Workforce Investment Act: States' Spending Is on Track, but
Better Guidance Would Improve Financial Reporting (22-NOV-02,
GAO-03-239).
The administration has twice proposed reducing the Workforce
Investment Act's (WIA) budget, citing large amounts of states'
unspent funds carried over from the prior year. However, in light
of current economic conditions, state and local workforce
officials have expressed a need for more funds, not less. GAO was
asked to assess whether the Department of Labor's spending
information is a true reflection of states' available funds. GAO
examined the spending rate for states, what Labor does to
determine how states are managing their spending, and what
factors affect states' WIA expenditure rates.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-03-239
ACCNO: A05587
TITLE: Workforce Investment Act: States' Spending Is on Track,
but Better Guidance Would Improve Financial Reporting
DATE: 11/22/2002
SUBJECT: Comparative analysis
Federal aid to states
Federal/state relations
Funds management
Locally administered programs
State-administered programs
Appropriated funds
Financial management
Allocation (Government accounting)
Temporary Assistance for Needy Families
Block Grant
******************************************************************
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GAO-03-239
Report to Congressional Requesters
United States General Accounting Office
GAO
November 2002 WORKFORCE INVESTMENT ACT
States* Spending Is on Track, but Better Guidance Would Improve Financial
Reporting
GAO- 03- 239
States are spending their WIA funds much faster than required under the
law, according to GAO*s analysis of Labor*s data. By the end of program
year 2001, states had spent virtually all funds allocated in 1999 as well
as 90 percent of 2000 funds and 56 percent of 2001 funds. By contrast,
Labor*s estimate suggests a slower pace of spending because it is based on
all available funds, including those only recently distributed. Even
though 44 percent of program year 2001 funds are being carried over into
program year 2002, many of these funds may have already been committed at
the point of service delivery. Furthermore, because of reporting
inconsistencies, Labor*s data do not accurately reflect funds that have
been obligated* long- term commitments made by states and local areas on
behalf of WIA customers. For a truer picture of available funding, both
expenditures and obligations must be considered. But, because Labor lacks
consistent data on obligations, it focuses only on expenditures to gauge
budgetary need and overestimates funds states have available to spend.
Labor compares state expenditures against its benchmarks to determine how
states manage their spending, to target guidance and assistance efforts,
and to formulate next year*s budget request. But Labor does not often
communicate these benchmarks to states. Despite active monitoring and
additional guidance, state and local officials remain confused by some of
Labor*s financial reporting requirements. They seek more definitive
guidance and the opportunity to share promising strategies to help them
better manage spending.
Financial reporting delays result from lengthy spending approval and
contract procurement procedures* lasting as long as 8 months* and untimely
service provider billing. Also, yearly funding fluctuations affect states*
and local areas* willingness to commit resources in the long term and
inhibit workforce system planning. Some states and localities have
implemented strategies to overcome these factors and better manage their
WIA spending.
Percentage of WIA Funds Expended as of June 30, 2002 1999 funds over
3- year period 2000 funds over
2- year period 2001 funds over
1- year period Program year
99
0 10 20 30 40 50 60 70 80 90 100 Percent
90 56
Source: GAO's analysis of Labor's financial data files for program years
1999, 2000, 2001.
WORKFORCE INVESTMENT ACT
States* Spending Is on Track, but Better Guidance Would Improve Financial
Reporting
www. gao. gov/ cgi- bin/ getrpt? GAO- 03- 239. To view the full report,
including the scope and methodology, click on the link above. For more
information, contact Sigurd Nilsen at (202) 512- 7215. Highlights of GAO-
03- 239, a report to
Congressional Requesters
November 2002
The administration has twice proposed reducing the Workforce Investment
Act*s (WIA) budget, citing large amounts of states* unspent funds carried
over from the prior year. However, in light of current economic
conditions, state and local workforce officials have expressed a need for
more funds, not less. GAO was asked to assess whether the Department of
Labor*s spending information is a true reflection of states* available
funds. GAO examined the spending rate for states, what Labor does to
determine how states are managing their spending, and what factors affect
states* WIA expenditure rates.
GAO is recommending that Labor collaborate with states to clarify its
definition of obligations and include this information in determining
states* available funds. Labor should share spending benchmarks and
promising practices to help states and localities better manage their
spending.
In comments on a draft of GAO*s report, Labor generally agreed with our
recommendations regarding better definitions and guidance, and sharing
promising practices. However, Labor disagreed with GAO*s findings and
recommendations relating to the importance of considering obligations in
addition to expenditures.
Page i GAO- 03- 239 WIA Spending Letter 1
Results in Brief 2 Background 4 States Have Spent Most of Their WIA Funds,
Labor*s Estimate
Overstates Funds Available to Spend 13 Labor Monitors Spending, Provides
Guidance, but Concerns
Remain 19 A Variety of Factors Affects States* WIA Expenditure Rates 23
Conclusions 29 Recommendations for Executive Action 30 Agency Comments and
Our Evaluation 31
Appendix I Sample Financial Status Report Form 34
Appendix II State Expenditure Rates, by Year, for Funds Allocated in
Program Years 2000 and 2001 35
Appendix III Comparison of States* Expenditure Rates with Labor*s
Benchmarks and Projections 37
Appendix IV Comments from the Department of Labor 39
Appendix V GAO Contacts and Staff Acknowledgments 42 GAO Contacts 42 Staff
Acknowledgments 42
Related GAO Products 43
Tables
Table 1: Funds Appropriated for WIA in Fiscal Years 2000- 2003 4 Table 2:
Allocation of WIA Funds to States and Local Areas 7 Table 3: WIA*s
Quarterly Financial Reporting Requirements 8 Contents
Page ii GAO- 03- 239 WIA Spending
Table 4: Elements of Labor*s Definition of Total Federal Obligations 9
Figures
Figure 1: WIA*s Annual Funding Cycle 6 Figure 2: WIA Quarterly Financial
Reporting Process 10 Figure 3: WIA Fund Recapture Process 12 Figure 4:
Expenditure Rates by Year Spent 14 Figure 5: Range of States* Cumulative
Expenditure Rates for First 2
Years That Program Year 2000 Funds Were Available 15 Figure 6: Range of
States* Expenditure Rates for First Year That
Program Year 2001 Funds Were Available 16 Figure 7: Breakout of $5 Billion
Available for Program Year 2001 17 Figure 8: Percentage of Program Year
2001 Allocation Available for
Three Selected States 19 Figure 9: WIA Expenditure Rates for First Year
That Program Year
2001 Funds Were Available, by Funding Category 26
Abbreviations
JTPA Job Training Partnership Act TANF Temporary Assistance for Needy
Families WIA Workforce Investment Act of 1998
Page 1 GAO- 03- 239 WIA Spending
November 22, 2002 The Honorable Edward M. Kennedy Chairman, Committee on
Health, Education,
Labor and Pensions United States Senate
The Honorable Howard P. *Buck* McKeon Chairman, Subcommittee on 21st
Century Competitiveness Committee on Education and the Workforce House of
Representatives
With the enactment of the Workforce Investment Act (WIA) of 1998, the
Congress repealed the Job Training Partnership Act (JTPA) and overhauled
federal employment and training programs. WIA created a more comprehensive
workforce investment system and streamlined services for at least 17
federally funded employment and training programs into a single service
delivery structure known as the one- stop system. In fiscal year 2002,
WIA*s three funding streams* adults, dislocated workers, and youth* were
appropriated about $3.9 billion. In July 2002, most states had just
completed their second full year of implementation. Under WIA, the federal
government allocates funds to states each year, and states have three
years to spend those funds* that is, funds received in 1999 may be spent
through 2001; similarly, those received in 2000 may be spent through 2002.
Twice, the administration has proposed reducing the program*s budget,
recommending a $359 million reduction for fiscal year 2002 and another
$343 million in 2003. In both cases, the administration has cited states*
large amounts of unexpended funds carried over from the prior year, saying
that states could readily absorb funding cuts without affecting service
levels. Labor estimates that nearly 40 percent of states* WIA funds remain
available to spend at the end of program year 2001. However, state and
local workforce officials challenge this position, and in light of current
economic conditions, have expressed a need for more program funding, not
less.
To more fully assess whether the Department of Labor*s spending
information is a true reflection of states* available funds, you asked us
to determine: (1) to what extent states are spending their WIA funds and
whether Labor*s data accurately reflect states* available funds, (2) what
Labor does to assess how states are managing their WIA spending, and (3)
what affects states* WIA expenditure rates.
