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GAO
United States Government Accountability Office
TestimonyBefore the Committee on Oversight andGovernment Reform, House of Representatives
RECOVERY ACTStates’ and Localities’Current and Planned Usesof Funds While FacingFiscal Stresses
Statement of Gene L. Dodaro Acting Comptroller General of the United States
For Release on DeliveryExpected at 10:00 a.m. EDTWednesday, July 8, 2009
GAO-09-831T
 
What GAO Found
United States Government Accountability Office
Why GAO Did This Study
H
ighlights
Accountability Integrity Reliability
July 2009
 
RECOVERY ACT
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Highlights ofGAO-09-831T a testimony before the Committee on Oversight andGovernment Reform, House ofRepresentatives
This testimony is based on a GAOreport being released today—thesecond in response to a mandateunder the American Recovery andReinvestment Act of 2009(Recovery Act). The reportaddresses: (1) selected states’ andlocalities’ uses of Recovery Actfunds, (2) the approaches taken bythe selected states and localities toensure accountability for Recovery Act funds, and (3) states’ plans toevaluate the impact of Recovery Act funds. GAO’s work for thereport is focused on 16 states andcertain localities in those jurisdictions as well as the Districtof Columbia—representing about65 percent of the U.S. populationand two-thirds of theintergovernmental federalassistance available. GAO collecteddocuments and interviewed stateand local officials. GAO analyzedfederal agency guidance and spokewith Office of Management andBudget (OMB) officials and with program officials at the Centers forMedicare and Medicaid Services,and the Departments of Education,Energy, Housing and UrbanDevelopment, Justice, Labor, andTransportation.
What GAO Recommend
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 GAO makes recommendations anda matter for congressionalconsideration discussed on thenext
 page.
The report draft wasdiscussed with federal and stateofficials who generally agreed withits contents. OMB officialsgenerally agreed with GAO’srecommendations to OMB; DOTagreed to consider GAO’srecommendation.
 Across the United States, as of June 19, 2009, Treasury had outlayed about $29billion of the estimated $49 billion in Recovery Act funds projected for use instates and localities in fiscal year 2009. More than 90 percent of the $29 billionin federal outlays has been provided through the increased Medicaid FederalMedical Assistance Percentage (FMAP) and the State Fiscal StabilizationFund (SFSF) administered by the Department of Education.GAO’s work focused on nine federal programs that are estimated to accountfor approximately 87 percent of federal Recovery Act outlays in fiscal year2009 for programs administered by states and localities. The following figureshows the distribution by program of anticipated federal Recovery Actspending in fiscal year 2009 for the nine programs discussed in this report.
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Medicaid63%
State FiscalStabilization Fund13%
Highways6%
Other programs not in study 13% 
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5%Other selectedprograms
 Increased Medicaid FMAP Funding All 16 states and the District have drawn down increased Medicaid FMAPgrant awards of just over $15 billion for October 1, 2008, through June 29,2009, which amounted to almost 86 percent of funds available. Medicaidenrollment increased for most of the selected states and the District, andseveral states noted that the increased FMAP funds were critical in theirefforts to maintain coverage at current levels. States and the District reportedthey are planning to use the increased federal funds to cover their increasedMedicaid caseload and to maintain current benefits and eligibility levels. Dueto the increased federal share of Medicaid funding, most state officials alsosaid they would use freed-up state funds to help cope with fiscal stresses.Highway Infrastructure Investment As of June 25, the Department of Transportation (DOT) had obligated about$9.2 billion for almost 2,600 highway infrastructure and other eligible projectsin the 16 states and the District and had reimbursed about $96.4 million. Across the nation, almost half of the obligations have been for pavement
improvement projects because they did not require extensiveenvironmental clearances, were quick to design, obligate and bid on
, couldemploy people quickly, and could be completed within 3 years.
Officials frommost states considered project readiness, including the 3-year completion
View GAO-09-831T, GAO-09-829 or key components. For state summaries, seeGAO-09-830SP.For more information, contact J.Christopher Mihm at (202) 512-6806 ormihmj@gao.gov.
 
