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OFFICE OF THE

STATE AUDITOR

Weatherization Assistance Program

Governors Energy Office

Performance Audit

October 2010

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LEGISLATIVE AUDIT COMMITTEE

2010 MEMBERS

Senator David SchultheisChair

Senator Lois TochtropVice-Chair

Senator Morgan Carroll Representative Joe Miklosi

Representative Jim Kerr Senator Shawn Mitchell

Representative Frank McNulty Representative Dianne Primavera

OFFICE OF THE STATE AUDITOR

Sally SymanskiState Auditor

Cindi StetsonDeputy State Auditor

Sarah AurichCindi Radke

Legislative Audit Manager

Greg DiCerbo

Kate Shiroff

Kara Trim

Monika Treipl-HarnkeLegislative Auditors

The mission of the Office of the State Auditor is to improve the efficiency, effectiveness,

and transparency of government for the people of Colorado by providing objective

information, quality services, and solution-based recommendations.

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Sally Symanski, CPAState Auditor

Office of the State Auditor

October 21, 2010

Members of the Legislative Audit Committee:

This report contains the results of a performance audit of the Weatherization Assistance

Program, administered by the Governors Energy Office. The audit was conducted pursuant to

Section 2-3-103, C.R.S., which authorizes the State Auditor to conduct audits of all departments,

institutions, and agencies of state government. The report presents our findings, conclusions,and recommendations, and the responses of the Governors Energy Office.

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TABLE OF CONTENTS

PAGE

Report Summary...................................................................................................... 1

Recommendation Locator ....................................................................................... 5

CHAPTER 1: Overview. ........................................................................................ 9

Weatherization Assistance Program .......................................................... 11

Audit Scope and Methodology ................................................................... 17

CHAPTER 2: Program Accountability. ............................................................. 19

Procurement ................................................................................................. 20

Service Prioritization ................................................................................... 28

Quality Assurance ........................................................................................ 30

Program Infrastructure .............................................................................. 35

CHAPTER 3: Financial Accountability.............................................................. 39

Cash Management ....................................................................................... 39

Landlord Contributions .............................................................................. 43

Quarterly Financial Status Reports ........................................................... 45

Expenditures ................................................................................................ 50

Material Costs .............................................................................................. 53

CFDA Numbers ........................................................................................... 55

APPENDIX A ...................................................................................................... A-1

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Glossary of Terms and Abbreviations

Bidder -Community Action Agency or other public, non-profit, or local government agency applying to

provide weatherization services in a designated region.

CFDA - Catalog of Federal Domestic Assistance. This is a basic reference source on federal programs.

The primary purpose of the catalog is to assist users in obtaining general information on federal

assistance programs. Each federal assistance program is assigned a unique CFDA number.

COFRS - Colorado Financial Reporting System. The financial information system that maintains the

official accounting records for Colorado state government.

Community Action Agency - A private corporation or public agency established pursuant to the

Economic Opportunity Act of 1964, Pub. L. 88-452, which is authorized to administer funds received

from federal, state, local, or private funding entities to assess, design, operate, finance, and oversee

antipoverty programs.

Davis-Bacon wage requirement - A federal law mandating that laborers on public works projects

subject to this requirement receive a prevailing wage and benefits as determined by the U.S. Department

of Labor.

Dwelling - A house, including a stationary mobile home, an apartment, a group of rooms, or a single

room occupied as separate living quarters, eligible for weatherization services.

Energy audit - A process to assess how much energy a dwelling consumes and to evaluate what

measures can be taken to make the dwelling more energy efficient.

Energy Office The Governors Energy Office is the office appointed by the Governor to lead

Colorados efforts to advance energy efficiency and to identify renewable, clean energy resources. The

Governors Energy Office administers the Weatherization Program in Colorado.

Federal poverty level - Income thresholds established by the U.S. Department of Health and HumanServices to determine if a person or a family is eligible for assistance through various federal programs.

LEAP - Low-Income Energy Assistance Program. A federally funded, state-administered program that

is designed to assist eligible low-income individuals with their winter heating costs.

Local agency - An entity providing weatherization services in a designated region.

Special conditions - Additional requirements imposed on a local agency by the Governors EnergyOffice if the local agency has a repeated history of poor performance, financial instability, or

mismanagement; violates the terms and conditions of the contract; or is irresponsible in administrating

the Weatherization Program.

State Weatherization Plan - A plan submitted by a State to the U.S. Department of Energy no later than

60 days after the date of notice to apply. The State Plan includes pertinent information required to run a

weatherization program, including the name of the office responsible for the program, the number of

homes to be weatherized, a budget, a training and technical assistance plan, and a monitoring plan.

Weatherization Program The federal Weatherization Assistance program created by the federal

Energy Conservation and Production Act of 1976 to reduce low-income households utility bills bymaking long-term energy-efficiency improvements to homes.

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For further information on this report, contact the Office of the State Auditor at 303.869.2800.

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STATE OF COLORADO

OFFICE OF THE STATE AUDITOR REPORT SUMMARY

SALLY SYMANSKI, CPAState Auditor


Governors Energy OfficePerformance Audit

October 2010

Purpose and Scope

The purpose of this audit was to review the States administration of the Weatherization Assistance

Program (Weatherization Program) for compliance with federal and state laws, regulations, andfederal grant requirements, including those requirements set forth by the federal Single Audit Act.Our audit focused on the Governors Energy Offices (Energy Offices) processes for procuring local

weatherization agencies, making payments to local agencies, monitoring local agenciesperformance, and managing grant data and information. This audit is the third in a series ofperformance audits conducted by the Office of the State Auditor to review programs funded by the

American Recovery and Reinvestment Act of 2009 (Recovery Act). These audits are designed toprovide Colorado taxpayers with an assessment of state agencies internal controls over RecoveryAct expenditures to ensure that expenditures are proper, allowable, and reasonable under state and

federal requirements. We performed audit work from February through September 2010.

We conducted this performance audit in accordance with generally accepted government auditing

standards. Those standards require that we plan and perform the audit to obtain sufficient,appropriate evidence to provide a reasonable basis for our findings and conclusions based on our

audit objectives. We believe the evidence obtained provides a reasonable basis for our findings andconclusions based on our audit objectives.

Overview

The Weatherization Program was created nationwide under Title IV of the federal Energy

Conservation and Production Act of 1976 during a period of high energy prices following the 1973oil crisis. The Weatherization Programs goal is to reduce low-income households utility bills bymaking long-term energy-efficiency improvements to homes, such as installing insulation, sealing

leaks around doors and windows, and modernizing heating equipment. Dwellings (single familyhomes or single units within a multi-family building) areeligible for weatherization services if thefamily residing there earns 200 percent or less of the federal poverty level, or if a household memberis eligible for or received Aid to the Needy Disabled, Medicaid, Social Security Income, orTemporary Aid to Needy Families in the last 12 months, or is eligible for the Colorado Low-Income

Energy Assistance Program. In addition to its regular federal funding through the U.S. Departmentof Energy, the Weatherization Program was one of the programs Congress identified for additionalfunding under the Recovery Act. In Colorado, the Weatherization Program is scheduled to receive

about $79.5 million in Recovery Act funding, which is available to cover expenditures incurredbetween June 15, 2009 and March 31, 2012.

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Summary2 Governors Energy Office Performance AuditOctober 2010

The Energy Office administers the Weatherization Program in Colorado. The Energy Officecontracts with 11 local agencies to implement weatherization activities in 10 regions across the state.

These agencies either conduct weatherization work in-house or contract with local contractors forweatherization activities. In Fiscal Year 2010 the Colorado Weatherization Program weatherized7,440 dwellings, an increase of 105 percent over the 3,631 dwellings weatherized in Fiscal Year

2009. This increase is largely due to the increase in funding from the Recovery Act. In Fiscal Year2010 the average cost for weatherizing a dwelling was about $3,850. Expenditures for theWeatherization Program totaled $32.2 million in Fiscal Year 2010.