United States General Accounting Office Washington, DC 20548
Page 2 GAO- 03- 239 WIA Spending
To answer these questions, we analyzed the most recent available
nationwide 1 spending data from Labor* as of June 30, 2002* and compared
them with financial reports collected from selected states. In analyzing
Labor*s reports, we disaggregated data by program year and analyzed them
with and without unexpended funds carried over from prior years. To gain a
better understanding of WIA spending issues, we met with workforce
officials in two states* Colorado and Washington* and conducted in- depth
structured telephone interviews with state officials in 7 others:
California, Florida, Illinois, New York, Ohio, Texas, and Vermont. We also
contacted officials representing local areas in 7 of the states. In
selecting the states, we focused primarily on those with the larger WIA
allocations. Collectively, the 9 states we selected accounted for about
half of the total WIA allocation in program years 2000 and 2001. Besides
being geographically dispersed, the states we selected included those with
single and multiple local workforce areas and represented a range of
expenditure rates and experience levels in implementing WIA. In selecting
local areas, we chose from among the largest ones. We also interviewed
officials at Labor headquarters and five of its regional offices, as well
as four national associations. We conducted our work from April to October
2002 in accordance with generally accepted government auditing standards.
States are spending WIA funds much faster than required under the law,
according to our analysis of Labor*s data. As of June 30, 2002, states had
spent essentially all of their program year 1999 funds within the 3 years
allowed. In addition, they had spent 90 percent of their program year 2000
funds within 2 years and 56 percent of their program year 2001 funds in 1
year* in fact, 16 states spent 70 percent or more of their program year
2001 funds in the first year. By contrast, Labor*s estimate of expenditure
rates suggests a slower pace for spending because the estimate is based on
all funds states currently have available* from older funds carried in
from prior program years to those only recently distributed, assessed in
the aggregate, not year- by- year. Moreover, the newest funds, which
states have 2 more years to spend, comprised two- thirds of all funds
states had available for program year 2001. Further, even though 44
percent of program year 2001 funds are being carried over into program
year 2002, many of these funds may already be committed* or obligated.
However, states do not have a clear, uniform definition of obligations and
what they
1 Our nationwide review focused on the fifty states, District of Columbia,
and Puerto Rico. Hereafter, we refer to them collectively as states.
Results in Brief
Page 3 GAO- 03- 239 WIA Spending
report to Labor on obligations differs* some report obligations made only
by the state, others report those made at the local level. Of the 9 states
we reviewed, all collected information on obligations made at the local
level but only 4 reported them to Labor. When local obligations are
included, the amount of funds that could be considered available decreases
markedly. For example, the percentage of California*s program year 2001
funds that are available decreased from 40 percent to 7 percent. Without
consistent information from states on funds that have been committed,
Labor relies on expenditures and overestimates the funds states have
available to spend.
Labor collects quarterly financial reports from each state and compares
state spending against internally established benchmarks to determine how
states manage their spending. Labor uses the results of the comparison to
target guidance and technical assistance and to formulate the following
year*s budget request. For example in program year 2001, Labor expected
states to spend 69 percent of all their available WIA funds. While half
the states met or exceeded this expenditure rate, Labor*s benchmarks were
often not communicated to the states. Despite additional financial
reporting guidance provided by Labor, some state and local officials
remained confused by some of Labor*s requirements because the guidance and
assistance on obligations had not been clear and definitive. State and
local officials expressed a need for clearer guidance and the opportunity
to share promising practices for effectively managing spending.
Several factors affect states* WIA expenditure rates. State and local
officials told us that cumbersome processes to get approval to spend
funds, lengthy contract procurement procedures, and untimely billing by
key service providers, especially community colleges, all delayed
expenditures, sometimes by as much as 3 to 8 months. Also, funds held at
the state level for statewide and other activities were spent more slowly*
at less than two- thirds the rate of funds spent by local areas* causing
overall expenditures to initially appear lower. Annual fluctuations in
funding levels also affected many states* and local areas* willingness to
commit funds for the long term and inhibited their ability to plan
comprehensive workforce investment systems. To overcome some of these
factors, some states and local areas are implementing such strategies as
frequently monitoring and recapturing unspent and uncommitted funds from
one local area and redistributing them to another, coordinating the
procurement process before the receipt of funds so that contracts are in
place by the time funds become available, and requiring expedited billing
as part of contract specifications.
Page 4 GAO- 03- 239 WIA Spending
To improve the accuracy and consistency of financial reporting, we are
recommending that Labor clarify its guidance on reporting obligations to
address concerns identified by state and local officials. In addition, we
are recommending that Labor collect information on funds committed at the
point of service delivery and include such information in determining
states* available funds. We are also recommending that Labor share its
spending benchmarks with states along with strategies for managing
spending effectively. In its comments, Labor generally agreed with our
findings and recommendations related to providing clearer definitions,
guidance, and technical assistance to states to help them manage their WIA
spending. However, Labor disagreed with our findings and recommendations
related to the importance of considering obligations in addition to
expenditures.
The Department of Labor required states to implement WIA*s major
provisions by July 1, 2000, although six states began implementation a
year earlier in July 1999. The act authorizes three separate funding
streams for adults, dislocated workers, and youth. WIA*s appropriation for
fiscal year 2002 was $950 million for adult, $1.1 billion for youth, and
$1.5 billion for dislocated worker programs, for a total of $3.9 billion
(see table 1).
Table 1: Funds Appropriated for WIA in Fiscal Years 2000- 2003 Category
Fiscal year
2000 Fiscal year 2001 Fiscal year
2002 Fiscal year
2003 (request)
Adult $950 million $950 million $950 million $900 million Youth 1. 3
billion 1. 4 billion 1. 4 billion 1. 0 billion Dislocated worker 1.6
billion 1. 4 billion 1. 5 billion a 1.4 billion
Total $3.9 billion $3.8 billion $3.9 billion $3.3 billion
a This amount includes a rescission of $177. 5 million. Source: GAO*s
analysis of agency budget documents.
WIA encourages collaboration and partnerships in making a wide array of
services universally accessible to these three populations and allows
states broad discretion in designing their workforce investment systems.
WIA requires most federally funded employment and training services to be
delivered through a one- stop system overseen by newly created state and
local workforce investment boards, although the services themselves may be
provided by partner agencies and locally contracted service Background
Page 5 GAO- 03- 239 WIA Spending
providers. In fact, WIA encourages client referrals to programs offered by
one- stop partners.
Once Congress appropriates WIA funds, the amount of money that flows to
states and localities depends on a specific formula that takes into
account unemployment. Thus, any changes in the annual appropriation or
elements of the allocation formula will result in year- to- year funding
fluctuations. Once the Congress appropriates funds for a given fiscal
year, Labor notifies states of their annual allocation* usually in the
February to March timeframe. The funds are made available to states and
localities at three separate times during the year, depending on the
program (see fig. 1). For youth services, all funds for the year are made
available on April 1, 3 months before the beginning of the program year on
July 1. This once- ayear youth allocation is designed to help states and
local areas gear up for summer youth activities. The adult and dislocated
worker funding allocations are distributed twice a year from two different
years* appropriations* on July 1 (1/ 4 of the allotment) and on October 1
(3/ 4 of the allotment)* with the October allocation funded from a new
fiscal year*s appropriation. States and localities are required to manage
their WIA programs, including spending, on a program- year basis,
regardless of when funds are made available. In addition, WIA allows
states 3 program years to spend their funds while local areas have 2
program years. WIA*s Funding Cycle Is
Complex
Page 6 GAO- 03- 239 WIA Spending
Figure 1: WIA*s Annual Funding Cycle
Once WIA funds are made available, they flow from Labor to states, states
to local areas, and local areas to service providers. For dislocated
worker funds, the Secretary of Labor retains 20 percent of the funds in a
national reserve account to be used for emergency grants, demonstrations,
and technical assistance and allocates the remaining funds to the states
according to a specified formula. Once states receive their allocation,
the governor can reserve up to 25 percent of dislocated worker funds for
rapid response activities intended to help workers faced with plant
closures and layoffs to quickly transition to new employment. In addition
to funds set aside for rapid response, WIA allows states to set aside up
to 15 percent of the dislocated worker allotment and permits them to
combine the dislocated worker set- aside with similar set- asides from
their adult and youth allotments. States use the set- asides to support a
variety of statewide activities such as helping establish one- stop
centers, providing incentive grants to local areas, operating management
information systems, and disseminating lists of organizations that can
provide training. After funds are set aside for rapid response and
statewide activities, the remainder* at least 60 percent for dislocated
workers and 85 percent for adult and youth* is then allocated to local
workforce areas, also according to a specified formula. In addition, local
areas may reserve up to 10 percent from each of the three funding streams
for local administrative activities (see table 2).
July 1 (start of program
year-- covers July 1 to June 30) Oct. 1
(start of fiscal year-- covers Oct. 1 to Sept. 30)
Congress appropriates
funds Labor notifies
states of allocation Feb. - Mar.
