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

THE MINNESOTA DEPARTMENT OF ECONOMIC SECURITY NEEDS TO IMPROVE ITS FINANCIAL MANAGEMENT SYSTEM

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In response to an OIG Hotline complaint, we performed a limited audit of Labor Market Information (LMI) programs funded by the Bureau of Labor Statistics (BLS) and the Employment and Training Administration (ETA) at the Research and Statistics Office (RSO) of the Minnesota Department of Economic Security (MDES). The complaint alleged that BLS and ETA LMI funds were being charged for non-program activities. We could not substantiate the allegations. However, our audit showed that the MDES, RSO needs to improve its financial management system so that it will comply with the Federal cost principles for state and local governments.

The objective of our limited audit was to determine whether the allegations could be substantiated. The audit period covered July1, 1996, through September 30, 1999. Total expenditures for the audit period were $6.5 million: $4.1 million of BLS funds and $2.4 million of ETA funds. Our audit showed that the labor hours for RSO employees working on multiple activities/programs were charged based on general estimates. The practice of using estimated labor hours to charge Federal grants is not in compliance with the Federal cost principles of OMB Circular A-87. Furthermore, this practice could easily be construed as a misuse of funds.

We recommended that the BLS Commissioner, in cooperation with the Assistant Secretary for ETA, require the MDES, RSO to strengthen its financial management system by ensuring that reported personnel costs are based on either actual activities performed or an equivalent personnel activity reporting system which complies with OMB Circular A-87.

In general, MDES concurred with our finding and recommendation. They will modify their accounting system and cost allocation methodology in order to provide a pool of general RSO support costs. The pool of costs will be allocated among BLS and ETA programs based on the identifiable direct personnel costs associated with these projects.
(Report No. 05-00-004-05-598, issued August 10, 2000)

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