Key Findings

Program Accountability

The Energy Office contracts with local agencies to provide a variety of weatherization services toeligible dwellings. These services include determining applicant eligibility, conducting energy audits,installing cost-effective weatherization improvements, and inspecting work to ensure quality

installation and safety. The Energy Office is responsible for oversight of the local agencies and theprogram as a whole. We reviewed the Energy Offices practices for ensuringprogram funds are usedin accordance with federal rules and regulations and result in delivery of high-quality weatherization

services. We identified several areas for improvement:

Procurement process. During the Fiscal Year 2010 competitive process for procuring localagencies, the Energy Office notified the bidders of its award decision prior to the required

public hearing. Specifically, the Energy Office sent grant award and rejection letters to

bidders 21 and 44 days prior to the public hearing in two regions and issued a press releaseannouncing the winning bidder 17 days prior to the public hearing in one of the two regions.

Federal regulation requires the Energy Office to use the public hearing and comment processto select the winning bidders. The Energy Offices actions gave the appearance that an awarddecision had been made without receiving full public input.

Service prioritization. Of four local agencies visited during our audit, all lacked written

policies for prioritizing clients and three reported that, in practice, they do not prioritizeclients or serve them in order of greatest need. The Energy Offices policies require localagencies to prioritize waitlists so that the elderly, the disabled, and those most in need (as

defined by the local agency) are served first. The policy further states that a first come, firstserved priority policy is not acceptable. As of February 2010 the average wait time for

weatherization services statewide was about two and a half months.

Quality assurance. For six of 45 dwellings reviewed at four local agencies (13 percent),the local agency inspector inspected his or her own weatherization work. For an additional12 of the 45 dwellings (27 percent), the local agency did not track information on who

conducted the work on the home in the file. Additionally, the Energy Office allows localagencies to select the sample of homes that the Energy Office reviews for its qualityassurance monitoring.

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SummaryReport of the Colorado State Auditor 3

Financial Accountability

We identified problems with the Energy Offices financial management of the WeatherizationProgram in the following areas, increasing the risk that public funds are not adequately protected;used in a fiscally responsible manner; or used in accordance with laws, rules, and other requirements.

We identified several areas for improvement:

Cash management. The Energy Office advanced $7.5 million, or 25 percent of total agencyfunding, to the 11 local agencies during Fiscal Year 2010 without agency requests andjustification for the advances. Federal regulation specifies that cash advancesbe limited

to amounts needed and be timed in accordance with the actual, immediate cash requirementsof the recipient organization. Three of the four agencies we visited reported that they did

not need the cash advances provided by the Energy Office; advances for these three agencies

totaled about $2.7 million.

Landlord contributions. Three of 27 files reviewed at four local agencies (11 percent) didnot contain evidence that the local agency evaluated whether the landlord should contribute

50 percent toward the cost of weatherization services as required by Energy Office rules.Potential landlord contributions for these three files totaled $1,900. In another two files (7percent), the local agency did not document whether the Energy Office approved a waiver of

the landlord contribution. If the Energy Office did not approve the waiver of thesecontributions, the local agency should have collected $800. Finally, one local agency

allowed the same staff person to: (1) determine the amount of the landlord contribution, (2)collect the landlord contribution, (3) bring the money collected back to the office, and (4)

record the deposit. These practices increase the risk that funds could be misappropriated.

Quarterly financial status reports. All four of our sample of federally-required quarterlyreports prepared by the Energy Office and submitted to the federal government containederrors. Specifically, the Energy Office: (1) did not reconcile expenditures reported in

COFRS with expenditures reported on quarterly reports, (2) underreported the recipientsshare of expenditures by more than $232,000 and the federal share of expenditures by almost

$23,000, and (3) recorded cash advances incorrectly, resulting in overstatement ofexpenditures in COFRS.

Expenditures. The Energy Office has not defined the costs that should be charged to either

administration or program operations, which increases the risk that local agencies could beallocating these costs inconsistently or charging costs to administration in excess of the 10

percent limit set by federal regulation. Further, of 57 dwelling files reviewed at four localagencies, seven lacked adequate documentation for materials costs and six containedmaterials charges that were incorrect. These errors totaled $905 in questioned costs.

Our recommendations and the responses from the Governors Energy Office can be found in theRecommendation Locator and in the body of this report.

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RECOMMENDATION LOCATOR

Agency Addressed: Governors Energy Office

Rec.

No.

Page

No.

Recommendation

Summary

Agency

Response

Implementation

Date

1 26 Ensure that procurement processes comply with federal regulations by

implementing procedures to: (a) ensure all public hearings related to

awards are held and public comment is considered prior to the issuanceof letters or press releases announcing the winning bidders; (b) retain

documentation related to the negotiated bid process for at least six years

after the award has been made; (c) ensure that all evaluations of bids are

documented, accurate and consistent; and (d) properly lock all

spreadsheets used by bidders.

Agree a. Implementedb. February 2011c. Implementedd. Implemented

2 29 Ensure that local agencies prioritize weatherization services toward the

neediest clients by: (a) requiring local agencies to submit a prioritization

plan annually and (b) confirming that local agencies are prioritizing

service delivery in accordance with their plans during monitoring and

oversight visits.

Agree July 2011

3 34 Establish and implement policies to: (a) prohibit local agencies from

using inspectors to inspect work they have performed and (b) establish a

risk-based process for selecting the sample of homes to review during

the quality assurance monitoring visits.

Agree July 2011

4 37 Continue to monitor the expenditure of Recovery Act funds for

weatherizing homes. In the event that it does not appear that Recovery

Act weatherization funding will be fully utilized, work with the local

agencies to identify means of hiring additional weatherization

subcontractors or explore other alternatives to increase capacity.

Agree Implemented and

Ongoing

5 42 Improve controls over cash advances by: (a) requiring that local

agencies apply for and document their need for cash advances and

(b) recouping advance amounts on a month to month basis.

Agree July 2011

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Rec.

No.

Page

No.

Recommendation

Summary

Agency

Response

Implementation

Date

6 44 Improve cash controls over landlord contributions by strengthening

policies and procedures to: (a) outline how local agencies should

evaluate landlords eligibility for contributions and determine theamount of landlord contribution due and (b) require segregation ofduties over the determination of the landlord contribution and the

collection of the payment at the local agency level.

Agree July 2011

7 48 Improve controls over the preparation and submission of Financial

Status Reports by: (a) performing reconciliations between COFRS and

the Weatherization Program database at least quarterly; (b) reviewing all

federal guidance and updating reporting procedures; (c) correcting all

errors identified during the audit on reports submitted for the next

quarterly reporting period; (d) maintaining documentation to support all

amounts included in the reports; (e) properly recording cash advances as

receivables; (f) ensuring that an authorized official approves and

submits all reports; (g) strengthening supervisory review over reports;

and (h) training staff on grant accounting and reporting and on COFRS.

Agree a. April 2011b. January 2011c. March 2011d. November 2010e. November 2010f. December 2010g. January 2011h. Immediately

8 52 Ensure that administration and program operations costs are recordedconsistently and that costs charged to administration do not exceed the

10 percent limit by: (a) including specific examples of each type of cost

in its guidance and provide the guidance to the local agencies and

(b) reviewing a sample of costs charged to administration for adherence

to the guidelines and consistency among the local agencies during

monitoring visits.

Agree July 2011

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Rec.

No.

Page

No.

Recommendation

Summary

Agency

Response

Implementation

Date

9 54 Improve controls over materials expenditures by: (a) informing the local

agencies of requirements to charge costs correctly and maintain

adequate supporting documentation; (b) instituting a policy requiringlocal agency supervisory review and signoff on reimbursement requests

and supporting documentation; and (c) reviewing a sample of

expenditures, supporting documentation, and supervisory signoffs for

compliance with requirements during monitoring visits at local

agencies.

Agree a. July 2011b. July 2011c. December 2010

10 55 Comply with federal regulation by adding the CFDA number, program

title, and applicable compliance requirements into all Weatherization

Program contracts with local agencies.