_ Apr. 1 All youth funds for
the year made available
One- fourth of adult, dislocated
worker funds available
Three- fourths of adult, dislocated
worker funds available
_ Oct. 1
(start of new fiscal year)
Source: GAO's analysis of federal budget process, WIA regulations and
Department of Labor, Training and Employment Guidance Letter 16- 99
(Washington, D. C.: 2000).
Page 7 GAO- 03- 239 WIA Spending
Table 2: Allocation of WIA Funds to States and Local Areas Distributed to
states Adult Youth Dislocated
worker a
Reserved by governor for rapid response activities N/ A b N/ A b 25%
Reserved by governor for statewide activities 15% 15% 15% Allocated to
local areas c 85% 85% 60% a The Secretary of Labor reserves 20 percent of
dislocated worker funds for national emergency
grants, demonstrations, and technical assistance before distributing the
remaining 80 percent to states for their use. b Rapid response funds are
not applicable to the adult and youth programs.
c A maximum of 10 percent of local area funds may be used for local
administration. Source: GAO*s analysis of the Workforce Investment Act.
Labor collects quarterly financial status reports from states, detailing
expenditures separately for the six funding categories under WIA* two
categories at the state level (governor*s set- aside and rapid response)
and four at the local level (adult, dislocated worker, youth, and local
administration). Appendix I depicts a sample form that states complete and
submit to Labor. Because adult and dislocated worker funds for each
program year are provided from two separate appropriations, Labor requires
states to track financial information separately by the year in which
funds are appropriated. As a result, states submit a total of 11 reports
each quarter for activities funded by the current program year*s
allocation, as shown in table 3. In addition, WIA gives states 3 years
within which to spend their grant; consequently, states may be tracking
activities that are funded by 3 different program years, thus submitting
up to 33 reports each quarter (11 reports multiplied by the 3 program
years in which funds are available). States Report to Labor on
Six Funding Categories
Page 8 GAO- 03- 239 WIA Spending
Table 3: WIA*s Quarterly Financial Reporting Requirements Number of
reports
Statewide category Governor*s set- aside (15 percent) 2 Rapid response 2
Local category Adult 2 Dislocated workers 2 Youth 1 a Administration (10
percent cap) 2
Total 11
a All youth funds are allocated at a single point during the program year;
therefore, only one report is required to be submitted. Source: GAO*s
analysis of Labor*s Training and Employment Guidance Letter 16- 99,
(Washington, D. C.: 2000).
In completing their financial status reports, states are required to
follow Labor*s guidance that identifies and defines the data elements to
be reported. Labor collects *total federal obligations** which it defines
as the sum of expenditures, accruals, and unliquidated obligations* for
determining how much states have already spent and how much is still
available for spending. Table 4 shows the definitions of each of these
terms. In addition, WIA regulations require expenditures to be reported on
an accrual basis. This means states should report all cash outlays and all
accruals as expenditures on their reports. As of July 2002, all states we
contacted told us that they were reporting expenditures on an accrual
basis.
Page 9 GAO- 03- 239 WIA Spending
Table 4: Elements of Labor*s Definition of Total Federal Obligations
Element Definition
Expenditures Actual cash disbursements or outlays. Accruals Amounts owed
for goods and services that have been
received but for which cash has not yet been disbursed. For example, an
accrual would occur if a job seeker completed a training class, but the
training provider had not yet been paid.
Unliquidated obligations a Obligations incurred, but for which an outlay
has not yet been recorded; should include unliquidated obligations to
subgrantees and contractors. This amount is different from accruals in
that services have not been provided and costs have not been incurred. For
example, an unliquidated obligation would be incurred when the state or
local area enters into a commitment or contract with a service provider
for training, but training has not yet been completed or the service
provider paid.
a Hereafter, we refer to unliquidated obligations as obligations. Source:
Labor*s Training and Employment Guidance Letter 16- 99, (Washington, D.
C.: 2000). Text in italics added by GAO.
Financial reporting begins at the local service provider level and
progresses through the local, state, and national levels. Figure 2 shows
how WIA financial reports flow from one level to the next and the data
elements that are reported. After reconciling any discrepancies, states
aggregate the local reports and are required to submit a financial status
report to their regional Labor office 45 days after the quarter*s end,
according to Labor officials. Ten days later, after performing edit
checks, regional officials told us that they certify and forward states*
reports to Labor*s national headquarters. The national office then merges
information for the six funding categories into the three funding streams*
adults, dislocated workers, and youth* and combines the program and fiscal
year data into a single program year. Within 5 days of receiving reports
from its regional offices, Labor is required to present the Congress with
a single report 60 days after the end of the quarter.
Page 10 GAO- 03- 239 WIA Spending
Figure 2: WIA Quarterly Financial Reporting Process
Labor uses states* financial reports to determine whether there are any
unspent funds that may need to be redistributed among states. Local areas
have 2 years within which to spend their annual allocations while states
have 3 program years. Thus, program year 2000 funds must be spent by the
end of program year 2001 for localities and by the end of program year
2002 for states. If funds are not spent, WIA directs both states and Labor
to recapture and, if appropriate, redistribute unspent funds according to
specific criteria (see fig. 3). The recapture processes are similar at
both the state and federal level. States have a two- tiered process by
which they recapture available funds. First, at the end of the initial
program year, states may reclaim funding from local areas with total
obligations less than 80 percent of their annual allocation and
redistribute these recaptured funds to those local areas that have met the
criterion for total obligations. Second, at the close of local areas* 2-
year grant period, states may recapture any unexpended local funds and may
reallocate the funds to WIA Provides for
Recapturing Unspent Funds
Labor, national When: Quarterly, due 60 days after quarter ends.
Information reported:
Includes expenditures, excludes obligations, merges 6 funding categories
into 3 WIA programs, combines program year and fiscal year (1 report).
Quarterly reports to Congress Labor, regional
When: Quarterly, due 55 days after quarter ends.
Information reported:
No additional information reported, edit checks performed, and
discrepancies reconciled.
State When: Quarterly, due 45 days after quarter ends.
Information reported:
Includes expenditures and obligations by 6 funding categories and by
program year and fiscal year (total of 11 reports).
Local area When: Generally monthly, can be quarterly, due date varies by
state.
Information reported:
Expenditures, may include obligations; reported by 6 funding categories
and by program year and fiscal year (total of 11 reports).
Local contractors, service providers
When: At least monthly, due date varies by local area.
Information reported:
Expenditures, may include obligations.
July August September October November
Source: GAO's analysis of Labor's Training and Employment Guidance Letter
16- 99, (Washington, D. C.: 2000), H. R. Conf. Rep. No. 107- 148, at 68
(2001), and interviews with officials from Labor, states, and local areas.
14 24 29
First quarter
Page 11 GAO- 03- 239 WIA Spending
other local areas that have fully expended their allocation or to
statewide activities, but only in the third year the grant is available.
Like local areas, states are also subject to having their funds
recaptured. At the federal level, Labor may recapture funds from states
with total obligations less than 80 percent of their annual allotment at
the end of the first program year. Labor applies the same recapture
process to the end of the second program year. At both intervals, Labor
may redistribute these funds to other states that have met the requisite
total obligation rate. By the end of the 3- year grant period, Labor may
recapture any state funds that have not been fully expended. Because
states* WIA grants expire after 3 years, funds recaptured by Labor at the
end of the third year may not be redistributed to other states. Rather,
Labor must return the funds to the U. S. Treasury.
Page 12 GAO- 03- 239 WIA Spending
Figure 3: WIA Fund Recapture Process Labor States
States Local areas End of first program year.
Criterion: total obligations less than 80% of allocation.
Reallocated to local areas that meet criterion.
End of first and second program year.
Criterion: total obligations less than 80% of allotment.
Realloted to states that meet criterion.
End of 2- year grant period.
Criterion: allocation less than 100% expended.
Reallocated in 3rd year for statewide activities or to other local areas
that meet criterion.
End of 3- year grant period.
Criterion: allotment less than 100% expended.
Not realloted, grant closed out and funds returned to U. S. Treasury.
Source: GAO's analysis of WIA legislation and interviews with Labor
officials. Who recaptures WIA funds?
From whom? Recapture process?
Page 13 GAO- 03- 239 WIA Spending
Our analysis of Labor*s data shows that states are spending their WIA
funds within the authorized 3- year timeframe* virtually all funds
allocated for program year 1999 have been spent within the requisite 3
years and 90 percent of program year 2000 funds have been spent within 2
years. In addition, states have spent just over half of their program year
2001 allocation within the first year funds were available. By contrast,
Labor*s estimate of expenditure rates suggests that states are not
spending their funds as quickly because the estimate is based on all funds
states currently have available* from older funds carried in from prior
program years to those only recently distributed. The newest funds, which
states have 2 more years to spend, comprised two- thirds of all funds
states had available for program year 2001. Moreover, many of the
remaining funds carried over may have already been obligated. However,
states do not use the same definition for obligations and what they report
to Labor on obligations differs. Lacking consistent information on how
much states and local areas have committed to spend, Labor relies on
expenditure data and overestimates the funds states have available to
spend.
