During FYs 1998 and 1999, ETA awarded grants totaling $255 million to State Employment Security Agencies (SESAs) specifically to make their automated Employment Service (ES) and Unemployment Insurance (UI) systems Year 2000 (Y2K) compliant. In the prior two semiannual periods, we issued 3 of a series of 8 planned audits of the SESA's expenditure of these grant funds (results for 2 of these are reported on page 30 of the Semiannual Report to the Congress for the period ended March 31, 2001). We have now issued 7 of 8 planned audit reports, and will issue the final report in the next semiannual period. When completed, the OIG will have audited about 23 percent ($61 million) of the $255 million in Y2K grant funds awarded to the SESAs.

We reviewed SESA grant expenditures to ensureY2K grant funds were spent for intended purposes, in conformity with the grant agreements and applicable Federal requirements. We determined the SESAs were successful in avoiding Y2K interruptions, but they did not always comply with requirements governing use of the grant funds. In the seven reports issue to date, we questioned over $4 million of expenditures.

DOL provides SESAs with annual appropriations to pay the costs of administering their ES and UI programs. This includes "base-funded" personal services and benefit costs. ETA established restrictions on the expenditures of Y2K funds for personal services to ensure they were used to pay for only the overtime costs of base-funded staff working on Y2K-related activities, and, additionally, did not supplant the costs of base-funded activities. The largest single abuse, identified in 3 of the 7 audits we issued, involves the SESAs charging base-funded personal costs to the Y2K grants. Other common abuses we encountered were purchases of services, equipment, supplies and maintenance agreements that were not related to Y2K readiness.

During the current reporting period, we issued audit reports on the expenditure of Y2K grant funds by the SESAs of the following States:

Significant questioned costs and related issues include:

• $1,006,520 of salaries and related allocations did not conform with grant provisions;
• $758,442 in system enhancements and other activities were outside the scope of grant-approved activities;
• $366,761 in maintenance agreements and routine supplies were outside the scope of grant-approved activities; and
• $73,736 in costs incurred prior to the start of the grant(s).

In addition to recommending ETA recover the questioned costs, we also recommended the Pennsylvania SESA return to the Treasury $459,158 in grant funds remaining after the termination of its grant.

(Report Nos. 04-01-008-03-315, issued Sept. 21, 2001; 04-01-010-03-315, issued Sept. 17, 2001; 04-01-006-03-315, issued Sept. 21, 2001; and 04-01-005-03-315, issued Aug. 22, 2001, respectively)