Agree July 2011

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9

Overview of the Weatherization

Assistance ProgramChapter 1

The Weatherization Assistance Program (Weatherization Program) was creatednationwide under Title IV of the federal Energy Conservation and Production Actof 1976 during a period of high energy prices following the 1973 oil crisis. TheWeatherization Programs goal is to reduce low-income households utility billsby making long-term energy-efficiency improvements to homes, such as installinginsulation, sealing leaks around doors and windows, and modernizing heatingequipment. The Weatherization Program began in Colorado in 1992 as a resultof a funding partnership between the U.S. Department of Energy, the ColoradoLow-Income Energy Assistance Program (LEAP), and the Public ServiceCompany of Colorado (now Xcel Energy). Federal funding primarily supportsthe program. At first the Weatherization Program focused on emergency andtemporary measures, such as covering windows with plastic sheets and caulkingand weather-stripping doors and windows. Today the program requires everyhome served under the program to be comprehensively analyzed to determinewhich energy conservation measures will be most cost-effective before anyweatherization services are provided.

The Weatherization Program was one of the programs Congress identified foradditional funding under the American Recovery and Reinvestment Act of 2009(Recovery Act) to create jobs and promote recovery from the recent economicrecession. At the time of enactment the Recovery Act was expected to directapproximately $787 billion in federal funds towards the American economy(including some tax-breaks) over the next several years. As of March 2010 theGovernors Economic Recovery Team, which oversees the use of Recovery Act

funds in Colorado, reported that state agencies in Colorado have been awardednearly $1.6 billion in Recovery Act funds. The Recovery Act is designed to:

preserve and create jobs and promote economic recovery;

assist those most impacted by the recession;

provide investments needed to increase economic efficiency by spurringtechnological advances in science and health;

invest in transportation, environmental protection, and other infrastructurethat will provide long-term economic benefits; and

stabilize state and local government budgets, to minimize and avoidreductions in essential services.

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10 Weatherization Assistance Program, Governors Energy Office Performance AuditOctober 2010

The passage of the Recovery Act significantly affected the WeatherizationProgram. Specifically, the Recovery Act appropriated $5 billion over a three-yearperiod for the Weatherization Program nationwide, which represents about a2,100 percent increase over the approximately $225 million per year the programhas received in recent years. With the large influx of monies into theWeatherization Program from the Recovery Act came expectations for greatincreases in the number of homes weatherized per state and for that increase tooccur very quickly. Because the program already had infrastructure in place andhad been providing services since the late 1970s, the expectation was that theWeatherization Program could be used to create jobs quickly and that theRecovery Act monies would be well used to further conserve energy.

The Colorado Weatherization Program is scheduled to receive $79.5 million inRecovery Act funding, which is available to cover expenditures incurred betweenJune 15, 2009, and March 31, 2012. The Recovery Act monies allowed the Stateto weatherize many more homes and increased the Weatherization Programexpenditures in Colorado by about 180 percent, from an average of $11.5 millionbetween Fiscal Years 2006 and 2009 to $32.2 million in Fiscal Year 2010. Thefollowing table shows the increase in the number of homes weatherized annually,the average dollar amount spent per home, and the percentage change betweenFiscal Years 2006 and 2010:

As is illustrated in the table above, the average dollar amount spent per homeincreased 62 percent between Fiscal Years 2006 and 2010. However, the number

of homes weatherized in Colorado increased significantly, representing a 91percent change between Fiscal Years 2006 and 2010.

Weatherization ProgramLocal Agency Activity

Fiscal Years 2006 through 2010Fiscal

Year2006

Fiscal

Year2007

Fiscal

Year2008

Fiscal

Year2009

Fiscal

Year2010

Percent Change2006-2010

Number of homesweatherized 3,899 4,224 3,879 3,631 7,440 91%

Average dollar amountspent per home $2,371 $2,431 $2,495 $2,870 $3,848 62%Source: Data provided by the Governors Energy Office.

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Report of the Colorado State Auditor 11


The Weatherization Program is intended to help revitalize communities by

spurring economic growth and reducing environmental impacts. A March 2010study conducted for the U.S. Department of Energy estimates that theWeatherization Program results in an average annual savings in heating andcooling bills of about $440 per household and that each weatherized homereduces annual carbon dioxide emissions by an average of 2.65 metric tons, orabout 50 percent of the average annual carbon dioxide emissions of a mediumsized vehicle.

As mentioned previously, the Weatherization Programs goal is to improve the

energy efficiency of dwellings occupied by people who meet certain incomeguidelines, thereby decreasing energy costs for low-income households. For the

Fiscal Year 2010 grant awards, a dwelling is eligible for services if the peopleliving there meet one of three criteria: (1) the total household income is at orbelow 200 percent of the federal poverty level (as of April 2010, 200 percent ofthe federal poverty level for a family of four is $44,100); (2) one householdmember is eligible for or has received Temporary Aid to Needy Families (TANF),Social Security Income, Medicaid, or Aid to the Needy Disabled within the past12 months; or (3) the household is eligible for the Low-Income Energy AssistanceProgram (LEAP).

In Colorado, the Governors Energy Office (Energy Office) administers the

Weatherization Program. The Energy Office contracts with local agencies to

implement weatherization activities in 10 regions across the state. These localagencies receive Weatherization Program funding to conduct weatherization workusing either their own resources or by contracting with local contractors. Whilethe local agencies are responsible for providing the weatherization services, underfederal regulations the Energy Office is responsible for oversight of the localagencies and the program as a whole. In Fiscal Year 2010, Colorado awarded 11contracts to local agencies to conduct weatherization activities throughout thestate. Ten of these contracts are for local agencies to provide weatherizationservices in a specific region; the last contract is for one local agency to provideweatherization services statewide for multi-family dwellings only. A mapshowing the 10 different weatherization regions and identifying the local agency

that serves each region is located in Appendix A.

The Energy Office awards Weatherization Program grants to local agenciesaccording to criteria set forth in federal regulations. These criteria include thelocal agencys (1) experience performing weatherization, (2) experience assisting

low-income people, and (3) ability to conduct weatherization activities in a timelyand effective manner. The local agencies are responsible for implementing awide range of program activities, including:

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Accepting applications and determining dwelling units eligibility. Adwelling unit includes single-family homes as well as single units withinmulti-family buildings. As noted previously, a dwelling unit is eligible if

the family residing there earns 200 percent or less of the federal povertylevel, or if a household member is eligible for or received Aid to theNeedy Disabled, Medicaid, Social Security Income, or TANF in the last12 months, or is eligible for LEAP. According to state regulation [9C.C.R. 3.752.28], LEAP recipients must agree to receive weatherizationservices if they are contacted by a local agency. To help identify thoseeligible in the state, local agencies receive a list of LEAP clients from theEnergy Office updated monthly that the local agencies are required to useto make eligibility determinations. The local agencies are responsible fornotifying applicants regarding whether or not they are eligible for servicesunder the Weatherization Program.

Organizing and prioritizing a waitlist. The Energy Office requires alllocal agencies to maintain and manage a waitlist of eligible applicants. Asof February 2010 eligible applicants waited an average of two and a halfmonths between the date of their application and the date they receivedweatherization services.

Conducting energy audits of eligible homes. After determiningeligibility, the local agency conducts an energy audit on an eligibledwelling unit. This audit includes identifying air leakages, examiningheating system operation, and identifying health and safety hazards in the

home. Health and safety hazards can include a cracked heat exchanger ina furnace, lead paint, and existing mold and asbestos.

Providing weatherization services. After the energy audit is completed,the local agency provides weatherization services. As mentioned earlier,these services can include caulking, insulation, installation of compactflorescent light bulbs, and replacement of the refrigerator or furnace. Thetotal cost of the weatherization services cannot exceed a statewide averageof $6,500 per house effective March 2009; the Recovery Act increasedthis from the previous limit of an average of $3,000 per house. Thishigher limit will remain in place after the Recovery Act monies expire,

unless the federal law governing the Weatherization Program is changed.

Inspecting the quality of the work. Once the weatherization work iscompleted, the local agency sends an inspector to the home to review thequality of the work and identify any deficiencies.

According to U.S. Department of Energy program guidance issued in November2007, the Energy Office must comprehensively monitor the performance of all

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local agencies. This monitoring includes conducting a physical inspection of atleast 5 percent of all dwellings weatherized each year to ensure that the workcomplies with federal regulations.

