Forensic audit, $10M federal reallotment and contractor costs put Idaho vocational rehabilitation under review

Legislative auditors and division leaders told the Joint Finance-Appropriations Committee on Feb. 24 that the Idaho Division of Vocational Rehabilitation (IDVR) is under federal scrutiny after reporting and control weaknesses prompted Rehabilitation Services Administration (RSA) actions, a $10 million federal reallotment and an expanded remediation contract.

Brooke Dupree, a budget and policy analyst with the Legislative Services Office, explained that RSA reallocated $10 million in federal funds late in 2024 to Idaho (a noncognizable adjustment recognized by the governor) but those federal funds require a state match. The division requested a $2.7 million one-time general-fund supplemental to provide the state match for the $10 million reallotment. The governor’s recommendation includes that $2.7 million plus an additional $1.7 million one-time general-fund item the agency estimated would cover services the federal partners may deem ineligible.

April Renfro, audits manager with the Legislative Services Office, reported that a December fiscal monitoring review by RSA identified three concerns: failures to maintain internal controls, insufficient financial management systems, and inaccurate or unsupported federal financial reporting. Renfro said the division’s corrective-action plan (CAP) initially lacked specific action steps and measurable timelines, and RSA designated the division as a “high risk grantee” and imposed specific conditions under 2 C.F.R. §200.208.

Renfro told the committee the division signed a professional-services contract on Aug. 12, 2024 for $499,999 with a consultant to help implement the CAP; that contract was amended in November to add about $1.9 million and extend performance to Dec. 2025. Audit work showed roughly $900,000 had been paid against that contract as of the audit update; the payments were charged to federal funds and therefore will require state matching dollars if the full contract cost is to be counted as federal expenditures.

Why it matters: IDVR helps Idahoans with disabilities find and retain employment. Auditors said the division had obligated far more services than its state appropriation could support, and federal enforcement could require repayment, loss of federal funds, or other remedies that would affect services and partner programs statewide.

Director Judy Taylor, serving as interim director for IDVR, told lawmakers the division had reporting and period-of-performance problems caused in part by its case management system not aligning with the state fiscal system and by weak internal controls. Taylor said the division and RSA worked together; RSA required a corrective-action plan and additional monitoring. Taylor said the consultant team has subject-matter expertise and that RSA encouraged use of the contractor model; she said the contractor team is expected to fade its support as the agency builds internal capacity.

Auditors also flagged problems with draw requests submitted in October 2024 for Pre-Employment Transition Services (Pre-ETS). Taylor said when the division submitted reimbursement requests RSA approved only about $0.25 on the dollar for the Pre-ETS draw, implying roughly 75% of that draw was disallowed. Dupree and Renfro said the division estimated $1.7 million in fiscal 2025 as the likely shortfall for services already rendered that federal partners might find ineligible; the governor’s recommended budget includes a $1.7 million one-time item as a potential exposure.

Renfro described additional possible federal actions under 2 C.F.R. §200.208, including requiring reimbursements, imposing prior approvals, additional reporting, and other remedial steps. She said RSA could seek recovery of funds proportionate to demonstrated harm but might also waive or reduce amounts for mitigating factors; the final federal position will depend on the audits and RSA decisions.

IDVR numbers presented to the committee included roughly 2,735 active clients, about 1,950 qualified applicants on a wait list, and 48 authorized FTP with about 16.5 vacancies reported earlier in the presentation. Dupree said the division received a $10 million reallotment and that the federal share of matched spending is about 78.7% with a 21.3% state share, which is the origin of the $2.7 million state-match request.

The forensic audit and the state single-audit work were described as ongoing; auditors and agency staff said they could not yet give a complete total for questioned costs or final federal remedies.

Ending: The committee did not take a final appropriation action during the hearing. Lawmakers pressed for more details on the state-match calculation, the contract scope and cost-benefit, the size and cause of disallowed charges, and whether future hearings or oversight would be needed; staff said they would return with follow-up information.