2000 - Audit Report

U.S. Department of Labor
Office of Inspector General
Office of Audit

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FLORIDA'S CASH MANAGEMENT PRACTICES HAVE INCREASED THE FEDERAL GOVERNMENT'S INTEREST COSTS

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We examined the cash management practices of four Florida Service Delivery Areas (SDAs) that received Job Training Partnership Act (JTPA) grant funds from the Department of Labor (DOL), between July 1, 1995 through December 31, 1999. The SDAs we examined had established escrow accounts with public educational institutions and commercial agents and deposited grant funds in the accounts, sufficient to pay the JTPA program participants' anticipated training costs. The funds remained in the accounts until needed to pay vendors. However, the deposits were reported as program expenditures. Cash balances in the accounts managed by the commercial escrow agents were invested. Because the Federal Government must borrow funds and pay interest to finance programs, we estimate the cash balances kept in the escrow accounts have cost the Federal Government $540,000 of Federal interest costs.

The escrow accounts violate provisions of the Cash Management Improvement Act of 1990, JTPA program regulations, and the State's JTPA administrative policies, all of which require that cash advances be limited to minimum amounts necessary for immediate needs. During our audit period, the monthly balances kept in the escrow accounts averaged about $2.6 million. The use of escrow accounts has continued despite long-standing concerns, raised by State program monitors and notification by the Employment and Training Administration (ETA), that use of the escrow accounts and the SDAs' associated accounting practices violated JTPA requirements.

We also had a variety of concerns with stewardship of the escrow accounts. The SDAs incurred unnecessary costs in administering the escrow accounts. Also, because escrow agents offset the fees they charged for managing the accounts against interest earned on investing the balances, the SDAs' true administrative costs were masked. In addition, we found it necessary to contact various educational institutions to determine the amount of program funds that remained in the accounts, because one SDA was unable to provide the information. Finally, investments made by escrow agents are not insured and expose the funds to risks of loss.

The SDAs must better manage cash in their operating accounts to ensure cash maintained in such accounts is minimized. We found some SDAs had cash balances in their monthly operating accounts during 1999 that exceeded $1 million. Although some SDAs had invested the balances, they had not credited interest income generated from the investments to appropriate Federal programs.

The Florida SDAs' poor control of cash was the subject of a 1991 OIG audit report, and many of the same conditions discussed in that report were evident during this audit. In addition, the recent passage of the Workforce Investment Act (WIA) has created new urgency to correct the SDAs' cash management practices. WIA requires that most participant training be provided through "individual training accounts. We noted that at least one SDA continues to use escrow accounts to pay WIA participant training costs. Unless reforms occur, unnecessary interest costs to the Federal Government will continue and may substantially increase.

We recommended that the Assistant Secretary for Employment and Training require that Florida comply with cash management requirements. The SDAs should be directed to terminate existing escrow agreements and discontinue using escrow accounts to pay for participants' training and balances in the escrow accounts should be reconciled. Both escrow balances and interest earned on operating account investments should be credited to the appropriate Federal programs. Since escrow deposits have been improperly reported as expenditures, expenditures on Federal financial reports should be reduced to reflect liquidation of the escrow accounts. Funds from escrow and operating accounts should be used for program purposes before SDAs are allowed to draw down additional Federal funds. In addition, we recommended that the State and ETA closely monitor all Florida SDAs' cash management practices to ensure cash in operating accounts is minimized and interest earnings are properly treated as program income.

In its response to our draft audit report, Florida generally agreed with our recommendations. Florida indicated all SDAs will be notified that escrow accounts cannot be used to fund participants' training. Florida stated that SDAs' cash management activities will be monitored at least annually to ensure cash balances are not excessive.

We believe the problems identified in this report will be corrected if Florida implements its proposed corrective actions. However, based on the large balances some SDAs maintained in their operating accounts, additional monitoring by ETA and the State is warranted.

(Report No. 04-00-004-03-340, issued September 20, 2000)

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