Federal regulation [Section 10 CFR 440.21(d)] requires that weatherizationmaterials installed be cost-effective. Cost-effectiveness means that the materialsinstalled must result in energy cost savings that equal or exceed the cost of thematerials, installation, and on-site supervisory personnel over the lifetime of thematerials, discounted to present value. States have the option of requiringadditional related costs to be included in the determination of cost-effectiveness.Cost-effectiveness is often reflected in a savings-to-investment ratio of at least1:1, meaning that the resulting savings from the work should be at least equal tothe amount spent on the work. The U.S. Department of Energy gives discretion tostate weatherization programs for determining how they will ensure that theycomply with this requirement. To assist with meeting this requirement, the U.S.Department of Energy developed the National Energy Audit Tool (NEAT) todetermine the types of weatherization measures that are cost-effective in single-family homes and small multi-family buildings with fewer than five units. TheU.S. Department of Energy also developed the Manufactured Home Energy Audit(MHEA) tool to identify the types of weatherization measures that are cost-effective for mobile homes. In lieu of using the NEAT and MHEA tools, stateweatherization programs may develop their own priority lists of weatherizationmeasures that assess cost-effectiveness. These lists must be approved by the U.S.Department of Energy every five years. Prior to June 2010 the ColoradoWeatherization Program used the U.S. Department of Energy-established toolsand its own priority lists to evaluate cost-effectiveness. Beginning in June 2010the Energy Office is using only the NEAT and MHEA tools.

Program Funding

As noted previously, the Energy Office administers the States WeatherizationProgram. The Energy Office receives funding for the program from four differentsources, which include: (1) federal funds under the original WeatherizationProgram through the U.S. Department of Energy, (2) federal funds under theRecovery Act for the Weatherization Program through the U.S. Department ofEnergy, (3) federal funds under the LEAP program transferred from the Colorado

Department of Human Services, and (4) rebates that the Energy Office receivesfrom public utility companies as a result of weatherization improvements. Thesefunding sources are described below.

Federal funds under the original Weatherization Program. Asmentioned earlier, since the late 1970s the U.S. Department of Energy hasdistributed weatherization grants to all 50 states, the District of Columbia,U.S. territories, and Indian tribes. The U.S. Department of Energy awards

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yearly grants to the Energy Office based on a complex formula thatconsiders, in part, the states climate and the number of households livingat or below 200 percent of the federal poverty level. Between Fiscal Years2006 and 2010, the Energy Office expended an average of $6.1 million infederal funds from this funding source annually. In Fiscal Year 2010, theEnergy Office expended $7.5 million in federal funds from this fundingsource.

Federal funds under the Recovery Act for the WeatherizationProgram. In 2009, additional federal funds became available for alimited time to fund the Weatherization Program. These monies aredistributed through the U.S. Department of Energy using the samemethodology as the original Weatherization Program funds. Somechanges were made to program requirements under the Recovery Act;these requirements are discussed later in this chapter. In Fiscal Year 2010,the Energy Office expended $17.2 million in federal funds from thisfunding source.

Federal funds under the Low-Income Energy Assistance Program(LEAP).The Colorado Department of Human Services annually allocatesa portion of LEAP funds to the Energy Office to be used for theWeatherization Program. LEAP is a federal program designed to assistlow-income households in meeting their immediate home energy needs, primarily by assisting with households winter heating bills; however,federal regulations allow up to 15 percent of a states LEAP funds to be

used for the states weatherization program. The Energy Office includesLEAP funds in the monies allocated to local agencies to provideweatherization services. The Energy Office does not retain any of thesemonies for its administration or operations. The local agencies expendedan average of about $5.3 million in federal LEAP funds from this sourceannually between Fiscal Years 2006 and 2010. In Fiscal Year 2010, theEnergy Office expended $4.9 million in federal LEAP funds from thisfunding source.

Utility rebates received from public utility companies. Statute [Section40-3.2-103 and 104, C.R.S.] requires utilities to invest a certain percentageof their total profit into managing energy consumption by the energycustomer, including low-income customers. Each year, the ColoradoPublic Utilities Commission determines the amount of the utilitycompanies profits that will be allocated to the Weatherization Program.The Energy Office has agreements with the participating utility companiesestablishing a rebate program for specific weatherization services. Whenlocal agencies install weatherization improvements eligible for rebates, thepublic utility that serves the dwelling receiving the improvement pays the

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applicable rebate to the Energy Office. The Energy Office then passes therebate on to the appropriate local agency and uses the rebates to reduce theamount of federal funds needed to reimburse local agencies forweatherization services. Utilities have paid an average of $2.4 million inrebates annually between Fiscal Years 2006 and 2009. In Fiscal Year2010, utilities paid about $2.6 million in rebates.

The Energy Office makes funding allocations to localagencies across the state onthe basis of the number of eligible households in each of the 10 regions. TheEnergy Office includes the allocations in the State Weatherization Plan, whichmust be approved annually by the U.S. Department of Energy. The StateWeatherization Plan outlines the Energy Offices goals for the WeatherizationProgram, including how many homes will be weatherized annually, what theaverage cost per home will be, and which local agencies will provideweatherization services statewide.

The following table shows the programs total expenditures for Fiscal Years 2006

through 2010. Because the Energy Office receives federal funds based on itsrequests for reimbursement of weatherization expenditures, federal revenues arebasically equal to the expenditures for the program, excluding the rebates.

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As the table above shows, annual Weatherization Program expenditures rangedbetween $10.7 million and $32.2 million between Fiscal Years 2006 and 2010.The influx of federal funds under the Recovery Act for the WeatherizationProgram has resulted in about a 200 percent increase in expenditures in FiscalYear 2010 over those in Fiscal Year 2006. As of the end of June 2010, theEnergy Office had expended more than $18.2 million in federal funding under theRecovery Act for the Weatherization Program, or about 23 percent of the $79.5million that Colorado will receive in federal funding for the WeatherizationProgram under the Recovery Act.

As mentioned above, some changes were made to the Weatherization Programunder the Recovery Act. The table below illustrates these changes. Specifically,the Recovery Act increased the income eligibility threshold and increased theamount of money available per home for weatherization services. It also added arequirement that programs pay some staff delivering weatherization servicesincluding those doing construction, alteration, or repair to the dwellingsaprevailing wage, termed the Davis-Bacon wage requirement, as determined by the

Governors Energy OfficeWeatherization Program Expenditures

Fiscal Years 2006 through 2010

Fiscal Year2006

Fiscal Year2007

Fiscal Year2008

Fiscal Year2009

Fiscal Year2010

PercentChange

2006-2010

Administration1 $351,400 $298,600 $303,600 $431,800 $1,075,100 206%Training andTechnicalAssistance 223,600 177,800 151,000 196,500 622,900 179LeveragingActivities2 309,900 403,800 478,300 513,700 390,100 26Grants to Local

Agencies3

9,767,000 11,428,800 9,787,100 10,569,700 27,565,900 182Utility Rebates4 0 0 0 475,100 2,589,200 n/aTotalExpenditures $10,651,900 $12,309,000 $10,720,000 $12,186,800 $32,243,200 203%Source:Office of the State Auditors analysis of data in the Colorado Financial Reporting System (COFRS). 1 Includes expenditures for monitoring and oversight, travel for monitoring visits, phone, and rent expenses.2 Includes the recruitment of utilities to provide rebates for the program, program outreach, and maintaining relationshipswith the utilities.

3 Includes all local agencies expenditures in all categories for the year.4 Certain weatherization services are eligible for rebates from public utility companies. These rebates are forwarded to theappropriate local agency and offset the reimbursement requests from the local agencies. Utility rebates were provideddirectly to the local agencies until the last quarter of Fiscal Year 2009, when the Energy Office began collecting therebates directly from the utility companies. Only the utility rebates collected since the last quarter of Fiscal Year 2009 are

included in this table.

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U.S. Department of Labor. The Davis-Bacon wage requirement only applies toweatherization services paid for with Recovery Act monies and does not apply toservices purchased through other funding sources, such as those paid for withweatherization funds under the original federal grant program.

