WA state agencies fall short on federal relief reporting

Officials say staffing and spending deadlines impacted their ability to comply with federal aid monitoring rules.

Sadie Armijo sits with her hands crossed on her wooden desk with computer monitors behind her.

Sadie Armijo, director of state audit and special investigations at the Washington State Auditor's Office, poses for a portrait in her office in Olympia, March 2, 2022. (Lindsey Wasson for Crosscut)

Several state agencies failed to adequately track federal relief dollars passing through their bank accounts during the height of the pandemic, auditors reported this month.

A newly issued report from the Office of the Washington State Auditor included more than 60 "findings" against state-level agencies for insufficient accounting practices or recordkeeping on federal spending programs between July 2020 and June 2021. Of those, at least 11 findings involved COVID-19 relief money. 

Sadie Armijo, director of state audit and special investigations, said state agencies continued to struggle in 2021 with tracking dollars down through contractors and grant recipients to ensure they used the money as permitted by federal regulations. 

"If we're not able to see what the money was spent on, it's really difficult for us to know if it was allowable," she said, adding, "We don't know if there were fraudulent payments going out."

None of the new findings identified fraud, Armijo said, but detailed documentation helps establish the necessary accountability to ward off misuse. 

Agency officials sometimes cited short spending deadlines or staffing limitations for missed reporting requirements. In other cases, they argued their departments used alternative methods for tracking spending or vetting recipients.

The new report shows the state spent nearly $37 billion in federal money in fiscal year 2021, close to double the approximately $18 billion spent annually prior to the pandemic. Funding from the American Rescue Plan and the Bipartisan Infrastructure Law have continued to swell state coffers in the months since the audit period ended. 

Agencies reportedly spent $17.6 billion in federal money on COVID-19 response and relief during the audit period while passing through approximately $2 billion to other recipients, such as local businesses or social service programs. 

Auditors issued findings to 12 state agencies overall, noting deficiencies in 21 of the 25 federal programs they reviewed. The report also flagged tens of millions of dollars in pandemic response spending as "questioned" due to partial or missing documentation. 

This story is a part of Crosscut’s WA Recovery Watch, an investigative project tracking federal dollars in Washington state.

Both auditors and government agencies have faced a slew of challenges as they oversee historic levels of federal money coming into the state for urgent relief efforts while navigating new and, sometimes shifting, spending restrictions. Armijo said some agencies overlooked required risk assessments or performance reports during the audit period.  

"There's a lot of special tests and special reporting that has to go back to the federal government," she said. "We did find a lot of instances where those federal reports that they were required to send weren't getting sent."

The report indicates the state Department of Commerce and the Department of Social and Health Services collectively spent more than $1.2 billion in Coronavirus Relief Funds in fiscal year 2021. Both received multiple findings for missing documentation or insufficient monitoring. 

Auditors identified $6.4 million in likely questionable costs associated with rental assistance and other Commerce Department local government assistance programs with insufficient monitoring, according to the report. Commerce also failed to conduct risk assessments on all recipients in its small business and local government assistance programs. Risk assessments help check whether recipients qualify for federal money and can establish how much monitoring they may require. 

Commerce officials told auditors they sometimes relied on previous risk assessments and weekly progress reports to vet recipients and monitor emergency spending. 

"Considering the circumstances under which these funds were administered," the department responded in the report, "Commerce feels strongly that its internal controls were sufficient and effective given the rapid timeline, the volume of subrecipients and funding, and staffing capacity, all of which needed to be managed during the peak of the pandemic."

The Department of Social and Health Services also faced multiple findings for documenting spending and monitoring subrecipients. The report stated the department spent about $224.6 million in Coronavirus Relief Funds on social services during the audit period, including more than $126 million on the Immigrant Relief Fund. 

Auditors questioned the eligibility controls for ensuring clients for the Immigrant Relief Fund program qualified. DSHS officials responded that the program had verified immigration status and assigned clients unique numbers to protect confidentiality. 

"We continue to take steps to ensure that internal controls are in place to comply with federal and state requirements," DSHS wrote in a statement to Crosscut. "At the heart of our work is providing essential services to nearly 2 million Washingtonians each year, which our staff has done admirably, despite the challenges of the ongoing pandemic.”

The Immigrant Relief Fund has since faced numerous delays in distributing additional relief payments. 

Auditors also issued a finding against the Department of Corrections for using about $17 million in Coronavirus State and Local Fiscal Recovery Funds to cover expenses outside the allowable time period. Corrections officials responded that the Legislature had allocated the funding in response to a budget request before the department had realized the timing restrictions. 

The state's Office of Financial Management also received a finding for incomplete or inaccurate reports on relief spending. OFM told auditors an employee compiling the reports left without passing along some original records. 

"Numerous unsuccessful attempts were made to locate the documentation from the employee’s electronic work files to support the data uploaded into the federal system," OFM responded in the report, adding, "A full time staff was hired who now oversees the reconciliation, compilation and reporting of [Coronavirus Relief Funds]."

The Washington State Department of Agriculture and the Employment Security Department also received findings. 

Find tools and resources in Crosscut’s Follow the Funds guide to track down federal recovery spending in your community.

Outside of COVID-19 relief, the report cited one child care payment program at the Department of Children, Youth, and Families that could not be audited due to insufficient accounting records. Auditors issued a rare "disclaimer" on that program and flagged $293 million in unauditable funds. 

You can read the entire 1,083-page audit report, or peruse an interactive summary of the report. 

Armijo, with the State Auditor's Office, said questioned or unauditable funding issues go back to the federal government for review. In some rare cases, federal officials could demand repayment from the state.

She also noted the annual audit of federal programs typically comes out in late March, but the immense increase in federal spending and other pandemic challenges pushed back the release of this report.  

The auditor's office continues to catch up with spending from late 2020 and 2021 when COVID-19 relief from the federal government spiked. The office has separate teams auditing COVID-19 funding at the local level. 

One local report issued a finding last week against the Spokane Public Facilities District for using Coronavirus Relief Funds on marketing gifts that included food and alcohol. District officials contended the gifts qualified under federal rules because it was part of a broad campaign to re-energize interest in events after pandemic closures. 

Armijo said additional dollars from the Bipartisan Infrastructure Law will increase the amount of money requiring auditing over the next year. Auditors must also revisit any significant findings with follow-up reviews as part of the next annual report.

"The auditing of this funding from the pandemic isn't over," she said. "We're still in the middle of it. ... There's still a lot of work to be done."

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