CASE STUDY 1

Background: The American Recovery and Reinvestment Act of 2009 provided the Department of Agriculture with $28 billion  in funding, $1.15 billion of which was allotted to the Forest Service (FS) to implement project that accomplish its mission of sustaining the nation’s forests and grasslands, creating jobs, and promoting U. economic recovery. FS’ Wildland Fire Management (WFM) program was allocated $200 million in grant funding to implement activities on State, county, and private lands. The funding was used to operate projects with State, local, and Tribal governments, and non-profit organizations that submit grant proposals to FS. FS approved 152 WFM projects on non-Federal lands from May through September 2009, including a project to perform hazardous fuels treatments on non-Federal lands. FS awarded a $3.6 million Recovery Act grant to The Council to implement this project.

Findings: The Council did not properly account for its FS Recovery Act grant funds, but, but, instead, comingled $2. 7 million of the $3.6 million in FS Recovery Act grant funds it received with funds it received from other sources. As a result, the Council may have used $2.7 million of the FS Recovery Act grant funds to pay for non-Recovery Act costs during the 2-year period we reviewed. Commingled costs cannot be charged to Federal grants because it reduces or eliminates a grant recipient’s ability to identify which portion of the commingled  costs  relate  to  authorized  grant  work  and  which  do  not. It also results in unallowable costs being charged to FS grants. For example, the Council received $800,188 from its $3.6 million FS Recovery Act grant in January 2011. Under 0MB rules, the Council was required to use that money solely to pay for authorized expenses incurred while performing Recovery Act grant work.  However, the Council only used $95,578 of the $800,188 it received in January 2011 to reimburse legitimate grant expenses and deposited the remaining $705,611 into an account that commingled funds from both the Recovery Act grant and other Federal  grants. Over a 2-year period, the Council deposited $2.7 million of the FS Recovery Act grant funds it received into the commingled account. The Council did not identify the source of the funds once they were deposited into the account; it simply lumped all the funds together. The Council then used the money in the account to pay various expenses, such as rent, utilities, and other non-FS grant costs, even though none of the costs were authorized by the FS Recovery Act grant. We further determined that the Council’s commingling activities were exacerbated by the fact that it routinely, and inappropriately, requested FS Recovery Act grant “reimbursements” for expenses it had not yet paid. The Council was subject to the requirements of 0MB Circular A-133, which specified that grant recipients can only be reimbursed for costs they have already paid. On every reimbursement request we reviewed, the Council certified that it had already paid the expenses for which it was claiming reimbursement when, in fact, it had not. Upon receiving these “reimbursements,” rather than immediately utilizing the funds to pay for authorized Recovery Act grant expenses, the Council’s executive director deposited the Recovery Act grant funds into the commingled account and used them to pay unauthorized expenses associated with other, non-FS grants.

The OIG recommended that FS:

  • Recover  from  the Fire Safe Council  the $2.7  million  in  Recovery  Act  grant   funds that were unsupported
  • Withhold from the Fire Safe Council any future fund reimbursements until the internal controls and grant administration policies and procedures to properly account for all grant funds in accordance with OMB and grant requirements;
  • Obtain documentations from the Fire Safe Council showing that the grants funds were adequately accounted from and used for their intended purpose; and,
  • In those instances where FS determine the charges to the remaining grant were not adequately supported, disallow the costs and recover any reimbursements already made to the Fire Safe Council.

Directions

Our focus in this course has been on foundation grants but grant management requirements of the federal government will play a role in your management experience.  This case study is a true event taken from the Office of Inspector General public audit reports. Even the best grant manager will make mistakes that have to be addressed during the annual audit. When the Inspector General conducts an audit, it means that something has gone wrong beyond the average management mistake. In a 2-page paper address the questions below. Based on what you have learned in this course how could this situation have been avoided?

Questions:

  1. Why is the commingling of grant funds not allowable?
  2. What internal controls are not in place for the WFM program?
  3. How could the Council have prevented paying for costs that were not unauthorized?
  4. How could this situation have been avoided?

OIG Audit Reports: https://www2.ed.gov/about/offices/list/oig/rpauditinvestmainpage.html

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