The changes to household eligibility and average funding available per homeunder the Recovery Act were made to the federal laws governing theWeatherization Program. Therefore, once the Recovery Act funding expires thesechanges will continue unless repealed by federal law. The Davis-Bacon wagerequirement only applies to the Recovery Act funds and expires when RecoveryAct funding ends.

Audit Scope and Methodology

In accordance with the intent of the Recovery Act to ensure accountability fortaxpayer funds, the Colorado Office of the State Auditor (OSA) is conducting aseries of performance audits focusing on the review of Recovery Actexpenditures. These audits are designed to provide Colorado taxpayers with anassessment of state agencies internal controls over Recovery Act expenditures to

ensure that expenditures are proper, allowable, and reasonable under state andfederal requirements. The audits are intended to provide greater state-level

accountability for the large influx of federal money from the Recovery Act andcomplement financial audits conducted by the OSA that include Recovery Actfunds.

Our audit reviewed the States administration of the Weatherization Program forcompliance with federal and state laws and regulations and federal grantrequirements, including those requirements set forth by the federal Single AuditAct. This review included evaluating program activities and related controls in

Comparison of Weatherization Program RequirementsBefore and After Recovery Act Implementation

Prior to theRecovery Act

Under theRecovery Act

Household Eligibility185% of the federal

poverty level200% of the federal

poverty level

Average Amount of FundingAvailable Per Home $3,000 $6,500

Davis-Bacon Wage

Requirement No YesSource: Office of the State Auditor analysis of the American Recovery and Reinvestment Act

of 2009 and federal requirements issued by the U.S. Department of Energy for theWeatherization Program.

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place at the Energy Office that are intended to ensure program objectives are met.We reviewed areas such as the Energy Offices procurement process, the processfor making payments to local agencies, monitoring local agencies performance,and management of grant data and information. As a part of this audit, weinterviewed Energy Office staff and collected and analyzed data from the EnergyOffice, including data from the Energy Offices database. We visited four local

weatherization agencies in different regions of the state to interview staff andreview files and expenditures for weatherization services. This audit did notinclude a review of the Energy Offices allocation of grant funds among regions

or outreach activities; utility rebates; or whether weatherization materials wereproperly installed or complied with zoning or building codes.

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19

Program Accountability

Chapter 2Every program that receives and utilizes public funds is accountable fordeveloping a system of internal controls that provides reasonable assurance thatthe program achieves the objectives of (1) effective and efficient operations, (2)compliance with laws and regulations, (3) reliable financial reporting, and (4)reasonable and allowable expenditures. Federal laws and regulations that governthe use of public funds establish the requirement for internal control systems.Controls are dynamic and represent a series of ongoing actions and activities thatoccur throughout a programs operations and instill a culture of accountability.Further, control systems are crucial to accomplishing a key purpose of the

Recovery Act, which is to ensure that taxpayer dollars are spent withtransparency, accountability, prudence, and effectiveness.

According to federal law, the purpose of the Weatherization Program is to reducethe burden of energy prices for disadvantaged individuals and families. To thatend, the program intends to provide weatherization services to the greatestnumber of eligible households within available resources. To accomplish thesegoals, the Energy Office is accountable for the Weatherization Program in twokey ways: first, for ensuring program funds are used efficiently and in accordancewith federal rules and regulations, and second, for ensuring the quality and safetyof the services provided. To provide this accountability, the Energy Office must

have adequate controls in place to oversee all aspects of the WeatherizationProgram, from selecting local agencies to evaluating local agency work.

As mentioned earlier, the Weatherization Program is administered by the Statethrough the Energy Office and implemented locally. The process of deliveringweatherization services includes:

Procurement. The State is responsible for soliciting bids for andselecting local agencies to provide weatherization services. Theprocurement process is important for ensuring that the most qualifiedbidder is selected.

Prioritization. The State is responsible under federal regulations forhaving methods to prioritize weatherization services so that the neediest ofclients are served with the limited resources available. Although theEnergy Office has delegated this activity to the local agencies, underfederal regulations the Energy Office is ultimately responsible for meetingthis requirement.

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Quality Assurance. The State is responsible for monitoring the work ofthe local agencies. Federal guidance requires that the Energy Officereview at least 5 percent of all the homes weatherized in the state annually

to ensure that the services are provided according to standards.Additionally, the Energy Office is required to review local agencyadministration activities for compliance with federal and state rules.Finally, federal regulations require local agencies to inspect theweatherization work once it is completed.

Financial Administration. The State is responsible for ensuring that thelocal agencies have adequate documentation of their expenditures,reimbursements to local agencies are accurate, adequate controls are inplace to prevent misuse and misappropriation of grant funds, and reportssubmitted on the use of grant monies to the U.S. Department of Energy areaccurate.

We reviewed the Energy Offices administration of the Weatherization Programand identified concerns with the controls for ensuring accountability for both theprogrammatic and financial operations of this program. In this chapter, wediscuss our issues with the programmatic aspects of the Weatherization Program,including the procurement, service prioritization, quality assurance processes, andprogram infrastructure. We discuss our findings related to financial managementin the last chapter.

We identified three areas where the Energy Offices practices for ensuringprogrammatic accountability could be strengthened. First, since the Energy Officehas chosen to use a competitive procurement process, it should use a process thatensures that the most qualified bidders are selected to provide services. Second,the Energy Office should establish effective processes to ensure that eligibleindividuals most in need are prioritized for services. Third, the Energy Officeshould improve its monitoring of local agencies to ensure that the servicesprovided are high quality. Finally, we found that the Energy Office will need tocontinue monitoring the rate of expenditure of Recovery Act monies to ensurethat those funds will be fully utilized prior to their expiration. We discuss theseissues in the remainder of this chapter.

ProcurementGiven that the Energy Office has delegated to local agencies comprehensiveresponsibilities related to implementing the Weatherization Program, the Statesduty to select high quality local weatherization providers is paramount to meetingprogram goals. Federal regulations [Section 10 CFR 440.15] specify that aqualified local weatherization agency must be a Community Action Agency orother public or nonprofit entity. Community Action Agencies include nonprofit

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private or public organizations established under the Economic Opportunity Actof 1964 to help people achieve self-sufficiency. Federal regulations also outlinethe basic requirements for selecting a qualified local agency. Regulations requirethat these local agencies must be selected on the basis of:

a process that provides for public comment,

experience and performance in weatherization or housing renovationactivities,

experience in assisting low-income persons in the area to be served, and

capacity to undertake a timely and effective weatherization program.

Federal regulations do not require states to select qualified local agencies througha competitive procurement process.

According to the Energy Office, the State has historically made local agencyselections using a noncompetitive procurement process due to the lack ofweatherization service providers in Colorado. Under a noncompetitiveprocurement, the Energy Office does not open up the process to outside vendors;instead, the Energy Office negotiates the terms of the contract with the existinglocal agency. The contract is renewed if the Energy Office and the local agencycome to agreement on the contract terms and if the local agency is in goodstanding. Prior to Fiscal Year 2010, the noncompetitive procurement process wasconducted annually with each local agency and the contract term was one-year.

Beginning in Fiscal Year 2010 the Energy Office initiated a new policy requiring

formal procurement and contract renewal annually for the contractors providingservices in the 10 geographic regions and for a provider of multi-family services.Under the new procurement process, the Energy Office competitively bids everyservice area once every four years and executes a one-year contract with theselected local agency. Additionally, the Energy Office competitively bidsservices for any region in which the local agency currently under contract hasbeen placed on a special conditions plan due to poor performance within the 12preceding months of the request for applications release date. The specialconditions plan outlines the steps the local agency must take in order to improveits performance and be considered for an award during the competitive bidprocess.

Annually, during the intervening years, the Energy Office uses thenoncompetitive, negotiated procurement process described above to renew thecontract with the existing local agency, as long as the local agency has not beenplaced on a special conditions plan due to poor performance. Thenoncompetitive, negotiated procurement process allows the Energy Office toretain a qualified local agency that the Energy Office has determined, through itsmonitoring visits, is operating an effective weatherization program. By retaining

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existing, qualified local agencies in intervening years, the Energy Office does nothave to devote resources to identifying and training new weatherization serviceproviders. In Fiscal Year 2010 the Energy Office selected five of its localagencies through a competitive bidding process and renewed its contracts with theremaining six local agencies through a noncompetitive, negotiated procurementprocess. By Fiscal Year 2014, the Energy Office expects that all 11 localagencies will have been selected at least once through a competitive biddingprocess and the four-year procurement cycle will begin again.