Our analysis of Labor*s expenditure data shows that states are spending
their WIA funds within the allowed 3- year period. Nationwide, Labor*s
data show that states expended essentially all of their program year 1999
funds within the authorized 3- year period that ended with program year
2001. In addition, states have expended 90 percent of program year 2000
funds within the first two years funds were available* 55 percent in the
first year and another 35 percent in the second year. States have one more
year to spend the remaining 10 percent of their program year 2000 funds.
In addition, states had expended 56 percent of program year 2001 funds,
with 2 years still remaining (see fig. 4). States Have Spent
Most of Their WIA Funds, Labor*s Estimate Overstates Funds Available to
Spend
Labor*s Expenditure Data Show That WIA Funds Are Being Spent within
Authorized Timeframes
Page 14 GAO- 03- 239 WIA Spending
Figure 4: Expenditure Rates by Year Spent
While nationwide data show that funds are being spent within the required
time period, state- by- state expenditure rates vary widely. For example,
Vermont spent 92 percent of its program year 2000 allocation in the first
year and 8 percent in the next, while Kentucky spent 29 percent in the
first year and 63 percent in the next. When program year 2000 expenditure
rates were combined for the first and second years that funds were
available, all states had spent over 70 percent. Forty- four states had
spent 90 percent or more of their program year 2000 funds, with 9 of those
44 states* Delaware, Idaho, Maine, Michigan, Montana, North Dakota, Rhode
Island, Utah, and Vermont* achieving a 100- percent expenditure rate. (See
fig. 5.)
Second- year expenditures
Third- year spending for program year 2000 has just begun
0 20 40 60 80 100 First- year
expenditures Third- year expenditures
Second- year expenditures
First- year expenditures
Third- year expenditures
Second- year spending for program year 2001 has just begun
90 cumulative Program year 2000 Program year 2001
Source: GAO's analysis of Labor's financial data files for program years
2000 and 2001.
55 35
56
Percent of allocation expended
Page 15 GAO- 03- 239 WIA Spending
Figure 5: Range of States* Cumulative Expenditure Rates for First 2 Years
That Program Year 2000 Funds Were Available
Expenditure rates for first year spending of program year 2001 funds were
similar to those of program year 2000, and state- to- state spending rates
also varied widely, as shown in figure 6, ranging from 19 percent for New
Mexico to 92 percent for Vermont. For program year 2001, the majority of
states spent at least 55 percent of their funds and 16 states spent at
least 70 percent. (See app. II for state- by- state expenditure rates
listed for program years 2000 and 2001.)
Number of states 0 5
10 15
20 25
30 35
40 70- 79 80- 89 90- 99 100 Percent of allocation expended over 2 years
2 6
35 9 Source: GAO's analysis of Labor's financial data files for program
year 2000.
Page 16 GAO- 03- 239 WIA Spending
Figure 6: Range of States* Expenditure Rates for First Year That Program
Year 2001 Funds Were Available
Expenditure rates increased for many states from program year 2000 to
program year 2001. Thirty- one states spent funds at the same or faster
pace in program year 2001 than they did during the same period in the
prior year. However, for 21 states, spending occurred at a slower pace in
2001 compared with 2000. Nevertheless, 9 of the 21 states still spent at
or above the nationwide rate of 56 percent in program year 2001.
In contrast to our expenditure rate estimate, Labor*s estimated
expenditure rate of 65 percent at the end of program year 2001 aggregates
data over 3 years and considers all funds states have available. Labor
based its calculation on older unexpended funds carried in from prior
years as well as the newest funds represented by the program year 2001
allocation, even though that allocation made up the largest share of all
available funds. For example, of the total $5 billion 2 available at the
beginning of program year 2001, about two- thirds (65 percent) represented
2 This includes a rescission of $177.5 million from the dislocated worker
program for program year 2001. Labor*s Calculation of
Expenditure Rates Aggregates Data Over 3 Years
Number of states 0 2
4 6
8 10
12 14
16 18
20 10- 24 25- 39 40- 54 55- 69 70- 84 85- 100 Expenditure rate in percent
1 6
15 14 14
2 Source: GAO's analysis of Labor's financial data files for program year
2001.
Page 17 GAO- 03- 239 WIA Spending
the program year 2001 allocation, and about another one- third represented
amounts carried in from program years 2000 and 1999 (29 percent and 6
percent, respectively) as shown in figure 7. By basing its calculation of
an expenditure rate* 65 percent at the end of program year 2001* on the
sum of all available funds, Labor did not take into account the 2 years
that remain for states to spend the majority of their funds.
Figure 7: Breakout of $5 Billion Available for Program Year 2001
Differences in how states report expenditures result in data inaccuracies
and reporting inconsistencies. WIA regulations require states to include
accruals* or amounts owed for goods and services received that have not
yet been paid*- when reporting expenditures, but a few states reported
only cash outlays in program year 2001. As a result, reported expenditures
may have been understated. Some states and local areas may still be using
a cash- based accounting system, usually tied to the state*s or local
area*s existing accounting system and often used to report expenditures
for other programs, such as welfare. State and local workforce officials
we spoke with in areas that are reporting cash outlays told us they are
modifying their accounting systems and will soon begin reporting accruals.
In fact, as of program year 2002, all states we spoke with told us they
are beginning to collect and report expenditures on an accrual basis as
required under WIA regulations. Excluding accruals may understate Labor*s
Information on
States* WIA Spending Is Not Accurate Due to Reporting Inconsistencies
29% $1.4 billion Program year 2000 carry- in
65% 6%
$314 million Program year 1999 carry- in
$3.2 billion Program year 2001 allocation
Source: GAO's analysis of Labor's financial data files for program year
2001.
Page 18 GAO- 03- 239 WIA Spending
expenditures primarily in the short term because invoices for goods and
services received in one month are often converted into cash outlays in
the next month. However, if this conversion takes a long time to occur and
if expenditures are uneven from month- to- month and year- to- year, the
effect of accruals for a year may be longer term and expenditures for a
given year may be understated. For example, a jobseeker may have completed
a training class in June of one program year, but the school does not
submit an invoice to the local area until September of the next program
year. If the local area captures the cost of training as an expenditure
only after paying the invoice, it will wait until the new program year to
report it and will understate its prior program year expenditures.
Eventually, accruals may catch up with expenditures over the life of the
grant*- 2 years for local areas and 3 years for states.
In addition to reporting expenditures each quarter, states also report
obligations* funds committed through contracts for goods and services for
which a payment has not yet been made. However, not all of the 9 states we
contacted reported obligations in the same way and differences in
reporting resulted in data inconsistencies. Labor*s guidance requires that
states report obligations but does not specify whether obligations made at
the local level* the point at which services are delivered* should be
included. States interpret Labor*s definition of obligations in several
ways. Some states we contacted include as obligations the amount of the
WIA grant they allocate to their local areas. By contrast, other states
included funds that their local areas have committed in contracts for
individual training accounts, staff salaries, and one- stop operating
costs. Officials in these states told us they tracked locally committed
funds because they more accurately reflect total spending activity. Of the
9 states we contacted, all collect information on local obligations.
However, 4 of them report these data to Labor while the other 5 do not.
These differences result in data that are not comparable across states.
Labor*s data on obligations do not consistently reflect local commitments;
therefore, Labor relies on expenditure data to estimate available funds.
In doing so, Labor overestimates the amount states have available to
spend. For 3 of the 4 states that report local obligations, the amount of
funds the state has available is much smaller when local obligations are
taken into account along with expenditures. For example, for New York,
available funds are cut almost by a third, and in California and
Washington, available funds essentially disappear*- decreasing from 40
percent to 7 percent, and 33 percent to 2 percent, respectively (see fig.
8). For Lacking Consistent
Information on Obligations, Labor Overstates Available Funds by
Considering Only Expenditures
Page 19 GAO- 03- 239 WIA Spending
Vermont, the fourth state that collects and reports local obligations,
obligations and expenditures were very similar, with about 8 percent of
program year 2001 funds available.
Figure 8: Percentage of Program Year 2001 Allocation Available for Three
Selected States
A key role for Labor under WIA is to monitor state spending; it does so by
comparing the expenditure information it receives from states with
benchmarks Labor has developed. However, these benchmarks are often not
communicated to the states. Labor uses the benchmarks to formulate budget
requests and identify which states need monitoring and additional
guidance. While Labor has provided additional financial reporting guidance
and technical assistance, some state officials told us that they remain
concerned about WIA spending and financial reporting and would like
further help in developing strategies to effectively manage expenditures.
