Audit finds weak controls at Idaho Vocational Rehabilitation; RSA designates program high-risk after $10M federal reallotment

A legislative audit and agency testimony on Feb. 24 laid out a complex federal-funding problem for the Idaho Division of Vocational Rehabilitation (IDVR), including a federal agency designation as a high-risk grantee, a $10 million noncognizable federal reallotment, an estimated $1.7 million in potentially unallowable charges, and a roughly $2.5 million contract for outside consultants to assist with forensic accounting and corrective actions.

April Renfro of the Legislative Services Office audits division told the Joint Finance-Appropriations Committee that the audit (Accountability Report, issued Jan. 13, 2025) found IDVR "did not establish procedures and control activities to ensure compliance with appropriation laws applicable to fiscal year 2024." The report identified weaknesses in financial management, failures to account for obligations properly, and inaccurate or unsupported federal financial reporting. Renfro said the federal Rehabilitation Services Administration (RSA) designated the division as a high-risk grantee and imposed specific conditions under 2 CFR 200.208.

Brooke Dupree, a Legislative Services budget and policy analyst, summarized the financial picture for the committee: IDVR’s FY2024 personnel costs were roughly $11.8 million and trustee-and-benefit payments about $11.8 million. In September the governor recognized a $10 million noncognizable adjustment after RSA reallotted federal funds; those federal funds require a state match (Dupree said the federal share is 78.7% and the state share 21.3%). To access the full $10 million, Dupree said the division requested a $2.7 million one-time general fund supplemental for state match; the governor’s recommendation included that $2.7 million and an additional $1.7 million one-time for client services the division expects may be deemed ineligible by federal partners.

Auditors and agency staff detailed how case management and fiscal systems—IDVR’s case management system, LUMA and STARS—did not communicate properly, and commitments recorded in plans could be billed to the wrong federal grant period. Renfro described a backlog of invoices and commitments: "With more clients and services that are more costly, this time lag is even more difficult to manage," she said. She also noted the division failed to submit one required quarterly federal RSA report for the 2023 grant and that when reports were submitted they contained caveats that the information was "the best information the agency has at this point in time," language that auditors found concerning.

IDVR’s interim director, Judy Taylor, described operational impacts and the steps the agency took after RSA raised concerns. Taylor said the agency hired a contractor and later amended and expanded that contract after further scrutiny. The initial professional services contract was $499,999; a later amendment increased the total by $1.9 million and extended the work through Dec. 2025, creating a roughly $2.4–$2.5 million total contract. IDVR has paid roughly $900,000 to date against the contract, Renfro said; Taylor said the contractor has specialized experience in correcting period-of-performance and reporting problems and was recommended by RSA as an appropriate model to restore federal confidence.

Taylor told the committee the contractor helped reprogram IDVR’s case management system so charges would be reported to the correct federal grant period. She described an urgent choice: either secure contractor-led corrective work and technical assistance or risk severe federal enforcement actions, possibly including a federal fiduciary oversight model that would remove significant state control. "Our federal funder... said we could pay for the contract out of the $10,000,000 reallotted funds," Taylor said, adding the contractor team provided "over 200 years of combined experience" and that the arrangement includes a planned fade where agency staff learn to perform the work in-house.

The audit and agency testimony also addressed program impacts. Taylor said IDVR had 2,735 active clients and 1,950 qualified disabled Idahoans on a wait list at the time of the hearing. The committee heard details about Pre-Employment Transition Services (Pre-ETS), the program for students transitioning to employment: year-to-date Pre-ETS spending was 8.38% but the agency expected spending to rise to at least the 15% federal minimum as summer programs ramp up. Taylor said the division’s initial federal draw for Pre-ETS produced a low reimbursement rate; "for every dollar that we were asking for reimbursement, we were getting about 25¢," she said, describing a roughly 75% breakage rate on that draw request and explaining that the $1.7 million estimate reflects expected unallowable costs tied to those reimbursement disputes.

Renfro told the committee that if IDVR fails to satisfy corrective actions, RSA could take further enforcement steps described in federal regulation including requiring additional reporting, withholding further awards, or requiring repayment of amounts deemed to have harmed an identifiable federal interest. Renfro said the forensic audit and the upcoming single-audit work may identify question costs that will be reported to federal grantors; she said timelines remain uncertain and that the federal grantor may set further deadlines and remedies as it evaluates IDVR’s corrective actions.

Several committee members asked whether the $2.5 million consultant contract represented good value and whether the state could have achieved the same outcome for less. Taylor said the chosen contractor had particular technical expertise in reprogramming the case management system and in restatement work and that RSA had encouraged the model. Auditors noted both contracts (initial and amendment) received one-time exemptions from competitive procurement and flagged that lack of competition as a concern given the contract magnitude.

Committee chair remarks closed the discussion by noting the complexity of the federal grant and that further oversight hearings might be necessary before final budget decisions. Renfro and agency staff said they would continue to provide updates and documentation to the committee as the forensic review and federal dialogue progress.