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Federal report: State should repay $2.2 million in child care funds

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WASHINGTON – Arizona’s Department of Economic Security improperly claimed more than $2.2 million of federal funds for child care and development – funds the U.S. Department of Health and Human Services said the state should pay back.

But the state has said it shouldn’t have to, claiming in an official response that the money was spent appropriately and any error was due to “an unintentional misunderstanding of the process.”

The charge and response were contained in a report last week by the HHS Office of Inspector General, which reviewed $29 million in funds for child care and development. The state had two years to obligate those funds, but the report found that some of Arizona’s fiscal 2009 funds were obligated outside that two-year window.

The $2.2 million that the report said did not comply with federal standards amounted to about 7.5 percent of the total funding studied.

Arizona’s DES agreed with the report’s findings, but Economic Security Director Clarence H. Carter said in a letter to HHS that the state does not agree that the state should have to refund the improperly claimed funds.

“The identified noncompliance … resulted from an unintentional misunderstanding of the process, rather than a willful misrepresentation on financial reports,” Carter’s letter said, adding that the ultimate use of the funds was appropriate but “delivered outside of the timeframe.”

Arizona is not the only state to reject the recommendation that they repay HHS. Of four other states that were told they should return funds to the federal government in this series of reports, all but Virginia said no.

Virginia agreed in 2013 to refund $51,300 after a final audit. In 2013, Louisiana contested a recommended refund of $221,578 and Nebraska challenged a recommended refund of $1.9 million. Iowa in 2012 contested a recommendation that it repay $2.4 million.

Both Nebraska and Iowa also agreed to additional recommended refunds, of $36,560 and $189,515, respectively.

The inspector general’s report on Arizona also recommended that DES implement procedures to avoid similar errors in the future, a recommendation that the state did not dispute.

The report now goes to the HHS Administration for Children and Families, where additional information and a final audit will be prepared. If that audit goes against it, the state still has the option of appealing or repaying the federal government.

ACF officials did not respond Wednesday to a request for comment regarding the report.

Debra Peterson, financial services administration manager for DES, said that the department generally meets all of the federal standards when there are audits – which she said happen every two to three years. But she said the varying fiscal-year calendars used by the state and federal governments, and for different grants, can sometimes cause a mix-up.

Peterson said DES is possibly considering an appeal to ACF, which might have a different perspective than the “black-and-white” standards of the OIG audit.

“We did go and review all of our processes,” Peterson said. “We really did shore up some of those internal controls (to avoid future mistakes).”