Stimulus creates major challenges for agency money managers

What does a new road in Houston have in common with the installation of a more energy-efficient boiler at a Navy base? The same thing new cops in Cleveland have in common with biofuel researchers in California. All are being funded through the nearly $800 billion 2009 American Recovery and Reinvestment Act. And all will be on the radar of federal financial chiefs.

"It's a very interesting time," said Tom Cooley, chief financial officer at the National Science Foundation, in a recent interview. Besides the normal intensive machinations of developing an incoming administration's first budget, agency financial managers are working closely with the Office of Management and Budget to craft spending plans for the economic stimulus package.

"Until you develop your plan to allocate that money and then run it by the Office of Management and Budget and then let the Hill know, you don't have anything that's approved that you can tell anybody," Cooley said. "We're all in that box right now."

While details of spending programs and solicitations associated with the stimulus package are starting to trickle out from the agencies, the real work for CFOs and their staffs will be in tracking how that money is spent.

"There's a fair amount of risk associated with [the stimulus spending] because of the dual goals -- getting the money out quickly while still maintaining sound and effective controls to prevent fraud and minimize waste," said Jeanette Franzel, managing director for financial management and assurance at the Government Accountability Office.

OMB is requiring agencies to track stimulus spending separately from other appropriations, which by itself will be a challenge. "Right now agencies are looking at their systems and figuring out how to do this," Franzel said.

Many agency CFO offices are doing this while coping with personnel shortages and a growing workload associated with other federal programs. At the Energy Department, for example, a recent report by Inspector General Gregory Friedman found that the CFO office handling loan guarantee programs for investment in innovative energy technologies stipulated under the 2005 Energy Policy Act had 16 full-time federal employees. The same staff was responsible for awarding loans to the auto industry to retool production to build more fuel-efficient cars, a program required by the 2007 Energy Independence and Security Act.

Friedman found that the CFO staff was insufficient to handle Energy's existing workload, let alone the extra pressures of administering Recovery Act funds. "The goals of expediency and accountability may prove difficult to fully reconcile," Friedman noted in his report.

The strict stimulus spending accounting requirements stem largely from a desire to avoid the pitfalls of the fall 2008 financial sector bailout under the Troubled Asset Relief Program, according to Franzel.

"The economic recovery funds are going out with that backdrop, so OMB has put in place a lot of transparency and accountability reporting requirements to help instill confidence and accountability in these monies," she said.

Exercising appropriate oversight of grants will be especially difficult, Franzel said, because much of that money will be managed by state and local governments. The state and local levels are "where the specific procedures are in place for preventing improper payments, making sure that individuals receiving funds are actually eligible to receive funds, etc.," she said. "That's a real challenge."

Congress is requiring GAO to monitor and report on how states are using stimulus funds. "We've certainly looked at grants programs and at programs that are administered by the states before, but I don't think we've ever had anything of this scale and magnitude all at the same time," Franzel said.

GAO will review documentation and reporting from all 50 states, but has selected 16 to monitor especially closely. It will send teams of auditors to those states. "People are doing double duty, taking this on, on top of their normal workload," she said. GAO also intends to hire several dozen people on a short-term basis, and is focusing on recruiting recent retirees who would not have a steep learning curve.

One silver lining could be that federal and state financial managers and auditors make progress on their longtime goal of developing more productive relationships.

"I really think this gives us an unprecedented opportunity," Franzel said. "Frankly, we all just have to figure out how to do this without duplication."

Cooley co-chairs an intergovernmental partnership that has developed a number of tools to help federal and state agencies monitor stimulus funds. A big challenge will be to keep track of spending by subrecipients -- entities that receive grants or contracts through states and cities, and might subcontract a portion of the work to smaller organizations or individuals.

Cooley expects the stimulus spending to attract a high number of bidders who have never before received federal funds, and therefore lack familiarity with documentation and accounting requirements.

"That's where it can come back to bite you if you haven't done a good enough job identifying those institutions" to reach out to and facilitate appropriate reporting procedures to account for the spending, he said.