United States Government Accountability Office
 
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requirement, when making project selections and onlylater identified to what extent these projects fulfilled theeconomically distressed area requirement. We foundsubstantial variation in how states identifiedeconomically distressed areas and how they prioritized project selection for these areas.State Fiscal Stabilization Fund As of June 30, 2009, of the 16 states and the District, onlyTexas had not submitted an SFSF application.Pennsylvania recently submitted an application but hadnot yet received funding. The remaining 14 states andthe District have been awarded a total of about $17billion in initial funding from Education—of which about$4.3 billion has been drawn down. School districts saidthey would use SFSF funds to maintain current levels of education funding, particularly for retaining staff andcurrent education programs. They also told us that SFSFfunds would help offset state budget cuts.Overall, states reported using Recovery Act funds tostabilize state budgets and to cope with fiscal stresses.The funds helped them maintain staffing for existing programs and minimize or avoid tax increases as well asreductions in services. AccountabilityStates have implemented various internal control programs; however, federal Single Audit guidance andreporting does not fully address Recovery Act risk. TheSingle Audit reporting deadline is too late to provideaudit results in time for the audited entity to take actionon deficiencies noted in Recovery Act programs.Moreover, current guidance does not achieve the level of accountability needed to effectively respond to Recovery Act risks. Finally, state auditors need additionalflexibility and funding to undertake the added Single Audit responsibilities under the Recovery Act.ImpactDirect recipients of Recovery Act funds, including statesand localities, are expected to report quarterly on anumber of measures, including the use of funds andestimates of the number of jobs created and retained.The first of these reports is due in October 2009. OMB—in consultation with a range of stakeholders—issuedadditional implementing guidance for recipient reportingon June 22, 2009, that clarifies some requirements andestablishes a central reporting framework.In addition to employment-related reporting, OMBrequires reporting on the use of funds by recipients andnonfederal subrecipients receiving Recovery Act funds.The tracking of funds is consistent with the FederalFunding Accountability and Transparency Act (FFATA).Like the Recovery Act, FFATA requires a publiclyavailable Web site—www.USAspending.gov—to reportfinancial information about entities awarded federalfunds. Yet, significant questions have been raised aboutthe reliability of the data onwww.USAspending.gov, primarily because what is reported by the primerecipients is dependent on the unknown data quality andreporting capabilities of subrecipients.
GAO’
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Recommendation
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 Accountability and Transparency To leverage Single Audits as an effective oversight toolfor Recovery Act programs, the Director of OMB should
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develop requirements for reporting on internalcontrols during 2009 before significant Recovery Actexpenditures occur, as well as for ongoing reportingafter the initial report;
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 provide more direct focus on Recovery Act programsthrough the Single Audit to help ensure that smaller programs with high risk have audit coverage in thearea of internal controls and compliance;
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evaluate options for providing relief related to auditrequirements for low-risk programs to balance newaudit responsibilities associated with the Recovery Act; and
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develop mechanisms to help fund the additionalSingle Audit costs and efforts for auditing Recovery Act programs.Matter for Congressional Consideration: Congressshould consider a mechanism to help fund the additionalSingle Audit costs and efforts for auditing Recovery Act programs.Reporting on ImpactThe Director of OMB should work with federal agenciesto provide recipients with examples of the application of OMB’s guidance on recipient reporting of jobs createdand retained. In addition, the Director of OMB shouldwork with agencies to clarify what new or existing program performance measures are needed to assess theimpact of Recovery Act funding.Communications and GuidanceTo strengthen the effort to track funds and their uses,the Director of OMB should (1) ensure more directcommunication with key state officials, (2) provide along range time line on issuing federal guidance, (3)clarify what constitutes appropriate quality control andreconciliation by prime recipients, and (4) specify whoshould best provide formal certification and approval of the data reported.The Secretary of Transportation should develop clearguidance on identifying and giving priority toeconomically distressed areas that are in accordancewith the requirements of the Recovery Act and thePublic Works and Economic Development Act of 1965,as amended, and more consistent procedures for theFederal Highway Administration to use in reviewing andapproving states’ criteria.
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