Labor Monitors
Spending, Provides Guidance, but Concerns Remain
Percent 0 10
20 30
40 50
60 70
80 90
100 New York California Washington
74 45
40 7
33 2 Available (based on expenditures) Available (based on expenditures
and obligations)
Source: GAO's analysis of Labor's financial data files for program year
2001.
Page 20 GAO- 03- 239 WIA Spending
Labor has established several national expenditure rates used as
benchmarks against which to judge each state*s spending rate. In program
year 2000, for example, Labor set its benchmark at 25 percent of states*
allocations during the first half of the year and 50 percent of their
allocation three- quarters of the way through the year, based on its
comparison of state expenditure reports. However, Labor*s data show that
most states* 40 in all* did not meet the 50- percent benchmark stipulated
for March 31, 2001. The remaining 12 states either met or exceeded this
benchmark. In program year 2001, Labor assumed higher expenditures and
projected an expenditure rate of 69 percent, which 26 states met or
exceeded. Labor uses its projection to formulate the following year*s
budget request and bases it on total WIA funds available, which include
the current year allocation and prior years* unexpended balances carried
into the current year. (See app. III for states that met, exceeded, or
were below benchmarks.)
Labor intended the program year 2000 benchmarks to serve as internal
guidelines for targeting oversight efforts and has not always communicated
them to states. Some state officials told us that lacking information on
benchmarks has created frustration in managing their WIA spending because
Labor notified these states that they were underspending their funds but
did not specify the goal they had to achieve. Moreover, state and local
officials said that it was unclear how the benchmarks take into account
states* 3- year and localities* 2- year spending windows.
Labor established protocols in April 2001 to address WIA spending issues,
requiring its appropriate regional offices to contact states whose
expenditures appeared low. States whose expenditure rates fell below
program year 2000 benchmarks were subject to immediate regional office
examination. In addition to reviewing state spending patterns and
determining the magnitude of underspending, regional offices were required
to work with state staff to determine specific reasons for underspending,
help develop corrective action plans, and submit weekly and monthly
progress reports on implementation status to Labor headquarters.
Labor*s regional offices have taken various approaches to monitoring
states* WIA spending. As of July 2002, six of seven regional offices had
sent monitoring letters to 26 states. Three states received letters
because Labor Monitors State*s
WIA Spending Using Benchmarks That Are Not Always Communicated to States
Page 21 GAO- 03- 239 WIA Spending
spending was below the benchmarks, 3 and these states were required to
submit a corrective action plan. The other 23 states 4 received letters as
part of ongoing regional oversight, regardless of spending level. The
seventh region elected to hold meetings and used other modes of direct
communication with state officials instead of sending them formal letters.
In addition to sending letters, four regions conducted monitoring site
visits to states with low expenditure rates.
At the national level, Labor has issued guidance 5 containing financial
reporting instructions and definitions as well as a technical assistance
guide on financial management. 6 At the regional level, guidance and
assistance efforts vary. For example, the Dallas Regional Office issued a
memorandum suggesting steps states and local areas could take to address
low enrollment and expenditures. Suggestions included modifying policies
and procedures to quickly move one- stop clients who are on waiting lists
to intensive or training activities and reporting Individual Training
Account expenditures on an accrual basis regardless of whether the
provider has submitted a bill. The New York Regional Office has developed
a quarterly WIA expenditure tracking system and uses the information to
conduct extensive briefings, correspondence, and discussions with its
states in addition to providing guidance and technical assistance through
training sessions.
Despite Labor*s guidance and assistance efforts, some state and local
officials cited several concerns about financial reporting. As we noted,
states are reporting obligations inconsistently because Labor*s definition
of obligations is ambiguous. A recent report by Labor*s Inspector General
confirms that the definition is unclear and that Labor provided
conflicting
3 New York, Ohio, and Puerto Rico received monitoring letters because
their program year 2000 expenditure rate was below the 25- percent
benchmark that states had to meet by December 31, 2000.
4 Alaska, Arizona, California, Connecticut, Hawaii, Idaho, Illinois,
Indiana, Iowa, Kansas, Maine, Massachusetts, Michigan, Minnesota,
Missouri, Nebraska, Nevada, New Hampshire, Oregon, Rhode Island, Vermont,
Washington, and Wisconsin.
5 Department of Labor, Training and Employment Guidance Letter 16- 99
(Washington, D. C.: 2000). 6 Department of Labor, One- Stop Comprehensive
Financial Management Technical Assistance Guide (Washington, D. C.: 2002.)
Labor Has Provided
Additional Guidance and Assistance, but States Remain Confused about How
to Report and Manage Spending
Page 22 GAO- 03- 239 WIA Spending
instructions to Ohio State officials on how to report obligations. 7
Obligations are especially important because WIA requires that recapture
decisions be based on amounts expended and obligated. According to state
and local officials, three aspects of Labor*s definition were problematic:
First, Labor*s definition of obligations does not specify whether local
obligations to service providers should be included when states report to
Labor or whether obligation data should simply reflect state obligations
to local boards. For example, Florida counts as obligations any funds it
passes through to local areas, whereas Washington includes obligations
made at the local level.
Second, even when the issue of reporting local obligations is clarified,
what constitutes an obligation is open to interpretation. Officials at a
local area in Ohio, for example, said that some local areas report an
obligation only when there is a legally binding contract while others
include amounts that have been reserved in anticipation of a contract.
Third, confusion exists on the timeframe used to define obligations.
Colorado state officials noted that some local areas report commitments as
obligations if the funds are committed no more than 3 months into the
future, others consider obligations only within the current program year,
while still others count obligations as any future commitments regardless
of the length of the contract period. Ohio officials questioned whether
obligations should be recorded for only 1 year given that WIA gives local
areas 2 years in which to spend their funds. In addition, officials in
several local areas told us that Individual Training Account vouchers, 8
posed a particular financial reporting challenge. It is unclear what
portion of the training voucher is to be reported as an obligation given
that the vouchers may cover a 2 to 3 year period.
Several state and local officials also cited the need for more information
on strategies to better manage WIA spending. They told us that they would
7 Department of Labor, State of Ohio, Evaluation of Grant Obligations,
Expenditures and Payments, Workforce Investment Act Grants and Job
Training Partnership Act Transition Funds, Independent Accountants* Report
on Applying Agreed- Upon Procedures, Grants and Transition Funds Awarded
to the State of Ohio, July 1, 2000 Through December 31, 2001 (Washington,
D. C.: 2002).
8 Under WIA, Individual Training Accounts are established for eligible
adults and dislocated workers to finance training services. Participants
then use these vouchers to purchase training services from eligible
providers of their choice.
Page 23 GAO- 03- 239 WIA Spending
benefit from sharing these strategies. While they acknowledged that Labor
had provided financial reporting guidance, they desired a mechanism or
forum for exchanging ideas, questions, and answers on spending issues.
Officials at both the state and local level expressed a need for greater
clarity in the definition of obligations, more specific and frequent
guidance and technical assistance, and systematic sharing of promising
practices to effectively manage WIA spending. Labor officials acknowledged
that states are misinterpreting the financial reporting guidance and that
the guidance could be further clarified.
To ensure uniform reporting procedures, a few states have developed their
own policy guidance. For example, Colorado recently issued a directive on
reporting obligations and accrued expenditures. 9 The directive allows the
costs of Individual Training Accounts to be reported as obligations when
an order is placed or a contract is awarded for the procurement of goods
and services. Furthermore, voucher agreements may be obligated up to 12
months.
State and local officials told us that a variety of factors affects WIA
expenditure rates. Delays in reporting expenditures result from lengthy
spending approval processes and cumbersome contract procurement procedures
as well as from a lack of timely provider billing. In addition,
fluctuating funding levels affect their willingness to make long- term
commitments and inhibit their ability to do long- range planning. Some
states and local officials we spoke with said that they use strategies to
mitigate these factors and better manage spending.
Officials at some states and localities told us that lengthy processes to
obtain approval to spend the funds, WIA*s emphasis on contracting for
services, and lags in service provider billing all contributed to delays
in spending WIA funds. After the state allocates the WIA grant to the
local areas, the local areas may go through time- consuming internal
procedures to obtain approval to spend the funds before they can disburse
or obligate the money:
9 State of Colorado Department of Labor and Employment, Office of
Employment and Training Programs, Colorado One- Stop System Policy
Guidance Letter # 02- 20- WIA
(Denver, Colo.: 2002.) A Variety of Factors
Affects States* WIA Expenditure Rates
Lengthy Expenditure Processes Delay Spending
Page 24 GAO- 03- 239 WIA Spending
Officials in Cleveland told us that the city council has to approve the
grant allocation from the state for each funding stream. This process
includes approval of the grant*s receipt as well as its expenditure,
taking anywhere from several weeks to 8 months.
