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We audited the Employment Security Commission of North Carolina's expenditures of Year 2000 (Y2K) funds to determine whether funds designated for Y2K compliance were spent for that purpose and in accordance with applicable Employment and Training Administration (ETA) guidance. The funds were awarded by the ETA to ensure North Carolina's automated employment security functions were Y2K compliant. Our audit scope included $2,766,875 of Y2K conversion expenditures reported by the Commission as of December 31, 1999.

We found that the Commission's expenditures were generally in accordance with the Y2K grant requirements and ETA's guidance. However, the Commission improperly spent $39,690 of the funds for service warranties on laptop computers. The warranties were not required for Y2K compliance and are not allowable charges to the Y2K grant. We recommended that the Assistant Secretary for Employment and Training recover the $39,690 of Y2K funds that North Carolina improperly spent on service warranties and that the funds be returned to the Department.

The Commission responded that warranties were a prudent cost but did not have a rebuttal to our contention that the costs were not required for Y2K compliance. The response indicated that the $39,690 charge would be removed from the Y2K grant.

(Report No. 04-00-003-03-315, issued September 12, 2000)

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