The Energy Office initiates the competitive procurement process by making apublic request for applications on its website and in the local media in adesignated weatherization region. At the end of the application period, theEnergy Office review committee reviews, scores, and ranks the applications. TheU.S. Department of Energy requires that the Energy Office give the local agencyadditional points during the competitive bid scoring process if the local agencythat currently administers the weatherization program applies, and the EnergyOffice has determined through its monitoring and oversight activities that thelocal agency is running an effective weatherization program. Therefore, a localagency that is performing well could have an advantage over other, inexperiencedbidders. According to the Energy Office, the review committee then ranks thebidders, holds a public hearing, and makes a selection.

We reviewed the Energy Offices negotiated and competitive procurementprocesses to determine whether the processes were in compliance with applicablerules and regulations and whether these processes ensured that the most qualifiedweatherization service providers are selected. Overall, we found that the EnergyOffice should improve its procurement process to ensure that the bestweatherization service provider is selected and that the selection process isadequately documented. Specifically, we found that the Energy Office shouldstrengthen its processes by: (1) obtaining public input for selecting bidders andusing that input in its award decisions and (2) improving documentation of its bidevaluations and award process. We discuss these issues in the following sections.

Public Hearing and Comment

Federal regulation [Section 10 C.F.R 440.15] requires that each state

weatherization program select its local agencies on the basis of comments itreceives during a public hearing, along with other factors noted previously. Thepublic hearing and comment period provides an opportunity for the public toreview and discuss potential weatherization service providers and the providersrole in the community. Federal regulation further states that a public hearing andcomment period should be conducted in accordance with the State WeatherizationPlan. Each state must submit and receive approval for its State Plan from the U.S.Department of Energy before federal weatherization grants can be awarded.

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We reviewed the procurement processes for two regions the Energy Officeawarded through a competitive bid process in Fiscal Year 2010. We found thatthe Energy Office conducted formal evaluations, sent grant award letters to twobidders (one bidder in each of two regions), and sent rejection letters to the otherbidders in both regions prior to the public hearing and comment period, which isnot in compliance with federal requirements. In total, eight bidders were rejectedprior to the public hearing. The two awards for which award letters were sentwere valued at $1.1 million and $9 million, respectively. In the first region, theEnergy Office issued a press release announcing the regions award winner 17days prior to the public hearing, and it sent out award and rejection letters 21 daysprior to the public hearing. In the second region, the Energy Office sent out awardand rejection letters 44 days prior to the public hearing, but it did not issue a pressrelease. The Energy Offices actions gave the appearance that a decision hadbeen made prior to a public hearing being held. This compromised the purpose ofthe public hearing which is to ensure complete consideration of public input priorto award decisions being made. As a result of issuing award letters and a pressrelease prior to the public hearing, the Energy Office may not have received fullpublic input.

According to federal regulations, public comment is intended to ensure that theEnergy Office receives additional information regarding the bidders (1)experience providing weatherization services, (2) experience providing assistanceto low-income people, and (3) capacity to undertake a timely and effectiveweatherization program. Complying with the public comment requirementreduces the risk that losing bidders may contest or litigate the award because theydid not have opportunity to provide input at a public forum prior to the awarddecision. Furthermore, public comment provides the Energy Office with morecomplete information regarding the details of the bid and the views ofstakeholders, which are important considerations when making award decisions.For example, the public hearing for one of the bids revealed an error in the budgetof the winning bidder that understated the budget by about $400,000, or 4 percentof the awards value of $9 million. Following the public hearing, the EnergyOffice asked that the bidder rectify the error by correcting the budget; the EnergyOffice did not increase the contract amount to make up for the error. We discussthis issue in more detail in the next section.

To ensure a fair and equitable bidding process and compliance with federal

regulations, the Energy Office should ensure that public hearings are held in theprocurement process before award letters are sent and press releases are issued.

Award Documentation

Maintaining complete records of all aspects related to the procurement process isimportant for complying with federal regulations, facilitating post-review of the

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selection process, and defending against potential legal disputes. Federalregulations [10 CFR 600.144] require states to document the competitive andnegotiated bid processes and specify that each grantee must make available for theU.S. Department of Energy pre-award review and procurement documents, suchas requests for proposals or invitations for bids, when the procurement is to beawarded without competition. The State Archives Records Management Manualprovides best practices for documenting the procurement process and states thatagencies should keep all contract documentation, including proposals receivedand the evaluation process used for selecting contractors, for six years after theconclusion of the contract for successful bidders and for two years after thecontract award date for unsuccessful bidders.

We reviewed the Energy Offices controls for the competitive and negotiatedprocurement processes that occurred in Fiscal Year 2010. Our review focused onthe Energy Offices completion of bid processes for four regions: two competitivebid processes that resulted in the selection of new local agencies and twonegotiated bid processes that resulted in new contracts with existing localagencies. We found three problems with the Energy Offices bid and awarddocumentation in the regions we reviewed, which we outline in the bullets below.

Consistency of scoring documentation. The Energy Office lackedconsistent documentation to support the scores that were used as the basisfor ranking and ultimately awarding competitive bids for six applicants inone region and five applicants in another region. Although the errors weidentified did not ultimately affect the award outcomes, maintainingaccurate records can help ensure that the review and evaluation process isequitable and enables the Energy Office to better defend against any legaldisputes that may arise. As part of the competitive bid process, eachevaluator was given a separate score sheet for each set of criteria. TheEnergy Office then compiled those individual scores into accumulatedscores and ranked the bidders. We found that the accumulated scores usedto determine the winning bidders did not correspond with underlyingdocumentation associated with the individual evaluator score sheets. Outof a total of 747 scores, we found 28 discrepancies, or 3.7 percent. Sevenout of the 11 bids (64 percent) we reviewed contained at least one error.The Energy Office reports that discrepancies in the evaluator bid scoresheets occurred because individual evaluators changed their scores beforethe scores were accumulated and did not make corrections on thecorresponding criteria score sheets. The Energy Office did not review thecriteria score sheets against the accumulated scores to ensure consistencyprior to making the awards.

Lack of documentation. We found that the Energy Office did not retainrecords to substantiate its award decisions for the two negotiatedprocurement processes we reviewed. In both regions we reviewed, the

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Energy Office only retained the initial application submitted and the finalcontract. Files for both negotiated procurement processes lackeddocumentation of correspondence, records of initial and subsequentnegotiation discussions, and revisions to the initial application. TheEnergy Office reported that the documentation was missing because theelectronic document retention system that it used to retain thedocumentation failed, and the information was lost. Although the EnergyOffice does not have a specific policy about retention of competitive ornegotiated procurement documentation, it reports that, in practice, itmaintains negotiated procurement documentation. Without thisdocumentation the Energy Office is not in compliance with federalregulation.

Budget errors. We reviewed the budget spreadsheets submitted by thewinning bidders of competitive bidding processes in two regions. Asnoted earlier, for one of the bidding processes we found that the EnergyOffice did not identify errors in the budget spreadsheet submitted by oneof the winning bidders. Instead, attendees at a public hearing to select thewinning bidder for that region identified a $400,000 error in the biddersbudget spreadsheet. The bidder changed the electronic budget spreadsheetprovided by the Energy Office and, as a result, inadvertently changed theformulas so that the spreadsheet did not calculate the total cost of the bidcorrectly. As a result, the bidders budget spreadsheet did not account forabout $400,000 in salaries. This error could have resulted in the EnergyOffice overpaying the local agency. The error occurred because theEnergy Office did not properly secure the electronic spreadsheets toprevent bidders from changing the spreadsheets and causing calculationerrors. Additionally, the Energy Office did not adequately review thebudget spreadsheets for accuracy before finalizing its decision, whichraises questions about the effectiveness and thoroughness of the EnergyOffices bid evaluation process.

