Audit: Billions in state accounting errors, questionable federal spending
Billions in state accounting errors, millions in questioned spending of federal funds and weaknesses in internal controls were among the findings of a report released Wednesday by the Oregon Audits Division summarizing two major financial audits.
The Keeping Oregon Accountable Report outlines the results of the fiscal year 2022 Annual Comprehensive Financial Report and Statewide Single Audit.
The federal government requires yearly audits of Oregon's compliance with federal program requirements to continue issuing yearly financial assistance to the state. The audits look at the amounts reported in state financial statements for accuracy, compliance of the state's administration of federal programs with laws and regulations, and reviews accounting and compliance control procedures.
In fiscal year 2022, the state received nearly $21 billion in federal funds, including $5.6 billion in COVID-19-related funding. The division audited 17 federal programs at seven agencies for the report. They issued 50 findings and recommendations.
Here are some takeaways from the report.
Increase in adjustments to correct accounts
The division reported $4.6 billion in accounting errors requiring 226 proposed account adjustments in 2022 to correct account balances.
"The dollar amount and number of adjustments significantly increased in fiscal year 2022 from 2021," the report said.
Those adjustments were attributed to the implementation of new accounting standards and errors related to "complex" COVID-19 funding. About 30% of the adjustments were related to errors in recording COVID-19 funding and another 20% were related to incorrect or incomplete implementation of a new accounting standard.
There were several agencies with proposed audit adjustments including the Department of Corrections, Oregon Department of Transportation, Oregon Health Authority/Oregon Department of Human Services, Department of Justice and Oregon State Police.
Most adjustments meant moving amounts from one account to another for proper classification, according to the report.
$35 million in questioned costs
The Oregon Audits Division questioned $9.1 million in costs, questioning whether the expenditures were appropriately paid with federal funds. They questioned an additional $26.1 million in costs that are "likely" errors based on the divisions' sample testing.
According to the report, the pandemic EBT program managed by the Oregon Department of Human Services had the largest amount of questioned costs, totaling $17.2 million in known and likely errors. The Emergency Rental Assistance had $11.2 million in likely questioned costs related to a lack of documentation ensuring benefits were only paid to eligible beneficiaries and for allowable activities.
The two programs represented a majority of the likely questioned costs. Seven other programs represented the other $7 million in questioned costs.
In its list of likely questioned costs, the audits division notes questioned costs represent less than 1% of total federal program expenditures. For the pandemic EBT program, the $17 million is less than 3.1% of its total $568 million of federal program expenditures.
Insufficient controls
For the first time in 25 years, the division issued an adverse opinion and a disclaimer of opinion. They are two types of modified opinions issued to agencies and programs when the division believes internal controls may not prevent noncompliance.
Oregon Housing and Community Services manages both programs receiving an adverse and disclaimer opinion.
The Emergency Rental Assistance Program received the adverse opinion, meaning the audits division identified "pervasive" weaknesses in its internal controls that would not prevent or detect significant noncompliance.
The findings that led to the adverse opinion are further explained in the Statewide Single Audit.
The agency's Emergency Solutions Grant Program received the disclaimer of opinion, meaning there was not sufficient or appropriate audit evidence to issue an opinion on the program's compliance.
The division also issued five qualified opinions for audited programs, meaning they identified internal controls that are inadequate to prevent or detect significant noncompliance or financial material misstatement.
Two Oregon Health Authority programs audited received a qualified opinion: Block Grants for Community Mental Health Services and Block Grants for Prevention and Treatment of Substance Abuse.
The Department of Human Services' Temporary Assistance for Needy Families received a qualified opinion as it has for the last five years and the Oregon Housing and Community Services' Low-Income Home Energy Assistance Program was issued a qualified opinion for the second year in a row.
Follow up required
The audits division will follow up with these programs as required by the federal Office of Management and Budget and report on whether the agency has since taken appropriate corrective action to resolve the findings. Of 54 federal compliance findings from prior years, 28 had been corrected by agencies, the division reported. There were 26 prior-year findings that will continue into the 2023 fiscal year in addition to 15 of 17 programs requiring follow-up from 2022's audit.
The federal granting agency will also follow up with state agencies on findings included in the Single Audit Report, according to the report.
"After investigating, the federal agency issues a determination letter to the state agency, providing its conclusion about the finding and the corrective action the state agency plans to take to resolve the finding," the report said.
The federal agency could impose sanctions on the state or adjust future funding. Only federal agencies have the authority to enforce their grant requirements, the report added.
Dianne Lugo covers the Oregon Legislature and equity issues. Reach her at dlugo@statesmanjournal.com or on Twitter @DianneLugo
This article originally appeared on Salem Statesman Journal: Oregon financial audit looks at use of federal funding
