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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 (September 20, 2000)
