Iowa's late reporting jeopardized universities' federal funds

"Failing at a basic government requirement"

Iowa state capitol reflected in Hoover office building; photo by Steve Cukrov (Shutterstock)

This exclusive reporting first appeared at Bleeding Heartland and is shared here as part of the Iowa Writers Collaborative. For regular emails linking to all recent Bleeding Heartland articles and commentary, subscribe to the free Evening Heartland newsletter.

The state of Iowa's chronic lateness in producing financial reports threatened to disrupt the flow of federal funds to Iowa's universities this year, documents obtained by Bleeding Heartland show.

For the third year in a row, the state will be more than six months late to publish its Annual Comprehensive Financial Report (ACFR), which the Iowa Department of Administrative Services compiles. As of June 26, only six states had not published their comprehensive financial reports for fiscal year 2022 (see appendix 2 at the end of this post).

The delay has pushed back the publication of Iowa's statewide Single Audit, a mandatory annual report for non-federal entities that spend a certain amount of federal dollars.

To address concerns raised by the U.S. Department of Education, state auditors worked out an arrangement to produce individual FY2022 Single Audit reports for Iowa's three state universities by the end of June. The State Auditor's office released the first of those reports, covering the University of Iowa, on June 27. Single audits for the University of Northern Iowa appeared on June 28 and for Iowa State University on June 29.

Going forward, state auditors will prepare separate Single Audit reports for each Iowa university by March 31, the federal deadline for providing such documentation.

A notice posted in January on the EMMA website, the leading source for data and documents related to municipal bonds, did not clarify why Iowa's ACFR would be late again. Tami Wiencek, public information officer for the Department of Administrative Services, has not replied to inquiries about the reason for the extended delay. Records indicate that staff turnover at the agency has derailed what was for many years a smooth process.

PROBLEMS BEGAN IN 2020

For at least two decades, Iowa published the state's comprehensive financial report by December 31—six months after the fiscal year ended. The Single Audit, which covers federal and state dollars that all state agencies and universities spent during the previous fiscal year, was typically released in late March, in accordance with federal requirements to complete that report within nine months of the fiscal year-end. The state's ACFR must be finalized before a Single Audit can be issued.

Reporting problems began following fiscal year 2020, largely due to Iowa State University's switch to the Workday computer system for accounting. The university was late to submit financial data to state employees, and state auditors found "several misstatements in the draft financial statements" that were eventually provided. The state's ACFR for FY2020 was finally published in early October 2021—nine months late. The Single Audit for the same fiscal year (which would normally be out by March 31) was published on November 15.

The process was only marginally better last year. The state of Iowa published its ACFR for FY2021 in mid-August 2022, seven and a half months behind schedule. The Single Audit was published on September 29—just under the wire to meet the federal deadline, which had been extended from March 31 to September 30, due to the COVID-19 pandemic.

Iowa State University's accounting problems have persisted to some degree; the university was later in submitting its FY2021 financial data than the other Regents institutions. But that wasn't the main cause of last year's delays.

After Iowa missed the usual publication date for its FY2021 comprehensive report, a senior Department of Management official posted a memo to the EMMA website, attributing the delay to "circumstances associated with the COVID 19 pandemic."

That didn't accurately describe the problem.

"A STEEP LEARNING CURVE"

All four Department of Administrative Services staffers charged with compiling the ACFR "were new to the project" in 2022, according to a March 2023 letter from John McCormally, chief of staff to State Auditor Rob Sand. He was writing to Department of Management Director Kraig Paulsen, hoping to convey the urgency of the task at hand.

McCormally noted that the team at the Department of Administrative Services "has had a steep learning curve and has not provided the information our office needs to complete an opinion on the ACFR" for fiscal year 2022. In fact, as of early March, the group's work was "further behind than this time last year." State auditors "have received only a small portion of what we need to perform our work."

In addition to staff turnover at the Department of Administrative Services, McCormally said auditors understood the delay may be related to problems retrieving information from Workday's human resources module, as well as "the attempted implementation of Workday financial." (Most of state government had been scheduled to switch to Workday for accounting during the current fiscal year, which began last July, but the state eventually ended that part of the Workday contract.)

By early March of this year, it was clear to auditors that Iowa's ACFR for FY2022 would not be ready by the end of June, and a certainty that the state would miss the March 31 federal deadline to publish the Single Audit.

"The delay of the Single Audit during fiscal year 2020 caused significant concern for state agencies and universities, who were on the cusp of federal agencies withholding federal dollars due to the delay in issuance," McCormally told Paulsen. More concerning: the U.S. Office of Management and Budget "has not extended the deadline for the Single Audit" this year.

Something needed to change to protect federal funding for the universities.

FINDING A WORKAROUND

Deputy State Auditor Ernest Ruben notified all three universities in writing on March 31, "The State of Iowa will not meet today’s federal deadline for issuance of the FY22 Statewide Single Audit Report because the Auditor of State has not been provided with all materials necessary to complete its work." He could not provide an estimated completion date.

