Treasury rejects Iowa COVID relief audit finding

The U.S. Department of the Treasury determined that nearly $450,000 in questioned payroll costs from Iowa’s COVID-19 relief funds were allowable, according to a June 2 management decision letter. This ruling means Audit Finding 2020-006, which questioned the use of the Coronavirus Relief Fund (CRF), is “not sustained.”

The decision follows a years-long dispute over the state’s Fiscal Year 2020 Statewide Single Audit Report. The Treasury’s Office of Inspector General reviewed state documentation and concluded the expenditures were allowable for employees who were “substantially dedicated” to the relief effort, according to Governor Kim Reynolds’ office.

Why is the Treasury ruling significant for Iowa?

The ruling resolves a specific conflict regarding whether salaries paid from federal funds were adequately supported. Iowa Department of Management Director Kraig Paulsen stated that the Treasury is the federal agency responsible for making these determinations.

Paulsen argued that the current state audit finding is inconsistent with the federal record. He requested that State Auditor Rob Sand amend the report to show that $448,448.86 in questioned costs are resolved and no costs are disallowed.

Did You Know? The U.S. Treasury’s June 2 letter specifically identified Audit Finding 2020-006 as “not sustained,” while two other CRF-related findings, 2020-007 and 2020-008, were sustained.

What are the potential consequences of the audit finding?

State officials believe the unresolved finding could jeopardize future financial support. Paulsen wrote that leaving the finding in the report creates a “material risk of adverse consequences for Iowa on future federal awards.”

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Additionally, the Department of Management claims the current report misrepresents the state’s compliance standing in the Federal Audit Clearinghouse. This inaccuracy could potentially hurt the state’s chances for future federal funding, according to Paulsen.

Expert Insight: Samantha Carter notes that when a state’s compliance record in the Federal Audit Clearinghouse is questioned, it can create friction during future grant applications. The push to amend the audit is likely a strategic move to ensure the state’s financial reputation remains clean before the next round of federal funding cycles.

What happens next with the state audit report?

The Iowa Department of Management is now waiting for Auditor Rob Sand’s office to update the Fiscal Year 2020 audit report. An amendment would align the state’s records with the Treasury’s conclusion that the payroll expenses were allowable.

State seeks correction to 2020 audit after Treasury review of COVID relief spending

A possible next step is a formal response or a revised report from the Auditor’s office. KCCI reached out to the Iowa State Auditor’s Office for comment, but the office did not immediately respond.

Frequently Asked Questions

What was the exact amount of the questioned payroll costs?
The questioned costs totaled $448,448.86.

Were all the audit findings regarding the Coronavirus Relief Fund overturned?
No. While Finding 2020-006 was not sustained, the Treasury letter shows that Findings 2020-007 and 2020-008 were sustained.

Who determined that the expenditures were allowable?
The U.S. Department of the Treasury’s Office of Inspector General made the determination after reviewing documentation provided by the state.

How should states balance internal audit findings with federal agency determinations?