Treasury OIG Letter - State of Iowa's Noncompliance with Uses of Coronavirus Relief Fund Requirements (OIG-CA-21-011)
- Document type
- Contract
- Date
- 2020-12-14
Summary
Letter OIG-CA-21-011 dated December 14, 2020 from the Treasury Office of Inspector General to David Roederer, Director of the Iowa Department of Management, closing with the signature block of Deputy Inspector General Richard K. Delmar. It reviews Iowa's use of Coronavirus Relief Fund proceeds for payments on a $20.1 million contract with Workday, Inc. to replace the state's legacy mainframe accounting and human resources systems. The letter determines that the contract, signed October 30, 2019, is not an allowable use of the Fund because the Human Capital Management and Financial systems are not scheduled to go live until July 2021 and June 2022. It requires that amounts equal to payments on the contract be returned to Iowa's Coronavirus Relief Fund. The letter states that the Governor authorized a transfer of $21 million to the Fund by December 18, 2020, which it calls responsive.
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Full text
DEPARTMENT OF THE TREASURY
W ASHINGTON, D.C. 20220
OFFICE OF
INSPECTOR GENERAL December 14, 2020
Mr. David Roederer, Director
Iowa Department of Management
1007 East Grand Avenue
Des Moines, Iowa 50319
Re: State of Iowa’s Noncompliance with Uses of Coronavirus Relief Fund
Requirements (OIG-CA-21-011)
Dear Mr. Roederer:
We would like to thank you for responding to our inquiries regarding the State of
Iowa’s use of Coronavirus Relief Fund 1 proceeds to make payments related to a
portion of the $20.1 million 2 contract with Workday, Inc. (Workday). As
explained to us by State of Iowa representatives, Workday is a computer system
used for accounting and human resources that is to replace the State’s legacy
mainframe systems. We were also informed that Coronavirus Relief Fund
proceeds were used to pay for some contract expenses that were incurred after
March 1, 2020, and additional funds are expected to be used for expenses that
will be incurred before December 30, 2020.
We have considered all documents and information provided in support of the
State of Iowa’s position that the Workday contract is an allowable use of
Coronavirus Relief Fund proceeds. We also consulted with the Office of the
Auditor of the State of Iowa regarding the Workday contract and the current
mainframe systems in use by the State. This letter incorporates our review and
consideration of all information related to the Workday contract to determine
whether the computer system upgrade is an allowable expenditure under the
“Uses of Funds” requirements of Section 601(d) under Title VI of the Social
Security Act, as amended by Title V of the Coronavirus Aid, Relief, and
Economic Security Act (CARES Act). Specifically, the CARES Act provides that
payments from the Fund may only be used to cover costs that—
1
The State of Iowa received $1.25 billion from the Department of the Treasury (Treasury) under
Title VI of the Social Security Act, as amended by Title V of Division A of the Coronavirus Aid,
Relief, and Economic Security Act (CARES Act).
2
The actual amount is $20,105,015 in the contract between Workday, Inc. and Iowa’s Office of
the Chief Information Officer, dated October 30, 2019.
1
• are necessary expenditures incurred due to the public health emergency
with respect to the Coronavirus Disease 2019 (COVID–19);
• were not accounted for in the budget most recently approved as of
March 27, 2020 (the date of enactment of the CARES Act) for the State
or government; and
• were incurred during the period that begins on March 1, 2020, and ends
on December 30, 2020.
The Department of the Treasury (Treasury) clarified necessary expenditures and
assessment of need in its Coronavirus Relief Fund Guidance for State, Territorial,
Local, and Tribal Governments (Updated September 2, 2020) 3 (Guidance):
Necessary expenditures incurred due to the public health emergency
The requirement that expenditures be incurred “due to” the public health
emergency means that expenditures must be used for actions taken to
respond to the public health emergency. These may include expenditures
incurred to allow the State, territorial, local, or Tribal government to
respond directly to the emergency, such as by addressing medical or
public health needs, as well as expenditures incurred to respond to
second-order effects of the emergency, such as by providing economic
support to those suffering from employment or business interruptions due
to COVID-19-related business closures. Funds may not be used to fill
shortfalls in government revenue to cover expenditures that would not
otherwise qualify under the statute. Although a broad range of uses is
allowed, revenue replacement is not a permissible use of Fund payments…
Given that it is not always possible to estimate with precision when a
good or service will be needed, the touchstone in assessing the
determination of need for a good or service during the covered period
[March 1 –December 30, 2020] will be reasonableness at the time
delivery or performance was sought, e.g., the time of entry into a
procurement contract specifying a time for delivery.
Treasury clarified costs incurred in its Guidance as follows:
Costs incurred during the period that begins on March 1, 2020, and ends
on December 30, 2020
…for a cost to be considered to have been incurred, performance or
delivery must occur during the covered period but payment of funds need
3
https://home.treasury.gov/system/files/136/Coronavirus-Relief-Fund-Guidance-for-State-
Territorial-Local-and-Tribal-Governments.pdf
2
not be made during that time (though it is generally expected that this will
take place within 90 days of a cost being incurred).
As described below, we determined that the contract with Workday is not an
allowable use of Coronavirus Relief Fund proceeds as it does not meet all CARES
Act criteria.
