Audit finds control failures at Idaho Vocational Rehabilitation; committee hears $10M federal reallotment, $2.7M state-match request and $2.4M contractor costs

Legislative auditors and budget staff briefed the Joint Finance-Appropriations Committee on Feb. 24 about widespread financial-control and reporting problems at the Idaho Division of Vocational Rehabilitation (IDVR), the federal designation of the division as a high‑risk grantee, and the agency’s use of a multi‑million‑dollar consultant contract.

Brooke Dupree, a budget and policy analyst with the Legislative Services Office, told the committee that the governor recognized a $10,000,000 noncognizable federal adjustment for IDVR and that the division is requesting a $2,700,000 one-time general-fund supplemental as the required state match. Dupree said the governor recommended an additional $1,700,000 one-time general-fund supplement for client services the division expects federal partners to deem ineligible.

Audit findings and federal reaction

April Renfro of the Legislative Services Office audits division told the committee the office’s accountability report 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 federal Rehabilitation Services Administration (RSA) designated IDVR as a high‑risk grantee and imposed specific conditions under 2 CFR 200.208, then requested a corrective action plan; auditors characterized the CAP as too general and lacking measurable timelines.

Renfro summarized three core audit concerns: insufficient internal controls and financial management, failures to account for and report obligations and expenditures properly, and inaccurate or unsupported federal financial reporting. She also described operational complications: IDVR’s case-management system did not communicate with the state fiscal system and commitments and obligations were not consistently tracked to the correct fiscal/grant period.

Contractor work and costs

Renfro said IDVR contracted a national consultant to support corrective actions. The original professional-services contract executed Aug. 12, 2024, was $499,999 for business-process mapping, period-of-performance control analysis, forensic accounting and related work. In November the division executed an amendment that increased the contract by $1,900,000 and extended work through Dec. 2025. Renfro reported the division had paid about $900,000 to the contractor to date and warned that the amended contract costs will also require state matching dollars if charged to federal grants.

Agency condition and operational impacts

Judy Taylor, introduced as interim director of the Idaho Division of Vocational Rehabilitation, told the committee she began in the role June 15 and described steps the agency has taken, including tighter hiring controls, a “differentiated practice” model to shift some work off highly trained counselors, and efforts to bring contractor skills into the agency over time. Taylor said the agency had been at risk of defaulting on bills and payroll without the federal reallotment and the contractor support: “We realized running our numbers that we were going to run out of appropriation in early September. By October, we would have been defaulting on our bills and by December we wouldn't have been able to meet payroll.”

Service demand and fiscal exposure

Taylor and Dupree told the committee that IDVR has a substantial service demand: Taylor said there were about 2,735 active clients and 1,950 qualified applicants on the agency wait list, and auditors stated that increased clients and higher per‑client services contributed to rising expenditures.

Questions about future liabilities and audits

Committee members pressed for the scale of potential federal disallowances. Taylor said the division had observed a high failure rate in one draw request for Pre‑ETS reimbursements and that early reimbursements had returned about 25 cents on the dollar; she told members the $1.7 million supplemental estimate reflects projected unallowable charges for the fiscal year. Renfro said the federal grantor can require return of funds proportionate to harm and may impose additional conditions or repayment; she added RSA’s current measures included specific conditions and additional reporting requirements.

Audits and next steps

Renfro said audits will include a fiscal forensic component and that the division’s single-audit work for 2024 was being expanded to review question costs and report them to the federal grantor. The forensic audit is expected to review activity back to 2019 for maintenance‑of‑effort concerns. Committee members asked the agency and auditors for further detail on the supplemental math, the contractor’s return on investment, and projections of total potential liabilities.

The committee did not take a formal vote on supplemental requests during this hearing; staff and auditors agreed to return with additional detail as the forensic and single‑audit work proceeds.