Tag Archives: GAO

ARRA-induced Accounting Errors in N.J. School Budgets

Sloppy accounting in New Jersey’s school districts triggered by ARRA funds is the subject of ongoing monitoring by the state’s Department of Education. Acting Education Commissioner Rochelle Hendricks says only half of the school districts that received funds properly accounted for “jobs saved” one of the Administration’s key measures’ of stimulus performance.

Interestingly, GAO’s most recent assessment of the stimulus in the states shows that a majority of ARRA’s education funds were used for job retention, a goal that conflicts with education officials’ intent of improving schools and teacher performance.

What if Stimulus Works, But Government Can’t Get the Timing Right?

As of September 3, 2010, about $154.8 billion of the approximately $282 billion of total funds made available by the Recovery Act in 2009 for programs administered by states and localities had been paid out by the federal government.

That’s the conclusion of a new GAO report, out this week. Similarly, the Wall Street Journal reports this morning that:

[S]pending stimulus dollars fast has turned out to be surprisingly hard.

This reminds me of a point that Megan McArdle raised a few weeks back:

[W]hat if Keynesian stimulus works, but no one can ever actually afford to do it, short of something like World War II, where the government can tap into a patriotic outpouring of national savings by issuing bonds with negative real yields.

She was talking about the sheer size of the stimulus. But we could ask a similar question: What if Keynesian stimulus works, but the machinery of government is so slow and inept, that it is impossible to effectively implement it in time to be effective?

This, of course, was the (near) consensus view among macroeconomists just a little over a decade ago. Writing in the American Economic Review in 1997, Martin Eichenbaum wrote:

[T]here is now widespread agreement that counter cyclical discretionary fiscal policy is neither desirable nor politically feasible.

Perhaps the current struggles to effectively administer stimulus will one day cause that consensus to re-emerge.

Hospital Taxes and Medicaid Con Jobs

Beware the Hospital tax. And the same goes for taxes on nursing homes. It is likely if your state legislature is looking at increasing these taxes, it is in the service of Medicaid money laundering.

The Government Accountability Office explains how it works. Medicaid is a federal matching program. States can tailor their own program by electing to cover optional services (beyond the basic Medicaid program), or by expanding eligibility to arrive at a total cost for operating Medicaid. The federal government pays for at least half of the total program, and the state pays for the remainder.  In an effort to extract more matching funds from the federal government, states play around with the total cost portion.

One such scheme involves nursing homes and other state-run health care providers. The state overpays the hospital for Medicaid benefits. Then the federal government reimburses the state for half of the tab. The state keeps extra funds and the hospital must rebate the extra money it initially received from the state. As The Wall Street Journal writes, “Cash thus makes a round trip from the states to providers and back to the states: all to dupe Washington.”

Brien Farley at Budget & Tax News explains how this works with a tax.  In June 2009, Wisconsin increased taxes on state hospitals by 20 percent. This raised the federal Medicaid matching fund from $635 million to $796 million. The state siphoned off $292 million of that increased match to spend on other things. Oregon attempted the same thing with a 4 percent tax on the 25 largest hospitals in the state. And Ohio’s 2010-2011 budget includes a $145 million tax on Ohio state hospitals.

What’s even more galling is that hospitals ask the state to be taxed. As Katherine Mangu-Ward at Reason puts it,“Hospitals Beg Iowa to Tax Them in Medicaid Scam.”

GAO calls these “creative financing schemes” “inappropriate” and recommends Congress put a stop to it. Senator Tom Coburn (R-OK) notes without reform, expanding government  health care will simply guarantee more of the same.

GAO Report on Local Stimulus Spending

This morning the GAO released a report entitled “Recovery Act: States’ and Localities’ Current and Planned Uses of Funds While Facing Fiscal Stresses.” (A two-page summary is available here.)

Here’s a chart of where the money has gone thus far:

Here are the highlights from the recommendations section:

Accountability and Transparency
To leverage Single Audits as an effective oversight tool for Recovery Act programs, the Director of OMB should

  • develop requirements for reporting on internal controls during 2009 before significant Recovery Act expenditures occur, as well as for ongoing reporting after the initial report;
  • provide more direct focus on Recovery Act programs through the Single Audit to help ensure that smaller programs with high risk have audit coverage in the area of internal controls and compliance;
  • evaluate options for providing relief related to audit requirements for low-risk programs to balance new audit responsibilities associated with the Recovery Act; and
  • develop mechanisms to help fund the additional Single Audit costs and efforts for auditing Recovery Act programs.

Matter for Congressional Consideration: Congress should consider a mechanism to help fund the additional Single Audit costs and efforts for auditing Recovery Act programs.

Reporting on Impact
The Director of OMB should work with federal agencies to provide recipients with examples of the application of OMB’s guidance on recipient reporting of jobs created and retained. In addition, the Director of OMB should work with agencies to clarify what new or existing program performance measures are needed to assess the impact of Recovery Act funding.

Communications and Guidance
To strengthen the effort to track funds and their uses, the Director of OMB should (1) ensure more direct communication with key state officials, (2) provide a long range time line on issuing federal guidance, (3) clarify what constitutes appropriate quality control and reconciliation by prime recipients, and (4) specify who should best provide formal certification and approval of the data reported.  The Secretary of Transportation should develop clear guidance on identifying and giving priority to economically distressed areas that are in accordance with the requirements of the Recovery Act and the Public Works and Economic Development Act of 1965, as amended, and more consistent procedures for the Federal Highway Administration to use in reviewing and approving states’ criteria.

Czars, Auditors, Data Trails and Statistics

The Government Accountability Office issued a report last week stressing the need for accountability on the state and local level for how federal stimulus dollars are used. Ninety percent of $49 billion headed to the states will be spent in three areas: Medicaid, transportation and education. The sixteen states surveyed are handling oversight differently. Some are appointing, ‘recovery czars’, others like Mississippi are delegating oversight of education and transportation to the independent authorities that manage these activities for the state.

One of the primary concerns expressed by states  is the difficulty of tracking spending. GAO reports states are “uncertain about their reporting responsibilities when Recovery Act money goes directly to the localities.”  Such uncertainty is not limited to which transactions to follow, but also, how to calculate economic impacts including indirect job creation and the impact of funding not intended to create jobs.

A few things to consider. Why is following federal spending on the state and local levels so difficult? States and localities have been receiving federal funds for decades – why haven’t better tracking systems emerged?  And secondly, it is likely estimating the economic impact of stimulus dollars will be fraught with difficulty, with much potential for miscalculation and error.

Accountability officers and auditors have their work ahead of them.