For the next two decades, state and local governments will receive tens of billions of dollars in opioid settlement funds from companies deemed to have played a role in the opioid epidemic. The use of these funds is supposed to be restricted to a range of activities intended to combat opioid addiction. Governments have used the funds either to provide overdose-prevention and harm-reduction initiatives directly or to contract with for-profit and nonprofit organizations to deliver these services.
But governments have also directed portions of the funds toward budget backfilling and unrelated expenditures, including public events, law enforcement equipment, and other miscellaneous projects, raising concerns that settlement dollars are not consistently used for evidence-based responses to the opioid crisis.
While many states review an organization’s finances before awarding grants from their opioid settlement funds, most lack a rigorous post-hoc audit to examine how the funds were actually spent. This gap creates a risk of misuse.
Unlike recipients of federal grants, organizations receiving opioid settlement funds are not automatically subject to standardized audit requirements unless state law specifically mandates them. Recipients of more than $1 million in federal funding must complete a federal Single Audit, which includes an independent review of financial statements and transaction testing to determine whether funds were used for their intended purpose. Audits do not eliminate misuse on their own and still depend on agencies to respond to findings, but they provide a baseline for transparency and accountability. In contrast, many opioid settlement grants are distributed without any comparable reporting structure.
Reason Foundation’s new model legislation extends the single audit framework to opioid settlement fund recipients at the state level. It does not create a new oversight structure; rather, it provides language that can help states plug settlement funds into an existing system widely understood by governments, auditors, and service providers. It also provides significant flexibility for small grantees: Recipients of less than $1 million can satisfy their reporting requirements by providing an unaudited accounting of the use of funds, so long as it includes sufficient line-item detail for state agencies to determine whether grant funds were used consistently with the grant’s purpose.
Key points:
- The model establishes two reporting tiers based on the federal single audit threshold. This threshold is currently $1 million, but changes periodically. The model would automatically adjust for any changes in the federal threshold by referencing the relevant federal statute (2 CFR 200.501(a)). Recipients that receive less than $1 million in opioid settlement funds in a fiscal year have simpler reporting requirements, while those that receive $1 million or more must undergo an independent financial audit.
- Level I: Recipients and subrecipients that receive less than $1 million in opioid settlement funds during a fiscal year must submit an annual certification of allowable use, basic financial documentation (including bank statements, reconciliations, and general ledger records), and a report on activities and performance measures specified in their grant agreements.
- Level II: Recipients and subrecipients that receive $1 million or more in opioid settlement funds during a fiscal year must complete a single audit or program-specific audit conducted in accordance with Generally Accepted Government Auditing Standards or submit an equivalent federally required audit covering the same funds.
- All recipients and subrecipients, regardless of funding level, must segregate and document settlement funds through clearly separated ledger entries to ensure traceability and prevent commingling. A recipient or subrecipient may also use a dedicated bank account for these funds.
- Financial reports must be submitted within three months of the end of the recipient’s fiscal year, and required audits must be submitted within nine months, ensuring timely post-hoc oversight.
- All recipients and subrecipients must report on activities and accomplishments funded by the grants, including any performance measures specified in their contracts.
- Audit costs can be charged to opioid settlement awards when conducted in compliance with the statute.
- If a recipient or subrecipient fails to comply with the reporting requirements or is found to have used funds for purposes substantially different from those specified in the grant, the organization and any individuals exercising control over it become ineligible for future state grants or contracts. In addition, those responsible may be held civilly liable for restitution, requiring repayment of the misused funds.