Table 4 shows the definitions of each of these terms. Thus, program year 2000 funds must be spent by the end of program year 2001 for localities and by the end of program year 2002 for states. States Have Spent Most of Their WIA Funds, Labor’s Estimate Overstates Funds Available to Spend

Our analysis of Labor’s data shows that states are spending their WIA funds within the authorized 3-year timeframe—virtually all funds allocated for program year 1999 have been spent within the requisite 3 years and 90 percent of program year 2000 funds have been spent within 2 years. By contrast, Labor’s estimate of expenditure rates suggests that states are not spending their funds as quickly because the estimate is based on all funds states currently have available—from older funds carried in from prior program years to those only recently distributed. Moreover, many of the remaining funds carried over may have already been obligated. In addition, states had expended 56 percent of program year 2001 funds, with 2 years still remaining (see fig. Lacking Consistent Information on Obligations, Labor Overstates Available Funds by Considering Only Expenditures

Labor’s data on obligations do not consistently reflect local commitments; therefore, Labor relies on expenditure data to estimate available funds. 8). Labor uses the benchmarks to formulate budget requests and identify which states need monitoring and additional guidance. Despite Labor’s guidance and assistance efforts, some state and local officials cited several concerns about financial reporting. Delays in reporting expenditures result from lengthy spending approval processes and cumbersome contract procurement procedures as well as from a lack of timely provider billing. Some States and Localities Have Mitigated Factors Affecting Spending Rates

To manage spending more effectively, some states and local areas have developed strategies to mitigate factors affecting spending levels or delays in reporting expenditures. This pace of spending has occurred even though the law allows states 3 years to spend the funds. Obligations—funds that have been committed on behalf of WIA customers—must also be considered to accurately gauge how much is truly available for spending. In so doing, Labor does not take into account longer-term commitments made to customers and service providers and, as a result, overestimates available funds. State officials told us that they seek more guidance and assistance in managing their WIA funds wisely and some states have implemented strategies to do so. Through collaboration with states, Labor should clarify the definition of unliquidated obligations to include funds committed at the point of service delivery in addition to those funds obligated at the state level for statewide WIA activities and not funds that states merely allocate to their local areas,   specify what constitutes an obligation to address state and local area concerns regarding contracts, and   specify the timeframe for recording an obligation particularly when it covers time periods that are longer than a program year. To help states and local areas manage their spending more judiciously, Labor should   proactively provide states and local areas with guidance and technical assistance focused on reporting financial information,   communicate spending benchmarks that states should meet, and   systematically share promising practices and effective spending management strategies. Workforce Investment Act: New Requirements Create Need for More Guidance GAO-02-94T.
Why GAO Did This Study

The administration has twice proposed reducing the Workforce Investment Act's (WIA) budget, citing large amounts of states' unspent funds carried over from the prior year. However, in light of current economic conditions, state and local workforce officials have expressed a need for more funds, not less. GAO was asked to assess whether the Department of Labor's spending information is a true reflection of states' available funds. GAO examined the spending rate for states, what Labor does to determine how states are managing their spending, and what factors affect states' WIA expenditure rates.

What GAO Found

States are spending their WIA funds much faster than required under the law, according to GAO's analysis of Labor's data. By the end of program year 2001, states had spent virtually all funds allocated in 1999 as well as 90 percent of 2000 funds and 56 percent of 2001 funds. By contrast, Labor's estimate suggests a slower pace of spending because it is based on all available funds, including those only recently distributed. Even though 44 percent of program year 2001 funds are being carried over into program year 2002, many of these funds may have already been committed at the point of service delivery. Furthermore, because of reporting inconsistencies, Labor's data do not accurately reflect funds that have been obligated long-term commitments made by states and local areas on behalf of WIA customers. For a truer picture of available funding, both expenditures and obligations must be considered. But, because Labor lacks consistent data on obligations, it focuses only on expenditures to gauge budgetary need and overestimates funds states have available to spend. Labor compares state expenditures against its benchmarks to determine how states manage their spending, to target guidance and assistance efforts, and to formulate next year's budget request. But Labor does not often communicate these benchmarks to states. Despite active monitoring and additional guidance, state and local officials remain confused by some of Labor's financial reporting requirements. They seek more definitive guidance and the opportunity to share promising strategies to help them better manage spending. Financial reporting delays result from lengthy spending approval and contract procurement procedures lasting as long as 8 months and untimely service provider billing. Also, yearly funding fluctuations affect states' and local areas' willingness to commit resources in the long term and inhibit workforce system planning. Some states and localities have implemented strategies to overcome these factors and better manage their WIA spending.