As noted previously, procedures for maintaining and reviewing procurementdocumentation are important for ensuring award decisions are based on accurateinformation, defending against any potential legal disputes, and complying withfederal regulations. To improve the accuracy and retention of procurementdocumentation, the Energy Office should develop and implement a policy thatmandates a review for accuracy of any documentation used in award decisions.The policy should also address record retention of notes made duringnegotiations, revisions to applications, correspondence between parties, or anyother documentation related to negotiated procurement to ensure that allprocurement decisions are fully supported. In addition, the Energy Office shouldprovide training to evaluators so that the review process is effective in identifyingand correcting errors in applications.

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Recommendation No. 1:

The Governors Energy Office should ensure that its procurement process forcompetitive and negotiated bids complies with federal regulations by makingaward decisions with full information and keeping accurate documentation tosupport its award decisions. Specifically, the Governors Energy Office shouldimplement procedures to:

a. Ensure all public hearings related to awards are held and public commentis considered prior to the issuance of letters or press releases announcingthe winning bidders.

b. Retain documentation of all discussions and meetings related to thenegotiated bid process for at least six years after the award has been made.

c. Ensure that all evaluations of bids are documented and that all supportingdocumentation, including scoring sheets, is accurate and consistent fordecision-making purposes.

d. Properly lock all spreadsheets used by bidders to prevent changes bybidders and enable accurate comparisons between the budgets of allbidders. Additionally, the Energy Office should train all evaluators onproper review practices to identify errors or omissions in applications.

Governors Energy Office Response:

The Energy Office has consistently employed, and continues to employ, aprocurement process that complies with federal regulation and that ensuresthat no contracts are executed with potential subgrantees prior to a publichearing and the completion of a public comment period. The U.S.Department of Energy has directed the Energy Office to identify theleading bidder prior to the public hearing so that the public has theinformation necessary to focus its comments and provide meaningfulfeedback. The U.S. Department of Energy regulations are unclear withrespect to the timing of award letters and notification to the media.

Although the Energy Office issued award letters and media notificationprior to the public hearing, no award is final until contract has been fullyexecuted and signed by the Office of the State Controller.

a. Agree. Implementation date: Implemented.

As directed by federal regulation [Section 10 CFR 440.14] the EnergyOffice must identify a list of all proposed subgrantees not less than ten

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(10) days prior to the public hearing. The Energy Office has nowclarified that the proposed subgrantee is referred to as a leading bidder and not a winning bidder consistent with these guidelinesand the recommendation in 1(a). The Energy Office improved itsRequest for Application (RFA) process for all WeatherizationProgram RFAs, beginning with the RFAs held in March and April2010. The process ensures that bidders participating in an RFA arenotified by the Energy Office after the first proposal review by theWeatherization Program RFA Evaluation Committee whether or notthey are a leading bidder prior to the public hearing notice beingissued; after final consideration of public comments received at thepublic hearing, the Weatherization Program RFA EvaluationCommittee then determines if the leading bidder is selected for theaward and entered into the award contracting phase; no press releasecan be issued until after the public hearing has taken place andconsideration of public comments are undertaken by theWeatherization Program RFA Evaluation Committee and a leading bidder is selected by the Weatherization Program RFA EvaluationCommittee to enter into the award contracting phase of the RFA. Itremains the policy of the Energy Office that no award is final until acontract is executed by the Office of the State Controller.

b. Agree. Implementation date: February 2011.

The Energy Office will retain Request for Application (RFA)documentation of all discussions and meetings held by the

Weatherization Program RFA Evaluation Committee for a period ofnot less than six (6) years after an award.

c. Agree. Implementation date: Implemented.

The Energy Office has and will continue to document the evaluation ofall bids submitted in a Request for Application (RFA) process. TheEnergy Office has the scoring sheets from the members of theWeatherization Program RFA Evaluation Committee reviewed by anindividual outside of the Weatherization Program RFA EvaluationCommittee to ensure accuracy of the scoring process and summary.

d. Agree. Implementation date: Implemented.

Beginning in 2010 the Energy Office now locks all proposalspreadsheet templates utilized by bidders in the Request forApplications (RFA) process so there can be no inadvertent altering ofthe calculations. In February 2010 the Energy Office enlisted theservices of an experienced weatherization program third party

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contractor to independently review the RFA spreadsheets used bypotential bidders in any future RFAs.

The Energy Office does conduct training for all members of aWeatherization RFA Evaluation Committee to provide a review of theRFA procedures that ensures the members of the committee areproperly prepared to review and discuss the proposals submitted by thebidders in the RFA. The Energy Office held a Weatherization RFAEvaluation Committee orientation meeting on March 10, 2010, for themost recent 2010 RFA.

Service Prioritization

As stated earlier, the Weatherization Programs mission is to reduce energy costsfor low-income residents. Because the need for services typically has outpacedthe funding available to provide services, federal regulations specify that statesmust have an established method to prioritize weatherization services for variousidentified groups that are considered to be at the greatest risk and have thegreatest need to reduce their energy costs. Federal regulations define these groupswith the greatest need to include the elderly and disabled, high energy users,households with a high energy burden, and families with young children. Statesare allowed the flexibility to determine which of these high-priority groups toserve first and in what order. Currently the program has access to a large influxof Recovery Act monies and, as a result, the program can more easily ensure thateveryone in need receives services within a relatively short period of time withoutprioritization. However after March 2012, when Recovery Act monies are nolonger available to provide additional support, the Weatherization Program shouldbe positioned to ensure that its high-priority service populations receive servicesfirst with the limited money available.

The Energy Office has established policies and procedures that allow localagencies some flexibility in determining service priorities. The policies specifythat the most important priorities are the elderly, the disabled, and those most inneed (as defined by the local agency). The Energy Office policy also encouragesthe local agencies to prioritize waitlists toward applicants with health and safety

emergencies as well as toward those households with the greatest potential forreducing energy consumption. The policy further states that a first come, firstserved priority policy is not acceptable.

Every local agency has a waitlist that includes a list of interested and eligibleapplicants whom the local agency has yet to serve. Waitlist lengths vary byregion and time period. With the Recovery Act funding, the Energy Office andlocal agencies anticipated that they would exhaust their waitlists and would not

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have enough identified households to meet their promised service goals; thus,they began recruiting additional clients through the Low-Income EnergyAssistance Program. The Energy Office reports that it nearly tripled its statewidewaitlist numbers of interested and eligible applicants, and as of February 2010 theaverage wait time for services statewide was about two and a half months.Despite the significant increase in applicants waiting for services, the EnergyOffice is currently recruiting additional households in order to ensure that it meetsits goals for the number of homes weatherized in Fiscal Year 2011.

We reviewed the prioritization policies and procedures at the Energy Office and atthe four local agencies we visited to determine whether these agencies had aprioritization methodology in place and whether that methodology was ensuringthat the highest-need clients are served first. We found that all four agencieslacked written policies outlining their methodologies for prioritizing clients.Further, three of the four agencies reported that, in practice, they do not prioritizeclients or serve them in order of greatest need.

We determined that local agencies are not prioritizing clients as required because,although the Energy Office has a policy that gives the responsibility forprioritizing clients to the local agencies, the Energy Office has not ensuredthrough its monitoring and oversight efforts that local agencies have implementedmethodologies for prioritizing those most in need of services. The Energy Officereported that it does review for prioritization during its oversight visits;nonetheless, the Energy Office was not aware that some of the local agencieswere not prioritizing services as required.

Although there may be sufficient weatherization funding available with the influxof Recovery Act monies to meet the current demand, the Energy Office needs toprepare local agencies to manage service delivery in a more targeted manner oncethis temporary funding is no longer available. To ensure that limitedweatherization monies are being spent to effectively serve those most in need ofweatherization services, the Energy Office should revise its policy to require localagencies to annually submit a prioritization plan to the Energy Office that outlineswhich of the federally accepted categories the local agency plans to prioritize andthe order in which high-priority groups will be served. The Energy Office shouldthen confirm that services are being prioritized in accordance with theprioritization plan during monitoring and oversight visits.

