By Shaina Cole | Contributing Writer, Rocky Mountain Voice
Colorado wanted more control over its share of federal pandemic aid before the money hit its federal spending deadlines. So in 2024, the state moved it. It pulled hundreds of millions in American Rescue Plan money back out of four state programs, three of them tied to housing and homelessness, and replaced it with state general funds, so it could spend the federal dollars elsewhere before the deadlines ran out.
Then the Department of Local Affairs set those funds up in the state’s accounting system as if they were still federal.
Every time the department spent a state dollar out of the four programs, the system automatically booked a federal reimbursement that was never coming. By the end of the fiscal year the department had recorded $158.5 million in federal money owed to Colorado that did not exist.
The Statewide Single Audit for the fiscal year ended June 30, 2025, released in February by the Office of the State Auditor, classifies the error as a material weakness, the most serious level of internal control failure an auditor can assign. It is one of three material weaknesses the audit pins on a single department.
The money it talks about most
Three of the four are housing and homelessness programs the Polis administration has repeatedly put on the front of its press releases.
The largest share of the error, $81.0 million, sat in the Transformational Affordable Housing Fund, which provides below-market financing to affordable housing developers. Another $47.6 million was in the Connecting Coloradans Experiencing Homelessness with Services Housing Fund. The Regional Navigation Campus Cash Fund accounted for $24.6 million, and the Economic Recovery and Relief Cash Fund for $5.3 million.
The three funds tied to housing and homelessness held $153.2 million of the bad receivables, or 97 percent of the total. That includes the regional navigation campuses, which the audit describes as built “to respond to and prevent homelessness.” Only the $5.3 million Economic Recovery and Relief Cash Fund fell outside the category.
Those are the priorities the administration returns to again and again. DOLA Executive Director Maria De Cambra, announcing $35 million in grants, said making housing more affordable “remains a top priority for Governor Polis.” The state has distributed more than $52 million for regional navigation campuses, with the governor’s name on the release each time. Those are the programs that accounted for all but $5.3 million of the accounting error.
Where the funds came from
The error only makes sense once you know how these funds were built.
All four were created out of federal State and Local Fiscal Recovery Funds, the direct-aid pot from the American Rescue Plan Act of 2021. Under House Bill 24-1466, passed in 2024, the state “refinanced” those funds. It moved the federal dollars back out of the programs and moved state general funds in to take their place. The audit describes the result plainly, saying the four funds were “converted, or ‘refinanced,’ as State general funds.”
The swap changed the money’s source from federal to state, letting Colorado spend the freed-up federal dollars before Washington’s deadlines. It did not turn the programs loose. The bill’s own text says the act “does not change the requirements, timelines, or spending deadlines for any program.” The dollars were no longer federal, but the programs did not simply shed their existing restrictions.
Which is what makes the accounting failure hard to wave off. The department set up state-funded programs in the Colorado Operations Resource Engine, the state’s accounting system, as federally-reimbursable grants. The audit says staff “improperly set up the funds as federally-reimbursable grants in CORE, which resulted in the automatic posting of federal revenue and receivables when expenditures for the four programs were recorded in CORE.” The system was told to expect federal money on funds the state had deliberately converted into general funds.
It ran that way for months. The audit found the department “failed to review the associated accounts receivable balances throughout the year,” so nobody caught the growing pile of imaginary federal receivables until the auditors arrived.
Caught, then corrected
The $158.5 million never reached the state’s published financial statements. The auditors flagged it, and the department fixed it. “The Department corrected these errors after we notified them of the issues we identified,” the audit says. Colorado’s overall financial statements earned a clean opinion for the year.
That is the department’s defense, and it is a real one. It is also the problem. The error was not caught by a supervisor, a reconciliation, or a year-end review inside DOLA. It was caught by outside auditors testing the books after the fact. The department agreed with all three parts of the auditor’s recommendation and set an April 2026 date to build the supervisory reviews and coding controls that would have stopped it. In its written response, DOLA said it will implement procedures “to standardize the process for establishing master data elements” in CORE and train staff to set funds up correctly going forward.
The fix is an admission of what was missing. There had been no standard process for setting the funds up, and no supervisory review of the receivable balances they generated.
Not the only finding
The homelessness money is the largest of DOLA’s problems in this audit. It is not the only one.
The auditors also cited the department for a material weakness on the federal side, for its handling of the Community Development Block Grant program. DOLA could not tie the disbursement figures it reported to the federal government back to its own accounting records, including $21.7 million in reported disbursements on one report that auditors could not reconcile to the department’s books. And it filed four of seven required federal transparency reports late, submitting them in October 2025, after the fiscal year had closed. Some were out of compliance by as much as 14 months. The department told auditors the delay came from technical difficulties when the federal government switched its reporting system from FSRS to SAM.gov on March 8, 2025.
A third material weakness involved the Coronavirus Capital Projects Fund, more pandemic money. The department recorded a single expenditure of $3,266,662 twice, overstating both revenue and expenditures by that amount, and carried the double-count onto a federal schedule.
Three material weaknesses. Two of the three sit on federal pandemic dollars. The through-line is a department that has struggled, repeatedly, to keep an accurate count of the federal and pandemic-era money moving through its programs.
The wider ledger
DOLA is not alone. The audit identified 61 material weaknesses across 14 state departments and higher education institutions for the year. The Office of the State Controller missed the statutory deadline to close the state’s books, and $22.5 billion in transactions for state entities were recorded in the accounting system after the cutoff. The Department of Labor and Employment needed $10.6 billion in accounting adjustments to fix its unemployment insurance estimates.
Against that backdrop, a $158.5 million misposting that got corrected can look almost routine. In a year when the state’s financial controls generated dozens of the most serious findings an auditor can issue, the department in charge of Colorado’s signature housing and homelessness spending recorded nine figures of federal money that did not exist, on funds the state itself had switched from federal to state funding, and did not notice until someone else looked.