
than $9.1 billion in federal financial assistance through more than
700 individual grant programs and an additional 755 research and
development grants administered by the University of Wisconsin (UW)
System. As a condition of receiving this assistance, the State is required
to have an independent audit of its compliance with federal grant
program requirements. We performed this audit at the request of the
state agencies that received federal financial assistance, and to meet
our audit responsibilities under s. 13.94, Wis. Stats.
Our report includes an unqualified opinion on compliance with federal
grant requirements; internal control over compliance; and the Schedule
of Expenditures of Federal Awards, which provides an inventory of all
of the grants administered by the State. In total, we question $81,879,
plus an additional but undetermined amount charged to federal grant
programs. These questioned costs represent a very small percentage of
the total federal financial assistance the State administers. However, if
state agencies are required to repay the federal government, the questioned
costs will adversely affect their operating budgets.
We focused our audit effort on 26 grants that were administered by
ten different state agencies, including UW System. These grants accounted
for 59 percent of the federal financial assistance administered
by the State during FY 2002-03 and were selected for review based on
their size and the risk of noncompliance with federal rules. We also
followed up on findings in our FY 2001-02 single audit report.
Federal Assistance
Federal financial assistance to
Wisconsin has increased each year
since FY 1998-99 and reached
$9.1 billion in FY 2002-03. That
amount includes $8.3 billion in
cash; $812.6 million in outstanding
loan balances; and $33.9 million in
noncash assistance that includes
food commodities and vaccines.
The increase in federal financial
assistance is attributable to increases
in some grant programs,
such as Medical Assistance, as well
as to new federal grants. Under
the largest of the new grants,
Temporary State Fiscal Relief,
Wisconsin received $91.2 million
to address budget shortfalls in
FY 2002-03, and another
$91.2 million in FY 2003-04. This
$182.4 million in unrestricted
federal funding has been appropriated
for shared revenues for
FY 2003-04.
Four state agencies—the Department
of Health and Family Services
(DHFS), the Department of
Workforce Development (DWD),
UW System, and the Department
of Transportation (DOT)—administered
87 percent of the $8.3 billion
in federal cash assistance the State
received in FY 2002-03.
DHFS spent the largest share of
federal cash assistance, $3.6 billion.
That amount includes $2.8 billion
in federal funds to support Medical
Assistance, the largest federal
program administered by the State.
An additional $2.0 billion in state
funds also supported Medical
Assistance.
DWD spent $2.0 billion in federal
cash assistance for vocational
rehabilitation, job training
programs that fund certain
benefits available under Wisconsin
Works (W-2), the unemployment
compensation program, and
related programs.
UW System disbursed $484.1 million
related to student financial aid
programs and spent $429.4 million
for various research and development
grants and $81.8 million for
other programs. Most of DOT’s
federal funding supported highway
planning and construction.
Adoption Assistance
The Adoption Assistance program
helps the State find adoptive
homes for children and provides
monthly subsidy payments for
approximately 6,400 children with
special needs. DHFS spent
$29.1 million in federal grant funds
under the Adoption Assistance
program during FY 2002-03.
It is the State’s long-standing policy
to seek maximum federal reimbursement
of grant expenditures.
However, DHFS has not claimed
all of the federal funds the State is
entitled to receive under Adoption
Assistance.
Because DHFS did not update
its eligibility determination forms
to reflect changes in federal
regulations that took effect in
March 2000, we believe some
of the 806 cases it classified as
ineligible are, in fact, eligible for
federal reimbursement.
For another 849 cases, DHFS had
yet to either perform eligibility
determinations or enter results into
its computer systems by the end of
FY 2002-03. It is likely that some of
these cases are also eligible for
federal reimbursement.
DHFS has already determined
that at least 294 of the cases we
identified are eligible for federal
reimbursement. Based on interim
results of an ongoing agency
review, we estimate that the State
may be able to claim, at a minimum,
an additional $1.0 million in
federal Adoption Assistance funds
if a timely claim is made.
Eligibility Documentation
The State maintains computerized
systems that help to determine
whether individuals are eligible to
participate in many federal grant
programs. However, local governments
and nonprofit organizations
enter supporting information into
computer systems and maintain
the case files that support eligibility
determinations for some of these
programs.
In response to a federal audit
requirement effective for
FY 2002-03, we reviewed a
selection of case files to ensure
that local governments and nonprofit
organizations maintained
adequate documentation. We
completed this review for the
Temporary Assistance for Needy
Families program, the Child Care
Cluster grants, and the Medical
Assistance program.
We found a need for state agencies
to better ensure that documentation
supporting eligibility determinations
under these programs is
maintained by local governments
and nonprofit organizations. For
example, Milwaukee County was
responsible for 19 of the 28 case
files we reviewed related to the
Temporary Assistance for Needy
Families program. Milwaukee
County was unable to locate 3 files,
and only 4 of the remaining 16
contained the appropriate documentation.
We have not questioned
any costs because other available
information indicates that individuals
were eligible to participate
in the program.
We noted similar problems with
case files related to the Medical
Assistance program, which are
being reviewed as part of a separate
program evaluation that we
will issue at a later date.
Foster Care
DHFS has addressed many of our
past audit concerns with the
State’s administration of the Foster
Care—Title IV-E program. For
example, DHFS has worked with
the Children’s Court of Milwaukee
County, the District Attorney’s
office, and others to improve case
file documentation. DHFS has
also implemented our 2003
recommendation to better track
changes in eligibility status. As a
result, the State received an additional
$1.8 million in federal
reimbursement under the Foster
Care program in FY 2002-03.
However, we continue to be concerned
with the foster care cases
administered by the Department of
Corrections (DOC). Because DOC
implemented new procedures for
determining foster care eligibility in
July 2003, some of the cases it
administered during FY 2002-03
did not comply with federal regulations.
We identified $36,066 in
unallowable costs for three of the
five cases we reviewed.
DOC has arranged for a review of
eligibility determinations related to
cases claimed from January 1
through June 30, 2003. However,
at the time of our audit, this review
had not been completed, and DOC
is not considering additional
ineligible costs that may have been
charged to the Foster Care program
before January 2003.
DOC will need to work with the
U.S. Department of Health and
Human Services to resolve
this finding.
Lapses to the General Fund
As part of efforts to balance recent
budgets, funds have been lapsed to
the State’s General Fund from
various programs that are supported,
in part, by federal grants.
However, the need to remit the
federal share of lapsed amounts to
the federal government has not
been fully considered.
In our FY 2001-02 single audit, we
reported that $9.1 million had been
lapsed to the General Fund from
several internal service funds. In
FY 2002-03, the State lapsed an
additional $13.8 million in balances
that had been generated, in part,
by charges to federal grants. The
Department of Administration
(DOA) is currently working with
the federal government to resolve
this issue and to determine what
amount, if any, the State will be
required to return to the federal
government.
Since our FY 1998-99 audit, we
have reported that federal grants
funded unallowable costs related
to the rates DOA charged state
agencies for computer services.
DOA recently negotiated a
settlement with the federal government
related to these concerns.
However, the negotiated settlement
of $2.9 million was paid to the
federal government from balances
that arose, in part, through charges
to federal grants. Therefore, additional
funds may be owed the
federal government.
Recommendations
Our report includes 39 recommendations
related to state agencies’
administration of federal grant
programs. In addition, we discuss
ten internal control concerns
related to our audit of the State’s
financial statements.
Agency responses and corrective
action plans are included in our
report. The federal government
will work with the state agencies to
resolve the questioned costs and
ensure that planned corrective
actions are sufficient.