We are in regular communication with the officials responsible for completing the ACFR and have corresponded with them repeatedly to stress the importance of their timeliness on this project. They report encountering multiple challenges in compiling the ACFR, over which the Auditor of State’s Office has no control.

After the federal deadline passed, staff at the U.S. Department of Education conveyed concerns about the late reporting to Iowa university staff, who relayed the message to the State Auditor's office.

Ruben informed federal education officials in May that state auditors had developed "a solution": issuing separate single audits for each of the universities by June 30. He added,

Because we do not anticipate the Department of Administrative Services, State of Iowa to be able to complete the ACFR in a timely manner to permit issuance of a state-wide Single Audit by the March 31st deadline, we have agreed with the universities to prepare individual Single Audit reports in future years and we have every expectation those reports will be issued as required.

Ruben expressed hope that the U.S. Department of Education would consider these "extenuating circumstances" and would be assured by the fact that state auditors had not uncovered anomalies in how Iowa's public universities were managing the student financial aid program for the current year.

Ruben informed the Iowa Board of Regents about the plan during the June 14 meeting of the governing body for the state universities. The following day, the board's senior communications director Josh Lehman told Bleeding Heartland, "We look forward to working with the auditor on the timely completion of individual single audits going forward, and anticipate compliance with federal regulations."

"FAILING AT A BASIC GOVERNMENT REQUIREMENT"

Members of the Iowa legislature's majority party have shown little interest in the Department of Administrative Services' inability to complete state financial reports on what used to be a normal timetable. Republican State Senators Amy Sinclair and Mike Klimesh and State Representatives Brooke Boden and Jeff Shipley, who hold the top positions on the Iowa Senate and House Government Oversight Committees, did not respond to Bleeding Heartland's questions about whether the oversight panels might look into the matter.

In recent years, the House Oversight Committee has focused on conservatives' concerns regarding free speech at state universities, curriculum and library materials at some public school districts, and gender-affirming care for minors. The Senate oversight panel has not held a hearing on any state or local governance issues since October 2019.

State Senator Claire Celsi, the ranking Democrat on Government Oversight, told Bleeding Heartland this month, "Ever since the state Workday switch was being considered by the Reynolds administration, I’ve had serious concerns. It’s obvious that the switch to Workday, even though the contract has been rescinded—is still plaguing our reporting system. I’d encourage the Governor and her administration to put extra resources in place to ensure our reporting gets finished on time."

Celsi released an additional statement after this article appeared:

"The Reynolds Administration has not acted with a sense of urgency to fix this problem. Auditor Rob Sand's office has assisted the universities on a work-around, but that still doesn't solve the problem going forward,” Iowa Sen. Claire Celsi said.

“I urge the Reynolds Administration to put extra resources behind this so that the state can file next year's report on time and get back on track,” Celsi said. “It's disappointing that the Reynolds Administration has failed to prioritize this issue, putting funding at risk for our Regents universities.”

Randy Bauer, who was Iowa's budget director under Governor Tom Vilsack and has consulted for numerous state and local governments on tax policy and other practices, told Bleeding Heartland the delays reflect "really bad financial management on the state’s part—nearly every state routinely issues their ACFR by the end of the calendar year or early in the following year."

He added, "Iowa is a serious outlier among states in financial reporting, and it is now a chronic condition. Our state’s leaders are failing at a basic government requirement—an accurate and timely accounting of its finances."

In a June 29 news release, Sand thanked his staff for doing "unprecedented" work and blasted the Reynolds administration.

“A timely and accurate Annual Comprehensive Financial Report is Government 101. Despite billions of dollars in surplus, the Governor and Republican legislative majorities responsible for your tax dollars have for years undervalued their own financial management team that prepares the material that we review for required audits,” said Sand. “The bottom line is we cannot audit what we have not been provided.” [...]

The delays prompted the U.S. Department of Education to notify Iowa’s state universities in May that failing to submit compliance and financial statement audits in a timely manner might jeopardize some of the institutions’ certifications and result in additional monitoring for a minimum of five years.

“Our office went to work to come up with a plan to help Iowa’s state universities meet the U.S. Department of Education’s reporting requirements,” said Sand. “This was no small feat. I want to thank the hard-working professionals in my office for coming up with a creative solution to a problem not of their own making and putting in extra hours to make it happen, despite their already heavy workload. Our staff put Iowa’s taxpayers first even after some Republican lawmakers leveled false attacks on their work during the last legislative session.”

Wiencek did not respond to Bleeding Heartland’s inquiries prior to publication but later told the Cedar Rapids Gazette, “The ACFR is being finalized and will be delivered to the Auditor's Office in mid-July for its review. DAS is reviewing the process of compiling the report to ensure its timeliness going forward."

Remember, for many years Iowa published its annual financial report by the end of December. The Department of Administrative Services won't even be ready to deliver the report to state auditors for their review until six and a half months after that time.

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