Recommendation No. 2:

The Governors Energy Office should ensure that local agencies prioritizeweatherization services toward the neediest clients as defined under federalregulations. Specifically, the Governors Energy Office should:

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a. Require local agencies to submit a prioritization plan annually thatspecifies which federally accepted categories will be prioritized, the orderof prioritization, and the method the agency will use to make certain thatthose categories of applicants are served before other categories.

b. Confirm that local agencies are prioritizing service delivery in accordancewith their plans during monitoring and oversight visits.

Governors Energy Office Response:

a. Agree. Implementation date: July 2011.The Energy Office will revise its Weatherization Program Policy 301.4to require all local agencies to prepare and submit an annual

prioritization plan identifying how they will adhere to prioritizationof eligible applicants.

b. Agree. Implementation date: July 2011.The Energy Offices administrative monitoring process will be revisedto include any revisions to Weatherization Program Policy 301.4,discussed above.

Quality AssuranceThe Energy Office is responsible for performing effective oversight of theWeatherization Program and ensuring that the weatherization work conducted bythe local agencies and their contractors is of high quality, in compliance with allrules and regulations, and installed in a manner that is safe for the residents. Toaccomplish this, the Energy Office must have comprehensive monitoringprocedures to evaluate the work completed by local agencies and take remedialaction when local agencies do not comply with requirements. The U.S.Department of Energy requires that all weatherization programs ensure thatquality services are provided by having a comprehensive monitoring plan in place

as part of each programs State Plan. The monitoring plan must outline theprograms strategies for monitoring and measuring performance, including:

Required monitoring visits to each local agency at least once per year todetermine compliance with federal administrative and fiscal requirementsand state policies and guidelines.

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Confirmation during monitoring visits that quality controls over thedelivery of weatherization services are in place at the local agencies. Thisincludes confirming that local agencies are conducting adequate

inspections of their own weatherization work to ensure the work is of highquality and complies with federal standards.

Annual state-level inspections of at least 5 percent of all of the homesweatherized statewide to ensure that services provided adhere to federalstandards.

We reviewed the Energy Offices practices for complying with federal monitoringrequirements and found that the Energy Office conducts monitoring reviews ateach local agency bi-annually and that these reviews are generally adequate toensure compliance with federal and state requirements and to confirm theexistence of quality control systems over the delivery of weatherization services.Additionally, we found that the Energy Office is conducting state-levelinspections on at least 5 percent of all the dwellings weatherized statewide, asrequired by federal standards. According to Energy Office records, during FiscalYear 2010 the Energy Office conducted quality assurance reviews on 1,193weatherized dwellings, or 16 percent of the total 7,440 homes weatherizedstatewide. However, we found two concerns with the Energy Offices qualityassurance process: (1) the Energy Office does not prohibit local agency inspectorsfrom inspecting their own work, and (2) the Energy Office allows local agenciesto select the sample of homes that the Energy Office reviews for qualityassurance. We discuss these issues in the next two sections.

Local Agency Inspections

It is important for local agencies to have adequate quality controls in place overthe delivery of weatherization services for two reasons. First, local agencies mustensure that the weatherization work is performed competently in order to producethe intended savings in energy costs once the services are complete. Second,local agencies must ensure that weatherization services are installed in a mannerthat is safe for the residents. Without these quality controls, there is no assurancethat the services provided accomplish those goals.

The local agencies inspect the weatherization services they provide frombeginning to end. First, the local agency inspectors review the energy auditconducted to ensure that the energy auditor did not fail to recommend neededservices that would qualify under the cost-effectiveness requirement. To makethis determination, the inspector typically conducts a second energy audit thatserves as a review of the first. Second, the inspector reviews all of the work doneon the home to ensure that everything identified in the energy audit was providedand that the work complies with federal standards. This includes: (1) using an

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infrared camera to look into walls and ensure the proper amount of insulation wasblown in; (2) going into any crawl spaces and other accessible areas to ensure thatthe proper amount of insulation was blown into the space and that therequirements for installing any vapor barriers were met; and (3) reviewing anyappliances installed to ensure that they were installed properly and, in the case offurnaces, that no leaks are present. If any deficiencies are found, the inspectorsask the workers to return to the house and correct the problems before signing offon the work.

We reviewed 45 project files at four local agencies to evaluate the quality controlsin place over the delivery of weatherization services. For six of the 45 dwellingswe reviewed, or 13 percent, we found that the local agency inspectors conductedsome of the weatherization work on the dwellings they later inspected. Thisrepresents a lack of segregation of duties because the same personnel are bothperforming the work and inspecting it for adherence to standards, which raisesconcerns about whether the local agencies inspections are reliable for ensuringquality of services. Further, for an additional 12 of the 45 dwellings, or 27percent, the agency did not track information about who conducted the work onthe home in the file. Therefore, the problems raised by lack of segregation ofduties could be more prevalent.

It is important for the Energy Office and local agencies to ensure that the personwho inspects the weatherization work is not the same person who performed theweatherization service. By segregating these duties, local agencies will be morelikely to identify problems and address them, preventing consequences that couldbe potentially serious. We spoke to representatives of four weatherizationprograms in other states. Three of the four weatherization programs hadstatewide policies that require segregation of duties between the workersperforming weatherization work and those inspecting the work. The fourth state,which did not have a formal policy related to segregation of duties, reported that itmonitored for any overlap of these duties.

Since the Energy Office is only required to conduct state-level inspections on 5percent of the dwellings weatherized statewide, the local-level inspections arevital to ensure that the work conducted by the local agencies is in accordance withfederal guidance and is of high quality and that residents are safe after work iscompleted. To address these concerns, the Energy Office needs to develop a

policy to ensure that work is inspected only by qualified inspectors who did notperform the work and that local agencies are adhering to the policy.

State-Level Inspections

As mentioned earlier, federal regulation requires the Energy Office to inspect atleast 5 percent of the homes weatherized in the state annually. This requirement

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is in place to further ensure that weatherization work is complete and of highquality and to verify that the local agency inspection process is adequate. State-level inspections are typically the only third-party reviews that occur. Thesereviews provide the local agencies with performance feedback and can help theEnergy Office staff identify areas in which they need to train local agencies orimprove the provision of weatherization services.

The state-level quality assurance process is accomplished in much the same wayas the local inspection process. The Energy Office has staff members who aretrained as inspectors and who review a sample of homes weatherized in eachregion annually. The state-level inspectors begin by conducting a second energyaudit to ensure that all of the services that the dwelling is eligible for under thecost-effectiveness requirements were provided. Then the state-level inspectorsreview all of the weatherization services installed to ensure that they comply withfederal standards. State-level inspectors also use infrared cameras to inspectinsulation, and they review the installation of appliances in the same manner asthe local inspectors. At the end of each state-level quality assurance review, theEnergy Office provides the local agency a report that includes its findings. If thestate-level inspectors find problems with the services provided, they require thelocal agency to redo the work. Additionally, if the state-level inspectors identifymajor problems or a significant number of problems, the Energy Office maydetermine that the overall quality of the work performed by the local agency is ofconcern. In that case, the Energy Office will put the local agency on specialconditions, which are similar to a corrective action plan.

We reviewed the process the Energy Office uses to select homes for inspection aspart of the 5 percent inspection requirement. Although Energy Office policiesstate that Energy Office staff will notify [local agencies] in advance of whichunits are to be inspected, we found that the Energy Office does not select thehomes it inspects. Two of the four local agencies we visited reported that theEnergy Office allows them to select the dwellings that the Energy Office reviewsduring its monitoring visits.

To effectively monitor local agency work, the Energy Office must randomlyselect the dwellings it chooses to review. By not independently selecting arandom sample of completed weatherized dwellings for quality assurancereviews, the Energy Office increases the risk for substandard work. Additionally,

by not selecting its own sample, the Energy Office increases the risk that fraud orabuse could occur at the local agency and go undetected. For example, localagencies could perform inadequate work or not perform the work at all on somehomes and still request reimbursement, if the local agencies believe they candirect the Energy Office to inspect other homes without deficiencies.

Quality assurance reviews are a critical tool for identifying problems with

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