Legislative audit and federal review find control failures at Idaho Vocational Rehabilitation; committee hears $10M federal reallocation and contractor costs

The Joint Finance-Appropriations Committee on Feb. 24 received an update from legislative auditors and agency officials outlining significant financial-control weaknesses at the Idaho Division of Vocational Rehabilitation (IDVR), the federal designation of the agency as a high-risk grantee, a $10 million federal reallotment recognized by the governor, a $2.7 million state-match request to access that money, and an estimated $1.7 million in services found unallowable by federal reviewers.

April Renfro, manager in the Legislative Services Office audits division, told the committee auditors found that "the division did not establish procedures and control activities to ensure compliance with appropriation laws applicable to fiscal year 2024." Renfro said the finding prompted a fiscal monitoring review by the Rehabilitation Services Administration (RSA), which on May 3 designated IDVR a high-risk grantee and imposed specific conditions under 2 CFR 200.208 while requiring a corrective action plan.

The committee heard that the governor recognized a $10 million noncognizable federal adjustment — money RSA reallocated to Idaho late in the federal process — that IDVR can spend only if the state provides the required match. Brooke Dupree, a Legislative Services budget and policy analyst, said the federal share is 78.7% and the state share 21.3%, and that IDVR is requesting $2.7 million one-time from the general fund as the state match to access the $10 million.

Renfro and agency staff also told the committee that during an October draw request for reimbursement, federal reviewers found material deficiencies in documentation and allowability, particularly in the Pre-Employment Transition Services (Pre-ETS) program. Dupree said the division estimates roughly $1.7 million in services already rendered will be deemed unallowable by federal partners and may require state dollars to cover.

The committee was also briefed on IDVR’s use of an outside contractor to remediate reporting and control problems. IDVR initially contracted for $499,999 for technical assistance; the division later amended the contract in November to add about $1.9 million, bringing the total contracted support to roughly $2.4–$2.5 million. The state has paid about $900,000 to the consultant so far; auditors noted the contract and amendment were approved as one-time, noncompetitive exemptions by the division of purchasing and warned that the high cost is a further burden on an already strained budget. Renfro said the federal grantor did not specifically require that contractor but encouraged corrective action and noted the contractor has national expertise and prior work with RSA.

Interim IDVR Director Judy Taylor told the committee the contractor’s specialists were needed to reprogram the division’s case-management system to ensure services are reported to the correct federal period of performance and to assist with restatement of past reporting; she said the vendor’s staff include multiple specialists and that the contract includes a planned fade to build in-house capacity. Taylor said RSA had warned IDVR that failure to correct reporting and control weaknesses could result in significant enforcement actions, including potential return of federal funds, though she said precise outcomes and amounts remain unknown until the federal review and forensic accounting conclude.

Auditors described a backlog of invoices and commitments that exceeded appropriations in FY2023–FY2024; they described a complex interaction between state and federal fiscal years, case-management tracking that did not integrate with state fiscal systems, and late billing that compounded the reporting problem. Renfro said the forensic audit will review activity back to 2019 and that further question-costs may be identified through the statewide single-audit process.

Agency leaders told the committee IDVR is operating with a large client load and service demand: Taylor said there were about 2,735 active clients and about 1,950 qualified disabled Idahoans on a wait list at the time of the hearing. Committee members pressed for clearer projections of potential federal enforcement outcomes and asked for follow-up details and timelines; auditors and the agency said some numbers are not yet known and further oversight hearings may be required.

The committee did not take immediate formal action during the hearing; staff indicated follow-up briefings and additional audit work are planned.