Local area officials in Colorado told us that county commissioners have
to approve the release of funds from the state to the local area. This
process takes anywhere from 2 weeks to 3 months, depending on the number
of counties comprising a local area.
WIA*s emphasis on contracting for services may also delay spending for
states and localities, especially for those whose procurement process is
lengthy:
New York officials told us that contracts must go through a competitive
bidding process and many layers of review, including the state*s
department of labor, comptroller, and attorney general, resulting in a
procurement process lasting an average of 3 months.
Illinois state officials attributed slow statewide expenditure rates to
the state*s lengthy procurement process, in which it took 8 months to
procure a vendor to redesign the state*s case management system.
Performance- based contracts also result in financial reporting delays
where contractors get paid as they meet agreed- upon performance goals.
Officials in 4 of the states we contacted told us that they rely on these
types of contracts in at least some of their local areas. As a result,
they record expenditures later in the program year than those entities
that reimburse contractors whenever costs are incurred:
According to Florida State officials, all contracts are performance
based, by state law. Contractors are paid at certain intervals during the
contract period depending on when they have met stipulated outcomes such
as job retention. However, an outcome such as job retention may not be
known until as long as 6 months after the contract terminates.
Suffolk County in New York pays its contractors at intervals. For
example, 50 percent of the contract is paid when 50 percent of the
training has been completed.
Some key service providers often bill late, sometimes months after
providing services. Both state and local officials told us that public
institutions* particularly community and technical colleges* are primary
providers of training, often delivering such services through Individual
Page 25 GAO- 03- 239 WIA Spending
Training Accounts. The 4 to 6 month lag in school billing in Miami, for
example, not only causes delays in reporting expenditures, but public
schools* not accustomed to billing monthly* may also have little financial
incentive to expedite billing because they do not rely on WIA funds as a
major source of their tuition revenue.
Slower spending of statewide funds compared to local funds also affects
expenditure rates. Labor*s data for program year 2001 show that states are
spending their statewide funds at less than two- thirds the rate of local
funds. For example, the governor*s statewide 15 percent set- aside was 37
percent expended compared to 70 percent expended for local adult programs
(see fig. 9). The difference in expenditure rates is due, in part, to
WIA*s requirement that some of the statewide funds be used for end- ofyear
incentive grants to local areas for exemplary performance on the local
performance measures. In addition, Washington, for example, uses statewide
funds for long- term projects and for activities such as program
evaluations. Likewise, rapid response funds are held at the state level to
enable response to mass layoffs or plant closures. Florida State officials
told us that, by state law, the state board must retain 30 percent of its
rapid response funds until the latter part of the program year. Statewide
Funds Are Spent
at a Slower Rate
Page 26 GAO- 03- 239 WIA Spending
Figure 9: WIA Expenditure Rates for First Year That Program Year 2001
Funds Were Available, by Funding Category
Although these factors affect when expenditures are incurred and reported,
other factors may influence states* decision on whether to spend their WIA
funds.
Three key factors affect the extent to which states spend their WIA funds.
First, fluctuations in funding levels due to funding formulas or budget
decisions affect states* and localities* willingness to make long- term
commitments and their ability to plan comprehensive workforce systems.
Second, WIA*s emphasis on referrals to other one- stop partners* programs
may result in non- WIA funds being spent first. Third, implementation
issues, particularly during the early stages of the program, may have
resulted in lower expenditures while one- stop centers were still being
established.
Year- to- year fluctuations in funding, whether due to the allocation
formulas or appropriation decisions, make localities reluctant to commit
funds for long- term training and education, affecting overall WIA
spending. Three Factors Affect
States* Overall Level of Spending
Funding Fluctuations
Percent of allocation expended 0 10
20 30
40 50
60 70
80 90
100 Statewide
37 38 70
63 57
Statewide funds Local funds 15%
Rapidresponse Adult
Youth Dislocatedworkers
Source: GAO's analysis of Labor's financial data files for program year
2001.
Page 27 GAO- 03- 239 WIA Spending
How much states and localities receive can vary dramatically from year to
year as a result of WIA*s funding formula allocations for the adult,
youth, and dislocated worker programs. The dislocated worker funding
formula, which distributes a third of its funds based upon the amount of
*excess unemployment* (unemployment exceeding 4.5 percent), is especially
volatile. 10 In addition, funds appropriated for WIA programs vary
according to annual budget decisions. For program year 2001, for example,
$177.5 million was rescinded from the dislocated worker program. State and
local area officials told us that they were uncertain whether the
rescission would be restored and that the uncertainty contributed to their
sense of funding instability. Local area funding levels can also fluctuate
when they receive an infusion of unanticipated, unspent statewide funds,
as was the case in Seattle and Tacoma. Washington*s governor held back
some rapid response funds in anticipation of aluminum plant closings and
mass layoffs stemming from the energy shortage along the West Coast.
However, when plant closings did not materialize, the state no longer
needed the funds for rapid response activities and allocated them to these
two cities midway through the program year, with the expectation that the
funds would be spent by the end of the program year.
Year- to- year fluctuations in funding also hinder states* and localities*
ability to plan comprehensive workforce investment systems. For example,
in New York, funds for dislocated workers decreased by about 40 percent
from program year 1999 to program year 2000, a fluctuation that state
officials said would inhibit its local areas from committing funds beyond
the current program year because future funding levels are uncertain.
Similarly, state officials in Ohio told us that their local areas have
adopted a cautious approach to current year spending and plan to carry
over unspent funds due to funding uncertainty.
WIA*s emphasis on referrals to other sources of assistance makes WIA a
funding source of last resort. As part of the core services under WIA,
adults and dislocated workers can get help in establishing financial aid
eligibility for training and education programs that are available in the
community but are not funded under WIA. In addition, to qualify for
training services under the adult and dislocated worker programs,
individuals must be unable to obtain other grant assistance, such as Pell
10 For more information on the dislocated worker funding formula, see our
prior report,
Workforce Investment Act: Better Guidance and Revised Funding Formula
Would Enhance Dislocated Worker Program, GAO- 02- 274 (Washington, D. C.:
Feb. 11, 2002). Referrals to Other Partners
Page 28 GAO- 03- 239 WIA Spending
Grants, or must require assistance beyond that provided by other grant aid
programs. Sometimes, states make it a priority for local areas to spend
other grant funds. For example, in Ohio, WIA spending was delayed because
of the large amount of funds to be spent from the Temporary Assistance for
Needy Families (TANF) grant. 11
Start- up issues may have also affected expenditures in the initial stages
of WIA*s implementation, especially during program years 1999 and 2000.
Expenditures during this period may have been lower* many one- stop
centers were not fully up and running while states and localities were
developing or substantially retooling existing employment and training
systems. For example, while Texas got a head start in establishing
onestops under WIA because it was an early implementer, state workforce
officials struggled with other issues such as implementing individual
training accounts and developing data collection systems for WIA*s
performance measures. In addition, some states and local areas initially
took a *work- first* approach, emphasizing job placement services that
were less expensive compared to long- term training and education
services, especially given the positive economic and employment conditions
at the time of WIA*s enactment. Workforce officials told us that most of
these issues have been resolved since the transition from JTPA.
To manage spending more effectively, some states and local areas have
developed strategies to mitigate factors affecting spending levels or
delays in reporting expenditures.
11 Welfare reform legislation created the TANF block grant in1996,
providing states with flexibility to focus on helping needy adults with
children secure and maintain employment. TANF is administered and funded
at the federal level through the Department of Health and Human Services.
In prior reports we have said that states have been under considerable
scrutiny for not spending their TANF funds more quickly. For more
information, see, for example, U. S. General Accounting Office, Welfare
Reform: Challenges in Maintaining a Federal- State Fiscal Partnership,
GAO- 01- 828 (Washington, D. C.: Aug. 10, 2001). Start- up Issues
Some States and Localities Have Mitigated Factors Affecting Spending Rates
Page 29 GAO- 03- 239 WIA Spending
Most states we contacted have a process in place to recapture funds from
local areas that have not met their target spending rates and reallocate
them to those areas that have done so, although only a few had used it or
planned to use it for program year 2000 funds, in part because they were
transitioning from JTPA. Florida, however, actively monitors expenditures
and requires its local areas to meet a minimum 25 percent expenditure rate
after 6 months, 50 percent after 12 months, 75 percent after 18 months,
and 100 percent at the end of 24 months when local grants expire.
To address lengthy contracting processes, Chicago coordinates the timing
of the procurement process with the availability of funds.
Florida has addressed delayed school billing by mandating expedited
billing in the contract and Vermont pays tuition expenses at the time of
participant registration rather than at course completion.
To facilitate the spending of statewide funds, Texas* state WIA plan
identifies statewide initiatives at the beginning of the program year so
that statewide funds can be allocated more expeditiously.
