State Auditor Elaine Howle reported August 25 that her office has designated the state’s management of federal funds related to COVID-19 as a high-risk statewide issue.

Congress enacted legislation in March and April that included funding for states to help mitigate the effects of COVID-19. The auditor reviewed information about this funding that California departments received, or expect to receive, and made the “high-risk” determination “based on our evaluation of several factors including, but not limited to, the following: The significant amount of funding granted to the State; The expansion of or changes to programs’ eligibility requirements; Program changes that could necessitate additional outreach by departments to ensure awareness of and access to available funds; Past audit findings on management of federal funds by state departments that will receive or expect to receive these funds; [and] The rapid nature of the allocation and the urgent need of the funding.”

Government Code section 8546.5 authorizes the auditor to develop a state high-risk government agency audit program for the purpose of identifying, auditing, and issuing reports on any agency or statewide issue that the auditor identifies as being at high risk.

“Specifically, my office may determine that a state agency or statewide issue is high risk if, in our professional judgement, the agency or issue is at risk of suffering or producing waste, fraud, abuse, and mismanagement or major challenges associated with economy, efficiency, or effectiveness,” Howle explained.

Prior audits “identified issues with departments’ management of federal funds, including departments not properly monitoring subrecipients of similar kinds of funding,” the auditor said.

The California Department of Finance disagreed with the auditor’s decision, arguing that the state’s management of the federal funds doesn’t meet the regulatory criteria for being added to the high-risk list.

“Among its arguments, Finance asserted that the State’s management of federal COVID-19 funds does not present a substantial risk of serious detriment to the State or its residents,” the auditor wrote. “Although we appreciate its perspective, we note that a substantial risk of serious detriment may result from a change of circumstances that challenges existing state management controls. In this case, the change of circumstances is the significant influx of federal COVID-19 funds, the mismanagement of which could result in serious detriment to the State and its residents. Given that the purpose of federal COVID-19 funds is to help Californians through a life‑threatening pandemic that has upended the economy, we assess the level of serious detriment as high if state departments do not properly manage these funds. … The fact that the federal government only recently provided these funds, along with our descriptions of state departments’ past and potential challenges with managing these funds, demonstrates the urgent need for attention to this issue particularly with so many Californians needing help now. Furthermore, conducting audits at this early stage will allow us to identify problems and make recommendations while departments are still able to effectively use the federal COVID-19 funds.”