The State of Iowa contracted with Workday in October 2019 to provide
technological upgrades and replace Iowa’s legacy mainframe human resources
and financial accounting systems. Among other things, the Workday contract
encompasses three key components: (1) the Human Capital Management
system; (2) the Financial system; and (3) Adaptive, a budgeting and analysis
system. Specifically, the contract was signed on October 30, 2019, with a
contract term of October 31, 2019 through June 30, 2024. The contract
included scheduled payments totaling approximately $20.1 million over a 5-year
period with one payment of $2.8 million paid on the effective date of the
contract. According to additional information provided, Adaptive went live on
October 30, 2020. However, implementation of the Human Capital Management
system is not scheduled to go live until July 2021, and the Financial system is
not scheduled to go live until June 2022. While Adaptive was implemented
before December 30, 2020, it was noted in documents provided to us that
“users will continue to use I/3 4 as the system of record for budgeting purposes
until Workday Financials is implemented in 2022.” Given the State of Iowa’s
continuing use of I/3 until June 2022 for budgeting and financial accounting and
July 2021 for human resource management, the Workday system upgrade will
not be available to fulfill the State of Iowa’s COVID-19 related needs before
December 30, 2020.
We asked Iowa officials to explain how the Workday contract costs were
necessary expenditures incurred during the covered period (March 1 through
December 30, 2020) due to the public health emergency with respect to COVID-
19.
According to the State’s OCIO representative, “Workday will play an integral role
in the State’s response to COVID-19 and the demands the pandemic has placed
on state government. This upgrade replaces legacy mainframe human resources
and financial systems that cannot be easily accessed remotely with[out] a cloud-
based system and provides a new cloud-based planning and budget tool. With
4
I/3 is the State of Iowa’s legacy finance, budget, data warehouse, vendor self-service system,
centralized payroll, and the state’s Human Resources system for both the functional side of state
accounting within the Department of Administrative Services and the technical side within the
Office of the Chief Information Officer (OCIO).
3
this upgrade, the State of Iowa will be able to act quickly to assist essential
government employees, giving them flexibility in a number of ways, such as
requesting COVID-related hardship help, easier ways to request Family and
Medical Leave Act leave types, and automate processes for donating leave, and
borrowing leave. Workday will also bring positive changes to budget forecasting
models that allow for better managing of COVID-19 impacts on state
government operations.“
Further, it was noted in documents provided that “in March 2020 and the
following months of this unprecedented public health emergency, the need for
these upgrades, particularly the Human Capital Management system and
Adaptive became even more acute.” These cloud-based systems will permit
State government “to productively continue functioning when many state
employees are operating remotely to reduce the risk of transmission of
coronavirus. Second, the Human Capital Management system will better permit
the State to swiftly adjust to changing requirements caused by the emergency—
whether that is new categories of leave or other processes necessitated by the
emergency—without engaging in 1950s-era reprograming. Third, the Adaptive
system provides a new tool for our state agencies and leaders to plan, model,
budget, and forecast to properly respond to the public health emergency and its
second-order economic effects.”
To assess the assertions of Iowa’s OCIO representative, we asked whether any
additional system requirements or contract change orders were necessary for
Workday to specifically address the COVID-19 pandemic issues since October
2019. We were informed that there were none and the original requirements and
planned uses of the system remain largely the same. Iowa representatives
emphasized that “the ability to access the human resources and budgeting
systems remotely, and more quickly adjust features of human resources system,
have become more urgent and necessary. These will be used more now than
was originally planned because of the public health emergency. And the
continued and growing challenges of the public health emergency demonstrate
daily that the need for these agile cloud-based systems will remain a critical part
of the State of Iowa’s response.”
While the new and modern Workday system may provide additional
functionalities through a cloud-based environment, the timeline for achieving
them is nearly two years away and the system upgrades were contemplated well
before the pandemic began. As such, the Workday system is not available to
meet the State’s urgent needs during the covered period. Accordingly, we
maintain our position that funding the Workday contract with Coronavirus Relief
4
Fund proceeds is not a reasonable, allowable use of funds related to address the
COVID-19 health pandemic.
We require that amounts equal to payments issued on the contract with
Workday and any system implementation expenses related to contractor
assistance using Coronavirus Relief Fund proceeds be returned to Iowa’s
Coronavirus Relief Fund for eligible uses. Furthermore, additional Coronavirus
Relief Fund proceeds should not be used to make payments on this contract.
In a written response to a draft of this letter, the State Governor authorized the
return to Iowa’s Coronavirus Relief Fund of all amounts that were initially
allocated for payments on the Workday contract, including any system
implementation expenses related to contractor assistance. The Governor’s letter,
which is appended to the response, authorized the transfer of $21 million from
the OCIO to Iowa’s Coronavirus Relief Fund. The transfer is to be completed no
later than close of business on December 18, 2020. It is also noted that the
State will not use proceeds from the Coronavirus Relief Fund to make any
additional payments on the contract with Workday. These planned corrective
actions are responsive to our letter. The State’s written response, in its entirety,
is provided as attachment 1 to this letter.
We appreciate your prompt response to the concerns expressed in this letter and
the courtesies shown to our staff.
Sincerely,
Richard K. Delmar
Deputy Inspector General
cc: Daniel J. Kowalski, Counselor to the Secretary of the Treasury
Rob Sand, Auditor of State, State of Iowa
Joel Lunde, Fiscal/Policy Principal, Iowa Department of Management
Attachment
5
Attachment 1
6
Attachment 1
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File and source
- File
- OIG-CA-21-011-state-of-iowa-039-s-noncompliance-with-uses-of-coronavirus-relief-fund.pdf
- Size
- 291,402 bytes
- SHA-256
- 93fe21b86cac9f9f7ad52baee050315f66d477164ab492c26d866554ee795848
- Original
- oig.treasury.gov