In past reports, we have found that states and local areas have stepped up
to the challenge of fundamentally reconfiguring their workforce investment
systems to serve the nation*s jobseekers and employers. 12 Though spending
was initially sluggish as state and local boards ramped up their workforce
systems, the pace of spending picked up as the second full year of
implementation under WIA came to a close. Our analysis of Labor*s data
shows that states are rapidly spending their funds* in fact, nationwide,
states have spent 90 percent within 2 years, much of it often within the
first year the funds were available. This pace of spending has occurred
even though the law allows states 3 years to spend the funds.
But, expenditures by themselves do not provide a complete picture of
spending activity. Obligations* funds that have been committed on behalf
of WIA customers* must also be considered to accurately gauge how
12 Our prior work on WIA concluded that states had made significant
progress in developing new processes and designing new workforce systems
given the scope of WIA*s reforms. See, for example, U. S. General
Accounting Office, Workforce Investment Act: Youth Provisions Promote New
Service Strategies, but Additional Guidance Would Enhance Program
Development, GAO- 02- 413 (Washington, D. C.: Apr. 5, 2002) and Workforce
Investment Act: Improvements Needed in Performance Measures to Provide a
More Accurate Picture of WIA*s Effectiveness, GAO- 02- 275 (Washington, D.
C.: Feb. 1, 2002). Conclusions
Page 30 GAO- 03- 239 WIA Spending
much is truly available for spending. Moreover, the law requires Labor to
use obligations in its recapture decision. Taken together, expenditures
and obligations are important tools for effective grant management and
prudent oversight of the program. Labor has begun taking an active role in
monitoring program spending. But, state officials have told us that it is
not enough; they need more clear and consistent guidance from Labor on how
to manage and report their WIA spending and how to collect and report
obligations, particularly those commitments made at the local level.
Failing this, states will continue struggling to understand what
information is needed, and Labor*s data will continue to be incomplete and
inaccurate. Perhaps most problematic, though, is that, lacking consistent,
reliable data on obligations, Labor uses only expenditure data to gauge
budgetary need. In so doing, Labor does not take into account longer- term
commitments made to customers and service providers and, as a result,
overestimates available funds. Budget decisions based on underestimated
spending levels contribute to funding instability in the system and impair
the ability of state and local officials to plan workforce systems that
provide the nation*s jobseekers and employers with critically needed
services.
To build their workforce investment systems, states must carefully plan
and use their limited resources in a way that best meets the growing
demand for employment and training services, in the current uncertain
economic environment. State officials told us that they seek more guidance
and assistance in managing their WIA funds wisely and some states have
implemented strategies to do so. But states will not be able to
effectively manage their spending and sustain service levels without
knowing what spending goals they must achieve and without a forum for
sharing promising practices to help them succeed.
To enhance Labor*s ability to manage its WIA grants and to improve the
accuracy and consistency of financial reporting, we are making several
recommendations to Labor.
Through collaboration with states, Labor should clarify the definition of
unliquidated obligations to
include funds committed at the point of service delivery in addition to
those funds obligated at the state level for statewide WIA activities and
not funds that states merely allocate to their local areas, specify what
constitutes an obligation to address state and local area
concerns regarding contracts, and Recommendations for
Executive Action
Page 31 GAO- 03- 239 WIA Spending
specify the timeframe for recording an obligation particularly when it
covers time periods that are longer than a program year.
To provide a more complete picture of spending activity and to obtain
accurate information for its recapture decision, Labor should
require states to collect and report information on obligations at the
point of service delivery and include such obligations in determining
states* available funds.
To help states and local areas manage their spending more judiciously,
Labor should
proactively provide states and local areas with guidance and technical
assistance focused on reporting financial information, communicate
spending benchmarks that states should meet, and systematically share
promising practices and effective spending
management strategies. We provided a draft of this report to officials at
Labor for their review and comment. Labor*s comments are in appendix IV.
In its comments, Labor noted that the report contained a number of
findings that will be very helpful during WIA*s reauthorization. In
general, Labor agreed with our findings and recommendations related to
providing clearer definitions, guidance, and technical assistance to
states to help them manage their WIA spending. However, Labor disagreed
with our findings and recommendations related to the importance of
considering obligations in addition to expenditures as it assesses WIA*s
financial position.
In response to our finding that states are spending their WIA funds faster
than the authorized 3- year period, Labor said that states were exceeding
the law*s minimum spending requirements, but that it must look beyond
minimum expectations when investing limited resources. We agree with this
point. In fact we found an expenditure rate of 90 percent of program year
2000 funds within 2 years, indicating that states are going well beyond
minimum expectations. Labor also acknowledged that its spending estimate
included all funds available at the start of the program year, without
which an analysis of expenditure rates would be misleading. We do not
contest Labor*s methodology, but think it is important to note that most
of the funds available to states were allocated within the past year, and
states have not had long to spend the funds. We continue to assert that
Agency Comments
and Our Evaluation
Page 32 GAO- 03- 239 WIA Spending
a better way to look at expenditure rates is not in the aggregate, but on
a year- by- year basis.
Regarding our conclusion that Labor*s data do not accurately reflect state
spending because they exclude obligations, Labor commented that, while it
collects information on obligations due to statutory requirements,
obligations are unimportant in formulating the budget because they
represent future commitments to provide services, not actual service
delivery. We continue to believe that obligations play a significant role
in light of WIA*s greater emphasis on contracting for services and are
recommending that Labor establish a clearer definition of obligations that
states can follow so that they can report more meaningful data to Labor.
While agreeing with our recommendation to clarify its definition of
obligations, Labor took exception to the recommendation to collect and
report obligations made at the point of service delivery. Labor was
concerned that a new reporting requirement would be extremely burdensome
and costly to implement nationwide, in part because it did not believe
that service providers always collected this information. We believe that
assessing both obligations and expenditures is an important tool for sound
financial management at any level* state, local area, or service provider*
and a number of states are already collecting local obligations. We are
pleased to note that Labor said it plans to work with states on this
recommendation during WIA reauthorization.
Labor also concurred with our recommendations to provide additional
financial reporting guidance and technical assistance as well as to share
promising practices for effectively managing spending. Labor agreed that
it would be a priority for the coming year to ensure that all states are
aware of requirements for the accounting of WIA funds.
Regarding our recommendation that Labor communicate spending benchmarks
that states should meet, Labor disagreed with our characterization of the
expenditure rates as benchmarks, saying instead that they were projections
of spending used to formulate a budget. Labor also commented that
expenditure rates used to monitor spending were based on actual financial
reports submitted by states, not on Labor*s expectations. Labor has used
these expenditure rates as benchmarks to identify states that were
underspending their WIA funds and to prioritize oversight efforts. We
agree that using benchmarks to prioritize monitoring helps manage limited
resources; however, if spending targets are established, they should be
disclosed.
Page 33 GAO- 03- 239 WIA Spending
Finally, Labor was concerned about the unprecedented level of unspent
balances carried over from prior years, citing these excess funds as
justification for the dislocated worker rescission and for seeking
additional budget reductions. While unspent balances under WIA may be
larger than those experienced under JTPA, it may not be reasonable to
expect comparable spending levels between the two programs. WIA*s
requirements represent a significant shift from prior workforce programs,
including its emphasis on contracting for services, streamlining services
through one- stop centers, and establishing training vouchers on behalf of
customers. In addition, we contend that these unspent balances may have
already been committed and may be unavailable for spending. We agree that
the nation will face many challenges in financing its priorities in the
coming years. However, in order to make funding choices, decisionmakers
will need comprehensive information that considers expenditures,
obligations, and how long the funds have been available for states to
spend. We reiterate that additional clarification and guidance from Labor
as well as effective management strategies would help states judiciously
manage their WIA funds.
We will send copies of this report to the Secretary of Labor, relevant
congressional committees, other interested parties, and will make copies
available to others upon request. In addition, the report will be
available at no charge on the GAO Web site at http:// www. gao. gov.
Please contact me at (202) 512- 7215 if you or your staff have any
questions about this report. Other major contributors to this report are
listed in appendix V.
Sigurd R. Nilsen Director, Education, Workforce,
and Income Security Issues
Appendix I: Sample Financial Status Report Form
Page 34 GAO- 03- 239 WIA Spending
Source: Department of Labor.
