Letter - Iowa Coronavirus Relief Fund Payment (10.15.2020) Final

DEPARTMENT OF THE TREASURY
W ASHINGTON, D.C. 20220
OFFICE OF
INSPECTOR GENERAL October 16, 2020
Mr. David Roederer, Director

Iowa Department of Management
1007 East Grand Avenue
Des Moines, Iowa 50319
Re: State of Iowa’s Uses of Coronavirus Relief Fund Payment
Dear Mr. Roederer:
We would like to thank you and other State of Iowa representatives for meeting
with our office in August 2020 to discuss a matter that had come to our attention
regarding the State of Iowa’s use of its Coronavirus Relief Fund payment received
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). At that time, our office made inquiries
regarding the use of Coronavirus Relief Fund proceeds to make payments on a
$20.1 million1 contract with Workday, Inc. (Workday), a computer system used for
accounting and human resources. As explained to us in our August 2020 meeting,
Workday is to replace a legacy mainframe system. We also consulted with the
Office of the Auditor of the State of Iowa regarding this contract.
We reviewed the Workday contract-related information provided to determine
whether the computer system upgrade is an allowable expenditure under the “Uses
of Funds” requirements of Section 601(d) under Title VI, as amended by Title V of
the CARES Act. Specifically, the CARES Act provides that payments from the Fund
may only be used to cover costs that—
• 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.
Based on our review, we determined that the contract with Workday is not an
allowable expenditure as it does not meet the CARES Act criteria. The contract
1
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
with Workday for a computer system upgrade was already planned and budgeted
for prior to the CARES Act, and as such, does not meet the requirement that
“costs were not accounted for in the most recently approved budget as of
March 27, 2020.” 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 five year
period with one payment of $2.8 million paid on the effective date of the contract
of October 30, 2019. According to a representative Office of the Chief Information
Officer (OCIO), the contract “was subject to continued availability of funding for a
multi-phase implementation of Workday. Some expenses were paid under the
contract with other state funds.”
Treasury provided clarification of budgeted costs in its Coronavirus Relief Fund
Guidance for State, Territorial, Local, and Tribal Governments (Updated
September 2, 2020) (Guidance):
The CARES Act also requires that payments be used only to cover costs that
were not accounted for in the budget most recently approved as of
March 27, 2020. A cost meets this requirement if either (a) the cost cannot
lawfully be funded using a line item, allotment, or allocation within that
budget or (b) the cost is for a substantially different use from any expected
use of funds in such a line item, allotment, or allocation.
In addition, the system upgrade does not meet the “necessary expenditure incurred
due to the public health emergency” requirement for the uses of funds. According
to the 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 a cloud-based
system and provides a new cloud-based planning and budget tool. With 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.“
While the new and modern Workday system may provide additional functionality,
these upgrades are not necessary to address the public health emergency and were
already planned before the COVID-19 pandemic outbreak. A reasonable alternative
is the continued use of Iowa’s current legacy system. As such, funding the
Workday contract with Coronavirus Relief Fund proceeds is not a reasonable,
allowable use of funds. Treasury clarified the necessary expenditures in its
Guidance document as follows:
2
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.
According to Iowa’s OCIO representative, 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. Amounts equal to the payments issued on the contract
with Workday using Iowa’s Coronavirus Relief Fund proceeds should 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. We request management’s response to this letter by October 26, 2020.
The response should include Iowa’s corrective action plan and the estimated date
of completion.
Sincerely,
Richard K. Delmar, Deputy Inspector General

Department of the Treasury
cc: Daniel J. Kowalski, Counselor to the Secretary, Department of the Treasury

Rob Sand, Auditor of State, State of Iowa
Joel Lunde, Fiscal/Policy Principal, Iowa Department of Management

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DEPARTMENT OF THE TREASURY

W ASHINGTON, D.C. 20220

Mr. David Roederer, Director

Richard K. Delmar, Deputy Inspector General

cc: Daniel J. Kowalski, Counselor to the Secretary, Department of the Treasury

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