Federal reviewers designate Idaho VR “high risk”; committee hears $10M reallocation, $2.7M state‑match request and $2.5M remediation contract

Federal reviewers have designated the Idaho Division of Vocational Rehabilitation (IDVR) a high‑risk grantee after identifying failures in internal controls and inaccurate federal financial reporting, Legislative Services Office auditors and the division’s interim director told the Joint Finance‑Appropriations Committee on Monday.

Brooke Dupree, a budget and policy analyst with the Legislative Services Office, told the committee the division received a $10,000,000 federal reallocation in September through a noncognizable adjustment after the Rehabilitation Services Administration (RSA) re‑allotted funds to states able to spend them. Dupree said the federal award requires a state match and the division has requested $2,700,000 one‑time from the Idaho General Fund for the state matching requirement for fiscal 2025.

April Renfro, an auditor with the Legislative Services Office Audits Division, summarized an accountability review issued Jan. 13, 2025, that found the division did not establish procedures and control activities to ensure compliance with appropriation laws for fiscal 2024. Renfro said RSA placed the division on a higher level of oversight in a May 3, 2024, letter, citing 2 C.F.R. 200.208 and imposing specific conditions related to the division’s financial reporting and capacity to perform federal awards.

The audit and federal monitoring followed late‑2024 problems when the division submitted reimbursement draw requests and RSA found documentation and reporting deficiencies. Renfro said RSA’s fiscal monitoring report identified three findings: insufficient internal controls; an inadequate financial management system that failed to track obligations and expenditures properly; and inaccurate or unsupported federal financial reporting. Renfro said RSA required a corrective action plan (CAP); the June 17 CAP submitted by the division lacked measurable steps and timelines, prompting further scrutiny.

Renfro told the committee the division contracted with a third‑party consultant to help implement the CAP. A professional services contract signed Aug. 12, 2024, for $499,999 was later amended in November to add $1,900,000 and extend the contract through Dec. 1, 2025. Invoices paid to date total just under $900,000, Renfro said. She also noted the purchasing division approved one‑time exemptions from competition for both the original contract and the amendment.

Judy Taylor, interim director of the Division of Vocational Rehabilitation, said the contract was intended to fix two interrelated problems: (1) case management software that did not align reporting with federal grant periods of performance, and (2) the need to restate prior reports so that federal draw requests could be properly documented. Taylor said the first contractor engaged in August addressed the period‑of‑performance reporting problem and that a second, larger contract was intended to provide additional forensic accounting, systems reprogramming, policy development and staff training.

Taylor said the division’s data show a backlog and a waiting list: 2,735 active clients are being served and 1,950 qualified applicants are on a wait list. She described austerity measures taken after the 2024 supplemental request was not approved by the Legislature and said the division intentionally left some positions vacant as a cost‑saving measure.

Committee members asked about the extent of unallowable charges and the timeline for concluding the audit and federal review. Taylor and Renfro told the committee that the division’s draw requests for a Pre‑Employment Transition Services (Pre‑ETS) reimbursement in the fall experienced a large denial rate; Taylor characterized the initial draw as resulting in roughly a 75 percent denial (i.e., about 25 cents on the dollar reimbursed) and said the division estimates approximately $1.7 million of previously billed Pre‑ETS costs could be deemed unallowable by RSA. Taylor said the division’s forensic audit will examine activity back to 2019 and that the full financial impact, and RSA’s ultimate remedy, remained uncertain.

Renfro described the range of enforcement options available to RSA under federal regulations, including additional reporting requirements, increased monitoring, prior approvals or the possibility of an amount being returned to the federal grantor proportionate to harm. She said the federal agency could also reduce or waive amounts based on mitigating circumstances, but RSA had not yet made final determinations.

On services, Taylor said the division will prioritize payroll and basic operations and that the contractor work is intended to be time‑limited with the objective of training state staff to resume controls and reporting. Taylor said the contractor team comprises several full‑time specialists who will work with IDVR staff and that the state could not serve clients if the division had been closed by federal action.

No formal committee action was taken at the hearing. Committee members asked for additional information and the auditor indicated legislative staff would continue oversight, including work through the state single audit and a forensic audit covering prior years.