Appendix I: Sample Financial Status Report Form
Appendix II: State Expenditure Rates, by Year, for Funds Allocated in
Program Years 2000 and 2001
Page 35 GAO- 03- 239 WIA Spending
Program year 2000 Program year 2001 State Allocation First year
expenditures Second year expenditures Cumulative
expenditures Allocation First year expenditures
Nationwide Total $3,194,853,459 55% 35% 90% $3,209,860,440 56%
Alabama $40,004,934 65% 31% 96% $50,899,142 43% Alaska $13,025,382 50% 40%
89% $18,770,901 31% Arizona $40,316,492 68% 25% 93% $45,780,561 63%
Arkansas $32,873,554 42% 45% 87% $26,623,830 46% California $629,891,146
53% 39% 92% $588,310,299 60% Colorado $21,927,432 53% 43% 96% $20,505,485
50% Connecticut $23,667,536 68% 29% 97% $23,219,420 80% Delaware
$6,490,578 73% 27% 100% $7,914,898 76% District of Columbia $19,115,547
59% 36% 95% $16,441,608 62% Florida $119,379,909 67% 30% 96% $115,400,934
71% Georgia $61,986,095 39% 49% 88% $62,065,406 35% Hawaii $25,017,294 36%
53% 90% $16,824,216 50% Idaho $14,001,554 59% 41% 100% $11,649,917 73%
Illinois $117,156,561 73% 21% 94% $133,535,368 77% Indiana $32,074,354 72%
22% 94% $34,472,916 73% Iowa $11,453,324 53% 42% 94% $12,050,045 54%
Kansas $12,647,819 53% 45% 98% $14,070,055 48% Kentucky $42,450,709 29%
63% 91% $42,461,995 46% Louisiana $66,600,837 37% 53% 90% $64,237,072 38%
Maine $11,241,748 76% 24% 100% $10,172,785 78% Maryland $44,146,044 58%
40% 98% $42,362,811 56% Massachusetts $39,029,852 80% 18% 99% $41,910,884
77% Michigan $78,378,398 80% 20% 100% $75,484,574 83% Minnesota
$23,854,258 76% 19% 94% $27,896,710 86% Mississippi $37,295,042 41% 52%
92% $61,839,776 35% Missouri $43,068,225 59% 39% 97% $38,428,485 70%
Montana $14,759,397 77% 23% 100% $15,106,415 76% Nebraska $7,214,382 45%
45% 90% $8,654,537 43% Nevada $12,288,634 60% 36% 96% $13,454,458 61% New
Hampshire $7,073,563 69% 20% 89% $7,564,315 64% New Jersey $77,798,291 52%
44% 96% $78,201,993 56% New Mexico $37,825,812 52% 46% 98% $36,512,180 19%
New York $304,953,605 42% 37% 79% $256,067,646 26% North Carolina
$45,496,846 46% 49% 95% $49,711,078 52% North Dakota $6,248,030 71% 29%
100% $6,989,492 73% Ohio $112,830,662 36% 52% 88% $127,098,298 45%
Oklahoma $28,674,596 51% 43% 94% $25,554,550 58% Oregon $59,267,052 70%
27% 97% $55,829,680 74% Pennsylvania $106,721,228 54% 38% 92% $104,011,102
58%
Appendix II: State Expenditure Rates, by Year, for Funds Allocated in
Program Years 2000 and 2001
Appendix II: State Expenditure Rates, by Year, for Funds Allocated in
Program Years 2000 and 2001
Page 36 GAO- 03- 239 WIA Spending
Program year 2000 Program year 2001 State Allocation First year
expenditures Second year expenditures Cumulative
expenditures Allocation First year expenditures
Puerto Rico $215,497,257 50% 21% 71% $261,614,631 53% Rhode Island
$7,894,331 60% 40% 100% $8,552,097 58% South Carolina $33,482,113 41% 48%
89% $38,681,909 45% South Dakota $6,303,992 63% 31% 94% $7,037,319 59%
Tennessee $50,778,981 48% 47% 94% $47,600,914 49% Texas $245,828,151 64%
27% 90% $246,407,786 73% Utah $10,398,799 91% 9% 100% $10,171,265 58%
Vermont $6,046,589 92% 8% 100% $7,021,752 92% Virginia $38,738,232 54% 40%
95% $40,448,149 43% Washington $70,046,805 64% 31% 96% $70,184,034 67%
West Virginia $44,218,809 52% 41% 93% $45,451,308 35% Wisconsin
$30,506,817 71% 24% 95% $31,253,858 66% Wyoming $6,747,843 78% 20% 98%
$7,349,581 53%
Note: Cumulative expenditure rates for program year 2000 do not add to 100
percent due to rounding.
Source: GAO*s analysis of Labor*s financial data files for program years
2000 and 2001.
Appendix III: Comparison of States* Expenditure Rates with Labor*s
Benchmarks and Projections
Page 37 GAO- 03- 239 WIA Spending
Program year 2000 benchmark: 50 percent as of March 31, 2001 Program year
2001 projection: 69
percent as of June 30, 2002 State Met or exceeded Below Met or exceeded
Below Total number of states 12 40 26 26
Alabama X X Alaska X X Arizona X XX Arkansas X X California X XX Colorado
X X Connecticut X X Delaware X X District of Columbia X XX Florida X X
Georgia X XX Hawaii X X Idaho X X Illinois X X Indiana X X Iowa X X Kansas
X X Kentucky X X Louisiana X X Maine X X Maryland X X Massachusetts X X
Michigan X X Minnesota X X Mississippi X X Missouri X X Montana X X
Nebraska X X Nevada X X New Hampshire X X New Jersey X X New Mexico X X
New York X X North Carolina X X North Dakota X X Ohio X X Oklahoma X X
Oregon X X Pennsylvania X X Puerto Rico X X
Appendix III: Comparison of States* Expenditure Rates with Labor*s
Benchmarks and Projections
Appendix III: Comparison of States* Expenditure Rates with Labor*s
Benchmarks and Projections
Page 38 GAO- 03- 239 WIA Spending
Program year 2000 benchmark: 50 percent as of March 31, 2001 Program year
2001 projection: 69
percent as of June 30, 2002 State Met or exceeded Below Met or exceeded
Below
Rhode Island X X South Carolina X X South Dakota X X Tennessee X X Texas X
X Utah X X Vermont X X Virginia X X Washington X X West Virginia X X
Wisconsin X X Wyoming X X
Note: The benchmark for program year 2000 is based on percent of
allocation spent. The projection for program year 2001 is based on the
current year allocation and unexpended funds carried in from prior years.
Source: GAO*s analysis of Labor*s financial data files for program years
2000 and 2001.
Appendix IV: Comments from the Department of Labor
Page 39 GAO- 03- 239 WIA Spending
Appendix IV: Comments from the Department of Labor
Appendix IV: Comments from the Department of Labor
Page 40 GAO- 03- 239 WIA Spending
Appendix IV: Comments from the Department of Labor
Page 41 GAO- 03- 239 WIA Spending
Appendix V: GAO Contacts and Staff Acknowledgments
Page 42 GAO- 03- 239 WIA Spending
Dianne Blank (202) 512- 5654 Meeta Sharma (206) 287- 4806
Kim Reniero, Rebecca Woiwode, Bill Keller, and Elizabeth Kaufman made
significant contributions to this report. In addition, Jessica Botsford
and Richard Burkard provided legal support, Patrick DiBattista provided
writing assistance. Appendix V: GAO Contacts and Staff
Acknowledgments GAO Contacts Staff Acknowledgments
Related GAO Products Page 43 GAO- 03- 239 WIA Spending
Workforce Investment Act: Interim Report on Status of Spending and States*
Available Funds GAO- 02- 1074. Washington, D. C.: September 5, 2002.
Workforce Investment Act: States and Localities Increasingly Coordinate
Services for TANF Clients, but Better Information Needed on Effective
Approaches GAO- 02- 696. Washington, D. C.: July 3, 2002.
Workforce Investment Act: Coordination of TANF Services through OneStops
Has Increased Despite Challenges GAO- 02- 739T. Washington, D. C.: May 16,
2002.
Workforce Investment Act: Youth Provisions Promote New Service Strategies,
but Additional Guidance Would Enhance Program Development GAO- 02- 413.
Washington, D. C.: April 5, 2002.
Workforce Investment Act: Coordination between TANF Programs and One- Stop
Centers Is Increasing, but Challenges Remain GAO- 02- 500T. Washington, D.
C.: March 12, 2002.
Workforce Investment Act: Better Guidance and Revised Funding Formula
Would Enhance Dislocated Worker Program
GAO- 02- 274. Washington, D. C.: February 11, 2002.
Workforce Investment Act: Improvements Needed in Performance Measures to
Provide a More Accurate Picture of WIA*s Effectiveness
GAO- 02- 275. Washington, D. C.: February 1, 2002.
Workforce Investment Act: New Requirements Create Need for More Guidance
GAO- 02- 94T. Washington, D. C.: October 4, 2001.
Workforce Investment Act: Better Guidance Needed to Address Concerns Over
New Requirements GAO- 02- 72. Washington, D. C.: October 4, 2001. Related
GAO Products
(130197)
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